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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1998
Commission file number 0-29236
MARINE MANAGEMENT SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 06-0886588
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
470 West Avenue, Stamford, CT, 06902
(Address of Principal Executive Offices)
(203) 327-6404
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ___
Number of Shares of Issuer's Common Stock, $.002 par value outstanding as of
June 30, 1998 was 4,421,120
Transitional Small Business Disclosure Format (check one):
Yes __ No x
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MARINE MANAGEMENT SYSTEMS, INC.
Form 10-QSB
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (unaudited, except as noted)
Balance Sheets, June 30, 1998 and December 31, 1997 (audited) 3
Statements of Operations, Six Months and Three Months
Ending June 30, 1998 4
Statement of Cash Flows, Six Months Ending June 30, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MARINE MANAGEMENT SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
6/30/98 12/31/97
------------ ------------
<S> <C> <C>
Assets
Current:
Cash $ 61,286 $ 19,150
Accounts receivable 906,233 1,400,020
Inventories 15,311 9,044
Deferred costs of Senior Debt 95,865 --
Prepaid expenses and other 112,589 22,297
------------ ------------
Total current assets 1,191,284 1,450,511
Cash - restricted -- 650,000
Deposits 25,000 --
Property and Equipment, net of accumulated depreciation of $302,393 and $267,268 148,206 181,530
Computer software costs, net of accumulated amortization of $2,132,268 and $1,803,595 2,488,466 2,767,139
------------ ------------
Total Assets $ 3,852,957 $ 5,049,180
============ ============
Liabilities and Stockholders' equity
Current:
Short-term borrowings $ 745,505 $ 85,504
Accounts payable and accrued expenses 1,017,375 749,072
Subordinated debt - related parties 166,000 166,000
Billings in excess of costs on uncompleted contracts 80,993 149,960
Deferred revenue 223,435 341,824
Customer deposits 20,897 65,749
Current portion of long-term debt and capital lease obligations 35,612 37,300
------------ ------------
Total current liabilities 2,289,817 1,595,409
Long-term debt and capital lease obligations, less current portion 18,344 663,110
Subordinated debt - related parties 500,000 500,000
------------ ------------
Total liabilities 2,808,161 2,758,519
Commitments and contingencies
Stockholders' equity:
Common stock, $.002 par value, 9,000,000 shares authorized, 4,421,120 issued and
outstanding 8,842 8,842
Additional paid-in capital 11,540,352 11,540,352
Accumulated deficit (10,504,398) (9,258,533)
------------ ------------
Total stockholders' equity 1,044,796 2,290,661
Total Liabilities and Stockholders' Equity $ 3,852,957 $ 5,049,180
============ ============
</TABLE>
See accompanying Notes to Financial Statements
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MARINE MANAGEMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Marine Sales - Software $ 527,794 $ 771,057 $ 76,468 $ 482,089
Marine Sales - Hardware 108,615 290,983 58,291 203,371
Marine Sales - Services 566,159 418,543 341,998 184,968
Hardware Sales - Non Marine 282,727 201,750 152,762 139,623
Contract 101,668 179,458 -- 100,726
----------- ----------- ----------- -----------
1,586,963 1,861,791 629,519 1,110,777
Cost of Revenues:
Software and Services 525,649 466,994 250,237 270,271
Software amortization 328,673 150,000 164,337 75,000
Hardware 163,754 326,684 76,798 225,811
Contract 101,668 150,418 -- 71,686
----------- ----------- ----------- -----------
1,119,744 1,094,096 491,372 642,768
Gross profit 467,219 767,695 138,147 468,009
Operating expenses:
Research and development 108,540 92,040 13,389 15,434
Selling and administrative 1,510,534 1,708,628 965,986 1,041,524
Depreciation and amortization 35,125 46,657 17,652 26,131
----------- ----------- ----------- -----------
1,654,199 1,847,325 997,027 1,083,089
Loss from operations (1,186,980) (1,079,630) (858,880) (615,080)
Other income (expense):
Interest expense - net (58,885) (369,714) (37,591) (306,412)
----------- ----------- ----------- -----------
Net loss $(1,245,865) ($1,449,344) ($ 896,471) ($ 921,492)
=========== =========== =========== ===========
Net Loss per common share - Basic $ (0.28) $ (0.46) $ (0.20) $ (0.25)
Weighted average number of common
shares outstanding 4,421,120 3,196,680 4,421,120 3,770,016
</TABLE>
See accompanying Notes to Financial Statements
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MARINE MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
INCREASE IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(1,245,865) $(1,449,344)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 363,800 196,657
Changes in Assets and Liabilities:
Accounts receivable 493,786 (325,741)
Inventories (6,268) (24,914)
Prepaid expenses and other (90,292) (29,515)
Accounts payable and accrued expenses 266,615 (882,894)
Deposits (25,000)
Billings in excess, deferred revenue and
customer deposits (232,208) (97,334)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (475,432) (2,613,085)
Cash flows from investing activities:
Capitalized computer software costs (50,000) (812,638)
Acquisitions of property and equipment (1,801) (49,948)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (51,801) (862,586)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of short-term borrowings - net 660,000 --
Payments of long-term debt and capital lease obligations 5,234 (294,900)
Deferred Senior Note Costs (95,865) --
Net proceeds from 1997 IPO -- 5,908,430
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 569,369 5,613,530
----------- -----------
NET INCREASE IN CASH 42,136 2,137,859
CASH, BEGINNING OF PERIOD 19,150 58,117
----------- -----------
CASH, END OF PERIOD $ 61,286 $ 2,195,976
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid For:
Interest $ 38,903 $ 148,762
Supplemental disclosures of non-cash investing and
financing activity:
Discount of subordinated short term loan 146,000
Conversion of debt for equity 1,000,000
</TABLE>
See accompanying Notes to Financial Statements
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MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. NATURE OF BUSINESS
Marine Management Systems, Inc. (the "Company") provides a variety of products
and services related to ship operations and maintenance management. The Company
develops and sells computer software programs, information systems and computer
equipment, as well as provides support and engineering services related to these
products throughout the world.
NOTE 2. BASIS OF PRESENTATION:
(a) The accompanying unaudited financial statements, which are for interim
periods, except the December 31, 1997 balance sheet, do not include all
information contained in the Company's audited financial statements and the
footnotes thereto for the year ended December 31, 1997 (the "Financial
Statements"). The December 31, 1997 balance sheet was derived from the audited
Financial Statements. Certain information and footnote disclosures included in
the Financial Statements, which are prepared in accordance with generally
accepted accounting principles, have been condensed or omitted. The accompanying
unaudited financial statements were prepared on a basis consistent with the
Financial Statements.
(b) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial statements. The results of
operations for the six months and three months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
(c) Summary of Significant Accounting Policies
Computer Software Costs and Amortization
The Company capitalizes the direct costs and allocated overhead associated with
the development and testing of software programs after technological feasibility
has been established. The annual amortization of the capitalized costs is the
greater of the amount computed using the rates that current gross revenues for a
product or products bear to the total of current and anticipated future gross
revenues for that product or products or the straight-line method over the
remaining estimated economic life of the product including
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the period being presented. The establishment of technological feasibility and
the on-going assessment of recoverability of capitalized computer software costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future revenues, estimated
economic life and changes in software and hardware technologies. Research and
development expenditures are expensed in the period incurred.
Revenue and Cost Recognition
Hardware revenues are derived from the sale of hardware to non-marine and marine
industry customers.
Software revenues are derived from the sale of software to marine industry
customers. Service revenues are derived from software support, extended
warranty contracts, and consulting services. Software and services revenues are
recognized in the period when the products are delivered or the services are
rendered. Revenues from the sales of extended warranty contracts are deferred
and recognized on a straight-line basis over the term of the contract.
Revenues for contracts with a term in excess of one year are recognized using
the percentage-of-completion method, measured by percentage of costs incurred to
date to estimated total costs for each contract. Contract costs include all
direct costs and those indirect costs related to contract performance.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance, job conditions,
and estimated profitability may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Billings in
excess of costs and estimated earnings on uncompleted contracts represent
billings in excess of revenues recognized on contracts in progress. Revenues for
contracts with a term of less than one year are recognized when either the
services are performed or when the products are delivered.
Loss Per Share of Common Stock
During February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share" which replaces the presentation of primary earnings per share ("EPS"),
with basic EPS. It also requires dual presentation of basic and diluted EPS. The
Company adopted SFAS 128 as of January 1, 1997. Loss per common share is
computed on the weighted average number of shares, less treasury stock. If
dilutive, common equivalent shares (common shares assuming exercise of options
and warrants) utilizing the treasury stock method are considered in presenting
diluted earnings per share.
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Recent Accounting Standards
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income", established standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS No. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be recognized under
current accounting standards as components of comprehensive income and reported
in a financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information", which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" establishes
standards for the way the public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographical areas and major customers. SFAS No 131 defined operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by Management in deciding
how to allocate resources and in assessing performance.
Both SFAS Nos. 130 and 131, which the Company adopted January 1, 1998, require
comparative information for earlier years to be restated. The adoption of SFAS
No. 130 and 131 did not have an effect on the Company's financial statements or
disclosures.
Statement of Position 97-2 "Software Revenue Recognition", which supersedes
Statement of Position 91-1 "Software Revenue Recognition" provides guidance on
when revenue should be recognized and in what amounts for licensing, selling,
leasing, or otherwise marketing computer software. The Company adopted Statement
of Position 97-2 effective January 1, 1998. The adoption of SOP 97-2 did not
have a material effect on the Company's financial position or results of
operations.
NOTE 3. INITIAL PUBLIC OFFERING
The Company completed an initial public offering underwritten by Whale
Securities Co., L. P. on May 1, 1997 of 1,440,000 shares of Common Stock of the
Company at a price of $5.00 per share and 1,656,000 warrants at a price of $.10
per warrant. Each warrant is exercisable effective May 1, 1998, to purchase one
share of Common Stock at $5.50 per share. The IPO raised $5,476,294 net of
commissions, fees, registration and other associated costs.
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NOTE 4. BRIDGE LOAN
On April 9, 1998, the Company received $700,000 in a bridge loan from an
investor, in the form of a bridge note which was convertible into shares of
common stock at $1.00 per share. The bridge note bears interest at 10% and is
due September 30, 1998. The Company repaid the bridge note on July 10, 1998 out
of proceeds received from the sale of $2,000,000 aggregate principal amount of
Senior Convertible Notes (the "Senior Convertible Notes"). (See Note 5.
Subsequent Events.)
NOTE 5. SUBSEQUENT EVENTS
On July 10, 1998, the Company closed on the sale of the Senior Convertible Notes
which are convertible into common stock of the Company at $1.00 per share,
subject to adjustments under certain conditions. The Senior Convertible Notes
bear interest at 10% and are due and payable on March 31, 2003.
Item 2. Management's Discussion And Analysis Or Plan Of Operation
This report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Statements in this report,
which are not historical facts, are forward-looking statements. Such
forward-looking statements, including those concerning the Company's
expectations for liquidity, demand and sales of new and existing products,
industry and market segment growth and market and technology opportunities, all
involve risks and uncertainties. Actual results may differ materially from such
forward-looking statements for reasons including, but not limited to, changes in
the marine transportation industry, delays or problems in the development and
commercialization of the Company's products, customer interest in and acceptance
of the Company's current and new products and services, the impact of
competitive products and services, technological changes affecting the Company's
products and products under development and uncertainties associated with the
Company's sales and marketing campaign and restructuring efforts.
Overview
The revenues for the second quarter of 1998 were below management's
expectations. Management believes that deferred decision making by potential
customers has extended the time between first contact and final sale, as marine
customers spend more time reviewing the cost benefit and payback potentials on
spending for full IT solutions. There were several large contracts expected to
close during the second quarter of 1998 which did not materialize. The Company
is presently dependent on the close of one or two large sales each quarter. The
Company is addressing this issue by seeking to
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increase its source of steady revenue, specifically in the area of consulting
services and support. The Company believes that sales efforts invested to-date
will show results in the next few quarters.
There are, however, three bright spots. First, significant Consulting
Service revenue increases were experienced which are the result of management's
efforts to sell our services both to our new customers and our long time
customer base. Also, although revenues are down for the second quarter and the
first six months of 1998, expenses are also lower as a result of cost saving
programs implemented in the fourth quarter of 1997 and first quarter of 1998,
resulting in a second quarter and year-to-date net loss which is lower than the
net loss experienced in the second quarter and year-to-date periods in 1997.
Finally, these same cost cutting strategies have significantly reduced our cash
outflow compared to a year ago. The Company will continue to monitor expenses to
keep them in line with actual sales.
The Company has significantly reduced its expenditures on development
as modules of the Windows-based version of Fleet Manager Enterprise Series of
products were completed in 1997, and are now being marketed. Development of
product enhancements continues, however, but at a lower rate. While the Company
expects significant growth in revenues from the marketing of these products,
there can be no assurance that the Windows-based products will achieve market
acceptance or that any introduction of Windows-based products by the Company's
competitors will not exert downward price pressure on the Company's Fleet
Manager Enterprise Series of products.
Starting in mid-1995, the Company began the development of the
Integrated Shipboard Information Technology (ISIT) platform for the maritime
industry. This platform is designed to permit the integration of a myriad of
ship equipment and informational systems under a common protocol, including
proposed ISIT-compliant versions of the Company's Fleet Manager Enterprise
Series products currently under development, and to provide a standard interface
to shore-based systems. When completed, the ISIT platform is intended to provide
users with a common communication path for all of their ISIT-compliant software
applications, enabling them to use most satellite services and a variety of
telephone networks and services, including the Internet. ISIT is also intended
to provide a means for collecting and storing a ship's operating data (for
instance the data found in the various control systems on the ship's bridge and
engine room which operate with their own proprietary protocols) in a common
database and format.
The Company completed the initial development and began testing of the
ISIT platform in the second quarter of 1997. It is postponing the initial
marketing of the ISIT platform and ISIT-compliant versions of its Windows-based
Fleet Manager Enterprise Series products until the end of 1998, electing to
initially work with selected companies to build specific interfaces to ISIT. The
Company believes this will lead to a stronger
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product and the ability as part of its marketing strategy to provide
demonstrations of successful commercial applications of ISIT. While the Company
believes the ISIT platform and ISIT compliant versions of its Fleet Manager
Enterprise Series will result in a growth in revenues, there can be no assurance
that the development of the ISIT platform or of ISIT-compliant versions of the
Fleet Manager Enterprise Series or other products will be completed and ready
for market in 1999, or that any product resulting from such development will
adequately meet the requirements of the marketplace or achieve market
acceptance. While the ISIT development project is expected to be completed by
the end of the second quarter 1999, a related, partially U.S. Government funded
project, Ship Life Cycle Support Infrastructure (SLCSI) is expected to continue
beyond that time. The purpose of this project is to develop new business
practices aboard ship to provide ship owners and ship operators with
comprehensive life cycle support services to increase the economic life and
operational safety of the ship. The success of the Company in developing,
introducing, selling or supporting the ISIT platform, ISIT-compliant versions of
the Fleet Manager Enterprise Series or additional ISIT platform-related products
will depend on a variety of factors in addition to the timely and successful
completion of product design and development, including timely and efficient
implementation of the manufacturing process; effective sales, marketing and
customer services; and the absence of performance problems or other difficulties
that may require design modifications and related expenses and hinder market
acceptance. If the market for the ISIT platform fails to develop, develops more
slowly than anticipated or if ISIT-compliant products do not achieve market
acceptance, the Company's business, results of operations and financial
condition will be materially adversely affected.
