As filed with the Securities and Exchange Commission on February _, 2000
Registration Statement No. 333-91005
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CADAPULT GRAPHIC SYSTEMS, INC.
(Name of small business issuer in its charter)
Delaware 5045 84-0475073
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(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
110 Commerce Drive
Allendale, New Jersey 07401
(201) 236-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael W. Levin
Chief Executive Officer and President
Cadapult Graphic Systems, Inc.
110 Commerce Drive
Allendale, New Jersey 07401
(201) 236-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of communications to:
Dan Brecher, Esq.
Law Offices of Dan Brecher
99 Park Avenue, 16th Floor
New York New York 10016
(212) 286-0747
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If 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, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Title of each class Dollar Maximum Maximum Amount of
of securities Amount to be Offering Price Aggregate Registration
to Be Registered Registered Per Unit(1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
common stock, par value
$.001 per share........ 771,750 $2.32 $1,790,460 $497.75
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</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act solely for
purposes of calculating the Registration Fee. The fee is based upon
the average of the bid and ask price for shares of common stock of the
registrant, $2.375 and $2.25, respectively, reported on the OTC
Bulletin Board on October 1, 1999.
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 the registration
statement shall become effective on such date as the Commission acting
pursuant to said Section 8(a), may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY _, 2000
PROSPECTUS
Cadapult Graphic Systems, Inc.
771,750 shares of common stock
This prospectus relates only to the resale of 771,750 shares of common
stock of Cadapult Graphic Systems, Inc., a Delaware corporation, which may
be offered and sold, from time to time, by certain of our stockholders. We
will not receive any of the proceeds from the sale of the shares of common
stock by the selling stockholders.
The selling stockholders may from time to time sell their shares of
common stock to or through one or more underwriters, directly to other
purchasers or through agents, on the OTC Bulletin Board in ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale, at prices related to the then-prevailing
market price or at negotiated prices.
Our common stock is quoted on the OTC Bulletin Board under the
symbol "GRFX".
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in this Prospectus. Any
representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed.
The selling stockholders may not sell these securities 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 a
solicitation of an offer to buy these securities in any state where the offer
or sale is not permitted.
The date of this Prospectus is February _, 2000.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 4
We operated at a loss in 1999 and may not be profitable or generate
cash from operations in the future 4
We have a credit line with Summit Commercial who holds a security
interest on most of our assets 4
As a reseller of computer graphics products, our business is
dependent on vendors and suppliers 5
We commenced a lawsuit against Tektronix, Inc. and may incur
substantial costs as a result of this litigation 5
We operate in a competitive computer graphics market which is
facing shrinking margins and in the printer ink market which is
dominated by one company 5
Our recent growth is based on acquisitions, and because we intend
to acquire additional computer graphics companies, we may make
poor investments or acquisitions that are not compatible with
our existing business or successful 6
Because we are dependent on computer systems, a systems failure or
security failure could cause a significant disruption to our
business 7
Our eCadapult services will not be successful unless more people
use the internet to evaluate products and services 7
We may be liable for the material our customers distribute over
the Internet 7
Michael Levin, our principal stockholder, controls our company 8
Our common stock does not trade actively and may be subject to
great price volatility as more shares of common stock become
freely tradable 8
We have authorized a class of preferred stock which may alter
the rights of common stock holders 9
We have issued series A preferred stock which affects the rights
of, and dilute, common stock holders 9
Our sale of series A preferred stock that are convertible into
common stock at below the market price of our common stock will
have a dilutive impact on our stockholders 10
As holders of series A preferred stock convert and sell their
common stock, the market price of our common stock may decline,
which may change the conversion price and permit them to convert
into a greater number of shares of common stock which could
further decrease the market price 10
The decrease in the price of our common stock as holders of series
A preferred stock convert could encourage short sales, which
could result in further reductions in the price of our common
stock 11
We do not know the precise number of common stock shares issuable
upon conversion of the series A preferred stock because the
conversion price is linked to the future market price of our
common stock 11
Penny stock regulation 11
Use of Proceeds 12
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 13
About Us 19
Our Management 31
Executive Compensation 33
Ownership of Securities 39
Certain Relationships and Related Transactions 40
Selling Stockholders 42
Plan of Distribution 49
Our Securities 51
Legal Matters 53
Experts 53
Indemnification 54
Where You Can Find More Information 54
Index to Financial Statements 55
-2-
<PAGE>
PROSPECTUS SUMMARY
OUR BUSINESS
We provide computer graphics systems, peripherals, supplies and service
to visual communicators and graphics professionals. We operate through three
business units: Reseller Operations, eCadapult and Media Sciences. We are a
leading supplier of computer graphics solutions in the Northeast United
States. Through eCadapult, we provide value added services to the creative
graphics community over the Internet. In June 1999, we launched
SamplePrint.com, a one-stop evaluation resource for buyers of color printing
technology. We intend to offer two new e-commerce services in early 2000,
Cadapult Storefront and GraphicSmart.com, through which customers can purchase
supplies and products from us directly over the Internet. Through Media
Sciences, we are a manufacturer of color solid ink and refiller of color toner
cartridges for graphics printers.
We are a Delaware corporation. Our principal corporate office is
located at 110 Commerce Drive, Allendale, New Jersey 07401. Our telephone
number is (201) 236-1100.
THE OFFERING
Total shares outstanding 3,197,775 shares of common stock
416,000 shares of series A preferred stock
Common stock offered for resale
to the public 771,750 shares of common stock
Price per share of common stock
to the public Market price at the time of resale
Proceeds from offering We will not receive any of the
proceeds from the sale of the shares
of common stock offered by the
selling stockholders.
Trading Symbol for common stock GRFX
-3-
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making
an investment. Although the factors identified below are important factors,
those are not the only ones facing us. If any of the following risks
occurs, our actual results could differ significantly, and the
trading price of our common stock could decline, and you may lose all or part
of your investment. You should also keep these risk factors in mind when you
read forward-looking statements. We have identified all of the material
risks which we believe may affect our business and the principal ways in which
we anticipate that they may affect our business or financial condition.
WE OPERATED AT A LOSS IN 1999 AND MAY NOT BE PROFITABLE OR GENERATE CASH FROM
OPERATIONS IN THE FUTURE.
We may incur operating losses and net losses for the near term as we
incur additional costs associated with the development of our Internet-based
services and our Media Sciences division, entry into new markets, and the
expansion of our administrative, operational, marketing and sales
organizations. We operated at a loss for our fiscal year ended April 30,
1998. We generated gross sales of $10,227,628 for the one year period ended
June 30, 1999, representing an increase of 44% over the one year period ended
April 30, 1998. In June 1998, we elected to change our fiscal year end to
June 30. For the one year period ended June 30, 1999, we incurred a net loss
of $444,374 or $0.16 per share as compared to a net loss of $219,242 or $0.14
per share, for the one year period ended April 30, 1998. We expect our
expenses to increase as we expand our business to include Internet-based
series and our Media Sciences division. We do not know how much capital we
will need to develop these services and products. We cannot assure you that
our revenues will increase as a result of our increased spending. If
revenues grow more slowly than we anticipate, or if operating expenses exceed
our expectations, we may not become profitable. Even if we become
profitable, we may be unable to sustain our profitability.
WE HAVE A CREDIT LINE WITH SUMMIT COMMERCIAL WHO HOLDS A SECURITY INTEREST ON
MOST OF OUR ASSETS.
We have a $6,000,000 revolving line of credit with Summit
Commercial/Gibraltar. Under the line of credit, the available credit is 50%
of eligible inventory, which available credit cannot exceed $1,000,000 plus
85% of eligible receivables. Borrowings bear interest at 2% over the lender's
base rate, are payable on demand, and are collateralized by all of our assets.
As of June 30, 1999, we had used $1,677,024 of this line. As of December 31,
1999, the total available credit was $1,548,848 and we had used $1,325,165.
Michael W. Levin, our President and principal stockholder, has personally
guaranteed up to $500,000 of our indebtedness under the revolving line of
credit. He has no obligation to furnish his guaranty in connection with any
extension of our line of credit or any of our future financing needs. We
may not be able to repay our outstanding indebtedness under the credit line.
If we do not have sufficient cash flow to repay the credit or cannot refinance
the obligation, we will not be able to implement our business plan, which
would have a material adverse affect on our future viability. Substantially
all of our assets are subject to security interests held by Summit
Commercial/Gibraltar and a major supplier. Unless the security interests are
released, assets will not be available to us to secure future indebtedness,
which may adversely affect our ability to borrow in the future. In the event
of default under our obligations, either of the secured creditors may
foreclose on our assets.
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<PAGE>
AS A RESELLER OF COMPUTER GRAPHICS PRODUCTS, OUR BUSINESS IS DEPENDENT ON
VENDORS AND SUPPLIERS.
We are a value added dealer or value added reseller of computer
graphics equipment and supplies. We depend vendors and
suppliers of computer graphics equipment and supplies to provide us with
products for resell. We obtain computer graphics products from several
suppliers. Our principal supplier is Tektronix, Inc. We derived 45% of our
fiscal year 1999 revenues from sales and services of Tektronix products.
Although we also sell products supplied by Mita Corporation, Access Graphics,
Ricoh, Alias, Merisel, Ingram, and Tekgraf, each of these suppliers account
for substantially less than 10% of our revenues annually. The loss of
Tektronix, Inc. as a supplier would have a significant impact on our
business operations.
WE COMMENCED A LAWSUIT AGAINST TEKTRONIX, INC. AND MAY INCUR SUBSTANTIAL
COSTS AS A RESULT OF THIS LITIGATION.
In August 1999, we began an action against Tektronix, Inc. before the
United States District Court for the District of New Jersey, seeking certain
injunctive relief and an indeterminate amount of damages because Tektronix
terminated that part of our agreement with Tektronix that is our Tektronix
Premier Plus Reseller franchise. In the lawsuit, we alleged that Tektronix
violated the New Jersey Franchise Practices Act, the New Jersey Antitrust
Act, federal acts prohibiting restraints of trade, breach of contract and
unfair competition, among other claims. We derived 45% of our fiscal year
1999 revenues from sales and services of Tektronix products, including
revenues from the Tektronix Premier Plus Reseller franchise. Although the
Tektronix Premier Plus Reseller franchise accounted for only about $80,000 of
our gross profit margin based on historical sales, which represented less
than 3% of our overall gross profit margin. The lawsuit has only recently
commenced and may not be resolved in the near future. Our request for
injunctive relief was denied. Tektronix has motioned to transfer the
lawsuit to Oregon. Although we do not believe that the loss of the lawsuit
would materially impact our business operations based on historical sales,
the reseller franchise provides us with business leads and promotion of our
services which cannot be quantified; therefore, we do not know and cannot
predict whether the loss of all or a part of the lawsuit will have a
material adverse affect on our future business operations.
WE OPERATE IN A COMPETITIVE COMPUTER GRAPHICS MARKET WHICH IS FACING
SHRINKING MARGINS AND IN THE PRINTER INK MARKET WHICH IS DOMINATED BY
ONE COMPANY.
We face intense competition in all of our businesses. We have numerous
competitors, including some large corporations and smaller specialized
businesses. In reseller operations, our primary competitors include
Professional Graphics Systems and Services, Charrette and Internet-based
resellers. We believe that the computer graphics industry is going through a
consolidation that stems from shrinking margins. In the color printer supply
business, our primary competitor is Xerox Corp. which recently acquired
Tektronix' color printer business.
We intend to compete with Xerox, which now owns Tektronix' color printer
business, as a third party manufacturer of solid ink and color toners for
computer graphics printers. We are informed that Tektronix had controlled 97%
of the U.S. solid ink market for digital printers which essentially were only
Tektronix printers. In December 1999, we acquired ultraHue, the only third
party manufacturer of solid ink and color toner for Xerox color workgroup
printers. We seek to became a provider of alternative supplies for all
workgroup color printers. The printer ink market is a new business for us.
Although we have hired certain key employees of ultraHue, we did not have
prior experience in this market. We do not know if we can properly grow this
business and compete with Xerox.
Because we are significantly smaller than our national competitors, we
may lack the financial resources needed to capture increased market share.
To compete, we may have to spend considerable amounts of money to develop a
nationally known brand name and to develop service programs that customers
will prefer to those offered by our competitors. We are expanding our
business to include Internet-based operations and a printer ink supply
division. However, our competitors could choose to offer similar services,
and many of our existing competitors and potential new competitors have:
- longer operating histories;
- greater name recognition;
- larger customer bases;
- more and larger facilities; and
- significantly greater financial, technical and marketing
resources.
Because many of our competitors have national presence, we may find it
difficult to penetrate into certain geographical markets, and their financial
strength could prevent us from entering or capturing a competitive size of
those markets. Because of their resources and breadth of products and service
offering, our competitors may respond quickly to compete with our products
or new offerings. They may also devote greater resources than we can to the
development, promotion and sale of their products and services. They may
develop Internet products and services that are superior to or have greater
market acceptance than ours. Our competitors may also conduct more extensive
research and development, run more marketing campaigns, adopt more aggressive
pricing policies and provide more attractive services to our customers than
we do.
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<PAGE>
OUR RECENT GROWTH IS BASED ON ACQUISITIONS, AND BECAUSE WE INTEND TO ACQUIRE
ADDITIONAL COMPUTER GRAPHICS COMPANIES, WE MAY MAKE POOR INVESTMENTS OR
ACQUISITIONS THAT ARE NOT COMPATIBLE WITH OUR EXISTING BUSINESS OR SUCCESSFUL.
Our growth strategy has been based primarily on the acquisition of
other computer graphics resellers. If we do not have the cash flow from our
operations or if we cannot obtain the necessary financing, we will not have
the ability to grow by acquiring other businesses. We have taken steps to
grow within the consolidating computer graphics industry. We currently
provide computer graphics services to commercial customers primarily in the
Northeast United States. In October 1996, we began our expansion plan by
opening a sales location in Boston, Massachusetts. In March 1998, we
acquired the assets of BBG Technologies, Inc., a computer graphics products
reseller in Boston, Massachusetts. In January 1999, we acquired the assets
of Tartan Technical, Inc., a computer graphics products reseller in
Massachusetts. In June 1999, we acquired the assets of WEB Associates, Inc.,
a computer graphics products reseller in Pennsylvania. We intend to acquire
additional computer graphics businesses in the Northeast United States and in
other regions of the United States. The success of our reseller operations
will depend on our ability on how well we can integrate acquired the
operations and management of acquired reseller businesses. If we fail to do
so, our operating margins will not improve.
Our acquisition strategy is not limited to the acquisition of computer
graphics resellers. In December 1999, we acquired the assets of ultraHue,
Inc., a manufacturer of solid printer ink headquartered in Washington. In
past years, we have operated primarily as a computer graphics products
reseller. With the acquisition of ultraHue, we are starting a new business
division involving the manufacture and sale of solid printer ink supplies. We
do not have prior experience in operating a printer ink supplies business. We
do not know if we can successfully grow and integrate ultraHue's business with
our reseller operations. We may incur significant expenses associated with
developing a new division not related to our core reseller operations.
We will continue to make investments in or acquire complementary
businesses, products, services or technologies. If we seek to make
investments or acquisitions, we will be subject to the following risks:
- We may not be able to identify suitable investment or acquisition
candidates.
- If the purchase price for an acquisition consists of cash, we may
need to use all or a large portion of our available cash.
- If we do identify suitable candidates, we may have to overpay to
complete the investments or acquisitions.
- Acquisitions may disruptour ongoing business, distract our
management and other resources and make it difficult to maintain
our standards, controls and procedures.
- We may not be able to successfully integrate the services, products
and personnel of any acquired business into our operations.
- We may not be able to retain key employees of the acquired companies
or maintain good relations with its customers or suppliers, especially
if the acquired business is regional and we did not previously conduct
business in that market.
- We may incur additional debt as we try to integrate the
acquired business and expand our operations to include their markets.
- We may have to acquire a significant amount of the liabilities of the
acquired business, including any pending or potential lawsuits.
- We may issue equity securities, which may be dilutive to existing
shareholders, to pay for acquisitions.
- We may incur significant accounting charges, such as for
goodwill or for acquired in-process research and development, which
may adversely affect our results of operations.
-6-
<PAGE>
BECAUSE WE ARE DEPENDENT ON COMPUTER SYSTEMS, A SYSTEMS FAILURE OR SECURITY
FAILURE COULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS.
Our eCadapult division depends on the efficient and uninterrupted
operation of our computer and communications hardware systems and
infrastructure. Interruptions could result from natural disasters as well as
power loss, telecommunications failure and similar events. Our
infrastructure may be vulnerable to physical or electronic break-ins, viruses
or similar problems. Our business, financial condition and results of
operations could be materially and adversely affected by any damage or
failure that interrupts or delays our operations.
OUR eCADAPULT SERVICES WILL NOT BE SUCCESSFUL UNLESS MORE PEOPLE USE THE
INTERNET TO EVALUATE PRODUCTS AND SERVICES.
Our eCadapult products and services are targeted toward Internet users.
We launched SamplePrint.com in the summer of 1999. SamplePrint.com is a web
site dedicated to helping business buyers evaluate color printer and copier
products over the Internet. Because a critical decision-making factor for
buyers of color printing and copying equipment is seeing how well their images
print from the products, SamplePrint.com allows any buyer to submit files over
the Internet which are then printed on a variety of printers.
If Internet usage does not grow or if customers do not use our
Internet-based services at the rates which we presently anticipate, our
business, financial condition and results of operations will be materially
and adversely affected.
The market for Internet products and services has only recently begun
to develop and is rapidly evolving. Significant technological changes could
render our existing and proposed Internet-based products and services out of
date. Although we are not aware of any immediate technological change, we may
need to spend more on research and development so that we can adapt to
changing markets by continually improving the responsiveness, functionality
and features of our products and services to meet the needs of the computer
graphics industry. If we cannot respond to technological advances and
conform to emerging industry standards in cost-effective and timely ways, we
will not be competitive and our business, financial condition and results of
operations will be materially and adversely affected.
WE MAY BE LIABLE FOR THE MATERIAL OUR CUSTOMERS DISTRIBUTE OVER THE INTERNET.
The law relating to the liability of online service providers, private
network operators and Internet service providers for information carried on
or disseminated through their networks is currently unsettled. We may become
subject to legal claims relating to the content in the web sites we host.
Claims could also involve matters such as defamation, invasion of privacy and
copyright infringement. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content of
material. If we have to take costly measures to reduce our exposure to these
risks, or are required to defend ourselves against such claims, our business,
financial condition and results of operations may be materially and
adversely affected.
-7-
<PAGE>
MICHAEL LEVIN, OUR PRINCIPAL STOCKHOLDER, CONTROLS OUR COMPANY.
Michael W. Levin, President, Chief Executive Officer, and Chairman of
the Board of Directors, is our single largest stockholders. He beneficially
owns about 49% of our outstanding shares of common stock. He founded our
predecessor, Cadapult Graphic Systems Inc. as a New Jersey corporation in 1987
and served as its President and Chairman of the Board of Directors from
inception until we acquired that company in 1998. He and the present
management have developed our growth strategies, and we need them to implement
our plans.
Our Certificate of Incorporation does not provide for cumulative voting.
Mr. Levin and the present management are in a position to elect all
of our directors, appoint its officers, and control our affairs
and operations.
Provisions of his employment agreement may discourage potential
acquisition proposals, delay or prevent a change in control, and discourage
proxy contests, and make it more difficult for you and other stockholders to
elect directors and take other corporate actions. If we undergo a "change of
control", we must pay him an amount equal to 290% of his salary. He has the
right to terminate his employment if we undergo a change in control. As
defined in his employment agreement, a change of control is:
- a change in our ownership or management that must be reported in
under the Exchange Act of 1934;
- the acquisition of 25% or more of our common stock or our
voting securities;
- a change in a majority of our Board of Directors that our Board
does not approve of or that results from a proxy contest;
- a reorganization, merger, consolidation or sale of substantially
all of our assets after which our shareholders do not own, in
the same proportion, more than 50% of the voting power, after
which a majority of the board of directors changes, and after
which a new shareholder beneficially owns 25% or more of the
voting power; or
- shareholder approval of our liquidation or dissolution.
OUR COMMON STOCK DOES NOT TRADE ACTIVELY AND MAY BE SUBJECT TO GREAT PRICE
VOLATILITY AS MORE SHARES OF COMMON STOCK BECOME FREELY TRADABLE.
There is a very limited market for our common stock. Because of our new
services which may generate substantial revenues and increased dilution
caused by our private placement and incentive based options granted to our
employees, we expect to encounter substantially more activity in trading in
our common stock and expect the market price of our common stock to be highly
volatile in the future.
We have outstanding 3,197,775 shares of common stock. This number
excludes 144,222 shares held in escrow for possible future issuance.
This number also excludes shares of common stock that we may grant under our
incentive stock option plan for employees of which only 19,214 shares of
common stock have been issued to date. This number also excludes about
865,000 shares of common stock that may be issued upon the
exercise of options and warrants outstanding. On June 18, 1999, up to
1,707,000 shares of common stock held by affiliates of Cadapult, including
our executive officers and directors, became eligible for sale under Rule
144, subject to volume limitations. As of August 14, 1999, an additional
524,000 shares of common stock, sold in a private placement conducted in
1998, became eligible for sale under Rule 144. As of October 13, 1999, about
580,517 shares of common stock were eligible for trading over the open
market, and about 2,487,790 of our total outstanding shares were restricted
from immediate resale but may be sold into the market in the near future. Up
to 771,750 of the restricted shares may be sold pursuant to this prospectus.
This could cause the market price of our common stock to drop significantly,
even if our business is doing well.
-8-
<PAGE>
WE HAVE AUTHORIZED A CLASS OF PREFERRED STOCK WHICH MAY ALTER THE RIGHTS
OF COMMON STOCK HOLDERS.
Our amended Certificate of Incorporation authorizes a class of
5,000,000 shares of preferred stock with such designation, rights
and preferences as may be determined from time to time by the Board of
Directors. The Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of common stock. In the event of issuance, the
preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of Cadapult.
We have filed a certificate of designation for a series of 1,000,000
shares of series A preferred stock. We may issue more shares of preferred
stock in the future which may have different designations, rights and
preferences than the series A preferred stock.
WE HAVE ISSUED SERIES A PREFERRED STOCK WHICH AFFECTS THE RIGHTS OF, AND
DILUTE, COMMON STOCK HOLDERS.
In October 1999, we commenced a private placement to raise capital of up
to $5,500,000 through the sale of units of series A preferred stock and
warrants to purchase common stock. The series A preferred stock bears a fixed
11.5% dividend per year, and it is convertible into shares of common stock.
For two years, each holder of series A preferred stock can convert one series
A preferred share into 3.077 shares of common stock. After each of two and
four years from the date of issuance, the conversion rate adjusts. At the
adjusted conversion rate, the number of shares of common stock received for
one share of preferred stock equals $10 divided by 75% of the average bid
price of our common stock during the 90 days preceding each of the two and
four year anniversary dates. For example, if the 90 day average bid price of
our common stock is $10 at the two year anniversary date, the conversion rate
adjusts to $10 divided by 75% of $10, so that a share of series A preferred
stock could be converted into 1.33 shares of common stock. However, if the 90
day average bid price of our common stock is $3.00 at the two year anniversary
date, the conversion rate adjusts to $10 divided by 75% of $3, so that a share
of series A preferred stock could be converted into 4.44 shares of common
stock. The maximum conversion rate is five shares of common stock for one
share of series A preferred stock. Each warrant is exercisable for 5 years
at $4.50 per share into one share of common stock. We are required to
register the shares of common stock into which the preferred stock would be
convertible and the warrants would be exercisable within 90 days following the
completion of the private placement. The more capital we raise from our
private placement, the more a common stock holder will be diluted.
We have agreed to file a registration statement for the resale of the
shares of common stock underlying the preferred stock and warrants within 90
days of the closing of the private placement. No sales of the registered
common stock can be made prior to October 1, 1999. As of February 3, 2000,
we sold 416,000 units of these securities.
We have not paid any cash dividends on our common stock and do not
expect to declare or pay any cash dividends in the near future. After paying
our preferred stockholders dividends, we intend to retain any future earnings
for use in our business.
We will not materially and adversely alter the rights of the series A
preferred stock without the consent of a majority of the series A preferred
stock holders. Under certain circumstances, we can redeem the shares of
series A preferred stock for $15 per share, plus all accrued and unpaid
dividends. If we liquidate, wind-up or dissolve, holders of series A
preferred stock are entitled to share in the distribution of our assets before
holders of other classes of our securities. We will pay to the holder, for
each share of series A preferred stock, the sum of $10 plus unpaid
dividends out of our available assets. Once paid, the holders of series A
preferred stock will have no right or claim to any of the remaining assets of
our company. If our assets are not enough to pay them, then the holders of
series A preferred stock shall share ratably in such distribution of assets.
-9-
<PAGE>
OUR SALE OF SERIES A PREFERRED STOCK THAT ARE CONVERTIBLE INTO COMMON STOCK
AT BELOW THE MARKET PRICE OF OUR COMMON STOCK WILL HAVE A DILUTIVE IMPACT ON
OUR STOCKHOLDERS.
We have 416,000 shares of series A preferred stock outstanding. The
series A preferred stock is convertible into shares of our common stock.
Conversion will have a dilutive impact on our common stock holders. The
series A preferred stock is currently convertible into common stock at a
conversion price of $3.25 per share. At the two and four year anniversary
dates of issuance, the conversion price adjusts to a discount to the then-
prevailing market price of our common stock. The conversion price adjusts
to 75% of the 90 day average bid price of our common stock. The maximum
conversion rate is set at $2 per share.
The table below illustrates how the conversion feature would work for
one share of series A preferred stock into shares of common stock after each
of the two and four year anniversary dates of issuance.
90 Day 75% of Calculated Shares of
Average Average Conversion Rate Common Stock
Bid Bid ($10 divided by 75% Issued At
Price Price of Average Bid Price) Conversion
- --------------------------------------------------------------
$ 2.00 $1.50 6.67 5.00
$ 2.67 $2.00 5.00 5.00
$ 3.00 $2.25 4.44 4.44
$10.00 $7.50 1.33 1.33
You should note that if the 90 day average bid price of our common stock is
$2.67 or lower, the maximum conversion rate applies. If the 90 day average
bid price of our common stock is $2, instead of conversion at the rate
determined $10 divided by 75% of $2, which would compute to 6.67 shares of
common stock for one share of series A preferred stock, a maximum of five
shares of common stock would be issued.
At the current conversion price of one share of series A preferred stock
into 3.077 shares of common stock, we will issue about 1,280,032 shares of
common stock if all the outstanding series A preferred stock are converted.
At the maximum conversion rate, we will issue up to 2,080,000 shares of
common stock upon the conversion of the outstanding series A preferred stock.
We have agreed to file a registration statement for the resale of the shares
of common stock underlying the series A preferred stock which may be resold in
the public market after October 1, 2000.
The conversion of series A preferred stock into shares of common stock
could cause the market price of our common stock to drop significantly.
Because the adjusted conversion price will be substantially below the market
value of our common stock, we expect the holders of series A preferred stock
to ultimately convert all of their preferred stock and sell the common stock.
As a result, our income per share could be materially and adversely affected.
AS HOLDERS OF SERIES A PREFERRED STOCK CONVERT AND SELL THEIR COMMON STOCK,
THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE, WHICH MAY CHANGE THE
CONVERSION PRICE AND PERMIT THEM TO CONVERT INTO A GREATER NUMBER OF SHARES OF
COMMON STOCK WHICH COULD FURTHER DECREASE THE MARKET PRICE.
As the holders of series A preferred stock convert and sell their shares
of common stock, the market price of our common stock could decline and lower
the adjusted conversion price at the 2 year and 4 year anniversary dates of
issuance. That would permit the selling stockholder to convert their series A
preferred stock into a greater number of shares of common stock. As more
series A preferred stock are converted into common stock and sold, a further
downward pressure on the price of the common stock is likely to occur. This
downward pressure on the common stock is likely to occur until substantially
all of the series A preferred stock are converted and sold.
-10-
<PAGE>
THE DECREASE IN THE PRICE OF OUR COMMON STOCK AS HOLDERS OF SERIES A PREFERRED
STOCK CONVERT COULD ENCOURAGE SHORT SALES, WHICH COULD RESULT IN FURTHER
REDUCTIONS IN THE PRICE OF OUR COMMON STOCK.
As holders of series A preferred stock elect to convert and sell the
common stock, the downward pressure on the price of the common stock could
cause further reductions in the market price of our common stock. Downward
pressure on the price of our common stock could encourage short sales of the
common stock by the selling stockholder or by other stockholders. Material
amounts of short selling could place further downward pressure on the market
price of the common stock. A short sale is a sale of stock that is not owned
by the seller. The seller borrows the stock for delivery at the time of the
short sale, and buys back the stock when it is necessary to return the
borrowed shares. If the price of the common stock declines between the time
the seller sells the common stock and the time the seller subsequently
repurchases the common stock, the seller may realize a profit.
WE DO NOT KNOW THE PRECISE NUMBER OF COMMON STOCK SHARES ISSUABLE UPON
CONVERSION OF THE SERIES A PREFERRED STOCK BECAUSE THE CONVERSION PRICE
IS LINKED TO THE FUTURE MARKET PRICE OF OUR COMMON STOCK.
The conversion of series A preferred stock is linked to a percentage
discount to the market price of our common stock. Until conversion occurs,
we do not know the precise maximum number of common stock shares that may be
issued. The conversion price is presently set at $3.25. At that conversion
price, we may issue about 1,280,032 shares of common stock if all of the
outstanding series A preferred stock are converted. However, the conversion
rate is to adjust to 75% of the market price of our common stock at the 2 year
anniversary date of issuance and is to adjust again at the 4 year anniversary
date of issuance. The lower the price of our common stock at those time
periods, the series A preferred stock can be converted into a greater number
of shares of our common stock. This will further dilute holders of common
stock and cause the common stock price to decline further. The maximum
conversion rate of 1 share of series A preferred stock into 5 shares of common
stock does not take effect unless the market price of the common stock is
$2.67 per share or lower at the two and four year points. If all of the
outstanding series A preferred stock are converted at the maximum conversion
rate, we will issue about 2,080,000 shares of common stock.
PENNY STOCK REGULATION.
If the trading price of our common stock is less than $5.00 per share,
trading in the common stock would also be subject to the requirements of Rule
15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend
low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. The
broker/dealer must make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction.
SEC regulations also require additional disclosure in connection with
any trades involving a "penny stock", including the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and its associated risks. Such requirements severely limit the
liquidity of the common stock in the secondary market because few broker or
dealers are likely to undertake such compliance activities. Generally, the
term penny stock refers to a stock with a market price of less than $5.00 per
share.
-11-
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking information. Generally, the
words "anticipates," "expects," "believes," "intends," "could," "may," and
similar expressions identify forward looking statements. Forward-looking
statements involve risks and uncertainties, including those described under
"Risk Factors" in this prospectus. We caution you that while we believe any
forward-looking statement are reasonable and made in good faith,
expectations almost always vary from actual results, and the differences
between our expectations and actual results may be significant.
The following discussion and analysis should be read in conjunction with
the information set forth in the audited financial statements for the year
ended June 30, 1999, in conjunction with the information set forth in the
unaudited financial statements for the six month period ended December 31,
1999, and in conjunction with the information set forth in the unaudited
financial statements and notes and the audited financial statements and the
notes, included in the Form 8K/A, filed on September 1, 1998. On June 24,
1998, we elected to change our fiscal year from April 30 to June 30.
For the purposes of this analysis, the results of operations for the year
ended June 30, 1999 are being compared to the results of operations for the
year ended April 30, 1998.
Results of Operations
For the Year Ended June 30, 1999
- --------------------------------
Sales. Sales for the year ended June 30, 1999 compared to the year period
ended April 30, 1998 increased approximately 44% to $10,227,628 from
$7,103,906. The revenue mix in 1999 has shifted with supplies revenue
increasing as a percentage of total sales, while systems revenue has
decreased as a percentage of total sales. Service revenues, as a percentage
of sales have remained consistent. Approximately $1,365,000 of the increase
in sales can be attributed to the Tartan acquisition, $103,000 to the WEB
Associates acquisition, and $1,655,000 to our internal growth.
Cost of Sales. Cost of sales for the year ended June 30, 1999 were
$7,442,239 or approximately 73% of sales, as compared to $5,174,402 or
approximately 73% for the year period ended April 30, 1998. Gross profit
margins remained stable for the year ended June 30, 1999 as compared to the
year ended April 30, 1998 despite the acquisition of businesses that were
previously generating significantly lower margins. This was achieved
primarily through the conversion of manufacturer service agreements to
agreements fulfilled by us and through the sale of private label
supplies.
Selling, General and Administrative. Selling, general and administrative
expenses for the year ended June 30, 1999 increased to $3,069,682 from
$2,138,915 for the year ended April 30, 1998. Selling, general and
administrative expenses were approximately 30% of sales for both periods.
Selling, general and administrative expenses for the year ended June 30, 1999
included increased legal of about $9,000, accounting fees of about $17,500,
and consulting fees of about $15,200 associated with the merger with Seafoods
Plus, Ltd. in June of 1998, with being a publicly held company, the
amortization of goodwill of about $62,000 resulting from acquisitions, and to
increase in payroll attributable to the acquisitions and development of the
our infrastructure for future growth of about $470,000. Selling, general and
administrative expenses for the year ended June 30, 1999 includes a one time
expense of $130,000 for the development of SamplePrint.com.
Interest Expense. Interest expense for the year ended June 30, 1999
increased to $160,081 from $90,829 incurred for the year ended April 30,
1998. The increase in 1999 was due primarily to an increase in borrowings to
finance our increased receivables and inventory due to the
acquisitions.
Income Taxes. For the year ended June 30, 1999, we recorded a tax
benefit of $217,000 primarily due to a net operating loss carryforward offset
by a valuation allowance of $217,000. For the one year ended April 30, 1998,
we recorded a tax benefit of $62,498 primarily due to the
utilization of a net operating loss carryback.
Net Income (Loss). For the one year ended June 30, 1999, we had a
net loss of $444,374 or $0.16 per share as compared to a net loss of $219,242
or $0.14 per share for the year ended April 30, 1998.
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<PAGE>
Results of Operations
For the Three Months and Six Months Ended December 31, 1999 and 1998
- --------------------------------------------------------------------
Sales. Our consolidated sales for the three months ended December 31, 1999
compared to the same period in 1998, increased approximately 17% to
$2,961,405 from $2,532,474. Our consolidated sales for the six months ended
December 31, 1999 compared to the same period in 1998, increased
approximately 37% to $6,110,569 from $4,475,635. The increase in our sales
can be attributed to the acquisitions of Tartan Technology, WEB Associates
and ultraHue, offset by a decrease in the sales of our non-acquired
businesses. For the three months ending December 31, 1999, the acquisitions
contributed $1,405,115 in sales and for the six months ended December 31,
1999, the acquisitions contributed $2,572,969 in sales. The decrease in
sales of our non-acquired businesses can be attributed to delays in large
system purchases by many of our clients until the passing of the Y2K
turnover.
Cost of Sales. Our cost of sales for the three months ended December 31,
1999 were $2,025,858, or approximately 68.4% of sales, as compared to
$1,835,314, or approximately 72.5% of sales for the comparable period in
1998. Cost of sales for the six months ended December 31, 1999 were
$4,307,054, or approximately 70.5% of sales, as compared to $3,234,814, or
approximately 72.3% of sales for the comparable period in 1998. The decrease
in our cost of sales can be attributed to the high margin business generated
by our Media Sciences subsidiary.
Selling, General and Administrative. For the three months ended December 31,
1999, our selling, general and administrative expenses increased to $959,620
from $632,886, which represents a increase to 32% of sales from 25% of sales.
For the six months ended December 31, 1999, our selling, general and
administrative expenses increased to $1,910,236 from $1,349,057, which
represents an increase to 31% of sales from 30% of sales. The increase in our
selling, general and administrative expenses can be attributed to the
additional overhead created by our acquisitions and in preparation for our
continued growth.
Interest Expense. For the three months ended December 31, 1999, our Interest
expense increased to $54,780 from $31,400. For the six months ended December
31, 1999, Interest expense increased to $118,481 from $57,202. The increase
in 1999 is due primarily to the increase in borrowing due to our acquisitions
and to the increased costs of our new lending facility.
Income Taxes. For the three months ended December 31, 1999, we have recorded
a deferred income tax benefit of $307,000. This benefit results from the
elimination of the valuation allowance that offset net operating loss tax
benefits from prior periods, and from a tax benefit of a net operating loss
carryforward for the three months ending December 31, 1999. We are required
to recognize future tax benefits to the extent that realization of such
benefits is more likely than not. Based upon the historical earnings of
ultraHue, we believe that the "more likely than not" criteria have been met,
and accordingly, the valuation allowance has been eliminated. For the six
months ended December 31, 1999, we have recorded the deferred income tax
benefit of $307,000 described above.
Dividends. For the three months ending December 31, 1999, we accrued $20,112
of stock dividends to be paid to our preferred shareholders of record as of
December 31, 1999.
Net Income (Loss). For the three month period ended December 31, 1999, we
earned a net profit of $228,147 or $0.07 per share basic and diluted as
compared to a net profit of $32,874 or $0.01 per share, basic and diluted,
for the corresponding three month period ended December 31, 1998. For the
six month period ended December 31, 1999, we earned a net profit of $81,798
or $0.02 per share basic and diluted as compared to a net loss of $126,438 or
$0.05 per share for the corresponding six month period ended December 31,
1998.
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<PAGE>
Results of Operations For the Two Months Ended
June 30, 1998 and 1997, and For the Year Ended April 30, 1998
- -------------------------------------------------------------
Sales. Consolidated sales for the two months ended June 30, 1998 compared to
the same period in 1997, increased approximately 100% to $1,623,754 from
$821,633. This increase was due to additional sales of $238,877 generated
from the acquisition of BBG Technologies, which was completed in March 1998,
and from increased sales to existing and new customers of $563,000. Sales for
the year ended April 30, 1998 compared to the year period ended April 30, 1997
decreased approximately 17% to $7,103,906 from $8,594,082. The revenue mix
in 1998 between systems, supplies and services has remained comparable to the
same period in 1997.
Cost of Sales. Cost of sales for the two months ended June 30, 1998 were
$1,237,942, or approximately 76% of sales, as compared to $614,582 or
approximately 75% of sales for the comparable period in 1997. Cost of sales
for the year ended April 30, 1998 were $5,174,402 or approximately 73% of
sales, as compared to $6,468,513 or approximately 75% for the year period
ended April 30, 1997. The cost of revenues in 1998 have remained consistent
from the same period in 1997, along with the revenue mix.
Selling, General and Administrative. For the two months ended June 30, 1998,
selling, general and administrative expenses increased to $482,819 from
$377,527, which represents a drop to 30% of sales from 46% of sales. The
dollar increase in 1998 is due mainly to an increase in legal fees of $21,000,
accounting fees of $13,600, and consulting fees of $23,000 associated with the
merger and being a publicly held company, and to amortization of goodwill
resulting from the acquisition of BBG Technologies in March 1998. The
percentage decrease can be attributed to the increase in sales as described
above.
Selling, General and Administrative expenses for the year ended April 30,
1998 increased to $2,138,915 from $1,972,221 for the year ended April 30,
1997. Selling, general and administrative expenses were approximately
30% of sales for the year ended April 30, 1998, and approximately 23% for the
year ended April 30, 1997. The increase is attributable to the development of
our infrastructure for future growth.
Interest Expense. For the two months ended June 30, 1998, interest expense
increased to $21,894 from $6,316. Interest expense for the year ended April
30, 1998 increased to $90,829 from $78,175 incurred for the year ended April
30, 1997. The increase in 1998 is due primarily to the increase in borrowing
due to the acquisition of BBG Technologies in March 1998.
Income Taxes. For the two months ended June 30, 1998, we have not
recorded a tax benefit of a net operating loss carryforward due to the
uncertainty of its future utilization. For the two months ended June 1997,
we were able to carry back its net operating losses. For the one year
ended April 30, 1998, we recorded a tax benefit of $62,498 primarily
due to the utilization of a net operating loss carryback. For the one year
ended April 30, 1997, we recorded a tax detriment of $18,500.
Net Loss. For the two month period ended June 30, 1998, we incurred
a net loss of $108,901 or $0.06 per share as compared to a net loss of
$128,992 or $0.08 per share for the corresponding two month period ended June
30, 1997. For the one year ended April 30, 1998, we had a net loss of
$219,242 or $0.14 per share as compared to a net gain of $56,673 or $0.04 per
share for the year ended April 30, 1997.
-15-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
We experienced positive cash flow of $536,936 for the six months ended
December 31, 1999. Cash used in operations resulted in positive cash flows
of $49,326 primarily due to a profit of $81,798, non cash charges for
depreciation, amortization and issuance of our securities for services of
$208,005, a decrease in accounts receivables of $379,294, a decrease in
inventory of $130,482 and an increase in deferred revenue of $70,643 offset
by the non-cash income tax benefit of $307,000 and decrease in accounts
payable and accrued expenses of $544,663.
The cash we used in investing activities included the purchase of equipment,
a URL and the net assets of ultraHue for a total of $2,481,923.
We have an agreement with a lender under which we can borrow up to
$6,000,000 under a revolving line of credit, subject to availability of
collateral. Under the line of credit, the available credit is 50% of eligible
inventory, which available credit cannot exceed $1,000,000 plus 85% of eligible
receivables. Borrowings bear interest at 2% over the lender's base rate, are
payable on demand and are collateralized by all of our assets. As of
June 30, 1999, we had used $1,677,024 of this line. As of September
30, 1999, we had used $1,282,380 of this line. As of December 31, 1999, the
total available credit was approximately $1,548,848, and we had used
$1,325,165. As of June 30, 1998, we had an agreement with a bank under
which we could borrow up to $1,200,000 under a revolving line of credit,
subject to availability of collateral. As of June 30, 1998, borrowings bore
interest at 1% over the bank's base rate, payable on demand and collateralized
by all of our assets. As of June 30, 1998, we had used $695,000
of this line. As of December 31, 1999, we had used $1,325,165 of this line.
In August 1998, we completed a private placement for $655,000,
consisting of 524,000 shares of common stock at a purchase price of $1.25.
Expenses associated with the private placement were approximately $35,000,
providing us with net proceeds of $620,000. We used substantially
all of the proceeds in the retirement of bank debt assumed in the acquisition
of Tartan in January 1999.
We had a negative cash flow of $359,748 for the two months ended June
30, 1998. This resulted primarily from the repayment of $305,000 from the
credit line and $14,823 on long term debt. Cash used in operations resulted
in negative cash flows of $35,856 which consists of an increase in accounts
receivable of $538,646 and an increase in inventory of $277,157, offset by an
increase in accounts payable of $911,199.
We experienced positive cash flow of $10,336 for the year ended June
30, 1999. Cash used in operations resulted in negative cash flows of
$221,653 primarily due to a loss of $444,374 offset by a non cash charge to
depreciation and amortization of $180,494, a decrease in accounts receivable
of $89,130, a decrease in inventory of $170,259, an increase in deferred
revenue of $149,489, and a decrease in accounts payable of $473,241. Cash
used in investing activities was primarily comprised of purchase of equipment
and the acquisitions of WEB Associates and Tartan Technical. The above uses
of cash were offset by increased borrowing under our credit facility and
proceeds from the sale of common stock.
-16-
<PAGE>
In September 1999, we completed a private placement for $255,500 consisting
of 127,750 shares of common stock at a purchase price of $2.00. Expenses
associated with the private placement were approximately $15,000, providing
us with net proceeds of $240,500. We used substantially all of the proceeds
to invest in our Internet-based initiatives, including SamplePrint.com and the
upgrade of our accounting system in preparation for the Internet storefront
initiative.
On October 1, 1999, we entered into a managing dealer agreement with a
placement agent for a proposed private offering of up to $5,000,000. The
private offering is of 500,000 units of our securities with a
face value of $10.00 per unit. Each unit consists of one share of
convertible adjustable preferred stock and one warrant to purchase two shares
of common stock at $4.50. For two years, each share of series A preferred
stock is convertible into 3.077 shares of common stock. After each of two and
four years from the date of issuance, the conversion rate of one share of
series A preferred stock into shares of common stock adjusts. At the adjusted
conversion rate, the number of shares of common stock received equals $10
divided by 75% of the average bid price of our common stock during the 90 days
preceding each of the two and four year anniversary dates. A maximum of five
shares of common stock will be issued upon conversion of a share of series A
preferred stock. In addition, the preferred stock will carry a dividend,
paid quarterly, of 11.5% per annum. The offering is to be sold to accredited
investors only in states where permitted. The use of proceeds will be
targeted at additional acquisitions, expansion of our No-Cap Color
printer program and for working capital. The offering is on a "best efforts"
basis, but we could ultimately raise up to about $11 million if fully
sold and if the included warrants are exercised. In December 1999, our Board
of Directors approved an increase of the private placement to $5,500,000.
We generated cash from the sale of our common and preferred stock of
$3,342,475 for the six months ended December 31, 1999. With these proceeds,
we executed the ultraHue acquisition and repaid $379,610 in bank debt.
Through February 3, 2000, we sold an aggregate of 416,000 units under the
private placement and raised gross proceeds of approximately $4,160,000.
We do not have any material commitments for capital expenditures. However, in
2000, we intend to develop our No-Cap Color program. We intend to allocate
about $1,000,000 raised in our private placement of units to purchase up to
350 printers or lease up to 1,000 printers for use in our No-Cap Color
program. We intend to buy or lease the printers as we need them.
-17-
<PAGE>
Inflation
- ---------
We have historically offset any inflation in operating costs by a
combination of increased productivity and price increases, where appropriate.
We do not expect inflation to have a significant impact on our
business in the future.
Seasonality
- -----------
We anticipate that our cash flow from operations will be significantly
greater in the fall and winter months than in the spring and summer months
due to the purchasing cycles associated with ourproducts. If we are
unable to generate sufficient cash flows from operations during the seasons
of peak operations, wemay be required to utilize other cash reserves,
if any, or seek additional equity or debt financing to meet operating expenses,
and there can be no assurance that there will be any other cash reserves or
that additional financing will be available or, if available, on reasonable
terms.
Year 2000 Discussion
- --------------------
We have completed a review of Year 2000 issues that may affect us in November
1999. We have determined that there are no significant Year 2000 issues
within our internal systems or services. In our internal operations, we use
equipment and software supplied by third-parties who have informed us that
their equipment and software are or will be Year 2000 compliant.
Based on our review, we believe that our systems are Year 2000 compliant.
Although we periodically purchase new computer equipment and upgrade our
software programs in our normal business operations, we did not spend any
significant expense for the specific purpose of being Year 2000 compliant, and
we do not expect to incur any significant expenses in ensuring that we are
Year 2000 compliant. We use and rely upon third parties to conduct our
business. All of the significant third parties that we rely upon, including
our vendors, have provided us written assurances that they have conducted a
Year 2000 review and reasonably believe that Year 2000 issues will not affect
them. We believe that our reasonable worst case scenario is that we may
experience delays in receipt of purchase orders and delays in shipping and may
experience computer glitches in our Internet-based services. However, we do
not believe such a scenario will significantly impair our business because our
products are not the type of products for which customers demand immediate
next-day delivery, and our Internet-based services are not significantly used
presently. Because we believe our Year 2000 investigation provided reasonably
assurance that we would not encounter significant Year 2000 problems, we did
not create a contingency plan. To date, we have not experienced any Year 2000
problems that have disrupted our business, although we cannot assure you that
Year 2000 problems will not arise in the future. We will continue to monitor
how Year 2000 issues may affect us through June 2000, and we will create a
contingency plan if we begin to encounter Year 2000 problems.
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<PAGE>
ABOUT US
Our Organization History
We are a Delaware corporation named Cadapult Graphic Systems, Inc.
We originally incorporated under the laws of the State of Utah on August 11,
1983 under the name Communitra Energy, Inc. On July 16, 1985, we filed
with the Secretary of State of the State of Utah Articles of Amendment to our
Articles of Incorporation, changingour name to Seafoods Plus, Ltd. We did
not engage in any substantive business activity from approximately 1988 to
June 18, 1998.
On June 18, 1998, we acquired Cadapult Graphic Systems Inc., a
privately-held New Jersey corporation formed on May 1, 1987 ("CGSI"), in a
transaction viewed as a reverse acquisition. CGSI was a provider of computer
graphics systems, peripherals, supplies and services to visual communicators
and graphics professionals. Pursuant to an Agreement and Plan or
Reorganization dated June 5, 1998, between us, CGSI, all of the
shareholders of CGSI, Jenson Services, Inc., a Utah corporation, Duane S.
Jenson and Jeffrey D. Jenson, we issued 1,650,000 shares of common stock to
the shareholders of CGSI in exchange for all of the outstanding common stock
of CSGI. Pursuant to the acquisition, the shareholders of CSGI became the
controlling shareholders of our company, our officers and directors
resigned and elected the CSGI nominees in their places, and CSGI
became our wholly-owned subsidiary.
On August 14, 1998, we reincorporated under the laws of the
State of Delaware as Cadapult Graphic Systems, Inc. On August 14, 1998,
we merged with CGSI, our wholly-owned New Jersey subsidiary.
On August 11, 1999, we formed Media Sciences, Inc. as a wholly-owned New
Jersey subsidiary, for the manufacture and distribution of digital color
printer supplies.
In August 1999, we amended our Certificate of Incorporation to change
the authorized capital from 50,000,000 shares of common stock, par value
$.001 per share, to 25,000,000 shares consisting of 20,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
Our Business
We provide computer graphics systems, peripherals, supplies and service
to visual communicators and graphics professionals. We operate through three
business units:
- Reseller Operations,
- eCadapult, and
- Media Sciences.
We are a leading supplier of computer graphics solutions in the Northeast
United States.
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<PAGE>
Under our Reseller Operations, we are a systems integrator, value added
dealer or value added reseller of computer graphics equipment and supplies.
Our products include:
- animation and design software and workstations,
- publishing software and workstations,
- file servers,
- networks,
- color scanners, and
- color printers and copiers.
Our markets include:
- advertising and marketing companies,
- printers,
- quick print shops,
- service bureaus,
- animators,
- industrial designers, and
- the broad corporate market for color printers.
We have expanded our business operations through eCadapult, a recently
established division of our company, which provides value added services to
the creative graphics community over the Internet. In June 1999, we
launched SamplePrint.com, a one-stop evaluation resource for buyers of color
printing technology. We intend to offer two new e-commerce services in fall
1999, Cadapult Storefront and GraphicSmart.com, through which customers can
purchase supplies and products from us directly over the Internet.
In August 1999, we formed Media Sciences, Inc., a wholly owned New
Jersey subsidiary, for the purpose of acquiring ultraHue, Inc. and operating
its printer ink business. We completed the acquisition of ultraHue in
December 1999. ultraHue manufactures color solid ink and remanufactures and
refills color toner cartridges, all for use in Tektronix color printers.
ultraHue distributes these products and transparency media, also for use in
Tektronix color printers, to dealers and distributors internationally. Media
Sciences intends to manufacture and distribute, internationally, these digital
color printer supplies. We intend to grow this business through expansion of
the product line, additional marketing, expansion of the existing channel and
distribution agreements and potentially through joint ventures.
As of December 13, 1999, our Reseller Operations has accounted for
almost 100% all of our revenues, and our eCadapult division has accounted for
about $10,000 of our revenues since June 1999. Our Media Sciences division
began active operations on December 13, 1999 after we completed the ultraHue
acquisition and it did not account for any of our revenues prior to December
13, 1999.
Our strategy for long-term growth is to acquire other computer graphics
dealers and service providers. Our growth strategy involves:
- integrating acquired businesses,
- increasing overall efficiency,
- providing a high degree of customer service, and
- improving and expanding services.
