<PAGE>
As filed with the Securities and Exchange Commission on May 22, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
ROBOCOM SYSTEMS INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
New York 7373 11-2617048
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
511 Ocean Avenue
Massapequa, New York 11758
(516) 795-5100
(Address and Telephone Number of Principal Executive Offices)
511 Ocean Avenue
Massapequa, New York 11758
(Address of Principal Place of Business or Intended Principal Place of Business)
IRWIN BALABAN, PRESIDENT
Robocom Systems Inc.
511 Ocean Avenue
Massapequa, New York 11758
(516) 795-5100
(Name, Address and Telephone Number of Agent for Service)
----------------
Copies to:
ERIC M. HELLIGE, Esq. ROBERT J. MITTMAN, Esq.
JOHN J. CROWE, Esq. Tenzer Greenblatt LLP
Pryor, Cashman, Sherman & Flynn 405 Lexington Avenue
410 Park Avenue New York, New York 10017
New York, New York 10022-4441 Telephone: (212) 885-5000
Telephone: (212) 421-4100 Facsimile: (212) 885-5001
Facsimile: (212) 326-0806
----------------
Approximate Date of Proposed Sale to the Public: As soon as practicable
after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Amount to Price Per Offering Registration
Securities to be Registered be Registered(1) Share(2) Price(2) Fee(3)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value ..................... 1,725,000 shares $ 7.00 $ 12,075,000 $ 3,659.10
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</TABLE>
(1) Includes 225,000 shares subject to the Underwriters' over-allotment option.
See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(3) Calculated pursuant to Rule 457(a) based upon an estimate of the maximum
offering price.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
ROBOCOM SYSTEMS INC.
Cross Reference Sheet Showing Location in Prospectus
of Information Required by Form SB-2
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<CAPTION>
Form SB-2 Item Prospectus Caption
- -------------------------------------------------------------- ----------------------------------------------
<S> <C> <C>
PART I
1. Front of Registration Statement and Outside
Front Cover of Prospectus ........................... Cover Page; Outside Front Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus .......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors ............... Prospectus Summary; Risk Factors
4. Use of Proceeds .................................... Use of Proceeds
5. Determination of Offering Price ..................... Risk Factors; Underwriting
6. Dilution ............................................. Dilution
7. Selling Security Holders ........................... Not Applicable
8. Plan of Distribution ................................. Underwriting
9. Legal Proceedings .................................... Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons .................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management ....................................... Principal Shareholders
12. Description of Securities ........................... Description of Securities
13. Interest of Named Experts and Counsel ............... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ...... Not Applicable
15. Organization Within Last Five Years .................. Business
16. Description of Business .............................. Business
17. Management's Discussion and Analysis or Plan
of Operation ....................................... Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property .............................. Business -- Facilities
19. Certain Relationships and Related Transactions ...... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters ................................. Not Applicable
21. Executive Compensation .............................. Management -- Executive Compensation
22. Financial Statements ................................. Financial Statements
23. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure ............... Not Applicable
PART II
24. Indemnification of Directors and Officers ............ Indemnification of Directors and Officers
25. Other Expenses of Issuance and Distribution ......... Other Expenses of Issuance and Distribution
26. Recent Sales of Unregistered Securities ............ Recent Sales of Unregistered Securities
27. Exhibits ............................................. Exhibits
28. Undertakings ....................................... Undertakings
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS DATED MAY 22, 1997
SUBJECT TO COMPLETION
1,500,000 Shares
[LOGO] ROBOCOM SYSTEMS INC.
Common Stock
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that any such market will develop. It is
anticipated that the Common Stock will be quoted on the Nasdaq National Market
under the symbol "RIMS." It is currently estimated that the initial public
offering price of the Common Stock will be between $6.00 and $7.00 per share.
For a discussion of the factors considered in determining the initial public
offering price, see "Underwriting."
---------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING
ON PAGE 8 AND "DILUTION" ON PAGE 16.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share ...... $ $ $
- --------------------------------------------------------------------------------
Total(3) ...... $ $ $
================================================================================
(1) Does not include additional compensation to be received by BlueStone Capital
Partners, L.P. ("BlueStone"), Coleman and Company Securities, Inc. and Oscar
Gruss & Son Incorporated, as representatives of the several Underwriters
(the "Representatives"), in the form of (i) an accountable expense allowance
of up to $180,000 payable to BlueStone and (ii) warrants to purchase up to
150,000 shares of Common Stock (the "Representatives' Warrants"). The
Company has also agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $500,000 (not
including BlueStone's accountable expense allowance).
(3) The Company has granted to the Representatives an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 225,000
additional shares of Common Stock on the same terms set forth above, solely
for the purpose of covering over-allotments, if any. If the Representatives'
over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$____________, $____________, and $___________, respectively. See
"Underwriting."
The shares of Common Stock are being offered, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the offering and to
reject any order in whole or in part. It is expected that delivery of
certificates representing the shares of Common Stock will be made against
payment therefor at the offices of BlueStone Capital Partners, L.P., 575 Fifth
Avenue, New York, New York 10017, on or about , 1997.
BlueStone Capital Partners, L.P.
Coleman and Company Securities, Inc.
Oscar Gruss & Son Incorporated
The date of this Prospectus is , 1997.
<PAGE>
ROBOCOM
AUTOMATED WAREHOUSE MANAGEMENT SYSTEMS
[Four pictures of warehouse operations connected to a picture of a computer
keyboard.]
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AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish its shareholders with annual
reports containing audited financial statements and such other periodic reports
as the Company deems appropriate or as may be required by law.
-------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK. SPECIFICALLY,
THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING AND MAY BID FOR
AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, contained elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
Unless otherwise indicated, the information contained in this Prospectus,
including per share data and information relating to the number of shares
outstanding, gives retroactive effect to the 1.88-for-one split of the Common
Stock effected on May 15, 1997 and assumes no exercise of the Representatives'
over-allotment option to purchase up to 225,000 additional shares of Common
Stock. See "Underwriting" and Note 8 of Notes to Financial Statements.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
The Company
Robocom Systems Inc. (the "Company") develops, markets and supports
advanced warehouse management software solutions that enable companies to
realize significant cost savings by automating their warehouse operations. The
Company's primary product, Robocom Inventory Management System ("RIMS"), is a
customer-configurable software solution that enables a company's warehouse to
respond to a customer order with greater accuracy and in a more timely manner,
thereby turning the warehouse into a competitive advantage. RIMS operates in an
open system environment and interfaces with an organization's existing
information systems infrastructure. In addition to providing RIMS software
licenses, the Company provides installation, design and maintenance services and
related hardware when required by the customer. The Company believes that
customers that have implemented the RIMS solution have realized increased
customer satisfaction directly related to timely and accurate receipt of
shipments.
Until recently, the warehouse has received little attention from corporate
management as an area in which greater efficiency could be introduced into a
business organization. However, in recent years, an increasingly competitive
global business environment has created pressure for companies to reduce costs,
enhance product quality and reduce customer response times. To enhance
performance, many companies are reviewing and investing in improvements to their
supply chain: the mission critical process of moving raw materials and finished
goods from initial material procurement to end-customer fulfillment. Further,
companies are finding increased competitive benefits by integrating supply chain
operations with enterprise resource planning ("ERP") systems.
Because the warehouse is often considered the "hub" of the supply chain,
housing both raw materials and finished goods, warehouse operations are often
the focal points of supply chain management and ERP solutions. According to
industry sources, the supply chain management / ERP software solutions market
was estimated to be in excess of $4.5 billion in 1996 and is projected to grow
at an annual compounded growth rate of 30% throughout the end of the decade.
Similarly, the warehouse management system market is large, yet remains
relatively untapped. Industry analysts estimate that there are 550,000
warehouses in the United States (with as many outside the United States), of
which only 10% are employing some level of automation. Given the increased
awareness of the benefits of improving warehouse operations, manufacturers and
suppliers are seeking a cost-effective solution for automating and integrating
the diversified processes of a warehouse.
Historically, warehouse management solutions were custom-developed by
internal management information system departments or outsourced to third-party
software developers and were not cost efficient to implement. In contrast,
RIMS.2001, an "off-the-shelf" solution first introduced in June 1994, requires
little, if any, modification in most warehouse environments. RIMS.2001 is
designed to be implemented in approximately four months, which is a
significantly shorter time period than that required to implement the customized
warehouse management systems that have historically been available.
3
<PAGE>
In addition, the full functionality, scalability and affordability (the average
RIMS.2001 solution is priced at $200,000) of RIMS.2001 enable the Company to
target small and mid-size companies as well as Fortune 500 companies with the
same product. The Company has experienced increasing bookings for RIMS.2001
evidenced by its sales of six and 12 RIMS.2001 systems for fiscal year 1995 and
for first nine months of fiscal 1997, respectively.
The Company's objective is to become the premier worldwide provider of
automated warehouse management solutions. To achieve this objective, the Company
intends to develop strategic alliances with complementary solution providers and
technology partners. The Company has entered into its first such agreement with
QAD, Inc. ("QAD"), a leading provider of global supply chain management and ERP
solutions. The agreement provides for co-marketing and technology-sharing
benefits and provides the Company access to QAD's large, worldwide customer base
and distributor network. In addition to strategic alliances, the Company will
continue to establish direct and indirect global sales channels. Currently, the
Company has established relationships with distributors in the United Kingdom,
Mexico, Brazil and Argentina. The Company intends to achieve market
differentiation through vertical market expertise and has targeted food
manufacturers and distributors with the first of its industry-specific RIMS
adaptations (known as RIMS.Food), which is pre-configured to address the unique
requirements of this market.
RIMS.2001 technology is the result of the Company's extensive experience in
commercial and military materials handling applications. Building on its 15
years of industry experience, the Company has developed a fully operational,
customer-configurable, standard software solution that captures best practice
methodologies used in warehouse operations. The RIMS.2001 solution reduces
costs, improves customer service and productivity by controlling and directing
activity and functions within the warehouse operating area, including receiving,
storage, order selection, packing, loading and shipping. RIMS.2001 utilizes
radio frequency communications and bar coding to provide real time management
validation and tracking of all warehouse activities. RIMS.2001 operates in an
open system environment allowing customers to use various operating systems,
operate on multiple hardware platforms and run with multiple relational database
management systems, such as Oracle and Progress.
The Company sells products through a direct sales force in the United
States and through distributors in other parts of the world. Sales and marketing
personnel are located at the Company's headquarters in Massapequa, New York and
in field offices in Pittsburgh, Pennsylvania, Cranston, Rhode Island, Atlanta,
Georgia and Ann Arbor, Michigan. The Company currently has over 30 customers,
including ConAgra Refrigerated Foods Companies, Inc., Consolidated Edison
Company of New York, Inc., Osram Sylvania Inc., Crown Equipment Corporation and
Moen Incorporated, of which several have installed the Company's warehouse
solutions in multiple sites.
The Company was incorporated in the State of New York on June 30, 1982. The
Company's executive offices are located at 511 Ocean Avenue, Massapequa, New
York 11758. The Company's telephone number at that address is (516) 795-5100.
Pending S Corporation Termination
Since June 1990, the Company has been treated for Federal and New York
state income tax purposes as an S Corporation under Subchapter S of the Internal
Revenue Code and New York law. As a result of the Company's status as an S
Corporation, the Company's existing shareholders, rather than the Company, were
taxed directly on the earnings of the Company for Federal and state corporate
income tax purposes during such period, whether or not such earnings were
distributed to them. As of the date of this Prospectus, however, the Company is
terminating its status as an S Corporation and will hereafter become subject to
federal and state income taxes at applicable C Corporation rates.
As of February 28, 1997, the Company's undistributed S Corporation earnings
totaled $4,110,593 (for financial statement purposes). In April and May 1997,
the Company distributed $382,500 and $517,500,
4
<PAGE>
respectively, of its previously undistributed S Corporation earnings to its
current shareholders. As of the date of this Prospectus, in connection with the
Company's conversion from an S Corporation to a C Corporation, the Company is
declaring a final distribution of $1,600,000 of its undistributed S Corporation
earnings to its current shareholders (the "Final S Corporation Distribution").
The Company intends to pay the Final S Corporation Distribution out of the
proceeds from, and on the consummation of, this offering. Purchasers in this
offering will not receive any portion of the Final S Corporation Distribution.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 8 of Notes to Financial
Statements.
The Offering
<TABLE>
<S> <C>
Common Stock offered ........................ 1,500,000 shares
Common Stock to be outstanding after the
offering .................................... 3,467,984 shares (1)(2)
Use of proceeds .............................. For software development costs, to establish
and equip domestic and international sales
offices, for payment of the Final S
Corporation Distribution, for repayment of
bank indebtedness, and for working capital
and other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol ...... RIMS
</TABLE>
- ------------
(1) Includes 31,584 restricted shares of Common Stock issued to a consultant to
the Company on May 1, 1997 for various accounting and administrative
services (the "May 1997 Shares").
(2) Does not include (i) 195,000 shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options, and 130,000 shares of Common
Stock reserved for issuance upon the exercise of options available for
future grant, under the Company's 1997 Stock Option and Long-Term Incentive
Compensation Plan (the "Option Plan") and (ii) 150,000 shares of Common
Stock reserved for issuance upon the exercise of the Representatives'
Warrants. See "Management -- Option Plan" and "Underwriting."
5
<PAGE>
Summary Financial Information
Set forth below is certain summary financial information for the periods
and as of the dates indicated. This information is derived from, and should be
read in conjunction with, the financial statements of the Company, including the
notes thereto, appearing elsewhere in this Prospectus.
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended May 31, ------------------------------
--------------------------------------- February 29, February 28,
1994 1995 1996 1996 1997
----------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data: (unaudited)
Total revenues ..................... $ 4,130 $ 6,813 $ 6,964 $ 4,684 $ 5,085
Net income (loss) .................... (1,106) 744 1,125 134 958
Pro Forma Unaudited Statements of
Operations Data(1):
Pro forma provision (benefit) for
income taxes ..................... (465) 313 473 56 402
Pro forma net income(loss) ......... (641) 431 652 78 556
Pro forma net income (loss) per
share(2) ........................... $ (.28) $ .19 $ .28 $ .03 $ .24
Pro forma weighted average shares
outstanding(2) ..................... 2,296,199 2,296,199 2,310,299 2,296,199 2,352,599
</TABLE>
<TABLE>
<CAPTION>
February 28, 1997
----------------------------------------
May 31, Pro As
1996 Actual Forma(3) Adjusted(3) (4)
--------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ............. $ 604 $ 66 $ 116 $ 5,506
Working capital (deficit) ............. 630 875 (25) 6,665
Total assets ........................ 4,637 5,418 5,468 10,858
Total current liabilities ............ 1,465 1,271 2,221 921
Total liabilities ..................... 1,465 1,271 3,459 2,159
Total shareholders' equity ............ 3,172 4,147 2,009 8,699
</TABLE>
- ------------
(1) Prior to the date of this Prospectus, the Company was an S Corporation and
was not subject to Federal or state corporate income taxes (other than
California, New Jersey and New York franchise taxes). The pro forma
statements of operations data reflects a pro forma provision for income
taxes as if the Company had been subject to Federal and state corporate
income taxes for all periods presented. The pro forma provision for income
taxes represents a combined Federal and state tax rate of 42%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1 and 8 of Notes to Financial Statements.
(2) Includes the May 1997 Shares and assumes that 384,615 of the shares of
Common Stock being offered hereby were outstanding during the periods
indicated, which represents the approximate number of shares of Common
Stock being sold by the Company in this offering to fund the payment of S
Corporation distributions made in April and May 1997 of $382,500 and
$517,500, respectively, and the Final S Corporation Distribution of
$1,600,000 (based upon an assumed offering price of $6.50 per share, the
midpoint of the currently anticipated range of the initial public offering
price). See Note 1 of Notes to Financial Statements.
(3) Adjusted to give retroactive effect to (i) borrowings under the Company's
line of credit (the "Line of Credit" ) with The Bank of New York (the
"Bank") in the aggregate amount of $950,000 during the period commencing on
March 1, 1997 and ending as of the date of this Prospectus, (ii) the
issuance
6
<PAGE>
of the May 1997 Shares, (iii) the net deferred income tax liability
(reflecting the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amount used for income tax purposes) that will be recorded as a
result of the Company's termination, as of the date of this Prospectus, of
its S Corporation status (estimated at $1,238,000 as of February 28, 1997),
and (iv) S Corporation distributions effected in April and May 1997 in the
amount of $382,500 and $517,500, respectively, out of the Company's
undistributed S Corporation earnings (which earnings aggregated $4,110,593
as of February 28, 1997). Does not give effect to the as yet undetermined
additional S Corporation earnings generated by the Company during the period
commencing on March 1, 1997 and ending as of the date of this Prospectus.
See Notes 7 and 8 of Notes to Financial Statements.
(4) Adjusted to give retroactive effect to the sale of the 1,500,000 shares of
Common Stock offered hereby at an assumed offering price of $6.50 per share
(the midpoint of the currently anticipated range of the initial public
offering price) and the anticipated application of the estimated net
proceeds therefrom, including for (i) the repayment of all outstanding
borrowings under the Line of Credit, and (ii) the Company's distribution to
its current shareholders of the Final S Corporation Distribution. See "Use
of Proceeds."
7
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the shares of Common Stock offered hereby.
Technological Changes; Need to Continue to Develop Software Enhancements
The markets for the Company's software are characterized by rapidly
changing technologies, evolving industry standards, changes in customer
requirements and frequent new product introductions, applications and
enhancements. The introduction by competitors of products embodying new
technologies and the emergence of new industry standards could adversely affect
the Company's ability to sell its software applications. While the Company has
competed favorably with its competitors by continually developing enhancements
for its RIMS.2001 product, one of the industry's first "off-the-shelf" warehouse
inventory management products, competitors have developed or are in the process
of developing products that offer similar features. Although historically the
timing of the introduction of upgrades or enhancements to the Company's software
applications has not had a material adverse effect on the business, results of
operations or financial condition of the Company, there can be no assurance that
these circumstances will continue in the future. The Company expects that the
continued development of competing software products by competitors will require
that the Company develop new and/or enhanced applications on an ongoing basis to
meet the competitive demands of these markets. The Company's sales and
profitability in the past have resulted to a significant extent from its ability
to anticipate or react quickly to its customers' needs and to develop and
introduce new and enhanced applications. The Company's continued ability to
adapt to customer needs and technological change will be a significant factor in
maintaining or improving its competitive position and its prospects for growth.
However, there can be no assurance that the Company will be able to continue to
develop and introduce new and/or enhanced products or to respond otherwise
appropriately to changing customer needs.
Product Concentration
The Company derives substantially all of its revenues from licenses of
RIMS.2001 software and from related system implementation, engineering and other
services, computer hardware sales and maintenance provided by the Company to its
RIMS.2001 customers. These licenses and related services, sales and maintenance
revenues are expected to continue to account for substantially all of the
Company's revenues for the foreseeable future. A decline in the demand or prices
for the Company's products or services, whether as a result of new product
introductions or price competition from competitors, technological change,
failure of the Company's products to address customer requirements or otherwise,
could have a material adverse affect on the Company's business, operating
results and financial condition. See "Business -- Products and Services," "--
Product Development" and "-- Competition".
Potential Fluctuations in Quarterly Results
The Company has experienced in the past, and may experience in the future,
significant quarter-to-quarter fluctuations in its operating results. Factors
such as the timing of the introduction of software enhancements and upgrades by
the Company or the Company's competitors, customer acceptance of software
applications, software development costs, announcements or changes in pricing
policies by competitors, the timing of orders, the length of the Company's sales
cycle, the mix of domestic versus international revenues, the existence of
product errors or "bugs", the unanticipated cancellation or delay of significant
license agreements, the hiring and training of additional staff and general
economic conditions could contribute to this variability of quarterly results.
In addition, quarterly revenues and operating results are highly dependent on
the volume and timing of new RIMS.2001 system installations during the quarter,
the extent of modifications required in connection with such installations and,
to a lesser extent, maintenance revenues. Because the Company's staffing and
operating expenses are based upon anticipated revenue levels and a high
percentage of the Company's costs are fixed in the short term, small variations
in the timing of recognition of specific revenues can cause significant
variations in operating results from quarter to quarter. As a result of these
and other factors, the Company believes that its quarterly operating results
will vary in the future and period-to-period comparisons of its financial
results may not be meaningful and should not be relied upon as indications of
future performance. The growth
8
<PAGE>
in revenues recently experienced by the Company is not necessarily indicative of
future results. In addition, fluctuations in operating results may result in
volatility in the price of the Common Stock as it is likely that, following the
consummation of this offering, in some future fiscal quarter, the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Common Stock may be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Fluctuations in Operating Results."
Dependence Upon Principal Customers
Due to the size of most orders and the need for differing amounts of
customization for each installation, the Company historically has obtained
orders from a relatively small number of new customers each fiscal quarter. As a
result, individual customers have often accounted for more than 10% of total
revenues in a particular fiscal period. For the fiscal year ended May 31, 1995,
the Company had two customers that accounted for approximately 34% and 13% of
total revenues. For the fiscal year ended May 31, 1996, the Company had three
customers that accounted for approximately 15%, 14% and 12% of total revenues.
For the nine months ended February 28, 1997, the Company had two customers that
accounted for approximately 21% and 16% of total revenues. Because of the nature
of the Company's business operations, the Company anticipates that customers
that account for more than 10% of total revenues for a fiscal period will vary
from period to period depending on the status and timing of significant orders
by a particular customer or customers for any given fiscal period. The inability
to replace certain customers could cause the Company's revenues and operating
results to fluctuate from period to period and could have a material adverse
impact on the Company's business. See "Business -- Customers."
Dependence on Key Personnel
The Company's continued success will depend largely upon the continued
services of its executive officers, in particular Irwin Balaban, its Chairman,
President and Chief Executive Officer, Lawrence B. Klein, its Executive Vice
President - Marketing and Sales, Steven Kuhl, its Vice President - Product
Development, and Robert O'Connor, its Vice President - Systems Development, as
well as other key sales, marketing, financial, technical service and engineering
personnel. The loss of service of any one or more of these key employees could
have a material adverse effect on the Company's business, results of operations
and financial condition. Although the Company has applied for, and intends to
obtain prior to the consummation of this offering, key-man life insurance in the
amount of $1,500,000 on the life of each of Messrs. Balaban and Klein, the
proceeds of any such insurance may not be sufficient to compensate the Company
for the loss of their services. Furthermore, the Company does not have and does
not intend to obtain key-man life insurance on the life of Messrs. Kuhl or
O'Connor or any of its other personnel. The future success of the Company also
will depend upon its ability to attract and retain additional highly-skilled
personnel, particularly sales representatives and systems engineers. Because of
the technical sophistication of the Company's products and the computing
environments in which they operate, sales employees, field technical support and
other personnel who join the Company generally require advanced technical
knowledge and significant training to perform competently. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in retaining its existing key personnel and in attracting and
retaining the personnel it requires in the future. See "Business -- Employees"
and "Management."
Risks Associated with Continued Growth
and Possible Acquisitions
In view of the recent historical and anticipated future expansion of its
business, the Company remains vulnerable to a variety of business risks
generally associated with rapidly growing companies. The Company's current
growth plans may place significant pressures on the Company's management,
working capital, financial and management control systems and staff as such
growth will require development and operation of a significantly larger business
over a broader geographical area. The failure to maintain or upgrade financial
and management control systems, to recruit additional staff or to respond
effectively to difficulties encountered during growth could have a material
adverse effect on the Company's business, results of operations or financial
condition. Although the Company has taken steps to ensure that its systems and
controls are adequate to address its cur-
9
<PAGE>
rent and anticipated needs, including the recent hiring of a Vice President -
Finance and Chief Financial Officer, and is attempting to recruit additional
staff, there can be no assurance that the Company will be able to achieve its
expansion goals or that, if it continues to grow, it will be able effectively to
manage its growth, anticipate and satisfy all of the changing demands and
requirements that such growth will impose upon it or achieve greater operating
income or profitability. In addition, although, as of the date of this
Prospectus, the Company has no agreements, understandings or commitments, and is
not engaged in any definitive negotiations, relating thereto, the Company could
also seek to expand its operations by entering into additional strategic
alliances with third-parties relating to the exploitation of the Company's
technologies and/or by acquiring other companies and businesses. Under New York
law, various forms of business combinations can be effected without shareholder
approval and, accordingly, investors in this offering will, in all likelihood,
neither receive nor otherwise have the opportunity to evaluate any financial or
other information that may be made available to the Company in connection with
any potential joint venture arrangement or business acquisition and will be
dependent upon the Company's management to select, structure and consummate any
such arrangements and/or acquisitions in a manner consistent with the Company's
business objectives. Although the Company will endeavor to evaluate the risks
inherent in a particular joint venture arrangement or acquisition, there can be
no assurance that the Company will properly ascertain or assess all significant
and pertinent risk factors prior to its consummation of such a transaction.
Moreover, to the extent the Company does effect a joint venture or acquisition,
there can be no assurance that the Company will be able successfully to
integrate into its operations any business that it may form or acquire. Any
inability to do so, particularly in instances in which the Company has made
significant capital investments, could have a material adverse effect on the
Company.
Risks Related to International Revenues and Operations
Prior to fiscal 1997, the Company did not have any international revenues
(revenues from outside the United States). During the first nine months of
fiscal 1997, international revenues represented approximately 1.9% of the
Company's total revenues. The Company is attempting to expand it presence in
European, Central American, South American, Asian and Australian markets and
expects that revenues from international licenses and related services, in total
dollar volume and as a percentage of the Company's total revenues, will increase
significantly. Since January 1996, the Company has entered into reseller
agreements with four foreign resellers, and the Company expects to open its
first two international sales and support offices in Europe and Australia within
the next 12 months. There are a number of risks inherent in the Company's
current and proposed international business activities, including unexpected
changes in regulatory requirements, tariffs and other trade barriers, costs and
risks of localizing products for foreign countries, longer accounts receivable
payment cycles, potentially adverse tax consequences, limits on repatriation of
earnings and the burdens of complying with a wide variety of foreign laws.
Additionally, the Company does not engage in hedging activities to protect
against the risk of currency fluctuations. Fluctuations in currency exchange
rates could cause sales denominated in U.S. dollars to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country. Also, such fluctuations could cause sales
denominated in foreign currencies to affect a reduction in the current U.S.
dollar revenues derived from sales in a particular country. Furthermore, future
international activity may result in increased foreign currency denominated
sales and, in such event, gains and losses on the conversion to U.S. dollars of
accounts receivable and accounts payable arising from international operations
may contribute significantly to fluctuations in the Company's results of
operations. The financial stability of foreign markets could also affect the
Company's international revenues. In addition, revenues of the Company earned in
various countries where the Company does business may be subject to taxation by
more than one jurisdiction, thereby adversely affecting the Company's earnings.
There can be no assurance that such factors will not have an adverse effect on
the revenues from the Company's future international sales and, consequently,
the Company's results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Sales and
Marketing."
Competition
The market for warehouse management and distribution software and related
services is highly competitive, and the Company expects competition to increase
in the future. The Company believes that historically the market for warehouse
management and distribution software could be characterized primarily by the
size of the
10
<PAGE>
customer or the complexity of the customer's warehouse handling environment, and
that the Company's competitors tend to focus their products and marketing
efforts toward a limited number of these market segments. Over recent years,
however, the market for warehouse management systems increasingly has been
characterized by the industry in which the customer competes. The Company
initially focused its software development and marketing efforts on potential
customers that required large, complex systems with significant amounts of
customization. The Company has a large number of competitors and believes that
its primary competitors in the market for the larger, more complex systems are
McHugh Freeman and Associates, Manhattan Associates and Catalyst International,
Inc., each of which provides complete warehouse management and distribution
software. In addition, certain well-known computer manufacturers or software
developers, such as SAP, J.D. Edwards, BAAN and PeopleSoft, offer integrated
manufacturing or accounting software packages that include a warehouse
management component. With the introduction in June 1994 of RIMS.2001, the
Company believes that it was one of the first to offer a standard,
"off-the-shelf" system that requires little, if any, modification prior to
installation in most warehouse environments. Some of the Company's competitors
have greater name recognition, more extensive engineering, manufacturing and
marketing capabilities and significantly greater financial, technological and
personnel resources than the Company. The Company's future success will depend
to a significant degree upon its ability to remain competitive in the areas of
software development, technology, marketing and distribution, while operating
within the constraints imposed by its financial and other resources. Price has
not historically been a major factor in the market for the Company's RIMS.2001
solution, and increased competition could result in price reductions and loss of
market share, which would adversely affect the Company's business, results of
operations or financial condition. The Company believes that the principal
competitive factors affecting the market served by the Company include vendor
and product reputation, product functionability and features, vertical market
expertise, ease of use, quality of support, product quality, performance and
price. There can be no assurance that the Company will be able to compete
successfully in the future with existing or new competitors. See "Business --
Product Development" and "-- Competition."
Control by Current Management
Upon consummation of this offering, the officers and directors of the
Company as a group will beneficially own approximately 55.8% of the outstanding
shares of Common Stock. Accordingly, such persons, acting together, will
continue to be able to control the Company and direct its affairs, including the
election of all of the Company's directors, and cause an increase in the
Company's authorized capital or the dissolution, merger or sale of the Company
or substantially all of its assets. Furthermore, such control could preclude any
unsolicited acquisition of the Company and, consequently, adversely affect the
market price of the Common Stock. See "Principal Shareholders."
Security Interests Granted in Assets
As of the date of this Prospectus, the Company had approximately $1,300,000
outstanding under the Line of Credit, all of which is payable on a demand basis.
All of the Company's assets are pledged to the Bank as collateral. In the event
of a default by the Company on its obligations under the Line of Credit, the
Bank could declare the Company's indebtedness to be immediately due and payable
and foreclose on the Company's assets. Although the Company intends to use a
portion of the proceeds of this offering to repay all amounts outstanding under
the Line of Credit, the Company expects to continue to utilize borrowing
availability under the Line of Credit (or similar facilities obtained in the
future) in the ordinary course of business. There can be no assurance that the
Company will be able to continue to comply with the terms of its loan agreements
with the Bank. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Reliance Upon Certain Licensed Third-Party Software
Certain technology used in the Company's products is licensed from third
parties, generally on a nonexclusive basis. The Company believes that there are
alternative sources for each of the material components of technology licensed
by the Company from third parties. However, the termination of any such
licenses, or the failure of the third party licensors to adequately maintain or
update their products, could result in delay in the Company's ability to ship
certain of its software applications while it seeks to implement technology
offered by
11
<PAGE>
alternative sources. Any required replacement licenses could prove costly. Also,
any such delay, to the extent it becomes extended or occurs at or near the end
of a fiscal quarter, could result in a material adverse effect on the Company's
quarterly results of operations. While it may be necessary or desirable in the
future to obtain other licenses relating to one or more of the Company's
products or relating to current or future technologies, there can be no
assurance that the Company will be able to do so on commercially reasonable
terms or at all. See "Business -- Products."
Potential for Undetected Errors
The Company's software applications, like software products generally, may
contain undetected errors or "bugs" when introduced, or as new, enhanced or
industry-specific versions are released. While, to date, the Company's current
applications have not experienced any significant post-release software errors
or bugs, there can be no assurance that such problems will not occur in the
future, particularly as the Company expands its product offerings to meet the
needs of specific industries and its products or product enhancements become
more complex and sophisticated. Any such defective software may cause delays in
product introduction or shipments, require design modifications that could
adversely affect the Company's competitive position, result in a loss of or
delay in market acceptance of the Company's products or cause an increase in
warranty expenses, any of which could adversely affect the Company's operating
results. See "Business."
Risks Relating to Intellectual Property Protection
The Company's success and ability to compete is dependent in part upon its
proprietary technology. While the Company relies on trademark, trade secret and
copyright law to protect its technology, the Company believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are more essential to establishing and maintaining a
technology leadership position. The Company presently has no patents or patent
applications pending. There can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
software applications is difficult. There can be no assurance that the steps
taken by the Company will prevent misappropriation of its technology or that
such agreements will be enforceable. In addition, the technology industry is
characterized by the existence of an increasing number of patents and frequent
litigation based on allegations of patent infringement. Consequently, although
the Company believes that its products and technology do not infringe upon the
rights of third parties, from time to time, third parties may claim exclusive
patent, copyright and other intellectual property rights to technologies or
trademarks that are important to the Company. There can be no assurance that
third parties will not assert infringement claims against the Company, that
assertions by such parties will not result in costly litigation, or that the
Company would prevail in any such litigation or be able to license any valid and
infringed patents or trademarks from third parties on commercially reasonable
terms. In addition, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results or financial
condition. See "Business -- Proprietary Rights, Licenses and Pricing."
Immediate and Substantial Dilution
Investors participating in this offering will experience immediate and
substantial dilution, and present shareholders will receive a material increase
in the net tangible book value of their shares of Common Stock. After giving
effect to this offering and the use of the net proceeds therefrom, and certain
other transactions effected by the Company after February 28, 1997, the
Company's net tangible book value as of February 28,
12
<PAGE>
1997 would have been $6,230,485, or $1.80 per share (based on an assumed
offering price of $7.00 per share, the high point of the currently anticipated
range of the initial public offering price.) This represents an immediate
dilution in net tangible book value of $5.20 (74%) per share to investors in
this offering. See "Dilution."
Effect of Certain Charter Provisions; Limitation of Liability of Directors;
Antitakeover Effects of New York Law
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock in one or more series, and to determine the prices, rights,
preferences, privileges and restrictions, including voting rights, of the shares
within each series without any further vote or action by shareholders. The
Company has no current plans to issue shares of Preferred Stock. However, the
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate activities, could have
the effect of making it more difficult for a third party to acquire control of
the Company. Further, certain anti-takeover provisions of New York law could
delay or make more difficult a change of control of the Company. While such
provisions are intended to enable the Board of Directors to maximize shareholder
value, they may have the effect of discouraging takeovers that could be in the
best interest of certain shareholders. There can be no assurance that such
provisions will not have an adverse effect on the market value of the Company's
stock in the future. In addition, the Company's charter provides that its
directors shall not be personally liable to the Company or its shareholders for
monetary damages in the event of a breach of fiduciary duty to the extent
permitted by New York law. See "Description of Securities."
No Dividends Anticipated
The Company intends to retain all future earnings for use in the
development of its business and does not anticipate paying any cash dividends in
the foreseeable future. See "Dividend Policy."
No Prior Underwritings
BlueStone was formed as a broker-dealer in March 1996. Although its
principals have had experience in the underwriting of securities in their
capacities with other broker-dealers, this offering constitutes the first public
offering for which BlueStone, the managing underwriter, has acted as a managing
underwriter. See "Underwriting."
No Prior Market for Common Stock; Possible Volatility of Stock Price
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained in the future or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price of the Common Stock was determined by negotiations between the Company and
the representatives of the Underwriters and may not be indicative of the market
price of the Common Stock after this Offering. From time to time after this
offering, there may be significant volatility in the market price for the Common
Stock. Quarterly operating results of the Company or companies within the same
or similar industry segments, changes in general conditions in the economy, the
financial markets or the technology industry, adverse press or news
announcements, or other developments affecting the Company or its competitors,
could cause the market price of the Common Stock to fluctuate substantially. In
addition, in recent years, the stock market has experienced significant price
and volume fluctuations. This volatility has affected the market prices of
securities issued by many companies for reasons unrelated to their operating
performance. See "Underwriting."
Shares Eligible for Future Sale
Upon consummation of this offering, the Company will have outstanding
3,467,984 shares of Common Stock. Of these shares, the 1,500,000 shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, except for any of such shares held by
"affiliates" of the Company. The remaining 1,967,984 shares of Common Stock,
which are held by the existing shareholders, are "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act (the "Restricted
Shares") and may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is
13
<PAGE>
available, including the exemption contained in Rule 144. All of the Restricted
Shares are subject to one-year lockup agreements with BlueStone. Upon expiration
of such lockup agreements, 1,880,000 of the Restricted Shares will be
immediately eligible for sale in the public market under Rule 144(k) by persons
other than "affiliates," without restriction, and an additional 87,984 shares
will become eligible for sale in the public market at various times in
accordance with Rule 144. Sales, or the possibility of sales, of substantial
amounts of Common Stock held by the Company's existing shareholders could have
an adverse impact on the market price of the Common Stock and could impair the
Company's ability to raise equity capital in the future. See "Principal
Shareholders" "Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby are estimated to be approximately $8,290,000
($9,655,500 if the Representatives' over-allotment option is exercised in full),
assuming an initial public offering price of $6.50 per share (the midpoint of
the currently anticipated range of the initial public offering price), and after
deducting the underwriting discount and estimated offering expenses.
The Company intends to use approximately $2,500,000 of the net proceeds of
this offering to fund a portion of its software development costs over the next
24 months. Development projects currently in process or under consideration by
management include Internet/intranet interfaces and Windows NT porting for
RIMS.2001, a RIMS.2001 enhancement to manage the shipping process of products or
materials that have been picked by a RIMS.2001 system, and a trailer/trailer
yard management system. See "Business -- Product Development."
The Company intends to use approximately $2,500,000 of the net proceeds to
establish up to six additional domestic and four international sales and support
offices over the next 24 months, including payment of the costs of capital
improvements, capital equipment, management and support personnel and additional
regionally-focused advertising. The Company expects that it will open its first
additional domestic sales and support office in the first quarter of fiscal 1998
and that it will open one additional domestic and two international sales and
support offices by the end of fiscal 1998. See "Business -- Sales and
Marketing."
The Company will use $1,600,000 of the net proceeds to make the Final S
Corporation Distribution to its existing shareholders.
From the net proceeds of this offering, the Company also intends to repay
all amounts outstanding under the Line of Credit, of which approximately
$1,300,000 was outstanding as of the date of this Prospectus. The Line of Credit
currently bears interest at the prime rate per annum, is payable on demand and
expires on September 30, 1997, is secured by substantially all of the Company's
assets and is guaranteed by Messrs. Balaban, Klein and Goldman. As of the date
of this Prospectus, the Company had $550,000 available under the Line of Credit.
The Line of Credit has been used primarily for S Corporation distributions to
the Company's shareholders and for working capital purposes. Amounts repaid by
the Company under the Line of Credit with the proceeds of this offering may
subsequently be reborrowed by the Company. The Company intends to continue to
maintain the Line of Credit or similar credit facilities after the consummation
of this offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and Note
7 of Notes to Financial Statements.
The Company intends to use the balance of the net proceeds and any proceeds
from the exercise of the Representatives' over-allotment option for working
capital and general corporate purposes. A portion of the proceeds may also be
used to acquire or invest in complementary businesses or products or otherwise
to obtain the right to use complementary technologies that broaden or enhance
the Company's current product offerings. There are no current agreements or
negotiations with respect to any potential acquisition, investment or other such
transaction. Pending such uses, the net proceeds to the Company from this
offering will be placed in interest-bearing bank accounts or invested in
short-term, interest-bearing, investment grade securities.
The Company believes that its existing capital resources and the net
proceeds of this offering will be sufficient to maintain its current and planned
operations through fiscal 1999.
DIVIDEND POLICY
From June 1, 1990 to the date of this Prospectus, the Company was an S
Corporation for Federal and New York state income tax purposes. As a result,
during and for such period, the net income of the Company for Federal and
certain state income tax purposes was reported by, and taxed directly to, the
Company's shareholders rather than the Company. As an S Corporation, the Company
made distributions in the form of cash dividends to its shareholders, including
$382,500 and $517,500 in April 1997 and May 1997, respectively, and will make
15
<PAGE>
the Final S Corporation Distribution to such shareholders in the amount of
$1,600,000 out of the proceeds of this offering. The Company currently intends
to retain all future available earnings, if any, for the development and growth
of its business and, therefore, does not anticipate paying any cash dividends in
the foreseeable future.
DILUTION
The difference between the initial public offering price per share of
Common Stock and the net tangible book value per share of Common Stock after
this offering constitutes the dilution to investors in this offering. Net
tangible book value per share on any given date is determined by dividing the
net tangible book value of the Company (total tangible assets less total
liabilities) on such date by the number of then outstanding shares of Common
Stock.
At February 28, 1997, net tangible book value of the Company was $928,485,
or $.48 per share. After giving retroactive effect to (i) borrowings under the
Line of Credit in the aggregate amount of $950,000 during the period commencing
on March 1, 1997 and ending as of the date of this Prospectus, (ii) S
Corporation distributions effected in April and May 1997 in the aggregate amount
of $900,000, (iii) the recording, as of the date of this Prospectus, of the
one-time net deferred income tax liability generated as a result of the
Company's termination of its S Corporation status (estimated at $1,238,000 as of
February 28, 1997), and (iv) the Company's issuance of the May 1997 Shares, the
pro forma net tangible book value (deficit) of the Company at February 28, 1997
would have been ($1,209,515), or ($.61) per share. After also giving effect to
the sale of the 1,500,000 shares of Common Stock offered hereby at an assumed
price of $7.00 per share (the high point of the currently anticipated range of
the initial public offering price) and the receipt and anticipated application
of the estimated net proceeds therefrom, including for the repayment of all
outstanding borrowings under the Line of Credit and the distribution of the
Final S Corporation Distribution, the as adjusted net tangible book value of the
Company at February 28, 1997 would have been $6,230,485, or $1.80 per share,
representing an immediate increase in net tangible book value of $2.41 per share
to existing shareholders and an immediate dilution of $5.20 (74%) per share to
investors in this offering.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ........................... $ 7.00
Net tangible book value before pro forma adjustments ......... $ .48
Decrease attributable to pro forma adjustments ............... (1.09)
-------
Pro Forma net tangible book value before this offering ...... (.61)
Increase attributable to investors in this offering ......... 2.41
-------
Adjusted net tangible book value after this offering ............ 1.80
-------
Dilution to investors in this offering ........................ $ 5.20
=======
</TABLE>
The following table sets forth, with respect to existing shareholders and
the investors in this offering, a comparison of the number of shares of Common
Stock purchased from the Company, the percentage ownership of such shares, the
aggregate consideration paid, the percentage of total consideration paid, and
the average price paid per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------------- --------------------------------- Average Price
Number Percentage Amount Percentage Per Share
----------- ------------ ------------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders ...... 1,967,984 56.7% $ 269,712(1) 2.5% $ .14
New Investors ............... 1,500,000 43.3 10,500,000 97.5 $ 7.00(2)
---------- ------- ------------- ------- ----------
3,467,984 100.0% $10,769,712 100.0%
========== ======= ============= =======
</TABLE>
- ------------
(1) Includes $6,000 in cash and $263,712 for services rendered.