The Company anticipates that the investment in development and research
resources and expansion of sales and marketing efforts will result in
improvement in the Company's performance in future periods. However, Management
cautions that the Company's future level of sales and potential profitability
will depend on many factors, including an increased demand for the Company's
existing products, the ability of the Company to develop and sell new products
and product versions to meet customers' needs, the ability of Management to
control costs and successfully implement the Company's strategy, and the ability
of the Company to develop and deliver products in a timely manner.
Results Of Operations
Three Months Ending June 30, 1998 Compared to Three Months Ending June 30, 1997.
Revenues. Revenues for the three months ended June 30, 1998 of $629,519
were $481,258 lower than the same period in 1997 representing a 43.3% decrease.
This decrease was due primarily to a significant reduction in marine software
and hardware sales, partially offset with improved Consulting Services
("Services") revenue.
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The Company's software revenues of $76,468 for the second quarter of
1998 decreased $405,621, or 84.1%, from $482,089 for the comparable period in
1997, primarily reflecting decreased and delayed sales of the Fleet Manager
Enterprise Series. Total hardware revenues of $211,053 ($58,291 for marine and
$152,762 for non marine hardware revenues) for the second quarter of 1998
decreased $131,941, or 38.5%, from $342,994 ($145,080 decrease for marine offset
by $13,139 increase for non-marine hardware revenues) for the second quarter of
1997. Lower marine hardware sales were a direct result of lower software
revenues in the period, as marine hardware is most often bundled with software.
Service revenues, however, jumped significantly to $341,998 for the second
quarter of 1998 which was $157,030, or 84.9% over 1997 second quarter Service
revenue levels of $184,968. This increase reflects the results of management's
efforts to market consulting services coupled with strong upgrade and consulting
demand from our current installed base. There were no Contract revenues for the
second quarter of 1998 compared to $100,726 from the second quarter of 1997, as
expected, as revenue generating milestones on the ISIT and ISIT related projects
with the U. S. Government wind down.
Cost of Revenues. Costs of revenues decreased 23.6% to $491,372 in the
three months ended June 30, 1998 from $642,768 in the same period in 1997,
primarily due to lower sales during this period, and to improved margins on
hardware sales, offset by increased software amortization.
Gross profit and margins. The Company generated gross profits in the
second quarter of 1998 of $138,147, down 70.5% from the prior year's second
quarter gross profit of $468,009. This was due primarily to lower sales in the
period.
Gross margins decreased in the second quarter of 1998 to 21.9% from
42.1% in the second quarter of 1997, reflecting, in part, the 119.1% increase in
software amortization to $164,337 for the second quarter of 1998 from $75,000
for second quarter 1997, offset partially by improved margins on hardware
compared to 1997. The increase in amortization reflects the completion of the
Windows-based version of MMS products in late 1997 and the related amortization
of the Fleet Manager Enterprise Series capitalized software.
Operating expenses. Operating expenses for the second quarter of 1998
decreased $86,062, or 7.9%, to $997,027 from $1,083,089 in the same period in
1997 reflecting primarily the decrease in selling and administration expenses of
$75,538 from 1997 to 1998. This decrease is the result of cost containment
efforts implemented in the fourth quarter of 1997 and first quarter of 1998.
Other income (expense). Net interest expenses of $37,591 for the second
quarter of 1998 reflect a decrease of $268,821, or 87.7%, from interest expenses
in the second quarter of 1997 of $306,412. Interest expense for the second
quarter of 1997 reflect the
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cost of interest and a number of one time finance charges resulting from the
bridge loan and retirement of warrants associated with the Company's initial
public offering in May of 1997. Interest in the second quarter of 1998 are from
a short term bank loan and the bridge note (See Note 4 of Notes to Financial
Statements above).
Net Loss. As a result of the foregoing, the Company's second quarter
net loss decreased to $896,471 in 1998 from $921,492 in 1997, a 2.7%
improvement.
Six Months Ending June 30, 1998 Compared to Six Months Ending June 30, 1997.
Revenues. Revenues for the six months ended June 30, 1998 of $1,586,963
were $274,828 lower than the same period in 1997 representing a 14.8% decrease.
This decrease was due primarily to a significant reduction in marine software
and hardware sales, partially offset with improved Services revenue.
The Company's software revenues of $527,794 for the first six months of
1998 decreased $243,263, or 31.5% from $771,057 for the comparable period in
1997, primarily reflecting decreased and delayed sales of the Fleet Manager
Enterprise Series. Total hardware revenues of $391,342 ($108,615 for marine and
$282,727 for non-marine hardware revenues) for first half of 1998 decreased
$101,391, or 20.5%, from $492,733 ($182,368 decrease for marine hardware
revenues offset by $80,977 increase for non-marine hardware revenues) for the
first six months of 1997. Lower marine hardware sales were a direct result of
lower software revenues year-to-date, as marine hardware is most often bundled
with software. Service revenues increased to $566,159 for the first half of 1998
which was $147,616, or 35.3%, over Service revenue levels for the first half of
1997 of $418,543. This increase reflects the results of management's efforts to
market consulting services, particularly in the second quarter, coupled with
strong upgrade and consulting demand from our current installed base. Contract
revenues for the first six months of 1998 of $101,668 were down by $77,790, or
43.3%, compared to $179,458 from the comparable period in 1997, as government
contract revenues from ISIT and ISIT related contracts wind down.
Cost of Revenues. Costs of revenues increased 2.3% , or $25,648, to
$1,119,744 for the six months ended June 30, 1998 from $1,094,096 in the same
period in 1997. This increase was primarily due to increased software
amortization expense and increased Services costs, partially offset by lower
sales volume in the first six months of 1998 and improved margins on hardware
sales.
Gross profit and margins. The Company generated gross profits in the
first half of 1998 of $467,219, down 39.1% from the prior year's first half
gross profit of
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$767,695. The reduced gross profit in the first half was mainly a consequence of
reduced sales volume.
Gross margins decreased in the first half of 1998 to 29.4% from 41.2%
in the comparable period of 1997, reflecting, in part, the increase in software
amortization of $178,673, or 119.1%, to $328,673, for the first half of 1998 as
compared to $150,000 for same period in 1997. The increase in amortization
reflects the completion of the Windows-based version of MMS products in late
1997 and the related amortization of the Fleet Manager Enterprise Series
capitalized software.
Operating expenses. Operating expenses for the first half of 1998
decreased $193,126, or 10.5%, to $1,654,199 from $1,847,325 in the same period
in 1997 reflecting primarily the decrease in selling and administration expenses
of $198,094 from 1997 to 1998. This decrease represents the results of cost
containment efforts implemented in the fourth quarter of 1997 and first quarter
of 1998.
Other income (expense). Net interest expense of $58,885 for the first
half of 1998 reflect a decrease of $310,829, or 84.1%, from interest expense in
the second quarter of 1997 of $369,714. Interest expense for the first half of
1997 were impacted by one time costs including the cost of interest and a number
of finance charges resulting from the bridge loan and retirement of warrants
associated with the Company's initial public offering in May of 1997.
Net Loss. As a result of the foregoing, the Company's first half net
loss decreased to $1,245,865 in 1998 from $1,449,344 in 1997, a 14.0%
improvement.
Liquidity And Capital Resources
At June 30, 1998 the Company had cash of $61,286 compared to June 30,
1997 cash levels of $2,195,976. Negative working capital at June 30, 1998 of
$1,098,533 compares to the positive working capital at the end June, 1997 of
$4,144,354, which reflected the proceeds from the completion of the Company's
initial public offering in May 1997. The Company used the $5,476,294 of net
proceeds from its initial public offering to pay down the Company's debt and
accounts payable, pay current expenses, and to invest in continued software
development of its Fleet Manager Enterprise Series of Windows-based software and
the development of the ISIT platform technology. The Company's cash requirements
to cover developmental and organizational costs required to establish new
products has been reduced significantly as new products were completed.
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Net cash used in operating activities in the first half of 1998 of
$475,432 compared to net cash used in operating activities of $2,613,085 for the
same period in 1997. The net cash used in operating activities in 1998 was
primarily the result of operating losses, partially offset by cash receipts from
receivables and increases in accounts payable. The net cash used in operating
activities in 1997 was primarily the result of operating losses and the pay down
of accounts payable after the initial public offering.
Net cash used in investing activities in the first half of 1998 of
$51,801 compared to net cash used in investing activities of $862,586 in the
first half of 1997. The net cash used in investing activities in both 1998 and
1997 was used primarily in the development of new product software. The
Company's cash requirements to fund developmental expenses from year-to-year
incurred in connection with the establishment of new products have decreased as
the Windows-based Fleet Manager Enterprise Series was completed.
Net cash provided by financing activities of $569,369 through June 30,
1998 compared to net cash provided by financing activities of $5,613,530 in the
same period in 1997. 1998 cash provided by financing activities came primarily
from a $700,000 bridge note, reduced by a pay down of a short term bank note,
while cash provided in 1997 came primarily from the proceeds of the Company's
initial public offering. On April 9, 1998, the Company borrowed $700,000 as a
bridge loan from an investor, in the form of a bridge note, convertible into
shares of Common Stock at $1.00 per share, subject to adjustments under certain
circumstances. This bridge note bore interest at 10% and was due September 30,
1998. In July 1998, the Company sold $2,000,000 aggregate principal amount of
Senior Convertible Notes, convertible into shares of Common Stock at $1.00 per
share, subject to adjustment under certain circumstances. Approximately $700,000
of the proceeds from the sale was used to repay the bridge note. (See Notes 4
and 5 of Notes to Financial Statements above, and Item 5 - Other Information,
below.)
The Company believes that the remaining proceeds from the sale of the
Senior Convertible Notes will be sufficient to meet the Company's cash
requirements through April, 1999. In the event the Company's plans change or
prove to be inaccurate, the Company will be required to seek additional
financing. There can be no assurance that any additional financing will be
available to the Company, on commercially reasonable terms, or at all. The
failure to obtain any needed financing would have a material adverse effect on
the Company.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On April 9, 1998, the Company sold a promissory note in the principal
amount of $700,000 and convertible into shares of the Company's Common Stock at
$1.00 per share, subject to adjustment under certain circumstances, to Wechsler
& Co. Inc. ("Wechsler") in connection with the provision of financing to the
Company. The note was subsequently paid in July 1998 in connection with the
Company's sale of the Senior Convertible Notes. The sale of the $700,000
promissory note was not registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon the exemption from registration set
forth in Section 4(2). In claiming the Section 4(2) exemption, the Company
relied upon the following facts: (i) the purchaser was an accredited investor
within the meaning of Rule 501(a) of Regulation D under the Securities Act and
acquired the securities for the purchaser's own account in a transaction not
involving any general solicitation or general advertising, and not with a view
to the distribution thereof; and (ii) a restrictive legend was placed on the
note.
Item 5. Other Information
On April 9, 1998 the Company sold a promissory note in the principal
amount of $700,000 and convertible into shares of the Company's Common Stock at
$1.00 per share, subject to adjustment under certain circumstances, to Wechsler,
a New York based money manager, in connection with the provision of financing to
the Company. The note was convertible into shares of the Company's common Stock
at $1.00 per share subject to adjustment under certain circumstances. The note
bore interest at 10% per annum and was due and payable on September 30, 1998. On
July 10 and July 14, 1998 the Company sold $2,000,000 aggregate principal amount
of Senior Convertible Notes to a group of investors led by Wechsler. The Senior
Convertible Notes provide for payments of interest only until maturity and bear
interest at the rate of 10% per annum until such time as the Senior Convertible
Notes are paid in full or converted into shares of Common Stock at any time
after six months from the date of issuance at $1.00 per share, subject to
adjustment under certain circumstances. Approximately $700,000 of the proceeds
from the sale of the Senior Convertible Notes was used to repay the bridge notes
and the remaining proceeds are expected to be used for working capital.
On July 1, 1998 the Company received notice from the Nasdaq Stock
Market, Inc. that the Company was in violation of Nasdaq's continued listing
requirements for the Nasdaq SmallCap Market as a result of the Company's
inability to satisfy the criteria set by the Nasdaq SmallCap Market of (i) a
minimum of $2,000,000 in net tangible assets, and (ii) and minimum $1.00 per
share bid price. The Company has been notified that if the Company wishes to
maintain its Nasdaq SmallCap listing, the Company must request
16
<PAGE> 17
Nasdaq to schedule a hearing, which the Company was told, if granted, would take
place approximately sixty days after the receipt of the request. At such hearing
the Company must be prepared to present documentation demonstrating compliance,
or a satisfactory plan to reach compliance, with the net asset value
requirement, and also show proof that the Company has gained compliance with the
$1.00 bid price requirement. To accomplish the later, the Company's Common Stock
must trade ten consecutive days at or above $1.00 prior to the hearing date. The
Company intends to request a hearing. There can be no assurance, however, that
the Company will be in compliance with all continued listing requirements at the
time of the hearing and that the Company's Common Stock will continue to be
listed on the Nasdaq SmallCap Market subsequent to the hearing date.
If the Company were to be delisted from the Nasdaq SmallCap Market,
trading, if any, in the Common Stock will be conducted in the non-Nasdaq
over-the-counter market. As a result of such delisting, an investor could find
it more difficult to purchase or dispose of, or to obtain accurate quotations as
to the market value of, the Common Stock. Such delisting could also cause a
decline in the market price of the Common Stock and cause such price to be lower
than it would otherwise be if the Common Stock was listed on the Nasdaq SmallCap
Market.
In addition, if the Company's Common Stock becomes delisted from
trading on the Nasdaq SmallCap market, so long as the trading price of the
Common Stock remains below $5.00 per share, trading in the Common Stock will
also be subject to the requirements of certain rules promulgated under the
Securities Exchange Act of 1934, as amended, which require additional disclosure
by broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
defined as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 individually or $300,000 together with a spouse). For these
type of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to the sale. The broker-dealer also must
disclose the commissions payable to the broker-dealer, current bid and offer
quotations for the penny stock and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could discourage broker-
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<PAGE> 18
dealers from effecting transactions in the Common Stock which could severely
limit the market liquidity of the Common Stock.
Item 6. Exhibits and Reports on Form 8-K
Exhibits. The following exhibits are filed herewith:
3.1 Amended and Restated Certificate of Incorporation
4.1 Senior Note Purchase Agreement by and between Marine
Management Systems, Inc. and the purchasers listed on Exhibit
A thereto.
4.2(a) Form of Senior Five-Year Convertible Note
4.2(b) Schedule of Noteholders
10.1 Preferred Stock Purchase Agreement, dated as of April 8, 1998
by and between Marine Management Systems, Inc. and Eugene D.
Story, Robert D. Ohmes and Donald F. Logan, Jr.
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the quarter ended June 30, 1998
18
<PAGE> 19
MARINE MANAGEMENT SYSTEMS, INC
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MARINE MANAGEMENT SYSTEMS, INC
(Registrant)
Dated: August 14, 1998 By: /s/ Michael P. Barney
------------------------------
Michael P. Barney
President and Chief Executive Officer
Dated: August 14, 1998 By: /s/ Robert D. Ohmes
------------------------------
Robert D. Ohmes
Executive Vice President and
Chief Financial Officer
19
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MARINE MANAGEMENT SYSTEMS, INC.
Marine Management Systems, Inc., a corporation incorporated under the
General Corporation Law of the State of Delaware, hereby amends and restates its
Certificate of Incorporation, which was originally filed with the Secretary of
State on December 4, 1995, in order to give effect to all amendments and to
restate all of the provisions now in effect that are not amended, so that the
same shall read, in its entirety, as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Marine Management Systems, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle 19805; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation has authority to issue is twenty-five million six hundred fifty-one
(25,000,651), consisting of (a) twenty-five million (25,000,000) shares of
Common Stock with a par value of $.002 per share (the "Common Stock") and (b)
six hundred fifty-one shares of Series A Cumulative Convertible Preferred Stock
with a par value of $.002 per share (the "Series A Preferred Stock"). The number
of the authorized shares of Series A Preferred Stock may be decreased, but not
increased (but not below the number of shares then outstanding) by the Board of
Directors without a vote of the stockholders.