-20-
<PAGE>
Operating Strategy
The computer industry is going through a consolidation that stems
from shrinking margins. This consolidation is likely to occur in the
vertical markets in which we operate. We have the objective of becoming a
comprehensive computer graphics services provider throughout the United
States and to provide color printing supplies internationally. We believe
that we are ready to expand our operations, acquire competitors and
consolidate the computer graphics market.
We currently provide computer graphics services to commercial customers
primarily in the Northeast United States. We have taken steps to grow within
the consolidating computer graphics industry.
- In October 1996, we began our expansion plan by opening a sales
location in Boston, Massachusetts.
- In March 1998, we acquired the assets of BBG Technologies, Inc.,
a computer graphics products reseller in Boston, Massachusetts
with $2 million of annual revenues.
- In January 1999, we acquired the assets of Tartan Technical,
Inc., a computer graphics products reseller in Massachusetts
with $3.5 million of annual revenues.
- In June 1999, we acquired the assets of WEB Associates, Inc., a
computer graphics products reseller in Pennsylvania with $2.7
million of annual revenues.
We intend to acquire additional computer graphics businesses in the
Northeast United States as well as in other regions of the United States. Our
ability to acquire other businesses will depend on available cash flow or other
sources of financing, which we have not have or be able to obtain.
We intend for Media Sciences to become a leading supplier of
alternative supplies for digital color printers. ultraHue, Inc.'s printer ink
is currently the only alternative to high cost ink produced by Tektronix for
Tektronix solid ink printers, and is the only third party provider of toner
cartridges for Tektronix Phaser 560 color laser printers. In fall 1999, Xerox
acquired Tektronix's color printer business. Media Sciences is planning to
expand its product line to include remanufactured and refilled toner
cartridges for Tektronix color laser printers. We believe that we can expand
Media Sciences' business through a product line expansion, through alternative
applications for its solid ink technology, through an expansion of its
distribution channels and through joint ventures and other partnerships.
We anticipate that the relationship between our reseller operations and
Media Sciences will provide benefits to customers. We expect our reseller
operations will develop and implement marketing and service programs, such as
No-Cap Color, to strengthen Media Sciences' market position.
-21-
<PAGE>
In September 1999, Media Sciences entered into an asset purchase
agreement with ultraHue, Inc., a New Mexico corporation, and Donald Gunn and
Randy Hooker, shareholders of ultraHue, for the acquisition of certain assets
and the assumption of certain liabilities of ultraHue. The acquisition was
completed on December 13, 1999. Media Sciences acquired:
- certain proprietary information and intellectual property
rights of ultraHue, and
- other assets owned and used by ultraHue in its operations,
including its
- trade secrets,
- accounts receivable,
- inventory,
- certain property and equipment,
- the name ultraHue,
- other trademarks, service marks or copyrights,
- customer lists,
- sales, service and vendor contracts,
- security deposits, and
- on-going business records.
Media Sciences assumed the following liabilities of ultraHue:
- accounts payable as of the date of closing;
- customer deposits as of the date of closing; and
- leases and contracts to the extent they are to be performed
after the date of closing.
-22-
<PAGE>
Our Principal Products and Services
Reseller Operations
-------------------
Systems. Products sold by our reseller operations business include
publishing software and workstations, file servers, networks, color scanners
and color printers and copiers. We typically purchase directly from the
manufacturer of the equipment or through a distributor of those products.
Supplies. Approximately one-third of our revenues comes from the
sale of digital color printer and copier supplies. We intend to grow this
revenue stream through aggressive sales and marketing efforts, and by adding
new supplies to our product line.
Hardware and Software Service and Support. Providing servicing of
hardware and software is a growing opportunity for us. We have experienced
that our customers are moving away from manufacturers' services to our own.
We believe that the opportunity to service other products in the computer
graphics market exists. We intend to add service technicians as our business
demands. In addition, we plan to add sales personnel to actively market our
services.
No-Cap Color. We launched a new program called No-Cap Color. Under
this program, a customer will be provided with one or more color printers, at
no charge, in return for a commitment to purchase certain supplies over a two
year period. The printers remain our property. We plan to expand this
program through aggressive marketing, through the creation of an agent
program and through the addition of more printers eligible under the program.
eCadapult: Internet Services
-----------------------------
eCadapult is our interactive division. The mission of the eCadapult
division is to establish an Internet-based market within the creative
graphics industry for our services and computer graphics equipment and
related merchandise. We have developed and launched one new interactive
service, SamplePrint.com, and plan for the development of two e-commerce
sites, Cadapult Storefront and GraphicSmart.com, which are expected to be
introduced by March 2000. Our web sites for these services are
under construction and are presently not operational. We expect to launch
graphicauction.com by June 2000.
SamplePrint.com. SamplePrint.com is a website dedicated to helping
business buyers evaluate color printer and copier products over the Internet.
We expect SamplePrint.com to function as a one-stop evaluation resource for
buyers of color printing technology-an objective resource for buyers by
providing product information, technical benchmarks, sample prints and other
services. A critical decision-making factor for buyers of color printing and
copying equipment is the ability to evaluate the buyers' own images and files
printed from the products. SamplePrint.com allows any buyer to submit files
over the Internet which will be printed on a variety of printer choices. We
expect that the cost of these samples will be borne by the buyer if the
manufacturer of that printer is not a sponsor, or by the manufacturer if it
is a sponsor. Our goal is to provide all samples free to the buyer and have
the manufacturers bear the costs. This service provides a prospective
business buyer with the ability to make a purchase decision based on the
image quality of the print samples and additional information provided on
the web site.
-23-
<PAGE>
We plan for SamplePrint.com to support both buyers and manufacturers of
workgroup color printers. With the market for color printers and copiers
growing, the need for generating samples for buyers is about to explode.
International Data Corporation, as reported by InfoWorld on June 15, 1998,
forecasts the U.S. market for color laser printers in unit shipments
is expected to grow at an average growth rate of 42.9% from the year 1995
through the year 2001. We anticipate that SamplePrint.com will become
a service to manufacturers by off-loading their sample printing support
requirements while providing an objective resource for the buyers. We
launched SamplePrint.com in June 1999, with initial sponsorship from Hewlett-
Packard and Okidata. We are currently in discussions with several other
leading printer manufacturers to sponsor this site.
Cadapult Storefront. Cadapult Storefront is intended to be an e-
commerce site where existing customers can purchase supplies and products
from Cadapult directly over the Internet, seven days a week, 24 hours a day.
Cadapult intends to integrate Cadapult Storefront with Cadapult's accounting
and order processing system to increase efficiency in the ordering process.
This e-commerce site will echo the products and margins associated with
Cadapult's traditional reseller business. Cadapult Storefront is intended to
be an alternative means of placing orders for existing customers.
GraphicSmart.com. We intend to launch an additional e-commerce site as
an alternative to the Cadapult Storefront and other Internet commerce sites.
This site will offer a broad selection of computer graphics products at
aggressive discounts. The purpose of this site is to capture the price
sensitive customers and businesses that are moving and will be moving to the
Internet as a source of supply.
GraphicAuction.com. We intend to offer an on-line auction site for
computer graphics equipment and related merchandise where buyers and sellers
are brought together in an efficient forum that is available 24 hours a day,
seven days a week to buy and sell computer graphics products. We plan to
design GraphicAuctions.com to permit us, manufacturers and the public to list
items for sale, which may be browsed through in a fully automated, topically
arranged, and easy-to-use format, and allow buyers to bid on and purchase
items of interest. We plan to offer buyers a large selection of list new,
refurbished, reconditioned, used, demonstration, and discontinued items that
can be costly to find and purchase through the traditional marketplace. We
intend to charge the seller a nominal fee for each completed transaction, but
sellers and bidders will not be charged for listing items or for making bids
through GraphicAuction.com. We believe that this auction forum may attract
more potential customers and create more interest in our products and
services, as well as permit us to better gauge market demand for certain
products.
-24-
<PAGE>
Marketing and Sales Plans
We intend to increase our marketing and sales efforts. The goal of
these efforts is to increase revenues through increased market awareness
about us, through the introduction of new products and services to the
customer base and through the increase in the number of salespeople.
Industry and Market Overview
The market for computer graphics, in which we operate, has grown
over recent years and is expected to continue to expand at a rapid pace.
We focus our products and services on the following markets:
- Digital Pre-Press
- Display Graphics
- Presentation Graphics
- Digital Imaging
- Digital Color Printing
Digital Pre-Press
-----------------
Over the last several years, there has been a dramatic shift in the
process printing industry from manual, analog production of printed materials
to the use of computers. Historically, the production of a printed brochure,
magazine or catalog involved numerous manual steps using photographic
materials to produce the final press-ready copy.
With rapid advances in software and hardware, much of today's printed
materials are produced digitally. The print production process now allows a
printed piece to go from concept to imaged printing plate in a fully digital
environment. Copy writing, proofing and revisions all take place on a desktop
computer, increasing the speed and efficiency of the pre-press process, and
streamlining personnel requirements in the process. We believe this
market is in a period of rapid transition regarding the manner in which
electronics products are delivered to the traditional printing customer.
Display Graphics
----------------
The most rapidly growing segment of the computer graphics output market
is display graphics. Display graphics, or large format graphics, describes a
process that allows computer-generated or captured images to be printed in
sizes up to 60 inches wide.
-25-
<PAGE>
Historically, these images could only be printed on color electrostatic
printers. However, over the last several years,
significant advances in ink-jet technology, software, specialty inks and
media have reduced the costs of display graphics systems
, and market acceptance has been rapid. End-users of this
technology include a wide range of industries and markets, such as:
- Trade-show graphics - production of booth and arcade displays
- Point of Sale graphics - floor displays
- Sign Shops - traditional signage, fleet graphics
- Print-for-Pay - stores like Kinkos, Sir Speedy
- Package Design - package prototyping
- Graphic Arts - imposition proofing
Presentation Graphics
---------------------
This segment of the computer graphics market consists of the creation
of visual communication materials such as slides, overhead transparencies,
multimedia presentations and associated hard copy materials. Once a highly
specialized business, presentations can now be created by just about anyone
with a computer and presentation software. The presentation itself is
displayed or printed on digital color printers, film recorders and digital
projectors.
Digital Imaging
---------------
This segment of the computer graphics market consists of the capture,
manipulation, storage, databasing, transfer and output of digital images.
Examples include digital photo restorations and combining several different
images into one new image. As more and more digital content is created,
different technology is required to address each of the above facets of
digital imaging. These include scanners and digital cameras that capture
images, and specialized software that allows the user to change, manipulate,
combine and retouch images. Digital images, especially color images are
inherently large and therefore have specialized storage requirements such as
Redundant Array of Inexpensive Disks technology, CD-ROM and tape storage.
A large volume of digital assets dictates a database, or asset management
solution, to manage, search and retrieve these images. High bandwidth
networks are required to transfer these images within a user environment and
to external destinations. Finally, a variety of digital output devices, as
described above, are used to print these images.
-26-
<PAGE>
Digital Color Printing
----------------------
This broad segment of the computer graphics market includes all
business color printers from desktop color printers to high speed connected
color copiers. Desktop color printers are starting to replace black and
white printers in the office environment as quality and speed improve and
costs are reduced. International Data Corporation, as reported by InfoWorld
on June 15, 1998 forecasted that the market for color laser printers in
the United States is expected to grow at an annual rate of 42.9% in units from
the shipment of 50,000 units in 1995 to 425,000 units in 2001.
International Data Corporation, as reported by Electronic Buyers' News in
February 22, 1999, forecasts the shipment of color desktop printers to grow
from 150,000 units in 1997 to 1,400,000 units in 2002, an annual growth rate
of 56.3%. Lyra Research, as reported by Computer Reseller News in October 5,
1998, forecasted that the worldwide shipments of color printers could reach
2,774,000 units in 2002. For those who need more volume, higher speeds
or better quality, color copiers can be connected to a network and become
very fast, high quality digital color printers.
Digital color printers and copiers create an ongoing requirement for
service and supplies. This reoccurring business often exceeds the original
cost of the device over its lifetime. Today, in the business color printer
market, supplies for these printers are manufactured by, and distributed by,
the printer manufacturer. There exists little or no competition to these
sources of supplies. As adoption of color printing technology continues, we
expect demand for alternative supplies to grow dramatically.
Distribution Methods of the Products and Services
In our reseller operation, we sell directly to end users through own
sales force, at our sales offices, and over the Internet. We present live
product demonstrations to clients and potential clients. We solicit and
fulfill orders over the telephone. In our Media Sciences division, we sell
exclusively to dealers and distributors. We sell products from a number of
manufacturers, including our competitors products.
Status of any Publicly Announced New Product or Service
We plan for the development of two e-commerce sites, Cadapult
Storefront and GraphicSmart.com, which are expected to be introduced in late
fall 1999.
Competition
All facets of the computer graphics business are competitive. The
color printer business is becoming increasingly competitive as the products
become commoditized. On the systems side of the business, there are other
systems integrators, valued added resellers and dealers that offer similar
or the same products, some of which are substantially larger and better funded
than we are. On the supplies front, we compete with other supply dealers as
well as supply only companies that are often national and catalog based
companies. Based on the sales volumes of these companies, it is often
difficult to compete on a price basis; therefore, we compete based upon local
delivery and better availability of product.
-27-
<PAGE>
We seek to compete by servicing most of the products that we sell
as opposed to some of our competitors who rely on manufacturer or third party
service. We offer a seven day a week, 24 hours a day premium
service through a service contract on many products, unlike many of our
competitors.
Our principal competitors are larger and better funded than we are,
and our competitors include: Globix Corporation, AOE Ricoh, MCS Canon,
Minolta Business Systems, Professional Graphics Systems and Services, Inc.,
Electronic Business Products, Inc., Charrette, NAPC, and Cambridge
Electronics, Inc.
Media Sciences' primary competitor is Xerox Corp., which recently
acquired the color printer business of Tektronix, Inc. Tektronix has been the
leading manufacturer of solid ink for use in digital color printers,
representing approximately ninety seven percent of the United States market
of solid ink.
Major Supplier
We typically purchase directly from the manufacturer of the equipment
or through a distributor of those products. We currently obtain certain
equipment and supplies from a limited number of sources of supply. Our
principal vendor is Tektronix, Inc., whose products accounts for approximately
45% of our revenues annually. The loss of a vendor agreement with Tektronix
may have a material affect on our business and operations. We also sell
products supplied by Mita Corporation, Access Graphics, Ricoh, Alias,
Merisel, Ingram, and Tekgraf, each of which suppliers account for less than
5% of our revenues annually.
Major Customers
We are not dependent on any customer, the loss of which would have a
material adverse affect on our operations.
Research and Development
In the fiscal year ended 1999, we spent approximately $150,000 on
research and development activities to develop our SamplePrint.com service.
In 2000, we expect to spend about $1,000,000 to buy or lease printers for use
in our No-Cap Color Program.
No Government Regulation
We are not subject to governmental regulation of, and do not need
governmental approval of, our products or services.
-28-
<PAGE>
Employees
We currently have 42 full-time employees, including 7 management level
employees.
Office Facilities
We maintain our executive offices in approximately 7,212
square feet, including 1,200 square feet of warehouse space, at Allendale, New
Jersey, pursuant to a lease expiring on March 31, 2002. We also
maintain four sales offices in the eastern United States and one manufacturing
facility in New Mexico.
The following table sets forth the location, approximate square
footage, approximate annual rent, use of each location and expiration date of
each lease:
<TABLE>
<CAPTION>
APPROX.
APPROX. ANNUAL LEASE
LOCATION SQ. FEET RENT(1) USE EXPIRATION DATE
- --------------------- -------- -------- ---------------- ------------------
<S> <C> <C> <C> <C>
110 Commerce Drive 7,212 $101,993 Executive Office Mar. 31, 2002(2)
Allendale, NY Warehouse
137 Fifth Avenue 1,400 $ 39,690 Sales Office July 14, 2000
New York, NY
125 Wolf Road 923 $ 14,306 Sales Office Feb. 28, 2000(3)
Albany, NY
24 Westech Drive 4,000 $ 28,748 Sales Office Jan. 31, 2002(4)
Tyngsboro, MA
2551 Industry Lane 2,500 $ 12,000 Sales Office June 30, 2000
Norristown, PA
5600 McLeod N.E. 2,600 $16,200 Manufacturing June 30, 2000
Albuquerque, NM 87109 Facility
</TABLE>
______
(1) Certain of these leases provide for moderate annual rental increases.
(2) Lease provides for a five year renewal option.
(3) Lease provides for a one year renewal option.
(4) Lease provides for a renewal option for either a three year or five
year term.
We are actively seeking a new corporate executive office, including
warehousing and manufacturing facilities, of 12,000-15,000 square feet for
leasing in New Jersey. We use substantially all of the available space at
our present executive office and warehousing facility in New Jersey. We are
outgrowing our present corporate office in New Jersey and need larger
facilities to accommodate our increasing warehouse requirements, expanding
service facilities, and to support the manufacturing requirements of
our new Media Sciences division. We intend to move our corporate office as
soon as we find suitable facilities in the first half of 2000. We may not
find suitable facilities at reasonable rates. Our corporate office and sales
offices are adequately covered by insurance.
-29-
<PAGE>
Legal Proceedings
In August 1999, we instituted an action against Tektronix, Inc.
before the Superior Court in New Jersey, which action has been moved before
the United States District Court for the District of New Jersey. In our
lawsuit, we seek certain injunctive relief and an indeterminate amount of
damages, and allege that Tektronix, Inc. violated the New Jersey Franchise
Practices Act, the New Jersey Antitrust Act, federal acts prohibiting
restraints of trade, breach of contract and unfair competition, among other
claims. In our lawsuit, we allege that, in August 1999, Tektronix, Inc.
unilaterally, and without notice, illegally terminated our Tektronix
Premier Plus Reseller franchise because we were selling a non-Tektronix
product, Cadapult solid ink that was supplied to us by ultraHue, Inc. We are
informed that Tektronix controlled 97% of the U.S. solid ink market for digital
printers which essentially were only Tektronix printers. The results of our
pending lawsuit could have material positive or material adverse consequences
to our business. We derived 45% of our fiscal year 1999 revenues from sales
and services of Tektronix products. Although the Tektronix Premier Plus
Reseller franchise accounted for only about $80,000 of our gross profit
margin based on historical sales, which represented less than 3% of our
overall gross profit margin. The lawsuit has only recently commenced and may
or may not be resolved in the near future. Although we do not believe that
the loss of the lawsuit would materially impact our business operations based
on historical sales, the reseller franchise provides us with business leads
and promotion of our services which cannot be quantified; therefore, we do
not know and cannot predict whether the loss of all or a part of this lawsuit
will have a material adverse affect our future business and operations.
Change in Accountants
On July 6, 1998, we informed Mantyla, McReynolds & Associates that it
had been dismissed as our principal accountants. The former principal
accountants' report on the financial statements neither contained an adverse
opinion or disclaimer of opinion, nor was modified as to uncertainty, audit
scope, or accounting principles. Our decision to change our principal
accountant was recommended and approved by our Board of Directors.
There were no disagreements with the former accountants on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. We have authorized the former accountants to
respond fully to all inquires of the successor accountant concerning any
matter.
On July 6, 1998, we engaged Wiss & Company, LLP as our principal
accountants. Wiss & Company had been the principal accountants for CGSI
since April 23, 1998. Pursuant to a reverse acquisition which was completed
on June 18, 1998, we acquired CGSI became as a wholly-owned subsidiary.
Following the acquisition, our Board of Directors selected Wiss & Company to
serve as our principal accountants.
-30-
<PAGE>
OUR MANAGEMENT
The following persons are our present directors and executive officers.
Edwin Ruzinsky became a director on August 27, 1999. Donald Gunn and Henry
Royer became directors on December 23, 1999.
Name Age Position
- ---- --- --------
Michael W. Levin 34 Chief Executive Officer, President and
Chairman of the Board
Frances Blanco 39 Vice President Marketing and Investor
Relations, Treasurer, Secretary and
Director
Duncan Huyler 38 Vice President Technical Services
Paul C. Baker 62 Director
Edwin Ruzinsky 66 Director
Donald Gunn 48 Director
Henry Royer 68 Director
Our directors are elected annually to serve for one year
and hold office until the next annual meeting of the shareholders and until
their successors are elected and qualified. Our Board of Directors may
increase the size of the Board of Directors. Any director who fills a
position created by the Board of Directors serve until the next annual meeting
of the shareholders. Our officers are elected by the Board of Directors at
the first meeting after each annual meeting of our shareholders, and hold
office until their death, resignation or removal from office.
MANAGEMENT PROFILES
Michael W. Levin, Chief Executive Officer, President and Chairman of the Board:
- ------------------------------------------------------------------------------
Mr. Levin has served as our Chief Executive Officer, President and
Chairman of the Board since June 18, 1998. Before June 1998, he had
served as President, Treasurer, Secretary and Chairman of CGSI since 1987,
when he founded CGSI while attending Lehigh University. He is responsible for
a senior management team as well as merger and acquisition activity and
corporate finance. He earned a Bachelor of Science degree in Mechanical
Engineering from Lehigh University in 1987, graduating summa cum laude.
Frances Blanco, Vice President of Marketing and Investor Relations, Treasurer,
Secretary and Director:
- ----------------------
Ms. Blanco has served as our Vice President of Marketing and Investor
Relations, Treasurer, Secretary and a Director since June 18, 1998.
From 1993 to June 18, 1998, she served as Vice President of
Marketing and Investor Relations, Treasurer, Secretary and a director of
CGSI. Ms. Blanco manages all aspects of marketing, including brand identity,
demand creation and vendor relationships for us as well as investor
relations. From 1984 through 1989, Ms. Blanco was a Reseller Account Manager
at Lotus, where she designed and implemented marketing programs. From August
1989 through June 1993, Ms. Blanco served as a Business Development Manager
at Tektronix, Inc., where she was responsible for the development of long
term and strategic customers. She earned a Bachelor of Science degree in
Marketing from Bentley College in 1982 and a Masters of Business
Administration degree from Boston College in 1985.
Duncan Huyler, Vice President of Technical Services:
- ---------------------------------------------------
Mr. Huyler has served as our Vice President of Technical Services
since June 18, 1998. From 1993 to June 18, 1998, he served as
Vice President of Technical Services for CGSI. Mr. Huyler manages all
the technical aspects for us, including running the business under
its own P/L, developing service plans, hiring staff, developing and
implementing training programs and obtaining service authorizations. From
May 1983 through October 1987, Mr. Huyler served in the U.S. Army. From
September 1988 through August 1993, Mr. Huyler worked for Lord & Taylor,
where his positions included Senior Financial Analyst and Director of
Systems. Mr. Huyler graduated from Cornell University in 1983 with a
Bachelor of Science degree in Business and earned a Masters of Business
Administration from the University of Louisville in 1987.
Paul C. Baker, Director:
- -----------------------
Mr. Baker has served as a Director since June 18, 1998.
From 1986 to the present, he has been President of Sherwood Partners, Inc., a
venture capital and management consulting company, which he founded, that
focuses on developing companies with high growth potential. Prior to
founding Sherwood Partners, Inc. in 1986, Mr. Baker held numerous positions
during his twenty-five years of employment with American Cyanamid Co.
At Cyanamid, Mr. Baker held several domestic and international
management positions, including President of Domestic Operations from April
1975 through October 1979, President of Shulton Inc. from October 1977
through October 1979 and Group Vice President of Cyanamid from October 1979
through December 1984. Mr. Baker graduated from Lehigh University in 1959
with a Bachelor of Arts degree in Liberal Arts, earned a B.S.I.E. degree in
Engineering in 1960 from Lehigh University, and received a Masters in
Business Administration in 1963 from Fairleigh Dickinson University.
-31-
<PAGE>
Edwin Ruzinsky, Director:
- ------------------------
Mr. Ruzinsky has served as a Director since August 27, 1999.
He is a Certified Public Accountant and a Certified Management
Consultant. Prior to his retirement on June 1, 1996 as a Partner in Deloitte
Consulting LLC, a wholly-owned subsidiary of Deloitte & Touche LLP, he
served for many years as the firm's National Director-Media Industry
Services. He previously served Times Mirror Company as Vice
President of Finance & Administration/Book Publishing Group and Parents'
Magazine Enterprises, Inc. as Chief Accounting Officer. Mr. Ruzinsky
continues serving as a member of the Pace University/Dyson School of Liberal
Arts & Sciences/Master of Science in Publishing Advisory Board. He is
currently a member of the Board of Dowden Publishing Company, Inc., a
provider of specialized publications and customized communication products
for healthcare professionals and consumers. In addition, he has been a
consultant to The CPA Journal, published by the New York State Society of
Certified Public Accountants, for the past twenty-five years.
Donald Gunn, Director:
- ----------------------------------------------------------
Mr. Gunn has served as a Director since December 23, 1999. Since
December 13, 1999, he has served as Vice President of Media Sciences. He
founded ultraHue, Inc., a manufacturer of ink and toner products for computer
printers in March 1996. He served as President and Chief Executive Officer of
ultraHue until we acquired ultraHue on December 13, 1999. From June 1997 to
November 1998, he served as the Western Sales Manager for Invention Machine
Corporation, a Boston based provider of software designed to aid engineers in
the development of engineering solutions. From August 1995 to May 1997, he
worked as Regional Manager for the Pacific Northwest for 3D Systems, located
in Valencia, California, a company that produces stereo lithography machines.
From October 1987 to August 1995, he worked for the Color Printer Division of
Tektronix, Inc., located in Wilsonville, Oregon, in various sales and marketing
positions, including Major Account Manager and VAR Account Manager for the
Western United States. From July 1986 to October 1987, he worked as a sales
manager for Silma, Inc., located in Santa Clara, California, a company that
produced software for industrial equipment. From January 1985 to June 1986,
he as the Western Area Sales Manager for AAB Robotics, located in Fort
Collins, Colorado, a company that produced equipment for the welding industry.
He received a Bachelors of Science degree in Electrical Engineering from the
University of Illinois in 1974.
Henry Royer, Director:
- ---------------------
Henry Royer has served as a Director since December 23, 1999. From 1950
until 1962, he was employed for four years by Pillsbury Mills and for four
years by Peavey Company as a grain merchandiser. From 1962 through 1965, he
was employed as Treasurer and served on the Board of Lehigh Sewer Pipe and
Tile. He joined First National Bank of Duluth in 1965, where he served in
various capacities, including Assistant Cashier, Assistant Vice President,
Assistant Manager of the Commercial Loan Department and Senior Vice President
in Charge of Loans. When he left First National Bank in 1983, he was serving
as Executive Vice President/Loans. He then joined The Merchants National Bank
of Cedar Rapids, currently called Firstar Bank Cedar Rapids, N.A., where he
served as Chairman and President until August 1994. From September 1994
through December 31, 1997, he served as the President and Chief Executive
Officer of River City Bank, Sacramento, California from September 1994 through
December 31, 1997. He served as an Independent Trustee of Berthel Growth &
Income Trust I from its date of inception in 1995 through February 5, 1999,
when he resigned. He joined Berthel Fisher & Company Planning Inc. in
February 1999 and was elected President in July 1999. He was elected
President of Berthel SBIC, LLC in August 1999. He graduated in 1953 from
Colorado College with a B.A. in Money and Banking.
-32-
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and
long-term compensation during our last three fiscal years of
our Chief Executive Officer and other most highly compensated
employees and all of our other officers and directors.
Each of Kathleen Morrison, Jason Osborn and Terry Hardman received 1,000
shares of our common stock pursuant to a Registration Statement on Form S-8
filed on or about June 5, 1998. The value of the 1,000 shares is estimated to
be $150, based upon a price of $.15 per share.
On June 18, 1998, we acquired CGSI, a privately-held company. Kathleen
Morrison, Jason Osborn and Terry Hardman resigned as officers and directors
effective June 18, 1998. Michael Levin and Frances Blanco became officers and
directors on June 18, 1998. Duncan Huyler became an officer on June 18, 1999.
Paul Baker became a director on June 18, 1998. We changed our fiscal year end
from December 31 to April 30, and CGSI changed its fiscal year end from April
30 to June 30. The 1998 fiscal year compensations in the table below for Mr.
Levin, Ms. Blanco, and Mr. Huyler includes the operations of CGSI for the
period May 1, 1997 through April 30, 1998. Our matching contributions to
employees' 401(k) plan are included in the table as all other compensation.
<TABLE>
Summary Compensation Table
Long Term
Compensation
------------
Annual Compensation Awards
----------------------------------------------- ------
Name and Other Securities
Principal Annual Underlying All Other
Position Year Salary Bonus Compensation Options/SARS Compensation
- -------------------------- ---------------------------------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Levin 1999 $ 130,000 $ 0 $ 0 500,000 $ 2,379
Chief Executive Officer, 1998 $ 141,583 $ 0 $ 0 51,223 $ 2,727
President and Chairman
Of the Board
Frances Blanco 1999 $ 80,000 $ 10,000 $ 0 100,000 $ 2,021
Vice President Marketing 1998 $ 75,000 $ 25,000 $ 0 7,741 $ 2,158
and Investor Relations,
Treasurer, Secretary and
Director
Duncan Huyler 1999 $ 95,000 $ 0 $ 0 100,000 $ 4,630
Vice President Technical 1998 $ 91,000 $ 25,000 $ 0 9,265 $ 3,867
Services
Paul C. Baker 1999 $ 0 $ 0 $ 0 33,000 $ 0
Director 1998 $ 0 $ 0 $ 0 0 $ 0
Kathleen L. Morrison 1998 $ 0 $ 0 $ 150 0 $ 0
Former President and 1997 $ 0 $ 0 $ 0 0 $ 0
Director
Jason Osborn 1998 $ 0 $ 0 $ 150 0 $ 0
Former Vice President and 1997 $ 0 $ 0 $ 0 0 $ 0
Director
Terry Hardman 1998 $ 0 $ 0 $ 150 0 $ 0
Former Secretary, 1997 $ 0 $ 0 $ 0 0 $ 0
Treasurer and Director
</TABLE>
-33-
<PAGE>
The table below sets forth information concerning options granted
during the fiscal year ended June 30, 1999 to those persons named in the
preceding Summary Compensation Table. The percentage of total options is
based 1,069,632 options granted to officers, directors, and employees,
including options during the 1999 fiscal year and includes options granted
during the two month fiscal year transition period from May 1 through June 30,
1998.
Under employment agreements, we granted 500,000 options to Mr. Levin,
100,000 options to Ms. Blanco, and 100,000 options granted to Mr. Huyler.
These options are performance-based and vest after we achieve certain levels
of corporate earnings. The terms of vesting are described in the discussion
of the Long-Term Incentive Plan table. None of these options have vested.
The other options listed in the table are presently exercisable and were
granted under our incentive stock option plan for our employees.
<TABLE>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Number of
Securities Percent of total
Underlying options/SARS granted Exercise or
Options/SARs to employees in base price Expiration
Name Granted (#) fiscal year ($/Sh) Date
- ---------------- ------------ -------------------- ------------ ----------
<S> <C> <C> <C> <C>
Michael W. Levin 500,000 47.7% $1.375 6-18-03
Michael W. Levin 51,223 4.8% $1.375 6-18-03
Frances Blanco 100,000 9.3% $2.00 3-05-04
Frances Blanco 7,741 0.7% $1.25 6-18-08
Duncan Huyler 100,000 9.3% $2.00 3-05-04
Duncan Huyler 9,265 0.9% $1.25 6-18-08
Paul Baker 3,000 0.3% $2.00 6-11-08
Paul Baker 30,000 2.8% $3.31 4-06-09
</TABLE>
-34-
<PAGE>
None of the options held by those individuals listed in the Summary
Compensation Table were exercised in fiscal year ended 1999. The following
table sets forth information concerning the value of unexercised stock
options at June 30, 1999 for those individuals named in the Summary
Compensation Table.
We calculated the dollar values in the table by multiplying the number of
options by the difference between the fair market value of a share of
common tock underlying an option and the exercise price of the option.
The last sale price of a share of our common stock on June 30, 1999 was
$2.625, as reported by the OTC Bulletin Board.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of securities
Shares underlying unexercised Value of unexercised
Acquired Value Options/SARs in-the-money options/SARs
on realized at FY-end (#) at FY-end ($)(a)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Levin -- -- 51,223 500,000 $ 134,460 $ 1,312,500
Frances Blanco -- -- 7,741 100,000 $ 20,320 $ 262,500
Duncan Huyler -- -- 9,265 100,000 $ 24,321 $ 262,500
Paul Baker -- -- 33,000 -- $ 86,625 $ --
</TABLE>
The table below sets forth information concerning long-term options
granted during the fiscal year ended June 30, 1999 to those persons named in
the preceding Summary Compensation Table. We have not adopted a formal
long-term incentive option plan. The options presented in the table below
were granted pursuant to employment agreements, as amended, with our executive
officers.
You need to keep the following factors in mind when reading the table
below:
- The number of shares equals the options granted to the
individual.
- The performance period is the length of the individual's
employment under his or her employment agreement. If the
options do not vest during the employment term, the options
expire.
- The threshold refers to the minimum number of options that could
vest during the performance period.
- The target refers to the number of options that we reasonably
believe may vest in the 2000 fiscal year.
- The maximum refers to the total number of options that may vest
during the performance period.
These long-term incentive options vest only if we achieve certain levels of
corporate earnings. For each individual, 25% of the maximum payout are to
vest after a fiscal year for which our earnings before interest, taxes,
depreciation and amortization exceeds each of $500,000, $1,000,000,
$1,500,000, and $2,000,000. Each option is exercisable for five years into one
share of common stock. The exercise price for the options equals the fair
market value of a share of common stock on the date of grant. These options
are cumulative and are subject to anti-dilution rights.
-35-
<PAGE>
<TABLE>
Long-Term Incentive Plans-Awards in Last Fiscal Year
Number Performance
of shares, or other units or
units or period until
other maturation or Estimated Future Payouts under
Name rights (#) payout Non-Stock Price-Based Plans
- ------------------------------------------------------------------------------------------
Threshold Target Maximum
(#) (#) (#)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael W. Levin 500,000 5/98 - 4/01 125,000 125,000 500,000
Frances Blanco 100,000 5/99 - 4/01 25,000 25,000 100,000
Duncan Huyler 100,000 5/99 - 4/01 25,000 25,000 100,000
</TABLE>
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS AND CHANGE OF CONTROL
Michael W. Levin serves as our Chief Executive Officer and President
pursuant to a five year employment agreement that began on May 1, 1998, as
amended. His current annual salary is $130,000. His salary increases
annually by the cost-of-living adjustments tied to the Consumer Price Index.
We may increase his salary at any time. Commencing in his third year of
employment and each year after, his annual salary increases by one percent
of our earnings before interest, taxes, depreciation and amortization in the
prior fiscal year. We granted 500,000 five-year options to purchase 500,000
shares of common stock. These options vest only after we achieve certain
corporate levels of earnings. The exercise price for the options is $1.375
per share. He may exercise 125,000 options following the first fiscal year
that our earnings before interest, taxes, depreciation and amortization
exceeds each of $500,000, $1,000,000, $1,500,000 and $2,000,000. These
options are cumulative and are subject to anti-dilution rights. He also
receives:
- death benefits of $100,000,
- a fifteen year term life insurance policy for $1,000,000,
- a luxury automobile, and
- reimbursement for reasonable travel and other business related
expenses.
We may also award him financial or other bonuses as determined by
the Board of Directors.
If we undergo a "change of control", we must pay him an amount equal to
290% of his salary. He has the right to terminate his employment if we undergo
a change in control. As defined in his employment agreement, a change of
control refers to:
- a change in our ownership or management that must
be reported in under the Exchange Act of 1934;
- the acquisition of 25% or more of our common stock or our
voting securities;
- a change in a majority of our Board of Directors that our
Board does not approve of or that results from a proxy contest);
- a reorganization, merger, consolidation or sale of substantially
all of our assets after which our shareholders do not own, in
the same proportion, more than 50% of the voting power, after
which a majority of the board of directors changes, and after
which a new shareholder beneficially owns 25% or more of the
voting power; or
- shareholder approval of our liquidation or dissolution.
-36-
<PAGE>
Frances Blanco serves as our Vice President of Marketing and Investor
Relations, Treasurer and Secretary pursuant to a three year employment
agreementthat began on May 1, 1998 and was amended on March 5, 1999. She
earns a current annual salary of $90,000. We may grant her financial
bonuses as we may determine. We granted her 100,000 five-year options to
purchase 100,000 shares of our common stock. These options vest only after
we achieve certain corporate levels of earnings. The options have an
exercise price of $2.00 per share. She may exercise 25,000 options following
the first fiscal year that our earnings before interest, taxes, depreciation
and amortization exceeds each of $500,000, $1,000,000, $1,500,000 and
$2,000,000. These options are cumulative and are subject to anti-dilution
rights.
Duncan Huyler serves as our Vice President of Technical Services
pursuant to a three year employment agreement that began on May 1, 1998 and
was amended on March 5, 1999. He earns a current annual salary of $95,000.
We may grant him financial bonuses as we may determine. We granted him
100,000 five-year options to purchase up to 100,000 shares of our common
stock. These options vest only after we achievecertain corporate levels of
earnings. The options have an exercise price of $2.00 per share. He may
exercise 25,000 options following the first fiscal year that our earnings
before interest, taxes, depreciation and amortization exceeds each of
$500,000, $1,000,000, $1,500,000 and $2,000,000. These options are
cumulative and are subject to anti-dilution rights.
INCENTIVE STOCK OPTION PLAN
Under our incentive stock option plan for employees, which was adopted
by our Board of Directors and approved by our shareholders, we reserved
500,000 shares of our common stock . Our incentive stock option plan for
employees is administered by our Chairman of the Board. An incentive stock
option entitles the holder to purchase a share of our common stockat a
purchase price equal to the fair market value of the common stock on the day
of grant. We filed a Form S-8 to register the 500,000 shares underlying the
stock options. Employees have exercised options to purchase 19,214 shares of
common stock. We have outstanding incentive stock options to purchase about
265,279 shares of common stock, exercisable for five or ten years
at prices of $1.25 to $4.00 per share, including 121,230 options to our
officers and directors.
-37-
<PAGE>
EMPLOYEE PROFIT SHARING PLAN
We have a tax-qualified employee paired profit sharing plan sponsored
by Kemper Financial Services, Inc. This 401(k) plan covers all of our
employees that have been employed for at least six months and meet other age
and eligibility requirements. Under the 401(k) plan, employees may choose
to reduce their current compensation by up to 15% each year and have that
amount contributed to the 401(k) plan. We make matching contributions equal
to 25% of the employee's contribution. In our discretion, we may contribute
unmatched contributions. The 401(k) plan qualifies under Section 401 of the
Internal Revenue Code, so that we can deduct contributions by employees or by
us. Employee contributions to the 401(k) plan are fully vested at all times,
and our contributions, if any, vest at the rate of 25% after two years and
after two years at the rate of 25% a year until fully vested.
-38-
<PAGE>
OWNERSHIP OF SECURITIES
The table below sets forth, as of February 7, 2000, the shares of
our common stock beneficially owned by each person known to us to be
the beneficial owner of more than five percent of our outstanding
shares of common stock, by each of our officers and directors, and by all of
our officers and directors as a group. This information was determined in
accordance with Rule 13(d)-3 under the Securities Exchange Act of 1934, and
is based upon the information provided by the persons listed below. All
persons named in the table have the sole voting and dispositive power with
respect to common stock beneficially owned.
You should consider the following factors when reviewing the table:
- For each person listed, shares of common stock that can be
acquired by that person within 60 days are included.
- Except for the beneficial ownership of Berthel SBIC, the percent
of class does not include shares of common stock which may be
acquired upon the conversion of any outstanding shares of series
A preferred stock.
- Mr. Levin's reported shares of common stock includes beneficial
ownership of 62,000 shares owned by his minor children and
51,223 shares underlying exercisable five-year options, and
excludes other options, subject to future vesting, to acquire
500,000 shares of common stock.
- Ms. Blanco's reported shares of common stock includes 7,741
shares underlying exercisable ten-year options, and excludes
other options, subject to future vesting, to acquire 100,000
shares of common stock.
- Mr. Huyler's reported shares of common stock includes 9,265
shares underlying exercisable ten-year options, and excludes
other options, subject to future vesting, to acquire 100,000
shares of common stock.
- Mr. Baker's reported shares of common stock includes 33,000
shares underlying exercisable ten-year options.
- Mr. Ruzinsky's reported shares of common stock includes 10,000
shares underlying exercisable ten-year options.
- Mr. Gunn's reported shares of common stock excludes options
to acquire 50,001 shares of common stock which have not vested.
- Berthel SBIC's beneficial ownership includes shares of common
stock which may be acquired upon the exercise of warrants to
acquire 290,000 shares of common stock and upon the conversion
of 100,000 series A preferred stock shares at the current
conversion rate into 307,692 common stock shares.
- Berthel SBIC's beneficial ownership also includes options to
acquire 10,000 shares of common stock because its internal
policy prohibits Mr. Royer, President of Berthal SBIC, from
direct ownership of the options that he acquired from serving on
our Board of Directors.
- For purpose of calculating the shares held by officers and
directors, shares beneficially owned by Berthel SBIC are not
included as shares held by a director.
The address of each of the persons named in the table is Cadapult
Graphic Systems, Inc., 110 Commerce Drive, Allendale, New Jersey 07401, except
for Henry Royer and Berthel SBIC, LLC whose address is 100 Second Street SE,
Cedar Rapids, Iowa 52407.
<TABLE>
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Owner of Class
- ------------------- ------------------- --------
<C> <C> <C>
Michael W. Levin 1,569,673 48.8%
Frances Blanco 48,516 1.5%
Duncan Huyler 50,040 1.6%
Paul Baker 100,500 3.1%
Edwin Ruzinsky 10,000 0.3%
Donald Gunn 25,000 0.8%
Henry Royer 10,000 0.3%
Berthel SBIC, LLC 607,692 16.1%
All officers and directors as a group (7 persons) 2,421,421 54.6%
</TABLE>
We do not have any arrangements which may result in a change in control.
-39-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1998, we filed a registration statement on Form S-8 for
66,068 shares of common stock. We issued the shares to four individuals,
including to our officers and directors, pursuant to written
compensation agreements, as follows:
- Leonard W. Burningham, 63,068 shares;
- Kathleen L. Morrison, 1,000 shares;
- Jason Osborn, 1,000 shares; and
- Terry Hardman, 1,000 shares.
Kathleen L. Morrison, Jason Osborn, and Terry Hardman resigned as our
directors and officers effective as of June 18, 1998.
On June 18, 1998, we completed the acquisition of CGSI, a privately-
held New Jersey corporation, in a transaction viewed as a reverse
acquisition. Pursuant to an Agreement and Plan or Reorganization dated June
5, 1998, between us, CGSI, all of the shareholders of CGSI, Jenson
Services, Inc., a Utah corporation, Duane S. Jenson and Jeffrey D. Jenson, we
issued 1,650,000 shares of common stock to the shareholders of CGSI in
exchange for all of the outstanding common stock of CSGI. Pursuant to the
acquisition, the shareholders of CSGI became ourcontrolling shareholders,
our officers and directors resigned and elected the CSGI nominees
in their places, and CSGI became our wholly-owned subsidiary.
Michael W. Levin acquired 300 shares, no par value, of CGSI on May
1, 1987 for $300. Frances Blanco acquired 7.90 shares, no par value, of CSGI
on June 3, 1997 for $15,000. Duncan Huyler acquired 7.90 shares, no par
value, of CSGI on June 3, 1997 for $15,000. Duncan Yates acquired 3.8748
shares, no par value, of CGSI on April 20, 1998 for $15,000. In May 1998,
Mr. Levin made a gift of 3.1 shares to each of their two minor children.
Pursuant to the acquisition, Mr. Levin and his children, Ms. Blanco, Mr.
Huyler and Mr. Yates, representing all the issued and outstanding shares of
CGSI, exchanged their shares of CGSI proportionally for 1,650,000 shares of
our common stock pursuant to our acquisition of CGSI. Michael W. Levin
currently serves as our Chief Executive Officer, President and Chairman of
the Board, and he is our largest stockholder. Frances Blanco
currently serves as our Vice President, Secretary, Treasurer and as a
director. Duncan Huyler currently serves as our Vice President.
We issued to Mr. Levin under an employment agreement stock options to
purchase up to 500,000 shares of common stock to vest upon us attaining
certain specified corporate milestones based upon corporate earnings,
exercisable for five years at $1.375. We issued to each of Ms. Blanco
and Mr. Huyler under employment agreements stock options to purchase
up to 100,000 shares of common stock each to vest upon us attaining
certain specified corporate milestones based upon corporate earnings,
exercisable for five years at $2.00.
In August 1998, Paul and Brenda Levin, the parents of Michael W. Levin,
converted a $50,000 note payable by us to them for 40,000 shares of our
common stock at the rate of $1.25 per share. This transaction was part of
a private placement of common stock at $1.25 per share that we completed in
August 1998.
In August 1998, we filed a registration statement on Form S-8 for our
incentive stock option plan for employees under which we may issue options
that may be exercised for up to 500,000 shares of common stock. To date,
employees have exercised options to purchase 19,214 shares of common stock.
Incentive stock options to purchase approximately 265,279 shares are
outstanding. Those options are exercisable at $1.25 to $4.00 per share and
expire five to ten years from the dates of issuances. Executive officers and
directors have been granted the following options pursuant to the incentive
stock option plan:
- Michael W. Levin, 5-year options to purchase 51,223 shares at
$1.375;
- Frances Blanco, 10-year options to purchase 7,741 shares at
$1.25;
- Duncan Huyler, 10-year options to purchase 9,265 shares at $1.25;
- Paul Baker, 10-year options to purchase 3,000 shares at $2.00
and 30,000 shares at $3.31;
- Edwin Ruzinsky, 10-year options to acquire 10,000 shares at
$2.06; and
- Henry Royer, 10-year options to acquire 10,000 shares at $3.125.
-40-
<PAGE>
On December 13, 1999, we completed, through our subsidiary Media
Sciences, the acquisition of certain assets and the assumption of certain
liabilities of ultraHue, Inc., a New Mexico corporation, pursuant to an asset
purchase agreement dated September 7, 1999. We acquired certain proprietary
information and intellectual property rights of ultraHue and other assets used
in its business operations, including:
- its trade secrets;
- its accounts receivable less allowances;
- its inventory;
- rights to the name ultraHue;
- its customer lists;
- its sales, service and vendor contracts; and
- its security deposits.
We assumed the following liabilities of ultraHue:
- its accounts payable as of the closing date;
- its customer deposits as of the closing date; and,
- its leases and contracts.
The purchase price we paid at closing included:
- $2,340,000 at closing;
- a promissory note for $1,160,000, with 7% annual interest rate
payable in one year; and,
- a sum equal to ultraHue's cost for its inventory delivered to
us at the closing date.
The purchase price also includes:
- the sum of accounts receivables as of the closing date that we
collect;
- for one year from closing, 10% of the net profits that Media
Sciences derives from the first $1,500,000 dollars of Media
Sciences' gross profits;
- for one year from closing, 30% of the net profits of Media
Sciences that is attributable to its gross profits in excess
of $1,500,000;
- for two years from closing, 10% of the quarterly net profits
derived by Media Sciences from the first $1,000,000 of gross
profits; and
- for two years from closing, 30% of the net profits of Media
Sciences that is attributable to its gross profits in excess
of $1,000,000 dollars.
On December 13, 1999, Donald Gunn, an officer, director and controlling
shareholder of ultraHue, became Vice President of Media Sciences. Under a
three year employment agreement, we issued him options to purchase 50,001
shares of our common stock. The exercise price of the options is $3.125
per share. One-third of the options vest on each of the three anniversary
dates of employment. On December 23, 1999, Mr. Gunn was elected to serve on
our Board of Directors.
On December 13, 1999, Randy Hooker, an officer, director and controlling
shareholder of ultraHue, became an employee of Media Sciences. Under a three
year employment agreement, we issued him options to purchase 50,001 shares
of our common stock. The exercise price of the options is $3.125 per
share. One-third of the options vest on each of the three anniversary dates
of employment.
In December 1999, Berthel SBIC purchased 100,000 units of our securities
in a private placement at $10 per unit. Berthel SBIC beneficially owns
407,692 shares of common stock which may be acquired upon the conversion of
100,000 shares of series A preferred stock, at the current conversion rate of
one preferred stock share into 3.077 common stock shares, and the exercise of
five-year warrants to acquire 200,000 shares of common stock at $4.50 per
share which underlie the 100,000 units. Berthel SBIC also owns five year
warrants to acquire another 90,000 shares of common stock. On December 23,
1999, Henry Royer, President of Berthel SBIC, was elected to serve on our
Board of Directors. Berthal SBIC owns the 10,000 incentive stock options that
we granted to Henry Royer as an outside director.
On January 14, 2000, Henry Royer purchased 10,000 shares of our common
stock in the public market at $3.25 per share.
-41-
<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the resale of 771,500 shares of common stock
owned by certain of our present stockholders.
The table below sets forth:
- the names of the selling stockholders;
- the number of shares of common stock beneficially owned by
each of the selling stockholders before this offering based on
3,197,775 shares of common stock issued and outstanding on
February 7, 2000;
- the number of shares of common stock being offered under
this prospectus by each of the selling stockholders;
- the number and percentage of shares of stock of common stock
owned by each of the selling stockholder after the completion of
the offering.
The symbol "*" in the table indicates less than 1% ownership of our
outstanding shares of common stock after this offering.
The shares of common stock reported in the table below by
Michael W. Levin includes beneficial ownership of 62,000 shares held by his
minor children, excludes exercisable 5-year options to acquire 51,223
shares of common stock, and excludes performance based options to acquire
500,000 shares of common stock that have not vested. The shares of common
stock reported in the table below as owned by Dan Brecher excludes 75,385
shares of common stock which can be acquired upon the exercise of warrants and
conversion of series A preferred stock at the current conversion rate of one
series A preferred stock into 3.077 shares of common stock.
Michael W. Levin, a selling stockholder under this prospectus, is our
Chief Executive Officer, President, Chairman of the Board of Director, and
our largest stockholder. On June 18, 1998, we acquired all of the equity
of CGSI, in a transaction viewed as a reverse acquisition. Under our
acquisition of CGSI, Mr. Levin, who was the controlling shareholder, President
and Chairman of the Board of CSGI, exchanged his beneficial ownership of 94%
equity of CGSI for beneficial ownership of 1,548,450 shares of our common
stock, and he became our largest shareholder, President and Chairman of
the Board. Duane Jenson, a selling shareholder under this prospectus, was a
controlling shareholder prior to our acquisition of CGSI. Since our
acquisition of CGSI in June 1998, Mr. Jenson has had no control over or
involvement in our operations.
The shares of common stock offered by this prospectus may be offered
from time to time by the selling stockholder. Our registration does not
necessarily mean that any selling stockholder will sell all or any of its
shares.