(2) Based on the high point of the currently anticipated range of the initial
public offering price.
16
<PAGE>
The foregoing table assumes no exercise of the Representatives'
over-allotment option. If such option is exercised in full, the new investors
will have paid $12,075,000 (based on an assumed price of $7.00 per share, the
high point of the currently anticipated range of the initial public offering
price) for 1,725,000 shares of Common Stock, representing approximately 97.8% of
the total consideration for 46.7% of the total number of shares outstanding. In
addition, computations set forth in the above table exclude an aggregate of
325,000 shares of Common Stock reserved for issuance upon the exercise of
options granted or available for future grant under the Option Plan and the
150,000 shares of Common Stock reserved for issuance upon the exercise of the
Representatives' Warrants. See "Management -- Option Plan" and "Underwriting."
17
<PAGE>
CAPITALIZATION
The following table sets forth as of February 28, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to certain transactions effected after February 28, 1997 and
(iii) the pro forma capitalization of the Company as adjusted to reflect the
sale of the 1,500,000 shares of Common Stock offered hereby and the anticipated
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
February 28, 1997
-----------------------------------------------
Pro As
Actual Forma(1) Adjusted(1)(2)
------------- ------------- ---------------
<S> <C> <C> <C>
Debt
Bank borrowings ................................. $ 350,000 $ 1,300,000 $ --
----------- ----------- ----------
Shareholders' Equity
Common Stock, $.01 par value; 10,000,000 shares
authorized; 1,936,400 shares issued and
outstanding (actual); 1,967,984 shares issued and
outstanding (pro forma); 3,467,984 shares
issued and outstanding as adjusted (3) ......... $ 19,364 $ 19,680 $ 34,680
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; none issued or outstanding ......... -- -- --
Additional paid in capital ..................... 89,436 262,832 8,537,832
Retained earnings .............................. 4,110,593 1,972,593 372,593
Deferred compensation ........................... (72,000) (245,712) (245,712)
----------- ----------- -----------
Total shareholders' equity .................. 4,147,393 2,009,393 8,699,393
----------- ----------- -----------
Total capitalization ........................ $ 4,497,393 $ 3,309,393 $ 8,699,393
=========== =========== ===========
</TABLE>
- ------------
(1) Gives retroactive effect to (i) borrowings under the Line of Credit during
the period commencing on March 1, 1997 and ending as of the date of this
Prospectus in the aggregate amount of $950,000, (ii) the Company's issuance
of the May 1997 Shares, (iii) the recording, as of the date of this
Prospectus, of the net deferred income tax liability generated as a result
of the Company's termination of its S Corporation status (estimated at
$1,238,000 as of February 28, 1997), and (iv) S Corporation distributions
effected in April and May 1997 in the aggregate amount of $900,000. Does not
give effect to the as yet undetermined additional S Corporation earnings
generated by the Company during the period commencing as of March 1, 1997
and ending as of the date of this Prospectus. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Notes 7
and 8 of Notes to Financial Statements.
(2) Gives retroactive effect to the sale of the 1,500,000 shares of Common Stock
offered hereby at an assumed offering price of $6.50 per share (the midpoint
of the currently anticipated range of the initial public offering price) and
the anticipated application of the estimated net proceeds therefrom,
including for (i) the repayment of all outstanding borrowings under the Line
of Credit, and (ii) the Final S Corporation Distribution. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) Does not include (i) 325,000 shares reserved for issuance upon exercise of
options granted or available for future grant under the Option Plan and (ii)
150,000 shares of Common Stock reserved for issuance upon exercise of the
Representatives' Warrants. See "Management -- Option Plan" and
"Underwriting."
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for each of the fiscal years in the
three-year period ended May 31, 1996, 1995 and 1994 as of the end of the fiscal
year ended May 31, 1996 and for and as of the end of the nine month period ended
February 28, 1997, is derived from the financial statements of the Company,
which statements have been audited by Ernst & Young LLP, independent auditors,
whose report thereon is included elsewhere herein. The selected financial data
presented for and as of the end of the nine month period ended February 29, 1996
are unaudited and were prepared by management of the Company on the same basis
as the audited financial statements of the Company included elsewhere herein
and, in the opinion of the Company, include all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the information set
forth therein. The selected financial data for the nine month period ended
February 28, 1997 is not necessarily indicative of the results to be expected
for the full year. The selected financial data should be read in conjunction
with the financial statements of the Company and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended May 31, ------------------------------
---------------------------------------- February 29, February 28,
1994 1995 1996 1996 1997
------------ ----------- ----------- -------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Total revenues ........................ $4,130 $6,813 $6,984 $4,684 $5,085
Gross margin ........................... 2 2,065 2,209 956 1,766
Selling, general and administrative
expenses .............................. 1,093 1,275 1,075 815 784
Net income (loss) .................... (1,106) 744 1,125 134 958
Pro forma Unaudited Statements of
Operations Data(1):
Pro forma provision (benefit) for income
taxes ................................. (465) 313 473 56 402
Pro forma net income(loss) ............ $ (641) $ 431 $ 652 $ 78 $ 556
Pro forma net income (loss) per share(2) $ (.28) $ .19 $ .28 $ .03 $ .24
Pro forma weighted average shares
outstanding(2) ........................ 2,296,199 2,296,199 2,310,299 2,296,199 2,352,599
</TABLE>
<TABLE>
<CAPTION>
May 31, 1996 February 28, 1997
-------------- ------------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ............. $ 604 $ 66
Working capital ..................... 630 875
Total assets ........................ 4,637 5,418
Total current liabilities ............ 1,465 1,271
Total liabilities .................. 1,465 1,271
Total shareholders' equity ......... 3,172 4,147
</TABLE>
- ------------
(1) Prior to the date of this Prospectus, the Company was an S Corporation and
not subject to Federal or state corporate income taxes (other than
California, New Jersey and New York franchise taxes). The pro forma
statement of operations data reflects a pro forma provision for income taxes
as if the Company had been subject to Federal and state corporate income
taxes for all periods. The pro forma provision for income taxes represents a
combined Federal and state tax rate of 42%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 1 and 8
of Notes to Financial Statements.
(2) Includes the May 1997 Shares and assumes that 384,615 of the shares of
Common Stock being offered hereby were outstanding during the periods
indicated, which represents the approximate number of shares of Common
Stock being sold by the Company in this offering to fund the payment of S
Corporation distributions made in April and May 1997 of $382,500 and
$517,500, respectively, and the Final S Corporation Distribution of
$1,600,000 (based upon an assumed offering price of $6.50 per share, the
midpoint of the currently anticipated range of the initial public offering
price).
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's principal activities include marketing and support of
comprehensive warehouse management software systems. In addition to its core
business, the Company also provides, to a limited extent, system integration
services in support of office client server systems. The Company licenses its
RIMS warehouse management systems and, in connection with its other system
integration services, certain third-party software products; it provides related
services (including customization and modification, project management, training
and implementation) and maintenance support; and it sells related third-party
hardware products. The Company has achieved annual increases in revenues in the
last three fiscal years due primarily to the development and deployment of its
standard RIMS.2001 product in fiscal 1995. Prior to such time, the Company's
revenues were principally derived from highly-customized RIMS warehouse systems
and adaptations that required substantial modifications to meet the
functionality required by customers. Over the past three fiscal years, the
Company's results of operations increased from a net loss of $1,105,686 in
fiscal 1994 to net income of $1,125,117 in fiscal 1996. In addition, since the
Company's introduction of the standard RIMS.2001 product in fiscal 1995, the
rate of RIMS.2001 installations has increased from a total of six installations
in the year ended May 31, 1995 to 12 installations in the nine months ended
February 28, 1997. The Company expects RIMS.2001 and related revenues to
continue to account for a substantial portion of the Company's revenue for the
remainder of fiscal 1997 and for the foreseeable future. As a result, the
Company's future operating results are significantly dependent upon continued
market acceptance of RIMS.2001 and enhancements thereto. In addition, since a
substantial portion of the Company's revenues in any fiscal period are derived
from relatively few sales of RIMS.2001, both the number of new sales of
RIMS.2001 and the timing of orders for, and installations of, new systems in any
fiscal period, has caused and is expected to continue to cause, significant
fluctuations in revenue from period to period.
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance fees. Software license fees include
revenue from the licensing of the Company's proprietary RIMS.2001 software and
revenue from the sublicensing of certain third-party software. Software license
fee revenue is recorded when the software has been delivered, the license
agreement with the customer has been executed and collection of the resulting
receivable is deemed probable. Service revenues are derived from project
management, customization and modification of licensed software, training,
on-site support and implementation services. Service revenues are recorded using
the percentage of completion method of accounting. Hardware revenues are derived
from the Company's resale of a variety of third-party hardware products on
behalf of other manufacturers, including computer hardware, radio frequency
equipment, bar code printers and other peripherals. Such revenues are recognized
when the title to such hardware passes to the customer. Customers typically
enter into one-year maintenance agreements with the Company upon the completion
of the software installation and pay maintenance fees monthly. The Company
recognizes revenue from each maintenance agreement ratably over the period
covered by the agreement, but is only required to perform maintenance services
as and when they are requested by the customer. Historically, substantially all
of the Company's customers have entered into and renewed maintenance agreements
with the Company. The Company recognized revenues, in all periods presented, in
accordance with the American Institute of Certified Public Accountants Statement
of Position 91-1, "Software Revenue Recognition."
The Company's total revenues in any period are substantially dependent upon
a relatively small number of large sales. Revenues from the Company's five
largest customers in each of fiscal 1994, 1995 and 1996 and the nine months
ended February 28, 1997 accounted for approximately 67%, 70%, 56% and 55% of
total revenues, respectively. The Company expects that this downward trend will
continue as the Company further penetrates the market with its RIMS.2001
products.
Costs of revenues have been derived from the cost of software modification,
system implementation and other services, hardware and maintenance support.
Costs of services and costs of maintenance consist primarily of labor costs for
customer support, including personnel costs, and costs relating to subcontracted
services and overhead. The number of programmers and service and support
personnel employed by the Company was 32,
20
<PAGE>
25, 27 and 37 at May 31, 1994, 1995 and 1996 and February 28, 1997,
respectively. Substantially all programmers also function as engineers in the
development of software, as described below. The reduction in the number of
employees in fiscal 1995 from fiscal 1994 was due to the nonrenewal of
government contracts (which are typically awarded to the lowest bidder) relating
to several pre-RIMS.2001 warehouse management systems. Cost of hardware consists
primarily of the cost of hardware sold by the Company on behalf of other
manufacturers.
Amortization of software development costs consists of the amortization of
costs of engineering personnel and related development expenses, such as the
development of software tools and documentation, capitalized starting at the
point technological feasibility is demonstrated. The Company believes that a
significant level of investment in software development is essential to achieve
and maintain a market leadership position. The Company expended $844,244,
$464,477, $815,908 and $1,045,342 in fiscal 1994, 1995 and 1996 and the nine
months ended February 28, 1997, respectively, for software development costs.
The Company employed 17, 14, 15 and 18 software development employees at May 31,
1994, 1995 and 1996 and February 28, 1997, respectively, some of which also
functioned as programmers for the installation or modification of the Company's
software. The reduction in the number of such employees in fiscal 1995 from
fiscal 1994 was also due to the nonrenewal of government contracts for
nonstandard warehouse management systems, as described above. The increase in
the amortization of software development costs was due primarily to the
commencement of amortization of capitalized software development costs for
RIMS.2001 (Version 3.1) in January 1996, the month in which such version was
first available for sale. Statement of Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," requires capitalization of software development costs from the point
of technological feasibility to the point of a salable product. RIMS.2001 has
been technologically feasible since 1992 and salable since the beginning of
fiscal 1995. The Company's current and planned product development efforts are
directed at enhancing and improving RIMS.2001. The Company believes that a
significant level of investment for software development is required to remain
competitive. Accordingly, the Company anticipates that the dollar amount of the
amortization of software development expenses will increase. As a percentage of
total revenue, however, the Company anticipates that amortization of software
development expenses will decrease as revenues increase.
Selling, general and administrative expenses consist primarily of salaries
for sales, marketing, administrative, executive and financial personnel,
commissions paid to sales personnel and travel and promotional expenses. The
sales and marketing, general and administrative staff consisted of 15, 15, 15
and 18 employees at May 31, 1994, 1995 and 1996 and February 28, 1997,
respectively. The Company believes that its selling, general and administrative
expenses will increase in dollar amounts in the future as the Company expands
its sales and marketing staff and as the Company experiences higher costs
associated with being a public company; however, the Company anticipates that
such expense will decrease as a percentage of total revenues as revenues
increase.
21
<PAGE>
Results of Operations:
The following table sets forth, for the periods indicated, certain statement
of operations data:
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
Year ended May 31, ------------------------------
-------------------------------- February 29, February 28,
1994 1995 1996 1996 1997
----------- ------- -------- -------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license fees .......... $ 415 $ 505 $ 970 $ 321 $ 899
Services ......................... 2,299 3,382 3,195 2,375 1,621
Hardware ......................... 976 2,068 1,793 1,212 1,729
Maintenance ...................... 440 858 1,006 776 836
--------- ------ ------- ------ ------
Total revenues .................. 4,130 6,813 6,964 4,684 5,085
--------- ------ ------- ------ ------
Cost of revenue:
Cost of license fees .............. 34 34 63 18 96
Cost of services .................. 3,108 2,622 2,100 2,083 1,015
Cost of hardware .................. 771 1,534 1,399 926 1,329
Cost of maintenance ............... 215 261 882 473 554
--------- ------ ------- ------ ------
Total cost of revenues ......... 4,128 4,451 4,444 3,500 2,994
--------- ------ ------- ------ ------
Amortization of software development
costs ........................... -- 297 311 229 325
--------- ------ ------- ------ ------
Gross margin ..................... 2 2,065 2,209 955 1,766
Selling, general & administrative
expenses ........................ 1,093 1,275 1,076 815 784
--------- ------ ------- ------ ------
Income (loss) from operations ...... (1,091) 790 1,133 140 982
Interest expense, net ............ 15 46 8 6 24
--------- ------ ------- ------ ------
Net income (loss) .................. $ (1,106) $ 744 $1,125 $ 134 $ 958
========= ====== ======= ====== ======
</TABLE>
Comparison of Nine Months Ended February 29, 1996 and February 28, 1997
Revenue. Total revenue increased by approximately 9% from $4,684,412 in the
nine months ended February 29, 1996 to $5,084,852 in the nine months ended
February 28, 1997. Software license fees increased by approximately 180% during
the 1997 period as compared to the 1996 period, primarily due to the increase in
RIMS.2001 software licenses from five during the nine months ended February 29,
1996 to 12 during the nine months ended February 28, 1997 and the payment by one
customer during the latter period of a significant non-refundable master license
fee. Services revenues decreased by approximately 32% for the fiscal 1997 period
as compared to the 1996 period, primarily due to the decreasing level of
services required for the installation of highly-customized, pre-RIMS.2001
systems originally contracted for prior to fiscal 1995. Hardware revenues
increased by approximately 43% during the fiscal 1997 period as compared to the
1996 period, primarily due to increased sales of hardware by the Company in
connection with its system installations. Maintenance revenues increased by
approximately 8% for the fiscal 1997 period, primarily due to the larger number
of maintenence contracts in operation during such period.
Cost of Revenues. Total cost of revenues decreased by approximately 14%
from $3,499,782 in the nine months ended February 29, 1996 to $2,993,972 in the
nine months ended February 28, 1997. As a percentage of revenue, total cost of
revenues decreased from 75% in the 1996 period to approximately 59% in the
fiscal 1997 period. The decrease primarily related to higher license fee
revenues discussed above, which generally have minimal direct related costs and
new service charge practices.
Amortization of Software Development Costs. Amortization of software
development costs increased by approximately 42% from $228,750 in the nine
months ended February 29, 1996 to $324,769 in the nine months ended February 28,
1997. The increase was due to the commencement of amortization of capitalized
software development costs for RIMS.2001 (Version 3.1) in January 1996, the date
such version was first available for sale. As a percentage of revenue, the
amortization of software development costs were approximately 6% in the nine
months ended February 28, 1997 and 5% in the nine months ended February 29,
1996.
22
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 4% from $815,020 in the nine
months ended February 29, 1996 to $784,441 in the nine months ended February 28,
1997. As a percentage of revenue, selling, general and administrative expenses
decreased from approximately 17% for the 1996 period to approximately 15% for
the 1997 period. The decrease was primarily due to lower administrative salaries
resulting from the retirement of one of the Company's executive officers and
decreased selling expenses in the latter period.
Interest Expense, net. Interest expense was $42,367 in the nine months
ended February 28, 1997, an increase of $10,917 or approximately 35% from
$31,450 in the nine months ended February 29, 1996. The increase was primarily
due to higher interest rates on balances related to loans from officers in
fiscal 1997 as compared to fiscal 1996 and to interest on bank borrowings in
fiscal 1997.
Comparison of Fiscal Years Ended May 31, 1995 and May 31, 1996
Revenue. Total revenue increased by approximately 2% from $6,813,307 in the
year ended May 31, 1995 to approximately $6,964,097 in the year ended May 31,
1996. Software license fees increased by approximately 92% in fiscal 1996 as
compared to fiscal 1995, primarily due to the payment by one customer in fiscal
1996 of a significant non-refundable license fee. Services revenues decreased by
approximately 6% in fiscal 1996 as compared to fiscal 1995, primarily due to the
completion in fiscal 1995 of installations for two customers requiring
significant modifications. Hardware revenues decreased by approximately 13% in
fiscal 1996 as compared to fiscal 1995, primarily due to the completion in
fiscal 1995 of a large pre-RIMS.2001 system with a significant hardware
component. Maintenance revenues increased by approximately 17% in fiscal 1996 as
compared to fiscal 1995, due primarily to the completion of additional system
installations.
Cost of Revenues. Total cost of revenues remained relatively constant at
$4,450,949 in fiscal 1995 to $4,444,119 in fiscal 1996. As a percentage of
revenue, total cost of revenues decreased from approximately 65% in fiscal 1995
to approximately 64% in fiscal 1996 primarily due to the significant
non-refundable license fee referred to above with minimal related costs, offset
by higher maintenance costs.
Amortization of Software Development Costs. Amortization of software
development costs increased approximately 5% from $296,997 in fiscal 1995 to
$311,321 in fiscal 1996. The increase was due to the commencement of
amortization of capitalized software development costs for RIMS.2001 (Version
3.1) in January 1996, the date such version was first available for sale. As a
percentage of revenue, the amortization of software development costs remained
constant at approximately 4% in the years ended May 31, 1995 and 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by approximately 16% from $1,275,134 in fiscal
1995 to $1,075,309 in fiscal 1996. As a percentage of revenue, selling, general
and administrative expenses decreased from approximately 19% in fiscal 1995 to
approximately 15% in fiscal 1996. The decrease is due to lower pension costs
reflected in fiscal 1996 as a result of the reduction in personnel and lower
administrative salaries and related expenses.
Interest Expense, net. Interest expense was $38,575 in fiscal 1996, a
decrease of $18,309 or approximately 32% from approximately $56,884 in fiscal
1995, primarily because outstanding bank borrowings in fiscal 1995 were entirely
repaid by the end of such period and there were no bank borrowings during fiscal
1996.
Comparison of Fiscal Years Ended May 31, 1994 and May 31, 1995
Revenue. Total revenue increased by approximately 65% from $4,129,838 in
fiscal 1994 to $6,813,307 in fiscal 1995. Software license fees increased by
approximately 22% from fiscal 1994 to fiscal 1995, primarily due to the
licensing of five RIMS.2001 systems in fiscal 1995 as compared to none in fiscal
1994, which increase was partially offset by lower non-RIMS.2001 license fees in
fiscal 1995. Services revenues increased by approximately 47% in fiscal 1995,
primarily due to significant modifications required by the one non-RIMS.2001 and
two RIMS.2001 systems installed during fiscal 1995 as compared to the
modifications required by the two non-RIMS.2001 systems installed during fiscal
1994, as well as to the fact that three additional RIMS.2001 systems were
installed in fiscal 1995 as compared to none in fiscal 1994. Hardware revenues
increased by approximately 112% in fiscal 1995, primarily due to the sale of a
significant amount of hardware to one non-RIMS.2001 system customer in fiscal
1995. Maintenance revenues increased by approximately 95% in fiscal 1995, due
primarily to the significant maintenance contract entered into with that same
customer upon completion of its system installation.
23
<PAGE>
Cost of Revenues. Total cost of revenues increased by approximately 8% from
$4,127,523 in fiscal 1994 to $4,450,949 in fiscal 1995. As a percentage of
revenue, total cost of revenues decreased from 100% in fiscal 1994 to
approximately 65% in fiscal 1995. During fiscal 1994, the contracts with the
Company's primary customer, the government, expired and were not renewed because
the award of such contracts was given to the lowest bidder. The higher costs of
revenue in fiscal 1994 relates to numerous modifications for the government
which the Company was unable to recover. In addition, in June 1994, the Company
released RIMS.2001 for sale which reflects a lower cost of revenue relative to
total revenue as compared with the cost of revenue relative to total revenue in
fiscal 1994, primarily related to the modification of software on government
contracts.
Amortization of Software Development Costs. The amortization of software
development costs began in June 1994 when RIMS.2001 was first available for
sale. Amortization of software development costs was $296,997, or approximately
4% of revenue, in fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately 17% from $1,092,713 in fiscal
1994 to $1,275,134 in fiscal 1995. The increase was primarily due to higher
advertising costs and other selling expenses in fiscal 1995. As a percentage of
revenue, selling, general and administrative expenses decreased from
approximately 26% in fiscal 1994 to approximately 19% in fiscal 1995.
Interest Expense, net. Interest expense was approximately $56,884 in fiscal
1995, an increase of $39,384 or approximately 225% from $17,500 in fiscal 1994,
primarily because bank borrowings and loans payable to officers were made in
mid-1994. The loans payable to officers were outstanding for all of fiscal 1995.
Fluctuations in Operating Results
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future, depending upon a number of factors, such as the length of
the Company's sales cycle, the unanticipated cancellation of significant license
agreements, the timing of new version releases by the Company and its
competitors, budgeting cycles of the Company's customers, demand for the
Company's software, software life cycles, introduction and acceptance of new
software by the Company and its competitors, the size and timing of customer
orders, changes in the proportion of revenues attributable to software license
fees versus services, changes in the level of operating expenses and general
economic conditions. In addition, a significant portion of the Company's
revenues has been derived from relatively few sales of licenses for RIMS.2001,
and, consequently, the timing of such sales has caused material fluctuations in
the Company's operating results. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Because the Company recognizes a significant portion of revenues over the
installation period of the system (which, although designed to be completed in
approximately four months, generally ranges from four to eight months in
duration as a result of the customer's scheduling requirements) and because
installation commences promptly after execution of the related license
agreement, the Company does not maintain a significant backlog. Software license
fees for each quarter depend in part on orders for which implementation has
begun during that quarter and on license agreements under implementation that
were executed in prior quarters. The sales cycle for RIMS.2001 typically ranges
from four to six months, and contract signing may be delayed for a number of
reasons, including customer budgetary constraints and internal authorization
reviews. In addition, delays in the completion of a contract may require that
the revenues associated with such contract be recognized over a longer period.
Consequently, the Company's business, results of operations or financial
condition for a quarter could be materially adversely affected by implementation
delays.
The Company is in the initial stages of developing pre-configured,
industry-specific versions of RIMS.2001 for use in certain vertical markets. The
Company believes that if it is able to successfully introduce and obtain market
acceptance of pre-configured versions of RIMS.2001, such versions would reduce
its quarterly fluctuations in operating results because such products would
enable the Company to sell its systems to a greater number of customers. The
RIMS.Food product, which was introduced in May 1997, was the first of these
industry specific versions. There can be no assurance, however, that these
additional products will be successfully developed or that they will gain market
acceptance. See "Business --Product Development."
24
<PAGE>
Liquidity and Capital Resources
Over the last three years, the Company has funded its operations primarily
through cash generated from operations, bank borrowings and loans from officers.
The Company's Line of Credit, which expires on September 30, 1997, provides for
borrowings of up to $2,000,000. Amounts outstanding under the Line of Credit are
payable on demand and are collateralized by the assets of the Company.
Borrowings bear interest at the prime rate (8.5% at May 15, 1997). Repayment is
personally guaranteed by Messrs. Balaban, Klein and Goldman. The Line of Credit
has been used primarily for S Corporation distributions to the Company's
shareholders and for working capital purposes. Outstanding amounts under the
Line of Credit aggregated $350,000 and $1,300,000 at February 28, 1997 and May
15, 1997, respectively. The Company intends to repay the outstanding
indebtedness under the Line of Credit with a portion of the proceeds of this
offering. In the future, however, the Company intends to re-borrow against this
or a subsequent line of credit. The Company also has a $150,000 standby letter
of credit with the Bank, which is being utilized as collateral for a vendor and
expires on December 31, 1997. The letter of credit reduces the available portion
of the Line of Credit.
Net cash provided by operating activities was $657,150, $1,278,812 and
$847,064 in fiscal 1995 and 1996 and the nine months ended February 28, 1997,
respectively. Cash flows from operations increased in fiscal years 1995 and 1996
due primarily to the higher net income generated over the previous years. Cash
generated from operating activities in the nine months ended February 28, 1997
was generated primarily from higher net income offset by the increase in
accounts receivable. Net cash used in operating activities was $429,301 in
fiscal 1994. Cash flows from operations were lower in 1994 due to the net loss
of $1,105,686 offset by the decrease in accounts receivable and the increased
costs incurred and income recognized in excess of billings on uncompleted
contracts.
The Company expended $844,244, $464,477, $815,908 and $1,045,342 in fiscal
1994, 1995, and 1996 and the nine months ended February 28, 1997, respectively,
for software development costs. The Company did not have any material
commitments for software development costs as of February 28, 1997. Any such
costs will be financed through working capital and proceeds received by the
Company from this offering.
As of February 28, 1997, the Company had $65,670 in cash and cash
equivalents, and working capital of $875,205.
Management believes that the net proceeds from the sale of the Common Stock
by the Company in this offering, cash flow from operations, existing cash and
temporary investments, and amounts available under the Line of Credit will be
sufficient to meet the Company's currently anticipated working capital and
software development requirements through fiscal 1999.
Termination of S Corporation Status
As a result of terminating the Company's S Corporation status as of the
date of this Prospectus, the Company will be required to record a one-time,
non-cash charge against earnings for deferred income taxes. This charge will
occur in the year ending May 31, 1998. If this charge had been recorded at
February 28, 1997, the amount would have been approximately $1,238,000. The
Company expects that, following the termination of its S Corporation status, its
combined Federal and state income tax rate will be 42%.
Inflation and Seasonality
The Company does not believe its operations have been materially affected
by inflation. The Company's business is not seasonal.
25
<PAGE>
BUSINESS
The Company develops, markets and supports advanced warehouse management
software solutions that enable companies to realize significant cost savings by
automating their warehouse operations. The Company's primary product, RIMS.2001,
is a customer-configurable software solution that enables a company's warehouse
to respond to a customer order with greater accuracy and in a more timely
manner, thereby turning the warehouse into a competitive advantage. RIMS.2001
operates in an open system environment and interfaces with an organization's
existing information systems infrastructure. In addition to providing RIMS.2001
software licenses, the Company provides installation, design and maintenance
services and related hardware when required by the customer. The Company
believes that customers that have implemented the RIMS.2001 solution have
realized increased customer satisfaction directly related to a timely and
accurate receipt of shipments.
Industry Background
In recent years, a number of business trends have converged to change the
historical relationships among retailers, manufacturers and suppliers, and
distributors. Increasing globalization of the marketplace has resulted in
greater geographic diversity of supply and production facilities and has
increased competition as more suppliers are offering a greater range of products
at multiple price levels. In addition, a number of trends in retailing,
including shorter product life cycles, a significant increase in the number and
variety of product offerings, an increase in buying power resulting from the
evolution of the retailer from the small local store to the large regional or
national department store chain, specialty store chain or "superstore" chain,
and the emergence of a more informed and price conscious consumer, have put
increased pressure on retailers to reduce expenses to remain competitive.
Consequently, retailers are seeking to reduce inventory management costs by
selecting suppliers that can respond to "just-in-time" purchasing and "quick
response" delivery techniques that enable the retailer to better match product
inventory to actual customer demand. Retailers and other vendors also are
increasingly demanding that their suppliers comply with standards for electronic
data interchange ("EDI"), electronic commerce and very specific labeling
requirements.
As a result of these trends, manufacturers and suppliers are experiencing
significant pressures to satisfy customer demands for improved product delivery
and reduced delivery times. Historically, manufacturers have organized their
businesses primarily to increase manufacturing efficiency and output. However,
as major customers shift the burden of inventory management to the manufacturer
or distributor, manufacturers and distributors have refocused their business
process re-engineering efforts to evaluate the service and value provided to
customers from existing operations and are seeking alternatives for streamlining
the warehousing and distribution process. The need to satisfy customer demand
for more effective and efficient order fulfillment has caused manufacturers to
seek greater control over the entire supply chain to minimize materials
inventories, ensure the timing of deliveries from suppliers, reduce
manufacturing cycle times, minimize finished goods inventories, maximize the
efficiency of warehousing and transportation systems and provide superior
response times to customers.
Retailers, manufacturers and suppliers, and distributors are increasingly
recognizing that significant cost savings can be achieved through warehouse
computerization and automation. An effective warehouse management system will
reduce costs and assist in improving customer service by achieving the following
objectives:
o Reduction of Errors. Receiving, stocking and picking errors are common in a
manual paper-based warehouse. An automated warehouse management system is
self-checking and ensures virtually 100% accuracy for every transaction.
o Improvement of Inventory Accuracy. The self-checking nature of an automated
warehouse management system ensures inventory accuracy and eliminates the
costly series of manual checks and backtracking that results when the
inventory on the books and the physical inventory in a warehouse do not
match. As a result of the poor accuracy in paper-based warehouses, costly
physical inventories need be taken to reconcile the system inventory to the
actual inventory. The inherent accuracy and cycle counting features of a
warehouse management system eliminate the need for a physical inventory.
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o Improved Space Utilization. A warehouse management system tracks all
warehouse locations and can direct where each product can best be stored
for maximum space utilization.
o Increased Productivity. A warehouse management system maximizes the time
operators spend adding value to the distribution process, filling orders
and receiving goods. System direction minimizes search time and dispatches
operators and pickers to the best task given the equipment and current
location. A warehouse management system also gives the warehouse control of
the workload and provides visibility into the entire range of tasks that
need be performed within a given time period.
o Improved Labor Management and Reporting. Paperwork in a warehouse for
picking and stocking drastically hampers productivity. Paperless warehouse
management system applications provide real-time information, reduce the
possibility for data entry errors and information delays and improve
productivity. In addition, a warehouse management system has vast reporting
capabilities because every transaction is recorded. In paper-based
warehouses, the only method available for tracking productivity and
performance is a manual log that is time consuming to keep, susceptible to
error and is only as good as the information each operator provides.
o Support of Customer EDI Requirements. Retailers and other vendors are
increasingly demanding that their suppliers comply with standards for EDI,
electronic commerce and specific labeling and packaging requirements. A
warehouse management system can provide special bar-code labeling and can
track any value-added packaging operations required.
o Integration. Manufacturers require warehouse activities to integrate with
their manufacturing and accounting systems. Such levels of data processing
and system integration require a capable, highly integrated warehouse
management system solution.
Initial warehouse automation software systems developed in the early 1980s
only produced "batch" picking, shipping, receiving and product movement reports
that detailed the expected merchandise handling operations for an entire day.
These systems provided initial improvements in warehouse efficiencies, but were
unable to respond quickly to unexpected circumstances, such as unscheduled
shipments or scheduled shipments that did not arrive, damaged goods that could
not be shipped when scheduled, and products stored in incorrect locations.
During the 1980s, automatic identification (primarily bar coding) became
widely accepted, and the cost of computer platforms supporting the initial
warehouse automation systems dropped as mini-computers and personal computers
were introduced and gained acceptance in the business workplace. In addition,
radio frequency hardware technology was introduced that first enabled software
designers to develop warehouse automation software that utilizes a local radio
network installed in the customer's warehouse to connect hand-held and
forklift-mounted mobile data terminals with the warehouse's central computer.
This development made possible software systems that manage a warehouse
dynamically in "real time" rather than batch mode. Real-time systems offer many
advantages over batch mode systems, including the ability to adapt to unexpected
circumstances, such as "rush" orders, late or unexpected in-bound shipments, and
incorrectly located merchandise; the ability to conduct partial inventory counts
while the warehouse remains fully operational; and the ability to improve
employee productivity by directing each worker to the next task to be performed
based upon the worker's current location and the location and priority of the
task.
Initially, warehouse management systems were custom-developed by internal
management information system (MIS) departments or third-party software
developers. These early custom-developed systems were often based on proprietary
operating systems, written in second and third generation programming languages
and very specific to the user's current methods of operation. As cost and time
overruns became commonplace, the finished system often exceeded budget, fell
behind schedule and was incapable of adapting to change as the business
developed. As computer hardware prices declined and less-costly minicomputers,
personal computers and computer networks replaced mainframes in the workplace,
it became desirable for computer applications to be written in a manner that
allowed the application to be transported from one computer to another. The
emergence of open system technology addressed this problem and evolved into the
preferred platform for many software applications, including warehouse
management systems, manufacturing supervisory control and many different data
collection applications. Open systems are based on industry standards, permit
the integration of multi-vendor hardware and software components and are
designed to accommodate new components and technology as they become available.
The Company believes that it was one of the first suppliers of an open system
warehouse management system.
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The proliferation of open system technologies in the early 1990s and the
availability of software development tool sets has led to the recent development
of custom configurable off-the-shelf products. Recent improvements in software
design, computer hardware, warehouse equipment and radio frequency technology
have enabled warehouse management software developers, such as the Company, to
design and install more affordable systems with increased functionality.
According to an industry analyst, at December 31, 1996 there were more than
550,000 domestic warehouses and distribution centers, of which no more than 10%
are employing some level of automation. The Company believes that the increasing
need of manufacturers and distributors to satisfy customer demand for more
effective and efficient order fulfillment will continue the trend of
manufacturers and distributors to seek the benefits of a state-of-the-art
warehouse management system.
Strategy
The Company's objective is to continue to be a leading provider of
warehouse management software solutions and services, and to expand its presence
worldwide. To achieve these objectives, the Company has adopted the following
strategies:
o Strategic Alliances. The Company intends to supplement its marketing
efforts by aligning itself with complementary solutions providers and
technology partners. Strategic alliances also will assist the Company in
keeping pace with technological developments of the major software and
hardware vendors and, in certain instances, provide the Company with
product development services. The Company has entered into a strategic
alliance with QAD, Inc., a leading provider of global supply chain
management and enterprise resource management solutions. This relationship
includes co-marketing and technology-sharing arrangements and provides the
Company access to a very large existing customer base. Through similar
alliances, the Company expects to gain greater exposure and acceptance of
its products and services. See "-- Sales and Marketing."
o New Product Development. The Company intends to continue to produce a
quality warehouse management system product that meets client expectations
in terms of functionality, flexibility, procurement cost, implementation
cost and ongoing maintenance cost. The Company believes that the RIMS
product line meets these expectations and will continue to do so as the
product evolves. The Company is committed to continuous product improvement
through a software development program that is driven by industry focus
groups and customer input. The Company intends to continue to utilize its
industry, customer and supplier relationships to keep abreast of emerging
standards, protocols and application programming interfaces as such trends
are introduced and gain market acceptance. The Company believes that
Internet-based applications will be the next significant technology change
in the warehouse management system industry. Development is currently
underway for RIMS.2001 enhancements that will utilize this technology. The
Company believes that a portable, open, Java(CR)-based, multi-tiered,
front-end application architecture will supplant the traditional
proprietary client/server technology employed by its competitors. See "--
Products and Service," "-- Third Party Hardware Products," and "-- Product
Development."
o Establish Vertical Market Concentration. By tailoring RIMS.2001 to support
the uniqueness of certain targeted markets, the Company believes it will
have a competitive advantage in selling to prospective customers in the
same industry in which similar functional and implementation issues arise.
The Company believes that the expertise developed in each of these vertical
markets also will further contribute to its standard RIMS.2001 product. In
the development of RIMS.Food, the Company established a focus group
consisting of current and potential clients in the food manufacturing and
distribution industry. This focus group provided direction, guidance and
partial funding for the development of RIMS.Food. The Company intends to
replicate this process to establish itself in other vertical markets and
has identified the following vertical markets as additional targets:
automotive, consumer products, petro chemical products, public utilities
and pharmaceutical products. See "-- Product Development."
o International Expansion. The Company intends to establish itself in the
international business market. In this regard, the Company has established
formal relationships with distributors in the United Kingdom,
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Mexico, Brazil and Argentina that are established systems integrators with
large customer bases in their respective regions. The Company intends to
establish additional international relationships and to strategically
locate sales and support offices worldwide to support its distributors as
the number of foreign distributors expands. See "-- Sales and Marketing."
o Training, Implementation and Support. A key to the success of a warehouse
management system supplier is its ability to provide the necessary services
and expertise required to effectively implement a complex warehouse
management system. The Company believes that the efficiency of its
implementation process will allow the Company to increase sales to
prospective customers seeking standard, configurable software solutions
and enable the Company to increase its market share with respect to its
competitors. The Company intends to continue to develop and improve its
services organization and its innovative conference room pilot program to
ensure a continued simple and efficient implementation process for its
customers. See "-- Service and Maintenance" and "-- Sales and Marketing."
Products
The Company's principal product, RIMS.2001, is a full-featured,
state-of-the-art warehouse management solution. The Company also markets
RIMS.Food, which is a modified version of RIMS.2001 that was recently developed
and is targeted at fresh and frozen food manufacturers and distributors. The
RIMS.2001 product line is a highly scaleable, highly configurable and flexible
product with baseline functionality and features sufficient for most warehouse
installations. The strength of RIMS.2001 is its adaptability to varied
environments without modification. RIMS.2001 is generally sold as an entire
turnkey solution that provides the Company's customers with both the software
and the hardware, if requested, necessary for a comprehensive warehouse
management system.
As a standard, "off-the-shelf," highly configurable software system,
RIMS.2001 is designed to be deployed in only two to three months and to achieve
measurable cost savings for customers. The efficiency of implementing the
Company's software solutions results from the open systems architecture of
RIMS.2001, which runs on various operating platforms and uses either Oracle or
Progress database management system software, and the Company's extensive
experience in developing warehouse management systems. The Company believes that
its customers recognize cost savings throughout the warehousing and distribution
processes as a result of increases in worker productivity, efficiencies in space
utilization, increases in inventory accuracy, increases in lot number controls,
product expiration date controls and product serialization controls, and the
elimination of costly shipping errors through the use of bar code technology.
RIMS.2001
RIMS.2001 is a responsive software application designed to manage an entire
warehouse operation. As a user configurable solution, RIMS.2001 incorporates
numerous warehousing practices and strategies as standard capability. RIMS.2001
is an open systems solution that is not restricted to any particular equipment
or computer system. As such, the application software has been installed on
numerous hardware platforms and database management systems. RIMS.2001 can
interface with an organization's current materials handling equipment and
transactions-based systems and is easily integrated with customer or third party
purchasing, electronic data exchange, bar coding, accounting, manufacturing
resource planning ("MRP") and enterprise resource planning ("ERP") applications.
RIMS.2001 also utilizes radio frequency communications and bar coding to provide
real-time management, validation and tracking of all warehouse activities.
RIMS.2001 directs personnel and equipment and manages the inventory, space,
radio terminals, bar code scanners and printers in the warehouse in an efficient
and cost effective manner.
RIMS.2001 is a comprehensive application that manages the receiving, put
away, outbound order processes, and general warehouse operations. With each
warehouse process, RIMS.2001 provides a variety of tactical choices that can be
user defined to a customer's specific requirements and needs and that are
designed to maximize efficiency. Major system functions include:
o Receiving. The receiving process provides control over the receipt of
inventory through scanning the bar codes of incoming product to ensure
accuracy of inventory in the warehouse. This process facilitates the
receipt of purchase orders, transfer orders, advanced shipping notices and
customer returns. The receiving process supports pre-storage activities,
such as returned goods processing and quality assurance inspection.