A. COMMON STOCK
1. Voting Rights. The holders of shares of Common Stock shall
be entitled to one vote for each share held with respect to all matters
voted on by the stockholders of the Corporation.
2. Liquidation Rights. Subject to the prior and superior right
of the Preferred Stock, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of Common Stock and the holders of Preferred Stock shall be
entitled to receive the remaining funds to be distributed on the basis
of the number of shares of Common Stock held by each of them and the
number of shares of Common Stock into which each share of Preferred
Stock is then convertible.
3. Dividends. Dividends may be paid on the Common Stock as and
when declared by the Board of Directors, provided, however, no such
dividends may be declared or paid if dividends are not simultaneously
declared or paid, respectively, on the Preferred Stock.
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<PAGE> 2
B. SERIES A PREFERRED STOCK
The rights, preferences, privileges and restrictions granted to and
imposed upon the Series A Preferred Stock are as follows:
1. Liquidation Rights. The Series A Preferred Stock shall,
with respect to dividend rights and rights on liquidation, dissolution
or winding up, rank prior to the Common Stock.
2. Dividends and Distributions.
(a) The holders of shares of Series A Preferred
Stock, in preference to the holders of shares of Common Stock and of
any shares of other capital stock of the Corporation ranking junior to
the Series A Preferred Stock as to payment of dividends, shall be
entitled to receive, and the Board of Directors shall declare, to the
extent that (i) the Certificate of Incorporation of the Corporation
shall permit and that (ii) sufficient surplus or net profits of the
Corporation are available therefor in accordance with Section 170 of
the Delaware General Corporation Law, cumulative cash dividends at an
annual rate of 10% from and after the Issue Date as long as the shares
of Series A Preferred Stock remain outstanding. Dividends shall be
computed on the basis of $1,000 per share, and shall accrue and be
payable quarterly, in arrears, on the last business day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on September
30, 1998.
(b) Dividends payable pursuant to paragraph (a) of
this Section 2 shall begin to accrue and be cumulative from the Issue
Date, whether or not earned or declared. The amount of dividends so
payable shall be determined on the basis of twelve 30-day months and a
360-day year. Accrued but unpaid dividends shall bear interest at an
annual rate of 10%. Dividends paid on the shares of Series A Preferred
Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive
payment of a dividend declared hereon, which record date shall be no
more than sixty days prior to the date fixed for the payment thereof.
(c) The holders of shares of Series A Preferred Stock
shall not be entitled to receive any dividends or other distributions
except as provided herein.
3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the voting rights provided to such holders under the
General Corporation Law of the State of Delaware.
4. Certain Restrictions.
(a) Subject to paragraph (c) of this Section 4,
whenever quarterly dividends payable on shares of Series A Preferred
Stock as provided in Section 2 are not paid in full, thereafter and
until all unpaid dividends payable on the outstanding shares of Series
A Preferred Stock, whether or not declared, shall have been paid in
full, the Corporation shall not: (A) declare or pay dividends, or make
any other distributions, on any shares of Junior Stock, other than
dividends or distributions payable in Junior Stock; or (B) declare or
pay
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<PAGE> 3
dividends, or make any other distributions, on any shares of Parity
Stock, except (1) dividends or distributions payable in Junior Stock
and (2) dividends or distributions paid ratably on the Series A
Preferred Stock and all Parity Stock on which dividends are payable or
in arrears, in proportion to the total amounts to which the holders of
all shares of the Series A Preferred Stock and such Parity Stock are
then entitled.
(b) Whenever quarterly dividends payable on shares of
Series A Preferred Stock as provided in Section 2 are not paid in full,
thereafter and until all unpaid dividends payable, whether or not
declared, on the outstanding shares of Series A Preferred Stock shall
have been paid in full, the Corporation shall not: (A) redeem, purchase
or otherwise acquire for consideration any shares of Junior Stock or
Parity Stock; provided, however, that the Corporation may at any time
(1) redeem, purchase or otherwise acquire shares of Junior Stock or
Parity Stock in exchange for any shares of Junior Stock, (2) accept
shares of any Parity Stock or Junior Stock for conversion and (3)
redeem, purchase or otherwise acquire shares of any Parity Stock
pursuant to any mandatory redemption, put, sinking fund or other
similar obligation, pro rata with the Series A Preferred Stock in
proportion to the total amount then required to be applied by it to
redeem, repurchase or otherwise acquire shares of Series A Preferred
Stock, if any such requirement exists, and shares of such Parity Stock;
or (B) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock.
(c) Notwithstanding anything to the contrary
contained in this Section 4, the Corporation shall not declare, and the
holders of shares of Junior Stock and Parity Stock shall not be
entitled to, dividends of any kind prior to the Eligibility Date.
(d) The Corporation shall not permit any Subsidiary
of the Corporation to purchase or otherwise acquire for consideration
any shares of capital stock of the Corporation unless the Corporation
could, pursuant to paragraph (b) of this Section 4, purchase such
shares at such time and in such manner.
5. Conversion.
(a) Each outstanding share of the Series A Preferred
Stock is, at the option of the holder at any time after the Eligibility
Date, convertible into that number of fully paid and nonassessable
shares of the Corporation's Common Stock as determined by dividing (i)
the Liquidation Preference of the shares of Series A Preferred Stock to
be converted by (ii) the Conversion Price. No fractional Conversion
Shares will be issued as a result of conversion, but in lieu thereof
such fractional interest will be rounded off to the nearest whole share
of Common Stock.
(b) In the event of a stock dividend,
recapitalization, reorganization, merger, consolidation, subdivision,
combination or reclassification of shares of the Corporation's Common
Stock, or any other change in the corporate structure or shares of the
Corporation's Common Stock, prior to the conversion of the Series A
Preferred Stock, the Corporation shall make such adjustment as is
necessary to give the holder of the Series A Preferred Stock
substantially the same rights as the holder of the Series A Preferred
Stock had immediately prior to the occurrence of such event. In the
event of any consolidation of the Corporation with, or merger of the
Corporation into, another corporation where the Corporation is not the
successor entity, or in the case of the sale or conveyance to another
corporation of the property of the Corporation, then the holder of the
Series A Preferred Stock shall thereafter, upon conversion of the
Series A Preferred Stock in accordance with the terms
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<PAGE> 4
hereof, prior to the record date for such consolidation, merger, sale
or conveyance, have the right to purchase and receive the kind and
number of shares of stock and other securities or properties receivable
upon such consolidation, merger, sale or conveyance, that would have
been issued to the holder of the Series A Preferred Stock had the
Series A Preferred Stock been converted immediately prior to such
event.
(c) The right of the holders of the Series A
Preferred Stock to convert their shares shall be exercised by
transmitting to the Corporation or its agent, a notice of such
conversion together with certificates representing shares of the Series
A Preferred Stock to be converted, duly endorsed in blank. If the
shares issuable upon conversion are to be issued in a name other than
the name in which the shares of Series A Preferred Stock to be
converted are then registered, such notice and the certificates
representing shares of the Series A Preferred Stock to be converted
shall be accompanied by such evidence of payment transfer taxes and
such proper instruments of transfer as may be reasonably requested by
the Corporation. The Corporation shall promptly after receipt of the
foregoing issue to the holder of the Series A Preferred Stock the
appropriate number of shares of the Corporation's Common Stock.
(d) The Corporation shall reserve and keep available
out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of the Series A Preferred Stock.
(e) The Corporation shall pay all documentary stamp
or similar issue or transfer taxes payable with respect to the issue or
delivery of shares of Common Stock upon conversion of the Series A
Preferred Stock pursuant hereto, provided that such shares of Common
Stock are issued in the name of the then registered holder of the
Series A Preferred Stock to be converted.
6. Reacquired Shares. Any shares of Series A Preferred Stock
converted, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof.
7. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable Federal
or state bankruptcy, insolvency or similar law, or consent to the entry
of an order for relief in an involuntary case under such law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal
bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official)
of the Corporation or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such
decree or order shall be unstayed and in effect for a period of 150
consecutive days and on account of any such event the Corporation shall
liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made (i) to
the holders of shares of Junior Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock, subject to Section 8,
shall have received the Liquidation Preference with respect to each
share, or (ii) to the holders of shares
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<PAGE> 5
of Parity Stock unless the holders of shares of Series A Preferred
Stock, subject to Section 8 shall have received distributions made
ratably to the holders of the Series A Preferred Stock and the Parity
Stock in proportion to the total amounts to which the holders of all
such shares of Series A Preferred Stock and Parity Stock would be
entitled upon such liquidation, dissolution or winding up.
(b) Neither the consolidation, merger or other
business combination of the Corporation with or into any other Person
or Persons nor the sale of all or substantially all the assets of the
Corporation shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this Section 8.
8. Remedies. Any registered holder of Series A Preferred Stock
may proceed to protect and enforce its rights and the rights of such
holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific
enforcement of any provision in this Certificate of Incorporation or in
aid of the exercise of any power granted herein, or to enforce any
other proper remedy.
9. Definitions. For the purposes of this Article Fourth,
Section B, the following terms shall have the meanings indicated:
"Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
"Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State
of New York are authorized or obligated by law or executive order to
close.
"Conversion Price" shall be equal to the greater of
(i) the average Current Market Price of the Common Stock for the ten
(10) Trading Days preceding the Conversion Date or (ii) $1.00.
"Current Market Price," when used with references to
shares of Common Stock or other securities for any period shall mean
the average of the daily closing prices per share of Common Stock or
such other securities for such period. The closing price for each day
shall be the last quoted sale price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or such other system then in use, or, on any
such date the Common Stock or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the
Common Stock or such other securities selected by the Board of
Directors of the Corporation. If the Common Stock is listed or admitted
to trading on a national securities exchange, the closing price shall
be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Common
Stock on such other securities are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Common Stock or
such other securities are listed or admitted to trading. If the Common
Stock or such other securities are not publicly held or so listed or
publicly traded, "Current
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<PAGE> 6
Market Price" shall mean the Fair Market Value per share of Common
Stock or of such other securities as determined in good faith by the
Board of Directors of the Corporation based on an opinion of an
independent investment banking firm with an established national
reputation as a valuer of securities, which opinion may be based on
such assumptions as such firm shall deem to be necessary and
appropriate.
"Eligibility Date" shall mean any date after the
sixth (6th) anniversary of the Issue Date; provided, however, that in
no event shall such date occur prior to twelve (12) months after all
amounts of principal and interest outstanding under the Senior Notes
have been indefeasibly paid in full.
"Issue Date" shall mean the first date on which
shares of Series A Preferred Stock are issued:
"Junior Stock" shall mean any capital stock of the
Corporation ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock.
"Liquidation Preference" with respect to a share of
Series A Preferred Stock shall mean $1,000 per share, plus an amount
equal to all accrued but unpaid dividends (plus any interest accrued
thereon).
"Parity Stock" shall mean any capital stock of the
Corporation ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock.
"Person" shall mean any individual, firm, corporation
or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Redemption Price" shall mean the product obtained by
multiplying (i) the Liquidation Preference by (ii) the number of shares
of Series A Preferred Stock to be redeemed pursuant to Section 6
hereof.
"Senior Notes" shall mean the Senior Five-Year
Convertible Notes, in the original aggregate principal amount of
$2,000,000, issued by the Corporation on July 8, 1998.
"Subsidiary" of any Person means any corporation or
other entity of which a majority of the voting power of the voting
equity securities or equity interest is owned, directly or indirectly,
by such Person.
"Trading Day" means a Business Day or, if the Common
Stock is listed or admitted to trading on any national securities
exchange, a day on which such exchange is open for the transaction of
business.
FIFTH: The name and the mailing address of the
incorporator are as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Brian O'Connor One Atlantic Street
Stamford, CT 06901
</TABLE>
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<PAGE> 7
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of creditors, and/or of
the stockholders or class of creditors, and/or the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the Bylaws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning, to wit, the total number of
directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other Bylaws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the Corporation has received any
payment for any of its stock, the power to adopt, amend, or repeal the
Bylaws of the Corporation may be exercised by the Board of Directors of
the Corporation; provided, however, that any provision for the
classification of directors of the Corporation for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial Bylaw or in a Bylaw adopted by the stockholders entitled to
vote of the Corporation unless provisions for such classification shall
be set forth in this Certificate of Incorporation.
3. Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
Certificate of Incorporation shall
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<PAGE> 8
entitle the holder thereof to the right to vote at any meeting of
stockholders except as the provisions of paragraph (2) of subsection
(b) of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such
class which is otherwise denied voting power shall entitle the holder
thereof to vote upon the increase or decrease in the number of
authorized shares of said class.
4. Pursuant to Section 221 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Corporation may,
by resolution duly adopted, grant to the holders of any bonds,
debentures or other obligations issued or to be issued by the
Corporation any rights that the stockholders of the Corporation have or
may have by reason of the General Corporation Law of the State of
Delaware or this Certificate of incorporation, including, but not
limited to, the power to vote in respect to the corporate affairs and
management of the Corporation, to the extent and in the manner as
declared by the Board of Directors of the Corporation in the resolution
approving such rights.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
ELEVENTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article ELEVENTH.
TWELFTH: This amended and restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Sections 228, 242 and 245
of the General Corporation Law of the State of Delaware, as amended and the
undersigned hereby certifies that the amendments contained herein have been duly
adopted by a majority of the stockholders of the Corporation and the unanimous
vote of the Board of Directors of the Corporation, and written notice has been
given as provided in Section 228 of the General Corporation Law of Delaware, as
amended.
Signed under the penalties of perjury this 8th day of July, 1998.
/s/ Robert D. Ohmes
--------------------------
Robert D. Ohmes
Executive Vice President, CFO, Secretary
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<PAGE> 1
MARINE MANAGEMENT SYSTEMS, INC.
SENIOR NOTE PURCHASE AGREEMENT
THIS SENIOR NOTE PURCHASE AGREEMENT ("Agreement") is made and entered into
this 10th day of July, 1998 by and between MARINE MANAGEMENT SYSTEMS, INC., a
Delaware corporation (the "Company"), and the purchasers listed on Exhibit A
annexed hereto (the "Purchasers" and individually, a "Purchaser").
R E C I T A L S:
A. The Company desires to obtain financing by issuance of Senior Five-Year
Convertible Notes (the "Notes") which are the subject of this Agreement; and
B. The Purchasers desire to acquire the Notes on the terms and conditions
set forth herein.
A G R E E M E N T:
NOW, THEREFORE, IT IS AGREED as follows:
1. PURCHASE OF SENIOR NOTES.
1.1 Subject to the terms and conditions hereof, the Purchasers hereby
agree to purchase from the Company, and the Company has offered and hereby
agrees to issue and sell to the Purchaser $2,000,000 aggregate principal
amount of the Notes due June 30, 2003, to be issued substantially in the
form attached hereto as Exhibit B for delivery at the respective offices of
the Purchasers, against payment to the Company of the respective amounts
set forth opposite the Purchasers' names in Exhibit A by wire transfer in
same day or next day funds. The term "Notes" as used herein shall include
the Notes originally issued pursuant to the provisions of this Agreement
and any promissory notes delivered in substitution or exchange therefor.
The Notes will bear interest, be payable and mature at the time and under
the terms and conditions specified therein. The Notes will be convertible
into shares of the Company's Common Stock at the rate of $1.00 face value
of the Note for each share of the Company's Common Stock, subject to
adjustment, all as provided in the Notes.
The Company has authorized and reserved for issuance up to 2,000,000 shares of
Common Stock (which number may be adjusted as provided in the Notes) upon
conversion of the Notes in accordance with their terms (as used herein, the
"Notes" and the shares of the Common Stock issuable upon conversion thereof are
referred to collectively as the "Securities").