-42-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael W. Levin 1,508,450 150,000 1,358,450 42.5%
David G. Baker 4,000 4,000 0 *
Mitchell K. Baker 7,000 7,000 0 *
Louis Beckerman 8,000 8,000 0 *
Art Beroff 150,000 50,000 100,000 3.1%
Helen Beroff 20,000 20,000 0 *
Frank E. Blanco 13,000 13,000 0 *
Dan Brecher 30,000 30,000 0 *
Jeffory L. Broman 20,000 20,000 0 *
Willam V. Catellano 16,000 16,000 0 *
Cicero Cinzano Ltd. 20,000 20,000 0 *
Michael J. Doolin 8,000 8,000 0 *
Dufo Ltd. 8,000 8,000 0 *
John Alan and Eileen V. Forrest 8,000 8,000 0 *
Carolyn J. Gazeley 8,000 8,000 0 *
Robin Greitzer 6,000 6,000 0 *
Phillip R. and Kathryn W. Haley 10,000 10,000 0 *
Richard J. Helfman Life
Insurance Trust 13,000 13,000 0 *
Brad P. Herman 15,000 15,000 0 *
Barbara Jenson 20,000 20,000 0 *
Duane S. Jenson 115,919 40,000 75,919 2.4%
John G. Kiernan 8,000 8,000 0 *
Peter J. Kiernan 8,000 8,000 0 *
Stacy S. Kiernan 2,500 2,500 0 *
Andrew Eric Koopman 10,000 10,000 0 *
James Kramer 5,000 5,000 0 *
Harold Kugelman 1,000 1,000 0 *
Daniel M. Landis and Valerie
B. Landis 4,000 4,000 0 *
Diane Levin 8,000 8,000 0 *
Paul Levin and Brenda Levin 40,000 40,000 0 *
Michael F. Manion 4,000 4,000 0 *
Albert Martin 4,000 4,000 0 *
Michael and Susan Meister 5,000 5,000 0 *
New York New York International
Limited 40,000 40,000 0 *
Joan Glenn Rozansky 5,000 5,000 0 *
Joan W. and Glenn Rozansky 16,000 16,000 0 *
Eunice Share and Nacy Share 8,000 8,000 0 *
Joseph A. Stanczyk Jr. 2,000 2,000 0 *
Robert Sydenham 20,000 20,000 0 *
Charles and Debbie A. Thomas 8,000 8,000 0 *
Michele Levitt Tuvel 9,750 9,750 0 *
Robert Scott Yates 2,500 2,500 0 *
Lynn Wiener 26,000 26,000 0 *
Hermine Wiener 5,000 5,000 0 *
Robert A. Wiener Trust 20,000 20,000 0 *
Hermine L. Wiener and Lynn Wiener 16,000 16,000 0 *
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alex Allias 100 100 0 *
Matthew Arthur 100 100 0 *
Mark Augustyn 100 100 0 *
Cathy Backman 100 100 0 *
Tracy Backmann 100 100 0 *
Alex Baker 100 100 0 *
Amanda Baker 100 100 0 *
Claudia Baker 100 100 0 *
Danielle Baker 100 100 0 *
Jill Baker 100 100 0 *
Joshua Baker 100 100 0 *
Kenneth Baker 100 100 0 *
Norma Baker 100 100 0 *
Samantha Baker 100 100 0 *
Scott Baker 100 100 0 *
Stephen Baker 100 100 0 *
William Baker 100 100 0 *
Zachary Baker 100 100 0 *
Claire Baldwin 100 100 0 *
Paige Baldwin 100 100 0 *
Sarah Baldwin 100 100 0 *
Elizabeth Beaulieu 100 100 0 *
Madeline Beaulieu 100 100 0 *
Timothy Beaulieu 100 100 0 *
Kevin Benoit 100 100 0 *
Nadine Benoit 100 100 0 *
Brendon Blair 100 100 0 *
Bridget Blair 100 100 0 *
Conner Blair 100 100 0 *
Denise Blair 100 100 0 *
Matthew Blair 100 100 0 *
Edna Blanco 100 100 0 *
Nicholas Bomalaski 100 100 0 *
Rachel Bomalaski 100 100 0 *
Susan Bomalaski 100 100 0 *
Eric Brown 100 100 0 *
William Chadwick 100 100 0 *
James Chippone 100 100 0 *
Garrett Cutler 100 100 0 *
Jordan Cutler 100 100 0 *
Kyle Cutler 100 100 0 *
Taylor Cutler 100 100 0 *
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shane Daly 100 100 0 *
Suzanne Daly 100 100 0 *
Tucker Daly 100 100 0 *
Sandy Desmond 100 100 0 *
Tim Desmond 100 100 0 *
Troy Desmond 100 100 0 *
Tyler Desmond 100 100 0 *
Diane DeVincentis 100 100 0 *
David Donaldson 100 100 0 *
Brendan Doyle 100 100 0 *
Susan Doyle 100 100 0 *
Erica Eliott 100 100 0 *
Jocelyn Eliott 100 100 0 *
Mark Eliott 100 100 0 *
Jason Ezra 100 100 0 *
Jennifer Farrissey 100 100 0 *
Stacey Fineburg 100 100 0 *
Christina Finn 100 100 0 *
John Finn 100 100 0 *
Mary Grace Finn 100 100 0 *
Laura Flomm 100 100 0 *
Michael Flomm 100 100 0 *
Andrew Forbes 100 100 0 *
Christie Forbes 100 100 0 *
Claire Forbes 100 100 0 *
Duncan Forbes 100 100 0 *
Helen Forbes 100 100 0 *
Alan Forrest 100 100 0 *
Carol Forrest 100 100 0 *
Eileen Forrest 100 100 0 *
Julie Forrest 100 100 0 *
Marc Forrest 100 100 0 *
Marc Julian Forrest 100 100 0 *
Simon Forrest 100 100 0 *
Jane Gailey 100 100 0 *
Kevin Gailey 100 100 0 *
Leanne Garrison 100 100 0 *
Maria Giammichele 100 100 0 *
Richard Girouard Jr. 100 100 0 *
Caroline Glass 100 100 0 *
Diane Glass 100 100 0 *
Gary Glass 100 100 0 *
Gary Glass, Jr. 100 100 0 *
Megan Glass 100 100 0 *
Adam Greitzer 100 100 0 *
Hallie Greitzer 100 100 0 *
Julia Greitzer 100 100 0 *
</TABLE>
-45-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kathleen Halley 100 100 0 *
Louise Halley 100 100 0 *
Anne Marie Hartmann 100 100 0 *
David Harris 100 100 0 *
Kristin Harris 100 100 0 *
David Heritage 100 100 0 *
Shannon Heritage 100 100 0 *
Tatum Heritage 100 100 0 *
Priscilla Horn 100 100 0 *
Jonathan Hurd 100 100 0 *
Keelyn Hurd 100 100 0 *
Roger Hurd 100 100 0 *
Connor Huyler 100 100 0 *
Erica Huyler 100 100 0 *
Garrett Huyler 100 100 0 *
Margaret Huyler 100 100 0 *
Peter Huyler 100 100 0 *
Timothy Huyler 100 100 0 *
Todd Huyler 100 100 0 *
Tracey Hurd 100 100 0 *
Julie Jones 100 100 0 *
Gerald Kaplan 100 100 0 *
Rachel Kaplan 100 100 0 *
Jennifer Kaplan 100 100 0 *
Maury Kaplan 100 100 0 *
Adam Kaplin 100 100 0 *
Dana Kaplin 100 100 0 *
Madeline Kaplin 100 100 0 *
Juliett Kasbar 100 100 0 *
Mary Kasbar 100 100 0 *
Michael Kasbar 100 100 0 *
Robert Keogh 100 100 0 *
Darby Kiernan 100 100 0 *
Jack Kiernan 100 100 0 *
Patrick Kiernan 100 100 0 *
Linda Korzelius 100 100 0 *
Carrie Lagg 100 100 0 *
Joanne Lawson 100 100 0 *
Robert Lawson 100 100 0 *
Teresa Lennon 100 100 0 *
Ruth Levin 100 100 0 *
Abigail Lewis 100 100 0 *
Jane Lewis 100 100 0 *
Jasmine Lewis 100 100 0 *
Sean Lewis 100 100 0 *
Joe Lockhart 100 100 0 *
Michael Lynch 100 100 0 *
</TABLE>
-46-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kevin Martorana 100 100 0 *
Bryan Miskie 100 100 0 *
Jami Miskie 100 100 0 *
Douglas Montgomery 100 100 0 *
Judy Montgomery 100 100 0 *
Emily Morales 100 100 0 *
Eric Morales 100 100 0 *
Tara Morales 100 100 0 *
Kathleen Morande 100 100 0 *
Betsy Morret 100 100 0 *
Adrienne Mortimer 100 100 0 *
Kathie Mortimer 100 100 0 *
George Mortimer, Jr. 100 100 0 *
Lucille R. Mortimer 100 100 0 *
Marsiglia Moscia 100 100 0 *
Brendan Mullen 100 100 0 *
Karen Mullen 100 100 0 *
Michael Mullen 100 100 0 *
Patrick Mullen 100 100 0 *
James Nichols 100 100 0 *
Patty O'Donoghue 100 100 0 *
John O'Donoghue 100 100 0 *
Maureen O'Hara 100 100 0 *
Dave O'Neil 100 100 0 *
Alyssa Palatiello 100 100 0 *
Jenna Palatiello 100 100 0 *
Aran Parillo 100 100 0 *
Matthew Parillo 100 100 0 *
Caroline Pericelli 100 100 0 *
Phillip Pericelli 100 100 0 *
Shannon Reiner 100 100 0 *
Audrey Ritter 100 100 0 *
Edward Ritter 100 100 0 *
Karen Rocasecca 100 100 0 *
Melissa Rogers 100 100 0 *
Robert Rogers 100 100 0 *
Dana Rozansky 100 100 0 *
Jordan Rozansky 100 100 0 *
Arthur Schatz 100 100 0 *
Elizabeth Scipione 100 100 0 *
Brian Shannon 100 100 0 *
Harvey Share 100 100 0 *
Alex Stanczyk 100 100 0 *
Brenna Stanczyk 100 100 0 *
Lonnie Stanczyk 100 100 0 *
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering Offering
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tricia Tancredi 100 100 0 *
Janelle Temple 100 100 0 *
Gustavo Torres 100 100 0 *
Alex Towery 100 100 0 *
Eunice Towery 100 100 0 *
Jacob Towery 100 100 0 *
Dr. Owen Brooker Towery III 100 100 0 *
Christine Turso 100 100 0 *
Grace Turso 100 100 0 *
Michael Turso 100 100 0 *
Michael John Turso 100 100 0 *
Brooks S. Yates 100 100 0 *
Jacqui Coffey 100 100 0 *
James S. Yates 100 100 0 *
Kate Yates 100 100 0 *
Marilyn Yates 100 100 0 *
Pauline Yates 100 100 0 *
Samantha Yates 100 100 0 *
Olga Wilson 100 100 0 *
--------- ------- ---------
TOTAL 2,306,119 771,750 1,534,369
========= ======= =========
</TABLE>
-48-
<PAGE>
PLAN OF DISTRIBUTION
The following discussion describes the material terms of the plan of
distribution. The shares of common stock may be offered and sold from time to
time by the selling stockholders at various times in transactions:
- in the over-the-counter market;
- to purchasers directly;
- in ordinary brokerage transactions in which the broker solicits
purchasers;
- through purchases by a broker or dealer as principal and resale
by such broker or dealer for its own account pursuant to this
prospectus;
- block trades in which a broker-dealer so engaged will attempt
to sell the shares as agent but may take a position and resell
a portion of the block as principal to facilitate the
transaction;
- in connection with short sales; or
- in any combination of one or more of these methods.
Selling stockholders may sell their shares of common stock:
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices;
- at negotiated prices;
- at fixed prices; or
- at a combination of such prices.
Selling stockholders may use dealers, agents or underwriters to
sell their shares. If this happens, the dealers, agents or underwriters may
receive compensation in the form of discounts or commissions from the selling
stockholder or from the purchaser of shares or from both, which compensation
to a particular broker might be in excess of customary compensation.
Selling stockholder and any dealers, agents or underwriters that
participate with the selling stockholders in the distribution of the shares
may be deemed to be "underwriters", as this term is defined in the Securities
Act. Any commissions paid or any discounts or concessions allowed to any
such persons, and any profits received on the resale of such shares offered
by this prospectus, may be deemed to be underwriting commissions or discounts
under the Securities Act.
We may be required to file a supplemental prospectus in connection with
any activities involving a seller which may be deemed to be an
"underwriting." In that case, a supplement to this prospectus would contain:
- the name or names of the underwriters;
- whether the underwriters are acting as principals or agents;
- the compensation to be received by an underwriter; and
- the compensation to be received by any other broker-dealer, in
the event the compensation of such other broker-dealers is in
excess of usual and customary commissions.
-49-
<PAGE>
Underwriters may be entitled under agreements with us to
indemnification by us against certain civil liabilities, including
liabilities under the Securities Act, or to contribution from us for payments
the underwriters may be required to make in connection with certain civil
liabilities. These underwriters may engage in transactions with, or perform
services for, us for customary compensation.
We will pay for substantially all of the expenses incident to the offer
and sale of the shares of common stock offered by the selling stockholders
using this prospectus. The selling stockholders will pay applicable stock
transfer taxes, transfer fees and brokerage commissions or underwriting or
other discounts.
To comply with the securities laws of certain states, the shares of
common stock offered by this prospectus may need to be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
The offering of the shares of common stock pursuant to this prospectus
will terminate on the earlier of the time when the shares of common stock:
- have been sold by the selling stockholders pursuant to this
prospectus;
- the time when all of the shares of common stock are eligible
to be sold pursuant to Rule 144(k) under the Securities Act; or
- this prospectus is no longer effective.
-50-
<PAGE>
OUR SECURITIES
General
Our authorized capital consists of 20,000,000 shares of common stock,
par value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.001 per share. As of February 7, 2000, 1999, 3,197,775 shares of common
stock were issued and outstanding and there were 416,000 shares of our
series A preferred stock issued and outstanding.
Common Stock
The holders of the common stock are entitled to cast one vote for each
share held of record on all matters presented to stockholders. The holders
of common stock do not have cumulative voting rights, which means that the
holders of more than 50% of the outstanding shares voting for the election of
our directors can elect all of the directors, and in such an event, the
holders of the remaining shares will be unable to elect any of our directors.
The holders of the outstanding shares of common stock are entitled to
receive dividends out of assets legally available at such times and in such
amounts as the Board of Directors may from time to time determine, subject to
the rights of the holders of our preferred stock. Upon our liquidation,
dissolution, or winding up, the assets legally available for distribution
to the stockholders will be distributed equally among the holders of the
shares, subject to the rights of the holders of our preferred stock.
Preferred Stock
Our Certificate of Incorporation allows our Board of Directors to issue
shares of preferred stock in one or more series. The Board can fix for each
series, voting powers, designations, preferences and relative, participating,
or other special rights to the extent permissible under the Delaware General
Corporation Law. The Board has designated 1,000,000 shares as series A
preferred stock. The Board, without a vote of the series A preferred stock
holders, can increase the number of authorized series A preferred stock above
the number of shares of series A preferred stock actually outstanding at any
time.
The preferred stock does not carry voting rights.
Our series A preferred stock is convertible into shares of common stock.
For two years, each holder of series A preferred stock can convert one share
of series A preferred stock into 3.077 shares of common stock. After each of
two and four years from the date of issuance, the conversion rate of one share
of series A preferred stock into shares of common stock adjusts. At the
adjusted conversion rate, the number of shares of common stock received equals
$10 divided by 75% of the average bid price of our common stock during the 90
days preceding each of the two and four year anniversary dates. However, the
maximum conversion rate is one share of series A preferred stock into five
shares of common stock.
-51-
<PAGE>
The table below illustrates how the conversion feature would work for
one share of series A preferred stock into shares of common stock after each
of the two and four year anniversary dates of issuance.
90 Day 75% of Calculated Shares of
Average Average Conversion Rate Common Stock
Bid Bid ($10 divided by 75% Issued At
Price Price of Average Bid Price) Conversion
- --------------------------------------------------------------
$ 2.00 $1.50 6.67 5.00
$ 2.67 $2.00 5.00 5.00
$ 3.00 $2.25 4.44 4.44
$10.00 $7.50 1.33 1.33
You should note that if the 90 day average bid price of our common stock is
$2.67 or lower, the maximum conversion rate applies. If the 90 day average
bid price of our common stock is $2, instead of conversion at the rate
determined $10 divided by 75% of $2, which would compute to 6.67 shares of
common stock for one share of series A preferred stock, a maximum of five
shares of common stock would be issued.
While we have series A preferred stock outstanding, we will not
materially and adversely alter the rights of the series A preferred stock
without the consent of a majority of the series A preferred stock holders.
Under certain circumstances, we can redeem the shares of series A preferred
stock for $15.00 per share, plus all accrued and unpaid dividends.
If we liquidate, wind-up or dissolve, we will pay to the holder, for
each share of series A preferred stock, the sum of $10 plus unpaid dividends
out of our available assets. Once paid, the holders of series A preferred
stock will have no right or claim to any of the remaining assets of our
company. If our assets are not enough to pay them, then the holders of
series A preferred stock shall share ratably in such distribution of assets.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation
Law. This statute generally prohibits a publicly-held Delaware corporation
from engaging, under certain circumstances, in a business combination with
an interested stockholder for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless:
- prior to the date at which the person became an interested
stockholder, the board of directors approved either the business
combination or the transaction in which the person becomes an
interested stockholder;
- the stockholder acquires more than 85% of the outstanding
voting stock of the corporation, excluding shares held by
directors who are officers or held in certain employee stock
plans, upon consummation of the transaction in which the person
becomes an interested stockholder; or
- the business combination is approved by the board of
directors and by at least 66 2/3% of the outstanding voting
stock of the corporation, excluding shares held by the
interested stockholder, at a meeting of stockholders and not
by written consent held on or subsequent to the date such
person became an interested stockholder.
An interested stockholder is a person who, together with affiliates
and associates, owns, or at any time within the prior three years did own,
15% or more of the corporation's voting stock. Section 203 defines a
business combination to include mergers, consolidations, stock sales,
asset-based transactions and other transactions resulting in a financial
benefit to the interested stockholder.
Transfer Agent
Continental Stock & Transfer Company, New York, New York, is our
transfer agent and registrar for our common stock.
-52-
<PAGE>
Market Information
Beginning July 10, 1998, our common stock was quoted on the OTC
Bulletin Board under the symbol "GRFX". The following table sets forth for
the periods indicated, the high and low closing bid prices for a share of the
common stock as reported by the OTC Bulletin Board.
Fiscal Year 1999 Fiscal Year 2000
------------------ ------------------
Quarter Ended High Low High Low
- ------------- ------- ------- ------ -------
September 30 $ 4.00 $ 2.00 $ 2.562 $ 1.937
December 31 $ 3.620 $ 2.125 $ 3.25 $ 2.00
March 31 $ 3.250 $ 1.75
June 30 $ 3.562 $ 2.50
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
Before July 10, 1998, our common stock was listed in the "pink sheets"
of the National Quotation Bureau, Inc. and on the OTC Bulletin Board under
the symbol "SEUS". Before the time periods indicated above, an active trading
market for our common stock did not exist.
Holders
The approximate number of holders of record of our common
stock as of February 7, 2000 was 389. As of that date, there were
approximately 450 beneficial stockholders, including stockholders holding
stock under nominee security position listings.
Dividends
We have never declared any cash dividends on the common stock at any
time. Future cash dividends on the common stock, if any, will be at the
discretion of our Board of Directors and will depend on our future operations
and earnings, capital requirements and surplus, general financial condition,
contractual restrictions, and other factors that the Board of Directors may
consider important.
Our series A preferred stock bears a fixed dividend at an annual rate of
11.5%. Dividends are paid in cash each quarter in arrears. The first dividend
payment occurred on January 1, 2000. Unless we have fully paid all dividends
on the outstanding shares of series A preferred stock, we cannot declare or
pay cash dividends, or distribute or set aside assets, for any of our other
securities.
LEGAL MATTERS
Our counsel, Law Offices of Dan Brecher, New York, New York, is giving
us an opinion on the validity of the shares offered by this prospectus. Dan
Brecher, the sole principal of the law firm, through his individual retirement
account and retirement plan owns 30,000 shares of our common stock and 5,000
units of our securities. He purchased all of these securities in our private
placements at the prevailing offering prices. Each unit consists of one share
of series A preferred stock and warrants to purchase two shares of common
stock. He also owns five year warrants that expire on August 20, 2003 to
purchase 50,000 shares of our common stock at $4.00 per share that he
acquired in August 1998 as an attorney with the law firm of Fischbein Badillo
Wagner Harding, which firm had acquired a total of 75,000 warrants for legal
services valued at about $13,043. He is a selling stockholder of 30,000
shares of common stock under this prospectus.
EXPERTS
Our financial statements for the year ended June 30, 1999,
the two months ended June 30, 1998, and the year ended April 30, 1998,
included in this prospectus have been audited by Wiss & Company, LLP,
independent auditors, as stated in their report appearing in this prospectus,
and are included in reliance upon such report given on the authority of said
firm as experts in accounting and auditing.
-53-
<PAGE>
INDEMNIFICATION
We will indemnify our directors, officers, and controlling persons
against liability under the Securities Act to the extent permitted by the
General Corporation Law of Delaware. We will indemnify them against all
expenses and liabilities that is reasonably incurred in connection with
this prospectus to the extent allowed under Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities, other than
the payment by us of expenses incurred or paid by any of our directors,
officers, or controlling persons in the successful defense of any action,
suit or proceeding, is asserted by such directors, officers or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read
and copy any documents we file at the Securities and Exchange Commission's
public reference rooms in Washington, D.C. at 450 Fifth Street, N.W.,
Washington, D.C. 20549, in New York, New York at 7 World Trade Center, Suite
1300, New York, New York 10048, and in Chicago, Illinois at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available on the Securities and Exchange
Commission's web site at http://www.sec.gov.
-54-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Financial Report - June 30, 1999 F-1
Financial Statements - Quarter Ended December 31, 1999 (Unaudited) F2-1
Financial Statements of Tartan Technical, Inc. (Businesses Acquired) F3-1
Financial Statements of BBG Technologies, Inc. (Business Acquired) F4-1
Financial Statements of ultraHue, Inc. (Business Acquired) F5-1
Pro Forma Financial Information F6-1
-55-
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
Financial Report - June 30, 1999
Independent Auditors' Report F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Changes in Shareholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cadapult Graphic Systems, Inc.
We have audited the accompanying balance sheets of Cadapult Graphic Systems,
Inc. as of June 30, 1999 and June 30, 1998 and the related statements of
operations, changes in shareholders' equity and cash flows for the year ended
June 30, 1999, the two months ended June 30, 1998 and the year ended April
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cadapult Graphic Systems,
Inc. at June 30, 1999 and 1998, and the results of its operations and its
cash flows for the periods indicated above in conformity with generally
accepted accounting principles.
/s/ Wiss & Company
WISS & COMPANY, LLP
Livingston, New Jersey
August 18, 1999
F-2
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
June 30,
------------------------------
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 33,157 $ 22,821
Accounts receivable, less allowance for doubtful
accounts of $35,000 in 1999 and $22,500 in 1998 1,950,399 1,653,624
Attorney escrow - 320,000
Inventories 1,276,621 1,016,381
Prepaid and refundable income taxes - 46,295
Prepaid expenses and other current assets 77,471 38,591
------------ ------------
Total Current Assets 3,337,648 3,097,712
------------ ------------
PROPERTY AND EQUIPMENT, NET 627,029 232,023
------------ ------------
OTHER ASSETS:
Goodwill and other intangible assets, net 835,889 410,195
Deferred acquisition costs 34,542 -
Security deposits 33,523 31,343
------------ ------------
903,954 441,538
------------ ------------
$ 4,868,631 $ 3,771,273
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 1,677,024 $ 695,000
Current maturities of long-term debt 87,547 89,219
Accounts payable 1,710,861 1,940,770
Accrued expenses and other current liabilities 131,767 131,510
Due to officer - 20,000
Deferred revenues 294,089 144,600
------------ ------------
Total Current Liabilities 3,901,288 3,021,099
------------ ------------
OTHER LIABILITIES:
Long-term debt, less current maturities 69,445 156,992
Notes payable to affiliates 20,832 20,832
------------ ------------
90,277 177,824
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
common stock, .001 par value,
Authorized 20,000,000 shares; issued 3,058,308
shares in 1999 and 2,583,518 in 1998 3,058 2,583
Additional paid-in capital 1,171,782 423,167
Retained earnings (deficit) (297,774) 146,600
------------ ------------
Total Shareholders' Equity 877,066 572,350
------------ ------------
$ 4,868,631 $ 3,771,273
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
Two Months Year Ended
Year Ended Ended June 30, April 30,
June 30, 1999 1998 1998
------------- -------------- ----------
<S> <C> <C> <C>
NET SALES $10,227,628 $1,623,754 $7,103,906
----------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 7,442,239 1,282,495 5,174,402
Selling, general and administrative expenses 3,069,682 472,766 2,138,915
----------- ---------- ----------
10,511,921 1,755,261 7,313,317
----------- ---------- ----------
LOSS FROM OPERATIONS (284,293) (131,507) (209,411)
----------- ---------- ----------
OTHER EXPENSE (INCOME):
Interest expense, net 160,081 21,894 90,829
Gain on sale of equipment - - (18,500)
----------- ---------- ----------
160,081 21,894 72,329
----------- ---------- ----------
LOSS BEFORE INCOME TAXES (CREDITS) (444,374) (153,401) (281,740)
----------- ---------- ----------
INCOME TAXES (CREDITS):
Current - - (39,698)
Deferred - - (22,800)
----------- ---------- ----------
- - (62,498)
----------- ---------- ----------
NET LOSS $ (444,374) $ (153,401) $ (219,242)
=========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,844,819 2,019,677 1,622,682
=========== ========== ==========
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (.16) $ (.08) $ (.14)
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
Additional Retained Total
common stock Paid-in Earnings Shareholders'
----------------------
Shares Amount Capital (Deficit) Equity
---------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES, APRIL 30, 1997 1,548,450 $ 300 $ - $ 519,243 $ 519,543
YEAR ENDED APRIL 30, 1998:
Sale of common stock to
employees 101,550 102 44,898 - 45,000
Change in par value - 1,248 (1,248) - -
Net loss - - - (219,242) (219,242)
---------- -------- ----------- --------- ---------
BALANCES, APRIL 30, 1998 1,650,000 $ 1,650 $ 43,650 $ 300,001 $ 345,301
TWO MONTHS ENDED JUNE 30, 1998:
Sale of common stock through
private placement 256,000 256 319,744 - 320,000
Issuance of common stock upon
conversion of note payable 40,000 40 49,960 - 50,000
Issuance of common stock in
connection with merger 571,450 571 (571) - -
Issuance of common stock for
services 66,068 66 10,384 - 10,450
Net loss - - - (153,401) (153,401)
---------- -------- ----------- --------- ---------
BALANCES, JUNE 30, 1998 2,583,518 2,583 423,167 146,600 572,350
YEAR ENDED JUNE 30, 1999:
Sale of common stock through
private placement 228,000 228 249,772 - 250,000
Issuance of common stock for
acquisition - Tartan 92,850 93 185,607 - 185,700
Issuance of warrants for legal
services - - 20,510 - 20,510
Sale of common stock through
private placement 67,750 68 120,432 - 120,500
Issuance of common stock for
acquisition - WEB 86,190 86 172,294 - 172,380
Net loss - - - (444,374) (444,374)
---------- -------- ----------- --------- ---------
BALANCES, JUNE 30, 1999 3,058,308 $ 3,058 $ 1,171,782 $(297,774) $ 877,066
========== ======== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended Two Months Year Ended
June 30, Ended June 30, April 30,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (444,374) $ (153,401) $ (219,242)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 180,494 19,063 73,525
Gain on sale of equipment - - (18,500)
Deferred income taxes - (10,000) (22,800)
common stock and warrants for services 20,510 10,450 -
Provision for bad debts 6,000 - -
Changes in operating assets and liabilities:
Accounts receivable 89,130 (538,646) 394,474
Inventories 170,259 (236,454) (7,528)
Prepaid and refundable income taxes 46,295 - (46,295)
Prepaid expenses and other current assets 35,710 11,855 (91,318)
Security deposits (2,180) - (4,852)
Accounts payable (473,241) 914,997 9,523
Accrued expenses and other current liabilities 255 (41,971) 137,596
Deferred revenues 149,489 (11,748) 26,322
----------- ----------- -----------
Net cash flows from operating activities (221,653) (35,855) 230,905
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (303,271) (4,069) (105,703)
Proceeds from sale of equipment - - 18,500
Purchase of intangible assets (102,350) - -
Cost of net assets of acquired business (242,200) - (546,431)
Deferred acquisition costs (34,542) - -
----------- ----------- -----------
Net cash flows from investing activities (682,363) (4,069) (633,634)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to bank, net 333,071 (305,000) 450,000
Proceeds of long-term debt - - 250,000
Payments on long-term debt (89,219) (14,823) (10,147)
Attorney escrow account 320,000 (320,000) -
Advances from officer (20,000) - 20,000
Sale of common stock 370,500 320,000 45,000
----------- ----------- -----------
Net cash flows from financing activities 914,352 (319,823) 754,853
----------- ----------- -----------
NET CHANGE IN CASH 10,336 (359,747) (352,124)
CASH, BEGINNING OF PERIOD 22,821 382,568 30,444
----------- ----------- -----------
CASH, END OF PERIOD $ 33,157 $ 22,821 $ 382,568
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
Year Ended Two Months Year Ended
June 30, Ended June 30, April 30,
1999 1998 1998
----------- ------------ -----------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 155,846 $ 21,894 $ 94,377
=========== =========== ===========
Income taxes paid $ - $ - $ 5,032
=========== =========== ===========
Issuance of common stock upon conversion of
Note payable to related party $ - $ 50,000 $ -
=========== =========== ===========
Non cash investing activity -
Acquisition of business:
Fair value of assets acquired $ 1,459,457 $ - $ 865,115
Fair value of liabilities assumed 859,177 - 318,684
Fair value of common stock issued 358,080 - -
----------- ----------- -----------
Net cash payment $ 242,200 $ - $ 546,431
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Nature of the Business - Cadapult Graphic Systems, Inc. (the "Company")
provides computer graphic systems, peripherals, supplies, training and
service to visual communicators and graphics professionals. The Company is a
systems integrator and a value added dealer/reseller of computer graphics
equipment and supplies to customers. The Company has its corporate
headquarters in New Jersey and has offices in Massachusetts, Albany and New
York City, New York and Pennsylvania.
Estimates and Uncertainties (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, as determined at a
later date, could differ from those estimates.
Revenue Recognition - Revenue is recognized at the point of shipment
for goods sold, and ratably through the duration of service contracts.
Deferred revenue consists principally of billings on service contracts prior
to rendering related services.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentration of credit risk consists primarily of
cash and unsecured trade receivables. The Company maintains its cash
balances in financial institutions which are insured by the Federal Deposit
Insurance Corporation up to $100,000 each. At June 30, 1999, the Company has
uninsured balances totalling approximately $150,000.
Concentrations of credit risk with respect to all trade receivables are
considered to be limited due to the quantity of customers comprising the
Company's customer base. The Company performs ongoing credit evaluations of
its customers' financial condition and does not require collateral.
Management feels that credit risk beyond the established allowance at June
30, 1999 is limited.
Inventories - Inventories are stated at the lower of cost (specific
identification method) or market.
F-8
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Property and Equipment - Property and equipment are stated at cost.
The Company provides for depreciation using the straight-line and accelerated
methods by charges to income at rates based upon the recovery periods of 5 to
7 years for furniture and equipment and over the useful lives or the lease
term, if shorter, for leasehold improvements.
Goodwill and Other Intangible Assets - Goodwill consists of the excess
of cost over fair market value of the net assets of the acquired business.
The intangible assets are being amortized on the straight-line method over
the following years:
Life (Years)
------------
Goodwill $781,670 15
Covenants-not-to-compete 51,000 3-5
Financing costs 74,880 1-3
--------
907,550
Accumulated amortization 71,661
--------
$835,889
========
During the year ended June 30, 1999, the Company capitalized $54,048 of
financing costs in connection with its current bank agreement and $49,302 of
costs associated with the purchase of businesses referred to in Note 2.
The carrying value of intangible assets is periodically reviewed by the
Company based on expected future undiscounted operating cash flows. Based
upon its most recent analysis, the Company believes that no material
impairment exists at June 30, 1999.
Income Taxes - Deferred income taxes reflect the net tax effects of
temporary differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss carryforwards.
Employee Benefit Plan - The Company has a 401(k) savings/retirement
plan for all of its eligible employees. The plan allows for employee
contributions to be matched by the Company on a pro-rata basis. Contributions
made by the Company for the year ended June 30, 1999, the two months ended
June 30, 1998 and the year ended April 30, 1998, were $14,502, $1,401 and
$10,461, respectively.
Deferred Acquisition Costs - Acquisition costs have been deferred,
pending the outcome of the negotiations. If the acquisition is completed,
these costs will be capitalized; otherwise they will be charged to expense.
Net Loss Per Share - Basic and diluted loss per share are based upon
the weighted average number of common shares outstanding during the period.
The computation of diluted earnings per share does not assume the conversion,
exercise or contingent issuance of securities that would have a dilutive
effect on loss per share.
F-9
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Options - The Company accounts for stock option grants using the
intrinsic value based method prescribed by APB Opinion No. 25. Since the
exercise price equaled or exceeded the estimated fair value of the underlying
shares at the date of grant, no compensation was recognized in 1999 and 1998
for stock option grants.
Had compensation cost been based upon fair value of the option on the
date of grants, as prescribed by SFAS No. 123, the Company's proforma net
loss and net loss per share would have been $1,018,000 and $.36 in 1999 and
$288,000 and $.14 for the two months ended June 30, 1998 using the Black-
Scholes option pricing model. The proforma net loss and net loss per share
for the year ended April 30, 1998 would not have been materially different.
The fair value of options granted in 1999 and 1998 were estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions, respectively: risk-free interest
rates of 6.0%, dividend yield of 0.0%, volatility factors of the expected
market price of the Company's common stock of 108% and a weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of normal
publicly traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employees stock options.
Recently Issued Accounting Standards - In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities and will be adopted in the year ended June 30, 2000. The Company
does not engage in, nor does it expect to engage in derivative or hedging
activities, and therefore, the Company anticipates that the adoption of this
statement will have no impact on its financial statements.
Change in Fiscal Year - On June 24, 1998, the Company elected to change
from an April 30 to June 30 fiscal year. Therefore, the accompanying
financial statements include transitional financial statements for the two
months ended June 30, 1998. It is not practicable and cannot be cost
justified to furnish financial statements for the corresponding period of the
prior year; accordingly, unaudited financial data for the two months ended
June 30, 1997 follow which is the corresponding period. There were no
seasonal factors that affect the comparability of information or trends
reflected.
F-10
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Net sales $ 821,623
=========
Gross profit $ 207,051
=========
Income tax credit $ (47,800)
=========
Net loss $(128,992)
=========
Net loss per share $ (.08)
=======
NOTE 2 - PURCHASE OF BUSINESSES:
On March 13, 1998, the Company purchased for $546,431 in cash certain
assets and assumed certain liabilities of BBG Technologies, Inc. ("BBG"), a
Massachusetts corporation. The assets purchased included accounts receivable
and a covenant not-to-compete ($50,000). The excess of the purchase price
over the fair value of the net assets acquired ($350,000) was allocated to
goodwill.
On January 7, 1999, the Company issued 185,700 shares of its
unregistered and restricted common stock in exchange for certain assets and
the assumption of certain liabilities of Tartan Technical, Inc. ("Tartan") a
Massachusetts corporation. The assets purchased included accounts
receivable, inventories, property and equipment and the liabilities included
notes payable and accounts payable. The excess of the purchase price and
related costs over the fair value of the net liabilities assumed ($321,789)
was allocated to goodwill. Currently, 92,850 of the shares are held in
escrow pursuant to the resolution of a contingency based on Tartan achieving
certain gross profit levels over the next two years. When the contingency is
resolved, some or all of the 92,850 shares will either be recorded by the
Company as an additional cost of Tartan, or cancelled.
Effective June 18, 1999, the Company acquired for $242,200 in cash and
the issuance of 172,380 shares of its unregistered and restricted common
stock, certain assets and assumed certain liabilities of WEB Associates, Inc.
("WEB") a Pennsylvania corporation. The assets purchased included accounts
receivable, inventories, property and equipment and a covenant not-to-compete
($1,000) and the liabilities included accounts payable. The excess of the
purchase price and related costs over the fair value of net assets ($89,996)
was allocated to goodwill. Currently, 86,190 of the shares are held in
escrow pursuant to the resolution of a contingency based on WEB achieving
certain gross profit levels over the next two years. When the contingency is
resolved, some or all of the 86,190 shares will either be recorded by the
Company as an additional cost of WEB, or cancelled.
The following unaudited pro forma consolidated results of operations
for the years ended June 30, 1999 and April 30, 1998, assumes the BBG, Tartan
and WEB acquisitions had occurred on May 1, 1997 giving effect to purchase
accounting adjustments and financing. The pro forma results have been
prepared for informational purposes only and do not reflect any benefit from
economies, which might be achieved from combined operations. The pro forma
results do not represent results which would have occurred if the acquisition
had taken place on the basis assumed above, nor are they indicative of the
results of future combined operations.
F-11
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
Two Months
Year Ended Ended Year Ended
June 30, June 30, April 30,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Net sales $14,250,322 $2,521,860 $15,980,206
=========== ========== ===========
Net loss $ (556,819) $ (195,215) $ (36,617)
=========== ========== ===========
Basic and diluted loss
per share (.19) (.08) (.02)
=========== ========== ===========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
June 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Office equipment $ 997,359 $ 598,931
Furniture and fixtures 165,213 129,109
Automobiles 65,379 65,379
Leasehold improvements 98,568 18,624
----------- -----------
1,326,519 812,043
Less: Accumulated depreciation and
amortization 699,490 580,020
----------- -----------
$ 627,029 $ 232,023
=========== ===========
</TABLE>
NOTE 4 - NOTE PAYABLE TO BANK:
The Company has an agreement with a bank under which it can borrow up
to $6,000,000 under a revolving line-of-credit, subject to availability of
collateral. Borrowings bear interest at 2% over the bank's base rate, are
payable on demand and are collateralized by all assets of the Company.
Advances under the note payable to bank become immediately due
and payable if certain financial covenants, as defined in the loan
agreements, are not met.
F-12
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT:
A summary of long-term debt follows:
<TABLE>
Interest June 30,
--------------------------
Description Rate 1999 1998
--------------------------------------- -------- ---------- -----------
<S> <C> <C> <C>
Loan payable in monthly installments of
$6,944 plus interest through April
2001, collateralized by all assets of 1% over
the Company prime $ 152,778 $ 236,111
Loan payable in monthly installments of
principal and interest of $543 through
February 2000, collateralized by an
automobile 8.49% 4,214 10,100
---------- -----------
156,992 246,211
Less: Current maturities 87,547 89,219
---------- -----------
$ 69,445 $ 156,992
========== ===========
</TABLE>
Long-term debt at June 30, 1999 matures as follows:
<TABLE>
Year Ending June 30,
--------------------
<S> <C>
2000 $ 87,547
--------
2001 69,445
$156,992
========
</TABLE>
NOTE 6 - INCOME TAXES:
The components of income taxes are summarized as follows:
<TABLE>
Year Ended Two Months Ended Year Ended
June 30, June 30, April 30,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ (45,390)
State and local - - 5,692
----------- ---------- -----------
- - (39,698)
----------- ---------- -----------
Deferred:
Federal - - (15,100)
State and local - - (7,700)
----------- ---------- -----------
- - (22,800)
----------- ---------- -----------
$ - $ - $ (62,498)
=========== ========== ===========
</TABLE>
F-13
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company recognizes deferred tax assets, net of applicable reserves,
related to net operating loss carryforwards and certain temporary
differences. The Company is required to recognize a future tax benefit to
the extent that realization of such benefit is more likely than not.
Otherwise a valuation allowance is applied. At June 30, 1999, the Company
believes that the "more likely than not" criteria have not been met, and
accordingly, a valuation allowance has been recognized.
The Company has available net operating loss carryforwards of
approximately $480,000 which expire through 2019. The Company's utilization
of it net operating loss carryforwards may be limited pursuant to Internal
Revenue Code Section 382 if cumulative changes in ownership are in excess of
50% within a three-year period.
A reconciliation of income tax benefit provided at the federal
statutory rate (34%) to income tax benefit is as follows:
<TABLE>
Year Ended Two Months Ended Year Ended
June 30, June 30, April 30,
1999 1998 1998
----------- ---------- -----------
<S> <C> <C> <C>
Income tax benefit computed at
federal statuary rate $ (151,087) $ (52,156) $ (95,792)
Permanent and other items (17,913) 17,156 20,294
Change in valuation allowance 169,000 35,000 13,000
----------- ---------- -----------
$ - $ - $ (62,498)
=========== ========== ===========
</TABLE>
Significant components of the Company's deferred tax assets are as
follows:
<TABLE>
June 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $193,000 $ 33,000
Accruals and reserves 24,000 15,000
-------- --------
217,000 48,000
Less: valuation allowance 217,000 48,000
-------- --------
Total deferred tax assets $ - $ -
======== ========
</TABLE>
F-14
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - SHAREHOLDERS' EQUITY:
a) Merger:
Pursuant to an Agreement and Plan of Reorganization dated June 5,
1998, the stockholders of the Company exchanged all their shares of stock
owned for 1,650,000 shares (72%) of $.001 par value common stock of Seafoods
Plus, Ltd. ("SPL"), an inactive public company with nominal assets. Under
the agreement, the Company became a wholly-owned subsidiary of SPL, and then
merged with SPL in 1998. The merger was recorded as a recapitalization of
the Company and an issuance of shares to SPL's shareholders on June 5, 1998.
The Company will continue operating as Cadapult Graphic Systems, Inc.
All references to the Company's common stock in the 1998 balance
sheet, the 1998 statements of operations and notes to the financial
statements retroactively reflect Cadapult's operations and the
recapitalization.
b) Stock Compensation Plan:
The Company has an incentive stock option (the "1998 Plan"),
pursuant to which 500,000 of the Company's authorized but unissued shares of
common stock have been reserved for issuance of stock options. The stock
options (which may be "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended) entitle the holder to
purchase shares of the Company's common stock for up to ten years from the
date of grant (five years for persons owning more than 10 percent of the
total combined voting power of the Company) at a price not less than the fair
market value (110% of fair market value for persons owning more than 10% of
the combined voting power of the Company) of the common stock on the date of
grant. In general, any employee, director, officer or exclusive agent of,
advisor or consultant to, the Company or a related entity is eligible to
participate in the Plan. The stock options are nontransferable, except upon
death. Pursuant to the Plan, certain key employees, members of the Board of
Directors and the President were granted five and ten year incentive stock
options to purchase an aggregate total of 317,893 shares, net of forfeitures,
at a weighted average exercise price of $1.93 per share. A total of 174,443
shares with a weighted average exercise price of $1.69 are exercisable at
June 30, 1999.
The Company granted its President five year stock options to
purchase up to 500,000 shares which vest upon the Company attaining certain
specified milestones and are exercisable at $1.375 per share and expire in
June 2003.
The Company granted two employee's five year stock options to
purchase up to 100,000 shares which vest upon the Company attaching certain
specified milestones and are exercisable at $2.00 per share and expire in
March 2004.
F-15
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
c) Private Placements:
In August 1998 the Company completed a private placement through
the sale of 524,000 shares of its common stock for net proceeds of
approximately $620,000, including conversion of a $50,000 note payable to a
related party.
In June 1999, the Company sold 67,750 shares of its common stock
for $2.00 per share for net proceeds of approximately $120,500.
d) Warrants:
In August 1998, and February 1999, the Company issued 105,000
warrants to purchase its common stock at between $4.00-$5.00 per share in
exchange for legal services. The warrants, which had a value of $20,510,
using the Black-Scholes pricing model, expire through February 15, 2004.
e) Amendments to Certificate of Incorporation:
In August 1999, the Company's Board of Directors amended the
certificate of incorporation reducing the number of authorized shares of
$.001 par value common stock to twenty million shares and authorized five
million shares of $.001 par value preferred stock.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its premises under lease agreements which
expire through 2002 and an automobile and equipment under operating leases
that expire in 2002. Future minimum lease payments are as follows:
Year Ending June 30,
--------------------
2000 $152,175
2001 108,639
2002 73,370
--------
$334,184
========
Rent expense amounted to $198,199, $31,755 and $176,463 for the year
ended June 30, 1999, the two months ended June 30, 1998 and the year ended
April 30, 1998, respectively.
Employment Agreements - On May 1, 1998, the Company entered into a five
year employment agreement with its President for a base salary of $130,000
per annum subject to certain adjustments and three year employment agreements
with three employees providing for aggregate compensation of $255,000 per
annum. In 1999, the Company entered into two year employment agreements with
three employees providing for aggregate compensation of $142,000 per annum.
F-16
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Litigation - In August 1999, the Company's attorneys filed a civil
action in the Superior Court of New Jersey on behalf of the Company which
alleges that the supplier referred to in Note 9 improperly cancelled the
Company's participation in certain programs which provided the Company with
preferential pricing, business leads and various additional rebates and
incentives. In part, the action charges the supplier with alleged violation
of the New Jersey Antitrust Act, breach of contract and unfair competition.
NOTE 9 - MAJOR SUPPLIER:
Direct purchases from one supplier accounted for approximately 34% of
total purchases in 1999 and 50% in 1998. At June 30, 1999, this supplier
accounted for approximately 22% of the Company's accounts payable. If the
supplier fails to provide the required inventories, it may have a negative
impact on the Company. (See Note 8).
NOTE 10 - SUBSEQUENT EVENTS (Unaudited):
Private Offering - On August 19, 1999, the Company entered into a
letter of intent with a placement agent wherein the placement agent will, on a
best efforts basis, offer up to $5,000,000 of the Company's convertible
adjustable preferred stock to accredited investors. Each unit will be priced
at $10.00 and include one share of Series A Preferred Stock ("Series A") and
two warrants to purchase a total of two shares of common stock for $4.50.
Dividends on Series A stock will accrue at the rate of 11.50% per annum and
are payable quarterly. Each Series A share is convertible at the option of
the holder beginning 30 days after closing (no later than December 31, 1999)
at a rate of 3.077 shares of common stock for one share of Series A. The
conversion price shall adjust to 75% of the average bid price for the 90 days
preceding the 24th month anniversary of the closing of the offering and again
on the 48th month anniversary. Under no circumstances can a new conversion
price be below $2.00 per share.
The discount, if any, resulting from allocation of the proceeds to the
beneficial conversion feature is analogous to a dividend and will be
recognized as a return to preferred shareholders over the minimum period from
the date of issuance through the date of earliest conversion using the
effective yield method.
The Series A stock will be callable by the Company at $15.00 per share
at any time Holders have the right to convert upon receipt of the call
notice.
The Company has agreed to register all of the shares of common stock
necessary for the conversion of the Series A stock and all shares of common
stock underlying warrants within 90 days of the closing of the offering.
F-17
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
The placement agent's fee will include a commission and a nonaccountable
expense allowance equal to 13% of the proceeds of the offering, five year
warrants to purchase up to 215,000 shares of the Company's common stock at
$1.65 per share and up to 500,000 shares of the Company's common stock at
$3.75 per share. The value of the warrants will be recognized as a cost of
issuance of the Series A shares.
Purchase of Business - On September 7, 1999 Media Sciences, Inc., a
newly formed wholly-owned subsidiary of the Company, entered into an Asset
Purchase Agreement ("Agreement") with ultraHue, Inc., a New Mexico
corporation. The Company has agreed to purchase certain assets and assume
certain liabilities of ultraHue for $3,500,000. The obligation of the
company to purchase the assets is contingent upon the Company obtaining
financing not less than $3,000,000 to fund the purchase. In the event the
Company does not obtain such financing by December 7, 1999, either party
shall have the option to terminate the Agreement.
NOTE 11 - FOURTH QUARTER ADJUSTMENTS (Unaudited):
The Company had a loss before income taxes in the fourth quarter of the
year ended June 30, 1999 totalling $314,978 as compared to an average loss of
approximately $43,132 for the previous three quarters. Contributing to the
loss were approximately $130,000 for development costs related to
SamplePrint.com and $40,000 for year end adjustments to inventory and the
allowance for doubtful accounts.