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o Putaway Process. The putaway process ensures that all inventory is stored
in the most efficient location available based on pre-configured management
strategies. The Company or the customer will configure the system to
implement the customer's unique business demands, assigning locations based
on the customer's parameters with consideration given to product
characteristics, product velocity, demand codes, delivery and shipping
requirements, storage devices and cross-docking strategies.
o Picking and Shipping. The RIMS.2001 outbound order process analyzes each
order to determine the most efficient packing, loading and shipping
procedures. The order processing function is configured to match each
customer's management strategies. The outbound order process includes,
among other features, order selection, allocation, picking, loading and
shipping.
o Management. The general warehouse operations process manages the
availability of space and the movement of warehouse personnel, inventory
and material handling equipment through information shared by management
and warehouse employees. The real-time information and product flexibility
allows a customer to test or implement different strategies to maximize
productivity and efficiency. The system allows customers to combine
multiple tasks into a single job assignment, such as grouping a put-
away and picking assignment into one trip. RIMS.2001 facilitates cycle
counting, automatic replenishment, product moves, inventory control and
consolidation, labor tracking, system security, space utilization, vehicle
management and rewarehousing.
RIMS.Food
RIMS.Food is a specialized application of RIMS.2001 targeted at the food
industry. This product includes all of the basic features and benefits of the
base RIMS.2001 product, and is the first product created by the Company to focus
on a particular vertical market. RIMS.Food is pre-configured to address the
unique requirements of the food industry. Key features include: specialized
processing, such as date triggers (sell by date, cure date, use by date, freeze
date, etc.), enhanced lot tracking, and industry-specific bar coding.
Service and Maintenance
In addition to licensing of RIMS.2001, the Company offers certain services
and maintenance agreements to its customers. Services provided by the Company
include project management, product customization, configuration support,
training and implementation support.
The standard RIMS.2001 license fee provides customers a one-year warranty,
which includes software fixes for reported problems during the warranty period.
Maintenance is not provided as part of the Company's license agreement; however,
the Company offers turnkey maintenance services for the RIMS.2001 software and
certain hardware components of the system under a separate maintenance
agreement. Maintenance agreements are typically initiated at the time of
implementation, are renewable annually, and entitle the customer to telephone
support, software upgrades, installation assistance and priority problem
resolution. Maintenance fees are typically a percentage of the license fees
(excluding hardware), with additional fees for extended hours. If elected by the
customer, maintenance support is offered 24-hours per day, seven days per week.
Substantially all RIMS.2001 customers have entered into a maintenance agreement
with the Company after system implementation.
The Company has several groups responsible for offering services and
maintenance to ensure customer satisfaction, including Software Engineering,
Product Support, Training and Customer Support. The Company's Software
Engineering Group offers a structured implementation program that typically
lasts two to three months and begins with the development of joint business
scenarios between the Company and the customer. This process consists of
training, business scenario development, configuration of the software, the
conference room pilot program, project management and implementation support
services. The conference room pilot program enables the Company and the customer
to model warehouse management operations and resolve operating issues prior to
live implementation. The Company's Product Support Group is responsible for
managing and installing operational systems, hardware, networks, communication
links and relational database management systems. Further, the Company offers
training to its customers for its RIMS products. Standard training for RIMS
includes three courses over three to four weeks. The Configuration course
explains basic RIMS terminology and methodology related to system configuration
and setup. The Supervisors course provides warehouse management the
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training necessary to effectively control and monitor the facility. The
Operators course is a hands-on training course for warehouse workers
concentrating in the execution of RIMS-related tasks. Customized courses are
also made available on request. A Train-the-Trainer course provides information
and materials to third-party trainers who will perform the future RIMS training.
A RIMS Internals course is designed to provide technical personnel with
knowledge of the software design and internal operations of the RIMS system. The
Company offers extensive customer support to its maintenance customers,
including a 24-hour help line.
In those cases in which the standard RIMS.2001 product cannot meet the
customers needs, the Company can enter into contracts to perform certain
modifications to the baseline product.
Third Party Hardware Products
The Company's RIMS.2001 products use an open architecture that enables
customers to use various operating systems, operate on multiple hardware
platforms and interoperate with many third party software applications and
legacy systems. This open system capability enables customers to continue using
their existing computer resources and to choose among a wide variety of existing
and emerging computer hardware and peripheral technologies.
In conjunction with virtually all sales of RIMS.2001, the Company resells a
variety of hardware products developed by third parties, including computer
hardware, radio frequency terminal networks, bar code printers and scanners, and
other peripherals. In addition, the Company resells computer hardware and
network devises in support of office client server systems. The Company resells
all third-party products pursuant to agreements with the products' manufacturers
or through distributor authorized reseller agreements pursuant to which the
Company is entitled to purchase products at discount prices and to receive
technical support in connection with product installations and subsequent
product malfunctions. The RIMS.2001 hardware-related agreements generally permit
the Company to resell the third-parties' products to any RIMS.2001 user in the
United States. The Company anticipates that its foreign distributors or other
third party vendors will sell any hardware or peripherals required in connection
with the sale of RIMS.2001 outside of the United States. The Company anticipates
that sales of third-party products will decrease in importance and as a
percentage of revenues over time as sales of the Company's software licenses and
services increase.
Other Sales and Services
In addition to its RIMS.2001 systems, the Company designs, implements,
installs and supports computer systems networks and office software on a limited
basis. Customers range from Fortune 100 companies with sophisticated
fault-tolerant, inter-networking, high connectivity needs, to medium- and
small-size companies requiring implementation and support of a workgroup local
area network. The Company provides entire turnkey software solutions,
consulting, systems analysis and custom training on almost any application to be
run on a network. The Company is fully equipped to support most "off-the-shelf"
software applications written for Novell, NT or UNIX, and offers its customers a
full range of support services, ranging from the resolution of a specific
application problem to a full software support contract encompassing any or all
of its customer applications. The Company is a single source provider due to its
ability to (i) install hardware and application software for local area
networks, (ii) configure, upgrade and maintain such systems, and (iii) provide
training relating to such systems to its customers.
Customers
The Company targets its marketing efforts primarily on manufacturers,
distributors, retailers and wholesalers in the food processing, consumer
products, petro chemical products, public utilities and pharmaceutical sectors,
as well as other high-volume wholesalers. As of May 15, 1997, the Company had
licensed RIMS.2001 to 18 customers operating a total of 23 warehouses.
Customer orders for the Company's RIMS.2001 products over the last two
fiscal years and the first nine months of fiscal 1997 have ranged from
approximately $50,000 to over $2 million. Due to the size of most orders and the
need for differing amounts of modification
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for each installation, the Company historically has obtained orders from a
relatively small number of new customers each fiscal quarter. As a result,
individual customers have often accounted for more than 10% of total revenues in
a particular fiscal period. For the fiscal year ended May 31, 1995, the Company
had two customers that accounted for approximately 34% and 13% of total
revenues. For the fiscal year ended May 31, 1996, the Company had three
customers that accounted for approximately 15%, 14% and 12% of total revenues.
For the nine months ended February 28, 1997, the Company had two customers that
accounted for approximately 21% and 16% of total revenues. Because of the nature
of the Company's business operations, the Company anticipates that customers
that account for more than 10% of total revenues for a fiscal period will vary
from period to period depending on the status and timing of significant orders
by a particular customer or customers in any given fiscal period. However, as
sales of the standard RIMS.2001 product increase and the average dollar amount
of system orders decreases, the Company expects that the number of customers
accounting for more than 10% of total revenues for a fiscal period will decline.
Sales and Marketing
The Company currently markets its products and services primarily through a
direct sales force in North America and directly and indirectly in other parts
of the world. The Company conducts comprehensive marketing programs that include
telemarketing, public relations, direct mail, advertising, seminars, trade shows
and ongoing customer communications programs. Sales and marketing personnel are
located at the Company's headquarters in Massapequa, New York and in field
offices located in Atlanta, Georgia, Ann Arbor, Michigan, Pittsburgh,
Pennsylvania and Cranston, Rhode Island. The Company expects to use a portion of
the proceeds of this offering to upgrade and expand its existing field offices
and to open two additional North American sales and support offices in fiscal
1998, which offices will likely be located in Chicago and Los Angeles. The
Company also expects to use a portion of the proceeds of this offering to open
in fiscal 1998 its first two international sales and support offices, which
offices will likely be located in Europe and Australia.
The Company obtains sales leads through advertising, seminars, trade shows
and relationships with industry consultants. A typical sales cycle begins with
generation of a sales lead or the receipt of a request for proposal ("RFP") from
a prospective customer or his representative. After qualification of the sales
lead and analysis of the prospective customer's requirements, a formal proposal
in response to the RFP is prepared. The proposal generally describes how
RIMS.2001 is expected to meet the RFP requirements and associated costs. Product
demonstrations are often conducted at the prospective customer's facilities
using realistic data and scenarios. Site visits to other RIMS.2001 installations
are also encouraged by the Company's sales staff. While the sales cycle varies
substantially from customer to customer, it typically ranges from three to six
months for a standard system and from six to 12 months for a system requiring
substantial modification The Company expects that the sales cycle for the
standard RIMS.2001 system will be reduced to 60 to 90 days as the system becomes
more widely known through increased advertising.
The Company often employs an innovative conference room pilot approach for
potential new customers. The potential customer is offered a fully-functioning
RIMS.2001 system for configuration, evaluation and analysis. The client executes
the RIMS.2001 application by working hands-on with a test machine in a
controlled environment at its own headquarters. The conference room pilot offers
a unique opportunity to confront issues that a customer might otherwise face in
the actual operation of its warehouse, and to work with the Company to solve
potential problems prior to full-scale system implementation. The Company
believes this program is instrumental to establishing client confidence and
promoting additional awareness of the broad functionality of the RIMS system.
The conference room pilot also enables potential customers to define additional
requirements for modification and provides mutual assurance to the Company and
the customer that any defined modifications are, in fact, needed. A client fee
and the costs of the necessary training services are charged to the potential
customer in connection with this program. At the conclusion of the pilot period,
the customer has the option to request a full refund of any license fees paid.
To date, no customer has requested a refund.
In addition, the Company has developed a standardized, comprehensive and
detailed implementation plan to guide new customers smoothly from contract
signing to system startup. Experienced project managers utilize this plan to
ensure that projects are completed effectively and within budget. Depending on
the experience level of the customer and the ease of host integration, a first
time customer will be placed on a plan that ranges from 16 to 24 weeks past
contract signing. Subsequent sites can typically be implemented four to eight
weeks apart.
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The Company intends to supplement its marketing efforts by aligning itself
with complimentary solutions providers and technology partners. Strategic
alliances also assist the Company in keeping pace with technological
developments of the major software and hardware vendors and, in certain
instances, provide the Company with product development services. The Company
has entered into a strategic alliance with QAD, Inc., the developer of the
MFG/PRO ERP system. This relationship includes co-marketing and
technology-sharing arrangements, and will provide the Company access to a very
large existing customer base. Purchasers of the MFG/PRO ERP system may be linked
to RIMS.2001 through an application program interface module that contains
software of the Company as an integral component. The integration of the
Company's software into the application program interface assures purchasers of
the MFG/PRO ERP system that any future upgrades to the system will also upgrade
the warehouse management system of such customer if such customer has RIMS.2001
in place. A purchaser of an MFG/PRO ERP system that is not linked to RIMS.2001
will not receive the benefit of this upgrade capability. Currently, RIMS.2001 is
the only available warehousing solution that conforms with the MFG/PRO ERP
system application program interface and provides upgrade capability. This
upgrade capability provides customers with a significant cost savings by
eliminating the customer's need to adjust interfaces to maintain the integrity
between MFG/PRO ERP system and RIMS.2001.
The Company intends to establish itself in the international business
market and currently markets RIMS.2001 through resellers located in South
America, Mexico and the United Kingdom. These resellers are established systems
integrators with large customer bases in their respective regions. The Company's
agreements with such resellers are not exclusive, except for the Company's
agreement with its United Kingdom reseller, which is exclusive in the United
Kingdom and Ireland and non-exclusive in Scandinavia and Germany. The Company
intends to establish additional non-exclusive international resellers in Europe,
Africa, the Middle East, Asia and Australia. As the number of foreign resellers
expands, the Company intends to strategically locate sales and support offices
throughout the world to support these distributors.
In the first nine months of fiscal 1997, approximately 1.9% of the
Company's revenues were generated outside the United States. The Company expects
that international sales will significantly increase as it adds additional
international resellers and opens Company-owned international sales and support
offices. There are a number of risks inherent in the Company's current and
proposed international business activities. There can be no assurance that such
factors will not have an adverse effect on the revenues from the Company's
future international sales and, consequently, on the Company's results of
operations.
Product Development
The Company seeks to offer an extensive, integrated product line that
provides complete warehouse management functionality to warehouses worldwide. To
effect this strategy, the Company intends to continue to introduce new modules,
upgraded functionality and enhancements to existing products.
The Company, through its development and support personnel, works closely
with its customers and prospective customers to determine their requirements and
to design enhancements and new products to meet customer needs. Using the focus
group approach and input from the user community, the Company's steering
committee will select suitable enhancements for inclusion in future releases of
RIMS.2001. Software development is funded by Company funds and, to a lesser
extent, customer funds. Product improvements are often initiated by customer
funding of modifications that can be incorporated into the standard package.
Customers benefit by funding enhancements that improve the baseline product
through lower maintenance costs and future ability to upgrade. All Company
product development is performed by its employees. The Company's capitalized
software development costs were $844,244, $464,477, $815,908 and $1,045,342 in
fiscal 1994, 1995 and 1996 and the first nine months of fiscal 1997,
respectively.
The original version of RIMS.2001 was introduced in June 1994 (Version
3.0). The Company plans to undertake continuous product improvement to ensure
competitiveness. New modules and features are being added and the Company's goal
is to release two new versions per year. As of May 1, 1997, the Company had
released Version 3.4, and Version 3.5 is scheduled for release in the third
calendar quarter of 1997.
Warehouses for different vertical markets often require different features
and functionality. In addition to modifying standard RIMS.2001 product, the
Company is in the initial stages of developing pre-configured ver-
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sions of RIMS.2001 that the Company anticipates will address the needs of
specific vertical markets. The Company believes that the expertise developed in
each of these vertical markets also will further contribute to its standard
RIMS.2001 product. The RIMS.Food product, which was introduced in May 1997, was
the first of these versions. In the development of RIMS.Food, the Company
established a focus group consisting of current and potential clients in the
food manufacturing and distribution industry. The focus group provided
direction, guidance and partial funding for the development of RIMS.Food. The
Company intends to replicate this process to establish itself in other vertical
markets and, upon development of each industry-specific version of RIMS.2001, to
hire a dedicated sales force to market such product within the applicable
vertical market. The Company has initially targeted the automotive, consumer
products, petro chemical products, public utilities and pharmaceutical products
industries as additional markets for an industry-specific RIMS.2001 product, and
intends to introduce its next industry-specific product in the fourth quarter of
fiscal 1998.
The Company is continuing its software development efforts by designing
enhancements to RIMS.2001 using Internet and intranet-based technology,
including enhancements based on a combination of the Java language and HTML
(hypertext markup language). By incorporating this technology into RIMS.2001,
authorized users on the World Wide Web will be able to access information in any
RIMS.2001 World Wide Web-enabled server, utilizing standard World Wide Web
browsers. For example, a RIMS.2001 customer will be able to permit its
authorized users to access its RIMS.2001 data repository via the World Wide Web,
which will reduce the burden on its customer service department because the
status of orders and the location of inventory for an order may be monitored
directly by the authorized user (i.e., a retail customer or plant manager). The
Company's development of an Intranet-based application (Java and HTML) will
permit warehouse management and related activity (e.g. customer service) to be
performed entirely through World Wide Web browsers within the confines of the
client organization. This architecture will permit access to data from
authorized users via a familiar browser interface. Scalability and ease of
maintenance are additional benefits of this architecture.
There can be no assurance that the development of these product
enhancements will be completed successfully or that they will include the
features required to achieve market acceptance. The introduction of each new
release of RIMS.2001 has resulted in enhancements of earlier releases as the new
releases offer improved features and functionality over prior versions. Since
the Company continues to offer earlier releases of RIMS.2001, services, supports
and provides maintenance on such earlier releases and makes new releases of
RIMS.2001 available to customers, the obsolescence of earlier releases has not
had and is not expected to have a material impact on the Company's results of
operations or financial condition. Delays or difficulties associated with
introductions of new features, modules and products could have a material
adverse effect on the Company's business, results of operations or financial
condition.
Competition
The market for warehouse management and distribution software and related
services is intensely competitive and is characterized by rapid changes in
technology and user needs and the frequent introduction of new products and
product enhancements. The Company's competitors and potential market entrants
range from small, privately-held firms to large national and international
organizations with more extensive technical staffs and technological resources,
larger marketing and sales organizations, and greater financial resources than
the Company. The Company also competes with software applications developed by
the internal management information system departments of its potential
customers. The Company, however, believes that potential customers increasingly
will purchase software applications from outside vendors, including the Company,
due to high development costs, poor support, the lack of comparable
functionality and inconsistent or delayed development schedules.
The Company believes that historically the market for warehouse management
and distribution software could be characterized by the size of the customer or
the complexity of the customer's warehouse handling environment. Competitors in
the high end of the market offered turnkey systems that typically integrated all
aspects of hardware, software and services related to the warehouse management
system, including real-time labor management functionality, labor planning,
tracking and management functionality, integrated host system communications,
modular software development, material handling device control, automated
storage equipment control, inbound/outbound traffic management, and full
receiving, putaway/storage, order processing, picking,
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<PAGE>
shipping, inventory control and management reporting functionality. Middle
market competitors differ from high end competitors primarily by offering
systems with limited hardware flexibility, little or no management, labor and
storage reporting, little or no radio frequency functionality and reduced
hardware and software costs. Middle market systems generally provide excellent
tracking and control, but do not actively help to manage the warehouse
operation. At the lower end of the market, competitors tend to specialize in a
specific aspect of warehouse functionality, such as receipts tracking, warehouse
data collection tasks or carousel control, and have smaller technical and
development staffs.
The Company believes that, unlike most of its competitors, it can compete
effectively in both the high end and middle segments of the market due to the
scaleability, flexibility, configurability, functionality and price of
RIMS.2001. The Company has a large number of competitors in these markets and
believes that its primary competitors in these markets are McHugh Freeman and
Associates, Manhattan Associates and Catalyst International, Inc., each of which
provides complete warehouse management and distribution software. In addition,
certain well-known computer manufacturers and software developers, such as
SAP AG, J.D. Edwards & Co., BAAN Company N.V. and PeopleSoft Inc., offer
integrated manufacturing or accounting software packages that include a
warehouse management component. Many of the Company's competitors have greater
name recognition, more extensive engineering, management and marketing
capabilities and significantly greater financial, technological and personnel
resources that the Company.
Over the last few years, as software developers began to develop software
for more than one customer in the same industry, the market for warehouse
management systems has increasingly been characterized by the industry in which
the customer competes. By tailoring RIMS.2001 to support the unique features of
certain targeted markets, the Company believes it will have a competitive
advantage in selling prospective customers in the same industry where similar
functionality and implementation issues arise. The Company has identified the
foods, automotive, consumer products, petro chemical products, public utilities
and pharmaceutical products markets as its target markets, and has developed
RIMS.Food as a specialized application of RIMS.2001 targeted at the food
industry.
The Company believes that the competitive factors affecting its markets
include features such as openness, scalability, ability to integrate with third
party products, functionality, adaptability, ease of use, product reputation,
quality, performance, price, customer service and support, effectiveness of
sales and marketing efforts and company reputation. Although the Company
believes that it currently competes favorably with respect to such factors,
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with greater
financial, marketing, service, support, technical and other resources than the
Company.
Proprietary Rights, Licenses and Pricing
The Company relies on a combination of contract, copyright, trademark,
trade secret laws, and other measures to protect its proprietary information.
The Company does not have any software patents or patent applications. Trade
secret and copyright laws afford only limited protection. The Company believes
that, because of the rapid pace of technological change in the computer software
industry, trade secret and copyright protection are less significant in
affecting the Company's business, results of operations or financial condition
than factors such as the knowledge, ability and experience of the Company's
employees, frequent product enhancements and timeliness and quality of support
services.
The Company generally sells its products to its customers under a
non-transferable perpetual license. The Company generally licenses its products
solely for the customers' internal operations and only at designated sites. The
Company also makes available multi-site licenses and enterprise licenses.
Domestic multi-site licenses are discounted from the first license fee for the
second site and beyond. Enterprise licenses are structured as a one time fee
with unlimited usage, plus a nominal fee as additional sites are installed with
the software. Licensing of RIMS.2001 is concurrent user based. Discounts are
generally applied for multi-site licenses. International license fees tend to be
slightly higher and are structured by region.
The Company does not provide source code to the customer under its
licenses. The Company believes that providing source code increases the
likelihood of misappropriation or other misuse of the Company's intellec-
35
<PAGE>
tual property. The Company has, however, entered into source code escrow
agreements with certain customers whereby source code is made available to a
customer. This is a common practice in the software industry. Under the terms of
the Company's license agreements, the Company generally owns all modifications
to its software that are implemented for a customer.
The Company is not aware of any case in which its products, trademarks or
other proprietary rights infringe the property rights of third parties, but has
not performed any independent investigations to determine whether such
infringement exists. Accordingly, there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products or that any such assertion may not require
the Company to enter into royalty arrangements or result in litigation. As the
number of software products in the industry increases and the functionality of
these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend.
Employees
As of May 15, 1997, the Company had 53 employees. The Company had nine
employees primarily in management and administration, 18 in product development,
eight in software services, eight in customer support, and ten in sales and
marketing. The Company's employees are not represented by any collective
bargaining organization and the Company has never experienced a work stoppage.
The Company considers its relations with its employees to be satisfactory.
Facilities
The Company's headquarters are located in Massapequa, New York in
approximately 10,000 square feet of office space that is leased from Robocom
Properties, Inc., a corporation of which the shareholders are currently officers
or directors of the Company. The annual rental on the corporate headquarters is
$168,000 (excluding operating expenses, insurance, property taxes and
assessments), subject to increases based upon fluctuations in the prime rate, as
published in the Wall Street Journal. The lease expires on December 31, 2010.
See "Certain Transactions."
The Company also leases approximately 2,000 square feet in Teaneck, New
Jersey. The lease expires on January 1, 2002 and may be extended by the Company
for an additional five-year period. The lease has an annual rental rate of
$33,297 (excluding operating expenses, insurance, property taxes and
assessments).
The Company believes that its existing facilities are sufficient for its
operations, although it intends to open additional sales and support offices in
the future with a portion of the proceeds of this offering.
36
<PAGE>
MANAGEMENT
Directors and Executive Officers
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------- ----- -------------------------------------------------------------------------
<S> <C> <C>
Irwin Balaban ............ 65 Chairman of the Board, President and Chief Executive Officer
Lawrence B. Klein ...... 63 Executive Vice President - Marketing and Sales, Secretary and a Director
Steven Kuhl ............ 38 Vice President - Product Development
Robert O'Connor ......... 38 Vice President - Systems Development
Elizabeth A. Burke ...... 37 Vice President - Finance and Chief Financial Officer
Herbert Goldman ......... 66 Director
Barry J. Gordon ......... 51 Director
</TABLE>
Irwin Balaban, a co-founder of the Company, has been Chairman of the Board,
President and Chief Executive Officer of the Company since 1983. Prior to
founding the Company, Mr. Balaban was the Manager of Logistics for the Systems
Management Division of Sperry Corporation.
Lawrence B. Klein, a co-founder of the Company, has been Executive Vice
President - Marketing and Sales and a director of the Company since October
1991. Prior thereto, Mr. Klein served as Vice President - Automated Factory
Systems and Sales of the Company from July 1987 to October 1991. Prior to
founding the Company, Mr. Klein was an Engineering Section Manager of Computer
Applications Equipment and Facilities at Sperry Corporation.
Steven Kuhl has been Vice President - Product Development of the Company
since October 1991. Prior thereto, Mr. Kuhl served as a Programming Manager of
the Company from 1983 to October 1991. Prior to joining the Company, Mr. Kuhl
was employed in various positions by Sperry Corporation, including systems
analyst, programming and programming group leader.
Robert O'Connor has been Vice President - Systems Development of the
Company since October 1991. Prior thereto, Mr. O'Connor served as a Programming
Manager of the Company from 1983 to October 1991. Prior to joining the Company,
Mr. O'Connor was employed as a programming group leader by Sperry Corporation.
Elizabeth A. Burke has been Vice President - Finance and Chief Financial
Officer of the Company since April 1997. From July 1994 to January 1996, Ms.
Burke was Vice President of Finance/Controller of Marvel Comics Group, a
division of Marvel Entertainment Group, Inc. ("Marvel"). From November 1991 to
July 1994, Ms. Burke was Corporate Controller of Marvel. From 1981 to November
1991, Ms. Burke was employed at Arthur Andersen LLP.
Herbert Goldman, a co-founder of the Company, has been a director of the
Company since 1983 and a consultant to the Company since his retirement in July
1996. Prior to his retirement, Mr. Goldman had been Executive Vice President -
Operations of the Company since October 1991.
Barry J. Gordon has been a director of the Company since May 1997. Since
1980, Mr. Gordon has been President and a director of American Fund Advisors,
Inc., a money management firm, and has served as Chairman of the Board of that
company since 1987. In addition, Mr. Gordon is President of The John Hancock
National Aviation & Technology Fund, a mutual fund specializing in aviation and
technology securities, a director of Hain Pure Food Corp., a publicly traded
specialty foods product company, a director of Skylands Park Management, Inc.,
a publicly traded owner of a minor league baseball stadium, and President of the
John Hancock Global Technology Fund, a mutual fund specializing in
telecommunications and technology securities. Mr. Gordon is also the Chairman
and Chief Executive Officer of the general partner of a limited partnership that
owns the New Jersey Cardinals, a minor league baseball club. Mr. Gordon is also
Co-Chairman and Chief Executive Officer of the general partner of the limited
partnership that owns the Norwich Navigators, a Class "AA" minor league
affiliate of the New York Yankees.
All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. Executive officers
are elected by, and serve at the discretion of, the Board of Directors.
The Company has agreed, for a period of two years following the date of
this Prospectus, if so requested by BlueStone, to nominate and use its best
efforts to elect a designee of BlueStone as a director of the Company
37
<PAGE>
or, at BlueStone's option, as a non-voting advisor to the Company's Board of
Directors. The Company's officers, directors and shareholders have agreed to
vote their shares of Common Stock in favor of such designee. BlueStone has not
yet exercised its right to designate such a person.
The Company has applied for and intends to obtain key man life insurance on
the life of each of Messrs. Balaban and Klein in the amount of $1,500,000.
Key Employees
Judy Frenkel has been Manager of Systems Analysis of the Company since
September 1992. Prior thereto, Ms. Frenkel was a Senior Systems Analyst at the
Company from October 1988 to September 1992 and a Systems Analyst at the Company
from April 1986 to October 1988.
Chung-Hsin Lee has been the Manager of Software Development of the Company
since November 1994. Prior thereto, Mr. Lee served as the technical leader in
the development of radio frequency (RF) subsystems for the Company's products
from September 1985 to November 1994.
Richard L. Wilkins has been Director of Sales of the Company since January
1994. From 1990 to January 1994, Mr. Wilkins was Director of New Product
Development and Marketing of Fairbanks Scales, Inc., a manufacturer of
commercial scales and weighing systems.
Martin Liebross has been Director of Network Systems Group of the Company
since September 1993. From August 1989 to September 1993, Mr. Liebross was
President of Soma Lan Technologies, Inc., a computer network integrator.
Committees of the Board of Directors
Upon the consummation of this offering, the Board of Directors intends to
establish an Audit Committee and a Compensation Committee. The Audit Committee
will recommend to the Board of Directors the engagement of independent certified
public accountants and review the audit engagement, including the scope and
results of the Company's accounting and control procedures and the accuracy of
its system of internal accounting and control procedures. The Compensation
Committee will review and make recommendations to the Company's Board of
Directors relating to the compensation of executives of the Company and
administer the Company's stock option and incentive plans. A majority of the
members of the Audit Committee and all of the members of the Compensation
Committee will be non-employee directors.
Directors' Compensation
Each non-employee director receives $500 for each Board meeting attended
and is reimbursed for all out-of-pocket expenses incurred in connection with
attendance at meetings of the Board. In connection with the adoption of the
Option Plan in May 1997, the Board of Directors granted to each non-employee
director five-year options to purchase 5,000 shares of Common Stock at the
initial public offering price per share.
38
<PAGE>
Executive Compensation
The following table sets forth the cash compensation paid by the Company
for services rendered during the fiscal year ended May 31, 1996 to each
executive officer who received total compensation in excess of $100,000 (the
"Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------------- Other -------------
Name and Annual LTIP All Other
Principal Position Salary Bonus Compensation(1) Payouts($) Compensation(2)
- -------------------------- ------------- ------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Irwin Balaban ............ $140,625(3) -- $13,188 -- $2,925
President and Chief
Executive Officer
Lawrence B. Klein ...... $122,363(4) -- $12,216 -- $2,545
Executive Vice President
-- Marketing and Sales
</TABLE>
- ------------
(1) Represents amounts paid for automobile expenses and certain nonaccountable
expenses.
(2) Represents matching contributions made by the Company pursuant to the
Company's 401(k) Plan.
(3) Reflects a voluntary reduction in salary from the prior fiscal year of
$54,375.
(4) Reflects a voluntary reduction in salary from the prior fiscal year of
$47,313.
The Company did not grant any stock options to the Named Executive Officers
during the fiscal year ended May 31, 1996.
Compensation Committee Interlocks and Insider Participation
The Company did not have a compensation committee during the fiscal year
ended May 31, 1996. Messrs. Balaban, Klein and Goldman each participated in
deliberations concerning executive officer compensation. Upon the consummation
of this offering, the Board of Directors intends to establish a Compensation
Committee. All of the members of the Compensation Committee will be non-employee
directors. No executive officer of the Company serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors.
Employment and Consulting Agreements
The Company has entered into employment agreements with Messrs. Balaban,
Klein, Kuhl and O'Connor. Each employment agreement is effective as of May 15,
1997, and has a three-year term. Under each employment agreement, the employee
receives an annual base salary and is entitled to participate in all benefit
programs generally available to executive officers of the Company.
Pursuant to their respective employment agreements, Mr. Balaban serves as
President and Chief Executive Officer of the Company and receives an annual base
salary of $230,000; Mr. Klein serves as Vice President - Marketing and Sales of
the Company and receives an annual base salary of $195,000; Mr. Kuhl serves as
Vice President - Product Development of the Company and receives an annual base
salary of $120,000; and Mr. O'Connor serves as Vice President - Systems
Development of the Company and receives an annual base salary of $120,000. On
November 30 of each year, commencing November 30, 1998, each employee's base
salary will automatically increase by 10%.
Under the employment agreements, each employee was granted, as of the date
of this Prospectus, incentive stock options under the Option Plan to purchase
shares of Common Stock. Messrs. Balaban and Klein received options to purchase
50,000 and 45,000 shares, respectively, at 110% of the initial public offering
price per share and each of Messrs.
39
<PAGE>
Kuhl and O'Connor received options to purchase 30,000 shares at the initial
public offering price per share. The options granted to Messrs. Balaban and
Klein fully vest after one year and the options granted to Messrs. Kuhl and
O'Connor vest equally over three years. All options expire on the fifth
anniversary of the date of grant.
In their employment agreements, each of Messrs. Balaban, Klein, Kuhl and
O'Connor has agreed that during the term of his employment agreement and for a
period of one year thereafter (in the event of termination of employment for
other than "cause" or "good reason" ) or two years thereafter (in the event of
termination of employment for "cause"), he will not, without the prior written
consent of the Company, compete with the Company by engaging in any capacity in
any business which is competitive with the business of the Company.
On May 15, 1997, Herbert Goldman, a director of the Company, entered into a
three-year consulting agreement with the Company. The consulting agreement
provides for an annual consulting fee of $12,000 plus a per diem of $1,000 for
each day Mr. Goldman performs consulting services at the Company's request.
Option Plan
Effective May 15, 1997, the Company adopted the 1997 Stock Option and
Long-Term Incentive Compensation Plan (the "Option Plan") for the purpose of
attracting, retaining and maximizing the performance of executive officers and
key employees and consultants. The Company has reserved 325,000 shares of Common
Stock for issuance under the Option Plan. The Option Plan has a term of ten
years. The Option Plan provides for the grant of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, non-statutory stock options, stock appreciation rights and restricted
stock awards. It is contemplated that the Option Plan will eventually be
administered by a Compensation Committee of the Board of Directors (the
"Compensation Committee"), which Committee has not yet been created. The
exercise price for non-statutory stock options may be equal to or less than 100
percent of the fair market value of shares of Common Stock on the date of grant.
The exercise price for incentive stock options may not be less than 100 percent
of the fair market value of shares of Common Stock on the date of grant (110
percent of fair market value in the case of incentive stock options granted to
employees who hold more than ten percent of the voting power of the Company's
issued and outstanding shares of Common Stock).
Options granted under the Option Plan may not have a term of more than a
ten-year period (five years in the case of incentive stock options granted to
employees who hold more than ten percent of the voting power of the Company's
Common Stock) and generally vest over a three-year period. Options generally
terminate three months after the optionee's termination of employment by the
Company for any reason other than death, disability or retirement, and are not
transferable by the optionee other than by will or the laws of descent and
distribution.
The Option Plan also provides for grants of stock appreciation rights
("SARs"), which entitle a participant to receive a cash payment, equal to the
difference between the fair market value of a share of Common Stock on the
exercise date and the exercise price of SAR. The exercise price of any SAR
granted under the Option Plan will be determined by the Board of Directors in
its discretion at the time of the grant. SARs granted under the Option Plan may
not be exercisable for more than a ten year period. SARs generally terminate one
month after the grantee's termination of employment by the Company for any
reason other than death, disability or retirement. Although the Board of
Directors has authority to grant SARs, it does not have any present plans to do
so.
Restricted stock awards, which are grants of shares of Common Stock that
are subject to a restricted period during which such shares may not be sold,
assigned, transferred, made subject to a gift, or otherwise disposed of, or
mortgaged, pledged or otherwise encumbered, may also be made under the Option
Plan. At this time, the Board of Directors has not granted, and does not have
any plans to grant, restricted shares of Common Stock.
As of the date of this Prospectus, options to purchase 195,000 shares of
Common Stock have been granted under the Option Plan, including five-year
options to purchase 50,000 and 45,000 shares at an exercise price equal to 110%
of initial public offering price per share, subject to adjustment, granted to
Messrs. Balaban and Klein, respectively, and five-year options to purchase
30,000, 30,000 30,000, 5,000, and 5,000 shares at an exercise price equal to the
initial public offering price per share, subject to adjustments, granted to Ms.
Burke and Messrs. Kuhl, O'Connor, Goldman and Gordon, respectively.
401(k) Plan
The Company maintains the Robocom Systems Inc. 401(k) Savings Plan (the
"401(k) Plan"). The 401(k) Plan is a tax-qualified plan covering Company
employees who, as of the enrollment eligibility dates under the
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<PAGE>
401(k) Plan, have attained age 21 and completed at least six months of service
with the Company. Participants may make elective deferrals that are fully
vested at all times. The Company makes a matching contribution in an amount
equal to 50% of each participant's elective deferrals and may also make
additional discretionary contributions. Employer contributions are 20% vested
after two years of service, 40% vested after three years of service, 60% vested
after four years of service, 80% vested after five years of service and 100%
vested after six years of service. Matching contributions to the 401(k) Plan
have been made by the Company on behalf of the executive officers in 1996 as
indicated above in the Summary Compensation Table. Benefits will normally be
distributed to an employee upon (i) the employee's retirement, (ii) the
employee's death or disability, (iii) the termination of the employee's
employment with the Company, (iv) the termination of the 401(k) Plan or (v) a
requested in service withdrawal or withdrawal due to financial hardship.
Pension Plan
The Company maintains the Robocom System Inc. Pension Plan and Trust (the
"Pension Plan"). The Pension Plan covers all employees of the Company (other
than sales personnel) who have attained age 21 and completed at least one year
of service with the Company as of the enrollment eligibility dates under the
Pension Plan. The Company makes an annual contribution to the Pension Plan on
behalf of employees based upon the age of the employee at such time. The Pension
Plan targets a retirement benefit of approximately 25% of an employee's income
at age 65. The Pension Plan is fully funded by the Company. Benefits are 20%
vested after two years of service, 40% vested after three years of service, 60%
vested after four years of service, 80% vested after five years of service and
100% vested after six years of service. Vested benefits will normally be
distributed to an employee upon (i) the employee's retirement, (ii) the
employee's death or disability or (iii) the employee's termination of
employment.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of the date of this Prospectus, and as
adjusted to reflect the sale of the 1,500,000 shares offering hereby, certain
information known to the Company concerning the beneficial ownership of the
Common Stock by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer and (iv) all directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of Outstanding
Beneficial Owner (1) Beneficially Owned(2) Shares Beneficially Owned(2)
- ------------------------------------------------------------- ----------------------- -----------------------------------
Before Offering After Offering
----------------- ---------------
<S> <C> <C> <C>
Irwin Balaban ............................................. 564,000 28.7% 16.3%
Herbert Goldman(3) .......................................... 564,000 28.7 16.3
Lawrence B. Klein .......................................... 564,000 28.7 16.3
Barry J. Gordon ............................................. -- -- --
All executive officers and directors as a group (7 persons). 1,936,400 98.4 55.8
</TABLE>
- ------------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
Robocom Systems Inc., 511 Ocean Avenue, Massapequa, New York 11758.
(2) Except as indicated in the footnotes to this table, the Company believes
that all persons named in the table have sole voting and investment power
with respect to all Common Stock shown as beneficially owned by them. In
accordance with the rules of the Commission, a person or entity is deemed to
be the beneficial owner of Common Stock that can be acquired by such person
or entity within 60 days upon the exercise of options or warrants or other
rights to acquire Common Stock. Each beneficial owner's percentage ownership
is determined by assuming that options and warrants that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days have been exercised. The inclusion herein of such shares
listed as beneficially owned does not constitute an admission of beneficial
ownership. Percentages herein assume a base of 1,967,984 shares of Common
Stock outstanding as of the date of this Prospectus and a base of 3,467,984
shares of Common Stock outstanding immediately after the consummation of
this offering.
(3) Consists of 564,000 shares held by the Herbert & Naomi J. Goldman Living
Trust, Herbert and Naomi J. Goldman, trustees.
41
<PAGE>
CERTAIN TRANSACTIONS
The Company leases approximately 10,000 square feet of office space, which
functions as its corporate headquarters, in Massapequa, New York, pursuant to a
lease between the Company and Robocom Properties Inc. ("Robocom Properties")
that expires on December 31, 2010. The shareholders of Robocom Properties are
Messrs. Balaban, Goldman, Klein, Kuhl and O'Connor. The total rental expense
paid by the Company to Robocom Properties in each of the fiscal years ended May
31, 1994, 1995 and 1996 was $168,000, which amounts were paid in equal monthly
installments of $14,000. Since June 1, 1996, the Company has continued to pay,
and through December 1997 will pay, rent in monthly installments of $14,000 to
Robocom Properties. Commencing January 1, 1998, the annual base rental of
$168,000 payable under the lease will be adjusted each year by the ratio of the
prime rate as published in the Wall Street Journal on January 2 of such year to
the prime rate as published in the Wall Street Journal on January 2, 1997, which
was 8.25%. However, the parties have agreed that rent will not be less than
$14,000 per month. The Company believes that these rental terms are at least as
favorable to the Company as could be obtained from an unaffiliated third party.
Herbert Goldman, a director of the Company, has been acting as a consultant
to the Company since his retirement as Executive Vice President - Operations of
the Company effective July 1, 1996. During the period from July 1, 1996 to March
31, 1997, Mr. Goldman received compensation aggregating approximately $2,650 for
his consulting services. On May 15, 1997, the Company and Mr. Goldman entered
into a three-year agreement pursuant to which Mr. Goldman will continue to
provide consulting services to the Company on an as-needed basis. See
"Management -- Employment and Consulting Agreements."
The Company made distributions to its shareholders of $850,000 in fiscal
1993, did not make any such distributions in fiscal 1994, 1995 or 1996 and made
distributions to its shareholders aggregating $900,000 in the fourth quarter of
fiscal 1997. In addition, the Company will pay the Final S Corporation
Distribution of $1,600,000 using a portion of the net proceeds to be received by
the Company in this offering. Prior to making the Final S Corporation
Distribution, the Company will enter into an indemnity agreement with its
current shareholders pursuant to which the Company will indemnify its current
shareholders against additional income taxes resulting from adjustments made (as
a result of a final determination made by a competent tax authority) to the
taxable income reported by the Company as an S Corporation for periods prior to
this offering, but only to the extent those adjustments result in a decrease in
income taxes otherwise payable by the Company.
Between November 1993 and January 1997, Irwin Balaban, Lawrence B. Klein
and Herbert Goldman made demand loans to the Company from time to time in the
aggregate amounts of $265,000, $115,000 and $265,000, respectively. Interest
rates on the loans ranged from 6% per annum to 8% per annum. All of such loans
were paid in full in January 1997.
Each of Messrs. Balaban, Klein and Goldman has personally guaranteed the
Company's Line of Credit.