<PAGE> 2
1.2 The purchase price for the Notes to be purchased by the Purchasers
hereunder shall be an aggregate of $2,000,000 (the "Purchase Price"). The
Purchasers shall pay the Purchase Price by wire transfer of immediately
available funds to the Company. Simultaneously against receipt by the
Company of the Purchase Price, the Company shall deliver one or more duly
authorized, issued and executed Notes (I/N/O each Purchaser or , if the
Company otherwise has been notified, I/N/O such Purchaser's nominee).
Notwithstanding the foregoing, in the event that any Purchaser is a holder
of the Senior Convertible Notes issued on April 8, 1998 (the "Bridge
Notes") pursuant to the Bridge Note Purchase Agreement dated April 8, 1998
(the "Bridge Note Agreement"), such Purchaser shall present such Bridge
Notes for cancellation, in which case the entire amount of principal and
accrued interest outstanding under such Bridge Notes shall be deemed paid
to the Company and shall be credited against the portion of the Purchase
Price which was otherwise to have been paid by such Purchaser.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants that:
2.1 It is a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware, and duly qualified to do
business and in good standing as a foreign corporation in all jurisdictions
in which the failure to so qualify would be reasonably likely to have a
material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of the Company or on the
consummation of any of the transactions contemplated by this Agreement (a
"Material Adverse Effect"). The Company has full power and authority,
corporate and otherwise, to enter into and perform this Agreement, to
borrow hereunder, and to make, execute and deliver the various instruments
and documents provided for herein.
2.2 The execution, delivery and performance by the Company of this
Agreement and the Notes, and the making, execution and delivery by the
Company of the instruments contemplated hereby, have been duly authorized
by all necessary corporate action and will not violate any provision of
law, court order or decree, or of its Certificate of Incorporation or
Bylaws, or result in the breach of, or constitute a default under, or
result in the creation of any lien, charge or encumbrance upon any property
or assets of the Company pursuant to any agreement or instrument to which
it is a party, or by which it or its property may be bound or affected,
except as contemplated hereby or thereby. Each of this Agreement and each
Note is a valid and binding obligation of the Company, enforceable in
accordance with its respective terms.
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<PAGE> 3
2.3 The shares of Common Stock initially issuable upon conversion of
the Notes have been duly authorized and at all times prior to such
conversion will have been duly reserved for issuance upon such conversion
and, when issued, will be validly issued, fully paid and nonassessable.
2.4 The authorized capital of the Company is (a) 25,000,000 shares of
Common Stock, $.002 par value per share, of which approximately 4,421,120
are issued and outstanding and (b) 651 shares of Series A Preferred Stock,
par value, $.002 per share, 651 shares of which are issued and outstanding
(the "Series A Preferred Stock"). There are no shares of Common Stock
reserved for issuance on the exercise of options, warrants or conversion of
convertible securities, except as set forth on Schedule 2.4 hereto. There
are no preemptive, subscription, "call" or other similar rights to acquire
any Common Stock that have been issued or granted to any person, except as
disclosed in the Commission Filings (as defined below), otherwise
previously disclosed in writing to the Purchasers or as set forth on
Schedule 2.4 hereto. With respect to the securities set forth on Schedule
2.4, none of such securities permits any holder to receive shares of Common
Stock for a consideration of less than $1.00 per share of Common Stock.
2.5 The Company has furnished the Purchasers with copies of the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997, the Company's Report on Form 10-QSB for the quarter ended March
31, 1998 (the "10-QSB") and all other reports and documents heretofore
filed by the Company with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act") since or as part of the
Company's initial public offering (collectively the "Commission Filings").
2.6 Except as disclosed in the Commission Filings, the Company does
not own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, unincorporated
business organization, association, trust or other business entity.
2.7 The Company has registered the Common Stock pursuant to Section 12
of the Exchange Act and has timely filed with the Commission all reports
and information required to be filed by it pursuant to all reporting
obligations under Section 13(a) or 15(d), as applicable, of the Exchange
Act for the 9-month period immediately preceding the date hereof. The
Common Stock is listed and traded on the National Association of Securities
Dealers, Inc. Automated Quotation - Small Cap market ("NASDAQ-Small Cap")
and, except as set forth in Schedule 2.7 hereto, the Company has not
received any notice regarding the termination or
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<PAGE> 4
discontinuance of the eligibility of the Common Stock for such listing.
2.8 The Company shall cause Shipman & Goodwin LLP, counsel to the
Company, to deliver to the Purchaser an opinion of counsel dated the date
hereof, in form and substance satisfactory to the Purchasers and their
counsel.
2.9 There are (a) no material law suits or proceedings pending, or, to
the Company's knowledge, threatened against the Company and (b) no material
proceedings before any governmental commission, bureau or other
administrative agency pending, or, to the Company's knowledge, threatened
against the Company.
2.10 Any and all licenses and approvals required by the Company for
the conduct of its business have been obtained from the federal, state, or
local authorities concerned, all of which are in good standing, except
where the failure to receive such licenses or approvals would not,
individually or in the aggregate, have a material adverse effect on the
financial condition, operations, business, assets or properties of the
Company.
2.11 The minute books of the Company have been properly kept and
reflect all transactions entered into by the Company which require
submission to or action by the stockholders or directors of the Company.
2.12 No governmental permit, consent, approval or authorization (other
than as required by any applicable state securities law) is required in
connection with (i) the execution and delivery of this Agreement by the
Company or (ii) the offer, sale, issuance and delivery of the Notes
contemplated hereby by the Company; provided that, all representations made
to the Company by the Purchasers in this Agreement and in any other
document or instrument delivered in connection herewith are assumed for
purposes of this representation and warranty to be accurate and complete.
2.13 Included in the Company's Financial Statements (as defined below)
are (i) the balance sheets of the Company at December 31, 1997 and the
related statements of operations, changes in financial position and
shareholders' equity for the year ended on such date, with the report
thereon of BDO Seidman LLP, independent accountants and (ii) the unaudited
balance sheets at March 31, 1998 and the related statements of operations,
statement of retained earnings and cash flows as of and for the three(3)
month period ended March 31, 1998 (collectively, the "Financial
Statements"). Each of the Financial Statements is complete and correct in
all material respects, has been prepared in accordance
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<PAGE> 5
with United States General Accepted Accounting Principles ("GAAP") and in
conformity with the practices consistently applied by the Company without
modification of the accounting principles used in the preparation thereof,
and fairly presents the financial position, results of operations and cash
flows of the Company as at the dates and for the periods indicated. For
purposes hereof, the balance sheet of the Company as at March 31, 1998 is
hereinafter referred to as the "Balance Sheet" and March 31, 1998 is
hereinafter referred to as the "Balance Sheet Date." The Company does not
have any indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise required to be reflected in,
reserved against or otherwise described in the Balance Sheet or in the
notes thereto in accordance with GAAP, which was not reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or
was not incurred in the ordinary course of business consistent with the
Company's past practices since the Balance Sheet Date.
2.14 None of the Company's reports and filings with the Securities and
Exchange Commission ("SEC") when filed contained a misstatement of a
material fact or omitted to state a material fact necessary to make the
statements contained therein, in the light of the circumstances in which
they were made or omitted, not misleading.
2.15 The Company's Common Stock is traded on NASDAQ-SmallCap Market.
Except as set forth in Schedule 2.7 hereto, there have been no other
notices of any delisting or delisting procedures threatened or contemplated
by NASDAQ.
2.16 Except as set forth in Schedule 2.7, since the Balance Sheet
Date, there has not occurred any change, event or development in the
business, financial condition, prospects or results of operations of the
Company, and there has not existed any condition having or reasonably
likely to have, a Material Adverse Effect.
2.17 Except as set forth in Schedule 2.7, there is no fact known to
the Company (other than general economic or industry conditions known to
the public generally) that has not been fully disclosed in the Commission
Filings to the Purchasers that (i) reasonably could be expected to have a
Material Adverse Effect or (ii) reasonably could be expected to materially
and adversely affect the ability of the Company to perform its obligations
pursuant to this Agreement, the Notes or the Permanent Financing Documents.
2.18 Except as set forth in Schedule 2.7, no "Event of Default" (as
defined in any agreement or instrument to which the Company or any of its
subsidiaries is a party) and no event which,
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<PAGE> 6
with notice, lapse of time or both, would constitute an Event of Default
(as so defined), has occurred and is continuing, which could have a
Material Adverse Effect.
2.19 Except as set forth in the Commission Filings, neither the
Company nor any of its officers, directors or "Affiliates" (as such term is
defined in Rule 12b-2 under the Exchange Act) has borrowed any moneys from
or has outstanding any indebtedness or other similar obligations to the
Company ("Related Party Indebtedness"). Except as set forth in the
Commission Filings, neither the Company nor any of its officers, directors
or Affiliates (i) owns any direct or indirect interest constituting more
than a one percent equity (or similar profit participation) interest in, or
controls or is a director, officer, partner, member or employee of, or
consultant to or lender to or borrower from, or has the right to
participate in the profits of, any person or entity which is a competitor,
supplier, customer, landlord, tenant, creditor or debtor of the Company or
any of its subsidiaries, or (ii) is a party to any contract, agreement,
commitment or other arrangement with the Company, other than with respect
to their employment by the Company.
2.20 Based, in part, upon the representations of the Purchasers set
forth in Section 3 hereof, the offer and sale by the Company of the
Securities is exempt from (i) the registration and prospectus delivery
requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification
provisions of all applicable state securities and "blue sky" laws. Other
than pursuant to an effective registration statement under the Securities
Act, the Company has not issued, offered or sold any shares of Common Stock
(including for this purpose any securities of the same or a similar class
as the Common Stock, or any securities convertible into or exchangeable or
exercisable for the Common Stock or any such other securities) within the
six-month period next preceding the date hereof, except as disclosed in the
Commission Filings or as set forth on Schedule 2.20 attached hereto, and
the Company shall not directly or indirectly take, and shall not permit any
of its directors, officers or Affiliates directly or indirectly to take,
any action (including, without limitation, any offering or sale to any
other person or entity of the shares of Common Stock), so as to make
unavailable the exemption from Securities Act registration being relied
upon by the Company for the offer and sale to the Purchasers of the Notes
and the shares of Common Stock issuable upon conversion thereof as
contemplated by this Agreement.
2.21 Set forth on Schedule 2.21 is a list of all Related Party
Indebtedness and, except for a $15,000 promissory note owed to Mark Story,
such Related Party Indebtedness is no longer outstanding and has been
exchanged for shares of Series A
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<PAGE> 7
Preferred Stock based on $1,000 in principal amount and accrued interest
for each $1,000 in liquidation preference of the Series A Preferred Stock.
The Company has no liability to any entity in respect of such Related Party
Indebtedness which has been exchanged for Series A Preferred Stock. The
shares of Series A Preferred Stock have been duly authorized and have been
validly issued, fully paid and non-assessable. The shares of Common Stock
initially issuable upon conversion of the Series A Preferred Stock have
been duly authorized and at all times prior to such conversion will have
been duly reserved for issuance upon such conversion and, when issued, will
be validly issued, fully paid and nonassessable.
3. REPRESENTATIONS OF THE PURCHASERS. This Agreement is made with each
Purchaser by the Company in reliance upon each Purchaser's representations to
the Company, which by each Purchaser's acceptance hereof, each Purchaser
confirms, that (a) Purchaser is acquiring the Note to be delivered for its own
account and not for the beneficial interest of any other person, and not with a
view to the distribution thereof, and that Purchaser will not distribute, sell
or otherwise dispose of the Note or any of the shares of Common Stock of the
Company issuable upon conversion of the Note except as permitted under the
Securities Act of 1933, as amended (the "Act"), the General Rules and
Regulations thereunder, and all applicable State "Blue Sky" laws; (b)
Purchaser's financial circumstances are such as to permit Purchaser to make this
investment without having a present intention or need to liquidate its
investment; (c) Purchaser severally confirms further that it has been advised
that neither the Note nor the Common Stock issuable upon the conversion thereof
have been registered under the Act, and that, accordingly, such Note and shares
of Common Stock will be what is commonly known as "restricted securities," and
are not freely transferrable by Purchaser except pursuant to an exemption from
registration under the Act, such as Rule 144, the substance of which has been
explained to Purchaser or upon registration of the Common Stock under the Act;
(d) Purchaser is an "accredited investor" as that term is defined in SEC
Regulation D, (e) Purchaser has had the opportunity to discuss with Company
management the Company and its products, prospects, results of operation and
financial condition and to have access to any and all information regarding the
Company that Purchaser deems necessary to its decision to purchase the Note, and
(f) that the following legends shall be placed on the Note (and, until the
Common Stock is registered under the Act, any Shares of Common Stock issuable
upon conversion thereof):
"THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR
INVESTMENT IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO SECTION 4(2) OF
SAID ACT AND NOT WITH A VIEW TO OR IN
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<PAGE> 8
CONNECTION WITH THE DISTRIBUTION THEREOF.
NEITHER THIS NOTE NOR THE SECURITIES ISSUED
UPON CONVERSION HEREOF MAY BE OFFERED FOR
SALE OR SOLD OR OTHERWISE DISPOSED OF EXCEPT
UPON COMPLIANCE WITH SAID ACT."
4. CERTAIN COVENANTS BY THE COMPANY
4.1 Filings. The Company shall make all necessary filings in
connection with the sale of the Securities to the Purchasers as required by
all applicable laws, and shall provide a copy thereof to each Purchaser
promptly after such filing.
4.2 Reporting Status. So long as any Purchaser beneficially owns any
of the Securities, the Company shall file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act.
4.3 Use of Proceeds. The Company shall use the proceeds from the sale
of the Securities (excluding amounts paid by the Company for legal fees in
connection with such sale) solely to pay in full all outstanding amounts
under the Bridge Notes and for general corporate and working capital
purposes.
4.4 Reserved Conversion Shares. The Company at all times from and
after the date hereof shall have a sufficient number of shares of Common
Stock duly and validly authorized and reserved for issuance to satisfy the
conversion, in full, of the Notes.
5. TRANSFER BY THE PURCHASER.
Neither the Notes to be purchased by the Purchasers, nor any interest
therein, shall be sold, transferred, assigned, or otherwise disposed of, unless
the Company shall previously have received an opinion of counsel knowledgeable
in federal securities law, to the effect that registration under the Act is not
required in connection with such disposition pursuant to the Act, provided,
however, that the Common Stock issuable upon conversion of the Notes may be sold
if it is registered under the Act.
6. REGISTRATION.
6.1 (a) Registration. As promptly as practicable, but in no event
later than August 1, 1998, the Company shall prepare and file with the
Commission a Registration Statement (on Form S-3 or Form S-1) sufficient to
permit the public offering and sale by the Purchasers of the Common Stock
into which the Notes may, from time to time, be convertible through the
facilities of all appropriate securities exchanges and the over-the-counter
market, and will use its best efforts through its officers,
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<PAGE> 9
directors, auditors and counsel to cause such registration statement to
become effective as promptly as practicable, but not later than 180 days
after the Closing Date. Any registration statement which becomes effective
pursuant to the provisions of this paragraph, shall be kept effective by
the Company for so long as the Purchasers own any of the Notes, or any
shares of Common Stock of the Company which they receive upon conversion of
the Notes. The Company shall not include any other securities in the
Registration Statement relating to the offer and sale of the shares of
Common Stock, except as set forth on Schedule 6.1. The Company, at its sole
expense, will also take such actions as shall permit the shares of Common
Stock to be sold in all states which the Purchasers request. Prior to the
effectiveness of such Registration Statement, the Company shall also list
or approve for listing, by NASDAQ, upon official notice of issuance, such
shares of Common Stock.