F-18
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
Financial Statements - Quarter Ended December 31, 1999 (Unaudited)
Consolidated Balance Sheets as of December 31, 1999 and F2-2
June 30, 1999
Consolidated Statements of Operations for the Three Months F2-3
and Six Months Ended December 31, 1999 and 1998
Consolidated Statement of Changes in Shareholder's F2-4
Equity For the Six Months Ended December 31, 1999
Consolidated Statements of Cash Flows F2-5
for the Six Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements F2-6
F2-1
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
December 31, June 30,
ASSETS 1999 1999
(Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 570,093 $ 33,157
Accounts Receivable, less allowance
for doubtful accounts of $35,000 1,982,548 1,950,399
Attorney Escrow Account - -
Inventories 1,342,762 1,276,621
Prepaid and refundable Income Taxes - -
Deferred tax asset 307,000 -
Prepaid expenses and other current assets 49,722 77,471
------------ ------------
Total Current Assets 4,252,125 3,337,648
PROPERTY AND EQUIPMENT, NET 638,703 627,029
OTHER ASSETS:
Goodwill and other intangible assets, NET 4,411,964 835,889
Deferred acquisition costs 13,265 34,542
Security Deposits 30,567 33,523
------------ ------------
4,455,796 903,954
TOTAL ASSETS $ 9,346,624 $ 4,868,631
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to Bank $ 1,325,165 $ 1,677,024
Note payable 1,160,000 -
Current maturities of long-term debt 101,463 87,547
Accounts Payable 1,354,876 1,710,861
Accrued Expenses and other current liabilities 44,693 131,767
Due to Seller 533,253 -
Due to officer - -
Deferred Revenue 364,732 294,089
------------ ------------
4,884,182 3,901,288
OTHER LIABILITIES:
Long-term debt, less current maturities 27,778 69,445
Note payable to related party 20,832 20,832
------------ ------------
48,610 90,277
COMMITMENTS
SHAREHOLDERS' EQUITY
Common Stock, .001 par value,
Authorized 20,000,000 shares; issued
3,197,775 in December and 3,058,308
in June 3,198 3,058
Preferred Stock, .001 par value,
Authorized 5,000,000 shares; issued
388,500 in December 389 -
Additional paid-in capital 4,626,221 1,171,782
Retained earnings (deficit) (215,976) (297,774)
------------ ------------
Total Shareholders' equity 4,413,832 877,066
Total Liabilities and Shareholders' Equity $ 9,346,624 $ 4,868,631
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F2-2
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,961,405 $ 2,532,474 $ 6,110,569 $ 4,475,635
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,025,858 1,835,314 4,307,053 3,234,814
Selling, general and administrative
expenses 959,620 632,886 1,910,237 1,349,057
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (24,073) 64,275 (106,722) (108,236)
INTEREST EXPENSE, NET 54,780 31,400 118,481 57,202
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (CREDITS) (78,853) 32,874 (225,202) (165,438)
INCOME TAXES (CREDITS):
Current - - - -
Deferred (307,000) - (307,000) (39,000)
----------- ----------- ----------- -----------
(307,000) - (307,000) (39,000)
NET INCOME (LOSS) $ 228,147 $ 32,874 $ 81,798 $ (126,438)
=========== =========== =========== ===========
PREFERRED STOCK DIVIDEND $ (20,112) $ - $ (20,112) $ -
=========== =========== =========== ===========
NET INCOME (LOSS) ATTRIBUTED TO
COMMON STOCK $ 208,035 $ 32,874 $ 61,686 $ (126,438)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC 3,184,652 2,811,518 3,166,114 2,757,650
=========== =========== =========== ===========
DILUTED 3,409,734 2,903,897 3,278,655 -
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ 0.07 $ 0.01 $ 0.02 $ (0.05)
=========== =========== =========== ===========
DILUTED $ 0.07 $ 0.01 $ 0.02 $ -
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F2-3
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
Six Months Ended December 31, 1999
(Unaudited)
<TABLE>
Additional Total
Common Stock Preferred Stock Paid-in Retained Shareholders'
----------------------- ------------------- ----------- ---------- -------------
Shares Amount Shares Amount Capital Earnings Equity
------------ -------- -------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JUNE 30, 1999 3,058,308 $ 3,058 - $ - $ 1,171,782 $ (297,774) 877,066
PERIOD ENDED DECEMBER 31, 1999
Sale of Common Stock through
Private Placement, NET 60,000 60 - - 119,640 - 119,700
Sale of Preferred Stock
through Private Placement,
NET - - 388,500 389 3,198,368 - 3,198,757
Issuance of Common Stock
for services 25,435 25 - - 50,975 - 51,000
Issuance of Stock for
Acquisition 34,818 35 - - 81,570 - 81,605
Exercise of employee stock
options 19,214 20 - - 23,998 - 24,018
Preferred Stock Dividend, 11.5% - - - - (20,112) - (20,112)
Net Income - - - - - 81,798 81,798
------------ -------- -------- -------- ----------- ---------- -------------
BALANCES, DECEMBER 31, 1999 3,197,775 $ 3,198 388,500 $ 389 $ 4,626,221 $ (215,976) $ 4,413,832
============ ======== ======== ======== =========== ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F2-4
<PAGE>
Cadapult Graphic Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
December 31,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 81,798 $ (126,438)
Adjustments to reconcile net Income (loss) to net cash
flows from operating activities:
Depreciation and amortization 157,055 60,446
Deferred income taxes (307,000) (39,000)
Issuance of common stock and warrants for services 51,000 13,042
Changes in operating assets and liabilities:
Accounts receivable 379,294 191,542
Inventories 130,482 191,293
Prepaid and refundable income taxes - 46,295
Prepaid expenses and other current assets 27,749 (25,083)
Security deposits 2,956 -
Accounts payable (457,577) (143,383)
Accrued expenses and other current liabilities (87,074) (72,569)
Deferred revenue 70,643 77,769
------------ ------------
Net cash flows from operating activities 49,326 173,914
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (48,723) (55,192)
Purchase of intangible assets (16,000) (19,885)
Cost of net assets of acquired business (2,438,477) -
Deferred acquisition costs 21,277 -
------------ ------------
Net cash flows from investing activities (2,481,923) (75,077)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable to bank, net (351,859) 105,000
Payments on long term debt (27,751) (44,545)
Advances from officer - (20,000)
Attorney escrow account - (380,000)
Due to seller 26,780 -
Preferred Stock Dividend (20,112) -
Sale of preferred stock 3,198,757 -
Sale of common stock 143,718 250,000
------------ ------------
Net cash flows from financing activities 2,969,533 (89,545)
------------ ------------
NET CHANGE IN CASH 536,936 9,292
CASH, BEGINNING OF PERIOD 33,157 22,820
------------ ------------
CASH, END OF PERIOD $ 570,093 $ 32,112
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 118,481 $ 57,202
============ ============
Income taxes paid - -
============ ============
Non cash investing activities -
Acquisition of business:
Fair value of assets acquired $ 4,104,950 $ -
Due to seller $ (506,473) $ -
Less Note payable $ (1,160,000) $ -
------------ ------------
Net cash payment $ 2,438,477 $ -
============ ============
Issuance of Common Stock upon partial
satisfaction of Tartan acquisition contingency $ 81,605 $ -
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F2-5
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
Our accounting and reporting policies of conform to generally accepted
accounting principles. Except for the June 30, 1999 consolidated balance
sheet, the financial statements presented herein are unaudited but reflect
all adjustments which, in our opinion, are necessary for the fair
presentation of the consolidated financial position, results of operations
and cash flows for the interim periods presented. All adjustments reflected
in the interim financial statements are of a normal recurring nature. You
should read these financial statements in conjunction with the financial
statements and notes thereto and the report of independent accountants
included in our Annual Report on Form 10-KSB for the year ended June 30,
1999. The year end balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. The results of operations for the six months
ended December 31, 1999 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - ORGANIZATION AND NATURE OF BUSINESS:
Pursuant to an Agreement and Plan of Reorganization dated June 5, 1998
(the "Plan"), between us; Cadapult Graphic Systems, Inc., a New Jersey
corporation ("Cadapult"); all of the stockholders of Cadapult (the
"Cadapult Stockholders"); Jenson Services, Inc., a Utah corporation ("Jenson
Services"); and Duane S. Jenson and Jeffrey D. Jenson (collectively, the
"Jensons"), the CGSI Stockholders became our controlling stockholders in
a transaction viewed as a reverse acquisition, and Cadapult became a wholly-
owned subsidiary. The Plan was treated as a recapitalization of Cadapult for
accounting purposes, and the closing date of the Plan was June 18, 1998. The
historical financial statements of Seafoods Plus Ltd. prior to the merger
will no longer be reported, as Cadapult's financial statements are now
considered the financial statements of the ongoing reporting entity.
On August 10, 1998, our stockholders approved an amendment to our
Certificate of Incorporation to change our name from Seafoods Plus Ltd. to
Cadapult Graphic Systems, Inc. The stockholders also approved our
reincorporation as a Delaware corporation and a related Agreement and Plan of
Merger pursuant to which we merged into a wholly-owned Delaware subsidiary.
Our Board of Directors and the Board of Directors of our New Jersey
Subsidiary have authorized a Parent/Subsidiary merger of the two companies.
On June 24, 1998, we elected to change our fiscal year from a September
30 year end to a June 30 year end.
F2-6
<PAGE>
We are engaged in the business of providing computer graphics systems,
peripherals, supplies, training and service to graphics professionals. We
are a value-added dealer of computer graphics equipment and supplies,
including design software and workstations, publishing software and
workstations, file servers, networks, color scanners and color printers and
copiers. Our markets include advertising and marketing companies, printers,
quick print shops, services bureaus, animators and industrial designers, as
well as the broad market for color printers. Through our wholly owned
subsidiary Media Sciences, we manufacture and distribute solid ink and toner
products for use in workgroup color printers.
NOTE 3 - PRIVATE PLACEMENT
On October 1, 1999, we entered into a managing dealer agreement with a
placement agent wherein the placement agent will, on a best efforts basis,
offer up to $5,000,000 of units of our securities to accredited investors. In
December 1999, our Board of Directors approved an amendment to the managing
dealer agreement reflecting an increase in the offering from $5,000,000 to
$5,500,000. Each unit is priced at $10.00 and includes one share of series
A preferred stock and two warrants to purchase a total of two
shares of common stock for $4.50. Dividends on series A preferred stock
accrue at the rate of 11.50% per annum and are payable quarterly. Each series
A preferred share is convertible at the option of the holder beginning 30 days
after closing, which shall be no later than March 31, 2000, at a rate of 3.077
shares of common stock for one share of series A preferred. The conversion
price shall adjust to 75% of the average bid price for the 90 days preceding
the 24th month anniversary of the closing of the offering and again on the
48th month anniversary. Under no circumstances can a new conversion price be
below $2.00 per share.
The discount, if any, resulting from allocation of the proceeds to the
beneficial conversion feature is analogous to a dividend and will be
recognized as a return to preferred shareholders over the minimum period from
the date of issuance through the date of earliest conversion using the
effective yield method.
We have the right to call the series A preferred stock at $15.00 per
share at any time. Holders have the right to convert upon receipt of the call
notice.
We have agreed to register all of the shares of common stock necessary
for the conversion of the series A preferred stock and all shares of common
stock underlying warrants within 90 days of the closing of the private
placement.
The placement agent's fee will include a commission and a
nonaccountable expense allowance equal to 13% of the proceeds of the
offering, five year warrants to purchase up to 236,500 shares of our
common stock at $1.65 per share and up to 550,000 shares of our common
stock at $3.75 per share. The value of the warrants will be recognized as a
cost of issuance of the series A preferred shares.
As of December 31, 1999, we sold 388,500 units, representing 388,500
shares of series A preferred stock and 777,000 warrants to purchase common
stock for $4.50, providing us with net proceeds of $3,198,757.
F2-7
<PAGE>
NOTE 4 - ACQUISITION
On December 13, 1999, our wholly owned subsidiary, Media Sciences,
Inc., completed the acquisition of substantially all of the assets of
ultraHue, Inc. We paid $2,340,000 at closing, entered into a note, carrying
an interest rate of 7%, for $1,160,000 due on December 13, 2000, and agreed
to pay the value of the acquired receivables and inventory, less the assumed
trade payables, as those receivables were collected and inventory sold. In
addition, the Asset Purchase Agreement provides for an additional purchase
price of 10-30% of the Media Sciences' profits for three years.
NOTE 5 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share is
computed using the weighted average number of shares outstanding. Diluted
earnings per common share is computed using the weighted average number of
shares outstanding adjusted for the incremental shares attributed to
outstanding options and warrants to purchase common stock, and other
potentially dilutive securities. All earnings per share amount for all
periods have been presented in accordance with SFAS No. 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
Three Months Six Months
Ended Ended
December 31, 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) - basic $ 208,035 $ 32,874 $ 61,686 $ (126,438)
========== ========== ========== ==========
Net income (loss) - diluted $ 228,147 $ 32,874 $ 81,798 $ (126,438)
========== ========== ========== ==========
Denominator :
Denominator for basic earnings
per share:
Weighted average shares 3,184,652 2,811,518 3,166,114 2,757,650
---------- ---------- ---------- ----------
Effect of dilutive securities
Conversion of Preferred Class A Stock 139,219 - 36,279 -
Employee stock options 85,863 92,379 76,262 -
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share 3,409,734 2,903,897 3,278,655 2,757,650
========== ========== ========== ==========
Earnings (loss) per share :
Basic $ 0.07 $ 0.01 $ 0.02 $ (0.05)
========== ========== ========== ==========
Diluted $ 0.07 $ 0.01 $ 0.02 -
========== ========== ========== ==========
</TABLE>
The following warrants to purchase common stock were excluded from the
computation of diluted earnings per share for the three and six months ended
December 31, 1999 and 1998 because the warrants' exercise price was greater
than the average market price of the common stock:
<TABLE>
Three Months Six Months
Ended Ended
December 31, 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Anti-dilutive warrants and options 1,009,200 75,000 1,009,200 75,000
========== ========== ========== ==========
</TABLE>
F2-8
<PAGE>
Financial Statements of Tartan Technical, Inc.
(Business Acquired)
Independent Auditor's Report F3-2
Balance Sheets, December 31, 1998 and 1997 F3-3
Statement of Income and Retained Earnings for F3-4
the Years ended December 31, 1998 and 1997
Schedules of Operating Expenses for the Years F3-5
Ended December 31, 1998 and 1997
Statement of Cash Flows for the Years Ended F3-6
December 31, 1998 and 1997
Notes to Financial Statements F3-7
F3-1
<PAGE>
[Letterhead of Belanger & Company, P.C.]
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
Tartan Technical, Inc.
Tyngsboro, Massachusetts
We have audited the accompanying balance sheets of Tartan Technical, Inc.
(an S Corporation) as of December 31, 1998 and 1997, and the related statements
of income and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tartan Technical, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 8 to the financial statements, on December 17, 1998,
the Company entered into an asset purchase agreement, effective January 1, 1999,
for the transfer of substantially all assets and the assumption of substantially
all liabilities of the business.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of operating expenses are
presented for the purposes of additional analysis and are not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Belanger & Company, P.C.
BELANGER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Chelmsford, Massachusetts
February 1, 1999
F3-2
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<CAPTION>
Assets
------
1998 1997
---------- ----------
<S> <C> <C>
Current Assets:
- --------------
Cash $ 92,288 $ 18,328
Accounts receivable - trade (Notes 2 & 5) 223,086 452,533
Inventory 286,399 385,052
Prepaid expenses 20,027 11,168
---------- ----------
Total Current Assets 621,800 867,081
-------------------- ---------- ----------
Property and Equipment:
- ----------------------
Office furniture and equipment 123,484 98,559
Leasehold improvements 83,770 83,770
---------- ----------
207,254 182,329
Less: Accumulated depreciation 42,462 22,637
---- ---------- ----------
Net Property and Equipment 164,792 159,692
-------------------------- ---------- ----------
Other Assets:
- ------------
Organization costs 426 642
---------- ----------
Total Assets $ 787,018 $1,027,415
------------ ========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
- -------------------
Note payable - line of credit (Note 3) $ 145,823 $ 170,000
Note payable - short term (Note 4) 500,000 0
Accounts payable - trade (Note 5) 202,596 396,563
Sales taxes payable 9,026 22,408
Accrued expenses 52,170 54,292
----------- ----------
Total Current Liabilities 909,615 643,263
------------------------- ----------- ----------
Stockholders' Equity
- --------------------
Common stock - 200,000 shares authorized
issued and outstanding 1,000 shares 181,545 181,545
Retained earnings (Note 6) (304,142) 202,607
----------- ----------
Total Stockholders' Equity (122,597) 384,152
-------------------------- ----------- ----------
Total Liabilities and Stockholders' Equity $ 787,018 $1,027,415
------------------------------------------ =========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-3
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Sales (Note 5) $3,250,026 $4,175,125
- ----- ---------- ----------
Cost of Goods Sold:
- ------------------
Inventory - beginning of year 385,052 309,011
Purchases for resale 2,439,253 3,410,709
Freight in 7,410 11,883
---------- ----------
2,831,715 3,731,603
Inventory - end of year 286,399 385,052
---------- ----------
Total Cost of Goods Sold 2,545,316 3,346,551
------------------------ ---------- ----------
Gross Profit 704,710 828,574
------------
Operating Expenses - Schedule 648,960 673,168
- ----------------------------- ---------- ----------
Income From Operations 55,750 155,406
---------------------- ---------- ----------
Other Income (Expenses):
- -----------------------
Interest income 171 367
Commissions income 1,755 32,619
Interest expense (20,987) (21,285)
Purchase discounts 3,431 13,077
Gain (loss) on sales of property and equipment (3,369) 0
---------- ----------
Other Income (Expenses) - Net (18,999) 24,778
----------------------------- ---------- ----------
Net Income For The Year 36,751 180,184
-----------------------
Retained Earnings - Beginning of Year 202,607 88,611
- -------------------------------------
Distributions to shareholders (543,500) (66,188)
- ----------------------------- ---------- ----------
Retained Earnings - End of year $ (304,142) $ 202,607
- ------------------------------- ========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-4
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
SCHEDULES OF OEPRATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Operating Expenses:
- ------------------
Salaries and wages - officers $ 111,693 $ 187,126
Salaries and wages - other 210,998 162,718
Payroll taxes 30,681 27,003
Employee benefits 17,161 17,867
Employee retirement plan (Note 7) 17,815 22,901
Advertising and promotion 37,348 20,891
Auto expenses 18,754 15,979
Bad debts (3,630) 18,867
Bank charges 5,267 4,064
Commissions 3,976 15,435
Depreciation 22,602 12,751
Dues and subscriptions 2,803 3,038
Freight out 24,054 20,089
Insurance 10,704 7,678
Legal and accounting 21,546 14,301
Office supplies and expense 19,024 26,341
Postage 3,439 3,940
Rent - building (Note 5) 29,138 27,991
Repairs and maintenance 1,237 7,564
Selling expenses 30,738 23,600
Taxes - other 1,239 1,433
Telephone 11,899 12,762
Travel and entertainment 9,588 12,260
Utilities 9,375 5,128
Sundry 1,511 1,441
---------- ----------
Total Operating Expenses 648,960 673,168
------------------------ ========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-5
<PAGE>
<TABLE>
TARTAN TECHNICAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 and 1997
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
- ------------------------------------
Net income for the year $ 36,751 $ 180,184
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,818 12,966
Loss (Gain) on sale of property and equipment 3,369 0
Decrease (Increase) in operating assets:
Accounts receivable - trade 229,447 (21,569)
Accounts receivable - program discounts 0 24,996
Accounts receivable - shareholders 0 127,376
Inventory 98,653 (76,041)
Prepaid expenses (8,859) (2,832)
Increase (Decrease) in operating liabilities:
Accounts payable - trade (193,967) (84,689)
Sales tax payable (13,382) (5,556)
Accrued expenses (2,122) (17,594)
---------- ----------
Net Cash Provided By Operating Activities 172,708 137,241
----------------------------------------- ---------- ----------
Cash Flows From Investing Activities:
- ------------------------------------
Acquisition of property and equipment:
Office furniture and equipment (29,794) (70,350)
Motor vehicles (16,274) 0
Leasehold improvements 0 (83,770)
Proceeds from sales of property and equipment 14,997 0
Distributions to shareholders (543,500) (66,188)
---------- ----------
Net Cash Provided (Used) By
---------------------------
Investing Activities (574,571) (220,308)
-------------------- ---------- ----------
Cash Flows From Financing Activities:
- ------------------------------------
Proceeds from notes payable:
Short-term 525,000 368,000
Payments of notes payable:
Short-term (49,177) (318,000)
Long-term 0 (7,292)
---------- ----------
Net Cash Provided (Used) By
---------------------------
Financing Activities 475,823 42,708
-------------------- ---------- ----------
Net Increase (Decrease) In Cash 73,960 (40,359)
-------------------------------
Cash - Beginning of Year 18,328 58,687
------------------------ ---------- ----------
Cash - End of Year $ 92,288 $ 18,328
------------------ ========== ==========
See accompanying notes which are an integral part of these financial statements.
</TABLE>
F3-6
<PAGE>
TARTAN TECHNICAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 1: Significant Accounting Policies:
-------------------------------
Business Activity:
-----------------
The Company is a value-added reseller of computers, computer
equipment, peripherals and supplies. The Company grants credit to
customers throughout New England and predominantly in Massachusetts.
The largest customer accounted for approximately 13% of total sales
for 1998.
Purchases from the Company's major supplier amounted to
approximately 56% of the total purchases for the year.
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 disclosures of contingent assets and liabilities
at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Inventory:
---------
Merchandise inventory is stated at the lower of cost or
market. Cost is determined using the First-in, First-out (FIFO)
method of costing inventories.
Fixed Assets:
------------
For financial reporting purposes, depreciation and
amortization of fixed assets is computed utilizing the following
methods and estimated useful lives:
Asset Method Useful Life
----- ------ -----------
Office furniture and Straight line and
equipment declining balance 3 - 8 years
Leasehold improvements Straight line 39 years
The modified accelerated cost recovery system is used for
income tax purposes.
Expenditures for major renewals and betterments which extend
the useful lives of property and equipment are capitalized;
expenditures for maintenance and repairs are charged to expense as
incurred.
Corporation Income Taxes:
------------------------
The Company, at inception, elected by unanimous consent of its
shareholders to be taxed under subchapter S of the Internal Revenue
Code. Under those provisions, the Company does not pay corporate
income taxes on its taxable income. Instead, the stockholders are
liable for individual Federal and state income taxes on their
respective shares of the Company's taxable income.
F3-7
<PAGE>
Statement of Cash Flows:
-----------------------
Interest and income taxes paid for the years ended December
31, 1998 and 1997 were as follows:
1998 1997
--------- ---------
Interest $ 18,947 $ 20,029
========= =========
Income taxes $ -0- $ -0-
========= =========
Note 2: Accounts Receivable - Trade:
---------------------------
Accounts receivable - trade are stated net of an allowance for
doubtful accounts in the amount of $2,600 and $6,230 at December 31,
1998 and 1997, respectively.
Note 3: Note Payable - Line of Credit:
-----------------------------
The Company has established a line of credit in the amount of
$200,000 with interest at the bank's prime rate plus 50 basis points
(8.25% at December 31, 1998), secured by all Company assets and by
commercial real estate of the shareholders.
Note 4: Note Payable - Short Term:
-------------------------
Note payable - short term at December 31, 1998 consisted of a
note payable to Family Bank with interest payable monthly at 6.91%,
due on June 9, 1999, secured by a certificate of deposit owned by
the shareholders.
Note 5: Related Party Transactions:
--------------------------
During 1998, sales to a person related to the two shareholders
amounted to $630, sales to an entity that is 30% owned by a
shareholder of the Company amounted to $53,794 and the entity was
billed for reimbursement of Company operating expenses in the amount
of $41,423. The Company purchased equipment from this entity for
$6,250.
Accounts receivable - trade includes amounts due from the
related parties of $13,984 and accounts payable - trade includes
$6,250 due to related parties at December 31, 1998.
Accounts payable - trade also includes amounts due to a share-
holder of $13,403 for Company expenses paid by the shareholder at
December 31, 1997.
During the years ended December 31, 1998 and 1997, expenses
charged to operations include amounts paid to a trust controlled by
the shareholders of the Company for the lease of a building in the
amount of $29,138 and $23,562, respectively.
F3-8
<PAGE>
Note 6: Retained Earnings:
-----------------
The amount reflected in retained earnings at December 31, 1998
is as follows:
Accumulated Adjustments Account:
Balance - January 1, 1998 $ 175,830
Taxable income 21,358
Nondeductible expenses (1,190)
Distributions to shareholders (543,500)
---------
Balance - December 31, 1998 (347,502)
---------
Tax Timing Adjustments:
Balance - January 1, 1998 26,777
Excess tax depreciation 14,645
Accrued expenses - related parties (1,692)
Bad debts 3,630
---------
Balance - December 31, 1998 43,360
---------
$(304,142)
=========
Note 7: Defined Contribution Plan:
-------------------------
The Company sponsors a defined contribution pension plan
covering all eligible employees. Contributions to the plan totaled
$17,815 and $22,051 in 1998 and 1997, respectively.
Note 8: Subsequent Events:
-----------------
On December 17, 1998, the Company entered into an asset
purchase agreement with Catapult Graphic Systems, Inc., effective
January 1, 1999, for the transfer of substantially all assets and
the assumption of substantially all liabilities of the business, in
exchange for shares of unregistered and restricted common stock of
the purchaser.
F3-9
<PAGE>
Financial Statements of BBG Technologies, Inc.
(Business Acquired)
Financial Report, For the Period Ended March 12, 1998 F4-1
Financial Report, For the Year Ended December 31, 1997 F4-8
Financial Report, For the Year Ended December 31, 1996 F4-15
F4-1
<PAGE>
To the Board of Directors
BBG Technologies, Inc.
Stoneham, Massachusetts
We have audited the accompanying balance sheet of BBG Technologies, Inc. as of
March 12, 1998 and the related statements of income and retained earnings and
cash flows for the period January 1, 1998 to March 12, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material.
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BBG Technologies, Inc. as of
March 12, 1998, and the results of its operations and its cash flows for the
period January 1, 1998 to March 12, 1998 in conformity with generally accepted
accounting principles.
Rucci, Bardaro + Barrett, P.C.
Certified Public Accountants
Malden, Massachusetts
August 13, 1998
F4-2
<PAGE>
BBG TECHNOLOGIES, INC.
BALANCE SHEET
As of March 12, 1998
ASSETS
------
Current Assets
Cash - Medford Savings $ 10,349
Accounts Receivable 377,077
Tektronix Rebate Receivable 29,512
Inventory - Supplies 32,230
Inventory - Printers 16,676
----------
Total Current Assets $ 465,844
---------
TOTAL ASSETS $ 465,844
=========
LIABILITIES
Current Liabilities
Accounts Payable $ 318,684
Sales Tax Payable 10,973
Accrued Health Deduction 442
----------
Total Current Liabilities $ 330,099
----------
TOTAL LIABILITIES $ 330,099
----------
STOCKHOLDERS' EQUITY
Common Stock (200,000 Shares $ 42,710
Authorizing, Issued and
Outstanding)
Retained Earnings 93,035
----------
TOTAL STOCKHOLDERS' EQUITY $ 135,745
----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 465,844
==========
The accompanying notes are an integral part of the financial statements.
F4-3
<PAGE>
BBG TECHNOLOGIES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the period January 1, 1998 to March 12, 1998
Sales $ 369,465
Rebates - Tektronix 29,512
----------
Total Sales $ 398,977
Cost of Sales $ 360,970
----------
Gross Profit 38,007
Operating Expenses
Office Supplies Expense 465
Payroll Expense 8,113
Payroll Taxes Expense 1,030
Legal & Accounting Expense 8,144
Travel Expense 5,000
Group Insurance Expense 5,283
Miscellaneous Expense 79
Credit Card Expense 400
Penalties & Interest 681
Donations 100
--------
Total Operating Expenses 29,295
----------
Net Income $ 8,712
Retained Earnings,
January 1, 1998 114,323
Dividend Distribution (30,000)
----------
Retained Earnings,
December 31, 1998 $93,035
=======---
The accompanying notes are an integral part of the financial statements.
F4-4
<PAGE>
BBG TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
For the period January 1, 1998 to March 12, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,712
Net change in receivables, inventory
Payables and accrued items (14,787)
-----------
NET CASH PROVIDED BY OPERATIONS (6,075)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividend distributions (30,000)
-----------
NET CASH USED BY FINANCING
ACTIVITIES (30,000)
----------
NET DECREASE IN CASH (36,075)
Cash, January 1, 1998 46,424
----------
Cash, March 12, 1998 $ 10,349
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for:
MA Excise tax $ 456
==========
Interest $ 59
==========
The accompanying notes are an integral part of the financial statements.
F4-5
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 12, 1998
NOTE A - BASIS OF OPERATIONS
1. Business
--------
On November 1, 1996, BBG Technologies, Inc. was formed by a
transfer of assets, specifically inventory only, from the two
shareholders, who in turn had received the inventory, immediately
prior, through a distribution from BBG New Media, Inc. For the
period January 1, 1996 through October 31, 1996 the activity of
BBG New Media, Inc. (formerly known as Boston Business Graphics,
Inc.), is presented as it relates to the activity of BBG
Technologies only, as extracted as a business segment of BBG New
Media, Inc., in a pro forma format in order to present a full
year of activity. For the two months ended December 31, 1996, BBG
Technologies, Inc. operated as a C Corporation. Beginning January
1, 1997, BBG Technologies, Inc. elected S Corporation status (See
Note B-3).
2. Business Operation
------------------
BBG Technologies, Inc., a Massachusetts corporation, is a
reseller of computer equipment and supplies as well as service
contracts covering the equipment they sell.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
-------------------
Revenue for sales of computer equipment and related supplies are
recorded upon delivery.
2. Inventory
---------
BBG Technologies, Inc., values their inventory using the FIFO
method accounted for on a specific identification basis.
As of and prior to December 31, 1995, no inventory was
maintained.
3. Income Taxes
------------
As of January 1, 1997, the shareholders of BBG Technologies, Inc.
elected the provisions available under Subchapter S of the
Internal Revenue Code, whereby any loss or gain recognized by the
corporation is distributed to shareholders based on their
respective percentage of stock owned. Therefore, the corporation
is not responsible for Federal income taxes.
F4-6
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
March 12, 1998
NOTE B - SIGNIFICANT ACCOUNTING POLICIES - Continued
The Commonwealth of Massachusetts has adopted S-corporation
provisions resulting in similar treatment for state tax purposes,
with the exception of a minimum excise tax of $456.
4. Rebates
----------
BBG Technologies, Inc. receives rebates from their primary
supplier, Tektronix, Inc., based on a percentage of purchases
volume calculated by the vendor.
NOTE C - RELATED PARTY
As referred to in Note A-1 above, BBG Technologies, Inc. began
operations on November 1, 1996, when Boston Business Graphics,
Inc., effectively bifurcated operations, becoming BBG New Media,
Inc., and BBG Technologies, Inc. The two corporations utilize the
same office facilities. Additionally, stock of the two
corporations are owned by the same two shareholders, in the same
percentages.
Other than allocated amounts shown on the December 31, 1996
income statement there are no other allocation of expenses
between the related parties. While certain equipment and other
assets of Boston Business Graphics, Inc., may have been partially
utilized by BBG Technologies, Inc., no basis for allocation of
such exists.
NOTE D - SUBSEQUENT EVENT
On March 13, 1998, virtually all tangible and intangible
operating assets of BBG Technologies, Inc., were purchased by
Cadapult, Inc., an unrelated third party. As of that date, BBG
Technologies, Inc., ceased all operations as a going concern.
Subsequent Event - Going Concern
--------------------------------
As the amount realized in the sale exceeded the reported amounts
on the balance sheet as of March 12, 1998, realization of all
amounts reported is assured.
F4-7
<PAGE>
To the Board of Directors
BBG Technologies, Inc.
Stoneham, Massachusetts
We have audited the accompanying balance sheet of BBG Technologies, Inc. as of
December 31, 1997 and the related statements of income and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material.
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BBG Technologies, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Rucci, Bardaro + Barrett, P.C.
Certified Public Accountants
Malden, Massachusetts
August 13, 1998
F4-8
<PAGE>
BBG TECHNOLOGIES, INC.
BALANCE SHEET
As of December 31, 1997
ASSETS
------
Current Assets
Cash - Medford Savings $ 46,424
Accounts Receivable 298,225
Tektronix Rebate Receivable 25,867
Inventory - Supplies 39,873
Inventory - Printers 16,675
-----------
Total Current Assets $ 427,064
-----------
TOTAL ASSETS $ 427,064
===========
LIABILITIES
-----------
Current Liabilities
Accounts Payable $ 241,518
Accounts Payable - Related Party 7,338
Sales Tax Payable 19,669
Accrued Health Deduction 441
Accrued Commission 524
Accrued Excise Tax 541
---------
Total Current Liabilities $ 270,031
----------
TOTAL LIABILITIES $ 270,031
----------
STOCKHOLDERS' EQUITY
--------------------
Common Stock (200,000 Shares $ 42,710
Authorizing, Issued and
Outstanding)
Retained Earnings 114,323
TOTAL STOCKHOLDERS' EQUITY $ 157,033
----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 427,064
==========
The accompanying notes are an integral part of the financial statements.
F4-9
<PAGE>
BBG TECHNOLOGIES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the year ended December 31, 1997
Sales 2,052,105
Rebates - Tektronix 85,619
----------
Total Sales $ 2,137,724
Cost of Sales $ 1,770,245
-----------
Gross Profit 367,479
Operating Expenses
Office Supplies Expense 791
Payroll Expense 45,894
Payroll Taxes Expense 4,425
Entertainment Expense 10,322
Travel Expense 3,114
Education Expense 4,008
Computer Expense 2,590
Miscellaneous Expense 549
Credit Card Expense 3,424
Penalties & Interest 683
Massachusetts Excise Tax and Annual 541
Report
Employee Benefit Program 1,056
-----------
Total Operating Expenses 77,397
---------
Net Income $ 290,082
Retained Earnings, January 1, 1997 37,501
Dividend Distribution (213,260)
Retained Earnings, December 31, 1997 $ 114,323
=========
The accompanying notes are an integral part of the financial statements.
F4-10
<PAGE>
BBG TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 290,082
Net change in receivables, inventory
payables and accrued items (56,959)
----------
NET CASH PROVIDED BY OPERATIONS $ 223,123
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividend distributions (213,260)
----------
NET CASH USED BY
FINANCING ACTIVITIES (213,260)
----------
NET INCREASE IN CASH 19,863
Cash, January 1, 1997 26,561
----------
Cash, December 31, 1997 $ 46,424
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 412
==========
Massachusetts Corporate Excise tax $ 4,910
==========
Federal Income Tax $ 9,056
==========
The accompanying notes are an integral part of the financial statements.
F4-11
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997
NOTE A - BASIS OF OPERATIONS
1. Business
--------
On November 1, 1996, BBG Technologies, Inc. was formed by a
transfer of assets, specifically inventory only, from the two
shareholders, who in turn had received the inventory,
immediately prior, through a distribution from BBG New Media,
Inc. For the period January 1, 1996 through October 31, 1996
the activity of BBG New Media, Inc. (formerly known as Boston
Business Graphics, Inc.), is presented as it relates to the
activity of BBG Technologies only, as extracted as a business
segment of BBG New Media, Inc., in a pro forma format in order
to present a full year of activity. For the two months ended
December 31, 1996, BBG Technologies, Inc. operated as a C
Corporation. Beginning January 1, 1997, BBG Technologies, Inc.
elected S Corporation status (See Note B-3).
2. Business Operation
------------------
BBG Technologies, Inc., a Massachusetts corporation, is a
reseller of computer equipment and supplies as well as service
contracts covering the equipment they sell.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
-------------------
Revenue for sales of computer equipment and related supplies
are recorded upon delivery.
2. Inventory
---------
BBG Technologies, Inc., values their inventory using the FIFO
method accounted for on a specific identification basis.
As of and prior to December 31, 1995, no inventory was
maintained.
F4-12
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE B - SIGNIFICANT ACCOUNTING POLICIES - Continued
3. Income Taxes
------------
As noted in Note A-1 above, for the first two months of
operation, BBG Technologies, Inc., operated as a C
Corporation, and was therefore responsible for federal and
state corporate taxes. The amount of federal and state
corporate taxes incurred in 1996 and paid in 1997 are $9,056
and $4,910 respectively.
As of January 1, 1997, the shareholders of BBG Technologies,
Inc. have elected the provisions available under Subchapter S
of the Internal Revenue Code, whereby any loss or gain
recognized by the corporation is distributed to shareholders
based on their respective percentage of stock owned.
Therefore, BBG Technologies, Inc., is not responsible for
Federal income taxes.
The Commonwealth of Massachusetts has adopted S-corporation
provisions resulting in similar treatment for state tax
purposes, with the exception of a minimum excise tax of $456.
4. Rebates
-------
BBG Technologies, Inc. receives rebates from their primary
supplier, Tektronix, Inc., based on a percentage of purchases
volume calculated by the vendor.
NOTE C - CONCENTRATION OF RISK
1. Sales
-----
BBG Technologies, Inc., sells computer equipment and supplies
to a variety of customers, the sales and related accounts
receivable balances for the top three largest customers are as
follows:
Accounts Receivable
Sales Balance
----- -------------------
MIT Lincoln Labs $ 434,000 $ 67,200
Polaroid 231,000 105,500
Cabletron Systems 136,000 6,500
--------- ---------
Total $ 801,000 $ 179,200
========= =========
F4-13
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE C - CONCENTRATION OF RISK - Continued
2. Purchases
---------
BBG Technologies, Inc., purchases equipment, supplies and
service contracts for resale virtually exclusively from
Tektronix, Inc.
NOTE D - RELATED PARTY
As referred to in Note A-1 above, BBG Technologies, Inc. began
operations on November 1, 1996, when Boston Business Graphics,
Inc., effectively bifurcated operations, becoming BBG New
Media, Inc., and BBG Technologies, Inc. The two corporations
utilize the same office facilities. Additionally, stock of the
two corporations are owned by the same two shareholders, in
the same percentages.
Other than allocated amounts shown on the December 31, 1996
income statement there are no other allocation of expenses
between the related parties. While certain equipment and other
assets of Boston Business Graphics, Inc., may have been
partially utilized by BBG Technologies, Inc., no basis for
allocation of such exists.
NOTE E - SUBSEQUENT EVENT
On March 13, 1998, virtually all tangible and intangible
operating assets of BBG Technologies, Inc., were purchased by
Cadapult, Inc., an unrelated third party. As of that date, BBG
Technologies, Inc., ceased all operations as a going concern.
F4-14
<PAGE>
To the Board of Directors
BBG Technologies, Inc.
Stoneham, Massachusetts
We have audited the accompanying balance sheet of BBG Technologies, Inc. as of
December 31, 1996 and the related statements of income and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material.
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BBG Technologies, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Rucci, Bardaro + Barrett, P.C.
Certified Public Accountants
Malden, Massachusetts
August 13, 1998
F4-15
<PAGE>
BBG TECHNOLOGIES, INC.
BALANCE SHEET
As of December 31, 1996
ASSETS
------
Current Assets
Cash - Medford Savings $ 26,561
Accounts Receivable 247,979
Inventory 32,285
-----------
Total Current Assets $ 306,825
---------
TOTAL ASSETS $ 306,825
=========
LIABILITIES
-----------
Current Liabilities
Accounts Payable $ 203,951
Sales Tax Payable 8,697
Income Taxes Payable 13,966
------------
Total Current Liabilities $ 226,614
----------
TOTAL LIABILITIES $ 226,614
----------
STOCKHOLDERS' EQUITY
--------------------
Common Stock (200,000 Shares $ 42,710
Authorizing, Issued and
Outstanding)
Retained Earnings 37,501
----------
TOTAL STOCKHOLDERS' EQUITY $ 80,211
----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 306,825
==========
The accompanying notes are an integral part of the financial statements.
F4-16
<PAGE>
BBG TECHNOLOGIES, INC.
INCOME STATEMENT
For the year ended December 31, 1996
Sales $ 2,252,980
Rebates - Tektronix 48,474
----------
Total Sales $ 2,301,454
Cost of Sales $ 1,885,076
-----------
Gross Profit 416,378
Operating Expenses
Office Supplies Expense 3,337
Payroll Expense 37,500
Payroll Taxes Expense 3,000
Rent Expense 14,806
Utilities Expense 8,259
Business Insurance Expense 2,548
Group Insurance Expense 7,800
Income Tax Expense - C Corp period 13,966
---------
Total Operating Expenses 91,216
-----------
Net Income $ 325,162
===========
The accompanying notes are an integral part of the financial statements.
F4-17
<PAGE>
BBG TECHNOLOGIES, INC.
STATEMENT OF RETAINED EARNINGS
For the year ended December 31, 1996
Retained Earnings, January 1, 1996 $ 0
Net Income $ 325,162
Earnings Retained by Predecessor (Note A-1) (287,661)
-----------
Retained Earnings, December 31, 1996 $ 37,501
===========
The accompanying notes are an integral part of the
financial statements.
F4-18
<PAGE>
BBG TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 325,162
Net change in receivables, inventory
payables and accrued items (10,940)
----------
NET CASH PROVIDED BY OPERATIONS $ 314,222
CASH FLOWS FROM FINANCING ACTIVITIES:
Earnings retained by predecessor (Note A-1) (287,661)
----------
NET CASH USED BY FINANCING (287,661)
---------
NET INCREASE IN CASH 26,561
Cash, January 1, 1996 -
---------
Cash, December 31, 1996 $ 26,561
==========
The accompanying notes are an integral part of the financial statements.
F4-19
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996
NOTE A - BASIS OF OPERATIONS
1. Business
--------
On November 1, 1996, BBG Technologies, Inc. was formed by a
transfer of assets, specifically inventory only, from the two
shareholders, who in turn had received the inventory,
immediately prior, through a distribution from BBG New Media,
Inc. For the period January 1, 1996 through October 31, 1996
the activity of BBG New Media, Inc. (formerly known as Boston
Business Graphics, Inc.), is presented as it relates to the
activity of BBG Technologies only, as extracted as a business
segment of BBG New Media, Inc., in a pro forma format in order
to present a full year of activity. For the two months ended
December 31, 1996, BBG Technologies, Inc. operated as a C
Corporation. Beginning January 1, 1997, BBG Technologies, Inc.
elected S Corporation status (See Note B-3).
2. Business Operation
------------------
BBG Technologies, Inc., a Massachusetts corporation, is a
reseller of computer equipment and supplies as well as service
contracts covering the equipment they sell.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
-------------------
Revenue for sales of computer equipment and related supplies
are recorded upon delivery.
2. Inventory
---------
BBG Technologies, Inc., values their inventory using the FIFO
method accounted for on a specific identification basis.
As of and prior to December 31, 1995, no inventory was
maintained.
F4-20
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE B - SIGNIFICANT ACCOUNTING POLICIES - Continued
3. Income Taxes
As noted in Note A-1 above, for the first two months of
operation, BBG Technologies, Inc., operated as a C
Corporation, and was therefore responsible for federal and
state corporate taxes. The amount of federal and state
corporate taxes incurred in 1996 and paid in 1997 are $9,056
and $4,910, respectively.
4. Rebates
BBG Technologies, Inc. receives rebates from their primary
supplier, Tektronix, Inc., based on a percentage of purchases
volume calculated by the vendor.
NOTE C - CONCENTRATION OF RISK
1. Sales
BBG Technologies, Inc., sells computer equipment and supplies
to a variety of customers, the sales and related accounts
receivable balances for the top three largest customers are as
follows:
Accounts Receivable
Sales Balance
--------- -------------------
MIT Lincoln Labs $ 302,000 $ 32,800
Cabletron Systems 134,000 55,000
BBN/GTE Netowrking 113,000 18,000
--------- ---------
Total $ 549,000 $ 105,800
========= =========
2. Purchases
BBG Technologies, Inc., purchases equipment, supplies and
service contracts for resale virtually exclusively from
Tektronix, Inc.
F4-21
<PAGE>
BBG TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
NOTE D - RELATED PARTY
As referred to in Note A-1 above, BBG Technologies, Inc. began
operations on November 1, 1996, when Boston Business Graphics,
Inc., effectively bifurcated operations, becoming BBG New
Media, Inc., and BBG Technologies, Inc. The two corporations
utilize the same office facilities. Additionally, stock of the
two corporations are owned by the same two shareholders, in
the same percentages.
Other than allocated amounts shown on the December 31, 1996
income statement there are no other allocation of expenses
between the related parties. While certain equipment and other
assets of Boston Business Graphics, Inc., may have been
partially utilized by BBG Technologies, Inc., no basis for
allocation of such exists.
NOTE E - SUBSEQUENT EVENT
On March 13, 1998, virtually all tangible and intangible
operating assets of BBG Technologies, Inc., were purchased by
Cadapult, Inc., an unrelated third party. As of that date, BBG
Technologies, Inc., ceased all operations as a going concern.
F4-22
<PAGE>
INDEX TO ULTRAHUE, INC. FINANCIAL REPORT, SEPTEMBER 30, 1999
Independent Auditor's Report F5-2
Balance Sheets for the Nine Months Ended September 30, 1999 and F5-3
the Year Ended December 31, 1998
Statement of Income and Retained Earnings for the Nine Months F5-4
Ended September 30, 1999 and the Year Ended December 31, 1998
Statement of Cash Flows for the Nine Months Ended September 30, 1999 F5-5
and the Year Ended December 31, 1998
Notes to Financial Statements F5-6
F5-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of UltraHue, Inc.
We have audited the accompanying balance sheets of UltraHue, Inc. as of
September 30, 1999 and December 31, 1998 and the related statements of income
and retained earnings and cash flows for the nine months ended September 30,
1999 and the year ended December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UltraHue, Inc. at September
30, 1999 and December 31, 1998, and the results of its operations and its
cash flows for the periods indicated above in conformity with generally
accepted accounting principles.
/s/ Wiss & Company, LLP
WISS & COMPANY, LLP
Livingston, New Jersey
January 20, 2000
F5-2
<PAGE>
ULTRAHUE, INC.
BALANCE SHEETS
<TABLE>
Nine Months
Ended Year Ended
September 30, December 31,
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 185,023 $ 40,100
Accounts receivable, net of allowance for
doubtful accounts of $5,000 in 1999 397,998 245,607
Inventories 116,665 14,705
Advances to officers - 32,669
Prepaid rent 6,600 -
------------- -------------
Total Current Assets 706,286 333,081
PROPERTY AND EQUIPMENT, NET 29,969 8,777
SECURITY DEPOSIT 1,162 -
------------- -------------
$ 737,417 $ 341,858
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligation $ 2,214 $ -
Accounts payable 21,701 5,550
Accrued expenses 15,610 1,364
------------- -------------
Total Current Liabilities 39,525 6,914
------------- -------------
CAPITAL LEASE OBLIGATION, LESS CURRENT MATURITIES 10,826 -
------------- -------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value 30,000 shares authorized,
2,000 shares issued and outstanding 2,000 2,000
Retained earnings 685,066 332,944
------------- -------------
Total Stockholders' Equity 687,066 334,944
------------- -------------
$ 737,417 $ 341,858
============= =============
</TABLE>
See accompanying notes to financial statements.
F5-3
<PAGE>
ULTRAHUE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
Nine Months
Ended Year Ended
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
NET SALES $ 2,144,283 $ 1,093,677
COST OF GOODS SOLD 554,369 306,542
------------- -------------
GROSS PROFIT 1,589,914 787,135
OPERATING EXPENSES 464,581 329,836
------------- -------------
INCOME FROM OPERATIONS 1,125,333 457,299
INTEREST EXPENSE 542 -
------------- -------------
NET INCOME 1,124,791 457,299
RETAINED EARNINGS, BEGINNING OF PERIOD 332,944 3,645
DISTRIBUTIONS (772,669) (128,000)
------------- -------------
RETAINED EARNINGS, END OF PERIOD $ 685,066 $ 332,944
============= =============
</TABLE>
See accompanying notes to financial statements.
F5-4
<PAGE>
ULTRAHUE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months
Ended Year Ended
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,124,791 $ 457,299
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 5,559 20,757
Provision for bad debts 5,000 -
Changes in operating assets and liabilities:
Accounts receivable (157,391) (227,632)
Inventories (101,960) (11,316)
Prepaid rent (6,600) -
Security deposits (1,162) -
Accrued expenses 14,246 1,364
Accounts payable 16,151 5,183
------------- -------------
Net cash flows from operating activities 898,634 245,655
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,030) (28,963)
Advances to officers 32,669 (32,669)
------------- -------------
Net cash flows from investing activities 19,639 (61,632)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (772,669) (128,000)
Stockholder loans - (37,354)
Capital lease (681) -
------------- -------------
Net cash flows from financing activities (773,350) (165,354)
------------- -------------
NET CHANGE IN CASH 144,923 18,669
CASH, BEGINNING OF PERIOD 40,100 21,431
------------- -------------
CASH, END OF PERIOD $ 185,023 $ 40,100
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 542 $ -
============= =============
Income taxes paid $ - $ -
============= =============
Noncash financing and investing activity -
Equipment addition by capital lease $ 13,721 $ -
============= =============
</TABLE>
See accompanying notes to financial statements.
F5-5
<PAGE>
ULTRAHUE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Nature of the Business - UltraHue, Inc. ("UltraHue") is a manufacturer
of solid ink and a distributor of transparencies and toner cartridges for
Tektronix color printers. It's manufacturing facility is located near
Albuquerque, New Mexico and its corporate office is located in Redmond,
Washington.
Estimates and Uncertainties - 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, as determined at a
later date, could differ from those estimates.
Concentration of Credit/Sales Risk - The Company maintains its cash
balances in a financial institution which is insured by the Federal Deposit
Insurance Corporation up to $100,000. At September 30, 1999, the Company has
an uninsured balance, including outstanding checks, totalling approximately
$140,000.
Sales to one customer and two customers comprised approximately 37% in
1999 and 46% in 1998, of the Company's net sales.
Concentration of credit risk with respect to other trade customers is
limited due to the large number of customers.
The Company periodically reviews its trade receivables and if
necessary, establishes an allowance for uncollectible accounts. Management
feels the credit risk beyond the established allowance, if any, is limited.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment - Property and equipment are stated at
cost. For financial reporting purposes, the Company provides for
depreciation generally on an accelerated method by charges to income at rates
based upon the estimated recovery periods of 5 to 7 years.
The Company capitalizes, for financial reporting purposes, leased
equipment where the term of the lease results in the transfer to the Company
of substantially all of the benefits and risks of ownership.
Income Taxes - The Company elected under Section 1361 of the Internal
Revenue Code and under New Mexico corporate statues to be taxed as an S
Corporation. Under these provisions, all earnings and losses of the Company
for federal and New Mexico income tax reporting purposes are reported on the
income tax returns of the shareholders. Accordingly, no provisions have been
made for federal or state income taxes. Washington has no state income
taxes.
F5-6
<PAGE>
ULTRAHUE, INC.
NOTES TO FINANCIAL STATEMENTS
Change in Fiscal Year - The Company elected to change from a December 31 to
September 30, fiscal year. Therefore, the accompanying financial statements
include transitional financial statements for the nine months ended September
30, 1999. Unaudited financial data for the nine months ended September 30,
1998 follow which is the corresponding period of the preceding fiscal year.
There were no seasonal factors that affect the comparability of information
or trends reflected.
Net sales $579,717
========
Gross profit $322,159
========
Net income $126,640
========
NOTE 2 - INVENTORIES:
Inventories include the following:
September 30, December 31,
1999 1998
------------- ------------
Raw materials $ 25,382 $ 14,705
Finished goods 91,283 -
------------- ------------
$ 116,665 $ 14,705
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
September 30, December 31,
1999 1998
------------- ------------
Computer equipment $ 37,227 $ 25,739
Furniture and fixtures 5,750 4,208
Machinery and equipment 16,650 2,929
------------- ------------
59,627 32,876
Less: Accumulated depreciation 29,658 24,099
------------- ------------
$ 29,969 $ 8,777
============= ============
NOTE 4 - LEASES:
The Company's machinery and equipment under a capital lease, which is
included in property and equipment, totalled $13,721 less accumulated
depreciation of $2,058.
F5-7
<PAGE>
ULTRAHUE, INC.
NOTES TO FINANCIAL STATEMENTS
Future minimum rental payments required for the capital lease at
September 30, 1999 are as follows:
Year Ending September 30,
-------------------------
2000 $ 3,669
2001 3,669
2002 3,669
2003 3,669
2004 2,446
----------
Total future minimum lease payments 17,122
Less: Amount representing interest 4,082
Present value of minimum lease payments 13,040
Less: Current maturities 2,214
----------
Non-current $ 10,826
==========
The Company leases its office facility on a month-to-month basis for
$2,200 per month and its New Mexico operating facility under a non-
cancellable operating lease which requires monthly payments of $1,350
expiring on June 30, 2000.
Rent expense for operating leases in 1999 and 1998 was $20,381 and
$15,411.
NOTE 5 - SUBSEQUENT EVENT:
On December 13, 1999, the Company sold substantially all of its assets,
subject to its liabilities, for $4,056,473, to Cadapult Graphic Systems, Inc.
("Cadapult") collectible as follows:
Cash $2,340,000
Note receivable 1,160,000
Due from Cadapult 556,473
==========
$4,056,473
The note receivable bears interest at the rate of 7% per annum and is
due on December 13, 2000.
Due from Cadapult is collectible as Cadapult liquidates the receivables
and inventories purchased and satisfies the payables assumed.
F5-8
<PAGE>
INDEX TO PRO FORMA FINANCIAL DATA
Pro Forma Financial Data F6-2
Pro Forma Consolidated Statement of Operations for the Year Ended F6-3
June 30, 1999 (Unaudited)
Notes to Unaudited Pro Forma Statement of Operations F6-4
Pro Forma Consolidated Statement of Operations for the Acquisition F6-5
for the Six Months Ended December 31, 1999 (Unaudited)
Notes to Unaudited Pro Forma Statement of Operations for the F6-6
Acquisition
F6-1
<PAGE>
PROFORMA FINANCIAL DATA
Set forth below are two sets of pro forma financial information and
related notes. The first set presents pro forma financial information for
the acquisitions that Cadapult consummated in fiscal 1999 and the acquisition
of certain assets and its assumption of certain liabilities from ultraHue,
Inc. on December 13, 1999 (the "Acquisitions"). This set includes an
unaudited pro forma consolidated statement of operations of Cadapult for the
year ended June 30, 1999 giving effect to the Acquisitions as if they had
occurred on July 1, 1998 (see Note 1 of Notes to Unaudited Pro Forma
Statement of Operations).
The second set presents pro forma financial information which reflects
the acquisition of certain assets and the assumption of certain liabilities
from ultraHue, Inc. This set includes an unaudited pro forma consolidated
statement of operations of Cadapult for the six month period ended December
31, 1999, giving effect to the Acquisition of ultraHue that Cadapult
consummated on December 13, 1999 as if it had occurred on July 1, 1998.
This pro forma financial information is based on the estimates and
assumptions set forth herein and in the notes thereto and has been prepared
utilizing the financial statements and notes thereto appearing elsewhere in
this prospectus.
The following unaudited pro forma financial information is presented
for informational purposes only and is not necessarily indicative of (i) the
results of operations of Cadapult that actually would have occurred had the
Acquisitions been consummated on the dates indicated or (ii) the results of
operations of Cadapult that may occur or be attained in the future. The
following information is qualified in its entirety by reference to and should
be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Cadapult's financial
statements, including the notes thereto, and the other historical financial
information appearing elsewhere herein.