Future transactions, if any, between the Company and any of its officers,
directors and/or 5% shareholders will be on terms no less favorable to the
Company than would be obtained from independent third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
DESCRIPTION OF SECURITIES
The following statements do not purport to be complete and are qualified in
their entirety by reference to the detailed provisions of the Company's Amended
and Restated Certificate of Incorporation and By-Laws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
General
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"). As of the date of this Prospectus, 1,967,984
shares of Common Stock are issued and outstanding and held of record by eight
shareholders (of which an aggregate of 87,984 shares held by three shareholders
are subject to forfeiture upon termination of their employment and/or
consulting services prior to specified dates), and no shares of Preferred Stock
are issued and outstanding. Upon the consummation of this offering, there will
be 3,467,984 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding.
42
<PAGE>
Common Stock
The holders of Common Stock have the right to one vote per share on all
matters submitted to a vote of holders of Common Stock. The holders of Common
Stock do not have preemptive or cumulative voting rights and are entitled to
dividends when, as and if declared by the Board of Directors. In the event of
liquidation, dissolution or winding up of the Company, after payment has been
made to the holders of Preferred Stock, if any, for the full amount to which
they are entitled, each holder of Common Stock will be entitled to share ratably
in the assets of the Company legally available for distribution to the holders
of Common Stock. The outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
Preferred Stock
The Board of Directors of the Company, without further shareholder action,
may issue shares of Preferred Stock in any number of series and may establish as
to each series the designation and number of shares to be issued and the
relative rights and preferences of the shares of each series, including
provisions regarding voting powers, redemption, dividend rights, rights upon
liquidation and conversion rights, any or all of which may be greater than the
rights of the Common Stock. The issuance of shares of Preferred Stock by the
Board of Directors could adversely affect the rights of holders of Common Stock
by, among other matters, delaying or preventing a change in control of the
Company or making removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock.
Limitations on Directors' and Officers' Liability
The Company's Amended and Restated Certificate of Incorporation limits the
liability to the Company of individual directors for certain breaches of their
fiduciary duty to the Company. The effect of this provision is to eliminate the
liability of directors for monetary damages arising out of their failure,
through negligent or grossly negligent conduct, to satisfy their duty of care,
which requires them to exercise informed business judgment. The liability of
directors under the federal securities laws is not affected. A director may be
liable for monetary damages only if a claimant can show a breach of the
individual director's duty of loyalty to the Company, a failure to act in good
faith, intentional misconduct, a knowing violation of the law, an improper
personal benefit or an illegal dividend or stock purchase.
The Company's Amended and Restated Certificate of Incorporation also
provides that each director or officer of the Company serving as a director or
officer shall be indemnified and held harmless by the Company to the fullest
extent authorized by the New York Business Corporation Law (the "NYBCL"),
against all expense, liability and loss (including attorney fees, judgments,
fines, Employee Retirement Income Security Act, excise taxes or penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith.
New York Anti-Takeover Law and Certain Charter and By-law Provisions
Subsequent to this offering, the Company, as a New York corporation, will
be subject to the provisions of Section 912 of the NYBCL if and for so long as
it has a class of securities registered under Section 12 of the Exchange Act, at
least 25% of its total employees are employed primarily within New York or at
least 250 employees are so employed and at least 10% of the Company's voting
stock is owned beneficially by residents of the State of New York. The Company
expects to meet these tests and, accordingly, to be subject to Section 912 of
the NYBCL following completion of this offering. Section 912 of the NYBCL
provides, with certain exceptions, that a New York corporation may not engage in
a "business combination" (e.g., a merger, consolidation, recapitalization or
disposition of stock) with any "interested shareholder" for a period of five
years from the date that such person first became an interested shareholder
unless: (a) the transaction resulting in a person becoming an interested
shareholder, or the business combination, was approved by the board of directors
of the corporation prior to that person becoming an interested shareholder, (b)
the business combination is approved by the holders of a majority of the
outstanding voting stock not beneficially owned by such interested shareholder,
or (c) the business combination meets certain valuation requirements for the
stock of the New York corporation. An "interested shareholder" is defined as any
person that (a) is the beneficial owner of 20% or more of the outstanding voting
stock of a New York corporation or (b) is an affiliate or associate of the
corporation that at any
43
<PAGE>
time during the prior five years was the beneficial owner, directly or
indirectly, of 20% or more of the corporation's then outstanding voting stock.
These provisions are likely to impose greater restrictions on an unaffiliated
shareholder than on the existing shareholders, who will continue to own a
majority of the Common Stock after this offering.
Transfer Agent and Registrar
The Company's transfer agent and registrar for the Common Stock is
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, 3,467,984 shares of Common Stock
will be issued and outstanding, of which the 1,500,000 shares offered hereby
will be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the Company
(as defined in Rule 144 promulgated under the Securities Act) will be subject to
the resale limitations of Rule 144.
The remaining 1,967,984 shares of Common Stock outstanding are deemed
"restricted securities," as that term is defined under Rule 144, and may only be
sold pursuant to an effective registration statement under the Securities Act,
in compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. Such restricted shares of Common Stock will
become eligible for sale, under Rule 144, subject to certain volume and manner
of sale limitations prescribed by Rule 144 and to the contractual restrictions
described below, at various times commencing 90 days following the date of this
Prospectus. All of the Company's officers, directors and shareholders have
agreed with BlueStone that until 12 months after the date of this Prospectus,
they will not, without the prior written consent of BlueStone, directly or
indirectly, sell, offer for sale, transfer, pledge or otherwise dispose of, any
securities of the Company or exercise any registration rights relating to any
securities of the Company. In addition, 87,984 shares of Common Stock are
subject to contractual restrictions on transfer that terminate during the fiscal
year ended May 31, 2000.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed an
"affiliate" of the Company, who has beneficially owned restricted securities for
at least one year is entitled to sell, within any three-month period, a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of such
sale was filed under Rule 144. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. A person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale by such
person, and who has beneficially owned the restricted shares for at least two
years, is entitled to sell such shares under Rule 144 without regard to any of
the restrictions described above.
44
<PAGE>
UNDERWRITING
The underwriters named below (collectively, the "Underwriters"), for which
BlueStone Capital Partners, L.P. ("BlueStone"), Coleman and Company Securities,
Inc. and Oscar Gruss & Son Incorporated are acting as representatives (the
"Representatives"), have agreed severally, not jointly, subject to the terms and
conditions contained in the underwriting agreement between the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company, and
the Company has agreed to sell to the several Underwriters, the 1,500,000 shares
of Common Stock offered hereby. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:
Underwriter Number of Shares
- -------------------------------------------------- -----------------
BlueStone Capital Partners, L.P. ...............
Coleman and Company Securities, Inc. ............
Oscar Gruss & Son Incorporated . ...............
Total ........................................
----------
1,500,000
==========
The Underwriters are committed on a "firm commitment" basis to purchase and
pay for all of the shares of Common Stock offered hereby (other than shares
offered pursuant to the over-allotment option) if any shares are purchased. The
shares of Common Stock are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by counsel and to certain other conditions.
Through the Representatives, the several Underwriters have advised the
Company that they propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus. The
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") concessions, not in excess of
$ per share, of which not in excess of $ per share may be reallowed to
other dealers who are members of the NASD. After the commencement of the
offering, the public offering price, concessions and reallowance may be changed.
The Company has granted the Representatives an option, exercisable for 45
days following the date of this Prospectus, to purchase up to 225,000 additional
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus, less the underwriting discounts and commissions. The
Representatives may exercise this option in whole or, from time to time, in
part, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the shares of Common Stock offered hereby.
The Company has agreed to pay to BlueStone individually, and not as a
representative of the Underwriters, an accountable expense allowance of up to
$180,000, $50,000 of which has been paid as of the date of this Prospectus. The
Company has also agreed to pay all expenses in connection with qualifying the
shares of Common Stock offered hereby for sale under the laws of such states as
the Representatives may designate, including expenses of counsel retained for
such purpose by the Representatives.
The Company has agreed to issue to the Representatives and their designees,
for an aggregate of $150, the Representatives' Warrants to purchase up to
150,000 shares of Common Stock, at an exercise price of $____ per share (120% of
the public offering price per share). The Representatives' Warrants may not be
transferred for one year following the date of this Prospectus, except to the
officers and partners of the Representatives or the Underwriters or members of
the selling group, and are exercisable at any time, and from time to time,
during the four-year period commencing one year following the date of this
Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the
holders of the Representatives' Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Common Stock. To
the extent that the Representatives' Warrants are exercised or exchanged,
dilution to the interests of the Company's shareholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the Representatives' Warrants can
be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided in the Representatives' Warrants. Any profit
realized by the Representatives on the sale of the Representatives' Warrants or
the underlying shares of Common Stock may be deemed additional underwriting
compensation. Subject to certain limitations and exclusions, the Company has
agreed to register, at the request of the holders of a majority of the
Representatives' Warrants and at the Company's expense, the Representatives'
Warrants and the shares of Common Stock underlying the Representatives' Warrants
under the Securities Act on one occasion during the Warrant Exercise Term and to
include such Representatives' Warrants and such underlying shares in any
appropriate registration statement that is filed by the Company during the seven
years following the date of this Prospectus.
45
<PAGE>
The Company has agreed, for a period of two years following the date of
this Prospectus, if so requested by BlueStone, to nominate and use its best
efforts to elect a designee of BlueStone as a director of the Company, or, at
BlueStone's option, as a non-voting advisor to the Company's Board of Directors.
The Company's officers, directors and shareholders have agreed to vote their
shares of Common Stock in favor of such designee. BlueStone has not yet
exercised its right to designate such a person.
All of the Company's officers, directors and shareholders have agreed that,
for the 12-month period following the date of this Prospectus, they will not,
without the prior written consent of BlueStone, directly or indirectly, sell,
offer for sale, transfer, pledge or otherwise dispose of, any securities of the
Company or exercise any registration rights relating to any securities of the
Company.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales in excess of 3% of the number of shares of Common Stock
offered hereby to discretionary accounts.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities in connection with the Registration Statement of which this
Prospectus forms a part, including liabilities under the Securities Act.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the shares of Common
Stock has been determined by negotiation between the Company and the
Representatives and is not necessarily related to the Company's asset value, net
worth or other established criteria of value. Among the factors considered in
determining the offering price are the Company's financial condition and
prospects, management, market prices of similar securities of comparable
publicly-traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the general
condition of the securities market.
In order to facilitate the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Representatives may over-allot in connection
with the offering, creating a short position in the Common Stock for their own
accounts. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock
in the open market. Underwriters may also reclaim selling concessions allowed to
a dealer for distributing the shares of Common Stock in the offering, if the
Underwriters repurchase previously distributed shares of Common Stock in
transactions to cover short positions, in stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price of
the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may discontinue any of these
activities at any time.
BlueStone was formed as a broker-dealer in March 1996. Although its
principals have had experience in the underwriting of securities in their
capacities with other broker-dealers, this offering constitutes the first public
offering for which BlueStone, the managing underwriter, has acted as a managing
underwriter.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Common Stock will be passed upon for the Company by Pryor, Cashman, Sherman &
Flynn, New York, New York. Certain legal matters will be passed upon for the
Underwriters by Tenzer Greenblatt LLP, New York, New York.
46
<PAGE>
EXPERTS
The financial statements of the Company at February 28, 1997 and May 31,
1994, 1995 and 1996, and for the nine-month period ended February 28, 1997 and
each of the three years ended May 31, 1996 included in this Prospectus and in
the Registration Statement of which this Prospectus forms a part have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon, appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the shares of Common Stock offered
hereby. Statements contained herein concerning the provisions of any documents
are not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement or previously
filed with the Commission. Each such statement is qualified in its entirety by
such reference. As of the date of this Prospectus, the Company will become
subject to the informational requirements of the Exchange Act and the rules and
regulations thereunder, and in accordance therewith, will file reports, proxy
and information statements, and other information with the Commission. The
Registration Statement, including exhibits and schedules filed therewith, and
the Company's reports, proxy and information statements, and other information
filed by the Company with the Commission may be inspected without charge at the
Public Reference Room of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 or at its Regional Offices located at Room 1400, 500 West
Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the Registration
Statement may be obtained from such offices at prescribed rates. The Commission
maintains a Web site that will contain reports, proxy and information statements
and other information regarding the Company. The address of such Web site is
http://www.sec.gov.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................................ F-2
Balance Sheets as of May 31, 1994, 1995 and 1996 and February 28, 1997 (audited) ....... F-3
Statements of Operations for the years ended May 31, 1994, 1995 and 1996 (audited), and
for the nine-month periods ended February 29, 1996 (unaudited) and February 28, 1997
(audited) .............................................................................. F-4
Statements of Shareholders' Equity for the years ended May 31, 1994, 1995 and 1996, and
for the nine-month period ended February 28, 1997 (audited) ............................ F-5
Statements of Cash Flows for the years ended May 31, 1994, 1995 and 1996 (audited), and
for the nine-month periods ended February 29, 1996 (unaudited) and February 28, 1997
(audited) ........................................................................... F-6
Notes to Financial Statements ............................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Robocom Systems Inc.
We have audited the accompanying balance sheets of Robocom Systems Inc. as of
February 28, 1997, May 31, 1996, 1995 and 1994, and the related statements of
operations, shareholders' equity and cash flows for the nine month period ended
February 28, 1997 and for each of the three years in the period ended May 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robocom Systems Inc. at
February 28, 1997 and May 31, 1996, 1995 and 1994, and the results of its
operations, and its cash flows for the nine month period ended February 28, 1997
and each of the three years in the period ended May 31, 1996 in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Melville, New York
May 16, 1997
F-2
<PAGE>
ROBOCOM SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
----------------------------------------------- February 28,
1994 1995 1996 1997
------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................... $ 183,371 $ 176,294 $ 603,948 $ 65,670
Accounts receivable, less allowance for
doubtful accounts of $0 in 1994, $27,000 in
1995, $47,064 in 1996 and $18,940 in 1997...... 716,464 546,299 665,500 1,203,047
Costs incurred and income recognized in
excess of billings on uncompleted con-
tracts ....................................... 353,313 553,242 823,357 873,410
Other current assets ........................... 34,811 5,685 1,300 3,913
------------ ------------ ------------ ------------
Total current assets ........................... 1,287,959 1,281,520 2,094,105 2,146,040
Property and equipment, net ..................... 52,258 32,218 13,818 47,730
Software development costs, net .................. 1,826,268 1,993,748 2,498,335 3,218,908
Other assets .................................... -- -- 30,250 5,550
------------ ------------ ------------ ------------
Total assets .................................... $ 3,166,485 $ 3,307,486 $ 4,636,508 $ 5,418,228
============ ============ ============ ============
Liabilities and shareholders' equity
Current liabilities:
Bank notes payable ........................... $ 200,000 $ -- $ -- $ 350,000
Accounts payable .............................. 609,438 390,397 376,888 452,607
Accrued expenses .............................. 163,033 97,872 400,322 297,141
Billings on uncompleted contracts in
excess of related costs and income rec-
ognized ....................................... 211,409 92,114 42,328 171,087
Loans payable to officers ..................... 650,000 650,000 645,000
Due to Robocom Properties ..................... 30,000 30,250 -- --
------------ ------------ ------------ ------------
Total current liabilities ........................ 1,863,880 1,260,633 1,464,538 1,270,835
------------ ------------ ------------ ------------
Shareholders' equity:
Common stock, $.01 par value;
10,000,000 shares authorized; 1,880,000 shares
issued and outstanding at May 31, 1994 and May
31, 1995 and 1,936,400 at May 31, 1996 and
February 28, 1997 ............................. 18,800 18,800 19,364 19,364
Additional paid-in capital ..................... -- -- 89,436 89,436
Retained earnings .............................. 1,283,805 2,028,053 3,153,170 4,110,593
Deferred compensation ........................ -- -- (90,000) (72,000)
------------ ------------ ------------ ------------
Total shareholders' equity ..................... 1,302,605 2,046,853 3,171,970 4,147,393
------------ ------------ ------------ ------------
Total liabilities and shareholders' equity ...... $ 3,166,485 $ 3,307,486 $ 4,636,508 $ 5,418,228
============ ============ ============ ============
See accompanying notes.
</TABLE>
F-3
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine month
Year ended period ended
May 31, ------------------------------
----------------------------------------------- February 29, February 28,
1994 1995 1996 1996 1997
--------------- ------------- ------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees ........... $ 415,158 $ 504,929 $ 969,789 $ 321,409 $ 899,466
Services .......................... 2,299,081 3,382,470 3,194,817 2,375,354 1,620,786
Hardware .......................... 976,073 2,068,164 1,793,053 1,211,556 1,729,021
Maintenance ....................... 439,526 857,744 1,006,438 776,093 835,579
------------ ---------- ---------- ---------- ----------
Total revenues .................... 4,129,838 6,813,307 6,964,097 4,684,412 5,084,852
------------ ---------- ---------- ---------- ----------
Cost of Revenues:
Cost of license fees................ 34,073 34,073 63,403 17,535 96,236
Cost of services ................... 3,107,248 2,621,836 2,100,088 2,083,067 1,014,615
Cost of hardware ................... 770,935 1,533,585 1,398,786 926,088 1,329,495
Cost of maintenance ................ 215,267 261,455 881,842 473,092 553,626
------------ ---------- ---------- ---------- ----------
Total cost of revenues ............. 4,127,523 4,450,949 4,444,119 3,499,782 2,993,972
Amortization of software develop-
ment costs ........................ -- 296,997 311,321 228,750 324,769
------------ ---------- ---------- ---------- ----------
4,127,523 4,747,946 4,755,440 3,728,532 3,318,741
------------ ---------- ---------- ---------- ----------
Gross margin ..................... 2,315 2,065,361 2,208,657 955,880 1,766,111
Selling, general and administrative
expenses ........................ 1,092,713 1,275,134 1,075,309 815,020 784,441
------------ ---------- ---------- ---------- ----------
(1,090,398) 790,227 1,133,348 140,860 981,670
Interest and dividend income ...... 2,212 10,905 30,344 24,949 18,120
Interest expense .................. (17,500) (56,884) (38,575) (31,450) (42,367)
------------ ---------- ---------- ---------- ----------
Net income (loss) .................. (1,105,686) 744,248 1,125,117 134,359 957,423
Pro forma unaudited provision
(benefit) for income taxes ...... (464,388) 312,584 472,549 56,431 402,118
------------ ---------- ---------- ---------- ----------
Pro forma unaudited net income
(loss) ........................... $ (641,298) $ 431,664 $ 652,568 $ 77,928 $ 555,305
============ ========== ========== ========== ==========
Pro forma unaudited net income
(loss) per share .................. $ (.28) $ .19 $ .28 $ .03 $ .24
============ ========== ========== ========== ==========
Pro forma unaudited weighted
average shares outstanding ...... 2,296,199 2,296,199 2,310,299 2,296,199 2,352,599
============ ========== ========== ========== ==========
See accompanying notes.
</TABLE>
F-4
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Par Value
Shares No Par $.01
----------- ----------- -----------
<S> <C> <C> <C>
Balance, May 31, 1993 ..................... 1,000,000 $ 6,000 $ --
Effect for stock split and recapitalization 880,000 (6,000) 18,800
--------- -------- --------
Net loss .................................... -- -- --
Balance, May 31, 1994 ..................... 1,880,000 -- 18,800
--------- -------- --------
Net income ................................. -- -- --
Balance, May 31, 1995 ..................... 1,880,000 -- 18,800
Net income ................................. -- -- --
Deferred compensation ..................... 56,400 -- 564
---------- -------- --------
Balance, May 31, 1996 ..................... 1,936,400 -- 19,364
Net income ................................. -- -- --
Amortization of deferred compensation......... -- -- --
--------- -------- --------
Balance, February 28, 1997 .................. 1,936,400 $ -- $19,364
========== ======== ========
<CAPTION>
Total
Additional Paid Retained Deferred Shareholders'
In Capital Earnings Compensation Equity
----------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Balance, May 31, 1993 ..................... $ -- $ 2,402,291 $ -- $ 2,408,291
Effect for stock split and recapitalization -- (12,800) -- --
Net loss .................................... -- (1,105,686) -- (1,105,686)
--------- ------------ --------- ------------
Balance, May 31, 1994 ..................... -- 1,283,805 -- 1,302,605
Net income ................................. -- 744,248 -- 744,248
--------- ------------ --------- ------------
Balance, May 31, 1995 ..................... -- 2,028,053 -- 2,046,853
Net income ................................. 1,125,117 -- 1,125,117
Deferred compensation ..................... 89,436 -- (90,000) --
--------- ------------ ---------- ------------
Balance, May 31, 1996 ..................... 89,436 3,153,170 (90,000) 3,171,970
Net income ................................. -- 957,423 -- 957,423
Amortization of deferred compensation ........ -- -- 18,000 18,000
--------- ------------ ---------- ------------
Balance, February 28, 1997 .................. $ 89,436 $ 4,110,593 $ (72,000) $ 4,147,393
========= ============ ========== ============
See accompanying notes.
</TABLE>
F-5
<PAGE>
ROBOCOM SYSTEMS INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine month
period ended
Year ended May 31, ---------------------------
--------------------------------------------- February 29, February 28,
1994 1995 1996 1996 1997
-------------- -------------- -------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .................................... $ (1,105,686) $ 744,248 $ 1,125,117 $ 134,359 $ 957,423
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation ....................................... 20,046 20,040 18,400 15,030 11,088
Amortization of software development costs ......... -- 296,997 311,321 228,750 324,769
Amortization of deferred compensation expense ..... -- -- -- -- 18,000
Provision (credit) for bad debts .................. -- 27,000 20,064 -- (28,124)
Changes in operating assets and liabilities:
Accounts receivable .............................. 275,074 143,165 (139,265) (344,626) (509,423)
Costs incurred and income recognized in excess
of billings on uncompleted contracts ............ 430,682 (199,929) (270,115) 264,024 (50,053)
Other current assets .............................. (19,358) 29,126 4,385 4,532 (2,613)
Accounts payable ................................. (91,262) (219,041) (13,509) 110,783 75,719
Accrued expenses ................................. (54,953) (65,161) 302,450 267,373 (103,181)
Billings on uncompleted contracts in excess of
related costs and income recognized ............ 116,156 (119,295) (49,786) 82,733 128,759
Other assets ....................................... -- -- (30,250) (30,250) 24,700
------------- ---------- ------------ ---------- ------------
Net cash provided by (used in) operating activities (429,301) 657,150 1,278,812 732,708 847,064
INVESTING ACTIVITIES ------------- ---------- ------------ ---------- ------------
Software development costs ........................... (844,244) (464,477) (815,908) (390,892) (1,045,342)
Capital expenditures .............................. -- -- -- -- (45,000)
Sale of investments ................................. 7,598 -- -- -- --
Refund of security deposit ........................... 30,000 -- -- -- --
------------- ---------- ------------ ---------- ------------
Net cash used in investing activities ............... (806,646) (464,477) (815,908) (390,892) (1,090,342)
------------- ---------- ------------ ---------- ------------
FINANCING ACTIVITIES
Net borrowings (payments) of bank note payable ...... 200,000 (200,000) -- -- 350,000
Net proceeds (repayments) of officer loans ......... 650,000 -- (5,000) (5,000) (645,000)
Net (payment to) proceeds from Robocom Properties .... 30,000 250 (30,250) (30,250) --
------------- ---------- ------------ ---------- ------------
Net cash used in provided by financing activities..... 880,000 (199,750) (35,250) (35,250) (295,000)
------------- ---------- ------------ ---------- ------------
(Decrease) increase in cash and cash equivalents ..... (355,947) (7,077) 427,654 306,566 (538,278)
Cash and cash equivalents at beginning of period ... 539,318 183,371 176,294 176,294 603,948
------------- ---------- ------------ ---------- ------------
Cash and cash equivalents at end of period ......... $ 183,371 $ 176,294 $ 603,948 $ 482,860 $ 65,670
============= ========== ============ ========== ============
Supplemental disclosures of cash flow information
Cash paid for interest .............................. $ 0 $ 58,134 $ 38,700 $ 38,700 $ 58,492
============= ========== ============ ========== ============
See accompanying notes.
</TABLE>
F-6
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
(Information pertaining to the nine month period ended February 29, 1996 is
unaudited)
Robocom Systems Inc. (the "Company") was incorporated in June 1982 in the
State of New York. The Company is engaged in the development and marketing of
automated warehouse management systems and related software which is used by
various commercial enterprises primarily located in the United States. Since
June 1994, the Company licenses and installs its proprietary software product
RIMS.2001 which is an "off-the-
shelf" inventory management system. The Company also provides related services,
including modification, project management, training, implementation support,
maintenance and the sale of hardware and third party software.
1. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's customer base is comprised of relatively few large customers
in diversified industries. Ongoing credit evaluations of its customers'
financial condition are made and generally no collateral is required. For the
year ended May 31, 1994, the Company had three customers that accounted for 19%,
19% and 18% of total revenues. For the year ended May 31, 1995, the Company had
two customers that accounted for 34% and 13% of total revenues. For the year
ended May 31, 1996, the Company had three customers that accounted for 15%, 14%
and 12% of total revenues. For the nine month period ended February 29, 1996,
the Company had three customers that accounted for 18%, 15% and 11% of total
revenues. For the nine month period ended February 28, 1997, the Company had two
customers that accounted for 21% and 16% of total revenues. Management does not
believe significant credit risk exists at February 28, 1997.
Carrying Value of Financial Instruments
The carrying value of the Company's financial instruments, such as cash and
temporary investments and bank notes payable approximate their fair values.
Revenue Recognition
The Company's revenues are derived from software license fees, fees for
services, sales of hardware and maintenance contracts. Software license fees
include revenue from the licensing of the Company's proprietary RIMS.2001
software and revenue from the sublicensing of certain third-party software.
Software license fee revenue is recorded when the software has been delivered,
the license agreement with the customer has been executed, and collection of the
resulting receivable is deemed probable. Service revenues are derived from
project management, customization and modification of licensed software,
training, on-site support and implementation services. Service revenues are
recorded using the percentage of completion method of accounting. Accordingly,
revenue is recognized in the ratio that costs incurred bears to estimated total
costs. Adjustments to cost estimates are made periodically, and losses expected
to be incurred on contracts in progress are charged to operations in the period
such losses are determined. The aggregate of costs incurred and income
recognized on uncompleted contracts in excess of related billings is shown as a
current asset, and the aggregate of billings on uncompleted contracts in excess
of related costs incurred and income recognized is shown as a current liability.
Hardware revenues are derived from the sale of products of other manufacturers,
including computer hardware, radio frequency equipment, bar code printers and
other peripherals. Such revenues are recognized when title to such hardware
passes to the customer. Customers typically enter into one-year maintenance
agreements with the Company upon the completion of the software installation and
pay maintenance fees monthly. The Company recognizes revenue from each
maintenance agreement ratably over the period covered by the agreement, but is
F-7
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information pertaining to the nine month period ended February 29, 1996 is
unaudited)
1. Significant Accounting Policies -- (Continued)
only required to perform maintenance services as and when they are requested by
the customer. The Company recognized revenues, in all periods presented, in
accordance with the American Institute of Certified Public Accountants Statement
of Position 91-1, "Software Revenue Recognition."
Software Development Costs
Software development costs have been capitalized in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed". The capitalization
of these costs begins when a product's technological feasibility has been
established, and ends when the product is available for general release to
customers. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, technological feasibility, anticipated future
gross revenues, estimated economic life, and changes in software and hardware
technologies. The Company capitalizes software development costs associated with
each subsequent enhancement of its product upon the achievement of technological
feasibility. Software development costs, including enhancements, are amortized
using the straight-line method over five to seven years or the
expected life of the product, whichever is less. Research and development costs
incurred prior to the establishment of technological feasibility are expensed
as incurred. Such amounts for the periods presented are not significant.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives (three to five years).
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is based on the weighted average
number of shares of common stock outstanding during the period. For purposes of
such computation, the common stock issuance subsequent to February 28, 1997 is
treated as outstanding for all periods presented. In addition, the weighted
average number of shares includes the portion of the shares being offered by the
Company that would be necessary to fund the distribution of undistributed S
Corporation earnings (an estimated $2,500,000 at February 28, 1997) based on an
assumed initial public offering price of $6.50 per share. See Note 8.
Income Taxes
Effective June 1, 1990, the Company elected to operate under Subchapter S
of the Internal Revenue Code and, consequently, is not subject to Federal and
certain state income taxes. The shareholders include their proportionate share
of the Company's taxable income (loss) in their personal tax returns for Federal
and certain state income tax purposes. Concurrent with the closing of the
Offering (see Note 8), the Company will terminate its status as an S Corporation
and will become subject to Federal and state income taxes. The pro forma
information presented on the statements of income reflects a provision (benefit)
for such income taxes at an effective rate of 42%.
Advertising Costs
Advertising costs are expensed as incurred, and for each of the years ended
May 31, 1994, 1995 and 1996 and for the nine month periods ended February 29,
1996 and February 28, 1997 amounted to approximately $13,000, $84,000, $86,000,
$10,000 and $38,000, respectively.
F-8
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information pertaining to the nine month period ended February 29, 1996 is
unaudited)
2. Capital Stock
Recapitalization
In fiscal 1995, the Company effected a recapitalization of its common stock
whereby the Company's 200 shares authorized, 100 shares outstanding, no par
value common stock was exchanged for 2,000,000 shares authorized, 1,000,000
shares outstanding, $.01 par value common stock, prior to giving effect to the
stock split described in Note 8.
Deferred Compensation
In February 1996, the Company issued 56,400 common shares to certain
employees under a restricted stock agreement. Compensation expense, representing
the fair value ($90,000) of the common shares issued to these employees, will be
recognized ratably over the five year vesting period.
3. Detail of Certain Balance Sheet Accounts
Property and Equipment, net
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
May 31,
------------------------------------ February 28,
1994 1995 1996 1997
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Equipment ........................... $143,810 $130,028 $130,028 $167,028
Furniture and fixtures ............ 90,162 81,062 81,062 89,062
--------- --------- --------- ---------
233,972 211,090 211,090 256,090
Less accumulated depreciation ...... 181,714 178,872 197,272 208,360
--------- --------- --------- ---------
$ 52,258 $ 32,218 $ 13,818 $ 47,730
========= ========= ========= =========
</TABLE>
Software Development Costs, net
Software development costs, net, consist of the following:
<TABLE>
<CAPTION>
May 31,
------------------------------------------ February 28,
1994 1995 1996 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Software development costs ......... $1,826,268 $2,290,745 $3,106,653 $ 4,151,995
Less accumulated amortization ...... -- 296,997 608,318 933,087
----------- ----------- ----------- ------------
$1,826,268 $1,993,748 $2,498,335 $ 3,218,908
=========== =========== =========== ============
</TABLE>
Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
May 31,
-------------------------------------- February 28,
1994 1995 1996 1997
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Payroll and related taxes ......... $ 145,533 $ 81,622 $ 141,197 $ 95,141
Customer deposits and other ...... 17,500 16,250 259,125 202,000
---------- --------- ---------- ----------
$ 163,033 $ 97,872 $ 400,322 $ 297,141
========== ========= ========== ==========
</TABLE>
F-9
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information pertaining to the nine month period ended February 29, 1996 is
unaudited)
4. Employee Benefit Plans
The Company has a noncontributory defined contribution pension plan and a
401(k) defined contribution plan. These plans cover virtually all full-time
employees subject to certain age and service requirements. It is the Company's
policy to fund the noncontributory plan to the extent of the maximum allowable
contribution, in accordance with IRS guidelines and other relevant legal
requirements. Under the terms of the 401(k) plan, the Company will match 50% of
an employee's contribution up to 4% of the participating employee's
compensation. Pension expense for each of the years ended May 31, 1994, 1995 and
1996 and for the nine month periods ended February 29, 1996 and February 28,
1997 amounted to approximately $146,000, $125,000, $16,000, $6,000 and $55,000,
respectively.
5. Related Party Transactions
The Company leases its principal facilities from Robocom Properties, Inc.
("Properties"). The shareholders of Properties are generally the same as those
of the Company. The Company has paid to Properties rent at a rate of $168,000
per year.
6. Lease Commitments
The Company is obligated, under noncancellable operating leases covering
its facilities (Note 5) and certain equipment and automobiles, to pay minimum
annual rentals of approximately:
Remainder of fiscal 1997 $ 59,000
1998 228,000
1999 213,000
2000 208,000
2001 206,000
2002 173,000
2003 and thereafter 1,484,000
-----------
$2,571,000
===========
Total rental expense for each of the years ended May 31, 1994, 1995 and 1996 and
for the nine month periods ended February 29, 1996 and February 28, 1997
amounted to approximately $175,000, $197,000, $174,000, $128,000 and $140,000,
respectively.
7. Bank Note Payable and Loans Payable to Officers
Bank Note Payable
At February 28, 1997, the Company had a line of credit facility with a bank
which provided for maximum borrowings of $1,000,000 and which was due to expire
on December 31, 1997. Amounts outstanding under the line of credit were
evidenced by a note payable to the bank, were collateralized by the Company's
assets and were personally guaranteed by the Company's principal shareholders.
Interest was payable at the bank's prime interest rate plus 1/2% (8.75% at
February 28, 1997). At February 28, 1997, borrowings outstanding under the line
of credit were $350,000. The Company made no borrowings under this agreement
during fiscal 1996. In fiscal 1995 and 1994, the Company had a $750,000 line of
credit facility with the bank. Interest was payable at the bank's prime rate
plus 1/2% (9.50% at May 31, 1995). The Company made no borrowings under this
agreement during fiscal 1995.
On March 14, 1997, the Company borrowed an additional $150,000 which was
combined with the outstanding balance of $350,000 into a note payable of
$500,000. Interest was payable at the bank's prime interest rate plus 1/2%. The
note was due on June 11, 1997.
F-10
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information pertaining to the nine month period ended February 29, 1996 is
unaudited)
7. Bank Note Payable and Loans Payable to Officers -- (Continued)
On April 11, 1997, the Company borrowed an additional $300,000 which was
combined with the outstanding balance of $500,000 into a note payable of
$800,000. Interest was payable at the prime interest rate plus 1/2%. The note
was due on August 11, 1997.
On May 15, 1997, the bank increased the Company's line of credit to
$2,000,000. The outstanding balance of $800,000 of the above facility was rolled
into this new line of credit, at which time the Company borrowed an additional
$500,000. Borrowings under the line of credit facility, which expires on
September 30, 1997, are due upon demand. Interest is payable at the prime
interest rate (8.50% at May 15, 1997). Amounts outstanding under the line of
credit are collateralized by the Company's assets and are personally guaranteed
by the Company's principal shareholders. The amount available under the line of
credit is reduced by a $150,000 standby letter of credit with the same bank,
which is being utilized as collateral for a vendor and which expires on December
31, 1997.
Loans Payable to Officers
During fiscal 1994, the Company borrowed $650,000, unsecured, from its
principal shareholders. In fiscal 1995, repayments of $5,000 were made. The
remaining loan balance of $645,000 was entirely repaid in January 1997. Such
loans bore interest at 6% in fiscal 1994, 1995 and 1996 and 8% in fiscal 1997.
Interest expense related to the loans payable to officers for each of the years
ended May 31, 1994, 1995 and 1996 and for the nine month periods ended February
29, 1996 and February 28, 1997 amounted to approximately $17,500, $39,000,
$39,000, $29,000 and $40,000, respectively.
8. Planned Events Subsequent to February 28, 1997
The Company is in the process of filing a Registration Statement with the
Securities and Exchange Commission in connection with the offering by the
Company of 1,500,000 shares of common stock for sale to the public (the
"Offering"). In contemplation of the Offering, subsequent to February 28, 1997,
the Company consummated the following:
Common Stock Split
Effective May 15, 1997, the Board of Directors and shareholders voted to
effect a 1.88-for-1 split of the Company's common stock in the form of a common
stock dividend. All share amounts have been restated to reflect the stock split.
Issuance of Common Shares
On May 1, 1997, 31,584 shares of common stock were issued to a consultant
of the Company who performs various accounting and administrative services.
These shares have certain restrictions as to transferability. The estimated fair
value of the stock (which management believes to be 85% of the initial offering
price in the Offering) will be accounted for as consulting expense and will be
recognized ratably over the three year restricted period.
Shareholder Distributions
The Company made distributions to its shareholders in the amount of
$382,500 and $517,500 on April 11, 1997 and May 16, 1997, respectively, and
contemplates an additional distribution of $1,600,000 after the closing of the
Offering. Prior to making the Final S Corporation Distribution, the Company will
enter into an indemnity agreement with its current shareholders pursuant to
which the Company will idemnify its current shareholders against additional
income taxes resulting from adjustments made (as a result of a final
determination made by a competent tax authority) to the taxable income reported
by the Company as an S Corporation for periods prior to the Offering, but only
to the extent those adjustments result in a decrease in income taxes otherwise
payable by the Company.
F-11
<PAGE>
ROBOCOM SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(Information pertaining to the nine month period ended February 29, 1996 is
unaudited)
8. Planned Events Subsequent to February 28, 1997 -- (Continued)
The following table presents unaudited pro forma distribution payable and
shareholders' equity at February 28, 1997:
<TABLE>
<CAPTION>
Pro Forma
Distribution Payable
and Shareholders'
Equity February 28,
1997 February 28, 1997
--------------------- ------------------
<S> <C> <C>
Distribution payable ............... $ 2,500,000 $ --
============ ============
Shareholders' equity:
Common stock ..................... $ 19,364 $ 19,364
Additional paid-in capital ...... 89,436 89,436
Retained Earnings ............... 1,610,593 4,110,593
Deferred Compensation ............ (72,000) (72,000)
------------ ------------
Total shareholders' equity ......... $ 1,647,393 $ 4,147,393
============ ============
</TABLE>
Capital Stock
Effective May 15, 1997, the Company's Board of Directors and shareholders
approved an amendment to the Company's Certificate of Incorporation to increase
the authorized shares from 2,000,000 to 10,000,000 and to authorize 1,000,000
shares of par value $.01 preferred stock. The terms and conditions of the
preferred stock, of which no shares have been issued, will be set by the Board
of Directors of the Company.
Stock Option Plan
Effective May 15, 1997, the Board of Directors and shareholders approved
the Company's Stock Option and Long-term Incentive Compensation Plan for the
issuance of up to 325,000 shares of the Company's common stock at an exercise
price equal to the prevailing market price on the grant date. These options will
contain a vesting schedule to be determined at the date of grant. The Company
contemplates granting options to purchase 195,000 shares of common stock in
connection with the offering.
Deferred Taxes
Upon termination of the Company's S Corporation status, the Company will be
required to record a one-time, non-cash charge against earnings for noncurrent
deferred income taxes. If this charge had been recorded at February 28, 1997,
the amount would have been approximately $1,238,000 which primarily relate to
temporary differences for software development costs.
F-12
<PAGE>
[CHART]
AUTOMATED WAREHOUSE MANAGEMENT
RECEIVING RIMS DIRECTED PICKING
DIRECTED PUTAWAY 2001 CYCLE COUNTING
REPLENISHMENT ROBOCOM'S LABOR MANAGEMENT
CROSS DOCKING INVENTORY SHIPPING
MANAGEMENT
SYSTEM
HOST CONVEYOR MULTI-VENDER
INTERFACE SORTATION RADIO FREQUENCY
SUPPORT SYSTEM SUPPORT
SUPPORT
- -- IMPLEMENTATION SUPPORT, 24 HR. HELP DESK
-- PROJECT MANAGEMENT
-- TRAINING
<PAGE>
==============================================================================
No dealer, sales representative, or other person has been authorized to
give any information or to make any representation in connection with this
offering not contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities offered by this Prospectus, or an offer to sell or a solicitation of
an offer to by any securities by anyone in any jurisdiction in which such offer
or solicitation is not authorized or would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information contained herein is correct as of any
time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
Page
-----
Prospectus Summary ..................... 3
Risk Factors ........................... 8
Use of Proceeds ..................... 15
Dividend Policy ..................... 15
Dilution .............................. 16
Capitalization ........................ 18
Selected Financial Data ............... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................ 20
Business .............................. 26
Management ........................... 37
Principal Shareholders ............... 41
Certain Transactions .................. 42
Description of Securities ............ 42
Shares Eligible for Future Sale ...... 44
Underwriting ........................ 45
Legal Matters ........................ 46
Experts .............................. 47
Available Information ............... 47
Index to Financial Statements ......... F-1
-----------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
==============================================================================
<PAGE>
==============================================================================
1,500,000 Shares
Robocom Systems Inc.
Common Stock
----------
PROSPECTUS
----------
BlueStone Capital Partners, L.P.
Coleman and Company Securities, Inc.
Oscar Gruss & Son Incorporated
_____________ , 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Reference is made to Sections 721 through 725 of the Business Corporation
Law of the State of New York (the "NYBCL"), which provides for indemnification
of directors and officers of New York corporations under certain circumstances.
Section 722 of the NYBCL provides that a corporation may indemnify
directors and officers as well as other employees and individuals against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, in connection with actions or proceedings, whether civil or
criminal (other than an action by or in the right of the corporation, a
"derivation action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to amounts paid in settlement and reasonable expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions, and the statute does not apply in respect of a threatened action, or a
pending action that is settled or otherwise disposed of, and requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. Section 721 of the
NYBCL provides that Article 7 of the BCL is not exclusive of other
indemnification that may be granted by a corporation's certificate of
incorporation, disinterested director vote, shareholder vote, agreement or
otherwise.