(b) Terms of Registrations. The foregoing rights and duties shall be
subject to the following terms and conditions:
(i) The Company shall bear all of the costs of any registration
statement, including all "blue sky" fees and expenses.
(ii) The Company will use its best efforts to cause such
registration statement to become effective under the Act.
6.2 In connection with any registration pursuant to Section 6.1, the
Company will (i) use its best efforts to permit a lawful distribution by
Purchasers in the manner specified by Purchasers; (ii) use its best efforts
to qualify or otherwise "blue sky" the proposed offering by Purchasers in
such states as the Purchasers shall reasonably request; provided, however,
that nothing herein contained shall require the Company to qualify as a
foreign corporation in a jurisdiction in which it is not presently
qualified or to become licensed as a securities broker or dealer in any
jurisdiction; (iii) provide Purchasers with a reasonable number of
registration statements and prospectuses (including amendments and
revisions) requested by Purchasers; and (iv) use its best efforts to have
such prospectuses meet the requirements of Section 10(a) of the Securities
Act of 1933, as amended.
6.3 The Company's obligations under this Section 6 are conditioned
upon its being furnished by Purchasers with descriptions of Purchasers'
Common Stock to be covered in the requested registration statement, the
proposed method of distribution, and such other relevant information as may
be required.
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6.4 In connection with any registration statement pursuant to this
Section 6, Purchasers shall severally indemnify and hold harmless the
Company and each person (if any) who controls the Company within the
meaning of Section 15 of the Act from and against all losses, claims,
damages and liabilities to which the Company or any of them may be subject,
actually or allegedly caused by any untrue or allegedly untrue statement of
a material fact contained in any such registration statement or related
prospectus or actually or allegedly caused by an omission to state therein
a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission shall have been made in reliance upon and in conformity with
written information furnished to the Company by any Purchaser or on any
Purchaser's behalf specifically for use in connection with such
registration statement. Reciprocally, the Company hereby agrees to
indemnify and hold harmless each Purchaser, any broker or other person who
may be deemed an underwriter for a Purchaser and each person (if any) who
controls the Purchaser or Purchaser's underwriter within the meaning of
Section 14 of the Act, from and against all losses, claims, damages and
liabilities to which such parties or any of them may be subject, actually
or allegedly caused by any untrue or allegedly untrue statement of a
material fact contained in any such registration statement or related
prospectus or actually or allegedly caused by any omission to state therein
a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such statement or omission shall have been made in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of a Purchaser specifically for use in connection with such
registration statement.
(a) Subject to subsection (b) below, the foregoing indemnity shall
include reimbursements for any reasonable legal or other expenses incurred
by the indemnified party or any director, officer or controlling person, as
defined above, in connection with investigating or defending any such loss.
(b) Promptly after receipt by an indemnified party under this Section
6.4 of notice of commencement of any action, the indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party
under this Section 6.4, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability to any indemnified party except to the extent
that the failure to so notify such party adversely affected the
indemnifying party. In case any such action is brought against any
indemnified party and it notifies the indemnifying party of the
commencement thereof, the latter will be entitled to participate therein,
and to the extent desired, jointly, with any other indemnifying party
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<PAGE> 11
similarly notified, assume the defense and control the settlement thereof,
with counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party as to its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 6.4 for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable cost of
investigation.
(c) The Company and each Purchaser each have the right to make a
reasonable investigation of the information contained in any registration
statement covered by this Section 6 to confirm its accuracy, subject,
however, to the obligation of the party making such investigation to keep
in confidence any information derived until such time as the information is
filed with the SEC.
6.5 To the extent transfers of the Notes or Common Stock are permitted
pursuant to Section 5 hereof, Purchaser may transfer, assign or otherwise
dispose of its rights under this Section 6, as a whole or in part, but no
such action by a Purchaser shall increase or otherwise affect the nature or
extent of the Company's obligations provided in this Section.
7. OTHER AGREEMENTS.
7.1 Board Representation. The Purchasers and their successors will
have the right to designate a nominee, reasonably acceptable to the Board
of Directors of the Corporation, for election, at its option, as a member
of the Board of Directors of the Company, and the Company will use its best
efforts to cause such nominee to be elected and continued in office as a
director of the Company until seventy-five (75%) percent of the aggregate
initial principal amount of the Notes has been paid, or 75% of the Common
Stock received upon conversion of the entire principal of the Notes has
been sold. Notwithstanding the foregoing, the Purchasers shall have the
option to designate an observer to the Board of Directors subject to the
foregoing conditions. Following the election of such nominee as a director,
such person shall receive no more or less compensation than is paid to
other non-officer directors of the Company for attendance at meetings of
the Board of Directors of the Company and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation, to the
extent Directors are so reimbursed generally. The Company agrees to
indemnify and hold such director harmless, to the maximum extent provided
to other directors under the Corporation's Restated Certificate of
Incorporation against any and all claims, actions, awards and judgments
arising out of his
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service as a director and, in the event the Company maintains a liability
insurance policy affording coverage for the acts of its officers and
directors, to include such director as an insured under such policy. The
rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to each Purchaser insofar
as it may be or may be alleged to be responsible for such director.
7.2 Preemptive Rights.
(a) The percentage of the Company's issued and outstanding Common
Stock, on a fully-diluted basis (based on the number of shares of Common
Stock outstanding on the date hereof and any other Equity Securities (as
defined below) outstanding on the date hereof), represented by the shares
of Common Stock issuable upon conversion of the Notes in their entirety
(after giving effect to any adjustment to the Conversion Price as set forth
in the Notes), shall be referred to herein as the "Equity Percentage." In
addition to the anti-dilution provision set forth in the Notes, the
Purchasers shall be entitled to preemptive rights as set forth herein in
order to preserve such Equity Percentage. In the case of the issuance of
additional shares of Common Stock or any security that is convertible into
shares of Common Stock or any rights or options to purchase shares of
Common Stock (collectively, "Equity Securities") which are issued for
consideration that includes cash and are not issued to the selling
shareholders in a merger or acquisition transaction, the Purchasers shall
be entitled to purchase such amount of Equity Securities, upon the same
terms and conditions as applicable to any other purchaser or recipient of
such Equity Securities, in an amount so as to preserve the Purchasers'
Equity Percentage.
(b) For purposes of this Section 7.2, (i) the Company shall be deemed
to have issued the maximum number of shares of Common Stock deliverable
upon the exercise of any such rights or options or upon conversion of any
such securities and (ii) the consideration therefor shall be deemed to be
the sum of (x) the consideration received by the Company for such
convertible securities or for such other rights or options as the case may
be, without deducting therefrom any expenses or commissions incurred or
paid by the Company for any underwriting or issuance of such convertible
security or right or option, plus (y) the consideration or adjustment
payment to be received by the Company in connection with such conversion,
plus (z) the minimum price at which shares of Common Stock are to be
delivered upon the exercise of such rights or options, or, if no minimum
price is specified and such shares are to be delivered at the option price
related to the market value of the subject shares, an option price bearing
the same relation to the market value of the subject shares at the time
such rights or options were granted, provided that as to such options such
further
-12-
<PAGE> 13
adjustment as shall be necessary on the basis of the actual option price at
the time of exercise shall be made at such time if the actual option price
is less than the aforesaid assumed option price.
(c) The number of shares of Common Stock at any time outstanding shall
include (i) all outstanding common stock of the Company, and (ii) the
aggregate number of shares deliverable in respect of the convertible
securities, rights and options referred to in this Section 7.2, provided
that, to the extent that any such options, warrants or conversion
privileges are not exercised, such shares shall be deemed to be outstanding
only until the expiration dates of the rights, options or conversion
privilege or the prior cancellation thereof. Notwithstanding the foregoing,
there shall not be taken into account, for the purpose of any computation
made pursuant to Section 7.2, whether for the determination of the number
of shares of Common Stock issued or outstanding on or prior to any date, or
otherwise, any options, warrants, or rights to purchase shares of Common
Stock of the Company in existence on the date of issuance of the Notes.
8. CLOSING DATE.
The date and time of the issuance and sale of the Notes (the "Closing
Date") shall be the date hereof or such other as such be mutually agreed upon in
writing. Notwithstanding anything to the contrary contained herein, the closing
shall be subject to the conditions set forth in Sections 9 and 10.
9. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
Each Purchaser understands that the Company's obligation to sell the Notes
on the Closing Date to such Purchaser pursuant to this Agreement is conditioned
upon:
(a) Delivery by the Purchasers to the Company of an aggregate of
$2,000,000 in immediately available funds (the "Purchase Price"); provided
that certain Purchaser(s) may present the Bridge Note(s) for crediting as
set forth in Section 1.2 above;
(b) The accuracy on the Closing Date of the representations and
warranties of the Purchasers contained in this Agreement as if made on the
Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the
performance by the Purchasers in all material respects on or before the
Closing Date of all covenants and agreements of each Purchaser required to
be performed by it pursuant to this Agreement on or before the Closing
Date;
-13-
<PAGE> 14
(c) There shall not be in effect any law or order, ruling, judgment or
writ of any court of public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by
this Agreement.
10. CONDITIONS TO PURCHASERS' OBLIGATIONS.
The Company understands that the Purchasers' obligations to purchase the
Notes on the Closing Date pursuant to this Agreement is conditioned upon:
(a) Delivery by the Company to each Purchaser of one or more
certificates (I/N/O each Purchaser and its nominee) evidencing the Notes to
be purchased by each such Purchaser pursuant to this Agreement;
(b) The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the
performance by the Company in all material respects on or before the
Closing Date of all covenants and agreements of the Company required to be
performed by it pursuant to this Agreement on or before the Closing Date;
(c) Purchasers having received the opinion of counsel for the Company
referred to in Section 2.8;
(d) The Company's Certificate of Incorporation has been validly
amended to provide for (i) an increase in number of shares of Common Stock
duly and validly authorized to 25,000,000 shares, and (ii) the Series A
Preferred Stock. All other matters in connection with the issuance of the
Notes which are required to be approved by the Company's shareholders
and/or Board of Directors, including without limitation, approval of the
voting rights granted to the holders of the Senior Notes have been approved
by the Company's stockholders and the Company's Board of Directors.
(e) There not having occurred any general suspension of trading in, or
limitation on prices listed for, the Common Stock on the NASDAQ - Small Cap
System;
(f) Except as disclosed in the documents set forth in Schedule 2.7 or
as otherwise disclosed herein, there not having occurred any event or
development, and there being in existence no condition, having or which
reasonably and foreseeably could have a Material Adverse Effect;
-14-
<PAGE> 15
(g) The Company shall have delivered to the Purchasers reimbursement
of the Purchasers' out-of-pocket costs and expenses incurred in connection
with the transactions contemplated by this Agreement and the Bridge Note
Agreement (including the fees and disbursements of the Purchasers' legal
counsel, which shall not exceed $35,000 in the aggregate), upon submission
by the Purchasers to the Company of appropriate documentary evidence of
such out-of-pocket costs and expenses; and
(h) There shall not be in effect any law or order, ruling, judgment or
writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by
this Agreement.
11. SURVIVAL; INDEMNIFICATION.
11.1 The representations, warranties and covenants made by each of the
Company and the Purchasers in this Agreement, the annexes, schedules and
exhibits hereto and in each instrument, agreement and certificate entered
into and delivered by them pursuant to this Agreement, shall survive the
Closing and the consummation of the transactions contemplated hereby. In
the event of a breach or violation of any of such representations,
warranties or covenants, the party to whom such representations, warranties
or covenants have been made shall have all rights and remedies for such
breach or violation available to it under the provisions of this Agreement
or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
11.2 The Company hereby agrees to indemnify and hold harmless the
Purchasers, its Affiliates and their respective officers, directors,
partners and members (collectively, the "Purchaser Indemnitees"), from and
against any and all losses, claims, damages, judgments, penalties,
liabilities and deficiencies (collectively, "Losses"), and agrees to
reimburse the Purchaser Indemnitees for all out-of-pocket expenses
(including the reasonable fees and expenses of legal counsel), in each case
promptly as incurred by the Purchaser Indemnitees and to the extent arising
out of or in connection with:
(a) any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement; or
(b) any failure by the Company to perform in any material respect
any of its covenants, agreements,
-15-
<PAGE> 16
undertakings or obligations set forth in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement.
11.3 Each Purchaser hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners
and members (collectively, the "Company Indemnitees"), from and against any
and all Losses, and agrees to reimburse the Company Indemnitees for all
out-of-pocket expenses (including the reasonable fees and expenses or legal
counsel), in each case promptly as incurred by the Company Indemnitees and
to the extent arising out of or in connection with:
(a) any misrepresentation, omission of fact, or breach of any of
the Purchasers' representations or warranties contained in this
Agreement, the annexes, schedules or exhibits hereto or any
instrument, agreement or certificate entered into or delivered by the
Purchasers pursuant to this Agreement; or
(b) any failure by the Purchasers to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement or any instrument, certificate or
agreement entered into or delivered by a Purchaser pursuant to this
Agreement.
11.4 Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section 11 (an "Indemnified Party") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom
indemnification pursuant to this Section 11 is being sought (the
"Indemnifying Party") of the commencement thereof; but the omission to so
notify the Indemnifying Party shall not relieve it from any liability that
it otherwise may have to the Indemnified Party, except to the extent that
the Indemnifying Party is materially prejudiced and forfeits substantive
rights and defenses by reason of such failure. In connection with any Claim
as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense
thereof. Notwithstanding the assumption of the defense of any Claim by the
Indemnifying Party, the Indemnified Party shall have the right to employ
separate legal counsel and to participate in the defense of such Claim, and
the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (x) the Indemnifying Party shall have agreed to pay such
fees, out-of-pocket costs and expenses, (y) the Indemnified Party and the
Indemnifying Party reasonably shall have concluded that representation of
the
-16-
<PAGE> 17
Indemnified Party and the Indemnifying Party by the same legal counsel
would not be appropriate due to actual or, as reasonably determined by
legal counsel to the Indemnified Party, potentially differing interests
between such parties in the conduct of the defense of such Claim, or if
there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or
(z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period
of time after notice of the commencement of such Claim. If the Indemnified
Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of
such legal counsel shall be borne exclusively by the Indemnified Party.
Except as provided above, the Indemnifying Party shall not, in connection
with any Claim in the same jurisdiction, be liable for the fees and
expenses of more than one firm of legal counsel for the Indemnified Party
(together with appropriate local counsel). The Indemnifying Party shall
not, without the prior written consent of the Indemnified Party (which
consent shall not unreasonably be withheld), settle or compromise any Claim
or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with
respect to such Claim or judgment.
12. NOTICES.
All notices required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered or sent by
registered or certified mail (return receipt requested, postage prepaid),
facsimile transmission or overnight courier to the address of the intended
recipient as follows:
If to the Company:
Marine Management Systems, Inc.
470 West Avenue
Stamford, CT 06902
Attention: President
If to a Purchaser: at the address set forth on Exhibit A annexed hereto.
or, if any other address shall at any time be designated by the Company or by a
Purchaser in writing in conformance with the provisions hereof, to such other
address.
-17-
<PAGE> 18
13. PARTIES IN INTEREST.
All the terms and provisions of this Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.
14. GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by the
laws of the State of New York.
15. SECTION AND OTHER HEADINGS.
Section and other headings herein are for reference purposes only, and
shall not be used in any way to govern, limit, modify, construe or otherwise
affect this Agreement.
16. COUNTERPARTS.
This Agreement may be executed with each Purchaser in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall be deemed but one and the same instrument.