F6-2
<PAGE>
CADAPULT GRPHIC SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
(Unaudited)
<TABLE>
Historical Tartan WEB ultraHue Adjustments(2) Pro Forma
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 10,227,628 $ 1,365,939 $ 2,656,755 $ 1,093,677 $ (51,000)c $ 15,292,999
------------ ------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 7,442,239 1,089,846 2,186,736 306,542 (51,000)c 10,974,363
Selling, general and
administrative expenses 3,069,682 341,792 461,154 329,836 269,894 a,b 4,472,358
------------ ------------ ------------ ------------ ------------ ------------
10,511,921 1,431,638 2,647,890 636,378 218,894 15,446,721
------------ ------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (284,293) (65,699) 8,865 457,299 (269,894) (153,722)
------------ ------------ ------------ ------------ ------------ ------------
OTHER EXPENSE:
Interest expense, net 160,081 13,765 6,583 - 65,000 d 245,429
Loss on sale of equipment - 3,369 - - - 3,369
------------ ------------ ------------ ------------ ------------ ------------
160,081 17,134 6,583 - 65,000 248,798
------------ ------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES (CREDITS) (444,374) (82,833) 2,282 457,299 (334,894) (402,520)
------------ ------------ ------------ ------------ ------------ ------------
INCOME TAXES (CREDITS): - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) (444,374) (82,833) 2,282 457,299 (334,894) (402,520)
------------ ------------ ------------ ------------ ------------ ------------
PREFERRED STOCK DIVIDENDS - - - - 483,000 483,000
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS)
APPLICABLE TO COMMON
STOCKHOLDERS $ (444,374) $ (82,833) $ 2,282 $ 457,299 $ (817,894) $ (885,520)
============ ============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 2,844,819 - - - 131,843 2,976,662
============ ============ ============ ============ ============ ============
BASIC AND DILUTED
NET LOSS PER SHARE OF
COMMON STOCK $ (.16) $ (.30)
============ ============
</TABLE>
See the accompanying notes to pro forma financial statements.
F6-3
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NOTE 1 - ACQUISITIONS:
On January 7, 1999, Cadapult acquired certain assets and assumed
certain liabilities of Tartan Technical, Inc. ("Tartan"), a Massachusetts
corporation for 185,700 shares of the registrant's common stock. Currently,
92,850 of these shares are held in escrow pursuant to the resolution of a
contingency based on Tartan achieving certain gross profit levels over the
next two years. On June 18, 1999, Cadapult acquired certain assets and
assumed certain liabilities of WEB Associates, Inc. ("WEB") a Pennsylvania
Corporation for $242,200 in cash and 172,380 shares of the registrant's
common stock. Currently 86,190 of theses shares are held in escrow pursuant
to the resolution of a contingency based on WEB achieving certain gross
profit levels over the next two years. On December 13, 1999, Media Sciences,
Inc. ("Media Sciences"), a wholly-owned subsidiary of Cadapult, completed the
acquisition of certain assets and the assumption of certain liabilities of
ultraHue, Inc. for $2,340,000 in cash, a note payable for $1,160,000 bearing
interest at 7% per annum due on the first anniversary of the closing and
$556,473 due to ultraHue as Cadapult liquidates receivables and inventory
purchased and satisfies the payables assumed. Each acquisition was accounted
for under the purchase method of accounting. Under the purchase method of
accounting, the results of operations of an acquired entity are included in
Cadapult's historical financial statements from its acquisition date.
Acquired assets and assumed liabilities have been recorded based on their
fair market value as of the date of acquisition with the excess of the
purchase price over the fair value of the net assets acquired allocated to
goodwill. The financial information of Tartan and WEB reflect the results of
operations of each entity for the interim period from July 1, 1998 to the
date of acquisition. The financial information of ultraHue reflects the
results of operations for the year ended December 31, 1998.
NOTE 2 - PRESENTATION AND PRO FORMA ADJUSTMENTS:
The unaudited pro forma condensed statements of operations for the year
ended June 30, 1999 presented above have been prepared as if the Acquisitions
had been consummated as of July 1, 1998.
Cadapult financed the Acquisition through the use of proceeds from
a private placement of its preferred stock ("the Offering"). The Offering is
on a "best efforts" basis with $5,500,000 the maximum amount. For purposes
of this pro forma financial information, the actual gross proceeds from the
Offering that has thus far been raised is $4,200,000, based on the sale of
420,000 Units at $10.00 per Unit. Expenses of the Offering are estimated to
be $630,000. The estimated net proceeds to Cadapult of $3,570,000 was used
to acquire ultraHue ($2,400,000), finance the No-cap Color Program
($1,000,000) and to reduce note payable to bank ($170,000).
Pro forma adjustments have been made for the following:
a) Amortization expense adjustments to reflect amortization of
goodwill over a 15-year period at $27,512 per year for
Tartan and WEB and $234,000 for ultraHue.
b) Depreciation expense adjustments to reflect increased
depreciation over a three year period for the fair value of
fixed assets acquired over book value at $26,648 per year
for Tartan and WEB and $4,000 per year for ultraHue.
c) To eliminate intercompany sales.
d) Pro forma interest expense is increased by $81,000 to
account for 7% annual interest on the ultraHue note.
Interest expense has also been reduced by $16,000 for the
payoff of $170,000 on the note payable to bank from the net
proceeds of the Offering.
No effect has been given to the additional use of proceeds to finance
the No-Cap Color Program.
NOTE 3 - NET LOSS PER SHARE:
Pro forma basic net loss per share is calculated by treating all shares
of Common Stock issued to Tartan and WEB as outstanding for the entire year.
The 179,040 shares in escrow will not be included in basic loss per share
until the contingency is resolved. The contingent shares are not required to
be included in the calculation of diluted loss per share until the
contingency is resolved.
Basic earnings (loss) per common share was calculated by dividing
net income (loss) applicable to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share was calculated by dividing net income by the sum of the weighted
average number of common shares outstanding plus all additional common shares
that would have been outstanding if potentially dilutive securities or common
stock equivalents had been issued. For purposes of diluted earnings per
share, conversion of the Series A Preferred Stock is not assumed as the
effect is anti-dilutive. The dilutive effect of outstanding stock options
and warrants issued by Cadapult is reflected by application of the treasury
stock method.
NOTE 4 - INTERCOMPANY TRANSACTIONS:
The pro forma statement of operations has been adjusted to eliminate
intercompany sales totalling $51,000 for the period from July 1, 1998 to June
30, 1999; the related intercompany profit was not significant.
F6-4
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE ACQUISITION
SIX MONTHS ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
Historical ultraHue Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 6,110,569 $ 1,403,555 $ (141,000)h $ 7,373,124
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 4,307,054 350,621 (141,000)h 4,516,675
Selling, general and administrative 1,910,236 486,294 108,000 2,504,530
----------- ----------- ----------- -----------
6,217,290 836,915 (33,000) 7,021,205
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (106,721) 566,640 (108,000) 351,919
----------- ----------- ----------- -----------
OTHER EXPENSE (INCOME):
Interest expense, net 118,481 - 29,000 g 147,481
Other income - - - -
----------- ----------- ----------- -----------
118,481 - 29,000 147,481
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES (CREDITS) (225,202) 566,640 (137,000) 204,438
INCOME TAXES (CREDITS) (307,000) - 172,000 e (135,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 81,798 $ 566,640 $ (309,000) $ 339,438
=========== =========== =========== ===========
PREFERRED STOCK DIVIDENDS $ 20,112 $ - $ 221,388 $ 241,500
=========== =========== =========== ===========
INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ 61,686 $ 566,640 $ (530,388) $ 97,938
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 3,166,114 3,166,114
=========== ===========
Diluted 3,278,655 3,278,655
=========== ===========
NET INCOME PER SHARE
OF COMMON STOCK:
Basic $ .02 $ .03
=========== ===========
Diluted $ .02 $ .03
=========== ===========
</TABLE>
See the accompanying notes to pro forma financial statements.
F6-5
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATMEMENTS
REFLECTING THE ACQUISITION
NOTE A - On December 13, 1999, Media Science, Inc. ("Media Sciences"), a
wholly-owned subsidiary of Cadapult, completed the acquisition of certain
assets and the assumption of certain liabilities of ultraHue, Inc. for
$2,340,000 in cash and a note payable for $1,160,000 bearing interest at 7%
per annum due on the first anniversary of the closing.
NOTE B - The acquisition was accounted for under the purchase method of
accounting. Under the purchase method of accounting, the results of
operations of an acquired entity are included in Cadapult's historical
consolidated financial statements from its acquisition date. Under that
method of accounting, the acquired assets are included based on an allocation
of their aggregate purchase price as of their date of acquisition.
The unaudited pro forma statement of operations for the six month period
ended December 31, 1999 has been prepared as if the Acquisition had been
consummated as of July 1, 1998.
Cadapult acquired the operations and equipment of ultraHue. Cash of the
acquired business will remain the property of the seller. Accounts
receivable, inventory and accounts payable will be liquidated by Cadapult and
paid to the Seller. The net equity of ultraHue has been eliminated in
combination.
NOTE C - The purchase price of the Acquisition was $3,500,000, plus
estimated costs of acquisition of approximately $60,000. An estimated
allocation of the purchase price is as follows:
Equipment $ 50,000
Goodwill 3,510,000
----------
$3,560,000
----------
Goodwill will be amortized over 15 years at a rate of $234,000 per year.
NOTE D - Cadapult financed the Acquisition through the use of proceeds from
a private placement of its preferred stock ("the Offering"). The Offering is
on a "best efforts" basis with $5,500,000 the maximum amount. For purposes
of this pro forma financial information, the actual gross proceeds from the
Offering that has thus far been raised is $4,200,000, based on the sale of
420,000 Units at $10.00 per Unit. Expenses of the Offering are estimated to
be $630,000. The estimated net proceeds to Cadapult of $3,570,000 was
used to acquire ultraHue ($2,400,000), finance the No-cap Color
Program ($1,000,000) and to reduce note payable to bank ($170,000).
NOTE E - Income taxes (credits) is a result of the elimination of a
valuation allowance of $307,000 offset by a required tax provision of
$172,000.
F6-6
<PAGE>
CADAPULT GRAPHIC SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
REFLECTING THE ACQUISITION
NOTE F - Basic earnings (loss) per common share was calculated by dividing
net income (loss) applicable to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share was calculated by dividing net income by the sum of the weighted
average number of common shares outstanding plus all additional common shares
that would have been outstanding if potentially dilutive securities or common
stock equivalents had been issued. For purposes of diluting earnings per
share, conversion of the Series A Preferred Stock is not assumed as the
effect is anti-dilutive. The dilutive effect of outstanding stock options
and warrants issued by Cadapult is reflected by application of the treasury
stock method.
NOTE G - Pro forma interest expense is increased by $37,000 to account for
7% annual interest on the ultraHue note. Interest expense has also been
reduced by $8,000 for the payoff of $170,000 on the note payable to bank from
the net proceeds of the Offering.
NOTE H - The pro forma statement of operations has been adjusted to
eliminate intercompany sales totalling $141,000 for the period from July 1,
1999 to December 13, 1999; the related intercompany profit was not
significant.
F6-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our Certificate of Incorporation provides that to the fullest
extent permitted by the General Corporation Law of Delaware, including,
without limitation, as provided in Section 102(b)(7) of the General
Corporation Law of Delaware, as the same exists or may hereafter be amended,
any of our director shall not be personally liable to us or
our stockholders for monetary damages for breach of fiduciary duty as a
director. Section 102(b)(7) of the Delaware General Corporation Law permits
a corporation to provide in its certificate of incorporation that a director
of the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of the director's duty of loyalty to the
corporation or its stockholders;
- for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
- for payments of unlawful dividends or unlawful stock repurchases
or redemptions; or
- for any transaction from which the director derived an improper
personal benefit.
If the General Corporation Law of Delaware is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of our directors shall be
eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended. Any repeal or modification of
the provision of the Certificate of Incorporation by our stockholders
shall not adversely affect any right or protection of our directors
existing at the time of such repeal or modification or with respect to events
occurring prior to such time.
Our Certificate of Incorporation and Bylaws further provide for
the indemnification of our directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law,
including circumstances in which indemnification is otherwise discretionary.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with any threatened, pending or completed actions, suits
or proceedings in which such person is made a party by reason of such person
being or having been a director, officer, employee of or agent to the
registrant. The statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
<PAGE>
Our Certificate of Incorporation provides that (we will
indemnify any of our directors, officers, employees, or agents with respect
to actions, suits, or proceedings relating to us and, subject to
certain limitations, a director will not be personally liable for monetary
damages for breach of his or her fiduciary duty.
Our directors or officers , or a person who at our request
serves as a director, officer, employee or agent of another business
entity, shall be indemnified by usagainst all expense, liability and
loss, including attorneys' fees, judgments, fines, other expenses and losses,
that is reasonably incurred or suffered in connection with any action, suit
or proceeding or threatened action, suit or proceeding. For a person to
receive indemnification under this provision, ourBoard of Directors
must authorize the indemnification, and the person seeking
indemnification must agree to repay usfor all amounts advanced to him
or her if a court of law ultimately determines that the person should not
have been indemnified by us. A person who is entitled to indemnification
may recover from us, and may sue usif we fail to make
timely payment.
Item 25. Other Expenses of Issuance and Distribution.
The following is a statement of the expenses, all of which are
estimated other than the SEC registration fee, other than underwriting
discounts and commissions, to be incurred in connection with the distribution
of the securities registered under this registration statement.
AMOUNT
TO BE PAID
----------
SEC registration fee..........................................$ 498
Legal fees and expenses....................................... 10,000
Blue Sky fees and expenses.................................... . 2,000
Accounting fees and expenses.................................. 2,000
Printing expenses............................................. 2,000
---------
Total...................................................$ 16,498
=========
We will pay all of the expenses listed above. The selling stockholders
are responsible for any stock transfer taxes, transfer fees, and brokerage
commissions or underwriting discounts and commissions.
Item 26. Recent Sales of Unregistered Securities
On June 18, 1998, we completed the acquisition of CGSI in a
transaction viewed as a reverse acquisition. Pursuant to the acquisition,
we issued 1,650,000 unregistered and restricted shares of common stock
to the six stockholders of CGSI in exchange for all of the outstanding common
stock of CSGI in transactions deemed to be exempt under Section 4(2) of the
Securities Act. All of the shares of CGSI were beneficially owned by officers,
Directors, or management level employees of CGSI. We provided to the CGSI
shareholders all material information about us, including copies of our
filings with the SEC under the Securities Act and the Exchange Act. We
responded to all of their due diligence requests and provided them access to
any information that they requested.
<PAGE>
Between June and August 1998, we conducted a private placement
through the sale of 524,000 shares of unregistered and restricted common
stock and raised gross proceeds of $655,000 in a transaction deemed to be
exempt under Rule 505 of Regulation D under the Securities Act. We
applied the net proceeds to working capital, including the acquisition of
other businesses. The private placement was conducted by our officers
and directors and was not underwritten. We did not engage in general
solicitation and advertising for the private placement. We sold these shares
of common stock to 20 accredited persons and 17 nonaccredited persons. We
provided all of them with all material information about us, as would normally
be provided in a registration statement, including copies of our most recent
10-KSB and 10-QSB reports. We provided them access to, and responded to any
questions and requests for, documents.
In August 1998, we issued 75,000 warrants to purchase shares of
common stock, exercisable for five years at $4.00 per shares, to our securities
counsel, Fischbein Badillo Wagner Harding, for legal services valued at
$13,043, in a transaction deemed to be exempt under Section 4(2) of the
Securities Act. We did not provide nor were we asked to provide any specific
information in connection with the transaction.
On January 7, 1999, we completed the acquisition of certain
assets of Tartan Technical, Inc. Under the asset purchase agreement,
we issued 92,850 shares of unregistered and restricted common stock to
Tartan Technical and reserved in escrow an additional 92,850 shares of
unregistered and restricted common stock for possible future issuance to
Tartan Technical in a transaction deemed to be exempt under Section 4(2) of
the Securities Act. Tartan Technical was provided access to all material
information about us, and we responded to all of its requests for information
about us. In December 1999, we issued to Tartan 34,818 shares of the escrowed
common stock.
In February 1999, we issued 30,000 warrants to purchase shares
of common stock, exercisable for five years at $5.00 per shares, to our
business counsel, Bruce Meisel, for legal services valued at $7,467, in a
transaction deemed to be exempt under Section4(2) of the Securities Act. We
did not provide nor were we asked to provide any specific information in
connection with the transaction.
On June 23, 1999, we completed the acquisition of certain
assets of WEB Associates, Inc. Under the asset purchase agreement,
we issued 86,190 shares of unregistered and restricted common stock to
WEB Associates and reserved in escrow an additional 86,190 shares of
unregistered and restricted common stock for possible future issuance to WEB
Associates in a transaction deemed to be exempt under Section 4(2) of the
Securities Act. WEB Associates was provided access to all material
information about us, and we responded to all of its requests for information
about us.
On September 13, 1999, we completed a private placement sale
of 127,750 shares of unregistered and restricted common stock, of which
50,000 shares were held in escrow and released in December 1999, and raised
gross proceeds of approximately $255,500 in transactions deemed to be
exempt under Rules 505 and 506 of Regulation D under the Securities Act.
We applied the net proceeds to development of our Internet-based
services, working capital, and other general corporate purposes. The
private placement was conducted by our officers and directors and
was not underwritten. We did not engage in general solicitation and
advertising for the private placement. We sold these shares of common stock
to 11 accredited persons and 7 nonaccredited persons. We provided all of
them with all material information about us, as would normally be provided in
a registration statement, including copies of our most recent 10-KSB and
10-QSB reports. We provided them access to, and responded to any questions
and requests for, documents.
<PAGE>
In September 1999, we issued 15,000 shares of common stock to
our litigation counsel, Norris, McLaughlin & Marcus, P.A., for
legal services valued at $21,000, in a transaction deemed to be exempt under
Section 4(2) of the Securities Act. We did not provide nor were we asked
to provide any specific information in connection with the transaction.
On December 13, 1999, as part of our acquisition of ultraHue, Inc.,
Donald Gunn became an employee of our Media Sciences division. Under a three
year employment agreement, we issued to him options to purchase 50,001 shares
of our common stock. The exercise price of the options is $3.125 per share.
One-third of the options vest on each of the three anniversary dates of
employment. As an officer, director and a controlling shareholder of
ultraHue, we provided to him, or he had access to, all material information
about us in connection with the asset purchase agreement between us and
ultraHue. On December 23, 1999, he was elected to our Board of Directors.
On December 13, 1999, as part of our acquisition of ultraHue, Inc.,
Randy Hooker became an employee of our Media Sciences division. Under a three
year employment agreement, we issued to him options to purchase 50,001 shares
of our common stock. The exercise price of the options is $3.125 per share.
One-third of the options vest on each of the three anniversary dates of
employment. As an officer, director and a controlling shareholder of
ultraHue, we provided to him, or he had access to, all material information
about us in connection with the asset purchase agreement between us and
ultraHue.
In December 1999, we issued 10,435 shares of common stock to our
litigation counsel, Norris, McLaughlin & Marcus, P.A., for legal services
valued at $30,000, in a transaction deemed to be exempt under Section 4(2)
of the Securities Act. We did not provide nor were we asked to provide any
specific information in connection with the transaction.
From December 1999 to February 3, 2000, we conducted a private
placement of 416,000 units of our securities and raised gross proceeds of
approximately $4,160,000. Each unit consisted of one share of convertible
preferred stock and warrants to purchase two shares of common stock. Each
warrant is exercisable for one share of common stock at a price of $4.50 per
share for a five year period. The private placement was conducted by a
placement agent on a best efforts basis. The placement agent is receiving as
compensation up to 8% of the total gross sales as commission, 2% of the total
gross sales as non-accountable expenses, and 3% of the total gross sales as
non-accountable marketing expenses. The placement agent will also receive a
number of five-year warrants, exercisable at $1.65 per share, equal to 4.3%
of the total gross sales and a number of five-year warrants, exercisable at
$3.75, equal to 10% of the total gross sales We sold these units of our
securities to 75 accredited persons. We provided all of them with all
material information about us, as would normally be provided in a
registration statement, including copies of our most recent 10-KSB. We
provided them access to, and responded to any requests for, any question and
documents asked of us. The units must be held by the purchaser for a minimum
of one year. We agreed to file a registration statement, at our expense, for
the sale of common stock underlying the units within 90 days of the closing
of the private placement so that the purchaser can sell its shares in the
public market immediately after the one year holding period.
<PAGE>
Item 27. Exhibits
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
Exhibit Description
- ------- -----------
2.1 Agreement and Plan or Reorganization between Seafoods Plus, Ltd.
and Cadapult Graphic Systems, Inc., a New Jersey corporation,
dated June 5, 1998 (Incorporated by reference to Exhibit 2.1 of
Annual Report on Form 10KSB filed on September 28, 1999).
2.2 Agreement and Plan of Merger between Cadapult Graphic Systems, Inc.
and Seafoods Plus, Ltd. (Incorporated by reference to Exhibit 2.1
of Quarterly Report on Form 10QSB/A filed on September 1, 1998).
2.3 Agreement and Plan of Merger between Cadapult Graphic Systems Inc.,
a New Jersey corporation, and Cadapult Graphic Systems, Inc., a
Delaware Corporation (Incorporated by reference to Exhibit 2.2 of
Quarterly Report on Form 10QSB/A filed on September 1, 1998).
2.4 Asset Purchase Agreement between Cadapult Graphic Systems, Inc. and
BBG Technologies, Inc. (Incorporated by reference to Exhibit 2.4 of
Annual Report on Form 10KSB filed on September 28, 1999).
2.5 Asset Purchase Agreement between Cadapult Graphic Systems, Inc. and
Tartan Technical, Inc. dated December 17, 1998 (Incorporated by
reference to Exhibit 2.5 of Annual Report on Form 10KSB filed on
September 28, 1999).
2.6 Asset Purchase Agreement between Cadapult Graphic Systems, Inc. and
WEB Associates, Inc. dated June 7, 1999 (Incorporated by reference
to Exhibit 2.6 of Annual Report on Form 10KSB filed on September
28, 1999).
2.7** Asset Purchase Agreement between Media Sciences, Inc. and
ultraHue, Inc. dated September 7, 1999
3(i)(1) Certificate of Incorporation of Cadapult Graphic Systems, Inc., a
Delaware corporation (Incorporated by reference to Exhibit 3.1 of
Quarterly Report on Form 10QSB/A filed on September 1, 1998).
3(i)(2) Certificate of Merger of Seafoods Plus, Ltd. into Cadapult
Graphic Systems, Inc., a Delaware corporation (Incorporated by
reference to Exhibit 3.1 of Quarterly Report on Form 10QSB filed
on November 9, 1998).
3(i)(3) Certificate of Merger of Domestic and Foreign Corporations into
Cadapult Graphic Systems, Inc.(Incorporated by reference to
Exhibit 3.2 of Quarterly Report on Form 10QSB filed on November 9,
1998).
3(i)(4) Certificate of Ownership and Merger Merging Cadapult Graphic
Systems Inc. into Cadapult Graphic Systems, Inc. (Incorporated by
reference to Exhibit 3.3 of Quarterly Report on Form 10QSB filed
on November 9, 1998).
3(i)(5) Certificate of Amendment of Certificate of Incorporation of
Cadapult Graphic Systems, Inc. (Incorporated by reference to
Exhibit 3(i)(5) of Annual Report on Form 10KSB filed on
September 28, 1999).
3(i)(6) Certificate of Incorporation of Media Sciences, Inc.
(Incorporated by reference to Exhibit 3(i)(6) of Annual Report
on Form 10KSB filed on September 28, 1999).
<PAGE>
3(ii) By-Laws (Incorporated by reference to Exhibit 3.2 of Quarterly
Report on Form 10QSB/A filed on September 1, 1998).
4.1 1998 Incentive Plan (Incentive Stock Option Plan) (Incorporated
by reference to Exhibit 4.1 of Annual Report on Form 10KSB filed
on September 28, 1999).
4.2 Form of Option Agreement for Management (Incorporated by reference
to Exhibit 4.2 of Annual Report on Form 10KSB filed on September
28, 1999).
4.3 Form of Option Agreement for Employees (Incorporated by reference to
Exhibit 4.3 of Annual Report on Form 10KSB filed on September 28,
1999).
4.4 Form of Warrant Certificate (Incorporated by reference to Exhibit
4.4 of Annual Report on Form 10KSB filed on September 28, 1999).
4.5 Certificate of Designation (Incorporated by reference to Exhibit
4.5 of Registration Statement on Form SB-2 filed on November 15,
1999).
4.6 Form of Warrant Certificate for Purchasers of Units
5** Opinion of Law Offices of Dan Brecher as to validity of Common
Stock being offered.
10.1 Amended Employment Agreement of Michael W. Levin dated as of
September 1, 1998 (Incorporated by reference to Exhibit 10.4 of
Annual Report on Form 10KSB filed on September 28, 1999).
10.2 Amended Employment Agreement of Duncan Huyler (Incorporated by
reference to Exhibit 3.2 of Quarterly Report on Form 10QSB filed on
May 4, 1999).
10.3 Amended Employment Agreement of Frances Blanco (Incorporated by
reference to Exhibit 3.3 of Quarterly Report on Form 10QSB filed
on May 4, 1999).
10.4 Lease (Incorporated by reference to Exhibit 10.8 of Annual Report
on Form 10KSB filed on September 28, 1999).
10.5** Tektronix, Inc. Value Added Dealer Agreement, August 1, 1991
10.6** Tektronix, Inc. Value Added Dealer Agreement, Supplement A,
September 1, 1992
10.7** Tektronix, Inc. Value Added Dealer Agreement, Amendment,
July 1, 1993
10.8** Tektronix, Inc. Value Added Dealer Agreement, Supplement A,
July 1, 1994
10.9** Tektronix, Inc. Dealer Agreement, 1995 Amendment
10.10** Tektronix, Inc. Value Added Dealer Agreement, Premier Reseller
Supplement A, July 29, 1996
10.11** Tektronix, Inc. Reseller Agreement, Premier Reseller Supplement A,
December 2, 1996
16** Letter on change in certifying accountant
21 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 of Annual Report on Form 10KSB filed on September 28,
1999).
23.1** Consent of Law Offices of Dan Brecher (filed as Exhibit 5
herein)
23.2** Consent of Wiss & Company LLP
23.3** Consent of Belanger & Company, P.C.
_____
** Filed herewith.
<PAGE>
Item 28. Undertakings.
(A) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(b) 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; and
(c) 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.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(3) 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.
(B) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE>
(C) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding, is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2, as amended, and
authorized this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Allendale, State of
New Jersey, on February 10, 2000.
CADAPULT GRAPHIC SYSTEMS, INC.
By: /s/ Michael W. Levin
-------------------------------------
Michael W. Levin
Chief Executive Officer and President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Michael W. Levin Chairman of the Board, President February 14, 2000
- ---------------------- Chief Executive Officer, and
Michael W. Levin Principal Financial Officer
/s/ Frances Blanco Vice President, Secretary, February 10, 2000
- ---------------------- Treasurer and Director
Frances Blanco
/s/ Paul C. Baker Director February 10, 2000
- ----------------------
Paul C. Baker
/s/ Donald Gunn Director February 11, 2000
- ----------------------
Donald Gunn
</TABLE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT made this 7th day of September, 1999;
Between: Media Sciences, Inc., a New Jersey corporation and a
wholly owned subsidiary of Cadapult Graphic Systems,
Inc. with offices located at 110 Commerce Drive, Allendale,
New Jersey 07401, hereinafter referred to as "Purchaser";
And: UltraHue, Inc., a New Mexico corporation with offices
Suite 183, 16542 Redmond Way, Redmond, Washington
98502, hereinafter referred to alternatively as "UltraHue"
or "Seller";
And: Donald Gunn and Randy Hooker, individuals, hereinafter
collectively referred to as "Shareholders"
Whereas, Purchaser is a wholly owned subsidiary of Cadapult Graphic Systems,
Inc. formed primarily to acquire, own and operate the Trade Secrets,
Proprietary Information and Assets of Seller; and,
Whereas, Seller is engaged primarily in the business of the manufacture of
solid inks for use in color printers and related equipment; and,
Whereas, Seller has developed certain formulas and processes for
manufacturing the aforesaid inks, and related confidential information and
know-how; and,
<PAGE>
Whereas, Shareholders are the principal stockholders of Seller and are
individually and jointly familiar with such formulas, processes, confidential
information and know-how, and will individually and jointly benefit from
consummation of the within transaction; and,
Whereas, the formulas, processes, confidential information and know-how
related to the manufacture of the aforesaid inks are confidential trade
secrets in the sole possession of Seller and certain of Seller's
Shareholders, principals and employees; and,
Whereas, Purchaser is desirous of acquiring sole ownership of the Trade
Secrets and all other Assets of Seller (as defined hereinafter) owned by
Seller and used in the conduct of its business; and,
Whereas, in order to protect the confidentiality and value of the Trade
Secrets of Seller being acquired by Purchaser, both Seller and those
principals and employees of Seller who have knowledge of any of the Trade
Secrets shall, as a material inducement to Purchaser entering into this
Agreement, agree to execute at Closing Confidentiality Agreements, in the
forms annexed hereto and made a part hereof as Exhibits A through A-3, which
Confidentiality Agreements shall contain representations that (a) the Trade
Secrets have not been heretofore disclosed by them to any persons or
entities, except as otherwise set forth hereafter in this Agreement; and (b)
the Trade Secrets will remain confidential and henceforth not be disclosed
by them.
Now Therefore, in consideration of the mutual covenants, promises and
conditions set forth herein, the parties hereto do hereby agree as follows:
1. Definitions.
2
<PAGE>
1.01. Agreement. The within Asset Purchase Agreement.
1.02. Accounts Payable. Trade payables, as same are customarily
defined in general accounting terms, accrued by Seller up to Closing
resulting from the purchase of any goods or services in the ordinary course
of conducting its business where such goods and services have been received
or used by Seller but where payment has not been made.
1.03. Accounts Receivable. Accounts receivable, as same are
customarily defined in general accounting terms, acquired by Seller in
relation to sales of Seller's products or services up to Closing for which
payment has not yet been received and is still outstanding through the
Closing.
1.04. Assets. All of the Assets, tangible and intangible, owned and
used by Seller in the operation of its business, including but not limited to
those Assets referenced in Paragraph 3.02 of this Agreement. Assets shall
include Proprietary Information as defined hereinafter.
1.05. Closing. The date upon which all of the actions and agreements
contemplated by this Agreement shall be consummated by both Seller and
Purchaser, including but not limited to conveyance of the Trade Secrets and
Assets by Seller to Purchaser, execution and delivery of the ancillary
agreements annexed to and made a part hereof, and the making of payments due
Seller at such Closing from Purchaser in accordance with the provisions of
Paragraph 4 hereof.
1.06. Deposit. Purchaser's check in the sum Fifty Thousand
($50,000.00) Dollars made payable to the attorney trust account of the Escrow
Agent deposited and held pursuant to the terms of the Escrow Agreement
executed simultaneously herewith.
3
<PAGE>
1.07. Escrow Agent. Miller, Nash, Wiener, Hager & Carlsen, LLP for
the purpose of holding the Deposit in escrow.
1.08. Proprietary Information. All information, formulas, patterns,
compilations, programs, devices, methods, techniques and processes, other
than Trade Secrets as defined hereinafter, that (1) derive independent
economic value, actual or potential, from not being generally known to the
public or to other persons who can obtain economic value from their
disclosure or use, and (2) are the subject of efforts that are reasonable
under the circumstances to maintain their confidentiality.
1.09 Trade Secrets. All of the formulas, processes, confidential
information and know-how related to the manufacture of solid inks for use in
color printers and related equipment, whether or not patentable, which have
been used by Seller, or developed by Seller prior to Closing, whether or not
at a commercial stage of development.
2. List of Exhibits.
1.01. Exhibits A through A-3. Confidentiality Agreements.
1.02. Exhibit B. Definition of Gross Profits, Net Profits and Net
Losses.
1.03. Exhibit C. Escrow Agreement.
1.04. Exhibit D. Allocation of Purchase Price.
1.04. Exhibit E. Bill of Sale.
1.05. Exhibit F. Employment Agreement for Donald Gunn.
1.06. Exhibit F-1. Employment Agreement for Randy Hooker.
1.07. Exhibit G and G-1. Covenants Not to Compete.
1.08. Exhibit H. Intentionally omitted.
1.09. Exhibit I. Property and Equipment.
4
<PAGE>
1.10. Exhibit J. Description of patent infringement charges, if any,
and description of the resolution of any such charges resolved by judicial
decree.
1.11. Exhibit K. Proceeds from Subsequent Sale of Trade Secrets.
1.12. Exhibit L. Promissory Note.
1.13. Exhibit M. List of employees of Seller with knowledge of the
Trade Secrets and Proprietary Information who have executed Non-
Disclosure/Non-Compete Agreements in favor of Seller, which agreements are to
be assigned to Purchaser at Closing.
1.14. Exhibit N. Form of Non-Disclosure/Non-Compete Agreement
executed by certain employees of Seller to be assigned to Purchaser at
Closing.
3. Purchase and Sale.
3.01 Seller agrees to sell, transfer and assign to Purchaser, and
Purchaser agrees to purchase from Seller, any and all right, title and
interest in and to the Trade Secrets.
3.02 Seller further agrees to sell to Purchaser and Purchaser agrees
to purchase from Seller all of the other Assets owned and used by Seller in
the operation of its business known as UltraHue, Inc., including but not
limited to the following:
A. Accounts Receivable, less allowances;
B. Inventory at lower of cost or fair market value;
C. Property and equipment as listed on Exhibit I annexed hereto
and made a part hereof;
D. All right, title and interest in and to the name UltraHue and
any other trademarks, service marks or any copyrights heretofore used and/or
owned by Seller;
5
<PAGE>
E. Customer lists and all files relating thereto;
F. Sales, service and vendor contracts and security deposits;
G. Existing telephone numbers (425) 836-3678; (425) 861-9033 and
(888) 376-8348 and Fax number (425) 861-8548.
H. Databases
I. Originals or duplicates of all of Seller's on-going business
records
3.03 In conjunction with the purchase from Seller by Purchaser of
the Trade Secrets and Assets, as defined herein, Purchaser has agreed to
assume the following liabilities of Seller:
A. Accounts Payable as of the date of Closing;
B. Customer deposits as of the date of Closing;
C. Warranties on products sold prior to the date of Closing;*
D. Leases and contracts to the extent they are to be performed after
the date of Closing.
Purchaser assumes no other liabilities other than those specifically
referenced hereinabove. Liabilities specifically EXCLUDED from assumption by
Purchaser include, but are not limited to, the following: (a) any monies
due any governmental agency, including any federal, state and/or local taxes;
(b) any contingent liabilities resulting from any claim or threatened claim
against Seller which may not, as of this date or date of Closing, have
matured into a debt; (c) any severance obligations to Seller; and (d) any
other obligations of Seller, including any claims made by employees for
unpaid salaries, commissions, pension or other benefits, accrued vacation or
sick pay arising prior to the date of Closing, and, (d) any other undisclosed
liabilities.
*C-1 - Claims relating to defective ink or toner not to exceed $50,000.00 in
the aggregate.
6
<PAGE>
4. Purchase Price and Terms of Sale.
4.01 Purchaser does hereby agree to assume the liabilities referenced
in Subparagraphs A, B, C and D of Paragraph 3.03 hereinabove (hereinafter
referred to as "Liabilities") and to purchase the Trade Secrets and Assets
for the following consideration:
A. Payment of the sum of Two Million Three Hundred Forty
Thousand ($2,340,000.00) Dollars due at Closing; plus,
B. Delivery of Promissory Note executed by Purchaser and
guaranteed by Cadapult Graphic Systems, Inc. in the principal sum of One
Million One Hundred Sixty Thousand ($1,160,000.00) Dollars, which Note shall
accrue interest at the annual rate of seven (7%) percent with the full
principal and accrued interest thereupon being due and payable in full on the
first anniversary of the Closing. The form of the Promissory Note to be
executed at Closing is annexed hereto as Exhibit L.
C. A sum equivalent to Seller's cost of the inventory of Seller
delivered to Purchaser at Closing. Purchaser shall make pro rata payments to
Seller based upon a sum which corresponds to that portion of the inventory
sold by Purchaser after Closing for which payment has been received by
Purchaser. Such periodic payments shall be made to Seller in relation to the
aforesaid sale of inventory every 14 days from the date of Closing, such
amounts to be calculated by Purchaser on a first in, first out basis within
fourteen (14) days after the end of each fourteen (14) day period; plus,
D. The difference between all Accounts Receivable collected by
Purchaser less Accounts Payable, as collected and paid, respectively. At the
end of each 14 day period, Purchaser agrees to reconcile the aforesaid
amounts and pay to
7
<PAGE>
Seller a sum equivalent to the difference between the Accounts Receivable
collected and Accounts Payable paid that period, such amounts to be
calculated by Purchaser on a first in, first out basis within
fourteen (14) days after the end of each fourteen (14) day period; plus,
E. For a period of One (1) year from the date of Closing, payment
of a sum equivalent to ten (10%) per cent of the quarterly Net Profits
derived by Purchaser from the first One Million Five Hundred Thousand
($1,500,000) Dollars of Gross Profits plus Thirty (30%) per cent of the Net
Profits attributable to Gross Profits in excess of One Million Five Hundred
Thousand ($1,500,000) Dollars. In the event there is a Net Loss in any
quarter during this one (1) year period, the amount of such loss shall be set
off against the Net Profits for any subsequent quarter, provided that if
there is no subsequent quarter in this one (1) year period, then a refund
shall be due Purchaser; plus,
F. For a period of Two (2) years from the first anniversary of
the date of Closing, after the distributions as set forth in Subparagraph E
hereinabove shall have terminated, payment of a sum equivalent to Ten (10%)
per cent of the quarterly Net Profits derived by the Purchaser from the first
One Million ($1,000,000.00) Dollars of Gross Profits plus Thirty (30%) per
cent of the Net Profits attributable to the Gross Profits in excess of One
Million ($1,000,000) Dollars. In the event there is a Net Loss in any
quarter during this two (2) year period, the amount of such loss shall be set
off against the Net Profits for any subsequent quarter, provided that if
there is no subsequent quarter in this two (2) year period, then a refund
shall be due Purchaser.
G. For the purposes of this Paragraph 4.01, the terms Gross
Profits, Net
8
<PAGE>
Profits and Net Losses shall be defined as set forth in Exhibit B annexed to
and made a part hereof.
H. Upon reasonable notice and at reasonable intervals, not to
exceed twice in any one calendar year, Seller shall have the right to examine
the books and records of Purchaser to verify any of amount of payments due
Seller pursuant to the provisions of this Paragraph 4.
I. In the event Purchaser sells or otherwise transfers the Trade
Secrets to an unrelated third party, i.e., not a wholly owned subsidiary of
Purchaser, for good consideration at any time within a period of three (3)
years from the Closing, the Seller shall have the right to elect to either
continue receiving the payments provided for in subparagraphs E and F of this
Paragraph 4.01; or, in the alternative, "recapture" a portion of the proceeds
derived from said sale or transfer. In the event of the latter election, all
on-going payments which would have been made to the Seller pursuant to this
Paragraph 4, and specifically subparagraphs E and F of hereof, shall
terminate as of the date of transfer to said third party. The extent of
Seller's participation in said subsequent sale is set forth in Exhibit K
annexed to and made a part hereof.
5. Financing Condition Precedent. The obligation of Purchaser to purchase
the Trade Secrets and Assets of Seller pursuant to the terms and conditions
of this Agreement is conditioned upon Purchaser obtaining financing in the
sum of not less than Three Million ($3,000,000) Dollars to fund the within
purchase. In the event Purchaser does not obtain such financing by the
Closing, either party shall then have the option to terminate this Agreement
upon service of written notice to the other in which event this Agreement,
and all of the rights and obligations of the parties
9
<PAGE>
hereunder, shall be deemed null, void and of no further effect except that
Seller shall have the right to retain the Deposit then being held in escrow
as liquidated damages, the parties having determined that the amount of said
Deposit is a reasonable measure of the damages Seller may suffer as a
consequence of Purchaser not obtaining the financing referenced in this
Paragraph 5.
6. Deposit. Upon execution of this Agreement, Purchaser shall cause the
Deposit to be forwarded to the Escrow Agent. Said funds shall constitute an
earnest money deposit, which monies shall be held in escrow by the aforesaid.
Said funds shall be referred to hereinafter as the "Deposit". In the event
the Closing does not occur as a consequence of either the failure of any
conditions precedent to this Agreement* or Seller's breach, the Deposit shall
be refunded to the Purchaser, without any deduction or set off whatsoever,
within Two (2) business days of demand therefor. In the event the Closing
does not occur, after satisfaction of Purchaser's conditions precedent, as a
consequence of Purchaser's breach of its obligations hereunder, then the
Seller shall have the right to retain the Deposit then being held in escrow as
liquidated damages, the parties having determined that the amount of said
Deposit is a reasonable measure of the damages Seller may suffer as a
consequence of Purchaser's breach. Upon payment to Seller of the Deposit as
liquidated damages, neither party shall have any further claim against the
other, either in law or equity, and this Agreement, and any and all rights of
the parties hereunder, shall thereafter be deemed to be null, void and of no
further effect. The rights and obligations of the parties, including the
Escrow Agent, shall be more definitively set forth in an Escrow Agreement to
be executed
*,other than Purchaser's failure to obtain the financing referenced in
Paragraph 5 of this Agreement by Closing,
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<PAGE>
simultaneously herewith in the form annexed hereto and made a part hereof as
Exhibit C.
7. Allocation of Purchase Price. The total purchase price shall be
allocated amongst the various Trade Secrets, Assets and agreements to be
executed at Closing in the manner set forth in Exhibit D annexed hereto and
made a part hereof.
8. Transfer of Trade Secrets and Execution of Confidentiality Agreements.
At Closing, Seller shall execute and deliver a Bill of Sale conveying to
Purchaser any and all of Seller's rights, title and interests in and to the
Trade Secrets and Assets. The form of said Bill of Sale is annexed hereto
and made a part hereof as Exhibit E. In addition, also at Closing, Seller
shall deliver Confidentiality Agreements executed by Donald Gunn and Randy
Hooker in the form annexed hereto and made a part hereof as Exhibits A and A-
1 and Leland Traylor and Thomas Hendricks in the form annexed hereto and made
a part hereof as Exhibits A-2 and A-3 by the terms of which each shall agree
not to disclose, and in all other respects to maintain the secrecy of, said
Trade Secrets. In addition, at Closing Seller does hereby agree to assign
to Purchaser all of its right, title and interest in and to certain Non-
Disclosure/Non-Compete Agreements between Seller and certain of its employees
who have knowledge of the Trade Secrets and Proprietary Information. The
list of the employees who have entered into such agreements, and whose
agreements shall be assigned by Seller to Purchaser at Closing is annexed
hereto as Exhibit M. The form of Non-Disclosure and Non-Compete Agreement to
be assigned is annexed hereto as Exhibit N.
9. Employment Agreements and Covenants Not to Compete.
11
<PAGE>
A. At Closing, two of Seller's shareholders, Donald Gunn and Randy
Hooker, shall execute separate, but substantially identical, Employment
Agreements in the form annexed to and made a part hereof as Exhibits F and F-
1, respectively. Said Employment Agreements shall provide for the
employment of each for terms of not less than Three (3) years from Closing.
Such Employment Agreements shall also contain post termination restrictions
against competition and disclosure of the Trade Secrets and other
confidential information.
B. At Closing, Seller shall cause to be delivered to Purchaser
Covenants Not to Compete executed by Leyland Traylor and Tom Hendricks. The
executed Covenants Not to Compete shall be in the form annexed hereto and
made a part hereof as Exhibits G and G-1. At Closing, Seller shall also
deliver side letter signed by Traylor and Hendricks whereby each shall agree
that for a period of eighteen months from Closing each shall make themselves
available on an as needed basis to consult with and advise Purchaser. The
side letters shall also provide that Purchaser shall compensate Traylor or
Hendricks at the rate of $500.00 per day, or prorated if less than a full
day, plus reasonable out of pocket expenses, for each day that either
performs consulting services for Purchaser at its request. At Closing, the
side letters shall be countersigned by Purchaser.
C. Failure of Seller to deliver at Closing the executed agreements
referred to in Paragraphs 8 and 9 of this Agreement shall constitute a
material breach of this Agreement.
10. Closing. The Closing shall occur on or about Ninety (90) calendar days
from the date of this Agreement at Seller's offices or at the offices of
Seller's attorneys. All
12
<PAGE>
monies due and payable at Closing shall be paid in the form of a bank,
certified or attorneys trust account check.
11. Additional Conditions Precedent.
A. Completion of legal due diligence by the Purchaser, including
review of all pleadings, including Stipulation of Settlement and Dismissal,
and related legal documents in relation to the matter of Tektonrix, Inc. vs.
UltraHue, Inc., Civil No. C97-1533-C in the US. District Court for the
Western district of Washington, and any and all other actual or threatened
legal claims by or against Seller. Seller shall provide Purchaser with all
documentation in relation to the aforesaid within Five (5) calendar days of
the date hereof. Purchaser shall then have Twenty (20) business days to
complete its review of said documentation. Upon the completion of
Purchaser's due diligence, it shall advise Seller, through counsel, whether
it deems this condition precedent satisfied and wishes to proceed to Closing
or whether it wishes to cancel this Agreement, in which event Purchaser's
Deposit shall be refunded in full, without delay, deduction or set off.
B. Completion of accounting and business review of all aspects of
Seller's business, including but not limited to annual tax returns through
December 31, 1998, profit and loss statements, vendor and vendee contracts,
accounts receivable and payable, etc. Again, Purchaser shall have Twenty
(20) business days to complete this review. Upon completion of Purchaser's
review as described herein, it shall advise Seller whether it deems this
condition precedent satisfied and wishes to proceed to Closing or whether it
wishes to cancel this Agreement. In the event Purchaser elects to
13
<PAGE>
cancel this Agreement, the Deposit shall be refunded without delay,
deduction or set off.
C. Acceptance by Purchaser of Seller's leases, copies of which shall
be forwarded to Purchaser's attorney within Ten calendar days, or Five
calendar days after receipt, if later, of the date of this Agreement.
Written notice of approval or disapproval shall be forwarded to Seller's
attorneys within three business days of receipt of the copy of said lease.
On or before the Closing, Seller shall obtain its Landlord's consents, if
required, to an assignment of said Leases to Purchaser.
D. Approval by Purchaser's lender, Summit Commercial/Gibraltar
Financial for it to proceed to Closing pursuant to this Agreement. If such
approval is not secured within Thirty (30) days of the date hereof, either
party hereto may terminate this Agreement by serving written notice upon the
other, in which event the Deposit shall be immediately refunded to Purchaser
without delay, deduction or set off, and neither party shall thereafter have
any further obligation or liability to the other, except as set forth in
Paragraph 5 hereinbefore.
12. Seller's Representations. Seller represents and warrants to Purchaser
as follows:
A. Treatment of Trade Secrets. Seller represents and warrants that
only Donald Gunn, Randy Hooker, Leland Traylor, Thomas Hendricks and the
employees listed in Exhibit M have knowledge of the Trade Secrets and
Proprietary Information. Further, Seller also represents and warrants that
it has taken all reasonable actions to safeguard the secrecy of the Trade
Secrets, including but not limited to limiting access to all written records
containing any of the Trade Secrets to employees of Seller having a need to
know the Trade Secrets; restricting employee and visitor access to areas of
14
<PAGE>
Seller's business where Trade Secret processes are performed; and marking
writings containing Trade Secrets with indicia indicating the confidential
nature of the information contained therein.
B. Title to Assets. Seller shall, as of the date of Closing, have
good and marketable title to the Trade Secrets and Assets, free and clear of
restrictions on or conditions to transfer or assignment as well as any and
all liens, pledges, charges, licenses to third parties or encumbrances. At
Closing, Seller shall convey to Purchaser all such Trade Secrets and Assets.
C. Efficacy of Trade Secrets. Seller and Seller's Shareholders
represent and warrant that all formulas and processes to be conveyed to
Purchaser, including but not limited to the Trade Secrets, will work for
their intended purpose and the ones used to date in the conduct of Seller's
business. Seller agrees to reduce all of the Trade Secrets to writing and
deliver such writings at Closing to the President of Purchaser, Michael W.
Levin.
D. Indemnification. Seller, and Seller's shareholders shall jointly
and severally agree to protect, indemnify, and hold the Purchaser harmless
from and against any loss, damage or expense, as well as reasonable counsel
fees and costs, if incurred, resulting from any breach of the warranties set
forth in this Paragraph 12. Specifically, this Indemnification shall include
any claim made against Purchaser for any unpaid liability of Seller.
E. Transfer Not Subject to Encumbrances or Third-Party Approval. The
execution and delivery of this Agreement by Seller, and the consummation of
the transaction contemplated herein, will not result in the creation or
imposition of any valid
15
<PAGE>
lien, charge, or encumbrance on any of the Assets, and will not require the
authorization, consent, or approval of any third party, including any lender
or governmental or regulatory agency.
F. Corporate Existence. Seller is now, and on the Closing Date will
be, a corporation duly organized and validly existing and/or qualified as a
foreign corporation in good standing under the laws of the States of New
Mexico and Washington. At Closing, Seller shall provide a copy of a
Certificate of Good Standing issued by the States of New Mexico and
Washington as well as the New Mexico and/or Washington Department of Revenue,
as applicable.
G. Authorization. The execution, delivery, and performance of this
Agreement has been duly authorized and approved by the Board of Directors and
shareholders of Seller having a majority of the issued and outstanding Common
Stock thereof, and this Agreement constitutes a valid and binding agreement
of Seller in accordance with its terms.
H. Noncancelable Contracts. At the time of Closing, there will be no
leases, employment contracts, contracts for services or maintenance, or other
similar material contracts existing or relating to or connected with the
operation of Seller's business not cancelable at Closing or within 30 days
thereof, except as specifically referenced elsewhere in this Agreement.
I. Continued Operations. Seller will continue to conduct its business
up to the date of Closing in essentially the same manner as it has been
conducted in the past, and in accordance with all applicable laws and
regulations. Until Closing, Seller shall maintain all of its Assets in their
present condition. Seller shall use its reasonable
16
<PAGE>
efforts to preserve, for Purchaser, the goodwill of vendors, suppliers,
customers and others having business relations with it. Prior to Closing,
Seller will not sell or transfer any of the Assets which are the subject of
this Agreement except in the ordinary course of business. Seller has no
knowledge of a business termination of a material customer, vendor or
supplier.
J. Withholding Taxes. Seller has paid in full, or will arrange for the
payment in full, in a timely manner, of all federal and State taxes incurred
by Seller, including, but not limited to income, withholding, social security,
unemployment insurance, and sales taxes due through Closing or any other taxes
incurred in relation to the within transfer, and shall hold Purchaser harmless
therefrom.
K. Employee Benefits. Seller does not maintain any retirement or
deferred compensation plan, savings, incentive, stock option or stock purchase
plan, unemployment compensation plan, vacation pay, severance pay, bonus or
benefit arrangement, insurance or hospitalization program or any other fringe
benefit arrangement for any employee, consultant or agent of the Seller,
whether pursuant to contract, arrangement, custom or informal understanding,
which constitute an "Employee Benefit Plan" (as defined in Section 3(3) of
ERISA), for which the Seller may have any ongoing material liability after
Closing. The Seller does not maintain, nor has it ever contributed to, any
Multi-employer Plan as defined by Section 3(37) of ERISA. The Seller does not
currently maintain any Employee Pension Benefit Plan subject to Title IV of
ERISA. There have been no "prohibited transactions" (as described in Section
406 of ERISA or Section 4975 of the Internal Revenue Code) with respect to an
Employee Pension Benefit Plan or Employee Welfare Benefit party. Seller has
no
17
<PAGE>
employee benefits plans with the exception of major medical coverage insured
by United Health Care . Seller shall be responsible for paying, prior to
Closing, all accrued vacation or sick pay entitlements of its employees.