Article 7 of the Company's Amended and Restated Certificate of
Incorporation requires the Company to indemnify its officers and directors to
the fullest extent permitted under the NYBCL. Furthermore, Article XII of the
Company's Amended and Restated By-laws provides that the Company, to the full
extent permitted and in the manner required by the laws of the State of New
York, may indemnify any officer or director (and the heirs and legal
representatives of such person) made, or threatened to be made, a party in an
action or proceeding (including, without limitation, one by or in the right of
the Company to procure a judgment in its favor), whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the Company
served in any capacity at the request of the Company, by reason of the fact that
such director or officer, or such director's or officer's testator or intestate,
was a director or officer of the Company or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity.
Section 402(b) of the NYBCL provides that a corporation's certificate of
incorporation may include a provision that eliminates or limits the personal
liability of the corporation's directors to the corporation or its shareholders
for damages for any breach of a director's duty, provided that such provision
does not eliminate or limit (1) the liability of any director if a judgment or
other final adjudication adverse to the director establishes that the director's
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that the director personally gained a financial
profit or other advantage to which the director was not legally entitled or that
the director's acts violated Section 719 of the NYBCL, or (2) the liability of
any director for any act or omission prior to the adoption of a provision
authorized by Section 402(b) of the NYBCL. Article 7 of the Company's Amended
and Restated Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its shareholders for any breach of
duty in such capacity except for liability in the event a judgment or other
final adjudication adverse to a director establishes that his or her acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that the director personally gained, in fact, a financial
profit or other advantage to which he or she was not legally entitled or that
such director's acts violated Section 719, or its successor, of the NYBCL.
Any amendment to or repeal of the Company's Certificate of Incorporation or
by-laws shall not adversely affect any right or protection of a director or
officer of the Company for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
The Company maintains directors and officers insurance which, subject to
certain exclusions, insures the directors and officers of the Company against
certain losses which arise out of any neglect or breach of duty
II-1
<PAGE>
(including, but not limited to, any error, misstatement, act, or omission) by
the directors or officers in the discharge of their duties, and insures the
Company against amounts which it has paid or may become obligated to pay as
indemnification to its directors and/or officers to cover such losses.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing, the Company has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the expenses expected to be incurred by the
Company in connection with the issuance and distribution of the Common Stock
registered hereby, all of which expenses, except for the Securities and Exchange
Commission registration fee, the National Association of Securities Dealers,
Inc. filing fee and the Nasdaq National Market System listing application fee,
are estimates:
<TABLE>
<CAPTION>
Description Amount
----------- ---------
<S> <C>
Securities and Exchange Commission registration fee .................. $ 3,659
National Association of Securities Dealers, Inc. filing fee ...... 1,708
Nasdaq National Market System listing application fee ............ 10,000
Accounting fees and expenses .................................... *
Legal fees and expenses .......................................... *
Printing and engraving fees and expenses ........................ *
Blue Sky fees and expenses ....................................... *
Transfer Agent fees and expenses ................................. *
Miscellaneous fees and expenses ................................. *
---------
Total ......................................................... $500,000
=========
</TABLE>
- ------------
* To be filed by amendment.
Item 26. Recent Sales of Unregistered Securities
In May 1997, the Company issued 31,584 shares of Common Stock to Max
Kurland. The shares were issued to Mr. Kurland as payment for consulting
services rendered to the Company.
In February 1996, the Company issued 28,200 shares of Common Stock to each
of Judy Frenkel and Chung-Hsin Lee, employees of the Company. The shares were
issued to each as payment for services rendered to the Company.
In February 1996, the Company issued 1,884 shares of Common Stock to Kevin
Donochie for services rendered to the Company, which shares were returned and
canceled in October 1996 in connection with the termination of Mr. Donochie's
employment by the Company.
The number of the shares referred to in the foregoing paragraphs give
effect to the 1.88-for-1 stock split of the Common Stock effected in May 1997.
All of the securities referred to in the foregoing paragraphs were issued by the
Company in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended. No underwriter fees or commissions
were paid by the Company in connection with such issuances.
II-2
<PAGE>
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- -----------
<S> <C>
1 Proposed form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-laws of the Company.
4.1 Proposed form of Representatives' Warrant Agreement.
5 * Opinion of Pryor, Cashman, Sherman & Flynn.
10.1 ** International Distributor Agreement, dated March 28, 1996, between the Company and C&C
Consultores, Argentina.
10.2 ** Distributor Agreement, dated April 1, 1996 and revised June 18, 1996, between the Company and
Prophet 21, Inc.
10.3 ** Distributor Agreement, dated January 30, 1996, between the Company and Minerva International
Holdings LTD.
10.4 ** International Distributor's Agreement, dated September 1, 1996, between the Company and
Trendsoft Comercio de Software e Hardware Ltda.
10.5 Non-Exclusive Agreement, dated July 28, 1996, between QED Information Systems of San Diego and
the Company.
10.6 Lease Agreement, dated December 19, 1996, between Carriage IV Office Center, L.L.C. and the
Company.
10.7 Lease Agreement, dated December 21, 1989, between Robocom Properties, Inc. and the Company
relating to 511 Ocean Avenue, Massapequa, New York.
10.8 * Consulting Agreement between the Company and Herbert Goldman dated May 15, 1997.
10.9 * Employment Agreement between the Company and Lawrence B. Klein dated May 15, 1997.
10.10* Employment Agreement between the Company and Irwin Balaban dated May 15, 1997.
10.11* Employment Agreement between the Company and Steven Kuhl dated May 15, 1997.
10.12* Employment Agreement between the Company and Robert O'Connor dated May 15, 1997.
10.13 Master Promissory Note, dated May 15, 1997, from the Company to The Bank of New York.
10.14 1997 Stock Option and Long-Term Incentive Compensation Plan.
10.15 General Loan and Security Agreement, dated April 13, 1994, between the Company and The Bank
of New York.
10.16* Form of Tax Indemnification Agreement to be entered into between the Company and existing
shareholders of the Company.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 * Consent of Pryor, Cashman, Sherman & Flynn, company counsel (included in their opinion filed
as Exhibit 5).
24 Powers of Attorney (included in the Signature Page of the Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
** To be filed by amendment in redacted form pursuant to Rule 406 promulgated
under the Securities Act. Filed separately in unredacted form subject to a
request for confidential treatment pursuant to Rule 406 under the
Securities Act.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
The undersigned registrant undertakes to provide to the Underwriters at the
closings specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ROBOCOM SYSTEMS
INC., a New York corporation, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of New York, New York on May 21, 1997.
ROBOCOM SYSTEMS INC.
By: /s/ Irwin Balaban
------------------------------------
Irwin Balaban
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Irwin Balaban as true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution and for him/her and
in his/her name, place and stead, in any and all capacities to sign any and all
amendments (including pre-effective and post-effective amendments) to this
Registration Statement, as well as any new registration statement filed to
register additional securities pursuant to Rule 462(b) under the Securities Act,
and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Irwin Balaban Chairman of the Board, President and May 21, 1997
--------------------------- Chief Executive Officer (Principal
Irwin Balaban Executive Officer)
/s/ Elizabeth A. Burke Vice President -- Finance and Chief May 21, 1997
--------------------------- Financial Officer (Principal Financial
Elizabeth A. Burke Officer and Principal Accounting Officer)
/s/ Herbert Goldman Director May 21, 1997
---------------------------
Herbert Goldman
/s/ Lawrence B. Klein Director May 21, 1997
---------------------------
Lawrence B. Klein
</TABLE>
II-5
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- -----------
<S> <C>
1 Proposed form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-laws of the Company.
4.1 Proposed form of Representatives' Warrant Agreement.
5 * Opinion of Pryor, Cashman, Sherman & Flynn.
10.1 ** International Distributor Agreement, dated March 28, 1996, between the Company and C&C
Consultores, Argentina.
10.2 ** Distributor Agreement, dated April 1, 1996 and revised June 18, 1996, between the Company and
Prophet 21, Inc.
10.3 ** Distributor Agreement, dated January 30, 1996, between the Company and Minerva International
Holdings LTD.
10.4 ** International Distributor's Agreement, dated September 1, 1996, between the Company and
Trendsoft Comercio de Software e Hardware Ltda.
10.5 Non-Exclusive Agreement, dated July 28, 1996, between QED Information Systems of San Diego and
the Company.
10.6 Lease Agreement, dated December 19, 1996, between Carriage IV Office Center, L.L.C. and the
Company.
10.7 Lease Agreement, dated December 21, 1989, between Robocom Properties, Inc. and the Company
relating to 511 Ocean Avenue, Massapequa, New York.
10.8 * Consulting Agreement between the Company and Herbert Goldman dated May 15, 1997.
10.9 * Employment Agreement between the Company and Lawrence B. Klein dated May 15, 1997.
10.10* Employment Agreement between the Company and Irwin Balaban dated May 15, 1997.
10.11* Employment Agreement between the Company and Steven Kuhl dated May 15, 1997.
10.12* Employment Agreement between the Company and Robert O'Connor dated May 15, 1997.
10.13 Master Promissory Note, dated May 15, 1997, from the Company to The Bank of New York.
10.14 1997 Stock Option and Long-Term Incentive Compensation Plan.
10.15 General Loan and Security Agreement, dated April 13, 1994, between the Company and The Bank
of New York.
10.16* Form of Tax Indemnification Agreement to be entered into between the Company and existing
shareholders of the Company.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Pryor, Cashman, Sherman & Flynn, company counsel (included in their opinion filed
as Exhibit 5).
24 Powers of Attorney (included in the Signature Page of the Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
** To be filed by amendment in redacted form pursuant to Rule 406 promulgated
under the Securities Act. Filed separately in unredacted form subject to a
request for confidential treatment pursuant to Rule 406 under the
Securities Act.
<PAGE>
ROBOCOM SYSTEMS INC.
1,500,000 Shares of Common Stock
(Par Value $.01 per share)
UNDERWRITING AGREEMENT
New York, New York ___________, 1997
Blue Stone Capital Partners, L.P.
Coleman and Company Securities, Inc.
Oscar Gruss & Son Incorporated
as Representatives of the
Several Underwriters named
in Schedule A hereto
c/o Blue Stone Capital Partners, L.P.
575 Fifth Avenue
New York, New York 10017
Dear Sirs:
Robocom Systems Inc., a New York corporation (the "Company"),
proposes to issue and sell to the underwriters (the "Underwriters") named in
Schedule A to this Underwriting Agreement (the "Agreement"), for whom BlueStone
Capital Partners, L.P. ("BlueStone"), Coleman and Company Securities, Inc. and
Oscar Gruss & Son Incorporated are acting as representatives (hereinafter
sometimes referred to together as the "Representatives") one million five
hundred thousand (1,500,000) shares of common stock, par value $.01 per share
(the "Offered Shares"), which Offered Shares are presently authorized but
unissued shares of the common stock, par value $.01 per share (individually a
"Common Share" and collectively the "Common Shares"), of the Company. In
addition, the Representatives, in order to cover over-allotments in the sale of
the Offered Shares, may purchase from the Company, for their own accounts, up to
an aggregate of two hundred twenty-five thousand (225,000) Common Shares (the
"Optional Shares"; the Offered Shares and the Optional Shares are hereinafter
sometimes collectively referred to as the "Shares"). The Shares are described in
the Registration Statement, as defined below. The Company also proposes to issue
and sell to the Representatives for their own accounts and/or the accounts of
their designees, warrants to purchase an aggregate of one hundred fifty thousand
(150,000) Common Shares at an exercise price of $___ per share (the
"Representatives' Warrants"), which sale will be consummated in
<PAGE>
accordance with the terms and conditions of the form of Representatives' Warrant
Agreement filed as an exhibit to the Registration Statement.
The Representatives hereby warrant to the Company that they
have been authorized by each of the Underwriters to enter into this Underwriting
Agreement on their behalf and to act for them in the manner herein provided. The
Company hereby confirms its respective agreements with the Representatives and
each of the Underwriters, on whose behalf the Representatives are signing this
Agreement, as follows:
1. Purchase and Sale of Offered Shares. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company hereby agrees to sell the Offered
Shares to the Underwriters, severally, and each Underwriter agrees severally and
not jointly, to purchase from the Company, at a purchase price of $_____ per
share, the number of Offered Shares set forth opposite the name of such
Underwriter in Schedule A attached hereto, plus any additional Offered Shares
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof. The Underwriters plan to offer the Offered
Shares to the public at a public offering price of $___ per share.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made
to the Company by wire transfer or certified or official bank check or checks
payable to its order in New York Clearing House funds, at the offices of
BlueStone, 575 Fifth Avenue, New York, New York 10017, against delivery of the
Offered Shares to the Representatives. Such payment and delivery will be made at
____________________, New York City time, on the third business day following
the Effective Date (the fourth business day following the Effective Date in the
event that trading of the Offered Shares commences on the day following the
Effective Date), the date and time of such payment and delivery being herein
called the "Closing Date." The certificates representing the Offered Shares to
be delivered will be in such denominations and registered in such names as the
Representatives may request not less than two full business days prior to the
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the office of _______________________, the Company's
transfer agent, at ______________________ not less than one full business day
prior to the Closing Date.
(b) On the Closing Date, the Company will sell
the Representatives' Warrants to the Representatives or to their designees
(limited to officers, directors and partners of the Representatives and
Underwriters). The Representatives' Warrants will be in the form of, and in
accordance with, the provisions of the Representatives' Warrant Agreement
attached as an exhibit to
-2-
<PAGE>
the Registration Statement. The aggregate purchase price for the
Representatives' Warrants is $150. The Representatives' Warrants will be
restricted from sale, transfer, assignment or hypothecation for a period of one
year from the Effective Date, except to officers, directors or partners of the
Representatives and Underwriters and members of the selling group and/or their
officers, directors or partners. Payment for the Representatives' Warrants will
be made to the Company by check or checks payable to its order on the Closing
Date against delivery of the certificates representing the Representatives'
Warrants. The certificates representing the Representatives' Warrants will be in
such denominations and such names as the Representatives may request prior to
the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any
over-allotments in connection with the distribution and sale of the Offered
Shares as contemplated by the Prospectus as defined below, the Representatives
are hereby granted an option to purchase for their own accounts, and not as
representatives of the Underwriters, all or any part of the Optional Shares from
the Company. The purchase price to be paid for the Optional Shares will be the
same price per Optional Share as the price per Offered Share set forth in
Section 1 hereof. The option granted hereby may be exercised by the
Representatives as to all or any part of the Optional Shares at any time within
45 days after the Effective Date. The Representatives will not be under any
obligation to purchase any Optional Shares prior to the exercise of such option.
(b) The option granted hereby may be exercised by the
Representatives by giving oral notice to the Company, which must be confirmed by
a letter, telex or telegraph setting forth the number of Optional Shares to be
purchased, the date and time for delivery of and payment for the Optional Shares
to be purchased and stating that the Optional Shares referred to therein are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Offered Shares. If such notice is given prior to
the Closing Date, the date set forth therein for such delivery and payment will
not be earlier than either two full business days thereafter or the Closing
Date, whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment will not be
earlier than two (2) full business days thereafter. In either event, the date so
set forth will not be more than 15 full business days after the date of such
notice. The date and time set forth in such notice is herein called the "Option
Closing Date." Upon exercise of such option, the Company will become obligated
to convey to the Representatives, and, subject to the terms and conditions set
forth in Section 3(d) hereof, the Representatives will become
-3-
<PAGE>
obligated to purchase, the number of Optional Shares specified in
such notice.
(c) Payment for any Optional Shares purchased will be
made to the Company by wire transfer or certified or official bank check or
checks payable to its order in New York Clearing House funds, at the office of
BlueStone, against delivery of the Optional Shares purchased to the
Representatives. The certificates representing the Optional Shares to be
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the Option
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the aforesaid office of the Company's transfer agent
or correspondent not less than one full business day prior to the Option Closing
Date.
(d) The obligation of the Representatives to purchase
and pay for any of the Optional Shares is subject to the accuracy and
completeness (as of the date hereof and as of the Option Closing Date) of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy and completeness of the statements of the
Company or its officers made in any certificate or other document to be
delivered by the Company pursuant to this Agreement, to the performance in all
material respects by the Company of its obligations hereunder, to the
satisfaction by the Company of the conditions, as of the date hereof and as of
the Option Closing Date, set forth in Section 3(b) hereof, and to the delivery
to the Representatives of opinions, certificates and letters dated the Option
Closing Date substantially similar in scope to those specified in Sections 5 and
6(b), (c), (d) and (e) hereof, but with each reference to "Offered Shares" and
"Closing Date" to be, respectively, to the Optional Shares and the Option
Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
with full power and authority, corporate and other, to own or lease and operate,
as the case may be, its properties, whether tangible or intangible, and to
conduct its business as described in the Registration Statement and to execute,
deliver and perform this Agreement and the Representatives' Warrant Agreement
and to consummate the transactions contemplated hereby and thereby. The Company
is duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions wherein such qualification is necessary and
failure so to qualify could have a material adverse effect on the financial
condition, results of operations, business or properties of the Company. The
Company has no subsidiaries.
-4-
<PAGE>
(b) This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and the Representatives' Warrant Agreement, when executed and delivered
by the Company on the Closing Date, will be the valid and binding obligation of
the Company, enforceable against the Company in accordance with their respective
terms. The execution, delivery and performance of this Agreement and the
Representatives' Warrant Agreement by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement and the Representatives' Warrant
Agreement have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time, or
both, (i) result in any violation of the Company's Restated Certificate of
Incorporation or its amended and restated By-laws; (ii) result in a breach of or
conflict with any of the terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company pursuant to any indenture, mortgage, note,
contract, commitment or other agreement or instrument to which the Company is a
party or by which the Company or any of its properties or assets is or may be
bound or affected; (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
business; or (iv) have any effect on any permit, certification, registration,
approval, consent, order, license, franchise or other authorization
(collectively, the "Permits") necessary for the Company to own or lease and
operate its business or the ability of the Company to make use thereof.
(c) No Permits of any court or governmental agency or
body, other than under the Securities Act of 1933, as amended (the "Act"), the
Regulations (as hereinafter defined) and applicable state securities or Blue Sky
laws, are required (i) for the valid authorization, issuance, sale and delivery
of the Shares to the Underwriters, and (ii) the consummation by the Company of
the transactions contemplated by this Agreement and the Representatives' Warrant
Agreement or, if so required, all such Permits, specifying the same, have been
duly obtained and are in full force and effect.
(d) The conditions for use of a registration
statement on Form SB-2 set forth in the General Instructions to Form SB-2 have
been satisfied with respect to the Company, the transactions contemplated herein
and in the Registration Statement. The Company has prepared in conformity with
the requirements of the Act and the rules and regulations (the "Regulations") of
the Securities and Exchange Commission (the "Commission") and filed with the
Commission a registration statement (File No. 333-______) on Form SB-2 and has
filed one or
-5-
<PAGE>
more amendments thereto, covering the registration of the Shares under the Act,
including the related preliminary prospectus or preliminary prospectuses (each
thereof being herein called a "Preliminary Prospectus") and a proposed final
prospectus. Each Preliminary Prospectus was endorsed with the legend required by
Item 501(a)(5) of Regulation S-B of the Regulations and, if applicable, Rule
430A of the Regulations. Such registration statement including any documents
incorporated by reference therein and all financial schedules and exhibits
thereto, as amended at the time it becomes effective, and the final prospectus
included therein are herein, respectively, called the "Registration Statement"
and the "Prospectus," except that, (i) if the prospectus filed by the Company
pursuant to Rule 424(b) of the Regulations differs from the Prospectus, the term
"Prospectus" will also include the prospectus filed pursuant to Rule 424(b), and
(ii) if the Registration Statement is amended or such Prospectus is supplemented
after the date the Registration Statement is declared effective by the
Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.
(e) Neither the Commission nor, to the best of the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the best of the Company's knowledge, threatened to institute any
proceedings with respect to such an order.
(f) The Registration Statement when it becomes
effective, the Prospectus (and any amendment or supplement thereto) when it is
filed with the Commission pursuant to Rule 424(b), and both documents as of the
Closing Date and the Option Closing Date referred to below, will contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, on such
dates, will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Representatives, or by any Underwriter through the Representatives, expressly
for use therein.
(g) The Company had at the date or dates indicated
in the Prospectus a duly authorized and outstanding capitalization as set forth
in the Registration Statement and the
-6-
<PAGE>
Prospectus. Based on the assumptions stated in the Registration Statement and
the Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement or the Prospectus, on the Effective Date and on the Closing Date,
there will be no options to purchase, warrants or other rights to subscribe for,
or any securities or obligations convertible into, or any contracts or
commitments to issue or sell shares of the Company's capital stock or any such
warrants, convertible securities or obligations. Except as set forth in the
Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(h) The descriptions in the Registration Statement
and the Prospectus of contracts and other documents are accurate and present
fairly the information required to be disclosed, and there are no contracts or
other documents required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) Ernst & Young LLP, the accountants who have
certified certain of the financial statements filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and Regulations.
The financial statements and schedules and the notes thereto filed as part of
the Registration Statement and included in the Prospectus are complete, correct
and present fairly the financial position of the Company as of the dates
thereof, and the results of operations and changes in financial position of the
Company for the periods indicated therein, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved except as otherwise stated in the Registration Statement and
the Prospectus. The selected financial data set forth in the Registration
Statement and the Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited and unaudited
financial statements included in the Registration Statement and the Prospectus.
(j) The Company has filed with the appropriate
federal, state and local governmental agencies, and all appropriate foreign
countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or has duly obtained
extensions of time for the filing thereof and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
financial statements filed with or as part of the Registration Statement are
sufficient for all accrued and
-7-
<PAGE>
unpaid foreign and domestic taxes, whether or not disputed, and for all periods
to and including the dates of such financial statements. Except as disclosed in
writing to the Representatives, the Company has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income taxes and is not a party to any pending
action or proceeding by any foreign or domestic governmental agency for
assessment or collection of taxes; and no claims for assessment or collection of
taxes have been asserted against the Company.
(k) The outstanding Common Shares and outstanding
options and warrants to purchase Common Shares have been duly authorized and
validly issued. The outstanding Common Shares are fully paid and nonassessable.
The outstanding options and warrants to purchase Common Shares constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms. None of the outstanding Common Shares or options or warrants to
purchase Common Shares has been issued in violation of the preemptive rights of
any shareholder of the Company. None of the holders of the outstanding Common
Shares is subject to personal liability solely by reason of being such a holder
(except for possible liabilities for unpaid wages under Section 630 of the New
York Business Corporation Law). The offers and sales of the outstanding Common
Shares and outstanding options and warrants to purchase Common Shares were at
all relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and outstanding options and warrants to purchase Common
Shares conform to the descriptions thereof contained in the Registration
Statement and Prospectus. Except as set forth in the Registration Statement and
the Prospectus, on the Effective Date and the Closing Date, there will be no
outstanding options or warrants for the purchase of, or other outstanding rights
to purchase, Common Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by
the Company or by or on behalf of, or for the benefit of, any person or persons
controlling, controlled by, or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(m) The issuance and sale of the Offered Shares and
the Optional Shares have been duly authorized and, when the Offered Shares and
the Optional Shares have been issued and duly delivered against payment therefor
as contemplated by this Agreement, the Offered Shares and the Optional Shares
will be validly issued, fully paid and nonassessable, respectively, and the
holders thereof will not be subject to personal liability solely by reason of
being such holders (except for possible liabilities for unpaid wages under
Section 630 of the New York Business Corporations Law. The Offered Shares and
the Optional
-8-
<PAGE>
Shares will not be subject to preemptive rights of any shareholder of the
Company.
(n) The issuance and sale of the Common Shares
issuable upon exercise of the Representatives' Warrants have been duly
authorized and, when such Common Shares have been duly delivered against payment
therefor, as contemplated by the Representatives' Warrant Agreement, such Common
Shares will be validly issued, fully paid and nonassessable. Holders of Common
Shares issuable upon the exercise of the Representatives' Warrants will not be
subject to personal liability solely by reason of being such holders (except for
possible liabilities for unpaid wages under Section 630 of the New York Business
Corporation Law). Neither the Representatives' Warrants nor the Common Shares
issuable upon exercise thereof will be subject to preemptive rights of any
shareholder of the Company. The Common Shares issuable upon exercise of the
Representatives' Warrants have been duly reserved for issuance upon exercise of
the Representatives' Warrants in accordance with the provisions of the
Representatives' Warrant Agreement. The Representatives' Warrants conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
(o) The Company is not in violation of, or in default
under, (i) any term or provision of its restated certificate of incorporation or
amended and restated by-laws; (ii) any material term or provision or any
financial covenants of any indenture, mortgage, contract, commitment or other
agreement or instrument to which it is a party or by which it or any of its
property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of the Company's properties or business. The Company owns, possesses or has
obtained all governmental and other (including those obtainable from third
parties) Permits necessary to own or lease, as the case may be, and to operate
its properties, whether tangible or intangible, and to conduct the business and
operations of the Company as presently conducted and all such Permits are
outstanding and in good standing, and there are no proceedings pending or to the
best of the Company's knowledge, threatened, or any basis therefor, seeking to
cancel, terminate or limit such Permits.
(p) Except as set forth in the Prospectus, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, domestic or
foreign, or before any private arbitration tribunal, pending, or, to the best of
the Company's knowledge, threatened against the Company or involving its
properties or business which, if determined adversely to the Company would,
individually or in the aggregate, result in any material adverse change in the
financial position, shareholders' equity, results
-9-
<PAGE>
of operations, properties, business, management or affairs or business prospects
of the Company or which question the validity of the capital stock of the
Company or this Agreement or of any action taken or to be taken by the Company
pursuant to, or in connection with, this Agreement; nor, to the best of the
Company's knowledge, is there any basis for any such claim, acton, suit,
proceeding, arbitration, investigation or inquiry. There are no outstanding
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company and enjoining the Company from taking, or requiring the
Company to take, any action, or to which the Company or the Company's properties
or business is bound or subject.
(q) Neither the Company nor any of its affiliates has
incurred any liability for any finder's fees or similar payments in connection
with the transactions herein contemplated.
(r) The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, rights, trade secrets, confidential information, processes
and formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of the
Company's knowledge, the Company has not infringed nor is infringing upon with
the rights of others with respect to the Intangibles; and the Company has not
received any notice of conflict with the asserted rights of others with respect
to the Intangibles which could, singly or in the aggregate, materially adversely
affect its business as presently conducted or the prospects, financial condition
or results of operations of the Company and the Company knows of no basis
therefore, to the best of the Company's knowledge, no others have infringed upon
the Intangibles of the Company.
(s) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus and the
Company's latest financial statements, the Company has not incurred any material
liability or obligation, direct or contingent, or entered into any material
transaction, whether or not incurred in the ordinary course of business, and has
not sustained any material loss or interference with its business from fire,
storm, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree; and
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there have not been, and prior to the Closing Date
referred to below there will not be, any changes in the capital stock or any
material increases in the long-term debt of the Company or any material adverse
change in or affecting the general affairs, management, financial condition,
shareholders' equity, results of operations or prospects of the Company, other
than as set forth or contemplated in the Prospectus.
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(t) The Company does not own any real property. The
Company has good title to all personal property (tangible and intangible) owned
by it, free and clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the Registration
Statement and Prospectus or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases, licenses or
other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company, and
all rentals, royalties or other payments accruing thereunder which became due
prior to the date of this Agreement have been duly paid, and neither the Company
nor, to the best of the Company's knowledge, any other party is in default
thereunder and, to the best of the Company's knowledge, no event has occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. The Company has not received notice of any
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties. The Company has adequately insured
its properties against loss or damage by fire or other casualty and maintains,
in adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar businesses located in its geographic area.
(u) Each contract or other instrument (however
characterized or described) to which the Company is a party or by which its
property or business is or may be bound or affected and to which reference is
made in the Prospectus has been duly and validly executed, is in full force and
effect in all material respects and is enforceable against the parties thereto
in accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder.
None of the material provisions of such contracts
or instruments violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company or any of its assets or businesses.
(v) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants, described in the Registration Statement, are binding and
enforceable obligations upon the respective parties thereto in accordance with
their respective terms, except as such enforceability may be limited by
applicable
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bankruptcy, insolvency, moratorium or other similar laws or arrangements
affecting creditors' rights generally and subject to principles of equity.
(w) Except as set forth in the Prospectus, the
Company has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974.
(x) The Company does not manufacture, fabricate or
market any product or perform any service which is subject to regulation by the
Federal Communications Commission, Federal Food and Drug Administration, or to
any provision of the Food, Drug and Cosmetic Act, as amended, the Public Health
Services Act or the Safe Medical Devices Act, or any rule or regulation
promulgated thereunder.
(y) To the best of the Company's knowledge, no labor
problem exists with any of the Company's employees or is imminent which could
adversely affect the Company.
(z) The Company has not, directly or indirectly, at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law. The Company's
internal accounting controls and procedures are sufficient to cause the Company
to comply in all material respects with the Foreign Corrupt Practices Act of
1977, as amended.
(aa) The Shares have been approved for listing on the
Nasdaq National Market system.
(ab) The Company has provided to Tenzer Greenblatt
LLP, counsel to the several Underwriters ("Underwriters' Counsel"), all
agreements, certificates, correspondence and other items, documents and
information requested by such counsel's Corporate Review Memorandum dated March
14, 1997.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to Underwriters' Counsel shall be deemed to
be a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
5. Certain Covenants of the Company. The Company covenants
with the several Underwriters as follows:
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(a) The Company will not at any time, whether before
the Effective Date or thereafter during such period as the Prospectus is
required by law to be delivered in connection with the sales of the Shares by
the Representatives or a dealer, file or publish any amendment or supplement to
the Registration Statement or Prospectus of which the Representatives have not
been previously advised and furnished a copy, or to which the Representatives
shall object in writing.
(b) The Company will use its best efforts to cause
the Registration Statement to become effective and will advise the
Representatives immediately, and, if requested by the Representatives, confirm
such advice in writing, (i) when the Registration Statement, or any
post-effective amendment to the Registration Statement or any supplemented
Prospectus is filed with the Commission; (ii) of the receipt of any comments
from the Commission; (iii) of any request of the Commission for amendment or
supplementation of the Registration Statement or Prospectus or for additional
information; and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the initiation of any proceedings for any of such purposes.
The Company will use its best efforts to prevent the issuance of any such stop
order or of any order preventing or suspending such use and to obtain as soon as
possible the lifting thereof, if any such order is issued.
(c) The Company will deliver to each Underwriter,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as each Underwriter may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to each Underwriter, without charge, as soon as
the Registration Statement becomes effective, and thereafter from time to time
as requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as each Underwriter may
reasonably request. The Company has furnished or will furnish to each of the
Representatives a signed copy of the Registration Statement as originally filed
and of all amendments thereto, whether filed before or after the Registration
Statement becomes effective, a copy of all exhibits filed therewith and a signed
copy of all consents and certificates of experts.
(d) The Company will comply with the Act, the
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder so as to permit the continuance
of sales of and dealings in the Offered Shares and in any Optional Shares which
may be issued and sold. If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act, any event occurs as a
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<PAGE>
result of which the Registration Statement and Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper
information as may be required and otherwise cooperate in qualifying the Shares
for offering and sale under the securities or Blue Sky laws relating to the
offering in such jurisdictions as the Representatives may reasonably designate,
provided that no such qualification will be required in any jurisdiction where,
solely as a result thereof, the Company would be subject to service of general
process or to taxation or qualification as a foreign corporation doing business
in such jurisdiction.
(f) The Company will make generally available to its
security holders, in the manner specified in Rule 158(b) under the Act, and
deliver to the Representatives and Underwriters' Counsel as soon as practicable
and in any event not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement meeting the requirements of Rule 158(a)
under the Act covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement.
(g) For a period of five years from the Effective
Date, the Company will deliver to the Representatives and to the Underwriters'
Counsel, on a timely basis (i) a copy of each report or document, including,
without limitation, reports on Forms 8-K, 10-C, 10-K (or 10-KSB) and 10-Q (or
10-QSB) and exhibits thereto, filed or furnished to the Commission, any
securities exchange or the National Association of Securities Dealers, Inc. (the
"NASD") on the date each such report or document is so filed or furnished; (ii)
as soon as practicable, copies of any reports or communications (financial or
other) of the Company mailed to its security holders; (iii) as soon as
practicable, a copy of any Schedule 13D, 13G, 14D-1 or 13E-3 received or
prepared by the Company from time to time; (iv) monthly statements setting forth
such information regarding the Company's results of operations and financial
position (including balance sheet, profit and loss statements and data regarding
outstanding purchase orders) as is regularly prepared by management of the
Company; and (v) such additional information concerning the business and
financial condition of the Company as the Representatives may from time to time
reasonably request and which can be prepared or obtained by the Company without
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<PAGE>
unreasonable effort or expense. The Company will furnish to its shareholders
annual reports containing audited financial statements and such other periodic
reports as it may determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that
controls, is controlled by or is under common control with the Company will take
any action designed to or which might be reasonably expected to cause or result
in the stabilization or manipulation of the price of the Common Stock.
(i) If the transactions contemplated by this
Agreement are consummated, BlueStone shall retain the $50,000 previously paid to
it, and the Company will pay or cause to be paid the following: all costs and
expenses incident to the performance of the obligations of the Company under
this Agreement, including, but not limited to, the fees and expenses of
accountants and counsel for the Company, the preparation, printing, mailing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto, the printing and mailing of the Selected Dealer Agreement,
the issuance and delivery of the Shares to the Representatives; all taxes, if
any, on the issuance of the Shares; the fees, expenses and other costs of
qualifying the Shares for sale under the "Blue Sky" or securities laws of those
states in which the Shares are to be offered or sold, the cost of printing and
mailing the "Blue Sky Survey", and the fees (up to a maximum of $20,000 of which
$7,500 has been previously paid) and disbursements of Underwriters' Counsel
incurred in connection with such "Blue Sky" qualifications; the filing fees
incident to securing any required review by the NASD; the cost of furnishing to
the several Underwriters copies of the Registration Statement, Preliminary
Prospectuses and the Prospectus as herein provided; the costs of placing
"tombstone advertisements" in any publications which may be selected by the
Representatives, and all other costs and expenses incident to the performance of
the Company's obligations hereunder which are not otherwise specifically
provided for in this Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, the Representatives will deduct from the
payment for the Offered Shares $180,000 (less the sum of $50,000 previously paid
to BlueStone), as payment for the Representatives' nonaccountable expense
allowance relating to the transactions contemplated hereby, which amount will
include the fees and expenses of Underwriters' Counsel (other than those payable
by the Company in connection with "Blue Sky" qualifications referred to in the
preceding paragraph).
(j) If the transactions contemplated by this
Agreement or related hereto are not consummated because the Company decides not
to proceed with the offering for any reason
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<PAGE>
(other than because the Representatives fail to accept the amount of S
corporation dividends proposed for distribution by the Company and such proposed
amount is no greater than $2,500,000 while leaving the Company with no less than
$2,500,000 in retained earnings (the "Distribution Parameters")) or if the
Representatives decide not to proceed with the offering because of a breach by
the Company of its representations, warranties or covenants in this Agreement or
as a result of adverse changes in the affairs of the Company, the Company will
reimburse the Representatives for all of their accountable expenses reasonably
incurred in connection with the offering. If the Representatives decide not to
proceed with the offering for any other reason, or the Company decides not to
proceed with the offering because the Representatives fail to accept the amount
of S corporation dividends proposed for distribution by the Company and such
proposed amount is within the Distribution Parameters, the Company will
reimburse the Representatives for their accountable expenses up to the $50,000
previously paid to BlueStone. In no event, however, will the Representatives, in
the event the offering is terminated, be entitled to retain or receive more than
an amount equal to their actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds
from the sale of the Shares for the purposes set forth in the Prospectus. The
Company will file with the Commission all required reports on Form SR in
accordance with the provisions of Rule 463 promulgated under the Act and will
provide a copy of each such report to the Representatives and Underwriters'
Counsel.
(l) During the period of twelve (12) months following
the date hereof, neither the Company nor any of its officers, directors or
shareholders will offer for sale or sell or otherwise dispose of, directly or
indirectly, any securities of the Company, in any manner whatsoever, whether
pursuant to Rule 144 of the Regulations or otherwise, and no holder of
registration rights electing to buy securities of the Company will execute any
such registration rights, in either case, without the prior written consent of
BlueStone. The Company will deliver to the Representatives the undertakings as
of the date hereof of its officers, directors and shareholders to this effect.
(m) The Company will not file any registration
statement relating to the offer or sale of any of the Company's securities,
including any registration statement on Form S-8, during the twelve (12) months
following the date hereof without BlueStone's prior written consent.
(n) The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed
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<PAGE>
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary in order to permit preparation of
financial statements in accordance with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(o) The Company will use its best efforts to maintain
the listing of the Shares on the Nasdaq National Market system for so long as
the Shares are qualified for such listing.
(p) The Company will, concurrently with the Effective
Date, register the class of equity securities of which the Shares are a part
under Section 12(g) of the Exchange Act and the Company will maintain the
registration for a minimum of five (5) years after the Effective Date.
(q) Subject to the sale of the Offered Shares,
BlueStone and its successors will have the right to designate a nominee for
election, at its or their 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 the
expiration of two (2) years following the Closing Date. Each of the Company's
current officers, directors and shareholders agrees to vote all of the Common
Shares owned by such person or entity so as to elect and continue in office such
nominee of BlueStone. 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. The Company agrees to indemnify and hold
such director harmless, to the maximum extent permitted by law, against any and
all claims, actions, awards and judgments arising out of his service as 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
BlueStone insofar as it may be or may be alleged to be responsible for such
director or advisor.
If BlueStone does not exercise its option to designate a
member of the Company's Board of Directors, BlueStone shall nonetheless have the
right to send a representative (who need not be the same person from meeting to
meeting) to observe each meeting of the Board of Directors. The Company agrees
to give BlueStone notice of each such meeting and to provide
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<PAGE>
BlueStone with any agenda and minutes of the meeting no later than it give such
notice and provides such items to the directors. The Company's Board of
Directors shall be comprised of five (5) members.
(r) The Company shall retain a transfer agent for the
Common Shares, reasonably acceptable to BlueStone, for a period of three (3)
years following the Effective Date. In addition, for a period of three (3) years
following the Effective Date, the Company, at its own expense, shall cause such
transfer agent to provide BlueStone, if so requested in writing, with copies of
the Company's daily transfer sheets and when requested by BlueStone, a current
list of the Company's security holders, including a list of the beneficial
owners of securities held by a depository trust company and other nominees.
(s) The Company hereby agrees, at its sole cost and
expense, to supply and deliver to Underwriters' Counsel, within a reasonable
period from the date hereof, five bound volumes, including the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, the Prospectus and all other underwriting documents.
(t) The Company shall, as of the date hereof, have
applied for listing in Standard & Poor's Corporation Records Service (including
annual report information) or Moody's Industrial Manual (Moody's OTC Industrial
Manual not being sufficient for these purposes) and shall use its best efforts
to have the Company listed in such manual at or prior to the Effective Date and
shall maintain such listing for a period of five (5) years following the
Effective Date.
(u) For a period of three (3) years from the
Effective Date, the Company shall provide BlueStone, on a not less than annual
basis, with internal forecasts setting forth projected results of operations for
each quarterly and annual period in the two (2) fiscal years following the
respective dates of such forecasts. Such forecasts shall be provided to
BlueStone more frequently than annually if prepared more frequently by
management, and revised forecasts shall be prepared and provided to BlueStone
when required to reflect more current information, revised assumptions or actual
results that differ materially from those set forth in the forecasts.
(v) For a period of five (5) years following the
Effective Date, the Company shall continue to retain Ernst & Young LLP (or such
other nationally recognized accounting firm acceptable to BlueStone) as the
Company's independent public accountants.
(w) For a period of five (5) years following the
Effective Date, the Company, at its expense, shall cause its independent
certified public accountants, as described in Section
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<PAGE>
5(v) above, to review (but not audit) the Company's financial statements for
each of the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q (or 10-QSB) quarterly
report and the mailing of quarterly financial information to shareholders.
(x) For a period of two (2) years following the
Effective Date, the Company will not offer or sell any of its securities
pursuant to Regulation S of the Act without the prior written consent of
BlueStone.
(y) For a period of twenty-five (25) days following
the Effective Date, the Company will not issue press releases or engage in any
other publicity without BlueStone's prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
(z) For a period of three (3) years following the
Effective Date, the Company will cause its Board of Directors to meet either in
person or telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
6. Conditions of the Underwriters' Obligation to Purchase
Shares from the Company. The obligation of the several Underwriters to purchase
and pay for the Offered Shares which they have agreed to purchase from the
Company is subject (as of the date hereof and the Closing Date) to the accuracy
of and compliance in all material respects with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company, its officers made pursuant hereto, to the performance in all material
respects by the Company of its respective obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement will have become
effective not later than _______ .M., New York City time, on the day following
the date of this Agreement, or at such later time or on such later date as the
Representatives may agree to in writing; prior to the Closing Date, no stop
order suspending the effectiveness of the Registration Statement will have been
issued and no proceedings for that purpose will have been initiated or will be
pending or, to the best of the Representatives' or the Company's knowledge, will
be contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Underwriters' Counsel.
(b) At the time that this Agreement is executed and
at the Closing Date, there will have been delivered to the Representatives a
signed opinion of Pryor, Cashman, Sherman & Flynn, counsel for the Company
("Company Counsel"), dated as of
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<PAGE>
the date hereof and the Closing Date, as the case may be (and any other opinions
of counsel referred to in such opinion of Company Counsel or relied upon by
Company Counsel in rendering their opinion), reasonably satisfactory to
Underwriters' Counsel, to the effect that:
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, with full power and authority, corporate and other, and with all
Permits necessary to own or lease, as the case may be, and operate its
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and failure so to qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company. To the best of Company Counsel's
knowledge, the Company has no subsidiaries.