17. AMENDMENT.
This Agreement and the Notes may be amended by written agreement of the
Company and holders of Notes representing seventy-five percent (75%) of the
principal amount of Notes then outstanding solely with respect to the matters
referred to herein and any waiver or consent pursuant to the Notes may be given
by holders of Notes representing seventy-five percent (75%) of the principal
amount of the Notes outstanding solely with respect to the matters referred to
herein. Any such amendment, waiver or consent shall be binding upon the holders
of all Notes then outstanding, but solely with respect to the following matters:
exercise of registration rights; designation of nominee as a member of the Board
of Directors; allowing the issuance of additional employee or directors'
options, warrants or stock purchase rights without affecting the anti-dilution
provisions of the Notes, and permitting any indebtedness to become senior to the
Notes.
[conditional end of page - next page is signature page]
-18-
<PAGE> 19
IN WITNESS WHEREOF, this Agreement has been executed and delivered on the
date first above written by the duly authorized representative of the Company.
"Company"
MARINE MANAGEMENT SYSTEMS, INC.
By: /s/ Michael P. Barney
----------------------------------
Michael P. Barney, President
"Purchasers"
Wechsler & Co., Inc.
By: /s/ Norman Wechsler
----------------------------------
Norman Wechsler, President
The Laura Wanser Foundation
By: /s/ Edna M. May
----------------------------------
Name: Edna M. May
Title President
Key Trust Co N.A., TTEE For Reliable
Credit Association Employees Pension
Plan, A/C #0116260
By: /s/ Vicki A. Coleman
----------------------------------
Name: Vicki A. Coleman
Title Client Manager
U.S. Bank National Association, as
Trustee for Rellable Credit
Association, Account #97305370
By: /s/ Ann Roemer
----------------------------------
Name: Ann Roemer, Vice President
Title: Trustee
-19-
<PAGE> 20
EXHIBIT A
LIST OF PURCHASERS
<TABLE>
<CAPTION>
Purchaser Principal Amount
of Senior Notes
<S> <C>
Wechsler & Co., Inc. $ 1,250,000
105 South Bedford Road
Suite 310
Mount Kisco, NY 10543
The Laura Wanser Foundation $ 50,000
c/o May Management, Inc.
45650 Kruse Way #345
Lake Oswego, OR 97035
Key Trust Co N.A.,
TTEE For Reliable Credit
Association Employees Pension
Plan, A/C #0116260 $ 300,000
c/o May Management, Inc.
45650 Kruse Way #345
Lake Oswego, OR 97035
U.S. Bank National Association
As Trustee for Reliable Credit
Association, Account #97305370 $ 400,000
----------
c/o May Management, Inc.
45650 Kruse Way #345
Lake Oswego, OR 97035
TOTAL $2,000,000
==========
</TABLE>
<PAGE> 21
EXHIBIT B
SENIOR CONVERTIBLE NOTE
[Filed as Exhibit 2 to Schedule 13D]
<PAGE> 22
SCHEDULE 2.4
TO
SENIOR CONVERTIBLE NOTE PURCHASE AGREEMENT
Shares of Common Stock Reserved for Issuance
The Company has reserved for issuance under the Senior Note Purchase
Agreement, 2,000,000 shares of its Common Stock and such additional shares as
may be necessary for conversion of the Notes.
The Company currently has authorized for issuance, 25,000,000 shares of
Common Stock, 4,421,120 of which are currently issued, and outstanding, and
2,721,219 of which are reserved for issuance as follows:
(a) 1,656,000 shares issuable upon exercise of warrants issued in
connection with the Company's initial public offering;
(b) 268,000 shares issuable upon exercise of warrants issued to Whale
Securities Co., L.P. (the "Underwriter's Warrants) and upon exercise of warrants
underlying the Underwriter's Warrants;
(c) 125,000 shares issuable upon exercise of warrants issued to Sperry
Marine, Inc.;
(d) 222,219 shares issuable upon exercise of warrants issued to certain
executive officers of the Company and their affiliates; and
(e) 450,000 shares reserved for issuance pursuant to the terms of the
Company's Stock Option Plan, of which options to purchase up to 200,385 shares
of the Company's Common Stock have been issued.
<PAGE> 23
SCHEDULE 2.7
Letter from The NASDAQ Stock Market, Inc., dated July 1, 1998, signed by Kit
Milholland, Assistant Director.
Letter from The NASDAQ Stock Market, Inc., dated July 1, 1998, signed by Leslie
Bosch, Analyst.
Letter from The NASDAQ Stock Market, Inc., dated May 15, 1998.
<PAGE> 24
SCHEDULE 2.21
RELATED PARTY INDEBTEDNESS
<TABLE>
<S> <C>
Eugene Story $300,000*
Robert Ohmes $300,000*
Don Logan $ 22,000*
Eugene Story $ 29,000*
Mark Story $ 15,000
--------
$666,000
</TABLE>
* Exchanged for Series A Preferred Stock.
<PAGE> 1
THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO SECTION 4(2) OF SAID ACT AND NOT WITH A VIEW TO OR IN
CONNECTION WITH THE DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES
ISSUED UPON CONVERSION HEREOF MAY BE OFFERED FOR SALE OR SOLD OR OTHERWISE
DISPOSED OF EXCEPT UPON COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE
PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT THE
PRINCIPAL OFFICE OF THE COMPANY.
MARINE MANAGEMENT SYSTEMS, INC.
SENIOR FIVE-YEAR CONVERTIBLE NOTE
July 10, 1998
FOR VALUE RECEIVED, the undersigned, MARINE MANAGEMENT SYSTEMS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to
_________________, (the "Holder") or order, the principal amount of
_______________ ($___________), such amount to be due and payable on March 31,
2003. Interest on the unpaid principal balance from the date hereof shall be
payable semi-annually commencing September 30, 1998 (provided that such first
interest payment date shall be for the period commencing as of the date hereof),
and on each March 31 and September 30 thereafter, at the rate of ten (10%)
percent per annum. For all interest payments through March 31, 2000, the
Company, at its option, may elect to pay the interest hereunder by adding to the
outstanding principal amount of this Note, such interest which has not been paid
in cash (the "Additional Principal Amount"). Interest shall begin to accrue on
such Additional Principal Amount beginning on and including the applicable
interest payment date on which such Additional Principal Amount is added to the
outstanding principal amount of this Note. If the Company has elected to pay any
such interest payment hereunder in Additional Principal Amount (to the extent
permitted), it shall so notify the Holder on or before thirty days prior to the
applicable interest payment date. As used herein, the "principal" amount of this
Note at any time shall include the outstanding principal amount of this Note,
including any Additional Principal Amount outstanding as of such date. The
Company shall have the right to prepay, without penalty or premium, all or a
portion of the principal amount of this Note with accrued interest thereon to
the date of such
<PAGE> 2
prepayment upon thirty (30) days' written notice to the Holder at any time
following March 31, 2001. Any prepayment shall be first applied to interest
thereon accrued through the prepayment date and allocated among the then
outstanding Notes pro rata on the basis of the then unpaid principal amount
(including any Additional Principal Amount) of each of such Notes. No prepayment
may be permitted unless, at the time of such prepayment, there is registered
with the Commission for sale by the Holder, shares of Common Stock of the
Company reflecting full conversion of this Note. The Holder shall be entitled to
convert this Note at any time prior to such Prepayment Date.
Payments of principal and interest shall be made in lawful money of the
United States of America at the principal office of the Holder or at such other
place as the Holder hereof shall have designated to the Company in writing.
This Note is made pursuant to a certain Senior Note Purchase Agreement
dated July 10, 1998 (the "Agreement") between the Company and the Holder (and
the other Holders named therein), and the Holder hereof is entitled to the
benefits of the Agreement and may exercise the remedies provided for thereby or
otherwise available in respect thereof, in case of any material breach thereof
by the Company. (This Note and other Notes identical in terms (except for name
and face amount) issued to Holder and to other Holders who are parties to the
Agreement, are hereinafter collectively called the "Notes".) Payments of
principal and interest in respect of the Notes are senior to and prior in right
of payment to all other indebtedness for borrowed money of the Company, provided
that they shall be pari passu with any borrowings by the Company from a
recognized financial institution for working capital in a principal amount not
to exceed $500,000; provided further that such borrowings for working capital
may be secured by the assets of the Company pursuant to a security agreement and
on terms and conditions reasonably acceptable to the Holder (the "Permitted Bank
Line"). In case of an Event of Default, as defined herein, the unpaid balance of
the principal of this Note may be declared and become due and payable in the
manner provided herein.
This Note is issued subject to the following additional terms and
conditions:
1. Interest and Payment.
1.1 The principal amount of this Note outstanding from time to time
shall bear simple interest at an annual rate of ten percent (10%) (the
"Note Rate") from the date hereof (provided that interest shall accrue on
any Additional Principal Amount beginning on and including the applicable
interest payment date on which such Additional Principal Amount is added to
the outstanding principal amount of this Note) until payment in full of all
amounts of principal and interest outstanding under this Note.
-2-
<PAGE> 3
1.2 In the event of conversion of all or any portion of this Note,
interest on this Note shall continue to accrue until the applicable
conversion date.
1.3 All payments made by the Company on this Note shall be applied
first to the payment of accrued unpaid interest on this Note and then to
the reduction of the unpaid principal balance of this Note.
1.4 If payment of the outstanding principal amount of any Note,
together with accrued unpaid interest thereon, is not made on the earliest
to occur of (i) March 31, 2003; and (ii) any date on which any principal
amount of, or accrued unpaid interest on, any Note is declared to be, or
becomes, due and payable pursuant to the terms of such Note prior to March
31, 2003, then interest shall accrue on the outstanding principal amount
due under this Note and, to the extent permitted by law, on any unpaid
accrued interest due on this Note from and after such date of default to
the date of the payment in full of such amounts (including from and after
the date of the entry of judgment in favor of Holder in an action to
collect this Note) at an annual rate equal to the maximum rate of interest
permitted by applicable law (the "Maximum Rate").
1.5 In the event that a court of competent jurisdiction determines
that such amounts paid or agreed to be paid by the Company in connection
with this Note causes the effective interest rate on this Note to exceed
the Maximum Rate, such interest or other consideration shall automatically
be reduced to a rate which results in an effective interest rate under this
Note equal to the Maximum Rate over the term hereof, and, in such event,
any amounts received by Holder deemed to constitute excessive interest
shall be applied first to the payment of accrued unpaid interest on this
Note and then to the reduction of the unpaid principal balance of this
Note.
1.6 In the event that the date for the payment of any amount payable
under this Note falls due on a Saturday, Sunday or public holiday under the
laws of the State of New York, the time for payment of such amount shall be
extended to the next succeeding business day and interest shall continue to
accrue on any principal amount so effected until the payment thereof on
such extended due date.
2. Conversion.
2.1 Any holder of this Note will have the right at its option at any
time, and from time to time, prior to receipt of payment in full of the
principal amount of and interest on this Note to convert, subject to the
terms and provisions hereof, all or a portion of the principal amount of
this Note and accrued interest thereon, into shares of the Company's Common
Stock, $.002 par value per share, at the conversion price hereinafter
provided.
-3-
<PAGE> 4
Notwithstanding the foregoing, the holder shall not be entitled to convert
this Note until six months from issue date, except in the event of a
transaction referred to in Section 5 below, in which case the holder shall
be entitled to convert this Note at any time after the public announcement
of such a transaction.
2.2 To convert this Note, in whole or in part as provided herein at
the Holder's election, the Holder hereof shall surrender this Note and give
written notice to the Company of his intention to convert, stating the
portion of the Note that is to be converted and the name and address of
each person in whose name a share or shares of stock issuable upon such
conversion is to be registered and the number of shares to be issued to
each such person.
2.3 As promptly as practical after the surrender and giving of notice
to convert as herein provided, the Company shall (i) pay the Holder the
amount of accrued and unpaid interest on this Note to the date on which
such conversion is made either in cash or by means of Additional Principal
Amount as set forth above; and (ii) deliver or cause to be delivered at its
office or agency maintained for that purpose to or upon written order of
the Holder of the Note certificates representing the number of fully paid
and nonassessable shares of Common Stock of the Company into which said
Note is converted and, in the event of partial conversion, a new Note in an
aggregate principal amount equal to the unconverted portion of said Note,
dated as of the date to which interest has been paid, and if no interest
has been paid, dated as of the date the Note is converted in part, and in
all other respects identical to the Note converted.
2.4 The conversion price for each share of Common Sock issuable
pursuant to the conversion of the Note shall initially be One Dollar
($1.00) per share in lawful money of the United States of America and shall
be adjusted as provided in Section 4 hereof, and as provided below
(hereinafter called the "Conversion Price").
3. Reserved Shares.
3.1 The Company covenants and agrees that it has reserved and shall at
all times reserve and keep available out of its authorized but unissued
Common Stock, solely for the purpose of issuing such shares upon the
conversion of the Notes (including any Additional Principal Amount in lieu
of interest), the full number of shares of Common Stock deliverable upon
the conversion of all Notes outstanding (including any Additional Principal
Amount in lieu of interest). The Company covenants and agrees that the
shares of its Common Stock delivered upon conversion of the Notes shall at
the time of delivery of the certificates for such shares of Common Stock,
be validly issued and outstanding and fully paid and nonassessable shares
of Common Stock. The Company further covenants and agrees that it will pay
when due and payable any and
-4-
<PAGE> 5
all Federal and state original issue taxes which may be payable in respect
of the issue of the Notes or any shares of Common Stock upon the conversion
of Notes. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the transfer and
delivery of Notes, any such tax being payable by the Holder of such Notes
at the time of surrender.
3.2 Each person in whose name any certificate for shares of Common
Stock is issuable upon the exercise of this Note shall for all purposes be
deemed to have become the holder of record of the Common Stock represented
thereby on, and such certificate shall be dated, the date upon which the
Note was duly surrendered and notice of conversion was given; provided,
however, that if the date of such surrender and notice is a date upon which
the stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next business day on which the stock
transfer books of the Company are open.
4. Adjustments to Conversion Price.
4.1 In case the Company shall at any time or from time to time after
the date of issuance of the Notes issue any additional shares of Common
Stock (or any security convertible into shares of Common Stock or any
rights or options to purchase shares of Common Stock) for a consideration
per share less than the Conversion Price in effect immediately prior to the
issuance of such additional shares, or without consideration, then, and
thereafter successively upon each such issuance, the Conversion Price in
effect immediately prior to the issuance of such additional shares shall
forthwith be reduced to a price determined by dividing:
(a) An amount equal to the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance multiplied
by the then existing Conversion Price, plus (ii) the consideration, if
any, received by the Company upon such issuance, by
(b) The total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares.
4.2 The Company shall not be required to make any adjustment of the
Conversion Price in accordance with Section 4.1 if the amount of such
adjustment shall be less than $.01, but in such case, any adjustment that
would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment of the Conversion Price which, together with all adjustments
thereof so carried forward, shall amount to not less than $.01.
-5-
<PAGE> 6
4.3 For the purpose of adjustments under Section 4.1, the following
provisions shall also be applicable:
(a) In the case of the issuance of additional shares of Common
Stock for cash, the consideration received by the Company therefor
shall be deemed to be the cash proceeds received for such shares
without deducting any commissions or other expenses paid or incurred
by the Company for any underwriting of, or otherwise in connection
with, the issuance of such shares.
(b) In case of the issuance (otherwise than upon conversion of
Notes) of additional shares of Common Stock for a consideration other
than cash or a consideration a part of which shall be other than cash,
the amount of the consideration shall be determined in good faith by
the Board of Directors of the Company.