L. No Infringement. Seller has no knowledge that any of the Trade
Secrets or any of the other formulations, processes, equipment or techniques
used by Seller to manufacture solid inks, or any of the solid inks
manufactured by Seller, infringe upon any patent rights, U.S. or foreign, held
by any third party. Seller has not been charged with infringement of any
patent, trade secret, copyright, trademark or any other intellectual property
rights held by a third party other than as referenced in Exhibit J annexed
hereto and made a part hereof.
M. Accuracy of Representations and Warranties. None of the
representations or warranties of Seller contain or will contain any untrue
statement of a material fact or omit or will omit or misstate a material fact
necessary in order to make statements in this Agreement not misleading.
Seller knows of no fact or circumstance that has resulted, or that in the
reasonable judgment of Seller will result, in a material change in the
business, operations, or assets of Seller that has not been previously
disclosed or set forth in this Agreement.
N. Duration of Seller's Liability hereunder. With the exception of any
knowingly false or fraudulent misrepresentation, Seller's liability pursuant
to the provisions of this Paragraph 12 shall extend for a period of three (3)
years from the date of Closing.
13. Purchaser's Representations. Purchaser represents and warrants to Seller
as follows:
18
<PAGE>
A. Corporate Existence. Buyer is a New Jersey corporation, duly
organized, validly existing and in good standing under the laws of the State
of New Jersey and has the power and authority to carry on its business, as now
conducted, to own and operate its properties and assets, to execute this
Agreement and other agreements and instruments referred to herein and to
deliver and carry out the transactions contemplated herein.
B. Authorization. Execution and delivery of this Agreement and other
agreements and instruments referred to herein have been duly authorized by the
Board of Directors and shareholders of both Media Sciences, Inc. and Cadapult
Graphic Systems, Inc., as guarantor, and shall constitute legal, valid,
binding and enforceable agreements and instruments.
C. Consummation. Neither the execution, delivery or performance of
this Agreement or any other agreement or instrument executed and delivered by
or on behalf of Media Sciences, Inc., or Cadapult Graphic Systems, Inc., to
the extent the latter is obligated to perform under the terms of this
Agreement, nor the consummation of the transactions contemplated herein, nor
compliance with the terms and provisions of this Agreement, contravene the
Certificate of Incorporation, Articles of Incorporation, or Bylaws or any
provision of law, statute, rule, regulation or order of any court or
governmental authority to which Media Sciences, Inc. or Cadapult Graphic
Systems, Inc., to the extent the latter is obligated to perform under the
terms of this Agreement, is subject, or any judgment, decree, franchise, order
or permit applicable to it, or conflicts or is inconsistent with, or will
result in any breach of or constitute a default under, any contract,
commitment, agreement, understanding, arrangement or instrument, or result
19
<PAGE>
in the creation of or imposition of, or the obligation to create or impose any
lien, encumbrance or liability upon, any of the property or assets of it, or
will increase any such lien, encumbrance, or liability.
14. Breach by Seller. In the event of Seller's breach of this Agreement, the
parties hereto acknowledge and agree that monetary damages may not be adequate
to redress such breach and therefore Purchaser shall have the right to seek
not only monetary damages but specific performance to compel Seller, and the
individuals who have executed this Agreement, to perform in accordance with
this agreement and the agreements to be executed at Closing as referenced
herein.
15. Guaranty of Cadapult Graphic Systems, Inc. The obligations and
undertakings of Purchaser as set forth in this Agreement shall be guaranteed
by Purchaser's parent corporation, Cadapult Graphic Systems, Inc.
16. Miscellaneous.
A. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by a written
agreement signed by all of the parties hereto.
B. Notices. All notices, requests, consents, approvals or other
communications under this Agreement shall be in writing and sent via facsimile
to the fax numbers set forth below, or mailed by certified mail, return
receipt requested, postage prepaid, or delivered by a nationally recognized
overnight courier service which obtains delivery receipts (e.g., Federal
Express), addressed:
20
<PAGE>
Seller:
UltraHue, Inc.
Suite 201
16398 NE 85th Street
Redmond, WA 98052
(425) 861-8548
John West, Esq.
Miller, Nash, Wiener, Hager and Carlsen
4400 Two Union Square
601 Union Street
Seattle, Washington 98101
(206) 622-7485
Purchaser:
Media Sciences, Inc.
110 Commerce Drive
Allendale, New Jersey 07401
(201) 818-9040
Bruce M. Meisel, Esq.
263 Center Avenue
Westwood, New Jersey 07675
(201) 666-4356
Either party may, by notice given as aforesaid, change its address for all
subsequent notices. All notices hereunder shall be effective upon receipt of
same.
21
<PAGE>
C. No Broker. The Seller and Purchaser represent and warrant, each to
the other, that neither has engaged or in any way dealt with a broker, finder,
agent, or anyone in a similar capacity, in relation to the transaction
contemplated by this Agreement. To this extent, Seller and Purchaser do each
hereby agree to indemnify, defend and hold the other harmless from and against
any and all loss, expense, including but not limited to reasonable counsel
fees and costs, damage or liability resulting from any claim or claims arising
from an alleged rendering of any services to the indemnifying party in breach
of the within warranty.
D. Titles and Captions. All section titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context nor affect the interpretation of this Agreement. All pronouns and any
variation thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the person or persons may require.
E. Entire Agreement. This Agreement, together with the ancillary
agreements to be executed at Closing annexed hereto and made a part hereof,
contains the entire understanding between and among the parties and supersedes
any prior understanding and agreements among them respecting the subject
matter of this Agreement.
F. Presumption. This Agreement, or any Section thereof, shall not be
construed against any party due to the fact that said Agreement or any Section
thereof was drafted by said party.
G. Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forebear from all such action
as may be necessary or appropriate to achieve the purpose of this Agreement.
22
<PAGE>
H. Counterparts. This Agreement may be executed in several
counterparts and all so executed shall constitute one Agreement, binding on
all the parties hereto even though all the parties are not signatories to the
original or the same counterpart.
I. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Executed as of the dates set forth below, in several counterparts, each of
which shall be deemed an original, but all constituting only one agreement.
Purchaser:
Media Sciences, Inc.
Date: 9/8/99
By: /s/ Michael Levin
----------------------------
Michael Levin, President
Seller
UltraHue, Inc.
Date: 8/7/99
By: /s/ Donald Gunn
----------------------------
Donald Gunn, Pres.
Solely as to the provisions of Paragraphs
8, 9A and 12D.
/s/ Donald Gunn
----------------------------
Donald Gunn
/s/ Randy Hooker
----------------------------
Randy Hooker
Guarantor:
Cadapult Graphic Systems, Inc.
By: /s/ Michael W. Levin
--------------------------
Michael W. Levin, Pres.
23
<PAGE>
ADDENDUM
TO
ASSET PURCHASE AGREEMENT
BETWEEN
MEDIA SCIENCES, INC.
AND
ULTRAHUE, INC.
In further consideration of the promises contained in a certain Asset Purchase
Agreement dated September 7, 1999 by and between Media Sciences, Inc. and
UltraHue, Inc. ("hereinafter referred to herein as "Agreement") and performance
Of the covenants and conditions of said Agreement, the parties hereto do hereby
agree as follows:
1. Paragraph 3.03C and C-1 of the aforesaid Agreement shall be and hereby is
deleted therefrom. Accordingly, Media Sciences, Inc. shall not assume
responsibility for any warranties on products sold by UltraHue, Inc. prior to
Closing, including, but not limited to any claims relating to defective ink or
toner.
Dated: December 13, 1999
Media Sciences, Inc.
By: /s/ Michael W. Levin, President
---------------------------------
Michael W. Levin, Pres.
Attest:
/s/ Bruce M. Meisel
- -------------------
Bruce M. Meisel, Esq.
263 Center Avenue
Westwood, New Jersey 07675
/s/ Donald Gunn
----------------
Donald Gunn
Attest:
/s/ Randy Hooker
- ----------------
<PAGE>
EXHIBIT A
CONFIDENTIALITY AGREEMENT
-------------------------
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as
"Company"
AND: Donald Gunn, an individual hereinafter referred to as
"Shareholder".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Trade Secrets and the Assets of UltraHue, Inc.
1.2. The shareholder heretofore owned a substantial equity interest in
Ultrahue, Inc.; and, as a consequence thereof received substantial
consideration for the transfer of the Trade Secrets and Assets of Ultrahue,
Inc. to the Company.
1.3. A material inducement for the Company to purchase the Trade
Secrets and Assets of UltraHue, Inc., and to pay the consideration therefor,
as set forth in the Asset Purchase Agreement is the representations of and
agreements by the Shareholder that the Trade Secrets and Proprietary
Information of UltraHue, Inc., including, but not limited to, the formulas,
processes and know-how related to the manufacture of solid ink used in color
<PAGE>
printers and related equipment, (a) have not heretofore been disclosed to any
third parties, except employees of UltraHue, Inc. who are subject to Non-
Disclosure/Non-Compete Agreements this date assigned to Media Sciences, Inc.,
and (b) shall hereafter remain confidential and shall not be disclosed by any
of the Shareholder, either directly or indirectly, to any person, persons or
entities other than the employees of the Company as directed by the Company.
1.4. Unless specified to the contrary, the capitalized terms set forth
in this Agreement shall have the same definitions as set forth in the Asset
Purchase Agreement dated September 7, 1999 (hereinafter referred to as "Asset
Purchase Agreement").
NOW THEREFORE, in consideration of the aforesaid, as well as the consideration
paid to the Shareholder as referenced in the accompanying Asset Purchase
Agreement, the parties hereto do hereby agree as follows:,
2. Trade Secrets and Proprietary Information. The Company has this date
acquired from UltraHue, Inc. certain Trade Secrets, specifically the formulas,
processes and know-how related to the manufacture of solid ink for use in
color printers and related equipment and other Proprietary Information
relating to the manufacture of such solid ink and the operation of the
business of UltraHue, Inc., including but not limited to the following:
(A) Names, addresses and all file information and histories of
customers and suppliers of UltraHue, Inc., other than included in the Trade
Secrets.
<PAGE>
(B) All manufacturing processes, formulations, designs, special
equipment, research projects and results, engineering data, specifications and
the like of UltraHue, Inc., other than the Trade Secrets.
(C) All operating procedures utilized by UltraHue, Inc. in conjunction
with the operation of its business.
The Shareholder acknowledges that as a consequence of his association with
UltraHue, Inc., he is in possession and has knowledge of both the Trade
Secrets and the Proprietary Information.
3. Covenant of Confidentiality. The Shareholder does hereby covenant,
warrant and agree that from the date hereof, he shall not, directly or
indirectly, in any capacity or through any means or mechanism whatsoever, do
or cause to be done, or cooperate or assist in, or permit any of the
following:
(A) Disclosure, either directly or indirectly, of any of the Trade
Secrets other than to the Company;
(B) Disclosure, either directly or indirectly, any of the
Proprietary Information other than to the Company;
(C) Use, either directly or indirectly, of any of the Trade
Secrets or Proprietary Information in connection with any other business or
other operation, including, without limitation, any business operating in the
same field, or competing with, the Company;
(D) Notwithstanding the requirements of confidentiality set forth
in this Paragraph, nothing contained herein shall restrict the Shareholder
from disclosing any of the Proprietary Information if, after its disclosure to
the
<PAGE>
Company by Shareholder, such information becomes part of the public domain or
a matter of public knowledge, through no fault of the Shareholder, except to
the extent that the particular application of the information by the Company
constitutes a Trade Secret. The Shareholder shall not be relieved of his
obligation of confidentiality as to any Proprietary Information which is
specific merely because such Proprietary Information is embraced by general
disclosures falling within the provisions of this Paragraph. Further, the
Shareholder shall not be relieved of his obligation of confidentiality as to
Proprietary Information which is a combination of features merely because any
or all of the individual features are included in disclosures falling within
the provisions of this Paragraph, unless all features of the combination are
included in a single disclosure within the provisions of this Paragraph.
4. Enforcement.
The Shareholder acknowledges that upon any breach, or threatened breach, of
the terms, covenants and agreements set forth in this Agreement, and
specifically those set forth in Paragraph 3 hereinabove, an award of monetary
damages would not be adequate to protect the Company's interests and therefore
the Shareholder agrees that upon such breach the Company would have the right
to apply for and obtain, in addition to monetary damages, injunctive relief,
preliminary, temporary and final, to enforce the provisions of Paragraph 3.
To this extent, the Shareholder expressly waives the right to assert, in any
proceeding resulting from breach of the aforesaid provisions, that monetary
damages alone are adequate to protect the rights of the Company.
<PAGE>
5. Miscellaneous.
5.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
5.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey
irrespective of the state in which this Agreement is executed or performed.
5.3. This Agreement, together with the Asset Purchase Agreement and
ancillary agreements executed in accordance therewith, constitutes the entire
agreement between the parties, and no modification hereof shall be recognized
or deemed effective or enforceable unless same is in writing and is signed by
the parties hereto, or their assignees.
5.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement is
judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
5.5. Neither failure nor any delay on the part of any party hereto to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on the date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
/s/ Donald Gunn
----------------
Donald Gunn
WITNESS:
/s/
- -----------------
<PAGE>
EXHIBIT A-1
CONFIDENTIALITY AGREEMENT
-------------------------
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as "Company"
AND: Randy Hooker, an individual hereinafter referred to as
"Shareholder".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Trade Secrets and the Assets of UltraHue, Inc.
1.2. The shareholder heretofore owned a substantial equity interest in
Ultrahue, Inc.; and, as a consequence thereof received substantial
consideration for the transfer of the Trade Secrets and Assets of Ultrahue,
Inc. to the Company.
1.3. A material inducement for the Company to purchase the Trade
Secrets and Assets of UltraHue, Inc., and to pay the consideration therefor,
as set forth in the Asset Purchase Agreement is the representations of and
agreements by the Shareholder that the Trade Secrets and Proprietary
Information of UltraHue, Inc., including, but not limited to, the formulas,
processes and know-how related to the manufacture of solid ink used in color
<PAGE>
printers and related equipment, (a) have not heretofore been disclosed to any
third parties, except employees of UltraHue, Inc. who are subject to Non-
Disclosure/Non-Compete Agreements this date assigned to Media Sciences, Inc.,
and (b) shall hereafter remain confidential and shall not be disclosed by any
of the Shareholder, either directly or indirectly, to any person, persons or
entities other than the employees of the Company as directed by the Company.
1.4. Unless specified to the contrary, the capitalized terms set forth
in this Agreement shall have the same definitions as set forth in the Asset
Purchase Agreement dated September 7, 1999 (hereinafter referred to as "Asset
Purchase Agreement").
NOW THEREFORE, in consideration of the aforesaid, as well as the consideration
paid to the Shareholder as referenced in the accompanying Asset Purchase
Agreement, the parties hereto do hereby agree as follows:,
2. Trade Secrets and Proprietary Information. The Company has this date
acquired from UltraHue, Inc. certain Trade Secrets, specifically the formulas,
processes and know-how related to the manufacture of solid ink for use in
color printers and related equipment and other Proprietary Information
relating to the manufacture of such solid ink and the operation of the
business of UltraHue, Inc., including but not limited to the following:
(A) Names, addresses and all file information and histories of
customers and suppliers of UltraHue, Inc., other than included in the Trade
Secrets.
<PAGE>
(B) All manufacturing processes, formulations, designs, special
equipment, research projects and results, engineering data, specifications and
the like of UltraHue, Inc., other than the Trade Secrets.
(C) All operating procedures utilized by UltraHue, Inc. in conjunction
with the operation of its business.
The Shareholder acknowledges that as a consequence of their association with
UltraHue, Inc., each is in possession and has knowledge of both the Trade
Secrets and the Proprietary Information.
3. Covenant of Confidentiality. The Shareholder does hereby covenant,
warrant and agree that from the date hereof, he shall not, directly or
indirectly, in any capacity or through any means or mechanism whatsoever, do
or cause to be done, or cooperate or assist in, or permit any of the
following:
(A) Disclosure, either directly or indirectly, of any of the Trade
Secrets other than to the Company;
(B) Disclosure, either directly or indirectly, any of the
Proprietary Information other than to the Company;
(C) Use, either directly or indirectly, of any of the Trade
Secrets or Proprietary Information in connection with any other business or
other operation, including, without limitation, any business operating in the
same field, or competing with, the Company;
(D) Notwithstanding the requirements of confidentiality set forth
in this Paragraph, nothing contained herein shall restrict the Shareholder
from disclosing any of the Proprietary Information if, after its disclosure to
the
<PAGE>
Company by Shareholder, such information becomes part of the public domain or
a matter of public knowledge, through no fault of the Shareholder, except to
the extent that the particular application of the information by the Company
constitutes a Trade Secret. The Shareholder shall not be relieved of his
obligation of confidentiality as to any Proprietary Information which is
specific merely because such Proprietary Information is embraced by general
disclosures falling within the provisions of this Paragraph. Further, the
Shareholder shall not be relieved of his obligation of confidentiality as to
Proprietary Information which is a combination of features merely because any
or all of the individual features are included in disclosures falling within
the provisions of this Paragraph, unless all features of the combination are
included in a single disclosure within the provisions of this Paragraph.
4. Enforcement.
The Shareholder acknowledges that upon any breach, or threatened breach, of
the terms, covenants and agreements set forth in this Agreement, and
specifically those set forth in Paragraph 3 hereinabove, an award of monetary
damages would not be adequate to protect the Company's interests and therefore
the Shareholder agrees that upon such breach the Company would have the right
to apply for and obtain, in addition to monetary damages, injunctive relief,
preliminary, temporary and final, to enforce the provisions of Paragraph 3.
To this extent, the Shareholder expressly waives the right to assert, in any
proceeding resulting from breach of the aforesaid provisions, that monetary
damages alone are adequate to protect the rights of the Company.
<PAGE>
5. Miscellaneous.
5.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
5.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey
irrespective of the state in which this Agreement is executed or performed.
5.3. This Agreement, together with the Asset Purchase Agreement and
ancillary agreements executed in accordance therewith, constitutes the entire
agreement between the parties, and no modification hereof shall be recognized
or deemed effective or enforceable unless same is in writing and is signed by
the parties hereto, or their assignees.
5.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement is
judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
5.5. Neither failure nor any delay on the part of any party hereto to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on the date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
/s/ Randy Hooker
----------------
Randy Hooker
WITNESS:
/s/ Donald Gunn
- ---------------
<PAGE>
EXHIBIT A-2
CONFIDENTIALITY AGREEMENT
-------------------------
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as "Company"
AND: Leland Traylor, an individual hereinafter referred to as
"Former Shareholder".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Trade Secrets and the Assets of UltraHue, Inc.
1.2. The Former Shareholder heretofore owned common stock of Ultrahue,
Inc.; and, as a consequence thereof received substantial consideration in
anticipation of and in conjunction with transfer of the Trade Secrets and
Assets of Ultrahue, Inc. to the Company pursuant to a certain Asset Purchase
Agreement.
1.3. A material inducement for the Company to purchase the Trade
Secrets and Assets of UltraHue, Inc., and to pay the consideration therefor,
as set forth in the Asset Purchase Agreement, is the representations of and
agreements by the Former Shareholder that the Trade Secrets and Proprietary
<PAGE>
Information of UltraHue, Inc., including, but not limited to, the formulas,
processes and know-how related to the manufacture of solid ink used in color
printers and related equipment, (a) have not heretofore been disclosed to any
third parties, except employees of UltraHue, Inc. who are subject to Non-
Disclosure/Non-Compete Agreements this date assigned to Media Sciences, Inc.,
and (b) shall hereafter remain confidential and shall not be disclosed by any
of the Former Shareholder, either directly or indirectly, to any person,
persons or entities other than the employees of the Company as directed by the
Company.
1.4. Unless specified to the contrary, the capitalized terms set forth in
this Agreement shall have the same definitions as set forth in the Asset
Purchase Agreement dated September 7, 1999 (hereinafter referred to as "Asset
Purchase Agreement").
NOW THEREFORE, in consideration of the aforesaid, as well as the consideration
paid to the Former Shareholder as referenced in the accompanying Asset
Purchase Agreement, the parties hereto do hereby agree as follows:,
2. Trade Secrets and Proprietary Information. The Company has this date
acquired from UltraHue, Inc. certain Trade Secrets, specifically the formulas,
processes and know-how related to the manufacture of solid ink for use in
color printers and related equipment, and other Proprietary Information
relating to the manufacture of such solid ink and the operation of the
business of UltraHue, Inc., including but not limited to the following:
(A) Names, addresses and all file information and histories of
customers and suppliers of UltraHue, Inc., other than included in the Trade
Secrets.
<PAGE>
(B) All manufacturing processes, formulations, designs, special
equipment, research projects and results, engineering data, specifications and
the like of UltraHue, Inc., other than the Trade Secrets.
(C) All operating procedures utilized by UltraHue, Inc. in conjunction
with the operation of its business.
The Former Shareholder acknowledges that as a consequence of his association
with UltraHue, Inc., he is in possession and has knowledge of both the Trade
Secrets and the Proprietary Information.
3. Covenant of Confidentiality. The Former Shareholder does hereby covenant,
warrant and agree that from the date hereof, he shall not, directly or
indirectly, in any capacity or through any means or mechanism whatsoever, do
or cause to be done, or cooperate or assist in, or permit any of the
following:
(A) Disclosure, either directly or indirectly, of any of the
Trade Secrets other than to the Company;
(B) Disclosure, either directly or indirectly, any of the
Proprietary Information other than to the Company;
(C) Use, either directly or indirectly, of any of the Trade
Secrets or Proprietary Information in connection with any other business or
other operation, including, without limitation, any business operating in the
same field, or competing with, the Company;
(D) Notwithstanding the requirements of confidentiality set forth
in this Paragraph, nothing contained herein shall restrict the Former
Shareholder from disclosing any of the Proprietary Information if, after its
disclosure to the
<PAGE>
Company by Former Shareholder, such information becomes part of the public
domain or a matter of public knowledge, through no fault of the Former
Shareholder, except to the extent that the particular application of the
information by the Company constitutes a Trade Secret. The Former Shareholder
shall not be relieved of his obligation of confidentiality as to any
Proprietary Information which is specific merely because such Proprietary
Information is embraced by general disclosures falling within the provisions
of this Paragraph. Further, the Former Shareholder shall not be relieved of
his obligation of confidentiality as to Proprietary Information which is a
combination of features merely because any or all of the individual features
are included in disclosures falling within the provisions of this Paragraph,
unless all features of the combination are included in a single disclosure
within the provisions of this Paragraph.
4. Enforcement.
The Former Shareholder acknowledges that upon any breach, or threatened
breach, of the terms, covenants and agreements set forth in this Agreement,
and specifically those set forth in Paragraph 3 hereinabove, an award of
monetary damages would not be adequate to protect the Company's interests and
therefore the Former Shareholder agrees that upon such breach the Company
would have the right to apply for and obtain, in addition to monetary damages,
injunctive relief, preliminary, temporary and final, to enforce the provisions
of Paragraph 3. To this extent, the Former Shareholder expressly waives the
right to assert, in any proceeding resulting from breach of the aforesaid
provisions, that monetary damages alone are adequate to protect the rights of
the Company.
<PAGE>
5. Miscellaneous.
5.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
5.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey
irrespective of the state in which this Agreement is executed or performed.
5.3. This Agreement, together with the Asset Purchase Agreement and the
ancillary agreements executed in accordance therewith, constitutes the entire
agreement between the parties, and no modification hereof shall be recognized
or deemed effective or enforceable unless same is in writing and is signed by
the parties hereto, or their assignees.
5.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement is
judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
5.5. Neither failure nor any delay on the part of any party hereto to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on the date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
WITNESS: /s/ Leland Traylor
------------------
Leland Traylor
/s/ Paul Treaster
- ------------------
<PAGE>
EXHIBIT A-3
CONFIDENTIALITY AGREEMENT
-------------------------
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as "Company"
AND: Thomas Hendricks, an individual hereinafter referred to as
"Former Shareholder".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Trade Secrets and the Assets of UltraHue, Inc.
1.2. The Former Shareholder heretofore owned common stock of Ultrahue,
Inc.; and, as a consequence thereof received substantial consideration in
anticipation of and in conjunction with transfer of the Trade Secrets and
Assets of Ultrahue, Inc. to the Company pursuant to a certain Asset Purchase
Agreement.
1.3. A material inducement for the Company to purchase the Trade
Secrets and Assets of UltraHue, Inc., and to pay the consideration therefor,
as set forth in the Asset Purchase Agreement, is the representations of and
agreements by the Former Shareholder that the Trade Secrets and Proprietary
<PAGE>
Information of UltraHue, Inc., including, but not limited to, the formulas,
processes and know-how related to the manufacture of solid ink used in color
printers and related equipment, (a) have not heretofore been disclosed to any
third parties, except employees of UltraHue, Inc. who are subject to Non-
Disclosure/Non-Compete Agreements this date assigned to Media Sciences, Inc.,
and (b) shall hereafter remain confidential and shall not be disclosed by any
of the Former Shareholder, either directly or indirectly, to any person,
persons or entities other than the employees of the Company as directed by the
Company.
1.4. Unless specified to the contrary, the capitalized terms set forth
in this Agreement shall have the same definitions as set forth in the Asset
Purchase Agreement dated September 7, 1999 (hereinafter referred to as "Asset
Purchase Agreement").
NOW THEREFORE, in consideration of the aforesaid, as well as the consideration
paid to the Former Shareholder as referenced in the accompanying Asset
Purchase Agreement, the parties hereto do hereby agree as follows:,
2. Trade Secrets and Proprietary Information. The Company has this date
acquired from UltraHue, Inc. certain Trade Secrets, specifically the formulas,
processes and know-how related to the manufacture of solid ink for use in
color printers and related equipment, and other Proprietary Information
relating to the manufacture of such solid ink and the operation of the
business of UltraHue, Inc., including but not limited to the following:
(A) Names, addresses and all file information and histories of
customers and suppliers of UltraHue, Inc., other than included in the Trade
Secrets.
<PAGE>
(B) All manufacturing processes, formulations, designs, special
equipment, research projects and results, engineering data, specifications and
the like of UltraHue, Inc., other than the Trade Secrets.
(C) All operating procedures utilized by UltraHue, Inc. in conjunction
with the operation of its business.
The Former Shareholder acknowledges that as a consequence of his association
with UltraHue, Inc., he is in possession and has knowledge of both the Trade
Secrets and the Proprietary Information.
3. Covenant of Confidentiality. The Former Shareholder does hereby covenant,
warrant and agree that from the date hereof, he shall not, directly or
indirectly, in any capacity or through any means or mechanism whatsoever, do
or cause to be done, or cooperate or assist in, or permit any of the
following:
(A) Disclosure, either directly or indirectly, of any of the
Trade Secrets other than to the Company;
(B) Disclosure, either directly or indirectly, any of the
Proprietary Information other than to the Company;
(C) Use, either directly or indirectly, of any of the Trade
Secrets or Proprietary Information in connection with any other business or
other operation, including, without limitation, any business operating in the
same field, or competing with, the Company;
(D) Notwithstanding the requirements of confidentiality set forth
in this Paragraph, nothing contained herein shall restrict the Former
Shareholder from disclosing any of the Proprietary Information if, after its
disclosure to the
<PAGE>
Company by Former Shareholder, such information becomes part of the public
domain or a matter of public knowledge, through no fault of the Former
Shareholder, except to the extent that the particular application of the
information by the Company constitutes a Trade Secret. The Former Shareholder
shall not be relieved of his obligation of confidentiality as to any
Proprietary Information which is specific merely because such Proprietary
Information is embraced by general disclosures falling within the provisions
of this Paragraph. Further, the Former Shareholder shall not be relieved of
his obligation of confidentiality as to Proprietary Information which is a
combination of features merely because any or all of the individual features
are included in disclosures falling within the provisions of this Paragraph,
unless all features of the combination are included in a single disclosure
within the provisions of this Paragraph.
4. Enforcement.
The Former Shareholder acknowledges that upon any breach, or threatened
breach, of the terms, covenants and agreements set forth in this Agreement,
and specifically those set forth in Paragraph 3 hereinabove, an award of
monetary damages would not be adequate to protect the Company's interests and
therefore the Former Shareholder agrees that upon such breach the Company
would have the right to apply for and obtain, in addition to monetary damages,
injunctive relief, preliminary, temporary and final, to enforce the provisions
of Paragraph 3. To this extent, the Former Shareholder expressly waives the
right to assert, in any proceeding resulting from breach of the aforesaid
provisions, that monetary damages alone are adequate to protect the rights of
the Company.
<PAGE>
5. Miscellaneous.
5.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
5.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey
irrespective of the state in which this Agreement is executed or performed.
5.3. This Agreement, together with the Asset Purchase Agreement and the
ancillary agreements executed in accordance therewith, constitutes the entire
agreement between the parties, and no modification hereof shall be recognized
or deemed effective or enforceable unless same is in writing and is signed by
the parties hereto, or their assignees.
5.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement is
judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
5.5. Neither failure nor any delay on the part of any party hereto to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on the date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
WITNESS: /s/ Thomas Hendricks
--------------------
Thomas Hendricks
_______________
<PAGE>
I, Thomas Hendricks, acknowledge that I have signed the Confidentiality
Agreement and Covenant Not to Compete, in connection with the Asset Purchase
Agreement dated September 7, 1999, between UltraHUE, Inc. and Media
Sciences, Inc.
/s/ Thomas Hendricks
- --------------------
Thomas Hendricks
Witness: /s/
<PAGE>
Exhibit B
Financial Definitions
Net Profits (Loss): The pre-tax profits (loss), as determined by generally
accepted accounting principles. For the purposes of this calculation, any
litigation costs, judgments, awards or settlements, whether in favor of Media
Sciences, Inc. or not, shall be included as either an expense or income as the
case may be.
Gross Profit: The Net Profit (Loss) as defined above, less all remuneration
paid to Randy Hooker and Don Gunn under their Employment Agreements executed
at Closing.
<PAGE>
EXHIBIT C
ESCROW AGREEMENT
----------------
AGREEMENT made this 7th day of September, 1999,
BETWEEN: MEDIA SCIENCES, INC., a New Jersey corporation with offices
located at 110 Commerce Drive, Allendale, New Jersey 07401,
hereinafter referred to as "MSI";
AND: ULTRAHUE, INC., a corporation of the State of New Mexico, with
offices located at Suite 201, 16398 NE 85th Street, Washington,
hereinafter referred to as "UltraHue";
AND: Miller, Nash, Weiner, Hager and Carlsen, LLP. with offices
located at 4400 Two Union Square, 601 Union Street,
Seattle, Washington, hereinafter referred to as "Escrow
Agent".
1. Asset Purchase Agreement. The parties hereto have this date entered into
-------------------------
a certain Asset Purchase Agreement by the terms of which MSI has caused to be
deposited with the Escrow Agent named hereunder certain sums as set forth in
Paragraph 4 of the aforesaid Asset Purchase Agreement.
2. Escrow. Pursuant to terms and provisions of Paragraph 6 of aforesaid
-------
Asset Purchase Agreement of even date, MSI has deposited into escrow the
initial sum of Fifty Thousand ($50,000.00) Dollars representing an earnest
money deposit. The funds being held in escrow at any one time pursuant to this
Agreement shall hereinafter be referred to as the "Escrowed Funds".
3. Escrow Distribution. In the event the Trade Secrets and Assets of
--------------------
UltraHue are not purchased by MSI as a consequence of the failure of any
conditions precedent as set forth in the Asset Purchase Agreement, other than
Cadapult's failure to obtain the financing referenced in Paragraph 5 of the
Asset Purchase Agreement by the Closing,
<PAGE>
or breach of said Asset Purchase Agreement by UltraHue, the within Escrowed
Funds shall be refunded to MSI, without deduction or set off, within two (2)
business days of receipt by the Escrow Agent designated hereinafter of written
request by MSI for such disbursal. In the alternative, in the event the Trade
Secrets and Assets of UltraHue are not acquired by MSI as a consequence of
either MSI's failure to obtain the financing referenced in Paragraph 5 of the
Asset Purchase Agreement by Closing or MSI's breach of any other of its
obligations as set forth in the aforesaid Asset Purchase Agreement, the Escrow
Agent shall then disburse said Escrowed Funds to UltraHue within Two (2)
business days of receipt by the Escrow Agent of a written request by UltraHue
for such disbursal.
4. Interest. In the event any of the Escrowed Funds are placed in an
---------
interest bearing account, any interest earned on such funds shall be deemed as
part of the Escrowed Funds and shall be disbursed to the party receiving same.
5. Dispute. In the event any dispute shall arise between the rights of
--------
either MSI or UltraHue hereunder, including but not limited to any dispute as
to the Escrowed Funds, the Escrow Agent may elect to take any of the following
actions: (i) retain the Escrowed Funds in trust pending either settlement of
the dispute by the parties or final determination of the rights of the parties
by a court of competent jurisdiction; or, (ii) deposit the Escrowed Funds into
a court of competent jurisdiction pursuant to an Interpleaded action. During
the course of any dispute involving litigation, the Escrow Agent may also
deposit the Escrowed Funds held hereunder with the clerk, or other designated
officer of the Court in which such litigation is pending. In any event, the
aforesaid Escrow Agent shall in no event incur any liability hereunder in the
absence of fraud or gross negligence including but not limited to any fees,
including attorney's fees, court costs and/or disbursements incurred in
relation to serving as Escrow Agent hereunder and, MSI and UltraHue do each
hereby, 'jointly and severally, agree to indemnify and hold said Escrow Agent
free of and harmless form same. The named
<PAGE>
Escrow Agent shall not be liable for any action taken or omitted thereby,
provided same is in good faith and believed to have been within the rights and
powers conferred upon by this Agreement.
6. Escrow Agent. The parties do hereby designate Miller, Nash, Weiner,
-------------
Hager and Carlsen, LLP to serve as Escrow Agent hereunder. In the event the
Escrow Agent named herein shall resign or refuse to act further as Escrow
Agent hereunder, MSI's attorney, Bruce M. Meisel, Esq. shall then be
designated as substitute Escrow Agent. In the event Bruce M. Meisel, Esq. is
unable or unwilling to serve in such capacity, then the parties hereto shall
mutually agree upon a successor Escrow Agent, or in the absence of such
agreement, shall apply to a court of competent jurisdiction for the
appointment of same.
7. Execution of Necessary Documents. Each of the parties hereto does
---------------------------------
hereby agree to execute, acknowledge and deliver any and all instruments that
may be required to give full force and effect to the terms and conditions of
this Escrow Agreement.
8. Governing Law. The parties hereto acknowledge that this Agreement,
--------------
and the rights and obligations of the Escrow Agent designated hereunder, shall
be governed by and construed in accordance with the laws of the State of
Delaware.
9. Corporate Action. Purchaser and Seller do each acknowledge and
-----------------
represent that execution of the within Agreement has been duly authorized by
the Board of Directors of each Corporation and that the Presidents thereof
have been authorized to execute the within Agreement on behalf of each
corporation.
10 Notices. All notices required under this Agreement shall be sent by
Registered or Certified Mail, return receipt requested, postage prepaid, or
overnight courier service such as Federal Express or UPS, to the party who is
to receive such notice, at the address set forth on Page 1 of this Agreement,
or such other address as to which each party may from time to time notify the
others.
<PAGE>
11. Entire Agreement. This Agreement represents the entire
understanding of the parties hereto and there are no warranties,
representations or covenants made by any party to any other party unless the
same are contained in the Agreement or in any other instrument delivered in
connection with the transaction contemplated hereby.
Media Sciences, Inc.
Date: BY:_______________________
Michael W. Levin, Pres.
UltraHue, Inc.
BY: /s/ Donald Gunn
-----------------------
Date: 9/7/99 Donald Gunn, Pres.
ESCROW AGENT:
Miller, Nash, Weiner, Hager & Carlsen, LLP
By:_____________________
<PAGE>
EXHIBIT D - Allocation of Purchase Price
Inventory Tax basis at start of Closing Date
Accounts receivable Tax basis at start of Closing Date
Property and equipment Depreciated tax basis at start of
Closing Date
Prepaid commitments and
Customer deposits Face amount at start of Closing Date
Trade Secrets $3,450,000
Covenants not to compete $50,000
Goodwill and other intangible assets Entire remainder of purchase price.
[Any post-closing adjustments to purchase price will increase or decrease the
allocation to goodwill and other intangible assets.]
<PAGE>
EXHIBIT E
BILL OF SALE
THIS BILL OF SALE TRANSFERS BOTH THE TRADE SECRETS AND ASSETS OF
ULTRAHUE, INC.
KNOW ALL MEN BY THESE PRESENTS
THAT UltraHue, Inc. a corporation of the State of New Mexico with
offices located at Suite 201, 16398 NE 85th Street, Redmond, Washington 98502
("Seller"), for and in consideration of the payments as set forth in a certain
Asset Purchase Agreement dated September 7, 1999 ( hereinafter referred to as
"Asset Purchase Agreement") paid to it at or before delivery of this Bill of
Sale by Media Sciences, Inc., a corporation of the State of New Jersey and a
wholly owned subsidiary of Cadapult Graphic Systems, Inc. with offices located
at 110 Commerce Drive, Allendale, New Jersey 07401 ("Purchaser") TRANSFERS,
SETS OVER and ASSIGNS unto Purchaser all of its rights, title and interest in
and to the following:
Any and all Trade Secrets and Proprietary Information
of Seller, as those terms are defined in the Asset Pur-
chase Agreement, including but not limited to all
formulas, processes and know-how related to the
manufacture of solid ink for use in color printers
and related equipment, which have been or
currently are being used by Seller in the conduct
of its business;
Together with all of the Assets, as defined in the aforesaid Asset
Purchase Agreement, owned and used by Seller in the operation of its business,
including but not limited to the following:
A. Accounts receivable
B. Inventory
C. Property and Equipment as listed on Exhibit A annexed to,
and made a part hereof
D. All right, title and interest in and to the name "UltraHue"
and any other trademarks, service marks and any copyrights
owned by Seller;
E. Customer lists and files relating thereto
F. Sales, service and vendor contracts and security deposits
G. Existing telephone numbers (425) 836-3678; (425) 861-9033
and (888) 376-8348 and Fax Number (425) 861-8548.
H. Databases
I. Originals and duplicates of all of Seller's on-going
business records.
<PAGE>
Seller warrants and represents that the Trade Secrets, Proprietary Information
and Assets being conveyed by this Bill of Sale are free and clear of any and
all liens, pledges, charges, licenses to third parties or encumbrances except
for Accounts Payable assumed by Purchaser pursuant to the Asset Purchase
Agreement and customer deposits as set forth on Exhibit B annexed to and made
a part of this Bill of Sale.
Unless otherwise specifically set forth to the contrary, all terms used in
this Bill of Sale have the same meaning as set forth in the Asset Purchase
Agreement.
Seller shall, at the time of execution of this Bill of Sale, furnish to
Purchaser copies of all documents, records, notebooks and similar repositories
of or containing information or data relating to, describing, or providing the
Trade Secrets and Proprietary Information.
Seller covenants and agrees to WARRANT AND DEFEND this sale of the Trade
Secrets, Proprietary Information and Assets described herein to Purchaser
against any and all person(s), entity or entities, and/or claimant(s).
All the terms, covenants and conditions herein contained shall be for, and
shall inure to the benefit of and shall bind the respective parties hereto and
their legal representatives, successors and assigns, respectively.
IN WITNESS WHEREOF, the Seller has hereunto caused these presents to be signed
by its proper corporate officers and caused its corporate seal to be hereto
affixed this 13th day of December, 1999.
UltraHue, Inc.
By: /s/ Donald Gunn
---------------------------
Donald Gunn, President
<PAGE>
Exhibit F
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as
"Company"
AND Donald Gunn, an individual residing at
REDMOND, WA, hereinafter referred to as
"Executive Employee".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Assets of UltraHue, Inc.
1.2. The Agreement between the Company and the Executive Employee for
the latter to be employed by the former pursuant to the terms and conditions
of this Agreement as set forth hereinafter is a material inducement for the
Company to acquire the Trade Secrets (as defined in the Asset Purchase
Agreement of even date) and Assets of UltraHue, Inc.
NOW THEREFORE, in consideration of the aforesaid, and the mutual covenants,
conditions and promises as set forth hereinafter, the parties hereto do hereby
agree as follows:
<PAGE>
1. Term of Employment. The Company hereby agrees to employ Executive
Employee and the Executive Employee accepts such employment for a Term of
Three (3) years from the date of this Agreement pursuant to the terms and
conditions of this Agreement as set forth hereinafter.
2. Scope of Duties. Executive Employee is hereby employed as Vice President
of sales and to such extent shall perform the duties previously performed by
him on behalf of UltraHue, Inc. before its acquisition by the Company as well
as those other such duties as may from time to time be established by the
Board of Directors of the Company. Executive Employee agrees that during the
Term of this Agreement he shall devote his full time, attention and best
efforts to the performance of his duties for the Company as set forth herein.
3. Compensation. The Executive Employee's compensation package is set forth
in Exhibit A annexed to and made a part hereof.
4. Termination.
4.1. Termination by the Company. The Company shall have the right to
terminate the Executive Employee for any one of the following reasons: (i) a
material breach of this Employment Agreement, including but not limited to
breach of any of confidentiality covenants as set forth hereinafter; (ii) a
conviction against he Executive Employee for a gross misdemeanor involving
moral turpitude or felony; or (iii) misconduct on the part of the Executive
Employee of such a serious nature as to render his continued employment
hereunder detrimental to the business of the Company.
<PAGE>
4.2. Termination Upon Disability of the Executive Employee. The
Company shall have the right to terminate the Executive Employee in the event
he is so disabled that he is unable to perform his Duties, as defined herein,
to the extent and at the level previously performed for a period in excess of
Thirty (30) days. In the event of such disability, the Executive Employee
shall continue to receive his full compensation for a period of Ninety (90)
days and fifty (50%) percent of his compensation from the date of the notice
from the Company of its election to terminate his services .
4.3 Termination Upon Death of Executive Employee or Dissolution or
Insolvency of the Company. This Employment Agreement and all obligations
hereunder shall automatically terminate and the employment relationship shall
cease and become null, void and of no further force and effect immediately
upon the death of the Executive Employee, provided however, that in such event
the Executive Employee's estate shall be receive the Executive Employee's
salary for Ninety (90) days following the date of his death. Likewise, this
Agreement and all obligations hereunder shall also automatically terminate and
the employment relationship shall cease and become null, void and of no
further force and effect immediately upon any dissolution of the Company or
any adjudication that the Company is insolvent under the laws of the State of
New Jersey, Delaware or the United States of America, or upon permanent
cessation of normal business operations by the Company.
4.4. Termination by the Executive Employee. The Executive Employee
shall have the right to terminate the within Employment Agreement as
<PAGE>
a consequence of (i) a material breach of this Employment Agreement by the
Company; or (ii) a substantial and material reduction in rank or material
alteration of duties and responsibilities imposed upon the Executive Employee
by the Company. In the event of termination for the reasons set in subpart
(i) above, the Executive Employee shall have the right to continue to receive
his compensation for the remainder of this Agreement constituting liquidated
damages in relation to such breach so that no further damages may be claimed
by the Executive Employee in relation thereto. In the event of termination
for the reasons set forth in subpart (ii) above, the Executive Employee shall
receive his full compensation for a period constituting the earlier of six (6)
months from date of termination or the termination of the within Agreement.
4.5. Remuneration Upon Termination. Upon termination, the Executive
Employee shall be entitled to all remuneration accrued but unpaid up the
effective dates of the termination of his employment.
5. Restrictions on Disclosure of Trade Secrets, Confidential Information and
Competition while Employed and After Termination.
5.1. Executive Employee acknowledges that the Company has this date
acquired from UltraHue, Inc., a corporation in which Executive Employee owned
an equity position prior to said sale and in relation to which said Executive
Employee received substantial consideration from the Company, certain Trade
Secrets, and specifically the process for the manufacture and formulation of
solid ink for use in color printers and related equipment.
<PAGE>
5.2 In addition, Executive Employee further acknowledges that as a
consequence of his prior position with UltraHue, Inc. and his current position
with the Company, he was and will be in possession and has, and will have,
knowledge of additional proprietary information of the Company, including, but
not limited to, the following:
(A) Names, addresses and all file information and histories of
customers and suppliers acquired or developed by the Company;
(B) All business plans, budgets, sales forecasts, strategic plans,
etc.;
(C) In addition to the aforereferenced Trade Secrets, any and all
other unique manufacturing processes, whether or not patented, formulations,
designs, special equipment, research projects and results, engineering data,
etc.;
(D) All operating procedures utilized by the Company in
conjunction with the operation of its business;
(E) Any and all financial information concerning the business of
the Company;
(F) Such other and further information as the Company may in the
future designate as confidential and proprietary.
5.3. Employee covenants, warrants and agrees that both during and after
the Term of his employment by the Company, said Executive Employee shall not,
directly or indirectly, except with the written permission of the Company,
through any means or mechanism whatsoever, including as a shareholder,
director, officer, employee,
<PAGE>
partner, member, principal or agent, do or cause to be done or cooperate, or
assist in, or permit any of the following:
(A) Disclosure, either directly or indirectly, of the Trade
Secrets of the Company as defined herein and in the Asset Purchase Agreement
of even date;
(B) Disclosure, either directly or indirectly, of any
proprietary information of the Company as defined hereinabove;
(C) Use, either directly or indirectly, of the aforereferenced
Trade Secrets or proprietary information in connection with any other business
or other operation, including, without limitation, any business operating in
the same field, or competing with, the Company
5.4. Executive Employee further covenants and agrees that during the
Term of his Employment by the Company, and for a period of time extending for
Three (3) years after the date of any termination, whether or not for cause,
and whether or not said termination is initiated by the Company or the
Executive Employee, said Executive Employee shall not, directly or indirectly,
through any means or mechanism whatsoever, including as a shareholder,
director, officer, employee, partner, member, principal or agent, compete
against the Company in any manner nor provide any information to any
competitor which would aid or assist it in competing against the Company.
6. Enforcement of Paragraph 5 and its subparts, including Sections 5.3 and
5.4.
<PAGE>
6.1. The Executive Employee acknowledges and agrees that the
restrictions imposed under Paragraph 5, and specifically subsections 5.3 and
5.4, including any time periods of such restrictions in the event of
termination, as well as the lack of any specific geographic area (recognizing
the international nature of the Company's business) represent a fair and
reasonable balance between the legitimate interests of the Company in
protecting the Trade Secrets, proprietary information and Assets this date
acquired by it from UltraHue, Inc. for substantial consideration, and in
protecting against unfair competition, and that these limitations are not so
onerous as to unreasonably interfere with the Executive Employee's ability to
utilize his skills and talents developed during the course of his employment
both for the Company and UltraHue, Inc., in order to continue to work and to
earn a livelihood in another industry of his choice.
6.2 If for any reason any court, or other tribunal, having jurisdiction
shall determinate that the restrictions set forth hereinabove are over-broad
in any respect, then, and in that event, the provisions thereof shall
nevertheless continue in full force and effect, but the terms thereof shall be
deemed restricted only to the extent required to bring them into conformance
with such determination by a court or tribunal of competent jurisdiction.
6.3. Executive Employee agrees and acknowledges that upon any breach or
threatened breach by him of the terms, covenants and agreements set forth in
Paragraph 5 hereinabove, and specifically subsections 5.3 and 5.4 thereof, an
award of monetary damages would not be adequate to protect the Company's
interests and therefore said Executive Employee agrees that upon such breach
<PAGE>
the Company would have the right to apply for and obtain, in addition to
monetary damages, injunctive relief, preliminary, temporary and final, to
enforce the provisions of Paragraph 5 and specifically is subsections 5.3 and
5.4 thereof. To this extent, Executive Employee expressly waives the right to
assert in any proceeding resulting from breach of these provisions that
monetary damages are adequate to protect the rights of the Company.
7. Miscellaneous.
7.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
7.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey
irrespective of the place of performance.
7.3. This Agreement constitutes the entire agreement between the
parties, and no modification hereof shall be recognized or deemed effective or
enforceable unless same is in writing and is signed by both of the parties, or
their assignees, hereto.
7.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement which
is judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
<PAGE>
7.5. Neither failure nor any delay on the part of either party hereto
to exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on this date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
WITNESS: /s/ Donald Gunn
---------------
Donald Gunn
/s/
<PAGE>
EXHIBIT A: COMPENSATION.
A. Base Salary. Employer shall pay Employee an annual salary of
------------
eighty thousand dollars ($80,000) or such greater amount as may be established
by Employer's Board of Directors, which shall be payable in appropriate
installments to conform with the regular payroll dates for salaried personnel
of Employer.
B. Other Benefits. Employee shall be entitled to the following
---------------
fringe benefits, perquisites, and other benefits of employment during the Term
of Employment to the extent that the Board of Directors determines such
benefits are to be made available to the Company's employees in general: (i)
medical and dental insurance under such group medical and dental insurance
policies as Employer may provide to its employees; (ii) sick days in
accordance with Employer's policy regarding officers; (iii) up to four (4)
weeks vacation in each year fully worked, and it is not to be deemed to have
any cash value; (iv) participation in Employer's 401(k) plan or such other
plan as Employer may adopt; and (v) options to purchase 16,667 shares of
Cadapult Graphic Systems, Inc. common stock at the fair market value on the
date of this document, after 12 months of employment and options to purchase
an additional 16,667 shares of Cadapult Graphic Systems, Inc. common stock at
the fair market value on the date of this document, after 24 months of
employment, and options to purchase an additional 16,667 shares of Cadapult
Graphic Systems, Inc. common stock at the fair market value on the date of
this document, upon completion of 36 months of employment.
C. Bonus. Employee may be granted a performance bonus, at the
------
sole and exclusive discretion of the Board of Directors of Employer.
<PAGE>
Exhibit F-1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as
"Company"
AND Randy Hooker, an individual residing at
REDMOND, WA, hereinafter referred to as
"Executive Employee".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Assets of UltraHue, Inc.
1.2. The Agreement between the Company and the Executive Employee for
the latter to be employed by the former pursuant to the terms and conditions
of this Agreement as set forth hereinafter is a material inducement for the
Company to acquire the Trade Secrets (as defined in the Asset Purchase
Agreement of even date) and Assets of UltraHue, Inc.
NOW THEREFORE, in consideration of the aforesaid, and the mutual covenants,
conditions and promises as set forth hereinafter, the parties hereto do hereby
agree as follows:
<PAGE>
1. Term of Employment. The Company hereby agrees to employ Executive
Employee and the Executive Employee accepts such employment for a Term of
Three (3) years from the date of this Agreement pursuant to the terms and
conditions of this Agreement as set forth hereinafter.
2. Scope of Duties. Executive Employee is hereby employed as Vice President
of marketing and to such extent shall perform the duties previously performed
by him on behalf of UltraHue, Inc. before its acquisition by the Company as
well as those other such duties as may from time to time be established by the
Board of Directors of the Company. Executive Employee agrees that during the
Term of this Agreement he shall devote his full time, attention and best
efforts to the performance of his duties for the Company as set forth herein.
3. Compensation. The Executive Employee's compensation package is set forth
in Exhibit A annexed to and made a part hereof.