(ii) The Company has full power and
authority, corporate and other, to execute, deliver and perform this Agreement
and the Representatives' Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the Representatives' Warrant Agreement by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement and the
Representatives' Warrant Agreement have been duly authorized by all necessary
corporate action, and this Agreement has been, and on the Closing Date the
Representatives' Warrant Agreement will be, duly executed and delivered by the
Company. This Agreement is (assuming for the purposes of this opinion that it is
valid and binding upon the other party thereto) and, when executed and delivered
by the Company on the Closing Date, the Representatives' Warrants will be, valid
and binding obligations of the Company, enforceable in accordance with their
respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 7 hereof and the contribution provisions set forth in Section 8
hereof may be limited by the federal securities laws or public policy underlying
such laws.
(iii) The execution, delivery and
performance of this Agreement and the Representatives' Warrant Agreement by the
Company, the consummation by the Company of the transactions herein and therein
contemplated and the compliance by the Company with the terms of this Agreement
and the Representatives' Warrant Agreement do not, and will not, with or without
the giving of notice or the lapse of time, or both, (A)
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result in a violation of the Company's Restated Certificate of Incorporation or
its amended and restated By-Laws, (B) result in a breach of or conflict with any
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company pursuant to any indenture, mortgage, note, contract,
commitment or other material agreement or instrument to which the Company is a
party or by which the Company or any of the Company's properties or assets are
or may be bound or affected; (C) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of the
Company's properties or business; or (D) have any effect on any Permits
necessary for the Company to own or lease and operate its properties or conduct
its business or the ability of the Company to make use thereof.
(iv) To the best of Company Counsel's
knowledge, no Permits of any court or governmental agency or body (other than
under the Act, the Regulations and applicable state securities or Blue Sky laws)
are required for the valid authorization, issuance, sale and delivery of the
Shares or the Representatives' Warrants to the Representatives, and the
consummation by the Company of the transactions contemplated by this Agreement
or the Representatives' Warrants.
(v) The Registration Statement has become
effective under the Act; to the best of Company Counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act or applicable state securities laws.
(vi) The Registration Statement and the
Prospectus, as of the Effective Date, and each amendment or supplement thereto
as of its effective or issue date (except for the financial statements and other
financial data included therein or omitted therefrom, as to which Company
Counsel need not express an opinion) comply as to form in all material respects
with the requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration
Statement and the Prospectus of statutes, regulations, government
classifications, contracts and other documents (including opinions of such
counsel); and the response to Item 13 of Form SB-2 have been reviewed by Company
Counsel, and, based upon such review, are accurate in all material respects and
present fairly the information required to be disclosed, and there are no
material statutes, regulations or government classifications, or, to the best of
Company Counsel's knowledge, material contracts or
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documents, of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement,
which are not so described or filed as required.
None of the material provisions of the
contracts or instruments described above violates any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court
having jurisdiction over the Company or any of its assets or businesses.
(viii) The outstanding Common Shares and
outstanding options and warrants to purchase Common Shares have been duly
authorized and validly issued. The outstanding Common Shares are fully paid and
nonassessable. The outstanding options and warrants to purchase Common Shares
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms. None of the outstanding Common Shares or options or
warrants to purchase Common Shares has been issued in violation of the
preemptive rights of any shareholder of the Company. None of the holders of the
outstanding Common Shares is subject to personal liability solely by reason of
being such a holder (except for possible liabilities for unpaid wages under
Section 630 of the New York Business Corporation Law). The offers and sales of
the outstanding Common Shares and outstanding options and warrants to purchase
Common Shares were at all relevant times either registered under the Act and the
applicable state securities or Blue Sky laws or exempt from such registration
requirements. The authorized Common Shares and outstanding options and warrants
to purchase Common Shares conform to the description thereof contained in the
Registration Statement and Prospectus. To the best of Company Counsel's
knowledge, except as set forth in the Prospectus, no holders of any of the
Company's securities has any rights, "demand", "piggyback" or otherwise, to have
such securities registered under the Act.
(ix) The issuance and sale of the Shares has
been duly authorized and, when the Shares have been issued and duly delivered
against payment therefor as contemplated by this Agreement, the Shares will be
validly issued, fully paid and nonassessable, and the holders thereof will not
be subject to personal liability solely by reason of being such holders (except
for possible liabilities for unpaid wages under Section 630 of the New York
Business Corporation Law). The Shares are not subject to preemptive rights of
any shareholder of the Company. The certificates representing the Shares are in
proper legal form.
(x) The issuance and sale of the Common
Shares issuable upon exercise of the Representatives' Warrants have been duly
authorized and, when such Common Shares have been duly delivered against payment
therefor, as contemplated by the
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Representatives' Warrants, such Common Shares will be validly issued, fully paid
and nonassessable. Holders of Common Shares issuable upon exercise of the
Representatives' Warrants will not be subject to personal liability solely by
reason of being such holders (except for possible liabilities for unpaid wages
under Section 630 of the New York Business Corporation Law). Neither the
Representatives' Warrants nor the Common Shares issuable upon exercise thereof
will be subject to preemptive rights of any shareholder of the Company. The
Common Shares issuable upon exercise of the Representatives' Warrants have been
duly reserved for issuance upon exercise of the Representatives' Warrants in
accordance with the provisions of the Representatives' Warrant Agreement. The
Representatives' Warrants conform to the descriptions thereof in the
Registration Statement and Prospectus.
(xi) Upon deliver of the Offered Shares to
the Underwriters against payment therefor as provided for in this Agreement, the
Underwriters (assuming they are bona fide purchasers within the meaning of the
Uniform Commercial Code) will acquire good title to the Offered Shares, free and
clear of all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Representatives
exercise the over-allotment option to purchase any of the Optional Shares and
make payment therefor in accordance with the terms of this Agreement, upon
delivery of the Optional Shares to the Representatives hereunder, the
Representatives (assuming they are bona fide purchases within the meaning of the
Uniform Commercial Code) will acquire good title to such optional Shares, free
and clear of any liens, encumbrances, equities, security interests and claims.
(xiii) The Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of its business as described in Prospectus (collectively, the
"Intangibles"); to the best of Company Counsel's knowledge, the Company has not
infringed and is not infringing upon the rights of others with respect to the
Intangibles; and, to the best of Company Counsel's knowledge, the Company has
not received any notice that it has or may have infringed, is infringing upon or
is conflicting with the asserted rights of others with respect to the
Intangibles which might, singly or in the aggregate, materially adversely affect
its business, results of operations or financial condition and such counsel is
not aware of any licenses with respect to the Intangibles which are required to
be obtained by the Company.
(xiv) To the best of Company Counsel's
knowledge, there are no claims, actions, suits, proceedings,
arbitra-
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tions, investigations or inquiries before any governmental agency, court or
tribunal, foreign or domestic, or before any private arbitration tribunal,
pending or threatened against the Company, or involving the Company's properties
or business, other than as described in the Prospectus, such description being
accurate, and other than litigation incident to the kind of business conducted
by the Company which, individually and in the aggregate, is not material.
(xv) Company Counsel has participated in
reviews and discussions in connection with the preparation of the Registration
Statement and the Prospectus, and in the course of such reviews and discussions
and such other investigation as Company Counsel deemed necessary, no facts came
to its attention which lead it to believe that (A) the Registration Statement
(except as to the financial statements and other financial data contained
therein, as to which Company Counsel need not express an opinion), on the
Effective Date, contained any untrue statement of a material fact required to be
stated therein or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which Company Counsel need not express an opinion)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering its opinion, Company Counsel may
rely upon the certificates of government officials and officers of the Company
as to matters of fact, provided that Company Counsel shall state that they have
no reason to believe, and do not believe, that they are not justified in relying
upon such certificates of government officials and officers of the Company as to
matters of fact.
The opinion letter delivered pursuant to this
Section 6(b) shall state that any opinion given therein qualified by the phrase
"to the best of our knowledge" is being given by Company Counsel after due
investigation of the matters therein discussed.
(c) At the Closing Date, there will have been
delivered to the Representatives a signed opinion of Underwriters' Counsel,
dated as of the Closing Date, to the effect that the opinions delivered pursuant
to Section 6(b) hereof appear on their face to be appropriately responsive to
the requirements of this Agreement, except to the extent waived by the
Representatives, specifying the same, and with respect to such other related
matters as the Representatives may require.
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(d) At the Closing Date (i) the Registration
Statement and the Prospectus and any amendments or supplements thereto will
contain all material statements which are required to be stated therein in
accordance with the Act and the Regulations and will conform in all material
respects to the requirements of the Act and the Regulations, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there will not have been any
material adverse change in the financial condition, results of operations or
general affairs of the Company from that set forth or contemplated in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicate might occur after the Effective Date;
(iii) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no material
transaction, contract or agreement entered into by the Company, other than in
the ordinary course of business, which would be required to be set forth in the
Registration Statement and the Prospectus, other than as set forth therein; and
(iv) no action, suit or proceeding at law or in equity will be pending or, to
the best of the Company's knowledge, threatened against the Company which is
required to be set forth in the Registration Statement and the Prospectus, other
than as set forth therein, and no proceedings will be pending or, to the best of
the Company's knowledge, threatened against the Company before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would materially adversely affect the
business, property, financial condition or results of operations of the Company,
other than as set forth in the Registration Statement and the Prospectus. At the
Closing Date, there will be delivered to the Representatives a certificate
signed by the Chairman of the Board or the President or a Vice President of the
Company, dated the Closing Date, evidencing compliance with the provisions of
this Section 6(d) and stating that the representations and warranties of the
Company set forth in Section 4 hereof were accurate and complete in all material
respects when made on the date hereof and are accurate and complete in all
material respects on the Closing Date as if then made; that the Company has
performed all covenants and complied with all conditions required by this
Agreement to be performed or complied with by the Company prior to or as of the
Closing Date; and that, as of the Closing Date, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been initiated or, to the best of his knowledge, are
contemplated or threatened. In addition, the Representatives will have received
such other and
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further certificates of officers of the Company as the Representatives or
Underwriters' Counsel may reasonably request.
(e) At the time that this Agreement is executed and
at the Closing Date, the Representatives will have received a signed letter from
Ernst & Young LLP, dated the date such letter is to be received by the
Representatives and addressed to them, confirming that it is a firm of
independent public accountants within the meaning of the Act and Regulations and
stating that: (i) insofar as reported on by it, in its opinion, the financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of the Company responsible for financial
and accounting matters as to the transactions and events subsequent to the date
of the latest audited financial statements of the Company, and a reading of the
minutes of meetings of the shareholders, the Board of Directors of the Company
and any committees of the Board of Directors, as set forth in the minute books
of the Company, nothing has come to its attention which, in its judgment, would
indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases in total or per share net income compared with the
corresponding period in the preceding year or any change in the capitalization
or long-term debt of the Company, except in all cases as set forth in or
contemplated by the Registration Statement and the Prospectus, and (B) the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus, do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or are not fairly presented in conformity with generally accepted
accounting principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) it has compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting
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<PAGE>
records of the Company, and excluding any questions requiring an interpretation
by legal counsel) with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter, and found them to be in agreement.
(f) There shall have been duly tendered to the
Representatives certificates representing the Offered Shares to be sold on the
Closing Date.
(g) The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Offered
Shares by the Underwriters or the sale of the Shares by the Representatives.
(h) No action shall have been taken by the Commission
or the NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Representatives' or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
(i) The Company meets the current and any existing
proposed criteria for inclusion of the Shares in the Nasdaq National Market
system.
(j) All proceedings taken at or prior to the Closing
Date or the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Representatives and to Underwriters' Counsel, and
such counsel shall have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to pass upon the
matters referred to in Section 7(c) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
(k) As of the date hereof, the Company will have
delivered to the Underwriters the written undertakings of its officers,
directors and security holders and/or registration rights holders, as the case
may be, to the effect of the matters set forth in Sections 5(l) and (q).
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If any of the conditions specified in this Section
6 have not been fulfilled, this Agreement may be terminated by the
Representatives on notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
each Underwriter, including specifically each person that may be substituted for
an Underwriter as provided in Section 10 hereof, each officer, director,
partner, employee and agent of any Underwriter, and each person, if any, who
controls any of the Underwriters within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several (and actions in respect
thereof), to which they or any of them may become subject under the Act or under
any other statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse each of the Underwriters and each such person, if any,
for any legal or other expenses reasonably incurred by them or any of them in
connection with investigating or defending any actions, whether or not resulting
in any liability, insofar as such losses, claims, damages, expenses, liabilities
or actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application or other document executed by the Company, or based upon written
information furnished by or on behalf of the Company, filed in any jurisdiction
in order to qualify the Shares under the securities laws thereof (hereinafter
"application"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, in light of
the circumstances under which they were made, unless such untrue statement or
omission was made in such Registration Statement, Preliminary Prospectus,
Prospectus or application in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
or any such person through the Underwriter expressly for use therein; provided,
however, that the indemnity agreement contained in this Section 7(a) with
respect to any Preliminary Prospectus will not inure to the benefit of the
Underwriter (or to the benefit of any other person that may be indemnified
pursuant to this Section 7(a)) if (A) the person asserting any such losses,
claims, damages, expenses or liabilities purchased the Shares which are the
subject thereof from such Underwriter or other indemnified person; (B) such
Underwriter or other indemnified person failed to send or give a copy of the
Prospectus to such person at or prior to the written confirmation of the sale of
such Shares to such person; and (C) the Prospectus did not contain any untrue
statement or alleged untrue statement or
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<PAGE>
omission or alleged omission giving rise to such cause, claim, damage, expense
or liability.
(b) Each Underwriter (including specifically each
person that may be substituted for an Underwriter as provided in Section 11
hereof) agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, from and against any and all
losses, claims, damages, expenses or liabilities, joint or several (and actions
in respect thereof), to which they or any of them may become subject under the
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director, officer
or controlling person for any legal or other expenses reasonably incurred by
them or any of them in connection with investigating or defending any actions,
whether or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained (i) in
the Registration Statement, in any Preliminary Prospectus or in the Prospectus
(or the Registration Statement or Prospectus as from time to time amended or
supplemented) or (ii) in any application (including any application for
registration of the Shares under state securities or Blue Sky laws), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under which
they were made, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company in connection therewith by such Underwriter expressly for use therein.
(c) Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
any indemnifying party under this Section 7, the indemnified party will notify
the indemnifying party in writing of the commencement thereof, and the
indemnifying party will, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel satisfactory to
the indemnified party and the payment of expenses) insofar as such action
relates to an alleged liability in respect of which indemnity may be sought
against the indemnifying party. After notice from the indemnifying party of its
election to assume the defense of such claim or action, the indemnifying party
shall no longer be liable to the indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of the
indemnified party or parties, it is advisable for the indemnified party or
parties to
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be represented by separate counsel, the indemnified party or parties shall have
the right to employ a single counsel to represent the indemnified parties who
may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the indemnified parties thereof against the
indemnifying party, in which event the fees and expenses of such separate
counsel shall be borne by the indemnifying party. Any party against whom
indemnification may be sought under this Section 7 shall not be liable to
indemnify any person that might otherwise be indemnified pursuant hereto for any
settlement of any action effected without such indemnifying party's consent,
which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable
contribution, if (i) an indemnified party makes a claim for indemnification
pursuant to Section 8 hereof (subject to the limitations thereof) and it is
finally determined, by a judgment, order or decree not subject to further
appeal, that such claim for indemnification may not be enforced, even though
this Agreement expressly provides for indemnification in such case; or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including, for this purpose, any
contribution made by or on behalf of any director of the Company, any officer of
the Company who signed the Registration Statement and any controlling person of
the Company) as one entity and the Underwriters (including, for this purpose,
any contribution by or on behalf of each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and each officer, director, partner, employee and agent of any of
the Underwriters) as a second entity, shall contribute to the losses,
liabilities, claims, damages and expenses whatsoever to which any of them may be
subject, so that the Underwriters are responsible for the proportion thereof
equal to the percentage which the underwriting discount per Share set forth on
the cover page of the Prospectus represents of the initial public offering price
per Share set forth on the cover page of the Prospectus and the Company is
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then, if applicable law permits, other relevant
equitable considerations such as the relative fault of the Company and the
Underwriters in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses shall also be considered. The relative
fault, in the case of an untrue statement, alleged untrue statement, omission or
alleged omission, shall be determined by, among other things, whether such
statement, alleged statement, omission or alleged omission relates to
information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company, on one hand, and the Underwriters, on the other hand, agree that it
would be unjust and inequitable if the respective
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obligations of the Company and the Underwriters for contribution were determined
by pro rata or per capita allocation of the aggregate losses, liabilities,
claims, damages and expenses or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) will be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this Section 8, each person,
if any, who controls any of the Underwriters within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee and agent of any of the Underwriters will have the same rights
to contribution as the Underwriters, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who has signed the Registration
Statement and each director of the Company will have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 8. Anything in this Section 8 to the contrary notwithstanding, no party
will be liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 8 is intended to
supersede, to the extent permitted by law, any right to contribution under the
Act or the Exchange Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained in this Agreement shall
remain operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Underwriters, the Company or any of its directors and officers or any
controlling person referred to in said Sections, and shall survive the delivery
of, and payment for, the Shares.
10. Substitution of Underwriters.
(a) If one or more Underwriters should default in its
or their obligation to purchase and pay for any Offered Shares hereunder and if
the aggregate number of such Offered Shares which all Underwriters so defaulting
have agreed to purchase does not exceed 10% of the total number of the Offered
Shares, the non-defaulting Underwriters will be obligated severally to purchase
and pay for (in addition to the number of Offered Shares set forth opposite
their names in Schedule A attached hereto) the full number of Offered Shares
agreed to be purchased by all defaulting Underwriters, and not so purchased, in
proportion to their respective commitments hereunder. In such event the
Representatives, for the accounts of the several nondefaulting Underwriters, may
take up and pay for all or any
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part of such additional Offered Shares to be purchased by each such Underwriter
under this Section 10(a), and may postpone the Closing Date to a time not
exceeding three full business days after the Closing Date determined as provided
in Section 2 hereof.
(b) If one or more Underwriters should default in its
or their obligation to purchase and pay for any Offered Shares hereunder and if
the aggregate number of such Offered Shares which all Underwriters so defaulting
have agreed to purchase exceeds 10% of the total number of Offered Shares, or if
one or more Underwriters for any reason permitted hereunder should cancel its or
their obligation to purchase and pay for Offered Shares hereunder, the
non-cancelling and non-defaulting Underwriters (hereinafter called the
"remaining Underwriters") will have the right to purchase such Offered Shares in
such proportion as may be agreed among them at the Closing Date determined as
provided in Section 2 hereof. If the remaining Underwriters do not purchase and
pay for such Offered Shares at such Closing Date, the Closing Date will be
postponed for 24 hours and the remaining Underwriters will have the right to
purchase such Offered Shares, or to substitute another person or persons to
purchase the same, or both, at such postponed Closing Date. If purchasers have
not been found for such Offered Shares by such postponed Closing Date, the
Closing Date will be postponed for a further 24 hours, and the Company will have
the right to substitute another person or persons, reasonably satisfactory to
the Representatives to purchase such Offered Shares at such second postponed
Closing Date. If it shall be arranged for the remaining Underwriters or
substituted underwriters to take up the Firm Shares of the defaulting
Underwriter or Underwriters as provided in this Section, (A) the Company shall
have the right to postpone the time of delivery for a period of not more than
three (3) full Business Days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary. If the Company has not found such purchasers for
such Offered Shares by such second postponed Closing Date, then this Agreement
will automatically terminate, and neither the Company nor the remaining
Underwriters will be under any obligation under this Agreement (except that the
Company and the Underwriters will remain liable to the extent provided in
Sections 7 and 8 hereof and the Company will also remain liable to the extent
provided in Section 5(j) hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10(b). Nothing in Section 11 hereof will relieve a defaulting
Underwriter from the liability for its default and nothing in this Section 10(b)
will obligate any Underwriter to purchase or find purchasers for any Offered
Shares
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<PAGE>
in excess of those agreed to be purchased by such Underwriter under the terms of
Section 2 hereof.
11. Termination of Agreement.
(a) The Company, by written or telegraphic notice to
the Representatives, or the Representatives, by written or telegraphic notice to
the Company, may terminate this Agreement prior to the earlier of (i) 11:00
A.M., New York City time, on the first full business day after the Effective
Date; or (ii) the time when the Underwriters, after the Registration Statement
becomes effective, release the Offered Shares for public offering. The time when
the Underwriters "release the Offered Shares for public offering" for the
purposes of this Section 12 means the time when the Underwriters release for
publication the first newspaper advertisement, which is subsequently published,
relating to the Offered Shares, or the time when the Underwriters release for
delivery to members of a selling group copies of the Prospectus and an offering
letter or an offering telegram relating to the Offered Shares, whichever will
first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Shares and the obligation to purchase the Optional
Shares after exercise of the option referred to in Section 3 hereof, are subject
to termination in the absolute discretion of the Underwriters, by notice given
to the Company prior to delivery of and payment for all the Offered Shares or
the Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange will have been suspended; (iv) limited or minimum prices will
have been established on either such Exchange; (v) a banking moratorium will
have been declared either by federal or New York State authorities; (vi) any
other restrictions on transactions in securities materially affecting the free
market for securities or the payment for such securities, including the Offered
Shares or the Optional Shares, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted by any national securities exchange, the
NASD or the Commission; (viii) there has been a materially adverse change in the
condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Representatives, has had a material
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<PAGE>
adverse effect upon the market or potential market for securities in general; or
(xi) the market for securities in general or political, financial or economic
conditions will have so materially adversely changed that, in the judgment of
the Representatives, it will be impracticable to offer for sale, or to enforce
contracts made by the Underwriters for the resale of, the Offered Shares or the
Optional Shares, as the case may be.
(c) If this Agreement is terminated pursuant to
Section 6 hereof or this Section 11 or if the purchases provided for herein are
not consummated because any condition of the Underwriters' obligations hereunder
is not satisfied or because of any refusal, inability or failure on the part of
the Company to comply with any of the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company shall be unable to or does
not perform all of its obligations under this Agreement, the Company will not be
liable to any of the Underwriters for damages on account of loss of anticipated
profits arising out of the transactions covered by this Agreement, but the
Company will remain liable to the extent provided in Sections 5(j), 7, 8 and 9
of this Agreement.
12. Information Furnished by the Underwriter to the Company.
It is hereby acknowledged and agreed by the parties hereto that for the purposes
of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and
8 hereof, the only information given by the Underwriters to the Company for use
in the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
13. Notices and Governing Law. All communications hereunder
will be in writing and, except as otherwise provided, will be delivered at, or
mailed by certified mail, return receipt requested, or telecopied to, the
following addresses: if to BlueStone, the Representatives, or the Underwriters,
to BlueStone Capital Partners, L.P., 575 Fifth Avenue, New York, New York 10017,
Facsimile No. (212) 297-5695, with a copy to Tenzer Greenblatt LLP, Attention:
Robert J. Mittman, Esq., 405 Lexington Avenue, New York, New York 10174,
Facsimile No. (212) 885-5001; if to the Company at 511 Ocean Avenue, Massapequa,
New York 11758, Facsimile No. ________________ with a copy to Pryor, Cashman,
Sherman & Flynn, Attention: Eric Hellige, Esq., 410 Park Avenue, New York, New
York 10022, Facsimile No. (212) 326-0806.
-34-
<PAGE>
This Agreement shall be deemed to have been made and delivered
in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) 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 shall
be deemed in every respect effective service of process upon the Company in any
such suit, action or proceeding.
14. Parties in Interest. This Agreement is made solely for the
benefit of the several Underwriters, the Company and, to the extent expressed,
any person controlling the Company or the Underwriters, each officer, director,
partner, employee and agent of the Underwriters, the directors of the Company,
its officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from any
of the Underwriters, as such purchaser.
-35-
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
ROBOCOM SYSTEMS INC.
By: ___________________________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
BLUESTONE CAPITAL PARTNERS, L.P.
By: ____________________________________
Name:
Title:
COLEMAN AND COMPANY SECURITIES, INC.
By: ____________________________________
Name:
Title:
OSCAR GRUSS & SON INCORPORATED
By: ____________________________________
Name:
Title:
Acting on behalf of themselves
as the Representatives of the
several Underwriters named in
Schedule A hereto.
-36-
<PAGE>
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
Underwriter Number of Shares
- ----------- ----------------
BlueStone Capital Partners, L.P.
Coleman and Company Securities, Inc.
Oscar Gruss & Son Incorporated
Total . . . . . . . 1,500,000
=========
-37-
<PAGE>
RESTATED CERTFICIATE OF INCORPORATION
OF
ROBOCOM SYSTEMS INC.
Under Section 807 of the Business Corporation Law
of the State of New York
The undersigned, being the President and Secretary, respectively, of
Robocom Systems Inc., a New York corporation, hereby certify and sets forth as
follows:
FIRST: That the name of the corporation is Robocom Systems Inc. (the
"Corporation").
SECOND: That the Certificate of Incorporation of the Corporation was
filed with the Department of State of the State of New York on June 23, 1982 and
was amended on October 30, 1995.
THIRD: That the Certificate of Incorporation of the Corporation is
hereby amended as follows:
A. To change the Corporation's corporate purpose.
B. To change the location of the office of the Corporation from
Oyster Bay, County of Nassau, State of New York to County of
Nassau, State of New York.
C. To change the number and classes of the shares of capital
stock that the Corporation is currently authorized to issue from
2,000,000 shares of Common Stock, $.01 value per share (of which
1,967,984 shares are presently issued and outstanding), to
10,000,000 shares of Common Stock, par value $.01 per share, and
1,000,000 shares of Preferred Stock, par value $.01 per share;
and to define the rights of all shares of capital stock of the
Corporation.
D. To change the address to which the Secretary of State of the
State of New York shall mail a copy of any process against the
Corporation which may be served upon him or her.
E. To state that no holder of shares of the Corporation of any
class shall have preemptive rights to acquire shares or other
securities.
<PAGE>
F. To limit the personal liability of directors to the extent
permitted by Section 402(b) of the Business Corporation Law of
the State of New York.
G. To indemnify directors and officers to the fullest extent
permitted by Article 7 of the Business Corporation Law of the
State of New York.
Accordingly, the Certificate of Incorporation of the Corporation
is hereby amended to effect the foregoing changes and is hereby
restated as amended to read as herein set forth in full:
1. The name of the Corporation is Robocom Systems Inc.
2. The purpose for which the Corporation is formed is
as follows:
To engage in any lawful act or activity for which
corporations may be formed under the Business
Corporation Law of the State of New York (the
"Business Corporation Law"), provided that the
Corporation is not formed to engage in any act or
activity which requires the consent or approval of
any state official, department, board, agency or any
other body, without such approval or consent first
being obtained. For the accomplishment of the
aforesaid purposes, and in furtherance thereof, the
Corporation shall have and may exercise all of the
powers conferred by the Business Corporation Law upon
corporations formed thereunder, subject to any
limitations contained in Article 2 of said Law or in
accordance with the provisions of any other statute
of the State of New York.
3. The office of the Corporation is to be located in the
County of Nassau, State of New York.
4. The aggregate number of shares of capital stock which
the Corporation shall have authority to issue is
11,000,000, of which 10,000,000 shall be Common Stock,
par value $.01 per share (the "Common Stock"), and
1,000,000 shall be Preferred Stock, par value $.01 per
share (the "Preferred Stock"). The Preferred Stock may
be issued, from time to time, in one or more series with
such designations, preferences and relative
participating optional or other special rights and
qualifications, limitations or restrictions thereof, as
shall be stated in the resolutions adopted by the Board
of Directors providing for the issuance of such
Preferred Stock or series thereof; and the Board of
Directors is hereby expressly vested with authority to
fix such designations, preferences and relative
participating options or other special rights or
qualifications, limitations or restrictions for each
series, including, but not by way of limitation, the
power to determine the redemption and liquidation
preferences, the rate of dividends payable and the time
for and the priority of payment thereof and to determine
whether such dividends shall be
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<PAGE>
cumulative or not and to provide for and determine the
terms of conversion of such Preferred Stock or any
series thereof into Common Stock of the Corporation and
fix the voting power, if any, of Preferred Stock or any
series thereof.
5. The Secretary of State of the State of New York is
designated as agent of the Corporation upon whom process
against the Corporation may be served. The address to
which the Secretary of State shall mail a copy of any
such process so served is:
Robocom Systems Inc.
511 Ocean Avenue
Massapequa, New York, 11758
Attention: President
6. No holder of shares of the Corporation of any class,
now or hereafter authorized, shall have any preferential
or preemptive rights to subscribe for, purchase or
receive any shares of the Corporation of any class, now
or hereafter authorized, or any options or warrants for
such shares, or any rights to subscribe to or purchase
such shares, or any securities convertible into or
exchangeable for such shares, which may at any time be
issued, sold or offered for sale by the Corporation.
7. A director of the Corporation shall not be liable to
the Corporation or its shareholders for damages for any
breach of duty in such capacity except for liability in
the event a judgment or other final adjudication adverse
to a director establishes that his or her acts or
omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that the
director personally gained, in fact, a financial profit
or other advantage to which he or she was not legally
entitled or that such director's acts violated Section
719, or its successor, of the Business Corporation Law;
or liability for any act or omission prior to the
adoption of this provision.
8. The Corporation shall indemnify any person to the
fullest extent permitted by the Business Corporation
Law, as amended from time to time, for all amounts
(including, without limitation, judgments, fines,
settlement payments, expenses and attorneys' fees)
incurred or paid in connection with any action, suit,
investigation or proceeding arising out of or relating
to the performance of services by such person acting as
a director or officer of the Corporation, and shall to
the fullest extent permitted by the Business Corporation
Law, as amended from time to time, advance all expenses
incurred or paid by such person in connection with, and
until disposition of any action, suit, investigation or
proceeding arising out of or relating to the performance
of services by such person acting as a director or
officer of the Corporation, and shall, to the fullest
extent permitted by the Business Corporation Law, as
amended from time to time, advance all expenses
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<PAGE>
incurred in or paid by such person in connection with,
and until disposition of, any action, suit,
investigation of proceeding arising out of or relating
to the performance of services by such person acting as
a director or officer of the Corporation. The
Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the
Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
FOURTH:The foregoing amendments to, and this restatement of, the
Certificate of Incorporation of the Corporation were authorized by (i) the
unanimous approval of the Board of Directors of the Corporation, followed by
(ii) the unanimous approval of the holders of all outstanding shares of the
Corporation entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned, President and Secretary of the
Corporation, have each executed this Restated Certificate of Incorporation on
May __, 1997, and each hereby affirms, under penalties of perjury, that the
statements contained herein are true.
------------------------------
Irwin Balaban
President
------------------------------
Secretary
4
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
ROBOCOM SYSTEMS INC.
A New York Corporation
ARTICLE I
Shareholders
SECTION 1. Annual Meeting. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at the office of the Corporation
in the State of New York or at such other place within or without the State of
New York as may be determined by the Board of Directors and as shall be
designated in the notice of said meeting, on such date and at such time as may
be determined by the Board of Directors.
SECTION 2. Special Meetings. Special meetings of the shareholders for
the transaction of such business as may properly come before the meeting shall
be held at the office of the Corporation in the State of New York, or at such
other place within or without the State of New York as may be designated from
time to time by the Board of Directors. Whenever the Board of Directors shall
fail to fix such place, or whenever shareholders entitled to call a special
meeting shall call the same, the meeting shall be held at the office of the
Corporation in the State of New York or at the principal executive offices of
the Corporation. Special meetings of the shareholders shall be held upon call of
the Board of Directors or of the President or any Vice President or the
Secretary or any director, at such time as may be fixed by the Board of
Directors or the President or such Vice President or the Secretary or such
director, as the case may be, and as shall be stated in the notice of said
meeting, except when the New York Business Corporation Law (the "Business
Corporation Law") confers upon the shareholders the right to demand the call of
such meeting and fix the date thereof. At any special meeting of the
shareholders, duly called as provided in these By-laws, any director or
directors may be removed from office by the shareholders, either with or without
cause, and such director's successor or directors' successors may be elected at
such meeting.
SECTION 3. Notice of Meetings. The notice of all meetings shall be in
writing, shall state the place, date and hour of the meeting and, unless it is
the annual meeting, shall indicate that it is being issued by or at the
direction of the person or persons calling the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of directors and
for the transaction of such other business as may properly come before the
meeting and shall state the purpose or purposes of the meeting if any other
action is to be taken at such annual meeting
<PAGE>
which could be taken at a special meeting. The notice of a special meeting
shall, in all instances, state the purpose or purposes for which the meeting is
called. If the Board of Directors shall adopt, amend or repeal a By-law
regulating an impending election of directors, the notice of the next meeting
for the election of directors shall contain the By-law so adopted, amended or
repealed, together with a concise statement of the changes made. If any action
is proposed to be taken which would, if taken, entitle shareholders to receive
payment for their shares, the notice shall include a statement of that purpose
and to that effect and shall be accompanied by a copy of Section 623 of the
Business Corporation Law or an outline of its material terms. A copy of the
notice of any meeting shall be served either personally or by first class mail,
not less than 10 nor more than 50 days before the date of the meeting, to each
shareholder at such shareholder's record address or at such other address as
such shareholder may have furnished by request in writing to the Secretary of
the Corporation. If a meeting is adjourned to another time or place and if any
announcement of the adjourned time or place is made at the meeting, it shall not
be necessary to give notice of the adjourned meeting unless the Board of
Directors, after adjournment, fixes a new record date for the adjourned meeting.
Notice of a meeting need not be given to any shareholder who submits a signed
waiver of notice before or after the meeting. The attendance of a shareholder at
a meeting without protesting prior to the conclusion of the meeting the lack of
notice of such meeting shall constitute a waiver of notice by such shareholder.
SECTION 4. Shareholder Lists. A list of shareholders as of the record
date, certified by the corporate officer responsible for its preparation, or by
the transfer agent, if any, shall be produced at any meeting of shareholders
upon the request thereat or prior thereto of any shareholder. If the right to
vote at any meeting is challenged, the inspectors of election, if any, or the
person presiding thereat, shall require such list of shareholders to be produced
as evidence of the right of the persons challenged to vote at such meeting, and
all persons who appear from such list to be shareholders entitled to vote
thereat may vote at such meeting.
SECTION 5. Quorum. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of shareholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the shareholders at which a quorum is present, all matters,
except as otherwise provided by law or in the Certificate of Incorporation,
shall be decided by the vote of the holders of a majority of the shares entitled
to vote thereat, present in person or by proxy. If there be no such quorum, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholder.
SECTION 6. Organization. Meetings of shareholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the
President, or if none or in the President's absence a Vice President, or, if
none of the foregoing is present, by a Chairman to be chosen by the shareholders
entitled to vote who are present in person or by proxy at the meeting. The
Secretary of the Corporation, or in the Secretary's absence an Assistant
Secretary, shall act as
2
<PAGE>
secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present, the presiding officer of the meeting shall choose any
person present to act as secretary of the meeting.
SECTION 7. Voting; Proxies; Required Vote; Ballots. At each meeting of
shareholders, every shareholder shall be entitled to vote in person or by proxy
appointed by instrument in writing, subscribed by such shareholder or by such
shareholder's duly authorized attorney-in-fact, and shall have one vote for each
share entitled to vote and registered in such shareholder's name on the books of
the Corporation on the applicable record date fixed pursuant to these By-laws.
No proxy shall be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by the
Business Corporation Law. At all elections of directors the voting may but need
not be by ballot and a plurality of the votes cast thereat shall elect. Except
as otherwise required by law or the Certificate of Incorporation, any other
action shall be authorized by a majority of the votes cast.
SECTION 8. Inspectors. The Board of Directors, in advance of any
meeting, may appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not so appointed, the
person presiding at the meeting may, and on the request of any shareholder
shall, appoint one or more inspectors. In case any person appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of such
inspector's duties, shall take and sign an oath to execute faithfully the duties
of inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. The inspectors, if any, shall determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate as to any fact found by them.
SECTION 9. Actions Without Meetings. Whenever shareholders are required
or permitted to take any action by vote, such action may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all outstanding shares entitled to vote thereon. This section shall
not be construed to alter or modify any provision of law or of the Certificate
of Incorporation under which the written consent of the holders of less than all
outstanding shares is sufficient for corporate action.
SECTION 10. Meaning of Certain Terms. As used herein in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the terms "share" and "shareholder" or
"shareholders" refer to an outstanding share or shares and to a holder or
holders of record of outstanding shares, respectively, when the Corporation is
authorized to issue only one class of shares, and said references are also
intended to include any outstanding share or shares and any
3
<PAGE>
holder or holders of record of outstanding shares of any class upon which or
upon whom the Certificate of Incorporation confers such rights, where there are
two or more classes or series of shares, or upon which or upon whom the Business
Corporation Law confers such rights; notwithstanding that the Certificate of
Incorporation may provide for more than one class or series of shares, one or
more of which are limited in or denied such rights thereunder.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors.
SECTION 2. Qualification; Number; Term. (a) Each director shall be at
least 18 years of age. A director need not be a shareholder, a citizen of the
United States, or a resident of the State of New York. The number of directors
constituting the entire Board of Directors shall be at least three and not more
than seven, except that where all the shares are owned beneficially and of
record by fewer than three shareholders, the number of directors may be less
than three but not less than the number of shareholders. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the Board of Directors or of the
shareholders, or, if the number of directors is not so fixed, the number shall
be three. The number of directors may be increased or decreased by action of the
Board of Directors or shareholders, provided that any action of the Board of
Directors to effect such increase or decrease shall require the vote of a
majority of the entire Board of Directors. The use of the phrase "entire Board
of Directors" herein refers to the total number of directors which the
Corporation would have if there were no vacancies.
(b) The first Board of Directors shall be elected by the incorporator
or incorporators of the Corporation and shall hold office until the first annual
meeting of shareholders or until their respective successors have been elected
and qualified. Thereafter, directors who are elected at an annual meeting of
shareholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
shareholders or until their respective successors have been elected and
qualified. In the interim between annual meetings of shareholders or special
meetings of shareholders called for the election of directors, newly created
directorships and any vacancies in the Board of Directors, including vacancies
resulting from the removal of directors for cause or without cause, may be
filled by the vote of a majority of the directors then in office, although less
than a quorum exists.
SECTION 3. Quorum and Manner of Vote. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place without notice. Except as herein otherwise
provided, the vote of a majority of the directors present at the
4
<PAGE>
time of the vote, at a meeting duly assembled, a quorum being present at such
time, shall be the act of the Board of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of Directors shall
be held at such place within or without the State of New York as may from time
to time be fixed by resolution of the Board of Directors, or as may be specified
in the notice of the meeting. Regular meetings of the Board of Directors shall
be held at such times and places as may from time to time be fixed by resolution
of the Board of Directors, and special meetings may be held at any time and
place upon the call of the Chairman of the Board, if any, or of the President or
any Vice President or the Secretary or any director by oral, telegraphic or
notice duly served as set forth in these By-laws.
SECTION 5. Annual Meeting. Following the annual meeting of
shareholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of shareholders at the same place at which
such shareholders meeting is held.
SECTION 6. Notice of Meetings. A notice of the place, date, time and
purpose or purposes of each meeting of the Board of Directors shall be given to
each director by mailing the same at least two days before the meeting, or by
telegraphing or telephoning the same or by delivering the same personally not
later than the day before the day of the meeting. Notice need not be given of
regular meetings of the Board of Directors held at times and places fixed by
resolution of the Board of Directors. Any requirements of furnishing a notice
shall be waived by any director who signs a waiver of notice before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. The notice of any meeting
need not specify the purpose of the meeting, and any and all business may be
transacted at such meeting.
SECTION 7. Organization. At all meetings of the Board of Directors, the
Chairman, if any, or if none or in the Chairman's absence or inability to act
the President, or in the President's absence or inability to act any Vice
President who is a member of the Board of Directors, or in such Vice President's
absence or inability to act a chairman chosen by the directors, shall preside.
The Secretary of the Corporation shall act as secretary at all meetings of the
Board of Directors when present, and in the Secretary's absence, the presiding
officer may appoint any person to act as secretary.
SECTION 8. Resignation. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation. Except as otherwise provided by law or by the Certificate of
Incorporation, any or all of the directors may be removed, with or without
cause, by the holders of a majority of the shares of stock outstanding and
entitled to vote for the election of directors.
SECTION 9. Vacancies. Unless otherwise provided in these By-laws,
vacancies among the directors, whether caused by resignation, death,
disqualification, removal, an increase in the
5
<PAGE>
authorized number of directors or otherwise, may be filled by the affirmative
vote of a majority of the remaining directors, although less than a quorum, or
by a sole remaining director, or, at a special meeting of the shareholders, by
the holders of shares entitled to vote for the election of directors.
SECTION 10. Actions by Written Consent. Any action required or
permitted to be taken by the Board of Directors or by any committee thereof may
be taken without a meeting if all members of the Board of Directors or of any
such committee consent in writing to the adoption of a resolution authorizing
the action and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or of any such committee.