(c) In the case of the issuance by the Company after the date of
issuance of the Notes, of any security that is convertible into shares
of Common Stock or any rights or options to purchase shares of Common
Stock, (i) the Company shall be deemed to have issued the maximum
number of shares of Common Stock deliverable upon the exercise of such
rights or options or upon conversion of such securities and (ii) the
consideration therefor shall be deemed to be the sum of (x) the
consideration received by the Company for such convertible securities
or for such other rights or options as the case may be, without
deducting therefrom any expenses or commissions incurred or paid by
the Company for any underwriting or issuance of such convertible
security or right or option, plus (y) the consideration or adjustment
payment to be received by the Company in connection with such
conversion, plus (z) the minimum price at which shares of Common Stock
are to be delivered upon the exercise of such rights or options, or,
if no minimum price is specified and such shares are to be delivered
at the option price related to the market value of the subject shares,
an option price bearing the same relation to the market value of the
subject shares at the time such rights or options were granted,
provided that as to such options such further adjustment as shall be
necessary on the basis of the actual option price at the time of
exercise shall be made at such time if the actual option price is less
than the aforesaid assumed option price.
(d) For the purpose hereof, any additional shares of Common Stock
issued as a stock dividend shall be deemed to have been issued for no
consideration.
(e) The number of shares of Common Stock at any time outstanding
shall include (i) all outstanding common stock of the Company, and
(ii) the aggregate number of shares deliverable in respect of the
convertible securities, rights and options referred to in this Section
4, provided that, to the extent that any such options, warrants or
conversion privileges are not exercised, such shares shall be deemed
to be outstanding only until the expiration dates of the rights,
options or conversion privilege
-6-
<PAGE> 7
or the prior cancellation thereof. Notwithstanding the foregoing,
there shall not be taken into account, for the purpose of any
computation made pursuant to Section 4, whether for the determination
of the number of shares of Common Stock issued or outstanding on or
prior to any date, or otherwise: (i) any options, warrants, or rights
to purchase shares of Common Stock of the Company included on Schedule
2.4 to the Agreement, (ii) options to purchase up to 450,000 shares of
Common Stock issued pursuant to the Company's Stock Option Plan if the
exercise price thereof is at least $1.00 per share, or (iii) any
shares of Common Stock issued upon the exercise of any such options,
warrants, or conversion rights referenced in the foregoing clauses (i)
and (ii).
(f) Notwithstanding the foregoing, upon the expiration or other
termination of such options, rights or warrants, if any thereof shall
not have been exercised, the number of shares of Common Stock deemed
to be issued and outstanding pursuant to subparagraphs (d) and (e)
shall be reduced by such number of shares of Common Stock as to which
options, warrants and/or rights shall have expired or terminated
unexercised, and such number of shares of Common Stock shall no longer
be deemed to be issued and outstanding, and the Conversion Price then
in effect shall forthwith be readjusted and thereafter be the price
which it would have been had adjustment been made on the basis of the
issuance only of shares of Common Stock actually issued or issuable
upon the exercise of those options, rights or warrants as to which the
exercise rights shall have not have expired or terminated unexercised.
4.4 If at any time or from time to time the Company shall by
subdivision, consolidation or reclassification of shares, or otherwise,
change as a whole, the outstanding shares of Common Stock into a different
number or class of shares, the shares issuable upon conversion of each Note
and the Conversion Price per share shall be proportionately and
correspondingly adjusted so as to give the Holder substantially the same
rights as the Holder would have had if the Holder had converted this Note
immediately prior to the occurrence of such event.
4.5 In case the Company shall declare a dividend upon the Common Stock
payable otherwise than out of earnings or earned surplus and otherwise than
in Common Stock, the Conversion Price in effect immediately prior to the
declaration of such dividend shall be reduced by an amount equal, in the
case of a dividend in cash, to the amount thereof payable per share of the
Common Stock, or in the case of any other dividend, to the fair value
thereof per share of the Common Stock as determined, in good faith, by the
Board of Directors of the Company. For the purposes of the foregoing, a
dividend other than in cash shall be considered payable out of earnings or
earned surplus only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in
good faith by the Board of Directors of the Company. Such reductions shall
take
-7-
<PAGE> 8
effect as of the date as of which the holders of Common Stock of record are
entitled to such dividend.
4.6 Irrespective of any adjustments or changes in the Conversion Price
or the number of shares of Common Stock actually issuable under the several
Notes, the Notes shall continue to express the Conversion Price per share
and the number of shares issuable thereunder as expressed in the Notes when
initially issued.
4.7 The Company shall give notice to the Holder of any change in the
Conversion Price under this Note and the method of calculation thereof. The
Company shall give the Holder advance notice of any cash dividends, rights
offerings and other transactions directly for the benefit of holders of
Common Stock of the Company and any transaction referred to in Section 5
below; provided that in any event such notice shall be provided prior to
the applicable record date for or the effective date of any such
transaction.
4.8 The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Company but will at all times in good faith assist in the carrying out
of all the provisions of this Note and in the taking of all such actions as
may be necessary or appropriate in order to protect the conversion rights
of the Holders of the Notes.
5. Merger.
If, prior to the payment in full or conversion in full of the Notes, the
Company shall at any time consolidate with or merge into another corporation,
the Holder of each Note will thereafter be entitled to receive, upon the
conversion thereof, the securities or property to which a holder of the number
of shares of Common Stock then issuable upon the conversion of such Note would
have been entitled upon such consolidation or merger, and the Company shall take
such steps in connection with such consolidation or merger as may be necessary
to assure that this Note (or a new Note issued by the succeeding company
containing exactly the same terms as this Note) shall remain in effect and that
the provisions of this Note shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter issuable
upon the conversion of the Notes. A sale of all or substantially all of the
assets of the Company for a consideration (apart from the assumption of
obligations) consisting principally of securities or, a purchase of 50% or more
of the Common Stock by a person or a group of related people pursuant to a
tender offer or otherwise shall be deemed a consolidation or merger for the
foregoing purposes. In the event of a consolidation
-8-
<PAGE> 9
or merger, provided that the consideration per share of Common Stock to be
received by the Company's shareholders is less than the Conversion Price, the
Holder shall have the option to put the Note to the issuer for the principal
amount of the Note, plus accrued interest; payment to be made at the time of the
closing of any such consolidation or merger. In the event of a consolidation or
merger, provided that the consideration per share of Common Stock to be received
by the stockholders is equal to at least two (2) times the then Conversion
Price, the Company shall have the right to prepay the Note in accordance with
the prepayment provisions set forth above.
6. Fractional Shares.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the conversion of Notes, but in respect
of any final fraction of a share it will make a payment in cash based on the
then market value of the Common Stock as determined by the Company's Board of
Directors.
7. Covenants of the Company . The Company covenants and agrees that, so
long as this Note remains outstanding and unpaid, in whole or in part:
7.1 The Company will not, and will not permit any of its subsidiaries
to, sell, transfer or in any other manner alienate or dispose of a material
part of its assets; provided, however, that the Company or any of its
subsidiaries may effect such a transaction if (i) the transaction is a bona
fide transaction in which fair market value is received, (ii) no Event of
Default (defined below) or any condition or event which, with the giving of
notice or the lapse of time or both, would become an Event of Default has
occurred or would occur after giving effect to such transaction, and (iii)
the payment of this Note is duly provided for from such sale proceeds;
7.2 The Company will not, and will not permit any of its subsidiaries
to, make any loan to any person who is or becomes a shareholder of the
Company, other than for reasonable advances for expenses in the ordinary
course of business;
7.3 The Company will, and will cause each of its subsidiaries to,
promptly pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it, its income and profits, or any of its
property, before the same shall become in default, as well as all lawful
claims for labor, materials and supplies which, if unpaid, might become a
lien or charge upon such properties or any part thereof; provided, however,
that the Company or such subsidiary shall not be required to pay and
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate
proceedings and the Company or such subsidiary, as the
-9-
<PAGE> 10
case may be, shall set aside on its books adequate reserves with respect to
any such tax, assessment, charge, levy or claim so contested;
7.4 The Company will, and will cause each of its subsidiaries to, do
or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence, rights and franchises and substantially
comply with all laws applicable to the Company as its counsel may advise;
7.5 The Company will, and will cause each of its subsidiaries to, at
all times maintain, preserve, protect and keep its property used or useful
in the conduct of its business in good repair, working order and condition
(except for the effects of reasonable wear and tear in the ordinary course
of business) and will, from time to time, make all necessary and proper
repairs, renewals, replacements, betterments and improvements thereto;
7.6 The Company will, and will cause each of its subsidiaries to, keep
adequately insured, by financially sound reputable insurers, all property
of a character usually insured by similar corporations and carry such other
insurance as is usually carried by similar corporations;
7.7 The Company will, promptly following the occurrence of an Event of
Default or of any condition or event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default, furnish a
statement of the Company's President or Chief Financial Officer to Holder
setting forth the details of such Event of Default or condition or event
and the action which the Company intends to take with respect thereto;
7.8 The Company will, and will cause each of its subsidiaries to, at
all times maintain books of account in which all of its financial
transactions are duly recorded in conformance with generally accepted
accounting principles; and
7.9 The Company shall not, and shall not permit any of its
subsidiaries to: (a) redeem, purchase or otherwise acquire for
consideration any shares of capital stock or (b) declare or pay dividends
of any kind with respect to any capital stock of the Company, except for
dividends due and payable on the outstanding shares of Series A Preferred
Stock.
7.10 The Company will not incur, or permit the incurrence of or
otherwise permit to be outstanding, any indebtedness which (a) is senior in
right of payment to the Notes, or (b) is pari passu in right of payment to
the Notes, except that the Permitted Bank Line may be pari passu in right
of payment to the Notes, or (c) except with the prior written consent of
the Purchasers, grants to the holder of such indebtedness (or any
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<PAGE> 11
affiliated entities) any voting rights with respect to matters voted on by
holders of the Company's Common Stock.
8. Events of Default. If any of the following events (each an "Event of
Default") occurs:
8.1 The dissolution of the Company or any subsidiary of the Company or
any vote in favor thereof by the board of directors and shareholders of the
Company or any subsidiary of the Company; or
8.2 The Company or any of its subsidiaries becomes insolvent, however
evidenced, or makes an assignment for the benefit of creditors, or files
with a court of competent jurisdiction an application for appointment of a
receiver or similar official with respect to it or any substantial part of
its assets, or the Company or any of its subsidiaries files a petition
seeking relief under any provision of the Federal Bankruptcy Code or any
other federal or state statute now or hereafter in effect affording relief
to debtors, or any such application or petition is filed against the
Company or any of its subsidiaries, which application or petition is not
dismissed or withdrawn within sixty (60) days from the date of its filing;
or
8.3 The Company fails to pay the principal amount of this Note or any
of the other Notes as and when the same becomes due and payable or fails to
pay the interest on, or any other amount payable under, this Note or any of
the other Notes on or before the 10th day following the date the same
becomes due and payable; or
8.4 The Company or any of its subsidiaries admits in writing its
inability to pay its debts as they mature; or
8.5 Except for a transaction which complies with Section 5 above, the
Company or any of its subsidiaries sells all or substantially all of its
assets or merges or is consolidated with or into another corporation (other
than, in the case of a subsidiary of the Company, a sale of assets to
another wholly-owned subsidiary of the Company or the merger or
consolidation of such subsidiary with or into another wholly-owned
subsidiary of the Company or into the Company); or
8.6 A proceeding is commenced to foreclose a security interest or lien
in any property or assets of the Company or of any subsidiary of the
Company as a result of a default in the payment or performance of any debt
(in excess of $75,000 and secured by such property or assets) of the
Company or of any subsidiary of the Company; or
8.7 A final judgement for the payment of money in excess of $75,000 is
entered against the Company or any subsidiary of the Company by a court of
competent jurisdiction, and such
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<PAGE> 12
judgment is not discharged (nor the discharge thereof duly provided for) in
accordance with its terms, nor a stay of execution thereof procured, within
thirty (30) days after the date such judgement is entered, and, within such
period (or such longer period during which execution of such judgment is
effectively stayed), an appeal therefrom has not been prosecuted and the
execution thereof caused to be stayed during such appeal; or
8.8 An attachment or garnishment is levied against the assets or
properties of the Company or any subsidiary of the Company involving an
amount which in the aggregate exceeds $75,000 and such levy is not vacated,
bonded or otherwise terminated within thirty (30) days after the date of
its effectiveness; or
8.9 The Company defaults in the due observance or performance of any
covenant, condition or agreement on the part of the Company to be observed
or performed pursuant to the terms of this Note (other than the default
specified in Section 8.3 above) and such default continues uncured for a
period of thirty (30) days; or
8.10 The Company defaults in the payment (regardless of amount) when
due of the principal of, interest on, or any other liability on account of,
any indebtedness of the Company or any of its subsidiaries (other than the
Notes, or any of them) having an aggregate face or principal amount in
excess of $75,000, or a default occurs in the performance or observance by
the Company of any covenant or condition (other than for the payment of
money) contained in any note or agreement evidencing or pertaining to any
such indebtedness, which causes the maturity of such indebtedness to be
accelerated or permits the holder or holders of such indebtedness to
declare the same to be due prior to the stated maturity thereof;
then, upon the occurrence of any such Event of Default and at any time
thereafter, the Holder of this Note shall have the right (at such Holder's
option) to declare the principal of, accrued unpaid interest on, and all
other amounts payable under this Note to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable to the
Holder of this Note, without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived; provided, however,
that in case of the occurrence of an Event of Default under any of Sections
8.1, 8.2 or 8.4 above, such amounts shall become immediately due and
payable without any such declaration by the Holder of this Note.
9. Suits for Enforcement and Remedies. If any one or more Events of Default
shall occur and be continuing, the Holder may proceed to (i) protect and enforce
Holder's rights either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant, condition or agreement contained
in this Note or in any agreement or document referred to herein or in aid of the
exercise of any power granted in this Note
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<PAGE> 13
or in any agreement or document referred to herein, (ii) enforce the payment of
this Note, or (iii) enforce any other legal or equitable right of the Holder of
this Note. No right or remedy herein or in any other agreement or instrument
conferred upon the Holder of this Note is intended to be exclusive of any other
right or remedy, and each and every such right or remedy shall be cumulative and
shall be in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise.
10. Voting Rights.
(a) So long as any of the principal amount or accrued interest on this Note
is still outstanding, the Holder shall be entitled to vote on all matters voted
on by holders of Common Stock, voting together as a single class with other
shares entitled to vote at all meetings of the stockholders of the Corporation.
With respect to any such vote, the Holder shall be entitled to cast the number
of votes equal to the number of votes which could be cast in such vote by a
holder of the shares of Common Stock into which this Note is convertible on the
record date for such vote. The foregoing voting rights are in addition to the
voting rights that the Holder will obtain in respect of shares of Common Stock
received upon conversion of this Note.
(b) The Company shall provide the Holder with prior notification of any
meeting of the shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any Company, the Company shall mail a
notice to the Holder, at least thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
action is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
11. Unconditional Obligation; Fees, Waivers, Other.
11.1 The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
11.2 If, following the occurrence of an Event of Default, Holder shall
seek to enforce the collection of any amount
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<PAGE> 14
of principal of and/or interest on this Note, there shall be immediately
due and payable from the Company, in addition to the then unpaid principal
of, and accrued unpaid interest on, this Note, all costs and expenses
incurred by Holder in connection therewith, including, without limitation,
reasonable attorneys' fees and disbursements.
11.3 No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver or as
an acquiescence in any default, nor shall any single or partial exercise of
any right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
11.4 This Note may not be modified or discharged (other than by
payment) except by a writing duly executed by the Company and Holder.
11.5 The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of
protest, bringing of suit, and diligence in taking any action to collect
amounts called for hereunder, and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereon, regardless of and
without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder or in connection with any
right, lien, interest or property at any and all times which Holder had or
is existing as security for any amount called for hereunder.
12. Miscellaneous.
12.1 The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms
or provisions of this Note.