4. Termination.
4.1. Termination by the Company. The Company shall have the right to
terminate the Executive Employee for any one of the following reasons: (i) a
material breach of this Employment Agreement, including but not limited to
breach of any of confidentiality covenants as set forth hereinafter; (ii) a
conviction against he Executive Employee for a gross misdemeanor involving
moral turpitude or felony; or (iii) misconduct on the part of the Executive
Employee of such a serious nature as to render his continued employment
hereunder detrimental to the business of the Company.
<PAGE>
4.2. Termination Upon Disability of the Executive Employee. The
Company shall have the right to terminate the Executive Employee in the event
he is so disabled that he is unable to perform his Duties, as defined herein,
to the extent and at the level previously performed for a period in excess of
Thirty (30) days. In the event of such disability, the Executive Employee
shall continue to receive his full compensation for a period of Ninety (90)
days and fifty (50%) percent of his compensation from the date of the notice
from the Company of its election to terminate his services .
4.3 Termination Upon Death of Executive Employee or Dissolution or
Insolvency of the Company. This Employment Agreement and all obligations
hereunder shall automatically terminate and the employment relationship shall
cease and become null, void and of no further force and effect immediately
upon the death of the Executive Employee, provided however, that in such event
the Executive Employee's estate shall be receive the Executive Employee's
salary for Ninety (90) days following the date of his death. Likewise, this
Agreement and all obligations hereunder shall also automatically terminate and
the employment relationship shall cease and become null, void and of no
further force and effect immediately upon any dissolution of the Company or
any adjudication that the Company is insolvent under the laws of the State of
New Jersey, Delaware or the United States of America, or upon permanent
cessation of normal business operations by the Company.
4.4. Termination by the Executive Employee. The Executive Employee
shall have the right to terminate the within Employment Agreement as
<PAGE>
a consequence of (i) a material breach of this Employment Agreement by the
Company; or (ii) a substantial and material reduction in rank or material
alteration of duties and responsibilities imposed upon the Executive Employee
by the Company. In the event of termination for the reasons set in subpart
(i) above, the Executive Employee shall have the right to continue to receive
his compensation for the remainder of this Agreement constituting liquidated
damages in relation to such breach so that no further damages may be claimed
by the Executive Employee in relation thereto. In the event of termination
for the reasons set forth in subpart (ii) above, the Executive Employee shall
receive his full compensation for a period constituting the earlier of six (6)
months from date of termination or the termination of the within Agreement.
4.5. Remuneration Upon Termination. Upon termination, the Executive
Employee shall be entitled to all remuneration accrued but unpaid up the
effective dates of the termination of his employment.
5. Restrictions on Disclosure of Trade Secrets, Confidential Information and
Competition while Employed and After Termination.
5.1. Executive Employee acknowledges that the Company has this date
acquired from UltraHue, Inc., a corporation in which Executive Employee owned
an equity position prior to said sale and in relation to which said Executive
Employee received substantial consideration from the Company, certain Trade
Secrets, and specifically the process for the manufacture and formulation of
solid ink for use in color printers and related equipment.
<PAGE>
5.2 In addition, Executive Employee further acknowledges that as a
consequence of his prior position with UltraHue, Inc. and his current position
with the Company, he was and will be in possession and has, and will have,
knowledge of additional proprietary information of the Company, including, but
not limited to, the following:
(A) Names, addresses and all file information and histories of
customers and suppliers acquired or developed by the Company;
(B) All business plans, budgets, sales forecasts, strategic plans,
etc.;
(C) In addition to the aforereferenced Trade Secrets, any and all
other unique manufacturing processes, whether or not patented, formulations,
designs, special equipment, research projects and results, engineering data,
etc.;
(D) All operating procedures utilized by the Company in
conjunction with the operation of its business;
(E) Any and all financial information concerning the business of
the Company;
(F) Such other and further information as the Company may in the
future designate as confidential and proprietary.
5.3. Employee covenants, warrants and agrees that both during and after
the Term of his employment by the Company, said Executive Employee shall not,
directly or indirectly, except with the written permission of the Company,
through any means or mechanism whatsoever, including as a shareholder,
director, officer, employee,
<PAGE>
partner, member, principal or agent, do or cause to be done or cooperate, or
assist in, or permit any of the following:
(A) Disclosure, either directly or indirectly, of the Trade
Secrets of the Company as defined herein and in the Asset Purchase Agreement
of even date;
(B) Disclosure, either directly or indirectly, of any
proprietary information of the Company as defined hereinabove;
(C) Use, either directly or indirectly, of the aforereferenced
Trade Secrets or proprietary information in connection with any other business
or other operation, including, without limitation, any business operating in
the same field, or competing with, the Company
5.4. Executive Employee further covenants and agrees that during the
Term of his Employment by the Company, and for a period of time extending for
Three (3) years after the date of any termination, whether or not for cause,
and whether or not said termination is initiated by the Company or the
Executive Employee, said Executive Employee shall not, directly or indirectly,
through any means or mechanism whatsoever, including as a shareholder,
director, officer, employee, partner, member, principal or agent, compete
against the Company in any manner nor provide any information to any
competitor which would aid or assist it in competing against the Company.
6. Enforcement of Paragraph 5 and its subparts, including Sections 5.3 and
5.4.
<PAGE>
6.1. The Executive Employee acknowledges and agrees that the
restrictions imposed under Paragraph 5, and specifically subsections 5.3 and
5.4, including any time periods of such restrictions in the event of
termination, as well as the lack of any specific geographic area (recognizing
the international nature of the Company's business) represent a fair and
reasonable balance between the legitimate interests of the Company in
protecting the Trade Secrets, proprietary information and Assets this date
acquired by it from UltraHue, Inc. for substantial consideration, and in
protecting against unfair competition, and that these limitations are not so
onerous as to unreasonably interfere with the Executive Employee's ability to
utilize his skills and talents developed during the course of his employment
both for the Company and UltraHue, Inc., in order to continue to work and to
earn a livelihood in another industry of his choice.
6.2 If for any reason any court, or other tribunal, having jurisdiction
shall determinate that the restrictions set forth hereinabove are over-broad
in any respect, then, and in that event, the provisions thereof shall
nevertheless continue in full force and effect, but the terms thereof shall be
deemed restricted only to the extent required to bring them into conformance
with such determination by a court or tribunal of competent jurisdiction.
6.3. Executive Employee agrees and acknowledges that upon any breach or
threatened breach by him of the terms, covenants and agreements set forth in
Paragraph 5 hereinabove, and specifically subsections 5.3 and 5.4 thereof, an
award of monetary damages would not be adequate to protect the Company's
interests and therefore said Executive Employee agrees that upon such breach
<PAGE>
the Company would have the right to apply for and obtain, in addition to
monetary damages, injunctive relief, preliminary, temporary and final, to
enforce the provisions of Paragraph 5 and specifically is subsections 5.3 and
5.4 thereof. To this extent, Executive Employee expressly waives the right to
assert in any proceeding resulting from breach of these provisions that
monetary damages are adequate to protect the rights of the Company.
7. Miscellaneous.
7.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
7.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey
irrespective of the place of performance.
7.3. This Agreement constitutes the entire agreement between the
parties, and no modification hereof shall be recognized or deemed effective or
enforceable unless same is in writing and is signed by both of the parties, or
their assignees, hereto.
7.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement which
is judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
<PAGE>
7.5. Neither failure nor any delay on the part of either party hereto
to exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on this date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
WITNESS: /s/ Randy Hooker
-----------------
Randy Hooker
/s/
<PAGE>
EXHIBIT A : COMPENSATION.
A. Base Salary. Employer shall pay Employee an annual salary of
------------
eighty thousand dollars ($80,000) or such greater amount as may be established
by Employer's Board of Directors, which shall be payable in appropriate
installments to conform with the regular payroll dates for salaried personnel
of Employer.
B. Other Benefits. Employee shall be entitled to the following
---------------
fringe benefits, perquisites, and other benefits of employment during the Term
of Employment to the extent that the Board of Directors determines such
benefits are to be made available to the Company's employees in general: (i)
medical and dental insurance under such group medical and dental insurance
policies as Employer may provide to its employees; (ii) sick days in
accordance with Employer's policy regarding officers; (iii) up to four (4)
weeks vacation in each year fully worked, and it is not to be deemed to have
any cash value; (iv) participation in Employer's 401(k) plan or such other
plan as Employer may adopt; and (v) options to purchase 16,667 shares of
Cadapult Graphic Systems, Inc. common stock at the fair market value on the
date of this document, after 12 months of employment and options to purchase
an additional 16,667 shares of Cadapult Graphic Systems, Inc. common stock at
the fair market value on the date of this document, after 24 months of
employment, and options to purchase an additional 16,667 shares of Cadapult
Graphic Systems, Inc. common stock at the fair market value on the date of
this document, upon completion of 36 months of employment.
C. Bonus. Employee may be granted a performance bonus, at the
------
sole and exclusive discretion of the Board of Directors of Employer.
<PAGE>
EXHIBIT G
CONVENANTS NOT TO COMPETE
--------------------------
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as "Company"
AND Leland Traylor, an individual hereinafter referred to
collectively as "Former Shareholder".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Trade Secrets and Assets of UltraHue, Inc.
1.2. The Former Shareholder heretofore owned a substantial number of
the issued and outstanding common stock of Ultrahue, Inc. which has heretofore
been purchased in anticipation of and in conjunction with the acquisition of
the Trade Secrets and Assets by the Company.
1.3. Unless otherwise specifically defined herein, the capitalized
terms set forth herein shall have the same definitions as set forth in a
certain Asset Purchase Agreement dated September 7, 1999 (hereinafter referred
to as "Asset Purchase Agreement").
1.4. A material inducement for the Company to purchase the Trade
Secrets and Assets of UltraHue, Inc., and to pay the consideration therefore,
as set forth in Asset Purchase Agreement is the representations of and
agreements
<PAGE>
by amongst the Former Shareholder that the Trade Secrets and Proprietary
Information of UltraHue, Inc. would remain confidential, and have not been and
would not be disclosed by any of the Former Shareholder, either directly or
indirectly, any person, persons, or entity other than employees of the Company
as directed by the Company, and that the Former Shareholder designated herein
would be restricted from competing with the Company for the period of time
designated herein.
NOW THEREFORE, in consideration of the aforesaid, as well as the consideration
paid to the Former Shareholder as referenced in the Asset Purchase Agreement
dated September 7, 1999, the parties hereto do hereby agree as follows:,
1. Restrictions on Competition. The Former Shareholder does hereby warrant
and agree that for a period of three (3) years from the date hereof said
Former Shareholder shall not, either directly or indirectly, in any capacity
or through any means or mechanism whatsoever, compete with the Company in any
manner nor provide any information to any competitor which would aid or assist
it in competing against the Company. Nothing contained herein shall preclude
the Former Shareholder from investing minor sums (less than 1% of the total
capitalization) in public companies which may be competitors.
2. Enforcement.
2.1. The Former Shareholder agrees and acknowledges that upon any
breach or threatened breach of the terms, covenants and agreements set forth
in this Agreement, and specifically Paragraph 1 hereinabove, an award of
monetary damages would not be adequate to protect the Company's interests and
<PAGE>
therefore the Former Shareholder agrees that upon such breach the Company
would have the right to apply for and obtain, in addition to monetary damages,
injunctive relief, preliminary, temporary and final, to enforce the provisions
of Paragraph 1. To this extent, the Former Shareholder expressly waives the
right to assert in any proceeding resulting from breach of these provisions
that monetary damages alone are adequate to protect the rights of the Company.
If for any reason any court, or other tribunal having jurisdiction, shall
determine that the restrictions set forth hereinabove are over-broad in any
respect, then and in that event the provisions thereof shall nevertheless
continue in full force and effect, but the terms thereof shall be deemed
restricted only to the extent required to bring them into conformance with
such determination by a court or tribunal of competent jurisdiction.
2.2. The Former Shareholder acknowledges and agrees that the
restrictions imposed in this Agreement, and specifically Paragraph 1
hereinabove, including any time periods of such restrictions and lack of any
specific geographical area represent a fair and reasonable balance between the
legitimate interests of the Company in protecting the Trade Secrets,
Proprietary Information and Assets this date acquired from UltraHue, Inc. for
substantial consideration, and in protecting against unfair competition.
3. Miscellaneous.
3.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
<PAGE>
3.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey,
irrespective of the place of performance.
3.3. This Agreement, together with the Asset Purchase Agreement and
ancillary agreements to be executed in relation thereto, constitute the entire
agreement between the parties, and no modification hereof shall be recognized
or deemed effective or enforceable unless same is in writing and is signed by
both of the parties, or their assignees, hereto.
3.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement which
is judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
3.5. Neither failure nor any delay on the part of either party hereto
to exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on the date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
WITNESS: /s/ Leland Traylor
-------------------
Leland Traylor
/s/ Paul Treaster
- -----------------
<PAGE>
EXHIBIT G-1
CONVENANTS NOT TO COMPETE
-------------------------
THIS AGREEMENT, made as of this 13th day of December, 1999;
Between: Media Sciences, Inc., a New Jersey corporation which is a
wholly owned subsidiary of Cadapult Graphic Systems, Inc.,
a Delaware corporation, hereinafter referred to as "Company"
AND Thomas Hendricks, an individual hereinafter referred to
collectively as "Former Shareholder".
1. Recitals.
1.1. The Company is a New Jersey corporation which, simultaneously
herewith, has acquired the Trade Secrets and Assets of UltraHue, Inc.
1.2. The Former Shareholder heretofore owned a substantial number of
the issued and outstanding common stock of Ultrahue, Inc. which has heretofore
been purchased in anticipation of and in conjunction with the acquisition of
the Trade Secrets and Assets by the Company.
1.3. Unless otherwise specifically defined herein, the capitalized
terms set forth herein shall have the same definitions as set forth in a
certain Asset Purchase Agreement dated September 7, 1999 (hereinafter referred
to as "Asset Purchase Agreement").
1.4. A material inducement for the Company to purchase the Trade
Secrets and Assets of UltraHue, Inc., and to pay the consideration therefore,
as set forth in Asset Purchase Agreement is the representations of and
agreements
<PAGE>
by amongst the Former Shareholder that the Trade Secrets and Proprietary
Information of UltraHue, Inc. would remain confidential, and have not been and
would not be disclosed by any of the Former Shareholder, either directly or
indirectly, any person, persons, or entity other than employees of the Company
as directed by the Company, and that the Former Shareholder designated herein
would be restricted from competing with the Company for the period of time
designated herein.
NOW THEREFORE, in consideration of the aforesaid, as well as the consideration
paid to the Former Shareholder as referenced in the Asset Purchase Agreement
dated September 7, 1999, the parties hereto do hereby agree as follows:,
1. Restrictions on Competition. The Former Shareholder does hereby warrant
and agree that for a period of three (3) years from the date hereof said
Former Shareholder shall not, either directly or indirectly, in any capacity
or through any means or mechanism whatsoever, compete with the Company in any
manner nor provide any information to any competitor which would aid or assist
it in competing against the Company. Nothing contained herein shall preclude
the Former Shareholder from investing minor sums (less than 1% of the total
capitalization) in public companies which may be competitors.
2. Enforcement.
2.1. The Former Shareholder agrees and acknowledges that upon any
breach or threatened breach of the terms, covenants and agreements set forth
in this Agreement, and specifically Paragraph 1 hereinabove, an award of
monetary damages would not be adequate to protect the Company's interests and
<PAGE>
therefore the Former Shareholder agrees that upon such breach the Company
would have the right to apply for and obtain, in addition to monetary damages,
injunctive relief, preliminary, temporary and final, to enforce the provisions
of Paragraph 1. To this extent, the Former Shareholder expressly waives the
right to assert in any proceeding resulting from breach of these provisions
that monetary damages alone are adequate to protect the rights of the Company.
If for any reason any court, or other tribunal having jurisdiction, shall
determine that the restrictions set forth hereinabove are over-broad in any
respect, then and in that event the provisions thereof shall nevertheless
continue in full force and effect, but the terms thereof shall be deemed
restricted only to the extent required to bring them into conformance with
such determination by a court or tribunal of competent jurisdiction.
2.2. The Former Shareholder acknowledges and agrees that the restrictions
imposed in this Agreement, and specifically Paragraph 1 hereinabove, including
any time periods of such restrictions and lack of any specific geographical
area represent a fair and reasonable balance between the legitimate interests
of the Company in protecting the Trade Secrets, Proprietary Information and
Assets this date acquired from UltraHue, Inc. for substantial consideration,
and in protecting against unfair competition.
3. Miscellaneous.
3.1. This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
<PAGE>
3.2. This Agreement, and any and all rights hereunder, shall be
governed by and enforced according to the laws of the State of New Jersey,
irrespective of the place of performance.
3.3. This Agreement, together with the Asset Purchase Agreement and
ancillary agreements to be executed in relation thereto, constitute the entire
agreement between the parties, and no modification hereof shall be recognized
or deemed effective or enforceable unless same is in writing and is signed by
both of the parties, or their assignees, hereto.
3.4. The provisions of this Agreement are independent of and are
separable from each other. In the event any provision of this Agreement which
is judicially declared to be invalid or unenforceable, such provision or
provisions shall be invalid or unenforceable without invalidating or rendering
unenforceable the remaining provisions hereof.
3.5. Neither failure nor any delay on the part of either party hereto
to exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof. No single or partial exercise of any right,
remedy, power or privilege shall preclude or be deemed a waiver of any other
or further exercise of the same or of any other right, remedy, power or
privilege.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered on the date first written above.
ATTEST: Media Sciences, Inc.
/s/ Bruce M. Meisel By: /s/ Michael W. Levin, President
- ------------------- ---------------------------------
Bruce M. Meisel, Esq. Michael W. Levin, Pres.
263 Center Avenue
Westwood, New Jersey 07675
WITNESS: /s/ Thomas Hendricks
--------------------
Thomas Hendricks
_________________
<PAGE>
Exhibit I
Albuquerque:
Owned Equipment
1 Paser 840 Printer s/n B9B7268
1 Phaser 350 printer s/n B6B1379
1 Phaser 350 printer s/n B7F4723
1 eMachines Computer s/n R33C09501396
1 KDF Monitor s/n 0395921707
1 Epson 600Q Printer s/n ATP0020313
1 Grainger Hoist
1 Pallet Jack
1 Oven
1 Freezer
1 Refrigerator
1 Microwave Oven
1 Digital Gram Scale
1 Digital Shipping Scale
48 Aluminum Molds
Desk and funiture
Storage Cabinets and Shelves
1 EconoCorp Packaging Machine
1 Alarm System
2 cordless Telephones
1 Fax machine
8 digital Temperature Controllers
1 Microscope
Redmond
Owned Equipment
3 Phaser 840 Printers
2 Pahser 360 printers
1 Phaser 560 printer
1 Advanced Matrix Technology Printer
1 Calibre Computer
1 Futura 19" Moniter
Desk and funiture
3 business Telephones
1 Fax machine
1 Syquest Drive
1 Zip Drive
1 IBM ThinkPad 560 Notebook Computer
<PAGE>
Exhibit J
The following have been provided to Purchaser and is hereby incorporated by
reference as if fully annexed to this Exhibit J:
1. Complaint and Stipulation of Settlement and Dismissal in the matter of
Tektronix vs. UltraHue, Inc., Civil No. C97-1533-C, U.S. District Court for
the Western District of Washington.
2. Letter date June 6, 1998 from Dummet Corp. written on behalf of Willett
Holdings.
3. Letter dated May 17, 1999 from Fish & Neave written on behalf of Willett
Holdings.
<PAGE>
Exhibit K - Proceeds From Subsequent Sale of Trade Secrets
Sale of Trade Secrets during the 25% of proceeds from sale of
first year of this Agreement. Trade Secrets
Sale of Trade Secrets during the 20% of proceeds from sale of
second year of this Agreement. Trade Secrets
Sale of Trade Secrets during the 20% of proceeds from sale of
first quarter of the third year of Trade Secrets
this Agreement.
Sale of Trade Secrets during the 15% of proceeds from sale of
second quarter of the third year of Trade Secrets
this Agreement.
Sale of Trade Secrets during the 10% of proceeds from sale of
third quarter of the third year of Trade Secrets
this Agreement.
Sale of Trade Secrets during the 5% of proceeds from sale of
fourth quarter of the third year of Trade Secrets
this Agreement.
<PAGE>
Exhibit L
PROMISSORY NOTE
$1,160,000.00 Dated: December 13, 1999
FOR VALUE RECEIVED, Media Sciences, Inc., a New Jersey Corporation and wholly
owned subsidiary of Cadapult Graphic Systems, Inc.(hereinafter sometimes
referred to as the "Maker"), and promises to pay to UltraHue, Inc.
(hereinafter sometimes referred to collectively as the "Holder"), or at such
other place as may be designated from time to time by the Holder, the
principal sum of One Million One Hundred Sixty Thousand ($1,160,000.00)
Dollars, with interest at the rate of Seven (7%) percent per annum, payable on
December 13, 2000.
All payments hereunder shall be made to the Holder in lawful money of the
United States of America and in immediately available funds. Interest on any
payment which is not paid within applicable grace periods, shall until
acceleration, be due and payable within 10 days of written demand received,
such unpaid amounts bearing interest at the higher of 9% per annum or the rate
from time to time announced by Chase Manhattan Bank, N.A., or an institutional
equivalent, as its "Prime Rate", calculated on the basis of factual days
elapsed, from due date of the unpaid amount or amounts.
The Maker shall have the right to prepay this Note in whole or in part.
Thereafter, at any time and from time to time Maker shall have the right to
prepay this Note, in whole or in part, without penalty or premium. Each
partial prepayment of this Note shall be applied to the latest maturing
installment of principal required hereunder in inverse order of maturity
thereof.
The Holder shall not by any act, delay, omission, failure to act, or otherwise
be deemed to have waived any right, power, privilege, or remedy hereunder, and
no waiver whatever shall be valid unless in writing signed by the Holder and
then only to the extent therein set forth; nor shall any single or partial
exercise of any right, power, privilege or remedy hereunder preclude any
further exercise thereof, or the exercise of any other right, power, privilege
or remedy. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law and may be exercised
singly or concurrently. A waiver by the Holder of any remedy under the terms
of this Note on any one occasion shall not be construed as a bar to any right
or remedy which the Holder would otherwise have had on any further occasion.
No executory agreement, unless in writing and signed by the Holder, and no
course of dealing between the Maker and the Holder shall be effective to
change or modify or discharge, in whole or in part, this Note.
At the option of the Holder, any one of the following occurrences shall
constitute a default under this Note:
(i) the failure of the Maker to make any payment of principal or
interest on this Note when
<PAGE>
due and such failure shall continue for a period of ten (10) days after
written notice thereof is received by Maker from the Holder;
(ii) the failure of the Maker to perform any term, condition, covenant
or agreement herein contained and such failure shall continue for a period of
thirty (30) days after written notice thereof is received by Maker from the
Holder;
(iii) If Maker shall file a voluntary petition in bankruptcy or
insolvency, commence a case under the Federal Bankruptcy Code, or shall be
adjudicated a bankrupt or insolvent, or file any petition or answer seeking
any reorganization arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal
bankruptcy act or any other present or future applicable federal, state or
other statute or law (foreign or domestic), or shall make an assignment for
the benefit of creditors or shall seek or consent or acquiesce in the
appointment of any receiver liquidator or Maker or of all of any part of
Maker's personal property; or,
(iv) If, within 60 days after the commencement of any proceeding
against Maker, and same is not discharged within sixty (60) days whether by
the filing of a petition or otherwise, seeking any reorganization,
arrangement, composition, readjustment, future federal bankruptcy act or any
other present or future applicable federal, state or other statute of law
(foreign or domestic), such proceeding shall not have been dismissed, or if,
within 60 days after the appointment of any receiver or liquidator of Maker or
of all of Maker's personal property, without the consent or acquiescence of
Maker, such appointment shall not have been vacated or otherwise discharged.
The Maker agrees that whenever an attorney is used to collect or enforce this
Note or to enforce, declare or adjudicate any rights or obligations under this
Note, or with respect to any collateral security therefore, whether by suit or
any other means whatever, the reasonable counsel fees of Holder's counsel
shall be payable by the Maker, together with all costs and expenses of such
collection, enforcement or adjudication, and shall constitute part of the
principal obligation hereunder.
The Maker waives presentment for payment, notice of dishonor, protest, notice
of protest of this Note or other notice of any kind and all demands
whatsoever, except as may be herein expressly provided to the contrary.
Whenever any payment to be made hereunder shall be due on a Saturday, Sunday
or public holiday, such payment may be made on the next succeeding business
day.
Any provision hereof which may prove unenforceable under any law shall not
affect the validity of any other provision hereof.
This Note may be not changed or terminated orally, but only by a written
document signed by the Holder hereof.
The parties waive trial by jury, and consent to the jurisdiction and venue of
the State of New Jersey.
Furthermore, in the event of default, any legal issues arising in relation to
this Note shall be
<PAGE>
governed by the laws of the State of New Jersey.
ATTEST: Media Sciences, Inc.
BY: /s/
------------------------
Michael W. Levin, Pres.
By: /s/
------------------------------
GUARANTY
If Maker shall default in any payment due under the Note, then the undersigned
will, on demand, pay all sums due thereunder arising of a consequence of
Maker's default. Holder may, at its option, join the below Guarantor in any
action or proceeding commenced by Holder against Maker based upon a default
under the terms of the Note and any recovery thereunder may be obtained
against the below Guarantor without Holder first asserting, prosecuting or
exhausting any remedy or claim against the Holder, its successors or assigns.
Cadapult Graphic Systems, Inc.
By: /s/
------------------------
Michael W. Levin, Pres.
Attest:
By: /s/
------------------------------
<PAGE>
Exhibit M
List of Non-Disclosed employees
Paul Treaster
3528 Parisain Way NE
Alburquerque, NM 87111
Sean Lang
6500 Montgomery NE
Apt 409
Alburquerque, NM 87109
Barry Gayles
6601 Tennyson NE
#2201
Alburquerque, NM 87111
Jacob Romero
10457 Edith NE
Alburquerque, NM 87119
[FORM OF WARRANT CERTIFICATE]
NUMBER_____ ____________WARRANTS
Warrant to Purchase ______ Shares
CADAPULT GRAPHIC SYSTEMS, INC.
Common Stock Purchase Warrant
EXERCISABLE ON OR BEFORE 11:59 P.M. EASTERN TIME ON OCTOBER 1, 2004
THIS CERTIFIES THAT, FOR VALUE RECEIVED, __________________________, the
registered holder or assigns (the "Holder"), is entitled to purchase from
CADAPULT GRAPHIC SYSTEMS, INC., a Delaware corporation (the "Company"), at
any time after 9:00 A.M. Eastern Time on October 1, 1999, at the purchase
price of $4.50 (the "Exercise Price"), the number of shares of Common Stock
of the Company set for above (the "Shares"). The number of Shares
purchasable upon exercise of each Warrant evidenced hereby and the Exercise
Price per share shall be subject to adjustment from time to time as set forth
in the Warrant Agreement referred to below. The Warrants expire on October
1, 2004. Holders will not have any rights or privileges of shareholders of
the Company prior to exercise of the Warrants. Holders of the Warrants
evidenced hereby and the Shares issuable upon exercise hereof have certain
rights with respect to registration with the Securities and Exchange
Commission of the Common Stock issuable upon exercise hereof. These
registration rights are set forth in that certain Private Placement
Memorandum dated October 1, 1999 and the Warrant Agreement dated as of
October 1, 1999, pursuant to which this Warrant Certificate has been issued.
The Warrant evidenced hereby may be exercised in whole or in part by
presentation of this Warrant Certificate with the Purchase Form on the
reverse side hereof fully executed (with a signature guarantee as provided on
the reverse side hereof) and simultaneous payment of the Exercise Price
(subject to adjustment) at the principal office of the Company. Payment of
such price shall be made at the option of the Holder in cash or by certified
check or bank draft. The Warrants evidenced hereby are part of a duly
authorized issue of Common Stock Purchase Warrants with rights to purchase an
aggregate of up to 1,000,000 shares of Common Stock of the Company. Upon any
partial exercise of the Warrant evidenced hereby, there shall be
countersigned and issued to the Holder a new Warrant Certificate in respect
of the Shares as to which the Warrants evidenced hereby shall not have been
exercised. This Warrant Certificate may be exchanged at the office of the
Company by surrender of this Warrant Certificate properly endorse with a
signature guarantee either separately or in combination with one or more
other Warrants for one or more new Warrants to purchase the same aggregate
number of Shares as evidenced by the Warrant or Warrants exchanged. No
fractional Shares will be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any fraction upon the
exercise of one or more Warrants. The Holder hereof may be treated by the
Company and all other persons dealing with this Warrant Certificate as the
absolute owner hereof for all purposes and as the person entitled to exercise
the rights represented hereby, any notice to the contrary notwithstanding,
and until such transfer is on such books, the Company may treat the Holder as
the owner for all purposes.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
its duly authorized officers.
Dated:__________, _____ CADAPULT GRAPHIC SYSTEMS, INC.
_________________________ ___________________________
Frances Blanco, Secretary Michael W. Levin, President
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF CERTAIN
STATES, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO: (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS; (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE, DISPOSITION OF SECURITIES); OR (iii) AN OPINION OF COUNSEL,
IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE LAW
IS AVAILABLE.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF CERTAIN
STATES, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO: (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS; (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE, DISPOSITION OF SECURITIES); OR (iii) AN OPINION OF COUNSEL,
IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE LAW
IS AVAILABLE.
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to purchase _________ shares of common stock of
the Company, and hereby makes payment of $_________ (at the rate of $4.50 per
share) in payment of the Exercise Price pursuant hereto. Please issue the
shares as to which this Warrant is exercised in accordance with the
instructions given below.
The undersigned represents and warrants that the exercise of the within
Warrant was solicited by the member firm of the National Association of
Securities Dealers, Inc. ("NASD") listed below. If not solicited by an NASD
member, please write "unsolicited" in the space below.
_________________________________________________
(Insert Name of NASD Member or "Unsolicited")
Dated:_________________ Signature of Holder______________________
INSTRUCTIONS FOR REGISTRATION OF SHARES
The undersigned requests that a certificate for such securities be registered
as follows:
Name (print)________________ Address (print)__________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_________________________, the right to purchase __________ shares of Common
Stock of the Company, evidenced by the within Warrant, 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.
Dated:_________________ Signature of Holder______________________
NOTICE: The signature of Election to Purchase must conform in all respects
to the name of the Holder as specified on the face of this Warrant
Certificate without alteration or any change whatsoever. The signature(s)
must be guaranteed by an eligible guarantor institution (Banks, Stockbrokers,
Savings and Loan Associations and Credit Unions with membership in an
approved signature guarantee Medallion Program), pursuant to SEC Rule
17Ad-15.
________________________________
Signature Guarantee
February 14, 2000
Cadapult Graphic Systems, Inc.
110 Commerce Drive
Allendale, New Jersey 07401
Ladies and Gentlemen:
We have acted as counsel to Cadapult Graphic Systems, Inc., a Delaware
corporation (the "Company"), in connection with the registration of 771,750
shares of the Company's common stock, par value $.001 per share (the
"Shares"), pursuant to a Registration Statement on Form SB-2, as amended (the
"Registration Statement"), to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, on or about the date
of this letter. Such Shares will be sold from time to time by the selling
stockholders named in the Registration Statement (the "Selling
Stockholders").
As counsel for the Company, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and other instruments as
we have deemed necessary for the purposes of rendering this opinion. In our
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies. As to various
questions of fact material to such opinion, we have relied, to the extent we
deemed appropriate, upon representations, statements and certificates of
officers and representatives of the Company and others.
Based upon the foregoing, we are of the opinion that the Shares to be
registered for sale by the Selling Stockholders have been duly authorized by
the Company, are validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and we consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
/s/ Law Offices of Dan Brecher
Law Offices of Dan Brecher
Tektronix FLYING COLORS
The best and the brightest. Value-Added Dealer Program
COMPUTER GRAPHICS GROUP
VALUE ADDED DEALER AGREEMENT
Dealer: Cadapult Graphic Systems
17 Arcadian Way Suite 104
Paramus, NJ 07652
Attn: Michael W. Levin
Agreement No. D3803
Effective Date: August 1, 1991
The parties to this Agreement are Tektronix, Inc., an Oregon corporation
("Tektronix") and the Dealer identified above ("Dealer").
PREAMBLE:
Tektronix sells and licenses certain computer graphics hardware, software and
service products. Because of the technical nature of these products, proper
customer service and support can be accomplished only through effective
presale and postsale education, skilled technical advice and on-going, in-
person customer contact. This requires trained and knowledgeable personnel to
evaluate the customer's needs and demonstrate the features, benefits and
operation of Tektronix products so that a complete solution can be provided
for the customer.
The quality and effectiveness of a distribution network and the ability to
distribute certain selected Tektronix products Into end user markets and
applications not currently reached by Tektronix is important to Tektronix'
ability to compete.
Tektronix has chosen to sell these products to end user customers through
certain qualified dealers who have demonstrated the capability to provide the
required customer service and support and to carry out the other
responsibilities and obligations described in this Agreement.
Tektronix, In reliance on Dealer's representations and certifications,
contained herein, desires to engage the services of Dealer as a value added
dealer of certain Tektronix products.
Now, therefore, the parties agree to the following:
AGREEMENT:
1. Certification by Dealer. Dealer certifies that:
(i) Dealer is in the business of selling computer graphics products.
individually or as integrated parts of systems. to end user customers who are
not affiliated with Dealer,
(ii) Dealer's employees are adequately trained in selling computer graphics
products and are capable of designing, installing and supporting Integrated
systems that include such products;
(iii) Dealer's employees are capable of providing presale and postsale
product education and applications training on Tektronix graphics printer
products;
(iv) Dealer maintains a demonstration capability and product display
capability sufficient to properly demonstrate the operation of Tektronix
graphics printer products; and
(v) Dealer has adequate financial resources and/or lines of credits to assure
payment for any products purchased under this Agreement and the fulfillment
of its other obligations under this Agreement.
Dealer further certifies that the information that Dealer supplied Tektronix
in connection with Dealer's application to become an authorized dealer of
Tektronix graphics printer products, including, but not limited to, the
information set forth in Dealer's application form, attached hereto as
Exhibit 1, is complete, current and accurate.
2. Definitions.
(i) Product. "Product" means the product manufacture by Tektronix listed on
the attached Supplement, together with the related parts, accessories and
supplies listed therein and any other products added from time-to-time by
Tektronix, Tektronix reserves the right to withdraw any product from sale to
Dealer upon not less than thirty (30) days' notice to Dealer.
(ii) List Price. "List Price" means the respective U.S. domestic list price
established by Tektronix for the Product or service provided.
(iii) Primary Area of Responsibility. "Area" means that geographic area
served by Dealer with face-to-face sales and support personnel.
3. Supplement. This Agreement anticipates the parties may execute one or more
Supplements setting forth certain particulars with respect to the term of
appointment, Products available for purchase, associated discounts and
warranties.
4. Appointment and Privileges of Dealer. In reliance upon Dealer's
certifications, Tektronix hereby appoints Dealer as an authorized Tektronix
value added dealer of the Products, within their Area in the United States,
for the term specified in the Supplement attached to this Agreement and any
subsequent Supplement executed by Tektronix. The term of Dealer's appointment
shall begin on the effective date of a respective Supplement and shall
automatically renew for one year intervals, unless otherwise terminated as
provided herein. As an authorized value added dealer, and in accordance with
the provisions of this Agreement Dealer may:
(i) 1Purchase Products and service for the Products, at the discounts shown
in a respective Supplement, for purposes of resale to end user customers
within their Area in the United States at Dealer locations specifically
authorized by Tektronix;
(ii) Advertise or otherwise hold itself out as an authorized Tektronix value
added dealer of these Products; and,
(iii) Use Tektronix' trademark and advertising materials relating to the
Tektronix Products in connection with Dealer's promotion and sale of such
Products.
Dealer may not purchase Products under this Agreement for export outside the
United States or for resale to customers whom Dealer knows, or has reason to
know, intend to export the Products outside the United States. Dealer's
appointment is expressly limited to Products listed in a respective
Supplement and Dealer is not authorized to hold itself out as an authorized
dealer of other Tektronix products
5. Dealer's Primary Area of Responsibility. Dealer's appointment is limited
to resale to end user customers within the area specified as Dealer's Primary
Area of Responsibility ('Area') in Exhibit 1 and Dealer shall concentrate its
Product marketing effort in that area. Unless otherwise stated and approved
by Tektronix, this Area shall be limited to a one hundred mile radius from
Dealer's authorized selling location(s).
Dealer's Area is not an exclusive territory. Tektronix retains the right to
and may appoint other value added dealers who may solicit business and sell
Products within Dealer's Area. Tektronix also retains the right to solicit
business through its own sales engineers and other employees, and to sell
Products directly to all categories of customers within Dealer's Area.
Tektronix shall have no obligation to Dealer to account for sales made by or
through other value added dealers or Tektronix within Dealer's Area.
6. General Obligations As An Authorized Dealer.
A. Dealer accepts appointment by Tektronix a an authorized Tektronix value
added Dealer and agrees to the terms and conditions of the appointment as
described in this Agreement, agrees to maintain staff and programs sufficient
to carry out the obligations undertaken hereunder, and further:
(i) Dealer shall use its best efforts to promote and sell the Products in at
least the quantities specified in the current Supplement or as agreed between
the parties;
(ii) Dealer shall maintain qualified, well-trained sales and support
organization capable of representing, promoting, selling and supporting the
Products and providing Product demonstration. instruction in use and
application and assistance with minor field problems, all within Dealer's
Area;
(iii) Dealer shall maintain demonstration capability as defined in Section 8
herein, at all times.
(iv) Dealer shall develop and maintain a market development program for the
Product that focuses on specific application areas as agreed between the
parties; and,
(v) Dealer shall acquire or provide for and maintain at its expense and in a
manner satisfactory to Tektronix adequate facilities to demonstrate and
market the Products and train customers in their use; and
(vi) Dealer shall maintain such records concerning its sales of Products and
furnish to Tektronix such information as Tektronix may request, to enable
Tektronix, (1) to comply with all federal, state or local laws or regulations
relating to the sale, servicing or use of Products provided hereunder, (2) to
ascertain Dealer's performance under this Agreement, and (3) to determine
commissions payable to Tektronix' sales engineers (see Section 7).
B. Dealer shall conduct its affairs in an ethical and businesslike manner and
shall neither cause nor permit disparagement of Tektronix or the Products by
its employees: and,
(i) Dealer shall make no false or misleading representations regarding
Products and make no representations or warranties on behalf of Tektronix
except as authorized by Tektronix;
(ii) Dealer shall not commit or conspire to commit any illegal, deceptive,
misleading, unethical or improper practice, or use Products as loss leaders
in order to attract customers, or use illegal bait and switch methods or any
other practices that might damage the reputation of Tektronix or its
products;
(iii) Dealer shall not offer Products for sale solely by means of telephone
solicitation or direct mail, but shall use methods that assure direct,
personal contact with the customer within Dealer's Area. Tektronix Products
shall not be solicited outside Dealer's Area.
(iv) Dealer shall advise Tektronix promptly of any complaints relating to the
Products.
C. Dealer understands that Tektronix may conduct surveys of Dealer's
customers in order to evaluate Dealer's performance under this Agreement.
Tektronix may from time-to-time establish reasonable policies and change
existing policies that apply to Dealer's obligations and Dealer agrees to
comply with those policies upon receipt thereof.
7. Point of Sale and Inventory Reports. Dealer shall provide Tektronix on at
least a monthly basis, and no later than ten (10) days following the dose of
Dealer's monthly business cycle, a point of sale report on Products sold by
Dealer. Tektronix will use this information to determine what commissions, if
any, may be payable to Tektronix' sales engineers for such sales within the
sales engineer's area of responsibility. The report shall be supplied on
magnetic media or typed format. Said report will include the following
information:
(i) Customer location. address, zip code
(ii) Contact name
(iii) Product model number
(iv) Quantity sold
(v) Product serial number
(vi) Date sold. date shipped
Dealer will provide Tektronix on a quarterly basis, and no later than twenty
(20) days following the close of the Dealer's quarter, an Inventory report of
all Products remaining in Dealer's inventory as of the end of quarter. The
report shall be supplied on the same media as the point of sale report and
shall list Products by model number.
8. Demonstration Products. Within thirty (30) days of the Effective Date of
this Agreement or prior to the first commercial order, whichever first
occurs. Dealer will purchase for each model type authorized, at least2 one
(1) Product for the purpose of demonstration to Dealer's customers
("Demonstration Unit"). Within the same period Dealer will also purchase such
additional Demonstration Units as may be necessary to provide reasonable
access to a Demonstration Unit by Dealer's customers at all of Dealer's
authorized sales locations. Dealer will maintain this level of demonstration
inventory for the duration of the Appointment.
9. Obligations of Tektronix.
(i) Tektronix will use its best efforts to inform Dealer in advance of
changes in Product availability, performance, serviceability, uses and
applications.
(ii) Tektronix will provide reasonable levels of technical and Product
related sales training to the Dealer's sales personnel at mutually agreeable
times and locations.
(iii) Tektronix will make available to Dealer technical support through
telephone communication with Tektronix' technical representatives.
(iv) Tektronix will provide to the Dealer reasonable quantities of
promotional literature covering the Products.
(v) Tektronix will provide reasonable levels of sales support, including
lead referrals, from an assigned Tektronix representative.
10. Account Management and Quarterly Review. Tektronix will assign to Dealer
an account manager familiar with Dealer's products and the market for those
products. The account manager will serve as Dealer's primary point of contact
with respect to any matter arising under this Agreement and will meet with
Dealer at least quarterly to review the progress and performance of both
parties.
11. Price. The price charged Dealer for a Product ordered by Dealer for
resale pursuant to this Agreement, will be the lower of the List Price in
effect when Dealer's order is accepted by Tektronix or the List Price In
effect when the Product is shipped, less the Product discount shown in the
attached Supplement.
List Prices are subject to change by Tektronix with thirty (30) days prior
written notice.
But for an incidental quantity purchased for internal use, Dealer shall be
permitted to purchase Products at the discounts granted herein only if the
Products are intended for resale or demonstration and are resold. If Dealer
originally purchases a Product at a value added dealer discount and later
uses the Product Internally In its business for other than the prescribed
uses, Dealer shall notify Tektronix immediately and pay an amount equal to
the value added dealer discount received on the Product.
Dealer shall be free to establish its own prices upon resale of the Products.
12. Price Protection. In the event that Tektronix decreases the List Price of
any Product, Dealer will be entitled to a credit equal to the difference
between the discounted price paid by Dealer, and the new decreased discounted
price for the Product. Such credit will be applied to each affected Product
in Dealer's Inventory on the effective date of the price change and received
by Dealer in the sixty (60) day period prior to such date. A similar price
adjustment will also be made on all such Products in transit to Dealer on the
effective date of such price decrease.
Dealer shall submit to Tektronix, not later than ten (10) working days after
the effective date of such price decrease, a report of Products in inventory
as of the effective date. After Tektronix' verification of the Product
inventory repeal, Tektronix will apply such credit to Dealer's account.
13. Placement of Orders. To order products for resale pursuant to this
Agreement, Dealer shall submit written purchase orders that refer to this
Agreement by number. Oral orders will be accepted if confirmed by receipt of
a facsimile copy of the signed, written purchase order, and must be followed
by the original within ten (10) working days. All purchase orders are subject
to acceptance by Tektronix.
Each purchase order shall set forth the quantity and model number of the
Products ordered, the requested date of shipment or shipping schedule, and
the location(s) within the Dealer's Area to which the shipment(s) should be
sent and any other shipping instructions. Purchase orders shall be submitted
to: TEKTRONIX, INC., P.O. BOX 1000, M.S. 63-583, Wilsonville, Oregon 97070-1000
The terms and conditions of this Agreement shall govern all orders to the
exclusion of any additional or different terms appearing in Dealer's purchase
orders.
14. Scheduling of Shipments. Dealer may request in its order a specific
shipping date or shipping schedule; however, Dealer may not request that
Products be shipped later than three (3) months after the end of the current
Supplement of the Agreement. Tektronix will schedule shipments for each
purchase order based on Dealer's request and Tektronix' shipping capability
at the time Dealer's order is accepted. Upon such acceptance, Tektronix will
issue to Dealer a formal acknowledgment which will indicate the estimated
shipping date(s).
Tektronix will use its best effort to ship on or before the estimated
shipping dates indicated on its formal acknowledgment; except, that Tektronix
will not ship before Dealer's requested shipping dates, if Dealer's purchase
order so instructs.
Tektronix will not be liable for any delay of any shipments nor for any
failure to deliver if such failure results from circumstances which are
beyond its reasonable control or which would cause Tektronix to incur
unreasonable expense in order to effect such a delivery. Tektronix shall not
in any event be liable for any special, incidental or consequential damages
resulting from any delay or inability to deliver.
15. Rescheduling and Cancellation. Dealer may request that orders be
rescheduled or canceled only by written request submitted to the Tektronix
sales office specified In Section 13, Placement of Orders. Any request to
reschedule or cancel any single shipment of five (5) Products or more, which
request is received less than fifteen (15) days before the scheduled shipping
date, may be rejected as untimely or, at the option of Tektronix, may be
accepted subject to payment of a rescheduling or cancellation charge in the
amount of 5% of the undiscounted List Price of each product affected.
Any change in the quantity ordered or change to the Product may result In a
change to the estimated shipping date for the affected Products. After
receipt of notice of the change from Dealer, Tektronix may issue a revised
acknowledgment with revised shipping dates.
16. Delivery. Delivery shall be F.O.B Tektronix' shipping dock. Delivery
point shall be within the forty-eight (48) contiguous United States. In the
absence of specific written instructions from Dealer, Tektronix will select
the carrier, but Tektronix will not thereby assume any liability in
connection with shipment. List prices do not include freight or insurance. If
products are shipped freight prepaid, Tektronix will bill Dealer a freight
charge for each such shipment, and if such shipments are insured, Tektronix
will bill Dealer an insurance charge for each such shipment. These charges
shall be paid by Dealer and will be shown as a separate item, identified as
Transportation Services. on the invoice. Tektronix will ship only to
destinations within the United States.
17. Taxes. List prices are exclusive of all state and local sales, use,
excise, privilege and similar taxes. Such taxes imposed on Tektronix or which
Tektronix has a duty to collect in connection with the sale or delivery of
Products purchased pursuant to this Agreement shall be paid by the Dealer and
will appear as separate items on the invoice. ff sales to Dealer are exempt
from such taxes, Dealer shall furnish to Tektronix a certificate of
exemption.
18. Payments. Dealer shall pay all amounts invoiced by Tektronix within
thirty (30) days from the date of the invoice. Tektronix will submit an
invoice to Dealer for each shipment at the time of shipment. If, in the
judgment of Tektronix. Dealer's financial condition, Dealer's record of
payments or Dealer's conduct does not justify shipment on such payment terms.
Tektronix may refuse to ship unless it receives payment in advance or, at its
option. payment upon delivery. A shipment rescheduled or canceled by
Tektronix due to such conditions shall be subject to a reschedule or
cancellation charge equal to 5% of the List Price of any product affected and
such charge shall be applied for each reschedule or cancellation occurrence.
19. Software. The parties acknowledge that certain of the Products comprise
or include computer programs distributed by Tektronix under written license
agreement, a copy of which is usually packaged with the computer program.
Notwithstanding any provision to the contrary contained in this Agreement,
title to the computer programs shall be and remain with Tektronix or others
from whom Tektronix has obtained a licensed right. As used in this Agreement,
the term "purchase" or its equivalents when applied to software programs
shall mean 'acquire under license.'
Dealer may acquire computer software under this Agreement for transfer to
Dealer's end user customers only with the package unopened and the license
agreements intact. Dealer may not copy or otherwise reproduce the computer
programs nor transfer them to any other person or organization, for any
purpose other than as expressly provided herein without the prior written
consent of Tektronix.
20. Confidential Information. Dealer agrees to keep confidential technical
information made available to it by Tektronix except insofar as disclosure is
required in the distribution to customers of Dealer. Dealer shall also keep
confidential the terms and conditions of the Agreement end information
concerning business plans and strategies of Tektronix which are shared with
Dealer.
21. Warranties. Tektronix warrants the Products purchased under this
Agreement in accordance with the applicable warranty statement attached to a
respective Supplement. Such warranties shall extend from Tektronix to
Dealer's customers and commence upon shipment from Dealer to Dealer's
customer. Dealer shall ensure that a copy of the respective Tektronix
warranty statement is provided to Dealer's customer prior to or upon delivery
of each Product. For any Product not delivered to Dealer's customer within
six (6) months after shipment by Tektronix, Dealer shall reimburse Tektronix
at Tektronix's then-current rates for any warranty service provided by
Tektronix with respect to such Product.
Applicable warranties shall also extend from Tektronix to Dealer and in that
case shall commence upon shipment from Tektronix to Dealer and terminate upon
expiration of the applicable warranty period or upon sale to Dealer's
customer, whichever occurs first.
Dealer shall notify Its customer's of any alterations made to a Product by
Dealer and shall advise the customer that such alteration Is not covered by
the Tektronix warranty.
THE WARRANTIES REFERRED TO HEREIN ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED. TEKTRONIX DISCLAIMS SPECIFICALLY THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
22. Infringement. Tektronix, at its expense, will defend Dealer and its
customers against any claim based on an allegation that a product furnished
hereunder infringes a patent or copyright of another in the United States or
any other country in which Tektronix has previously introduced the product,
and Tektronix will pay any resulting costs, damages, and attorney's fees
finally awarded against Dealer or its customers that are attributable to such
claim or will pay the part of any settlement that is attributable to such
claim; provided, that 1) Dealer and/or its customers notify Tektronix
promptly in writing of the claim, 2) Tektronix is permitted to control the
defense or settlement of the claim. and 3) Dealer and its customers cooperate
reasonably in such defense or settlement at Tektronix' expense.
In its defense or settlement of any such claim, Tektronix may 1) procure for
Dealer and/or its customers the right to continue using the product, 2)
modify the product so that it becomes noninfringing, or 3) replace the
product with an equivalent product not subject to such claim. If the use of
any product furnished hereunder is enjoined and none of the preceding
alternative is reasonably available to Tektronix. Tektronix will provide
Dealer and/or its customers an opportunity to return the product and receive
a refund of the purchase price paid, less a reasonable allowance for use.
Tektronix shall have no liability to Dealer or to any of its customers for
claims of infringement based upon 1) the use of any product in combination
with any product not supplied by Tektronix or 2) the use of any product
designed. manufactured. or modified to the specifications of Dealer or its
customer.
The foregoing states the entire obligation and liability of Tektronix with
respect to infringement and claims thereof.
23. Advertising. Dealer may advertise the fact that Dealer is an authorized
value added dealer of Tektronix Products described in the attached Supplement
and may include in Dealer's catalogs, brochures or other advertising
material, reproductions of any advertisements used by Tektronix in connection
with such Products; however, all advertising shall be subject to Tektronix'
approval and shall follow such guidelines as Tektronix may require. Upon
request by Dealer and to the extent possible. Tektronix will furnish film
work or other appropriate material and brochures describing these products to
assist Dealer in advertising such Products.
24. Use of Tektronix Trademarks. Dealer's use of Tektronix trademarks is
restricted to display in or on signs, cards, brochures, data sheets,
catalogs. advertising, and other materials produced or distributed in support
of Dealer's promotion and sale of the Products. Dealer shall not use
Tektronix trademarks on or in association with goods other than the Products
and shall use only those trademarks which relate to the Products. Tektronix
reserves the right to monitor and approve Dealer's use of Tektronix
trademarks.
Whenever Dealer uses any Tektronix trademark, Dealer shall conform to the
policies and practices prescribed by Tektronix and as determined by Tektronix
trademark counsel. Upon termination of this Agreement, Dealer shall cease
using or displaying Tektronix trademarks in connection with Dealer's
business.