SECTION 11. Electronic Communication. Any one or more members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or any such committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
ARTICLE III
Committees
SECTION 1. Appointment. From time to time the Board of Directors by a
resolution adopted by a majority of the whole Board may appoint any committee or
committees for any purpose or purposes, to the extent lawful, which shall have
powers as shall be determined and specified by the Board of Directors in the
resolution of appointment. The Board of Directors shall have full power, at any
time, to fill vacancies in, to change membership of, to designate alternate
members of, or to discharge any such committee.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent. Any action required or permitted
to be taken at any Meeting of any committee of the Board may be taken without a
meeting if all the members of the committee consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the committee.
6
<PAGE>
SECTION 4. Term; Termination. In the event any person shall cease to be
a director of the Corporation, such person shall simultaneously therewith cease
to be a member of any committee appointed by the Board of Directors.
ARTICLE IV
Officers
SECTION 1. Election and Qualification. The Board of Directors shall
elect the officers of the Corporation, which shall include a President and a
Secretary, and may include, by election or appointment, one or more Vice
Presidents (any one or more of whom may be given an additional designation of
rank or function), a Treasurer and such other officers as the Board may from
time to time deem proper. Each officer shall have such powers and duties as may
be prescribed by these By-laws and as may be assigned by the Board of Directors
or the President. Any two or more offices may be held by the same person except
the offices of President and Secretary. When all of the issued and outstanding
stock of the Corporation is owned by one person, such person may hold all or any
combination of offices.
SECTION 2. Term of Office and Remuneration. The term of office of all
officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors.
SECTION 3. Resignation; Removal. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by vote of a majority of the whole Board.
SECTION 4. Chairman of the Board. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the Board of
Directors and shall have such other powers and duties as may from time to time
be assigned by the Board of Directors.
SECTION 5. President. The President shall be the chief executive
officer of the Corporation and shall have general management and supervision of
the property, business and affairs of the Corporation and over its other
officers. The President shall preside at all meetings of the shareholders and,
in the absence or disability of the Chairman of the Board of Directors, or if
there be no Chairman, shall preside at all meetings of the Board of Directors.
The President may appoint and remove assistant officers and other agents and
employees, other than officers referred to in Section 1 hereof. The President
may execute and deliver in the name of the Corporation powers of attorney,
contracts, bonds and other obligations and instruments.
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SECTION 6. Vice President. A Vice President may execute and deliver in
the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of such Vice President's duties, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President.
SECTION 7. Treasurer. The Treasurer shall in general have all duties
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 8. Secretary. The Secretary shall in general have all the
duties incident to the office of Secretary and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 9. Assistant Officers. Any assistant officer shall have such
powers and duties of the officer such assistant officer assists an such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
SECTION 1. Location. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
shareholders, of the Board of Directors, and/or of any committee which the Board
of Directors may appoint, and shall keep at the office of the Corporation in the
State of New York or at the office of the transfer agent or registrar, if any,
in said state a record containing the names and addresses of all shareholders,
the number and class of shares held by each, and the dates when such
shareholders respectively became the owners of record thereof. Any of the
foregoing books, minutes or records may be in written form or in any other form
capable of being converted into written form within a reasonable time.
SECTION 2. Addresses of Shareholders. Notices of meetings and all other
corporate notices may be delivered personally or mailed to each shareholder at
said shareholders address as it appears on the records of the Corporation.
SECTION 3. Fixing Date for Determination of Shareholders of Record. For
the purpose of determining the shareholders entitled to notice of or to vote at
any meeting of shareholders or any adjournment thereof, or to express to consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board of
Directors may fix, in advance, a record date, which shall be not more than 50
nor less than 10 days before the date of such meeting, nor more than 50 days
prior to any other action. If no record date is fixed, the record date for
determining shareholders entitled to notice of or to vote at
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a meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. The record date for determining shareholders for any purpose other than
that specified in the preceding sentence shall be at the close of business on
the day on which the Board of Directors adopts the resolution relating thereto.
A determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE VI
Certificates Representing Shares
SECTION 1. Certificates; Signatures. (a) The shares of the Corporation
shall be represented by certificates representing shares, in such form not
inconsistent with the Certificate of Incorporation as the Board of Directors may
from time to time prescribe. Certificates representing shares shall have set
forth thereon the statements prescribed by law and shall be signed by the
Chairman of the Board or the President or a Vice President and by the Secretary
or an Assistant Secretary or a Treasurer or an Assistant Treasurer and may be
sealed with the corporate seal or a facsimile thereof. Any and all signatures on
any such certificate may be facsimiles if the certificate is countersigned by a
transfer agent or registered by a registrar other than the Corporation itself or
its employee, or the shares are listed on a registered national securities
exchange. In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such officer were an officer at the date of its issue.
(b) Each certificate representing shares issued by the Corporation, if
the Corporation is authorized to issue shares of more than one class, shall set
forth upon the face or back of the certificate, or shall state that the
Corporation will furnish to any shareholder upon request and without charge, a
full statement of the designation, relative rights, preferences and limitations
of the shares of each class authorized to be issued and, if the Corporation is
authorized to issue any class of preferred shares in series, the designation,
relative rights, preferences and limitations of each such series so far as the
same have been fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other series.
(c) Each certificate representing shares shall state upon the face
thereof:
(1) That the Corporation is formed under the laws of the State of New
York;
(2) The name of the person or persons to whom issued; and
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(3) The number and class of shares, and the designation of the series,
if any, which such certificate represents.
(d) The name of the holder of record of the shares represented thereby,
with the number of shares and the date of issue, shall be entered on the books
of the corporation.
SECTION 2. Transfer of Shares. Upon compliance with provisions
restricting the transferability of shares, if any, transfers of shares of the
Corporation shall be made only on the share record of the Corporation by the
registered holder thereof, or by such holder's attorney-in-fact thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation or with a transfer agent or a registrar, if any, and upon the
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes due thereon. A certificate representing shares
shall not be issued until the full amount of consideration therefor has been
paid, except as the Business Corporation Law may otherwise permit.
SECTION 3. Fractional Shares. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect transactions authorized by the Business Corporation Law, which shall
entitle the holder, in proportion to such holder's fractional holdings, to
exercise voting rights, receive dividends and participate in liquidating
distributions; or the Corporation may pay in cash the fair value of fractions of
a share as of the time when those entitled to receive such fractions are
determined; or it may issue scrip in registered or bearer form over the manual
or facsimile signature of an officer of the Corporation or of its agent,
exchangeable as therein provided for full shares, but such scrip shall not
entitle the holder to any rights of a shareholder except as therein provided.
The Board of Directors shall have power and authority to make all such rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates representing shares of the Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation may
issue a new certificate of stock in place of any certificate, theretofore issued
by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
Dividends
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to shareholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any
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time, against such discretion, to divide or pay any part of such funds among or
to the shareholders as dividends or otherwise; and before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the Board of Directors from time to time, in
its absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE VIII
Ratification
Any transaction, questioned in any law suit on the ground of lack of
authority, defective or irregular execution, adverse interest of director,
officer or shareholder, non-disclosure, miscomputation, or the application of
improper principles or practices of accounting, may be ratified, before or after
judgment, by the Board of Directors or by the shareholders and if so ratified
shall have the same force and effect as if the questioned transaction had been
originally duly authorized. Such ratification shall be binding upon the
Corporation and its shareholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
ARTICLE IX
Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing, or causing to be printed,
engraved, lithographed, stamped or otherwise made, placed or affixed, upon any
paper or document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.
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ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall begin the first day of June in
each year and end on the next succeeding thirty-first day of May, or otherwise
as the Board of Directors shall, from time to time, determine.
ARTICLE XI
Waiver of Notice
Whenever notice is required to be given by these By-laws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
Indemnification
The Corporation, to the full extent permitted and in the manner
required by the laws of the State of New York as in effect at the time of the
adoption of this Article XII or as the law may be amended from time to time, may
(i) indemnify any director or officer (and the heirs and legal representatives
of such person) made, or threatened to be made, a party in an action or
proceeding (including, without limitation, one by or in the right of the
Corporation to procure a judgment in its favor), whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that such director or officer, or such director's or officer's
testator or intestate, was a director or officer of the Corporation or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, and (ii) provide to any such director or
officer (and the heirs and legal representatives of such director or officer)
advances for expenses incurred in pursuing such action or proceeding, upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount as, and to the extent, required by Section 725(a) of the Business
Corporation Law.
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ARTICLE XIII
Bank Accounts, Drafts, Contracts, Etc,
SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts
as may be authorized by the Board of Directors, the Treasurer or any person
designated by the Treasurer, whether or not an employee of the Corporation, may
authorize such bank accounts to be opened or maintained in the name and on
behalf of the Corporation as such person may deem necessary or appropriate, and
may authorize payments from such bank accounts to be made upon and according to
the check of the Corporation in accordance with the written instructions of the
Treasurer, or other person so designated by the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any person
or persons, in the name and on behalf of the Corporation, to enter into or
execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the rights
and powers incident to that ownership of stock by the Corporation. The Chairman,
the President or any other person authorized by proxy or power of attorney
executed and delivered by either of them on behalf of the Corporation may attend
and vote at any meeting of shareholders of any company in which the Corporation
may hold stock, and may exercise on behalf of the Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
or otherwise as specified in the proxy or power of attorney so authorizing any
such person. The Board of Directors, from time to time, may confer like powers
upon any other person.
SECTION 4. Financial Reports. The directors may appoint the Treasurer
or other fiscal officer and/or the Secretary or any other officer to cause to be
prepared and furnished to shareholders entitled thereto any special financial
notice and/or financial statement, as the case may be, which may be required by
any provision of law.
ARTICLE XIV
Amendments
The shareholders entitled to vote in the election of directors may
amend or repeal the By-laws and may adopt new By-laws. Except as otherwise
required by law or by the provisions of these By-laws, the Board of Directors
may also amend or repeal the By-laws and adopt new By-laws, but By-laws adopted
by the Board of Directors may be amended or repealed by the said shareholders.
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WARRANT AGREEMENT dated as of ______________, 1997 between
Robocom Systems Inc., a New York corporation (the "Company"), on one hand, and
BlueStone Capital Partners, L.P., Coleman and Company Securities, Inc. and Oscar
Gruss & Son Incorporated (hereinafter referred to as the "Representatives"),
on the other hand.
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives,
in their individual capacity and not as representatives of the several
Underwriters (defined below), warrants ("Warrants") to purchase up to 150,000
shares (the "Shares") of common stock of the Company, par value $.01 per share
(the "Common Stock"), in connection with the proposed public offering (the
"Public Offering") by the Company of 1,500,000 shares of Common Stock at an
initial public offering price of $_____ per share of Common Stock, pursuant to
the underwriting agreement (the "Underwriting Agreement") dated _________, 1997
between the Representatives, as representatives of the several underwriters
named in Schedule A to the Underwriting Agreement (the "Underwriters") and the
Company; and
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Representatives or officers and partners of
the Representatives and/or, at the Representatives' direction, to members of the
selling group or underwriting syndicate and/or their officers or partners;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representatives to the Company of ONE HUNDRED AND FIFTY DOLLARS ($150),
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Representatives, and/or their designees who are officers
or partners of the Representatives or members of the selling group or
underwriting syndicate in connection with the Public Offering, are hereby
granted the right to purchase, at any time from ____________, 1998 until 5:00
P.M., New York City time, on ___________, 2002, (the "Warrant Exercise Term"),
up to 150,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $_______ per Share.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates")
delivered and to be delivered pursuant to this Agreement shall be in the form
set forth as Exhibit A, attached hereto and made a
<PAGE>
part hereof, with such appropriate insertions, omissions, substitutions and
other variations as required or permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are
exercisable at a price of $_______ per Share, payable in cash or by check to the
order of the Company, or any combination of cash or check, subject to adjustment
as provided in Article 8 hereof. Upon surrender of the Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with payment of
the Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in New York (presently located at 511 Ocean Avenue,
Massapequa, New York 11758) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
3.2 Cashless Exercise. At any time during the Warrant
Exercise Term, the Holder may, at its option, exchange this Warrant, in whole or
in part (a "Warrant Exchange"), into the number of Shares determined in
accordance with this Section 3.2, by surrendering this Warrant at the principal
office of the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the Shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within three (3) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for and acquire the number of Shares (rounded to the next highest
integer) equal to (i) the number of Shares specified by the Holder in its Notice
of Exchange (the "Total Number") less (ii) the number of Shares equal to the
quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price (as hereinafter defined) by (B) the current market value
of a share of Common Stock.
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4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares shall be made forthwith (and in any event within
three business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants,
in part or in whole, certificates representing the Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably satisfactory
to counsel to the issuer, stating that an exemption from registration
under such Act is available."
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5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by its acceptance
thereof, covenants and agrees that the Warrants are being acquired as an
investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof, except to officers or partners of the Representatives or to any member
of the selling group or underwriting syndicate participating in the distribution
to the public of the Common Stock and/or their respective officers or partners.
6. Price.
6.1 Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $_______ per Share. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
7.2 Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the Act and
disposed of pursuant thereto, (ii) registration under the Act is no longer
required for the immediate public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
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7.3 Piggyback Registration. If, at any time during
the seven years following the date of this Agreement, the Company proposes to
prepare and file one or more post-effective amendments to the registration
statement filed in connection with the Public Offering or any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 7, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) business days prior to the filing of each such Registration Statement, to
all holders of the Registrable Securities. Upon the written request of such a
holder (a "Requesting Holder"), made within twenty (20) business days after
receipt of the Notice, that the Company include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, use its best efforts to effect the
registration under the Act of the Registrable Securities which it has been so
requested to register ("Piggyback Registration"), at the Company's sole cost and
expense and at no cost or expense to the Requesting Holders; provided, however,
that if, in the written opinion of the Company's managing underwriter, if any,
for such offering, the inclusion of all or a portion of the Registrable
Securities requested to be registered, when added to the securities being
registered by the Company or the selling shareholder(s), will exceed the maximum
amount of the Company's securities which can be marketed (i) at a price
reasonably related to their then current market value, or (ii) without otherwise
materially adversely affecting the entire offering, then the Company may exclude
from such offering all or a portion of the Registrable Securities which it has
been requested to register.
Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.4 Demand Registration.
(a) At any time during the Warrant Exercise
Term, any "Majority Holder" (as such term is defined in Section 7.4(d) below) of
the Registrable Securities shall have the right (which right is in addition to
the piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the
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sole expense of the Company, a Registration Statement and such other documents,
including a prospectus, as may be necessary (in the opinion of both counsel for
the Company and counsel for such Majority Holder), in order to comply with the
provisions of the Act, so as to permit a public offering and sale of the
Registrable Securities by the holders thereof, for nine (9) consecutive months.
(b) The Company covenants and agrees to give
written notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) days from the date of the Company's
receipt of any such Demand Registration Request. After receiving notice from the
Company as provided in this Section 7.4(b), holders of Registrable Securities
may request the Company to include their Registrable Securities in the
Registration Statement to be filed pursuant to Section 7.4(a) hereof by
notifying the Company of their decision to include such securities within ten
(10) days of their receipt of the Company's notice.
(c) In addition to the registration rights
provided for under Section 7.3 and subsection (a) of this Section 7.4, at any
time during the Warrant Exercise Term, any Majority Holder (as defined below in
Section 7.4(d)) of Registrable Securities shall have the right, exercisable by
written request to the Company, to have the Company prepare and file with the
Commission, on one occasion in respect of all holders of Registrable Securities,
a Registration Statement so as to permit a public offering and sale of such
Registrable Securities for nine (9) months, provided, however, that all costs
incident thereto shall be at the expense of the holders of the Registrable
Securities included in such Registration Statement. If a Majority Holder shall
give notice to the Company at any time of its or their desire to exercise the
registration rights granted pursuant to this Section 7.4(c), then within ten
(10) days after the Company's receipt of such notice, the Company shall give
notice to the other holders of Registrable Securities, advising them that the
Company is proceeding with such registration and offering to include therein the
Registrable Securities of such holders, provided they furnish the Company with
such appropriate information in connection therewith as the Company shall
reasonably request in writing.
(d) The term "Majority Holder" as used in
this Section 7.4 shall mean any holder or any combination of holders of
Registrable Securities, if included in such holders' Registrable Securities are
that aggregate number of Shares (including Shares already issued and Shares
issuable pursuant to the exercise of outstanding Warrants) as would constitute a
majority of the aggregate number of Shares (including Shares already issued and
Shares issuable pursuant to the exercise of outstanding Warrants) included in
all of the Registrable Securities.
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<PAGE>
7.5 Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:
(a) In connection with any registration
under Section 7.4 hereof, the Company shall file the Registration Statement as
expeditiously as possible, but in no event later than twenty (20) business days
following receipt of any demand therefor, shall use its best efforts to have any
such Registration Statements declared effective at the earliest possible time,
and shall furnish each holder of Registrable Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees
and expenses in connection with all Registration Statements filed pursuant to
Sections 7.3 and 7.4(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, and blue sky fees and expenses.
The holders of Registrable Securities included in any Registration Statement
filed pursuant to Section 7.4(c) hereof will pay all costs, fees and expenses in
connection with such registration.
(c) The Company will take all necessary
action which may be required in qualifying or registering the Registrable
Securities included in a Registration Statement for offering and sale under the
securities or blue sky laws of such states as are requested by the holders of
such securities, provided that the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify any holder
of the Registrable Securities to be sold pursuant to any Registration Statement
and any underwriter or person deemed to be an underwriter under the Act and each
person, if any, who controls such holder or underwriter or person deemed to be
an underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all
loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement to the same extent and with
the same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriters contained in Section 7 of the Underwriting Agreement
and to provide for just and equitable contribution as set forth in Section 8 of
the Underwriting Agreement.
(e) Any holder of Registrable Securities to
be sold pursuant to a Registration Statement, and its successors and assigns,
shall severally, and not jointly, indemnify, the Company, its officers and
directors and each person, if any, who
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<PAGE>
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such holder, or its successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company and to provide for just and equitable contribution as set
forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement
shall be construed as requiring any Holder to exercise his Warrants prior to the
initial filing of any Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with
the provisions of this Article 7, the Company shall, in addition to any other
equitable or other relief available to the holders of Registrable Securities, be
liable for any or all damages sustained by the holders of Registrable Securities
that a court of equity or law will allow for breach of contract claims,
requesting registration of their Registrable Securities.
(h) The Company shall deliver promptly to
each holder of Registrable Securities which are being registered pursuant to
Section 7.3 hereof, upon the request of such holder, and to the managing
underwriter, if any, copies of all correspondence between the Commission and the
Company, and its counsel or auditors relating to discussions with the Commission
or its staff with respect to the Registration Statement and permit each such
holder and managing underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
Registration Statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such holder or managing underwriter shall
reasonably request.
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances or
sales referred to in Section 8.6 hereof),
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<PAGE>
including shares held in the Company's treasury and shares of Common Stock
issued upon the exercise of any options, rights or warrants to subscribe for
shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed to all the
shareholders of the Company and Holders of Warrants pursuant to Section 8.8
hereof) and shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock, for a consideration per
share less than either the Exercise Price in effect immediately prior to the
issuance or sale of such shares or the "Market Price" (as defined in Section
8.1(vi) hereof) per share of Common Stock or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) equal to the quotient derived by dividing (A) an amount equal to the sum
of (X) the product of (a) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale, multiplied by (b) the lower of (i)
the Exercise Price in effect immediately prior to such issuance or sale or (ii)
the "Market Price" (as defined in subsection (vi) of this Section 8.1 hereof)
per share of Common Stock on the date immediately prior to the issuance or sale
of such shares, plus, (Y) the aggregate of the amount of all consideration, if
any, received by the Company upon such issuance or sale, by (B) the total number
of shares of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 8.3
hereof.
For the purposes of any computation to be made in accordance
with this Section 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of
shares of Common Stock for a consideration part or all of which shall be cash,
the amount of the cash consideration therefor shall be deemed to be the amount
of cash received by the Company for such shares (or, if shares of Common Stock
are offered by the Company for subscription, the subscription price, or, if such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale
(otherwise than as a dividend or other distribution on any stock of the Company)
of shares of Common Stock for a consideration part or all of which shall be
other than cash, the amount of the consideration therefor other than cash shall
be deemed to be the
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<PAGE>
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way
of dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of
the Company other than shares of Common Stock into securities including shares
of Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in subsection (ii) of this
Section 8.1.
(v) The number of shares of Common Stock at
any one time outstanding shall include the aggregate number of shares issued or
issuable upon the exercise of options, rights, warrants and upon the conversion
or exchange of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market
Price" at any date shall be deemed to be the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or as reported in the NASDAQ National
Market System, or, if the Common Stock is not listed or admitted to trading on
any national securities exchange or quoted on the NASDAQ National Market System,
the closing bid price as furnished by the National Association of Securities
Dealers, Inc. through NASDAQ or similar organization if NASDAQ is no longer
reporting such information, or if the Common Stock is not quoted on NASDAQ, as
determined in good faith by resolution of the Board of Directors of the Company,
based on the best information available to it for the two days immediately
preceding such issuance or sale and the day of such issuance or sale.
8.2 Options, Rights, Warrants and Convertible and
Exchangeable Securities. Except in the case of the Company issuing rights to
subscribe for shares of Common Stock distributed to all the shareholders of the
Company and Holders of Warrants pursuant to Section 8.8 hereof, if the Company
shall at any time after the date hereof issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible into
or exchangeable for shares of Common Stock, (i) for a consideration per share
less than (a) the Exercise Price in effect immediately prior to the issuance of
such options, rights or warrants, or such convertible or exchangeable
securities, or (b) the Market Price, or (ii) without consideration, the Exercise
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<PAGE>
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provisions of Section 8.1 hereof, provided that:
(a) The aggregate maximum number of shares
of Common Stock, as the case may be, issuable under all the outstanding options,
rights or warrants shall be deemed to be issued and outstanding at the time all
the outstanding options, rights or warrants were issued, and for a consideration
equal to the minimum purchase price per share provided for in the options,
rights or warrants at the time of issuance, plus the consideration (determined
in the same manner as consideration received on the issue or sale of shares in
accordance with the terms of the Warrants), if any, received by the Company for
the options, rights or warrants, and if no minimum price is provided in the
options, rights or warrants, then the consideration shall be equal to zero;
provided, however, that upon the expiration or other termination of the 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 this
subsection (a) (and for the purposes of subsection (v) of Section 8.1 hereof)
shall be reduced by such number of shares as to which options, warrants and/or
rights shall have expired or terminated unexercised, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Exercise 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 actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(b) The aggregate maximum number of shares
of Common Stock issuable upon conversion or exchange of any convertible or
exchangeable securities shall be deemed to be issued and outstanding at the time
of issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on the
issue or sale of shares of Common Stock in accordance with the terms of the
Warrants) received by the Company for such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the termination of the right to convert or
exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subsection (b) (and for the purpose of subsection
(v) of Section 8.1 hereof) shall be reduced by such number of shares as to which
the conversion or exchange rights shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and outstanding
and the Exercise Price then in effect shall forthwith be readjusted and
thereafter be the price which it would have been had adjust-
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<PAGE>
ment been made on the basis of the issuance only of the shares actually issued
or issuable upon the conversion or exchange of those convertible or exchangeable
securities as to which the conversion or exchange rights shall not have expired
or terminated unexercised.
(c) If any change shall occur in the price
per share provided for in any of the options, rights or warrants referred to in
subsection (a) of this Section 8.2, or in the price per share at which the
securities referred to in subsection (b) of this Section 8.2 are convertible or
exchangeable, the options, rights or warrants or conversion or exchange rights,
as the case may be, shall be deemed to have expired or terminated on the date
when such price change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange thereof, and the
Company shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options, rights or
warrants or the conversion or exchange of such convertible or exchangeable
securities.
8.3 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.4 Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 Reclassification, Consolidation, Merger, etc. In
case of any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property
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<PAGE>
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares issuable upon exercise of the Warrants
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Warrants.
8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Common
Stock in the public offering concurrent herewith; or
(b) Upon the issuance or sale of shares of
Common Stock upon the exercise of the Warrants; or
(c) Upon (i) the issuance of options
pursuant to the Company's employee stock option plan in effect
on the date hereof or the issuance or sale by the Company of
any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the issuance or sale by the Company of
any shares of Common Stock pursuant to the exercise of any
options or warrants previously issued and outstanding on the
date hereof; or
(d) If the amount of said adjustment shall
be less than 2 cents (2(cent)) per Share, provided, however,
that 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 which, together with any adjustment so carried
forward, shall amount to at least 2 cents (2(cent)) per Share.
8.7 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holder or Holders
of the unexercised Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities receivable upon the exercise thereof,
to receive, upon the exercise of such Warrants, the same monies, property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
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<PAGE>
or distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection 8.7.
8.8 Subscription Rights for Shares of Common Stock or
Other Securities. In the case the Company or an affiliate of the Company shall
at any time after the date hereof and prior to the exercise of all the Warrants
issue any rights to subscribe for shares of Common Stock or any other securities
of the Company or of such affiliate to all the shareholders of the Company, the
Holders of the unexercised Warrants shall be entitled, in addition to the shares
of Common Stock or other securities receivable upon the exercise of the
Warrants, to receive such rights at the time such rights are distributed to the
other shareholders of the Company.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender hereof by the registered Holder at the principal executive office
of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Shares in
such denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock and shall not be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price
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<PAGE>
therefor, all shares of Common Stock issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed on or quoted by NASDAQ or listed
on such national securities exchanges as requested by the Representatives.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights,
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<PAGE>
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
of this Agreement or to such other address as the Company may designate by
notice to the Holders.
14. Supplements and Amendments.
The Company and the Representatives may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representatives may deem
necessary or desirable and which the Company and the Representatives deem not to
adversely affect the interests of the Holders of Warrant Certificates.
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
___________, 2005. Notwithstanding the foregoing, this Agreement will terminate
on any earlier date when all Warrants have been exercised and all the Shares
issuable upon exercise of the Warrants have been resold to the public; provided,
however, that the provisions of Section 7.4 shall survive such termination until
the close of business on ___________, 2008.
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
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<PAGE>
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Representatives and any
other registered holder or holders of the Warrant Certificates, Warrants or the
Shares any legal or equitable right, remedy or claim under this Agreement; and
this Agreement shall be for the sole and exclusive benefit of the Company and
the Representatives and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] ROBOCOM SYSTEMS INC.
By: ________________________________
Name:
Title:
Attest:
_______________________
BLUESTONE CAPITAL
PARTNERS, L.P.
By: ________________________________
Name:
Title:
COLEMAN AND COMPANY
SECURITIES, INC.
By: ________________________________
Name:
Title:
OSCAR GRUSS & SON,
INCORPORATED
By: ________________________________
Name:
Title:
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<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 2002
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________
____________ or registered assigns, is the registered holder of _______ Warrants
to purchase, at any time from _______, 1998 until 5:00 P.M. New York City time
on ________, 2002 ("Expiration Date"), up to _____ shares ("Shares") of
fully-paid and non-assessable common stock, $.01 par value ("Common Stock"), of
Robocom Systems Inc., a New York corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $____ per Share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of
____________, 1997 between the Company and BlueStone Capital Partners, L.P.,
Coleman and Company Securities, Inc. and Oscar Gruss & Son Incorporated (the
"Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is
<PAGE>
hereby referred to in a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1997 Robocom Systems Inc.
[SEAL] By:__________________________
Name:
Title:
Attest:
______________________
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<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
__________________ in the amount of $ , all in accordance with the terms hereof.
The undersigned requests that a certificate for such Shares be registered in the
name of , whose address is __________________, and that such Certificate be
delivered to __________________, whose address is _____________.
Dated: Signature:_________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
________________________________
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________
hereby sells, assigns and transfers unto ______________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: ___________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate)
_______________________________
_______________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
[LOGO]
ROBOCOM SYSTEMS INC.
AUTOMATION & COMPUTER SYSTEMS ENGINEERING
511 OCEAN AVENUE, MASSAPEQUA, NEW YORK 11758 (516) 795-5100 Fax (516) 795-6933
Mr. Tony Cummings
QED Information Systems
8899 University Center Lane
Suite 310
San Diego, CA 92122
Let this letter serve as a pro tem non-exclusive agreement between Robocom
Systems Inc., of Massapequa, NY, (RSI) and QED Information Systems of San Diego,
CA (QED).
License Grant
During the term of this agreement, RSI grants to QED a non-exclusive right to
sublicense to End Users copies of RSI's software products (RIMS).
Territory
QED is responsible for sales and marketing efforts in the state of California.
This is no way precludes the sale of RIMS elsewhere.
Term
This agreement shall remain in force until all fees are shared as stipulated
with respect to the sale of a RIMS license to New England Power Company; or a
formal agreement is accepted between both parties, whichever occurs first.
Trade Secrets
QED acknowledges that RSI has advised it that the Software and related
documentation are valuable proprietary information and trades secrets of RSI and
that QED is to treat such information confidentially. A non-disclosure agreement
is attached.
RSI Obligations
RSI shall:
1. Provide all maintenance to New England Power under separate contract
2. Provide sales and technical support to QED in order QED to successfully
compete for this business.
<PAGE>
3. Warrant the product will work substantially as described in all applicable
RSI published documentation
QED Obligations
QED shall:
1. Warrants that it has expertise, knowledge and experience in the proposed
work to be done.
2. Apply its best efforts to win the contract available for New England
Power's warehouse management needs.
3. Follow RSI's pricing policies and present RSI's capabilities and services
in an accurate manner.
Fees and Payment
For the purposes of paying QED for its efforts in relation to the licensing of
RIMS to New England Power, RSI shall pay QED 30% of the cost of the license fee.
Payment shall be made within fifteen days of RSI being in receipt of payment
from New England Power.
Cancellation
This agreement shall remain in force unless canceled for due cause by either
party. Due cause shall include but not be limited to: legal action taken against
either party dealing with insolvency, bankruptcy or suspension of payment; a
receiver is appointed over the assets of either party; QED enters into a deed of
arrangement; QED ceases to function as a going concern; or QED knowingly
misrepresents the capabilities, functions or features of RIMS.
Agreed to on the date below:
/s/ Richard L. Wilkins /s/ Anthony (Tony) Cummings
------------------ ------------------------
Richard L. Wilkins Tony Cummings
Director of Sales
and Marketing
Date: Date: 7/28/96
<PAGE>
Lease
Between
CARRIAGE IV OFFICE CENTER, L.L.C., Lessor
- and -
ROBOCOM SYSTEMS, INC., Lessee
Dated: 12/19/96
<PAGE>
TABLE OF CONTENTS
BASIC LEASE PROVISIONS AND DEFINITIONS ............................... 1
1. DESCRIPTION ..................................................... 3
2. TERM ............................................................ 3
3. BASIC RENT ...................................................... 3
4. USE AND OCCUPANCY ............................................... 3
5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL ....................... 3
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS .......................... 5
7. ASSIGNMENT AND SUBLEASE ......................................... 5
8. COMPLIANCE WITH RULES AND REGULATIONS ........................... 8
9. DAMAGES TO BUILDING/WAIVER OF SUBROGATION ....................... 8
10. EMINENT DOMAIN .................................................. 9
11. INSOLVENCY OF LESSEE ............................................ 10
12. LESSOR'S REMEDIES ON DEFAULT .................................... 10
13. DEFICIENCY ...................................................... 10
14. SUBORDINATION OF LEASE .......................................... 11
15. SECURITY DEPOSIT ................................................ 12
16. RIGHT TO CURE LESSEE'S BREACH ................................... 12
17. MECHANIC'S LIENS ................................................ 12
18. RIGHT TO INSPECT AND REPAIR ..................................... 13
19. SERVICES TO BE PROVIDED BY LESSOR ............................... 13
20. INTERRUPTION OF SERVICES OR USE ................................. 13
21. BUILDING STANDARD OFFICE ELECTRICAL SERVICE ..................... 14
22. ADDITIONAL RENT ................................................. 17
(A) Operating Cost Escalation .................................. 17
(B) Fuel, Utilities and Electric Cost Escalation ............... 18
(C) Tax Escalation ............................................. 18
(D) Lease Year ................................................. 19
(E) Payment .................................................... 19
(F) Books and Records .......................................... 20
(G) Right of Review ............................................ 20
(H) Occupancy Adjustment ....................................... 20
23. LESSEE'S ESTOPPEL ............................................... 21
24. HOLDOVER TENANCY ................................................ 21
25. RIGHT TO SHOW PREMISES .......................................... 21
26. LESSOR'S WORK - LESSEE'S DRAWINGS ............................... 21
27. WAIVER OF JURY TRIAL/NON-MANDATORY COUNTERCLAIMS ................ 22
(i)
<PAGE>
28. LATE CHARGE ..................................................... 22
29. INSURANCE ....................................................... 22
(A) Lessee's Insurance ......................................... 22
(B) Lessor's Insurance ......................................... 25
(C) Waiver of Subrogation ...................................... 25
30. NO OTHER REPRESENTATIONS ........................................ 25
31. QUIET ENJOYMENT ................................................. 25
32. INDEMNITY ....................................................... 26
33. APPLICABILITY TO HEIRS AND ASSIGNS .............................. 26
34. PARKING SPACES .................................................. 26
35. LESSOR'S EXCULPATION ............................................ 27
36. RULES OF CONSTRUCTION\APPLICABLE LAW ............................ 27
37. BROKER .......................................................... 28
38. PERSONAL LIABILITY .............................................. 28
39. NO OPTION ....................................................... 28
40. DEFINITIONS ..................................................... 28
(A) Lessee's Percentage ........................................ 28
(B) Common Facilities .......................................... 29
(C) Force Majeure .............................................. 29
(D) Building Hours ............................................. 29
(E) Additional Rent ............................................ 30
41. LEASE COMMENCEMENT .............................................. 30
42. NOTICES ......................................................... 30
43. ACCORD AND SATISFACTION ......................................... 30
44. EFFECT OF WAIVERS ............................................... 30
45. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE ...................... 31
46. LESSOR'S RESERVED RIGHTS ........................................ 31
47. CORPORATE AUTHORITY ............................................. 31
48. GOVERNMENT REQUIREMENTS ......................................... 31
49. RENEWAL OPTION .................................................. 31
50. RELOCATION BY LESSOR ............................................ 32
(ii)
<PAGE>
LEASE made the 19 day of December, 1996 between CARRIAGE IV OFFICE CENTER,
L.L.C. whose address is 106 East Linden Street, Englewood New Jersey 07611
(hereinafter referred to as "Lessor"); and ROBOCOM SYSTEMS INC. a New Jersey
Corporation whose address is 539 Duric Avenue, Closter, New Jersey (hereinafter
referred to as "Lessee").
PREAMBLE
BASIC LEASE PROVISIONS AND DEFINITIONS
In addition to other terms elsewhere defined in this Lease the following terms
whenever used in this Lease should have only the meanings set forth in this
Section unless such meanings are expressly modified, limited or expanded
elsewhere herein.
(1) Additional Rent: All sums in addition to Term Basic Rent payable by Lessee
to Lessor pursuant to the provisions of this Lease.
(2) Base Period Costs: As to the following:
(A) Base Operating Costs: Those costs paid during Calendar Year 1997.
(B) Base Real Estate Taxes: Those Real Estate Taxes incurred for the
Building and Office Building Area during Calendar Year 1997.
(3) Broker(s): CHARLES KLATSKIN CO. INC. AND TROAST REALTY SERVICES.
(4) Building: The building located at 1086 Teaneck Road, Township of Teaneck,
County of Bergen, State of New Jersey.
(5) Building Holidays: Those shown on Exhibit E.
(6) Commencement Date: January 1 1997 and shall for purposes hereof be subject
to Sections 26 and 41 hereof.
(7) Demised Premises or Premises: Approximately 2,018 rentable sq. ft, as shown
on Exhibit A hereto which includes an allocable share of the Common
Facilities as defined in Subsection 40(C).
(8) Expiration Date: The day before the 5th anniversary of the Commencement
Date.
(9) Exhibits: The following Exhibits attached to this Lease are incorporated
herein and made a part hereof:
Exhibit A Premises (as shown by cross-hatching)
Exhibit A-l Office Building Area
Exhibit B Rules and Regulations
Exhibit C Landlord's Work
Exhibit D Cleaning Services
Exhibit E Building Holidays
(10) Term Basic Rent: $166,485.00 for the Term payable as follows:
(A) Annual Basic Rent: $33,297. 00
(B) Monthly Basic Rent: $2,774.75.
(11) Lessee's Percentage: 3. 15(%) percent subject to adjustment as provided for
in Subsection 40(A).
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(12) Office Building Area: Lot 2, Block 4808, on the tax map of the Township of
Teaneck, Bergen County, New Jersey.
(13) Parking Spaces: A total of 8 spaces, -0- of which shall be assigned and 8
of which shall be unassigned subject to Article 34.
(14) Permitted Uses: General office use, related to computer and computer
software applications.
(15) Security Deposits $5,549.50.
(16) Term: 5 years from the Commencement Date unless extended pursuant to any
option contained herein.
(17) Option to Renew: 5 years subject to Article 49.
2
<PAGE>
WITNESSETH:
For and in consideration of the covenants herein contained, and upon the terms
and conditions herein set forth, Lessor and Lessee agree as follows:
1. DESCRIPTION. Lessor hereby leases to Lessee, and Lessee hereby hires from
Lessor, the Demised Premises as defined in the Preamble (hereinafter called
"Demised Premises" or "Premises") which includes an allocable share of the
Common Facilities, as shown on the plan or plans, initialed by the parties
hereto, marked Exhibit A attached hereto and made part of this Lease in the
Building as defined in the Preamble (hereinafter called the "Building"),
which is situated on the Office Building Area as defined in the Preamble
(hereinafter called "Office Building Area") as described on Exhibit A-l
attached hereto and made part of this Lease, together with the right to use
in common with other Lessees of the Building, their invitees, customers and
employees, those public areas of the Common Facilities as hereinafter
defined.
2. TERM. The Premises are leased for the Term to commence on the Commencement
Date, and to end at 11:59 p.m. on the Expiration Date, all as defined in
the Preamble.
3. BASIC RENT. The Lessee shall pay to Lessor during the Term the Term Basic
Rent as defined in the Preamble (hereinafter called "Term Basic Rent")
payable in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts. The Term Basic Rent shall accrue at the Annual Basic Rent rate as
defined in the Preamble and shall be payable in advance on the first day of
each calendar month during the Term in monthly installments of Monthly
Basic Rent as defined in the Preamble, except that a proportionately lesser
sum may be paid for the first and last months of the Term of this Lease if
the Term commences on a day other than the first day of the month, in
accordance with the provisions of this Lease herein set forth. Lessor
acknowledges receipt from Lessee of the first installment required of
Monthly Basic Rent by check, subject to collection, for the first month of
the Lease Term. Lessee shall pay Basic Rent, and any Additional Rent as
hereinafter provided, to Lessor at Lessor's above stated address, or at
such other place as Lessor may designate in writing, without demand and
without counterclaim, deduction or setoff. As used in this Lease, Basic
Rent shall mean either Term Basic Rent, Annual Basic Rent or Monthly Basic
Rent, as appropriate.
4. USE AND OCCUPANCY. Lessee shall use and occupy Premises for the Permitted
Use as defined in the Preamble and for no other purpose.
5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL. Lessee covenants to commit no
act of waste and to take good care of the Premises and fixtures and
appurtenances thereon, and shall, in the use and occupancy of the Premises
comply with all laws, orders and regulations of the federal, state and
municipal governments or any of their departments affecting the Premises
and with an and all environmental requirements resulting from the Lessee's
use of the Premises; this covenant to survive the expiration or sooner
termination of the Lease. Lessor shall make all necessary repairs to the
Premises. Such repairs shall be made at Lessee's expense, unless the need
for the repairs arises from the negligence of Lessor or Lessor's agents,
servants or licensees. Lessor shall warrant for one (1) year from the date
of this lease the lighting fixtures and plumbing fixtures and shall make
repairs at its cost and expense provided, however, that Lessee has not
caused the repair due to its negligence and misuse. After the one (1) year
warranty, the Tenant may at its cost and expense make any repairs to the
premises with its contractors or licensees who must be approved prior to
hiring by the Lessor. Lessor shall make all necessary repairs to the Common
Facilities, to include the structural portions of the Building and to the
Building systems (including the heating, ventilating and air conditioning,
electrical and plumbing lines) unless said systems service only the
Premises, and to the parking areas, if any, the same to be included as an
Operating Cost, except where the repair has been made necessary by misuse
or neglect by Lessee or Lessee's agents, servants, visitors or licensees,
in which event Lessor shall nevertheless make the repair but Lessee shall
pay to Lessor, as Additional Rent, immediately upon demand, the cost
therefor. All improvements made by Lessee to the Premises, which are so
attached to the Premises that they cannot be removed without material
injury to the Premises, shall become the property of Lessor upon
installation, whether paid for in whole or in part by Lessee shall be and
remain a part of the Premises and the property of the Lessor. Not later
than the last day of the Term, Lessee shall, at Lessee's expense, remove
all Lessee's personal property and those improvements made by Lessee which
have not become the property of Lessor, including trade fixtures,
cabinetwork, movable paneling, partitions and the like; repair all injury
done by or in connection with the installation or removal of said property
and improvements; and surrender the Premises in as good condition as they
were at the beginning of the Term, reasonable wear and damage by fire, the
elements, casualty, or other cause not due to the misuse or neglect by
Lessee, Lessee's agents, servants, visitors or licensees excepted. All
other property of Lessee remaining on the Premises after the last day of
the Term of this Lease shall be conclusively deemed abandoned and may be
removed by Lessor and Lessee shall reimburse Lessor for the cost of such
removal. Lessor may have any such property stored at Lessee's risk and
expense.