12.2 All notices required or permitted to be given hereunder shall be
in writing and shall be deemed to have been duly given when personally
delivered or sent by registered or certified mail (return receipt
requested, postage prepaid), facsimile transmission or overnight courier to
the address of the intended recipient as set forth in the preamble to this
Note or at such other address as the intended recipient shall have
hereafter given to the other party hereto pursuant to the provisions of
this Note.
12.3 This Note and the obligations of the Company and the rights of
Holder shall be governed by and construed in accordance with the
substantive laws of the State of New York without giving effect to the
choice of laws rules thereof.
12.4 The Company (i) agrees that any legal suit, action or proceeding
arising out of or relating to this Note shall be instituted exclusively in
the New York State Supreme Court, County of New York or in the United
States District Court for the
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<PAGE> 15
Southern District of New York, (ii) waives any objection which The Company
may have now or hereafter based upon forum non conveniens or to the venue
of any such suit, action or proceeding, and (iii) irrevocably consents to
the jurisdiction of the New York State Supreme Court, County of New York
and the United States District Court for the Southern District of New York
in any such suit, action or proceeding. The Company further agrees to
accept and acknowledge service of any and all process which may be served
in any such suit, action or proceeding in the New York State Supreme Court,
County of New York or in the United States District Court for the Southern
District of New York and agrees that service of process upon the Company,
mailed by certified mail to the Company's address, will be deemed in every
respect effective service of process upon the Company, in any suit, action
or proceeding. FURTHER, BOTH THE COMPANY AND HOLDER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION TO ENFORCE THIS NOTE AND IN CONNECTION WITH ANY DEFENSE,
COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION.
12.5 This Note shall bind the Company and its successors and assigns.
[conditional end of page, signature page to follow]
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<PAGE> 16
WITNESS the seal of the Company and the signature of its duly authorized
officers.
MARINE MANAGEMENT SYSTEMS, INC.
By: /s/ Michael P. Barney
-------------------------
Name: M. P. Barney
Title: CEO
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<PAGE> 1
EXHIBIT 4.2(b)
<TABLE>
<CAPTION>
Purchaser Principal Amount of Senior Note
<S> <C>
Wechsler & Co., Inc. $ 1,250,000
105 South Bedford Road
Suite 310
Mount Kisco, NY 10543
The Laura Wanser Foundation $ 50,000
c/o May Management, Inc.
4550 Kruse Way #345
Lake Oswego, OR 97035
Key Trust Co N.A., $ 300,000
TTEE For Reliable Credit
Association Employees Pension
Plan, A/C #0116260
c/o May Management, Inc.
4550 Kruse Way #345
Lake Oswego, OR 97035
U.S. Bank National Association $ 400,000
As Trustee for Reliable Credit
Association Profit Sharing Plan,
Account #97305370
c/o May Management, Inc.
4550 Kruse Way #345
Lake Oswego, OR 97035
Total $ 2,000,000
</TABLE>
<PAGE> 1
EXHIBIT 10.1
MARINE MANAGEMENT SYSTEMS, INC.
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made
and entered into this 8th day of April, 1998 by and between MARINE MANAGEMENT
SYSTEMS, INC., a Delaware corporation (the "Company"), and the purchasers listed
on Exhibit A annexed hereto (the "Purchasers" and individually, a "Purchaser").
R E C I T A L S:
A. The Company desires to exchange shares of Preferred Stock
(as defined below) for certain outstanding indebtedness of the Company held by
the Purchasers and listed on Exhibit A hereto (the "Promissory Notes"); and
B. The Purchasers desire to exchange such Company indebtedness
for shares of Preferred Stock on the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, IT IS AGREED as follows:
1. EXCHANGE OF INDEBTEDNESS FOR SERIES A PREFERRED STOCK.
1.1 Subject to the terms and conditions hereof, the
Purchasers hereby agree to purchase from the Company, and the Company has
offered and hereby agrees to issue and sell shares of Series A Preferred Stock,
to be issued pursuant to the Certificate of Designation in the form attached
hereto as Exhibit B (the "Preferred Stock") for delivery at the respective
offices of the Purchasers, against receipt by the Company of the Promissory
Notes of the Company in the respective amounts set forth opposite the
Purchasers' names in Exhibit A. The number of shares of Preferred Stock to be
issued to Purchaser is set forth opposite each Purchaser's name on Exhibit A and
is determined based upon one share of Preferred Stock, with a liquidation
preference of $1,000 per share for each $1,000 in outstanding principal amount
of Promissory Notes.
a) The purchase price for the Preferred Stock to be
purchased by the Purchasers hereunder shall be an aggregate of $651,000 (the
"Purchase Price"). The Purchasers shall pay the
-1-
<PAGE> 2
Purchase Price by tendering the Promissory Notes for cancellation by the
Company. Upon the Company's receipt of such Promissory Notes and issuance of the
shares of Preferred Stock, the Promissory Notes shall be cancelled and the
Company shall have no liability thereunder. Simultaneously against the receipt
by the Company of the Promissory Notes, the Company shall deliver one or more
duly authorized, issued and executed certificates for shares of Preferred Stock
(I/N/O each Purchaser) (the "Certificates").
2. RESERVED
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants that:
3.1 It is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware, and duly
qualified to do business and in good standing as a foreign corporation in all
jurisdictions in which the failure to so qualify would be reasonably likely to
have a material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of the Company or on the
consummation of any of the transactions contemplated by this Agreement (a
"Material Adverse Effect"). The Company has full power and authority, corporate
and otherwise, to enter into and perform this Agreement, and to make, execute
and deliver the various instruments and documents provided for herein.
3.2 The execution, delivery and performance by the
Company of this Agreement and the Certificates, and the making, execution and
delivery by the Company of the instruments contemplated hereby, have been duly
authorized by all necessary corporate action and will not violate any provision
of law, court order or decree, or of its Certificate of Incorporation or Bylaws,
or result in the breach of, or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to any agreement or instrument to which it is a party, or by
which it or its property may be bound or affected. This Agreement is a valid and
binding obligation of the Company, enforceable in accordance with its respective
terms.
3.3 The shares of Series A Preferred Stock, when
approved by the Company's stockholders, will be duly authorized and, when
issued, validly issued, fully paid and nonassessable.
- 2 -
<PAGE> 3
3.4 Upon approval of the Amendment referred to below
in Section 5, the shares of Common Stock issuable upon conversion of the
Preferred Stock shall be duly authorized and, at all times prior to the
conversion of the Preferred Stock, duly reserved for issuance and, when issued
upon such conversion, will be validly issued, fully paid and nonassessable.
3.5 Based, in part, upon the representations of the
Purchasers set forth in Section 4 hereof, the offer and sale by the Company of
the Preferred Stock is exempt from (i) the registration and prospectus delivery
requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws.
4. REPRESENTATIONS OF THE PURCHASERS. This Agreement is made
with each Purchaser by the Company in reliance upon each Purchaser's
representations to the Company, which by each Purchaser's acceptance hereof,
each Purchaser confirms, that (a) Purchaser is acquiring the shares of Preferred
Stock to be delivered for its own account and not for the beneficial interest of
any other person, and not with a view to the distribution thereof, and that
Purchaser will not distribute, sell or otherwise dispose of the shares of
Preferred Stock of the Company except as permitted under the Securities Act of
1933, as amended (the "Act"), the General Rules and Regulations thereunder, and
all applicable State "Blue Sky" laws; (b) Purchaser's financial circumstances
are such as to permit Purchaser to make this investment without having a present
intention or need to liquidate its investment; (c) Purchaser severally confirms
further that it has been advised that the shares of Preferred Stock have not
been registered under the Act, and that, accordingly, such shares of Preferred
Stock will be what is commonly known as "restricted securities," and are not
freely transferrable by Purchaser except pursuant to an exemption from
registration under the Act, such as Rule 144, the substance of which has been
explained to Purchaser or upon registration of the Preferred Stock under the
Act; (d) Purchaser is an "accredited investor" as that term is defined in SEC
Regulation D, (e) Purchaser has had the opportunity to discuss with Company
management the Company and its products, prospects, results of operation and
financial condition and to have access to any and all information regarding the
Company that Purchaser deems necessary to its decision to purchase the shares of
Preferred Stock, and (f) that the following legends shall be placed on the
shares of Preferred Stock:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO SECTION 4(2) OF SAID
ACT AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE DISTRIBUTION
THEREOF. THE SHARES OF PREFERRED STOCK MAY NOT BE OFFERED FOR SALE OR
SOLD OR OTHERWISE DISPOSED OF EXCEPT UPON COMPLIANCE WITH SAID ACT."
-3-
<PAGE> 4
5. MEETING OF THE COMPANY'S SHAREHOLDERS.
The Company will take all action necessary in accordance with
the Delaware Law and the Company's Certificate of Incorporation and By-laws to
convene a meeting of its shareholders as promptly as practicable, but no later
than July 15, 1998 to consider and vote upon an amendment to the Company's
Certificate of Incorporation (the "Amendment") providing for the authorization
of the issue of the Preferred Stock substantially in the form of the Certificate
of Designation attached hereto as Exhibit B. The Board of Directors of the
Company shall, subject to fiduciary obligations under applicable law, recommend
that the shareholders of the Company vote to approve the Amendment. Subject to
fiduciary obligations under applicable law, the Company shall use its best
efforts to solicit from shareholders of the Company proxies in favor of such
approval and adoption and shall take all other action necessary or, in its
opinion, helpful to secure such favorable vote.
6. TRANSFER BY THE PURCHASER.
Neither the shares of Preferred Stock to be purchased by the
Purchasers, nor any interest therein, shall be sold, transferred, assigned, or
otherwise disposed of, unless the Company shall previously have received an
opinion of counsel knowledgeable in federal securities law, to the effect that
registration under the Act is not required in connection with such disposition
pursuant to the Act.
7. CLOSING DATE.
The date and time of the issuance and sale of the shares of
Preferred Stock (the "Closing Date") shall be no later than the fifth (5th)
business day occurring after approval of the Amendment. Notwithstanding anything
to the contrary contained herein, the closing shall be subject to the conditions
set forth in Sections 8 and 9.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS.
Each Purchaser understands that the Company's obligation to
sell the shares of Preferred Stock on the Closing Date to such Purchaser
pursuant to this Agreement is conditioned upon:
a) Delivery by the Purchasers to the Company of an
aggregate of Promissory Notes in the outstanding principal amount of $651,000
(the "Purchase Price");
b) There shall not be in effect any law or order,
ruling, judgment or writ of any court of public or governmental authority
restraining, enjoining or otherwise prohibiting any of the transactions
contemplated by this Agreement; and
-4-
<PAGE> 5
c) Approval of the Amendment by the shareholders of
the Company.
9. CONDITIONS TO PURCHASERS' OBLIGATIONS.
The Company understands that the Purchasers' obligations to
purchase the shares of Preferred Stock on the Closing Date pursuant to this
Agreement is conditioned upon:
a) Delivery by the Company to each Purchaser of one
or more Certificates (I/N/O each Purchaser) evidencing the shares of Preferred
Stock to be purchased by each such Purchaser pursuant to this Agreement;
b) Approval of the Amendment by the shareholders of
the Company; and
c) There shall not be in effect any law or order,
ruling, judgment or writ of any court or public or governmental authority
restraining, enjoining or otherwise prohibiting any of the transactions
contemplated by this Agreement.
10. NOTICES.
Any notice or demand required or desired to be given to or
served upon the Company or a Purchaser in connection herewith shall be in
writing and deemed to have been sufficiently given or served for all purposes
when delivered in person or when deposited in the United States mails, certified
or registered, postage prepaid, if to the Company, addressed or delivered as
follows:
If to the Company:
Marine Management Systems, Inc.
470 West Avenue
Stamford, CT 06902
Attention: President
If to a Purchaser: at the address set forth on
Exhibit A annexed hereto.
or, if any other address shall at any time be designated by the Company or by a
Purchaser in writing in conformance with the provisions hereof, to such other
address.
11. PARTIES IN INTEREST.
All the terms and provisions of this Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.
- 5 -
<PAGE> 6
12. GOVERNING LAW.
This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
13. SECTION AND OTHER HEADINGS.
Section and other headings herein are for reference purposes
only, and shall not be used in any way to govern, limit, modify, construe or
otherwise affect this Agreement.
14. COUNTERPARTS.
This Agreement may be executed with each Purchaser in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall be deemed but one and the same instrument.
15. AMENDMENT.
This Agreement may be amended by written agreement of the
Company and Purchasers representing sixty-six and two-thirds percent (66 2/3%)
of the aggregate Liquidation Preference represented by the shares of Preferred
Stock then outstanding solely with respect to the matters referred to herein.
Any such amendment, waiver or consent shall be binding upon the holders of all
Preferred Stock except as otherwise provided in the Certificate of Designation.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered on the date first above written by the duly authorized representative
of the Company.
"Company"
MARINE MANAGEMENT SYSTEMS, INC.
By: /s/ Michael P. Barney
--------------------------------------
Name: Michael P. Barney
Title: President and CEO
"Purchasers"
By: /s/ Eugene D. Story
--------------------------------------
Name: Eugene D. Story
By: /s/ Robert D. Ohmes
--------------------------------------
Name: Robert D. Ohmes
-6-
<PAGE> 7
By: /s/ Donald F. Logan, Jr.
--------------------------------------
Name: Donald F. Logan, Jr.
-7-
<PAGE> 8
EXHIBIT A
<TABLE>
<CAPTION>
NO. OF SHARES OF
PRINCIPAL SERIES A PREFERRED
PURCHASER NAME AMOUNT OF STOCK ISSUED
AND ADDRESS PROMISSORY NOTES TO SUCH PURCHASER
- ----------- ---------------- -----------------
<S> <C> <C>
Eugene D. Story $329,000 329
Robert D. Ohmes $300,000 300
Donald F. Logan, Jr. $ 22,000 22
</TABLE>
-8-
<PAGE> 1
EXHIBIT 11.1
MARINE MANAGEMENT SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
METHOD - FAS 128, PRIOR YEAR RESTATED
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Common shares outstanding at January 1: 4,421,120 2,701,110 4,421,120 2,701,110
IPO offering, May 7, 1997 0 1,440,000 0 1,440,000
Other stock transactions in 1997, net: 0 202,243 0 202,243
----------- ----------- ----------- -----------
Common shares outstanding on June 30,: 4,421,120 4,343,353 4,421,120 4,343,353
Adjustment to weighted average: 0 (1,146,673) 0 (573,337)
----------- ----------- ----------- -----------
Weighted average outstanding shares @ June 30 4,421,120 3,196,680 4,421,120 3,770,016
=========== =========== =========== ===========
Net loss for periods ending June 30, $(1,245,865) $(1,449,344) $ (896,471) $ (921,490)
Preferred dividends 0 (5753) 0 (5753)
----------- ----------- ----------- -----------
Adjusted net loss: $(1,245,865) $(1,455,097) $ (896,471) $ (927,243)
=========== =========== =========== ===========
Basic and diluted earnings (loss) per share: $ (0.28) $ (0.46) $ (0.20) $ (0.25)
Prior Stated $ (0.39) $ (0.22)
</TABLE>
See accompanying Notes to Financial Statements
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 61,286
<SECURITIES> 0
<RECEIVABLES> 1,015,553
<ALLOWANCES> 109,320
<INVENTORY> 15,311
<CURRENT-ASSETS> 1,191,284
<PP&E> 450,599
<DEPRECIATION> 302,393
<TOTAL-ASSETS> 3,852,957
<CURRENT-LIABILITIES> 2,289,817
<BONDS> 0
0
0
<COMMON> 8,842
<OTHER-SE> 1,035,954
<TOTAL-LIABILITY-AND-EQUITY> 3,852,957
<SALES> 1,586,963
<TOTAL-REVENUES> 1,586,963
<CGS> 1,119,744
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,654,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,885
<INCOME-PRETAX> (1,245,865)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,245,865)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