25. Termination and Expiration. Dealer's Appointment as an authorized
Tektronix value added dealer shall automatically renew for one year intervals
at the end of the period specified in a respective Supplement unless Dealer
receives written notice of termination. NOTWITHSTANDING ANY OTHER PROVISION
OF THIS AGREEMENT, TEKTRONIX SHALL HAVE NO OBLIGATION TO RENEW DEALER AS AN
AUTHORIZED TEKTRONIX VALUE ADDED DEALER, NOR TO PROVIDE ANY SUPPLEMENT BEYOND
THE SUPPLEMENT INITIALLY ATTACHED TO THIS AGREEMENT.
Notwithstanding any other provision of the Agreement, either party may
terminate for convenience the Dealer's appointment upon not less than thirty
(30) days written notice to the other party.
Tektronix may terminate this Agreement immediately in the event that:
(i) Dealer engages in an unlawful business practice or conduct prohibited in
part b of Section 6, General Obligations As An Authorized Dealer;
(ii) Dealer breaches or defaults any provision of this Agreement unless such
breach or default is corrected or cured within fifteen (15) days after
receipt of written notice from Tektronix;
(iii) There is any material change or transfer in the management or control
of Dealer, or any transfer of any substantial part of its business; or
(iv) Any conduct or proposed conduct of Dealer should expose or threaten to
expose Tektronix to any liability or obligation under the Export
Administration Act of 1979, as amended, or any other provision of federal,
state or local law.
Upon the expiration or termination of Dealer's appointment. Dealer shall
cease representing itself as an authorized value added dealer of Tektronix
The expiration or termination of Dealer's appointment shall relieve Dealer of
the responsibilities and obligations set forth in Sections 5 and 6 and shall
relieve Tektronix of any obligation to offer Products to Dealer at the
discounts granted herein or to accept purchase orders from Dealer. However,
the expiration or termination of Dealer's appointment will not release either
party from any obligation with respect to any Products that have been
shipped.
If Dealer's appointment is terminated, Tektronix or Dealer may, at its
option, cancel any further shipments on any outstanding purchase order
without cancellation charge; except, Tektronix agrees to sell to Dealer any
Products which Dealer is contractually obligated to furnish to a customer and
which Dealer does not have in its inventory, provided that Dealer orders such
Products within ten (10) days after the effective date of termination.
Upon the expiration or termination of Dealer's appointment and the request of
either party, Dealer will sell and Tektronix will purchase any unsold
Products at the net price paid by the Dealer provided the Products are
deliverable as new, unused, in original cartons and are of current version.
Tektronix' acceptance of any purchase order after any notice of termination
is given or after the expiration of Dealer's appointment shall not operate as
a renewal of this Agreement or as a waiver or such termination or expiration.
Neither Tektronix nor Dealer shall be liable to the other, or to any other
person for any losses or damages of any kind whatsoever, solely by reason of
the expiration, termination or non-renewal of Dealer's appointment. Neither
Tektronix nor Dealer shall make any claim against the other for loss of
compensation or profits or loss of prospective compensation or prospective
profits in respect of any sales contemplated or on account of any
expenditures, investments, or commitments made by either party in reliance
upon this Agreement or the continuation of Dealer's appointment.
26. Export Restrictions. Tektronix products, software and other technical
data are of U.S. origin and, as such, are subject to export licensing and
other restrictions under US. law. Dealer acknowledges this and will comply
with all applicable restrictions on exports and re-exports, including
obtaining any required U.S. government license, authorization, or approval.
If Dealer resells or otherwise disposes of any Tektronix products, software
or other technical data, or the direct product of any such software or
technical data, it will inform each transferee of such restrictions.
Dealer represents that it is knowledgeable about U.S. government export and
re-export requirements or that it will become so prior to engaging, directly
or indirectly, in any export or re-export transaction involving Tektronix
products or technical data. Tektronix will, upon Dealer request, provide
Dealer with current information regarding such restrictions. However,
Tektronix has no obligation to apply for any license or approval on behalf of
Dealer.
Tektronix shall have no liability for delayed delivery or non-delivery
resulting from: (a) any governmental action under U. S. or other applicable
law suspending or revoking a necessary export license or authorization, or
(b) any failure by Dealer to furnish reasonable assurance, upon request, of
its compliance with applicable export requirements.
Dealer will indemnify and hold Tektronix harmless from and against any
damage, liability, cost, including attorney fees, claim, investigation,
proceeding or action that may be suffered or incurred, directly or
indirectly, by Tektronix, Inc. or any of its subsidiaries or affiliates
arising from or in connections with Dealer's non-compliance, whether
intentional or unintentional, with the above requirements.
27. Title, Risk of Loss and Security Interest. Title and risk of loss for
products purchased hereunder shall pass to Dealer upon tender of the products
by Tektronix to the carrier. Tektronix reserves a security interest in each
Product shipped until the entire amount due therefore has been paid.
28. Indemnity. The Dealer represents and warrants that it is not restricted
by contract or otherwise from entering into this Agreement and that neither
the entering into nor the performance of this Agreement by the Dealer will
result in the breach of any obligation of the Dealer to any third party.
Dealer affirms and warrants that it has not been requested by Tektronix to
terminate any of its existing distribution arrangements for other products.
Dealer agrees to indemnify Tektronix against any loss or expense resulting
from any third party claims against Tektronix arising out of circumstances
involving a breach by Dealer of any of the foregoing warranties.
29. Limitation of Liability. EXCEPT AS PROVIDED IN SECTION 23, IN NO EVENT
SHALL TEKTRONIX BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IF TEKTRONIX HAS ADVANCE NOTICE OF THE
POSSIBILITY OF SUCH DAMAGES.
30. Integration and Modification. This document (including the attached
Supplement and Exhibit) contains the entire agreement between the parties
relating to the purchase of the Products for resale. All prior agreements and
all prior negotiations are superseded by this Agreement.
Except for changes in the Exhibit which may be changed by Tektronix as
provided above, this Agreement may not be modified except by written
documents signed on behalf of both parties. This Agreement contemplates the
receipt of purchase orders which will be deemed to implement rather than
modify this Agreement.
31. Notices. All notices required or authorized by this Agreement shall be
given in writing and shall contain a reference to the Agreement number shown
on the first page. Notices to Dealer shall be sent to Dealer's address also
shown on the first page. Notices to Tektronix shall be sent to the attention
of CONTRACT ADMINISTRATION MANAGER, COMPUTER GRAPHICS GROUP, M/S 60/470, P.O.
BOX 1000, WILSONVILLE, OR 97070. A notice sent by certified mall shall be
deemed effective on the date mailed.
32. Waiver. The failure of either party to enforce at any time or for any
period of time the provisions hereof shall not be construed to be a waiver of
such provision or the right thereafter to enforce each and every provision.
No waiver by either party to this Agreement, either express or implied, of
any breech of any term, condition or obligation of this Agreement shall be
construed as a waiver of any subsequent breach of that term, condition or
obligation or of any other term, condition or obligation of this Agreement.
33. Assignment. Neither this Agreement or any pads thereto, nor any purchase
order submitted pursuant hereto may be assigned or transferred in whole or in
part without the prior written consent of Tektronix. No attempt to assign or
transfer in violation of this provision shall be valid or binding upon
Tektronix.
34. Relations of Parties. The Dealer is an independent contractor buying and
selling Products, and shall not act as agent of, incur any obligations in the
name of, or make any guarantee or warranty on behalf of Tektronix.
35. Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by the laws of the State of Oregon. Any litigation between
the parties shall be commenced and prosecuted in the state and federal courts
in Oregon.
36. Attorney's Fees. If litigation is commenced by Tektronix or by the Dealer
to enforce any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorney's fees at trial and on appeal in
addition to costs.
37 Documents Included. The following documents are included as a part of this
Agreement.
Exhibit 1 Application Form
Supplement A
DEALER
By:
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Authorized Representative
Name:
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Type or Print
Title:
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Date:
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TEKTRONIX, INC.
By:
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Authorized Representative
Name: Frances L. Smith
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Type or Print
Title: Contractor Administrator
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Date: June 13, 1991
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<PAGE>
COMPUTER GRAPHICS GROUP
VALUE ADDED DEALER AGREEMENT
SUPPLEMENT A
Dealer: Cadapult Graphic Systems Agreement No. D3803
17 Arcadian Way Suite 104
Paramus, NJ 07652 Supplement No. D3803201
Attn: Michael W. Levin Effective Date: August 1, 1991
The following terms and conditions are a part of the Agreement identified
above between Tektronix Inc. ("Tektronix") and Dealer.
PRODUCTS, DISCOUNTS. The products available for Purchase under the Agreement
and the associated discounts are as specified below:
PRODUCT(S) *
4694DX. 4694PE, 4694PX, 4694PXI, 4694SX, 4696, 4697SI
4698PXI
SERVICE INSTALLATION/SERVICE EXTENDED WARRANTY
ACCESSORIES
SUPPLIES for Products Included in Current Supplement
As stated in the current Dealer Price List
SOFTWARE for Products Included in Current Supplement
DISCOUNT
30% + 3% Performance Bonus Discount ^
25% + 3% Performance Bonus Discount ^
30%
30%
10%/20%/22%
30%
* AUTHORIZATION: Each product requires separate authorization from Tektronix.
Details of authorization may be obtained from the Tektronix Dealer Account
Manager.
^ PERFORMANCE BONUS: In consideration for Dealer receiving shipments of at
least $250,000 of Products during the immediate preceding term of
appointment, Tektronix grants Dealer a Performance Bonus Discount off the
List Price of Products ordered and shipped during the current term of
appointment under this Supplement. If by the end of the third month after the
Effective Date of this Supplement Dealer has not taken shipment of at least
$75,000 of Products discounted purchase price, Tektronix reserves the right
to discontinue the Performance Bonus Discount. Products ordered but not yet
shipped prior to the date of reduction of discount shall receive the discount
in effect at the time the order was accepted by Tektronix. In no event shall
Dealer be required to refund or pay back any discount granted with respect to
products shipped prior to the date of reduction of discount.
In the event Dealer continues to order and receive shipments totaling more
than $300,000 of products, at discounted purchase prices during a current
term of appointment and Dealer is authorized for 1-3 locations, Tektronix
shall award Dealer a performance bonus in the amount of an additional 3%
discount. For Dealers with greater than 3 authorized locations, $100,000 per
additional authorized location is required in addition to the $300,000
described above.
The bonus will be applied as a credit note. Tektronix will then also grant
Dealer an additional 3% discount on the list price of Products purchased
during the remaining portion of the current Supplement.
TERM OF APPOINTMENT. The term of Dealer's appointment under this Supplement
shall begin on the date shown above and shall end one year thereafter and is
renewable for one-year terms.
OPTIONS. Any discount applicable to a product shall be applicable to any
product-dependent options ordered with the product, except as otherwise
stated above.
DEMONSTRATION PRODUCTS. Dealer may purchase a maximum of two (2)
demonstration units per model number per year for each of its authorized
sales locations at a 40% Dealer demonstration unit discount.
MINIMUM VOLUME EXPECTATION: The discount shown in this Supplement is based on
a minimum net purchase volume of $100,000 during the term of the current
Supplement. In the event the minimum purchase volume is not achieved,
Tektronix' sole remedy shall be not to renew Dealer's Supplement.
WARRANTIES. The products listed above are warranted in accordance with the
applicable warranty statement in Attachment 1.
DOCUMENTS INCLUDED. The following documents are included as part of this
Supplement:
Attachment I - Warranties
<PAGE>
ATTACHMENT I
WARRANTY
WARRANTY FOR the 4696, 4697SI Printer Products
Tektronix warrants that the products that it manufactures and sells, of the
types listed. will be free from defects in materials and workmanship for a
period of three months from the date of shipment. If any such product proves
defective during the initial three month period. Tektronix, at its option,
either will repair the defective product without charge for parts and labor,
or will provide a replacement in exchange for the defective product.
In order to obtain service under this warranty, Customer must notify
Tektronix of the defect before the expiration of the respective warranty
period and make suitable arrangements for the performance of service.
Tektronix will provide such service at Customer's site without charge during
the warranty period, if the service is performed within the normal on-site
service area. Tektronix will provide on-site service outside the normal on-
site service area only upon prior agreement and subject to payment of all
travel expenses by Customer. When or where on-site service is not available,
Customer shall be responsible for packaging and shipping the defective
product to the service center designated by Tektronix, with shipping charges
prepaid. Tektronix shall pay for the return of the product to Customer if the
shipment is to a location within the country in which the Tektronix service
center is located. Customer shall be responsible for paying all shipping
charges, duties, taxes, and any other charges for products returned to any
other locations.
This warranty shall not apply to any defect, failure or damage caused by
improper use of or improper or inadequate maintenance and care. Tektronix
shall not be obliged to furnish service under this warranty a) to repair
damage resulting from attempts by personnel other than Tektronix
representatives to install, repair or service the product; b) to repair
damage resulting from improper use or connection to incompatible equipment;
or c) to service a product that has been modified or integrated with other
products when the effect of such modification or integration increases the
time or difficulty of servicing the product.
WARRANTY for the 4694xxx and 4698 Printer Products
Tektronix warrants that the products that it manufactures and sells of the
types listed above will be free from defects in materials and workmanship for
a period of one (1) year from the date of shipment. If any such product
proves defective during this warranty period, Tektronix, at its option,
either will repair the defective product without charge for parts and labor,
or will provide a replacement in exchange for the defective product.
In order to obtain service under this warranty, Customer must notify
Tektronix of the defect before the expiration of the warranty period and make
suitable arrangements for the performance of service. Customer shall be
responsible for packaging and shipping the defective product to the service
center designated by Tektronix, with shipping charges prepaid. Tektronix
shall pay for the return of the product to Customer if the shipment is to a
location within the country in which the Tektronix service center is located.
Customer shall be responsible for paying all shipping charges, duties, taxes,
and any other charges for products returned to any other locations.
This warranty shall not apply to any defect, failure or damage caused by
improper use or improper or inadequate maintenance and care. Tektronix shall
not be obligated to furnish service under this warranty a) to repair damage
resulting from attempts by personnel other than Tektronix representatives to
install, repair or service the product; b) to repair damage resulting from
improper use or connection to incompatible equipment; or c) to service a
product that has been modified or integrated with other products when the
effect of such modification or integration increases the time or difficulty
of servicing the product.
THE ABOVE WARRANTY IS GIVEN BY TEKTRONIX WITH RESPECT TO THE LISTED PRODUCTS
IN LIEU OF ANY OTHER WARRANTIES, EXPRESS OR IMPLIED. TEKTRONIX AND ITS
VENDORS DISCLAIM ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. TEKTRONIX' RESPONSIBILITY TO REPAIR OR REPLACE DEFECTIVE
PRODUCTS IS THE SOLE AND EXCLUSIVE REMEDY PROVIDED TO THE CUSTOMER FOR BREACH
OF THIS WARRANTY. TEKTRONIX AND ITS VENDORS WILL NOT BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGE IRRESPECTIVE OF
WHETHER TEKTRONIX OR THE VENDOR HAS ADVANCE NOTICE OF THE POSSIBILITY OF SUCH
DAMAGES.
Tektronix, Inc.
26600 S.W. Parkway
P.O. Box 1000
Wilsonville, Oregon 97070- 1000
503 682 - 3411
GRAPHICS PRINTING & IMAGING DIVISION
U.S. VALUE ADDED DEALER AGREEMENT
SUPPLEMENT A
Dealer: Cadapult Graphic Systems Agreement No D3803
17 Arcadian Way; Suite 104
Paramus, NJ 07652
Supplement No. D3803401
Attn: Michael W. Levin
Effective Date: September 1, 1992
The following terms and conditions are a part of the Agreement identified
above between Tektronix Inc. ("Tektronix") and Dealer.
1. TERM OF SUPPLEMENT. The term of Dealer's appointment under this Supplement
shall begin on the date shown above and shall end one year thereafter; it is
renewable for one year terms.
2. PRODUCTS, DISCOUNTS. The products available for Resale under the Agreement
and the associated discounts are as specified below. These discounts apply if
demonstration requirements are fulfilled; see Section 4, DEMONSTRATION
PRODUCTS/ALTERNATIVE RESALE DISCOUNT.
PRODUCT(S) AND RELATED OPTIONS,
SERVICE INSTALLATION/EXTENDED WARRANTY,
ACCESSORIES, and SOFTWARE
(as stated in the current Dealer Price List)
Product 1: 4694PXI, 4697SI
Product 2: 4694PXe, 4698PXI, 4684, 4511A, RGB3
RESALE
DISCOUNT
30% + 3% Performance
Bonus Discount^
25% + 3% Performance
Bonus Discount^
ALTERNATIVE
RESALE
DISCOUNT
12%
12%
3. SUPPLIES. Dealer must sell, market and promote Tektronix supplies for use
with Tektronix printers to ensure customer satisfaction and quality output.
Discounts for Supplies for the Products listed above are as defined below and
as stated in the current Dealer Price List.
Supplies
20% + 3% Performance Bonus Discount^
4. DEMONSTRATION PRODUCTS/ALTERNATIVE RESALE DISCOUNT. One demonstration unit
for each authorized location must be purchased and maintained eve six months
for the 4698PXi, 4694PXi, and 4684 to qualify for the Resale Discounts on
those models. After a demonstration unit has been purchased for one of these
models then Dealer shall receive the Resale Discount on the 4697SI and
4694PXe. A demonstration unit is required for the 4511A and RGB3.
Demonstration unit discount is 40%. Additional demonstration units are
available within the six month period at standard contract terms and Resale
Discount.
A 12% Alternative Resale Discount (in lieu of the Resale Discount listed
above) shall apply when Dealer chooses to resell a product listed above, but
has not fulfilled demonstration requirements.
5. MINIMUM VOLUME EXPECTATION. The discounts shown in this Supplement are
based on a $100,000 minimum net purchase volume from Section 2 and 3 during
this current Supplement's term. In the event the minimum purchase volume is
not achieved, Tektronix' sole remedy shall be not to renew Dealer's
Supplement.
6. ^ PERFORMANCE BONUS. In the event Dealer orders and receives shipments at
discounted purchase prices during the current term of appointment totaling
more than $450,000 and at least $300,000 is purchased from Section 2 and
Dealer is authorized for 1-3 locations, Tektronix shall award Dealer a
performance bonus in the amount of additional discount specified in Section 2
and 3. For Dealers with greater than 3 authorized locations, $125,000 per
additional authorized location is required in addition to the $450,000
described above.
The bonus shall be applied as a credit note. Tektronix will then also grant
Dealer the additional Performance Bonus Discount as defined in Section 2 and
3 on the list price of products and related options, service
installation/extended warranty (ordered with the product), accessories,
software, and supplies purchased during the remaining period of the current
Supplement.
If during the preceding term of appointment,, Dealer met Performance Bonus
qualifications, Tektronix grants Dealer a performance bonus in the amount of
additional discount as defined in Section 2 and 3. Tektronix reserves the
right to discontinue the Performance Bonus Discount if Dealer's performance
is not maintained at a level necessary to meet the qualifications as defined
in this Supplement
7. WARRANTIES. The products listed above are warranted in accordance with the
applicable warranty statement printed on the reverse hereof and made a part
of this Supplement.
<PAGE>
ATTACHMENT 1
WARRANTY
WARRANTY FOR the RGB3, 4696, 4697xx Printer Products
Tektronix warrants that the products that it manufactures and sells, of the
types listed, will be free from detects in materials and workmanship for a
period of three months from the date of shipment. If any such product proves
defective during the initial three month period, Tektronix, at its option,
either will repair the defective product without charge for parts and labor,
or will provide a replacement in exchange for the defective product.
In order to obtain service under this warranty. Customer must notify
Tektronix of the defect before the expiration of the respective warranty
period and make suitable arrangements for the performance of service.
Tektronix will provide such service at Customer's site without charge during
the warranty period, if the service is preformed within the normal on-site
service area. Tektronix will provide on-site service outside the normal on-
site service area only upon prior agreement and subject to payment of all
travel expenses by Customer. When or where on-site service is not available,
Customer shall be responsible for packaging and shipping the defective
product to the service center designated by Tektronix, with shipping charges
prepaid, Tektronix shall pay for the return of the product to Customer if the
shipment is to a location within the country in which the Tektronix service
center is located. Customer shall be responsible for paying all shipping
charges, duties, taxes, and any other charges for products returned to any
other locations.
This warranty shall not apply to any defect, failure or damage caused by
improper use of or improper or inadequate maintenance and care. Tektronix
shall not be obliged to furnish service under this warranty a) to repair
damage resulting from attempts by personnel other than Tektronix
representatives to install, repair or service the product; b) to repair
damage resulting from improper use or connection to incompatible equipment;
or c) to service a product that has been modified or integrated with other
products when the effect of such modification or integration increases the
time or difficulty of servicing the product.
WARRANTY for the 4511A, 4684xxx, 4694xxx and 4698xxx Printer Products
Tektronix warrants that the products that it manufactures and sells of the
types listed above will be free from defects in materials and workmanship for
a period of one (1) year from the date of shipment. If any such product
proves defective during this warranty period, Tektronix. at its option,
either will repair the defective product without charge for parts and labor,
or will provide a replacement in exchange for the defective product.
In order to obtain service under this warranty, Customer must notify
Tektronix of the defect before the expiration of the warranty period and make
suitable arrangements for the performance of service. Customer shall be
responsible for packaging and shipping the defective product to the service
center designated by Tektronix. with shipping charges prepaid Tektronix shall
pay for the return of the product to Customer if the shipment is to a
location within the country in which the Tektronix service center is located.
Customer shall be responsible for paying all shipping charges, duties, taxes,
and any other charges for products returned to any other locations.
This warranty shall not apply to any defect, failure or damage caused by
improper use or Improper or inadequate maintenance and care. Tektronix shall
not be obligated to furnish service under this warranty a) to repair damage
resulting from attempts by personnel other than Tektronix representatives to
install, repair or service the product; b) to repair damage resulting from
improper use or connection to incompatible equipment; or c) to service a
product that has been modified or integrated with other products when the
effect of such modification or integration increases the time or difficulty
of servicing the product,
THE ABOVE WARRANTY IS GIVEN BY TEKTRONIX WITH RESPECT TO THE LISTED PRODUCTS
IN LIEU OF ANY OTHER WARRANTIES, EXPRESS OR IMPLIED. TEKTRONIX AND ITS
VENDORS DISCLAIM ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. TEKTRONIX' RESPONSIBILITY TO REPAIR OR REPLACE DEFECTIVE
PRODUCTS IS THE SOLE AND EXCLUSIVE REMEDY PROVIDED TO THE CUSTOMER FOR BREACH
OF THIS WARRANTY. TEKTRONIX AND ITS VENDORS WILL NOT BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGE IRRESPECTIVE OF
WHETHER TEKTRONIX OR THE VENDOR HAS ADVANCE NOTICE OF THE POSSIBILITY OF SUCH
DAMAGES.
Tektronix, Inc.
Corporate Headquarters
26600 S.W. Parkway
P.O. Box 1000
Wilsonville, Oregon 97070- 1000
503 682 - 3411
GRAPHICS PRINTING & IMAGING DIVISION
U.S. VALUE ADDED DEALER AGREEMENT
PAYMENT TERMS AMENDMENT
Effective Date: July 1, 1993
The Agreement identified above is amended as follows:
Delete Section 18, Payments., and replace with the following:
18. Payments. Dealer shall pay all amounts invoiced by Tektronix, based upon
one of the following three payment programs. Dealer shall select a payment
program at the time of order. If Dealer does not select a payment program at
the time of order, the TEK 30 Program shall automatically apply.
TEK 30 Dealer shall pay all amounts invoiced by Tektronix within thirty (30)
days from the date of the invoice. Tektronix will submit an invoice to Dealer
for each shipment at the time of shipment. A grace period of seven (7) days
will be allowed for receipt of payment, after which the invoice may be
subject to a 15% APR service charge to be accrued from the invoice due date
and/or credit hold of existing and future orders. If, in the judgment of
Tektronix, Dealer's financial condition, Dealer's record of payments or
Dealer's conduct does not justify shipment on such payment terms, Tektronix
may change the terms of sale to TEK 60 and/or refuse to ship unless it
receives payment in advance plus any amount then in arrears. A shipment
rescheduled or canceled by Tektronix due to such conditions shall be subject
to a reschedule or cancellation charge equal to 5% of the List Price of any
product affected and such charge shall be applied for each reschedule or
cancellation occurrence.
TEK 60 Dealer shall pay all amounts invoiced by Tektronix within sixty (60)
days from the date of the invoice. A 0.5% nondeductible service charge will
be included on the invoice for all equipment, supplies, maintenance
agreements or related charges billed with these terms. The service charge to
Dealer is subject to change based upon changes of the prime rate as reported
in the Wall Street Journal with thirty (30) days prior written notice and
will be reviewed quarterly, based on the Tektronix fiscal year. Tektronix
will submit an invoice to Dealer for each shipment at the time of shipment. A
grace period of seven (7) days will be allowed for receipt of payment, after
which the invoice shall be subject to a 15% APR service charge to be accrued
from the invoice due date and/or credit holds of existing future orders. If,
in the judgment of Tektronix, Dealer's financial condition, Dealer's record
of payments or Dealer's conduct does not justify shipment on such payment
terms, Tektronix may refuse to ship unless it receives payment in advance
plus any amount then in arrears. A shipment rescheduled or canceled by
Tektronix due to such conditions shall be subject to a reschedule or
cancellation charge equal to 5% of the List Price of any product affected and
such charge shall be applied for each reschedule or cancellation occurrence.
OUTSIDE FLOORING Dealer has the option of using a Tektronix authorized
outside financing company to floor transactions with Tektronix for the
purchase of material and equipment. There will be a 1.25% deduction from the
Dealer discount to use this option. The service charge to Dealer is subject
to change based upon one fifth the value of the prime rate as published in
the Wall Street Journal, with thirty (30) days prior written notice.
Except as amended herein, all other terms and conditions shall remain in full
force and effect.
THIS AMENDMENT SHALL BE DEEMED ACCEPTED AND AGREED TO BY DEALER AFTER
PLACEMENT OF AN ORDER BY DEALER ON OR AFTER JULY 1, 1993.
Tektronix, Inc.
Corporate Headquarters
26600 S.W. Parkway
P.O. Box 1000
Wilsonville, Oregon 97070- 1000
503 682 - 3411
GRAPHICS PRINTING & IMAGING DIVISION
U.S. VALUE ADDED DEALER AGREEMENT
SUPPLEMENT A
Dealer: Cadapult Graphic Systems Agreement No. D3803
110 Commerce Dr
Allendale, NJ 07401-1600 Supplement No. D3803601
Attn: Michael W. Levine Effective Date: July 1, 1994
The following terms and conditions are a part of the Agreement identified
above between Tektronix Inc ("Tektronix") and Dealer.
1. TERM OF SUPPLEMENT. The term of Dealer's appointment under this Supplement
shall begin on the date shown above and shall end one year thereafter; it is
renewable for one year terms.
2. PRODUCTS, DISCOUNTS. The products available for Resale under the Agreement
and the associated discounts are as specified below.
PRODUCT(S) AND RELATED OPTIONS, SERVICE INSTALLATION/
EXTENDED WARRANTY, ACCESSORIES, AND SOFTWARE
(as stated in the current U.S. Dealer Price List)
Product 1: Phaser (tm) 220i Thermal Wax Color Printer (4681i),
Phaser 300i Phase-Change Color Printer (4699PXi),
Phaser 480 Dye Sublimation Color Printer (4688)
(Special Authorization Required)
Phaser II SDX Dye Sublimation Color Printer (4684),
TCP\IP Ethernet Network Interface (4511A)
Product 2: Phaser 220e Thermal Wax Color Printer(4681e)
Product 3: Phaser 200e Thermal Wax Color Printer (4681 PXe)
Phaser III Phase-Change Color Printer (4698PXi)
RESALE
DISCOUNT
25%
25%
25%
25%
25%
20%
16%
16%
DEMONSTRATION
UNIT DISCOUNT
40%
40%
40%
40%
N/A
30%
20%
20%
3. SUPPLIES. Dealer must sell, market and promote Tektronix supplies for use
with Tektronix printers to ensure customer satisfaction and quality output
Discount for Supplies listed in the current U.S. Dealer Price List is
specified below.
Supplies 20%
4. DEMONSTRATION PRODUCTS. One demonstration unit of each model type listed
above (except 451IA) is available for each authorized location at
Demonstration Unit discounts listed above every six months. All demonstration
units shall be maintained in good working order, in current version and shall
be used exclusively for demonstration purposes.
Subject to credit approval, 180 day payment terms are available for the
following demonstration unit purchases: Phaser 220i, Phaser 300i, and Phaser
480.
Subject to credit approval, 90 day payment terms are available for the
following demonstration unit purchases: Phaser 220e, Phaser 200e, Phaser II
SDX, and Phaser III.
5. MINIMUM VOLUME EXPECTATION. The discounts shown in this Supplement are
based on a $100,000 minimum net purchase volume from Section 2 and 3 during
the term of this Supplement. In the event the minimum purchase volume is not
achieved, Tektronix' sole remedy shall be nonrenewal of Dealer's Supplement.
6. PRODUCT MARKETING CREDIT. To qualify for the Product Marketing Credit,
Dealer must a) purchase and maintain at least one demonstration unit of
Phaser 220i, Phaser 300i or Phaser 480 every six months; b) provide
Tektronix' with timely point of sale reports as required in the Dealer
Agreement; c) purchase $400,000 (net) of Products during the preceding 12
months; and d) perform marketing and sales responsibilities as a Tektronix'
Dealer to the satisfaction of Tektronix'.
Upon initial qualification, the Product Marketing Credit shall be calculated
a 3% of the undiscounted list price of the Product purchase during the
preceding 12 month period. Thereafter, the Product Marketing Credit will be
calculated as 3% of the undiscounted list price of quarterly Product
purchases. Eligibility is determined based on a rolling 12 month calculation
of Dealer purchases and a quarterly assessment of performance. The Product
Marketing Credit shall be issued in the form of a credit memo within 45 days
after close of the Tektronix fiscal quarter. (Tektronix fiscal quarters en
8/27/94, 11/26/94, 2/25/95, 5/27/95, 8/26/95.)
7. SUPPLIES MARKETING CREDIT. If Dealer satisfies all requirements in section
6, and Dealer is an approved Supplies Stocking Dealer throughout the quarter
with net Supplies purchases of no less than 25% of the net Product purchases.
Dealer shall be granted a Supplies Marketing Credit calculated as 3% of the
undiscounted list price of Supplies purchases, retroactive to the beginning
of the quarter. Such Credit shall be administered in the same manner as the
Product Marketing Credit (See Section 6).
8. WARRANTIES. The Products listed above are warranted in accordance with the
following applicable warranty statement:
WARRANTY FOR RGB3, 4696, 4697xx Printer Products
Tektronix warrants that the products that it manufactures and sells, of the
types listed, will be free from detects in materials and workmanship for a
period of three months from the date of shipment. If any such product proves
defective during the initial three month period, Tektronix, at its option,
either will repair the defective product without charge for parts and labor,
or will provide a replacement in exchange for the defective product.
In order to obtain service under this warranty, Customer must notify
Tektronix of the defect before the expiration of the respective warranty
period and make suitable arrangements for the performance of service.
Tektronix will provide such service at Customer's site without charge during
the warranty period, if the service is preformed within the normal on-site
service area. Tektronix will provide on-site service outside the normal on-
site service area only upon prior agreement and subject to payment of all
travel expenses by Customer. When or where on-site service is not available,
Customer shall be responsible for packaging and shipping the defective
product to the service center designated by Tektronix, with shipping charges
prepaid, Tektronix shall pay for the return of the product to Customer if the
shipment is to a location within the country in which the Tektronix service
center is located. Customer shall be responsible for paying all shipping
charges, duties, taxes, and any other charges for products returned to any
other locations.
This warranty shall not apply to any defect, failure or damage caused by
improper use of or improper or inadequate maintenance and care. Tektronix
shall not be obliged to furnish service under this warranty a) to repair
damage resulting from attempts by personnel other than Tektronix
representatives to install. repair or service the product; b) to repair
damage resulting from improper use or connection to incompatible equipment;
or c) to service a product that has been modified or integrated with other
products when the effect of such modification or integration increases the
time or difficulty of servicing the product.
WARRANTY For 4511A, 4681xxx, 4684, 4694xxx, 4698xxx, 4688 and 4699xxx Printer
Products
Tektronix warrants that the products that it manufactures and sells of the
types listed above will be free from defects in materials and workmanship for
a period of one (1) year from the date of shipment. If any such product
proves defective during this warranty period, Tektronix. at its option,
either will repair the defective product without charge for parts and labor,
or will provide a replacement in exchange for the defective product.
In order to obtain service under this warranty, Customer must notify
Tektronix of the defect before the expiration of the warranty period and make
suitable arrangements for the performance of service. Customer shall be
responsible for packaging and shipping the defective product to the service
center designated by Tektronix. with shipping charges prepaid Tektronix shall
pay for the return of the product to Customer if the shipment is to a
location within the country in which the Tektronix service center is located.
Customer shall be responsible for paying all shipping charges, duties, taxes,
and any other charges for products returned to any other locations.
This warranty shall not apply to any defect, failure or damage caused by
improper use or Improper or inadequate maintenance and care. Tektronix shall
not be obligated to furnish service under this warranty a) to repair damage
resulting from attempts by personnel other than Tektronix representatives to
install, repair or service the product; b) to repair damage resulting from
improper use or connection to incompatible equipment; or c) to service a
product that has been modified or integrated with other products when the
effect of such modification or integration increases the time or difficulty
of servicing the product,
THE ABOVE WARRANTY IS GIVEN BY TEKTRONIX WITH RESPECT TO THE LISTED PRODUCTS
IN LIEU OF ANY OTHER WARRANTIES, EXPRESS OR IMPLIED. TEKTRONIX AND ITS
VENDORS DISCLAIM ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. TEKTRONIX' RESPONSIBILITY TO REPAIR OR REPLACE DEFECTIVE
PRODUCTS IS THE SOLE AND EXCLUSIVE REMEDY PROVIDED TO THE CUSTOMER FOR BREACH
OF THIS WARRANTY. TEKTRONIX AND ITS VENDORS WILL NOT BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGE IRRESPECTIVE OF
WHETHER TEKTRONIX OR THE VENDOR HAS ADVANCE NOTICE OF THE POSSIBILITY OF SUCH
DAMAGES.
<PAGE>
Tektronix, Inc.
Corporate Headquarters
26600 S.W. Parkway
P.O. Box 1000
ilsonville, Oregon 97070- 1000
503 682 - 3411
GRAPHICS PRINTING & IMAGING DIVISION
U.S. VALUE ADDED DEALER AGREEMENT
LOCAL DEALER SUPPLEMENT A
Dealer: Cadapult Graphic Systems Agreement No. D3803
110 Commerce Dr
Allendale, NJ 07401-1600 Supplement No. D3803601
Attn: Michael W. Levine
The following terms and conditions are a part of the Agreement identified
above between Tektronix Inc ("Tektronix") and Dealer.
1. TERM OF SUPPLEMENT. This Supplement is effective as of the date shown
above. A new Supplement shall be issued when deemed appropriate by Tektronix
and shall supercede this Supplement upon issuance.
2. PRODUCTS, DISCOUNTS. The products available for Resale under the Agreement
and the associated discounts are as specified below.
PRODUCT(S) AND RELATED OPTIONS, SERVICE INSTALLATION/
EXTENDED WARRANTY, ACCESSORIES, AND SOFTWARE
(as stated in the current U.S. Dealer Price List)
Product 1: Phaser 540 Plus Color Laser Printer(4676)
Phaser 480X Dye Sublimation Color Printer (Z480X, Z480XB, Z480XC)
(Special Authorization Required)
Phaser 440 Dye Sublimation Color Printer (4685),
Phaser 340 Plus Color Printer (Z340P)
Phaser 300i Phase- Change Color Printer (46999PXi)
Phaser 240 Thermal Transfer Color Printer(Z240)
Phaser Copy Station (4540)
Product 2: Phaser 340 Color Printer(Z340)
Phaser 140 Color Ink Jet Printer (4686)
Phaser III Phase-Change Color Printer (4698PXi)
RESALE
DISCOUNT
23%
23%
23%
23%
23%
23%
23%
16%
16%
16%
DEMONSTRATION
UNIT DISCOUNT
30%
30%
30%
30%
30%
30%
30%
N/A
20%
20%
3. SUPPLIES/ACCESSORIES. Dealer must sell, market and promote Tektronix
supplies for use with Tektronix printers to ensure customer satisfaction and
quality output. Discount for Supplies/ Accessories listed in the current U.S.
Dealer Price List is specified below.
Supplies 20% N/A
4. DEMONSTRATION PRODUCTS. One demonstration unit of each model type listed
above is available for each authorized location at Demonstration Unit
discounts listed above every six months: All demonstration units shall be
maintained in good working order, in current version and shall be used
exclusively for demonstration purposes.
Subject to credit approval, 180 day payment terms are available for the
following demonstration unit purchases: Phaser 140, Phaser 240, Phaser 300i,
Phaser 340, Phaser 440, Phaser 480X, and Phaser 540 Plus.
5. MINIMUM VOLUME EXPECTATION. In order to qualify for the discounts shown in
this Supplement Dealer is expected to purchase a minimum net purchase volume
per annum of $100,000 of Products from Section 2 and 3.
6. PRODUCT MARKETING CREDIT. To qualify for the Product Marketing Credit,
Dealer must a) purchase and maintain at least one demonstration unit of
Phaser 240, Phaser 300i, Phaser 340, Phaser 440, Phaser 480X or Phaser 540
Plus every six months; b) purchase $500,000 (net) of Products during the
preceding 12 months; and c) purchase a dollar volume total of Products in the
most recent twelve months greater than the twelve month total ending in the
previous quarter.
Upon initial qualification, the Product Marketing Credit shall be calculated
a 3% of the undiscounted list price of the Product purchase during the
preceding 12 month period. Thereafter, the Product Marketing Credit will be
calculated as 3% of the undiscounted list price of quarterly Product
purchases. Eligibility is determined based on a rolling 12 month calculation
of Dealer purchases. The Product Marketing Credit shall be issued within 30
days after close of the Tektronix fiscal quarter. (Tektronix fiscal quarters
end 8/26/95, 11/25/95, 2/24/96, 5/25/96.)
7. SUPPLIES MARKETING CREDIT. If Dealer satisfies all requirements in section
6, and Dealer is an approved Supplies Stocking Dealer throughout the quarter
with net Supplies purchases of no less than 25% of the net Product purchases,
Dealer shall be granted a Supplies Marketing Credit calculated as 3% of the
undiscounted list price of Supplies purchases for all Supplies up to 150% of
Product Purchases, retroactive to the beginning of the quarter. Such Credit
shall be administered in the same manner as the Product Marketing Credit (See
Section 6).
8. WARRANTIES. The Products listed on the current Supplement to Dealer's
agreement are warranted in accordance with the following applicable warranty
statement in attachment 1.
Tektronix, Inc.
Corporate Headquarters
26600 S.W. Parkway
P.O. Box 1000
Wilsonville, Oregon 97070- 1000
503 682 - 3411
TEKTRONIX
U.S. DEALER AGREEMENT
1995 AMENDMENT
Dealer: CADAPULT GRAPHIC SYSTEMS Agreement No. D3803
110 COMMERCE DR
ALLENDALE, NJ 07401-1600 Effective Date: July 1, 1995
Attn: MICHAEL W. LEVIN
The following are changes to The Dealer Agreement:
1. Paragraph 3, Supplement, is modified and shall read as follows:
Supplement. Tektronix will issue a Supplement which shall include such key
information as Products available for purchase and associated discounts.
Tektronix may change the Supplement or issue a new Supplement upon reasonable
notice to Dealer.
2. Paragraph 11, Price, is modified and shall read as follows:
Price. The price charged Dealer for a Product ordered by Dealer for resale
pursuant to this Agreement, will be the lower of the List Price in effect
when Dealer's order is accepted by Tektronix or the List Price in effect when
the Product is shipped, less the Product discount shown in the current
Supplement.
List Prices are subject to change by Tektronix. Tektronix shall use its best
efforts to provide Dealer at least thirty (30) days' prior notice of a price
increase. Price decreases are effective upon notification to Dealer.
But for an incidental quantity purchased for internal use, at demonstration
discounts, Dealer shall be permitted to purchase Products at the discounts
granted heroin only if the Products are Intended for resale or demonstration
and are resold.
Dealer shall be free to establish its own prices upon resale of the Products.
3. The following provision shall be added to the above Agreement:
SUPPLIES. Tektronix relies on Dealers as Supplies distribution partners. As
such, a) Tektronix expects Dealer to sell, market and promote Tektronix
Supplies for use with Tektronix printers to ensure customer satisfaction and
quality output: b) discounts on Supplies may be available to Dealer and shall
be stated in the current Supplement; and c) only sales made by Dealer to end
user customers in it's Area shall qualify for discounts.
Tektronix may, upon reasonable notice to Dealer, audit Dealer's Supplies
invoices to ensure compliance with the above. If Dealer is found to be in
breach, in addition to it's other remedies, Tektronix may require prompt
reimbursement of unearned discount and audit costs or may reduce Supplies
discounts otherwise applicable to recoup unearned discount and audit costs.
All other terms and conditions of the Tektronix Dealer Agreement remain
unchanged and in full force and effect.
DEALER
By:_______________________________________________________
Authorized Representative
Name:_____________________________________________________
Type or Print
Title:______________________________________________________
Date:______________________________________________________
TEKTRONIX, INC.
By:
------------------------------------------------------
Authorized Representative
Name: Frances L. Sharp
----------------------------------------------------
Type or Print
Title: CPID Contractor Administrator
---------------------------------------------------
Date: June 15, 1995
----------------------------------------------------
Tektronix, Inc.
Corporate Headquarters
6600 S.W. Parkway
P.O. Box 1000
Wilsonville, Oregon 97070- 1000
503 682 - 3411
COLOR PRINTING & IMAGING DIVISION
U.S. VALUE ADDED DEALER AGREEMENT
PREMIER RESELLER SUPPLEMENT A
Reseller: CADAPULT GRAPHIC SYSTEMS INC Agreement No. D3803
110 COMMERCE DR Supplement Effective Date: July 29, 1996
ALLENDALE, NJ 07401-1600
Attn: MICHAEL W. LEVIN
The following terms and conditions are a part of the Agreement identified
above between Tektronix Inc. ("Tektronix") and Reseller.
1. TERM OF SUPPLEMENT. This Supplement is effective as of the date shown
above. A new Supplement shall be issued when deemed appropriate by Tektronix
and shall supercede this Supplement upon issuance.
2. PRODUCTS , DISCOUNTS. The Products available for Resale under the
Agreement and the associated discounts are as specified below:
PRODUCT(S) AND RELATED OPTIONS, SERVICE INSTALLATION/ RESALE
EXTENDED WARRANTY, AND SOFTWARE, DISCOUNT
(as stated in the current U.S. Reseller Price List)
Phaser(r) 550 Color Laser Printer (Z550) 21%
Phaser 480X Dye Sublimation Color Printer (Z480X) 21%
(Special Authorization Required)
Phaser 440 Dye Sublimation Color Printer (4685), 21%
Phaser 340 Color Printer with Extended Features (Z340/PA, Z340/PB) 21%
Phaser 300i Phase-Change Color Printer (4699PXi), 21%
Phaser 240 Thermal Transfer Color Printer (Z240) 21%
Phaser Copy Station (4540) 21%
Phaser 340 Color Printer (Z340) 16%
Phaser 340 Color Ink Jet Printer (4686) 16%
3. SUPPLIES / ACCESSORIES. Reseller must sell, market and promote Tektronix
supplies for use with Tektronix printers to ensure customer satisfaction and
quality output. Discount for Supplies / Accessories listed in the current
U.S. Reseller Price List is specified below.
Supplies / Accessories 20%
4. DEMONSTRATION PRODUCT PROGRAM. Reseller must purchase and maintain one
demonstration printer every six months. Discounts available and program terms
and conditions for the purchase of demonstration printers are as stated in
the current U.S. Reseller Price List. Certain restrictions on the quantity
and frequency of purchase may apply.
5. MINIMUM VOLUME EXPECTATION. In order to qualify for the discounts shown in
this Supplement Reseller is expected to purchase a minimum net purchase
volume per annum of $100,000 of Products from section 2.
6. WARRANTIES. The Products listed on the current Supplement to Reseller's
Agreement are warranted in accordance with the applicable warranty statement
in Attachment 1.
<PAGE>
Tektronix, Inc.
Corporate Headquarters
26600 S.W. Parkway
P.O. Box 1000
Wilsonville, Oregon 97070- 1000
503 682 - 3411
TEKTRONIX
U.S. RESELLER (DEALER) AGREEMENT
1996 AMENDMENT
Reseller: CADAPULT GRAPHIC SYSTEMS Agreement No. D3803
110 COMMERCE DR
ALLENDALE, NJ 07401-1600 Effective Date: July 29, 1996
Attn: MICHAEL W. LEVIN
The following are changes to The Reseller's (Dealer) Agreement:
1. DELETE THE BODY OF THE "DELIVERY" SECTION OF THE AGREEMENT IN ITS ENTIRETY
AND REPLACE WITH THE FOLLOWING:
Shipping and delivery shall be in accordance with the Tektronix Shipping &
Delivery Program in effect at the time of acceptance of Reseller's order by
Tektronix.
2. DELETE THE BODY OF THE "PAYMENTS" SECTION OF THE AGREEMENT IN ITS ENTIRETY
AND REPLACE WITH THE FOLLOWING:
Tektronix shall submit an invoice to Reseller for each shipment at the time
of shipment. Reseller shall pay the amount invoiced in a timely manner, in
accordance with the current Tektronix Credit Program. Reseller may select and
become approved for alternative payment programs available by Tektronix.
Payments received outside of the payment period will be subject to a late
fee, in accordance with the current Tektronix Credit Program.
All other provisions remain unchanged and in full force and effect.
CADAPULT GRAPHIC SYSTEMS INC
By:_______________________________________________________
Authorized Representative
Name:_____________________________________________________
Type or Print
Title:______________________________________________________
Date:______________________________________________________
TEKTRONIX, INC.
By: /s/ Carol I. Weitzel
------------------------------------------------------
Authorized Representative
Name: Carol I. Weitzel
----------------------------------------------------
Type or Print
Title: CPID Contractor Administrator
---------------------------------------------------
Date: June 27, 1996
----------------------------------------------------
Tektronix, Inc.
Corporate Headquarters
26600 S.W. Parkway
P.O. Box 1000
Wilsonville, Oregon 97070- 1000
503 682 - 3411
COLOR PRINTING & IMAGING DIVISION
U.S. RESELLER (DEALER) AGREEMENT
PREMIER RESELLER SUPPLEMENT A
Reseller: CADAPULT GRAPHIC SYSTEMS INC Agreement No. D3803
110 COMMERCE DR Supplement Effective Date: December 2, 1996
ALLENDALE, NJ 07401-1600
Attn: MICHAEL W. LEVIN
The following terms and conditions are a part of the Agreement identified
above between Tektronix Inc. ("Tektronix") and Reseller.
I. TERM OF SUPPLEMENT. This Supplement is effective as of the date shown
above. A new Supplement shall be issued when deemed appropriate by Tektronix
and shall supersede this Supplement upon issuance.
2. PRODUCTS, DISCOUNTS. The Products available for Resale under the Agreement
and the associated discounts are as specified below:
PRODUCT(S) AND RELATED OPTIONS, SERVICE INSTALLATION/ RESALE
EXTENDED WARRANTY, AND SOFTWARE DISCOUNT
(as stated in the current U.S. Reseller Price List)
Phaser 600(r) Color Printer with Extended Features (Z600/B) 27%*
Phaser 600 Color Printer ( Z600/A ) 21%*
Phaser 550 Color Laser Printer (Z550) 21%
Phaser 480X Dye Sublimation Color Printer (Z480X) 21%
Phaser 440 Dye Sublimation Color Printer (4685) 21%
Phaser 350 Color Printer with Extended Features (Z.350/B. Z350/C) 21%
Phaser 340 Color Printer with Extended Features (Z340/PA, Z340/PB) 21%
Phaser 300X Color Printer with Extended Features (Z300X/B) 21%
Phaser 300i Phase-Change Color Printer (4699PXi), 21%
Phaser 240 Thermal Transfer Color Printer (Z240) 21%
Phaser Copy Station (4540) 21%
Phaser 350 Color Printer (7_,350, Z350/A) 16%
Phaser 340 Color Printer (Z340. Z340/A) 16%
Phaser 300X Color Printer (Z300X) 16%
Phaser 140 Color Ink Jet Printer (4686) 16%
*This discount assumes acquirements specified in the Phaser 600 Authorization
Application for Level A Authorization, which includes performance of
marketing activities and the purchase of a demonstration printer. Non-
authorized discount (Level B) is 13%.
3. SUPPLIES / ACCESSORIES. Reseller must sell, market and promote Tektronix
supplies for use with Tektronix' printers to ensure customer satisfaction and
quality output. Discount for Supplies/Accessories listed in the current U.S.
Reseller Price List is specified below.
Supplies / Accessories 20%
4. DEMONSTRATION PRODUCT PROGRAM. Reseller must purchase and maintain one
demonstration printer every six months. Discounts available and program terms
and conditions for the purchase of demonstration printers are as stated in
the current U.S. Reseller Price List. Certain restrictions on the quantity
and frequency of purchase may apply.
5. MINIMUM VOLUME EXPECTATION. In order to qualify for the discounts shown in
this Supplement Reseller is expected to purchase a minimum net purchase
volume per annum of $100,000 of Products from section 2.
6. WARRANTIES. The Products listed on the current Supplement to Reseller's
Agreement are warranted in accordance with the applicable warranty statement
in Attachment 1.
Mantyla McReynolds
A Professional Corporation
CPA
December 27, 1999
United State Securities and Exchange Commission
Washington, D.C. 20549
To whom it may concern:
We hereby agree with the disclosure statements made by Cadapult Graphic
Systems, Inc., a corporation formerly known as Seafoods Plus, Ltd., with
respect to our being dismissed as the principal accountants and our audit
reports on the financial statements for the years ended December 31, 1996 and
1997. We further agree with the disclosure by Cadapult Graphic Systems,
Inc., that there were no disagreements with us on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
/s/ Mantyla, McReynolds & Assoc.
Mantyla McReynolds
Certified Public Accountants
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the inclusion in the Registration Statement on
Amendment No. 1 to Form SB-2 of Cadapult Graphic Systems, Inc., of our report
dated August 18, 1999 relating to the financial statements of Cadapult
Graphic Systems, Inc. and our report dated January 20, 2000 relating to
the financial statements of UltraHue, Inc. We also hereby consent to
the reference to us under the heading "Experts" in such Registration
Statement.
/s/ Wiss & Company
WISS & COMPANY, LLP
Livingston, New Jersey
February 14, 2000
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the inclusion in the Registration
Statement on Form SB-2, as amended, of Cadapult Graphic Systems,
Inc., of our report dated February 1, 1999 relating to the
financial statements of Tartan Technical, Inc.
/s/ Belanger & Company, P.C.
BERLANGER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Chelmsford, Massachusetts
December 27, 1999
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Registration Statement of Cadapult Graphic
Systems, Inc. on Amendment No. 1 to Form SB-2 of our reports dated August 13,
1998 relating to the financial statements of BBG Technologies, Inc. as of and
for the periods ended March 12, 1998, December 31, 1997 and December 31, 1996.
/s/ RUCCI, BARDARO + BARRETT, P.C.
RUCCI, BARDARO + BARRETT, P.C.
Certified Public Accountants
Malden, Massachusetts
February 10, 2000