3
<PAGE>
Lessee and Lessor acknowledge the existence of environmental laws, rules
and regulations, including but not limited to the provisions of ECRA, as
hereinafter defined. Lessee and Lessor shall comply with any and all such
laws, rules and regulations. Lessee represents to Lessor that Lessee's
Standard Industrial Classification (SIC) Number as designated in the
Standard Industrial Classification Manual prepared by the Office of
Management and Budget in the Executive Office of the President of the
United States will not subject the Premises to ECRA applicability. Any
change by Lessee to an operation with an SIC Number subject to ECRA shall
require Lessor's written consent. Any such proposed change shall be sent in
writing to Lessor sixty (60) days prior to the proposed change. Lessor, at
its sole option, may deny consent. Lessee's SIC code number is 7373.
Lessee hereby agrees to execute such documents as Lessor reasonably deems
necessary and to make such applications as Lessor reasonably requires to
assure compliance with ECRA. Lessee shall bear all costs and expenses
incurred by Lessor associated with any required ECRA compliance resulting
from Lessee's use of the Demised Premises including but not limited to
state agency fees, engineering fees, clean-up costs, filing fees and
suretyship expenses. As used in this Lease, ECRA compliance shall include
applications for determinations of nonapplicability by the appropriate
governmental authority. The foregoing undertaking shall survive the
termination or sooner expiration of the Lease and surrender of the Demised
Premises and shall also survive sale, or lease or assignment of the Demised
Premises by Lessor. Lessee agrees to indemnify and hold Lessor harmless
from any violation of ECRA occasioned by Lessee's use of the Demised
Premises. The Lessee shall immediately provide the lessor with copies of
all correspondence, reports, notices, orders, findings, declarations and
other materials pertinent to the Lessee's compliance and the requirements
of the New Jersey Department of Environmental Protection and Energy
("NJDEPE") under ECRA as they are issued or received by the Lessee.
Lessee agrees not to generate, store, manufacture, refine, transport,
treat, dispose of, or otherwise permit to be present on or about the
Premises, and Hazardous Substances. As used herein, Hazardous Substances
shall be defined as any "hazardous chemical," "hazardous substance" or
similar term as defined in the Comprehensive Environmental Responsibility
Compensation and Liability Act, as amended (42 U.S.C. 9601, et seg.), the
New Jersey Environmental Cleanup Responsibility Act, as amended, N.J.S.A.
13:1K-6 et seg. ("ECRA"), the New Jersey Spill Compensation and Control
Act, as amended, N.J.S.A. 58:10-23.11b, et seg., any rules or regulations
promulgated hereunder, or in any other applicable federal, state or local
law, rule or regulation dealing with environmental protection. It is
understood and agreed that the provisions contained in this Section shall
be applicable notwithstanding the fact that any substance shall not be
deemed to be a Hazardous Substance at the time of its use by the Lessee but
shall thereafter be deemed to be a Hazardous Substance.
In the event Lessee fails to comply with ECRA as stated in this Section or
any other governmental law as of the termination or sooner of the Lease and
as a consequence thereof Lessor is unable to rent the Demised Premises,
then the Lessor shall treat the Lessee as one who has not removed at the
end of its Term, and thereupon be entitled to all remedies against the
Lessee provided by law in that situation including a monthly rental of two
hundred (200%) percent of the Monthly Installment of Term Basic Rent for
the last month of the Term of this Lease or any renewal term, payable in
advance on the first day of each month, until such time as Lessee provides
Lessor with a negative declaration or confirmation that any required
clean-up plan has been successfully completed.
Lessee agrees to indemnify and hold harmless the Lessor and each mortgagee
of the Premises from and against any and all liabilities, damages, claims,
losses, judgments, causes of action, costs and expenses (including the
reasonable fees and expenses of counsel) which may be incurred by the
Lessor or any such mortgagee or threatened against the Lessor or such
mortgagee, relating to or arising out of any breach by Lessee of the
undertakings set forth in this Section, said indemnity to survive the Lease
expiration or sooner termination.
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS. Lessee shall not, without first
obtaining the written consent of Lessor, which consent shall not be
unreasonably withheld or delayed, make any alterations, additions or
improvements in, to or about the Premises.
7. ASSIGNMENT AND SUBLEASE. Lessee may not mortgage, pledge, hypothecate,
assign, transfer, sublet or otherwise deal with this Lease or the Premises
in any manner except as specifically provided for in this Section 7:
(A) In the event that Lessee desires to sublease the whole or any portion
of the Premises or assign the within Lease to any other party, the
terms and conditions of such sublease or assignment shall be
communicated to Lessor in writing not less than thirty (30) days prior
to the effective date of any such sublease or assignment, and, prior
to such effective date, Lessor shall have the option, exercisable in
writing to Lessee, to recapture the within Lease so that such
prospective sublessee or assignee shall then become the sole lessee of
Lessor hereunder, or alternatively to recapture said space, and the
within Lessee shall be fully released from any and all obligations
hereunder.
4
<PAGE>
(B) In the event that Lessor elects not to recapture the Lease as
hereinabove provided, Lessee may nevertheless assign this Lease or
subject the whole or any portion of the Premises, subject to Lessor's
prior written consent, which consent shall not be unreasonably
withheld or delayed, and subject to the consent of any mortgagee,
trust deed holder or ground lessor, on the basis of the following
terms and conditions:
(1) The Lessee shall provide to Lessor the name and address of the
assignee or sublessee.
(2) The assignee shall assume, by written instruction, all of the
obligations of this Lease, and a copy of such assumption
agreement shall be furnished to Lessor within ten (10) days of
its execution. Any sublease shall expressly acknowledge that said
sublessee's rights against the Lessor shall be no greater than
those of the Lessee.
(3) The Lessee and each assignee shall be and remain liable for the
observance of all the covenants and provisions of this Lease,
including, but not limited to, the payment of Term Basic Rent and
Additional Rent reserved herein, as and when required to be paid,
through the entire Term of this Lease, as the same may be
renewed, extended or otherwise modified.
(4) The Lessee and any assignee shall promptly pay to Lessor any
consideration received for any assignment or all of the rent
(basic and additional), as and when received, in excess of the
Term Basic Rent and Additional Rent required to be paid by Lessee
for the period affected by said assignment or sublease for the
area sublet, computed on the basis of an average square foot rent
for the gross square footage Lessee has leased.
(5) In the event, the acceptance by Lessor of any rent (basic and
additional) from the assignee or from any of the subtenants or
the failure of Lessor to insist upon a strict performance of any
of the terms, condition and covenants herein shall not release
Lessee herein, nor any assignee assuming this Lease, from any and
all of the obligations herein during and for the entire Term of
this Lease.
(6) Lessor shall require payment in an amount estimated to be the
actual cost to cover its handling charges for each request for
consent to any sublet or assignment prior to its consideration of
the same; up to a maximum of Five Hundred and 00/100 ($500.00)
Dollars per request.
(7) Lessee shall have no claim, and hereby waives the right to any
claim, against Lessor for money damages by reason of any refusal,
withholding or delaying by Lessor of any consent, and in such
event, Lessee's only remedies therefor shall be an action of
specific performance, injunction or declaratory judgement to
enforce any such requirement.
(C) Any sublet or assignment to an affiliated company shall not be subject
to the provisions of Subsections 7(A), 7(B)(4) or 7(B)(6) hereof and
shall not require Lessor's prior written consent, but all other
provisions of this Section shall apply.
(D) In the event that any or all of Lessee's interest in the Premises
and/or this Lease is transferred by operation of law to any trustee,
receiver, or other representative or agent of Lessee, or to Lessee as
a debtor in possession, and subsequently any or all of Lessee's
interest in the Premises and/or this Lease is offered or to be offered
by Lessee or any trustee, receiver, or other representative or agent
of Lessee as to its estate or property (such person, firm or entity
being hereinafter referred to as the "Grantor"), for assignment,
conveyance, lease, or other disposition to a person, firm or entity
other than Lessor (each such transaction being hereinafter referred to
as a "Disposition"), it is agreed that Lessor has and shall have a
right of first refusal to purchase, take, or otherwise acquire, the
same upon the same terms and conditions as the Grantor thereof shall
accept upon such Disposition to such other person, firm, or entity;
and as to each such Disposition the Grantor shall give written notice
to Lessor in reasonable detail of all of the terms and conditions of
such Disposition within twenty (20) days next following its
determination to accept the same but prior to accepting the same, and
Grantor shall not make the Disposition until and unless Lessor has
failed or refused to accept such right of first refusal as to the
Disposition, as set forth herein.
Lessor shall have sixty (60) days next following its receipt of the
written notice as to such Disposition in which to exercise the option
to acquire Lessee's interest by such Disposition and the exercise of
the option by Lessor shall be effected by notice to that effect sent
to the Grantor; but nothing herein shall require Lessor to accept a
particular Disposition or any Disposition, nor does the rejection of
any one such offer of first refusal constitute a waiver or release of
the obligation of the Grantor to submit other offers hereunder to
Lessor. In the event Lessor accepts such offer of first refusal, the
transaction shall be consummated pursuant to the terms and
5
<PAGE>
conditions of the Disposition described in the notice to Lessor. In
the event Lessor rejects such offer of first refusal, Grantor may
consummate the Disposition with such other person, firm, or entity;
but any decrease in price of more than two (2%) percent of the price
sought from Lessor or any change in the terms of payment for such
Disposition shall constitute a new transaction requiring a further
option of first refusal to be given to Lessor hereunder.
(E) Without limiting any of the provisions of Sections 11 and 12, if
pursuant to the Federal Bankruptcy Code (herein the "Code"), or any
similar law hereafter enacted having the same general purpose, Lessor
declines the right provided it in Subsection 7(D) hereof and Lessee is
permitted to assign this Lease notwithstanding the restrictions
contained in this Lease, adequate assurance of future performance by
an assignee expressly permitted under such Code shall be deemed to
mean the deposit of cash security or an irrevocable Letter of Credit
in an amount equal to one ( 1) year's Annual Basic Rent and Additional
Rent for the next succeeding twelve (12) months (which Additional Rent
shall be reasonably estimated by Lessor), which deposit shall be held
by Lessor for the balance of the Term, without interest, as security
for the full performance of all of Lessee's obligations under this
Lease, to be held and applied in the manner specified for security in
Section 15.
(F) Except as specifically set forth above, no portion of the Demised
Premises or of Lessee's interest in this Lease may be acquired by any
other person or entity, whether by assignment, mortgage, sublease,
transfer, operation of law or act of the Lessee, nor shall Lessee
pledge its interest in this Lease or in any security deposit required
hereunder.
(G) If Lessee is a corporation and if at any time during the Lease Term
the persons owning a majority of its "voting stock" at the time of the
execution of this Lease should cease to own a majority of such voting
stock (except as the result of transfers by bequest or inheritance),
Lessee covenants to notify Lessor of any such transfer and such
transfer shall be deemed an assignment of this Lease. In the event of
such transfer, Lessor may either (a) not unreasonably withhold its
consent thereto or (b) terminate this Lease by notice to Lessee to be
effective ninety (90) days after service. This section shall not apply
whenever Lessee is a corporation, the outstanding stock of which is
listed on a recognized stock exchange. For the purposes of this
Section 7(G), stock ownership shall be determined in accordance with
the principles set forth in Section 544 of the Internal Revenue Code
of 1986, as amended, to and including the date of this Lease, and the
term "voting stock" shall refer to shares of stock regularly entitled
to vote for the election of directors of the corporation.
8. COMPLIANCE WITH RULES AND REGULATIONS. Lessee shall observe and comply with
the rules and regulations hereinafter set forth in Exhibit B attached
hereto and made a part hereof and with such further reasonable rules and
regulations as Lessor may prescribe, on written notice to Lessee, for the
safety, care and cleanliness of the Building and the comfort, quiet and
convenience of other occupants of the Building. Lessee shall not place a
load upon any floor of the Demised Premises exceeding the floor load per
square foot area which it was designed to carry and which is allowed by
law. Lessor reserves the right to prescribe the weight and position of all
safes, business machines and mechanical equipment. Such installations shall
be placed and maintained by Lessee, at Lessee's expense, in settings
sufficient, in Lessor's judgement, to absorb and prevent vibration, noise
and annoyance.
9. DAMAGES TO BUILDING/WAIVER OF SUBROGATION. If the Building is damaged by
fire or any other cause to such extent that the cost of restoration, as
reasonably estimated by Lessor, will equal or exceed twenty-five (25%)
percent of the replacement value of the Building (exclusive of foundations)
just prior to the occurrence of the damage or if any damage to the Premises
costing more than Fifty Thousand and 00/100 ($50,000.00) Dollars occurs
within the last twelve (12) months of the Term, then Lessor shall, no later
than the sixtieth (60th) day following the damage, give Lessee a notice of
election to terminate this Lease, or, if the cost of restoration will equal
or exceed fifty (50%) percent of such replacement value and if the Premises
shall not be reasonably usable for the purpose for which they are leased
hereunder, then Lessee shall, no later than the sixtieth (60th) day
following the damage, give Lessor a notice of election to terminate this
Lease. In either said event of election, this Lease shall be deemed to
terminate on the thirtieth (30th) day after the giving of said notice, and
Lessee shall surrender possession of the Premises within a reasonable time
thereafter; and Term Basic Rent and any Additional Rent shall be
apportioned as of the date of said surrender, and any Term Basic Rent or
any Additional Rent paid for any period beyond the latter of the thirtieth
(30th) day after said notice or the date Lessee surrenders possession shall
be repaid to Lessee. If the cost of restoration shall not entitle Lessor to
terminate this Lease or if, despite the cost, Lessor does not elect to
terminate this Lease pursuant to any right contained herein or if Lessor
shall have no such right, Lessor shall restore the Building and the
Premises with reasonable promptness, subject to Force Majeure, as
hereinafter defined and subject to the availability and adequacy of the
insurance proceeds and Lessee shall have no right to terminate this Lease,
except as specifically set forth above. Lessor need not restore fixtures
and improvements owned by Lessee.
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In any case in which use of the Premises is affected by any damage to the
Building, there shall be either an abatement or an equitable reduction in
the Term Basic Rent and an equitable reduction in the Base Period Costs as
established in Section 22 depending on the period for which and the extent
to which the Premises are not reasonably usable for the purpose for which
they are leased hereunder. The words, "restoration" and "restore" as used
in this Section shall include repairs. If the damage results from the fault
of Lessee, or Lessee's agents, servants, visitors or licensees, Lessee
shall not be entitled to any abatement or reduction in Term Basic Rent,
except to the extent of any rent insurance received by Lessor.
Except as provided in Section 5 hereof, notwithstanding the provisions of
this Section of the Lease or any other provision of this Lease, in the
event of any loss or damage to the Building, the Premises and/or any
contents (herein "property damage"), each party waives all claims against
the other for any such loss or damage and each party shall look only to any
insurance which it has obtained to protect against such loss (or in the
case of Lessee, waives all claims against any tenant of the Building that
has similarly waived claims against such Lessee) and each party shall
obtain, for each policy of such insurance, provisions waiving any claims
against the other party (and against any other tenant(s) in the Building
that has waived subrogation against the Lessee) for loss or damage within
the scope of such insurance.
10. EMINENT DOMAIN. If Lessee's use of the Premises is materially affected due
to the taking by eminent domain of (a) the Premises or any part thereof or
any estate therein; or (b) any other part of the Building; then, in either
event, this Lease shall terminate on the date when title vests pursuant to
such taking. The Term Basic Rent, and any Additional Rent, shall be
apportioned as of said termination date and any Term Basic Rent or
Additional Rent paid for any period beyond said date shall be repaid to
Lessee. In the event of a partial taking which does not effect a
termination of this Lease but does deprive Lessee of the use of a portion
of the Demised Premises, there shall either be an abatement or an equitable
reduction of the Term Basic Rent, and an equitable adjustment reducing the
Base Period Costs as hereinafter defined depending on the period for which
and the extent to which the Premises so taken are not reasonably usable for
the purpose for which they are leased hereunder. Lessee shall not be
entitled to any part of the award for such taking or any payment in lieu
thereof, but Lessee may file a separate claim for any taking of fixtures
and improvements owned by Lessee which have not become Lessor's property,
and for moving expenses, provided the same shall in no way affect or
diminish Lessor's award.
11. INSOLVENCY OF LESSEE. Either (a) the appointment of a receiver to take
possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of credits, or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act, shall
constitute a default of this Lease by Lessee, and Lessor may terminate this
Lease forthwith and upon notice of such termination Lessee's right to
possession of the Demised Premises shall cease, and Lessee shall then quit
and surrender the Premises to Lessor but Lessee shall remain liable as
hereinafter provided in Section 13 hereof
12. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in the payment of Term
Basic Rent, or any Additional Rent, or defaults pursuant to Subsection
29(A)(5) hereof or defaults in the performance of any of the other
covenants and conditions hereof or permits the Premises to become deserted,
abandoned or vacated, Lessor may give Lessee notice of such default, and if
Lessee does not cure any Term Basic Rent or Additional Rent default within
ten (10) days of the giving of such notice of the default pursuant to
Subsection 29(A)(5) within forty-eight (48) hours of the giving of such
notice of other default within twenty (20) days after giving of such notice
(or if such other default is of such nature that it cannot be completely
cured within such period, if Lessee does not commence such curing within
such twenty (20) days and thereafter proceed with reasonable diligence and
in good faith to cure such default), then Lessor may terminate this Lease
on not less than ten (10) days' notice to Lessee, and on the date specified
in said notice, Lessee's right to possession of the Demised Premises shall
cease, and Lessee shall then quit and surrender the Premises to Lessor, but
Lessee shall remain liable as hereinafter provided. If this Lease shall
have been so terminated by Lessor pursuant to Sections 11 and 12 hereof,
Lessor may at any time thereafter resume possession of the Premises by any
lawful means and remove Lessee or other occupants and their effect.
13. DEFICIENCY. In any case where Lessor has recovered possession of the
Premises by reason of Lessee's default, Lessor may, at Lessor's option,
occupy the Premises or cause the Premises to be redecorated altered,
divided, consolidated with other adjoining premises, or otherwise changed
or prepared for reletting, and may relet the Premises or any part thereof
as agent of Lessee or otherwise, for a term or terms to expire prior to, at
the same time as, or subsequent to, the original expiration date of this
Lease, at Lessor's option, and receive the Term Basic Rent or Additional
Rent therefore. Term Basic Rent and Additional Rent so received shall be
applied first to the payment of such expenses as Lessor may have incurred
in connection with the recovery of possession, redecorating, altering,
dividing, consolidating with other adjoining premises, or otherwise
changing or preparing for reletting, and the reletting, including brokerage
and reasonable attorney's fees, and then to the payment of damages in
amounts equal to the Term Basic Rent and Additional Rent hereunder and to
the costs and expenses of performance of the other covenants of Lessee as
herein provided. Lessee agrees, in any such case, whether or not Lessor has
relet, to pay to Lessor damages equal to the Term Basic Rent and Additional
Rent and other sums
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herein agreed to be paid by Lessee, as and when due, less the net proceeds
of the reletting, if any, as ascertained from time to time, as of the due
date, and the same shall be payable by Lessee on the several rent days
above specified, Lessee shall not be entitled to any surplus accruing as a
result of any such reletting, nor shall any surplus be applied to offset
the damages referred to in the preceding sentence. In reletting the
Premises as aforesaid, Lessor may grant rent concessions, and Lessee shall
not be credited therewith. No such reletting shall constitute a surrender
and acceptance or be deemed evidence thereof. If Lessor elects, pursuant
hereto, actually to occupy and use the Premises or any part thereof during
any part of the balance of Term as originally fixed or since extended,
there shall be allowed against Lessee's obligation for Term Basic Rent and
Additional Rent or damages as herein defined, during the period of Lessor's
occupancy, the reasonable value of such occupancy, not to exceed in any
event the Term Basic Rent and Additional Rent herein reserved and such
occupancy shall not be construed as a release of Lessee's liability
hereunder.
Alternatively, in any ease where Lessor has recovered possession of the
Premises by reason of Lessee's default, Lessor may at Lessor's option, and
at any time thereafter, and without notice or other action by Lessor, and
without prejudice to any other rights or remedies it might have hereunder
or at law or equity), become entitled to recover from Lessee, as damages
for such breach, in addition to such other sums herein agreed to be paid by
Lessee, to the date of re-entry, expiration and/or dispossess, an amount
equal to the difference between the Term Basic Rent and Additional Rent
reserved in this Lease from the date of such default to the date of
expiration of the Term demised, as the same may have been extended or
renewed, and the then fair and reasonable rental value of the Premises for
the same period. Said damages shall become due and payable to Lessor
immediately upon such breach of this Lease and without regard to whether
this Lease be terminated or not, and if this Lease be terminated, without
regard to the manner in which it is terminated. In the computation of such
damages, the difference between any installments of rent (basic and
additional) thereafter becoming due and the fair and reasonable rental
value of the Premises for the period for which such installation was
payable shall be discounted to the date of such default at the rate of not
more than four (4%) percent per annum.
Lessee hereby waives all right of redemption to which Lessee or any person
under lessee might be entitled by any law now or hereafter in force. In
addition, in the event of a default which results in the Lessor recovering
possession of the Demised Premises, Lessor shall be under no duty to
mitigate Lessee's damages as provided for in this Section 13.
Lessor's remedies hereunder are in addition to any remedy allowed by law.
Lessee agrees to pay as Additional Rent, all attorney's fees and other
expenses incurred by the Lessor in enforcing any of the obligations under
this Lease, this covenant to survive the expiration or sooner termination
of this Lease.
14. SUBORDINATION OF LEASE. This Lease and any option contained herein shall,
at Lessor's option, or at the option of any holder of any underlying lease
or holder of any first mortgage or first trust deed, be subject and
subordinate to any such underlying leases and to any such first mortgage or
first mortgage or first trust deed which may now or hereafter affect the
real property of which the Premises form a part, and also to all renewals,
modifications, consolidations and replacements of said underlying leases
and said first mortgage or first trust deed. Although no instrument or act
on the part of Lessee shall be necessary to effectuate such subordination,
Lessee will, nevertheless, execute and deliver such further instruments
confirming such subordination of this Lease as may be desired by the
holders of said first mortgage or first trust deed or by any of the lessors
under such underlying leases. Lessee hereby appoints Lessor
attorney-in-fact, irrevocably, to execute and deliver any such instruments
for Lessee. If any underlying lease to which this Lease is subject
terminates, Lessee shall, on timely request, attorn to the owner of the
reversion.
15. SECURITY DEPOSIT. In the event any security is required to be deposited
pursuant to the terms of this Lease and in the event Lessor uses any of
said security deposit to cure Lessee's default(s) or meet any of the
Lessee's obligations, Lessee covenants to upon demand replace the amount so
utilized. In the event of a bona fide sale, subject to this Lease, Lessor
shall have the right to transfer the security to the vendee for the benefit
of Lessee, and Lessor shall be considered released by Lessee from all
liability for the return of such security; and Lessee agrees to look solely
to the new lessor for the return of the said security, and it is agreed
that this shall apply to every transfer or assignment made of the security
to a new lessor. The security deposited as provided for herein shall not be
mortgaged, assigned or encumbered by Lessee without the written consent of
Lessor.
In the event Lessee is not in default of this lease, then within thirty
(30) days of the expiration of this lease, the security deposit shall be
returned.
In the event of the insolvency of the Lessee, or in the event of the entry
of a judgment in bankruptcy in any court against Lessee which is not
discharged within ninety (90) days after entry, or in the event a petition
is filed by or against Lessee under any chapter of the bankruptcy laws of
the State of New Jersey or the United States of America, then in such
event, Lessor may require the Lessee to deposit additional security
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in the amount specified in Section 7(E) to adequately assure Lessee's
performance of all of its obligations under this Lease to deposit the
security required by this Section within ten (10) days after Lessor's
written demand shall constitute a material breach of this Lease by Lessee.
16. RIGHT TO CURE LESSEE'S BREACH. If Lessee breaches any covenant or condition
of this Lease, Lessor may, on reasonable notice to Lessee (except that no
notice need be given in case of emergency), cure such breach at the expense
of Lessee and the reasonable amount of all expenses, including attorneys'
fees, incurred by Lessor in so doing (whether paid by Lessor or not) shall
be deemed Additional rent payable on demand.
17. MECHANIC'S LIENS. Lessee shall not do any act, or make any contract, which
may create or be the foundation for any lien or other encumbrance upon any
interest or Lessor or any ground or underlying lessor in any portion of the
Premises. If, because of any act or omission (or alleged act or omission)
of Lessee, any Notice of Intention, mechanic's or other lien, charge, or
order for the payment of money or other encumbrance shall be filed against
Lessor and/or any ground or underlying lessor and/or any portion of the
Premises (whether or not such lien, charge, order, or encumbrance is valid
or enforceable as such), Lessee shall, at its own cost and expense, cause
the same to be discharged of record or bonded within thirty (30) days after
the filing thereof; and Lessee shall indemnify and save harmless Lessor and
all ground and underlying lessor(s) against and from all costs,
liabilities, suits, penalties, claims, and demands, including reasonable
counsel fees, resulting therefrom. If Lessee fails to comply with the
foregoing provisions, Lessor shall have the option of discharging or
bonding any such lien, charge, order, or encumbrance, and Lessee agrees to
reimburse Lessor for all costs, expenses, and other sums of money in
connection therewith (as additional rental) with interest at the maximum
rate permitted by law promptly upon demand. All materialmen, contractors,
artisans, mechanics, laborers, and any other persons now or hereafter
contracting with Lessee of any contractor or subcontractor of Lessee for
the furnishing of any labor services, materials, supplies, or equipment
with respect to any portion or the Premises, at any time from the date
hereof until the end of the Lease Term, are hereby charged with notice that
they look exclusively to Lessee to obtain payment for same.
18. RIGHT TO INSPECT AND REPAIR. Lessor may enter the Premises but shall not be
obligated to do so (except as required by any specific provision of this
lease) at any reasonable time on reasonable notice to Lessee (except that
not notice need be given in case of emergency) for the purpose of
inspection or the making of such repairs, replacement or additions, in, to,
on and about the Premises or the Building, as Lessor deems necessary or
desirable. Lessee shall have no claims or cause of action against Lessor by
reason thereof. Lessor shall use its beset efforts not to interfere with
Lessee's business operation.
19. SERVICES TO BE PROVIDED BY LESSOR. Subject to intervening laws, ordinances,
regulations and executive orders, while Lessee is not in default under any
of the provisions of this Lease, Lessor agrees to furnish, during Business
Hours and except on holidays as set forth on Exhibit E attached hereto and
made a part hereof:
(A) The cleaning services, as set forth on Exhibit D attached hereto and
made a part hereof, and subject to the conditions therein stated.
Except as set forth on Exhibit D, Lessee shall pay the cost of all
other cleaning services required by Lessee.
(B) Heating, ventilating and air conditioning (herein "HVAC"), as
appropriate for the season.
(C) Cold and hot water for drinking and lavatory purposes.
(D) Elevator service.
(E) Restroom supplies and exterior window cleaning when reasonably
required.
Lessee shall pay the reasonable cost (as determined in Lessor's sole
judgment) of services provided by Lessor at Lessee's request during
non-Building Hours.
20. INTERRUPTION OF SERVICES OR USE. Interruption or curtailment of any service
maintained in the Building or at the office Building Area, if caused by
Force Majeure, as hereinafter defined, shall not entitle Lessee to any
claim against Lessor or to any abatement of Term Basic Rent or Additional
Rent, and shall not constitute a constructive or partial eviction, unless
Lessor fails to take measures as may be reasonable under the circumstances
to restore the service. If Lessor fails to take such measures as may be
reasonable under the circumstances to restore the curtailed service,
Lessee's remedies shall be limited to an equitable abatement of Term Basic
Rent and Additional Rent for the duration of the curtailment beyond said
reasonable period, to the extent such Premises are not reasonably usable by
Lessee or to a claim of constructive eviction. If the Premises are rendered
untenantable in whole or in part, for a period of ten (10) consecutive
days, by the making of repairs, replacement or additions, other than those
made with Lessee's consent or caused by misuse or neglect by Lessee, or
Lessee's agent, servants, visitors or licensees, there shall be a
proportionate abatement of Term Basic Rent and Additional Rent from and
after
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said tenth (10th) consecutive day and continuing for the period of such
untenantability. In no event shall Lessee be entitled to claim a
constructive eviction from the Premises unless Lessee shall first have
notified Lessor in writing of the condition or conditions giving rise
thereto, and, if the complaints be justified, unless Lessor shall have
failed, within a reasonable time after receipt of such notice, to remedy,
or commence and proceed with due diligence to remedy, such condition or
conditions, all subject to Force Majeure, as hereinafter defined. The
remedies provided for in this Section 20 shall be Lessee's sole remedies
for any interruption of service or use as described above.
21. BUILDING STANDARD OFFICE ELECTRICAL SERVICE.
(A) For so long as lessee is not in default with respect to this Lease,
Lessor agrees to redistribute Building Standard office Electrical
Service (as hereinafter defined), to the Premises, consistent with the
requirements as set forth on Exhibit C, attached hereto and made a
part hereof (not exceeding the present electrical capacity at the
Premises) upon the following terms and conditions:
(i) Lessee agrees that an independent electrical engineering
consultant selected by Lessor, but to be paid by Lessor, shall
make a survey of the electrical power demand of the electric
lighting fixtures and the electric equipment of Lessee used in
the Premises to determine the average monthly electric
consumption thereof. After Lessor's consultant has submitted its
report, Lessee shall pay to Lessor, within ten (10) days after
demand therefor by Lessor, the amount determined by said
consultant as owing from the Lease Term's commencement, and the
then expired months, to include the then current month and
thereafter, on the first day of every month, in advance, the
amount set forth as the monthly consumption in said report. Said
amounts shall be treated as Additional Rent due hereunder.
Proportionate sums shall be payable for periods of less than a
full month if the Term commences or ends on any other than the
first or last day of the month.
Notwithstanding the foregoing, the parties hereto agree that
based upon the plans and information submitted to Lessor and
attached hereto as Exhibit C, the cost to Lessee for electrical
energy to the Premises shall be $1.25 per rentable square foot
per annum, subject, however, to increase or decrease by survey as
set forth above if Lessee's use of said electrical energy, as
determined by such survey on the basis of applicable energy
rates.
Notwithstanding the above, should Lessee dispute the
determination made by Lessor's independent electrical engineering
consultant then Lessee shall be free to, at Lessee's sole cost
and expense, employ the services of a qualified independent
electrical engineering consultant who shall conduct a survey of
Lessee's electric lighting fixtures and electric equipment to
determine the average monthly electric consumption utilized by
Lessee. If Lessor's consultant and Lessee's consultant cannot
agree on Lessee's average monthly electric consumption or, in
such case, cannot agree on an independent third electrical
engineering consultant acceptable to both whose decision shall be
final and binding, either party may request the American
Arbitration Association in New Jersey at a location to be
determined by the parties, appoint such independent third
electrical engineering consultant whose decision shall be final
and binding upon the parties. The Lessee shall pay the cost of
any such third consultant. Pending resolution of the issue,
Lessee shall pay to Lessor the charge established by Lessor's
consultant, subject to adjustment upon final determination of
this issue.
(ii) In the event that there shall be an increase or decrease in the
rate schedule (including surcharges or demand adjustments), of
the public utility for the supply of Binding Standard Office
Electrical Service, or the imposition of any tax with respect to
such service or increase in any such tax following the Lease
Term's commencement, the Additional Rent payable hereunder shall
be adjusted equitably to reflect the increase or decrease in rate
or imposition or increase in the aforesaid tax. All computations
shall be made on the basis of Lessee's surveyed usage as if a
meter exclusively measuring such usage to the Premises was in
place.
(iii) Any additional electrical energy used by the Building or Office
Building Area in excess of the aggregate of all Building Standard
Office Electrical Service shall be conclusively deemed as used
for Common Facilities electric or lightening and shall be treated
pursuant to Subsection 22(B) hereof.
(iv) Lessee covenants that it shall notify Lessor immediately upon the
introduction of any office equipment or lighting different from
that on the Premises as of Lessor's electrical survey or in
addition to the aforesaid equipment or lighting on the Premises
as of said survey. The introduction of any new or different
equipment or lighting shall be cause
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for, at Lessor's election, a resurveying of the Premises at
Lessee's expense. Lessor reserves the right to inspect the
Premises to insure compliance with this provision.
(v) Lessor shall not be liable in any way to Lessee for any loss,
damage or expense which Lessee may sustain or incur as a result
of any failure, defect or change in the quantity or character of
electrical energy available for redistribution to the Premises
pursuant to this Section nor for any interruption in the supply,
and Lessee agrees that such supply may be interrupted for
inspection, repairs and replacement and in emergencies. In any
event, the full measure of Lessor's liability for any
interruption in the supply due to Lessor's acts or omissions
shall be an abatement of rent. In no event shall Lessor be liable
for any business interruption suffered by Lessee.
(vi) Lessee shall furnish and install all replacement lighting tubes,
lamps, ballasts and bulbs required in the Premises.
(vii) Lessee shall make no alteration to the existing electrical
risers, wiring and other conductors or outlets, as shown on
Exhibit C, without Lessor's consent. Should lessor consent, all
such alterations shall be provided by Lessor and the cost
therefor paid for by Lessee upon demand as Additional Rent and
the provisions of Subsection 21(A)(iv) shall become applicable.
(viii) Lessee understands that said survey shall be based upon the use
of lighting and office equipment during Building Hours, as
hereinafter defined. Any use by Lessee beyond Building Hours
shall be charged to Lessee.
(B) Lessor reserves the right to, at any time, install a meter to measure
Building Standard Office Electrical Service to the Demised Premises,
in which event from and after the installation of said meter
(hereinafter "Standard Electric Meter") the following shall apply with
respect to Lessee's charges for Building Standard Office Electrical
Service.
(i) Lessee shall, within ten (10) days of receipt of Lessor's bill,
pay Lessee's Percentage, as hereinafter defined, of the gross
electrical energy consumed in providing Building Standard Office
Electrical Service to the Demised Premises as measured by
Standard Electric Meter measuring said service.
(ii) The reasonable cost, as estimated by Lessor's electrical
consultant, of any electrical service required to the Premises in
excess of Building Standard Office Electrical Service shall, for
Lessee and for any other Building tenant requiring said excess
service, be paid for in full by the party requesting said excess
service, and the cost of gross electrical energy consumed as
measured by the Standard Electric Meter shall be appropriately
adjusted so that Lessee and all other Building tenants pay their
appropriate percentage share as defined in each lease as lessee's
percentage or proportionate share as hereinafter defined, applied
against the gross electrical energy consumed as measured by the
Standard Electric Meter net of any such excess or separately
metered Building Standard Office Electrical Service if Lessor
installs a separate meter for any tenant.
(iii) Lessor shall not be liable in any way to Lessee for any loss,
damage or expense which Lessee may sustain or incur as a result
of any failure, defect or change in the quantity or character of
electrical energy available for redistribution to the Premises
pursuant to this Section nor for any interruption in the supply,
and Lessee agrees that such supply may be interrupted for
inspection, repairs, replacement and in emergencies.
(C) In the event the public utility company that furnishes electric energy
to Lessor for redistribution to lessee, declines to continue
furnishing electric energy for that purpose, Lessor reserves the right
to discontinue distributing Building Standard Office Electrical
Service to Lessee at any time upon reasonable notice to Lessee. If
Lessor exercises such right to termination, this Lease shall continue
in full force and effect and shall be unaffected thereby, except only
that, from and after the effective date of such termination, Lessee
shall not be obligated to pay Lessor for said Building Standard Office
Electrical Service. If Lessor so discontinues distributing the
aforesaid electrical service, Lessee shall arrange to obtain electric
energy directly from the public utility furnishing electric energy to
the Building. Lessee may obtain such electric energy be means of the
then-existing Building system feeders, risers and wiring to the extent
the same are available, suitable and safe for such purposes. All
meters and additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electric
energy from the public utility company shall be installed and
maintained by Lessee at its sole expense. If Lessee is unable to
obtain such electric service after diligent efforts, Lessee may cancel
this Lease.
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(D) For purposes of this Section 21, "Building Standard Office Electrical
Service" shall mean the electrical energy required to provide the
lighting and operate general office equipment such as typewriters
calculators, personal computers and copiers consistent with the
requirements as shown on Exhibit C provided such lighting and
equipment does not require greater than a 15-amp line (except as
otherwise shown on Exhibit C) but in no way event to include
electrical energy for the operation of any major computer installation
or data processing equipment, which Building Standard Office
Electrical Service shall be provided during Building Hours as
hereinafter defined.
(E) For purposes of this Section 21, "Building Hours" shall be from 8:00
a.m. to 6:00 p.m. on every day Monday through Friday and on Saturday
from 8:00 a.m. to 1:00 p.m. but excluding those holidays set forth on
Exhibit E.
22. ADDITIONAL RENT. It is expressly agreed that Lessee will pay in addition to
the Term Basic Rent, provided in Section 3 above, an additional rental to
cover Lessee's Percentage, as defined in the Preamble, of the increased
cost to Lessor, for each of the categories enumerated herein, over the Base
Period Costs, as defined in the Preamble, for each of said categories.
(A) Operating Cost Escalation. If during the Lease Term the Operating
Costs incurred for the Building in which the Demised Premises are
located and Office Building Area for any Lease Year or proportionate
part thereof if the Lease Term expires prior to the expiration of a
Lease Year (herein the "Comparison Period") shall be greater than the
Base Operating Costs (adjusted proportionately if the comparison
Period is less than a Lease Year), then Lessee shall pay to Lessor, as
Additional Rent, Lessee's Percentage, as hereinafter defined, of all
such excess Operating Costs. Operating Costs shall include, by way of
illustration and not of limitation: personal property taxes;
management fees; labor including all wages and salaries; social
security taxes, and other taxes which may be levied against Lessor
upon such wages and salaries; supplies; repairs and maintenance;
maintenance and service contracts; electricity to light the building
and power the HVAC systems to the extent such expenses are not
specifically reimbursed as set forth in Article 21; painting; wall and
window washing; laundry and towel service; tools and equipment (which
are not required to be capitalized for federal income tax purposes);
fire, rent, liability and other insurance; trash removal; lawn care;
snow removal; sums levied, assess, imposed or required to be paid to
any governmental authority on account of the parking of motor
vehicles, including all sums required to be paid pursuant to
transportation controls imposed by the Environmental Protection Agency
under the Clean Air Act of 1970, or otherwise required to be paid by
any governmental authority with respect to the parking, use, or
transportation of motor vehicle, or reduction or control of motor
vehicle traffic, or motor vehicle pollution; and all other items
properly constituting direct operating costs according to standard
accounting practices (hereinafter collectively referred to as the
"Operating Costs"), but not including depreciation of Building or
equipment; interest; income of excess profit taxes; costs of
maintaining Lessor's corporate existence; franchise taxes; any
expenditures required to be capitalized for federal income tax
purposes, unless said expenditures are for the purpose of reducing
Operating Costs within the Building and Office Building Area or are
required under any governmental law, ordinance or regulation, in which
event the costs thereof shall be included. As used in this Subsection
22(A), the Base Period Costs for Operating Costs shall be defined in
the Preamble.
(B) Fuel, Utilities and Electric Cost Escalation (hereinafter "Utility and
Energy Costs"). If during the Lease Term the Utility and Energy Costs,
including any fuel surcharges or adjustments with respect thereto,
incurred for water, sewer, gas, electric, other utilities and heating,
ventilating and air conditioning for the Building to include all
leased and leasable areas (not separately billed or metered within the
Building) and Common Facilities electric, lighting, water, sewer and
other utilities for the Building and Officer Building Area, for any
Comparison Period shall be greater than the Base Utility and Energy
Costs (adjusted proportionately if the Comparison Period is less than
a Lease Year), then Lessee shall pay to Lessor as Additional rent,
Lessee's Percentage, as hereinafter defined, of all such excess
Utility and Energy Costs. As used in this Subsection 22(B), the Base
Period Costs for Utility and Energy Costs shall be as defined in the
Preamble.
(C) Tax Escalation. If during the Lease Term the Real Estate Taxes for the
Building and Office Building Area at which the Demised Premises are
located for any Comparison Period shall be greater than the Base Real
Estate Taxes (adjusted proportionately if the Comparison Period is
less than a Lease Year), then Lessee shall pay to Lessor as Additional
Rent, Lessee's Percentage, as hereinafter defined, of all such excess
Real Estate Taxes.
As used in this Subsection 22(C), the word and terms which follow mean
and include the following:
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(i) The Base Period Costs for "Real Estate Taxes" shall be as defined
in the Preamble.
(ii) "Real Estate Taxes" shall mean the property taxes and assessments
imposed upon the Building and Office Rent Area, or upon the Term
Basic Rent and Additional Rent, as such, payable to Lessor,
including, but not limited to, real estate, city, county,
village, school and transit taxes, or taxes, assessments or
charges levied, imposed, or assessed against the Building and
Office Building Area by any other taxes authority, whether
general or specific, ordinary or extraordinary, foreseen or
unforeseen. If due to a future change in the method of taxation,
any franchise, income or profit tax shall be levied against
Lessor in substitution for, or in lieu of, or in addition to, any
tax which would otherwise constitute a Real Estate Tax, such
franchise, income or profit tax shall be deemed to be a Real
Estate Tax for the purposes hereof; conversely, any additional
real estate tax hereafter imposed in substitution for, or in lieu
of, any franchise, income or profit tax (which is not in
substitution for, or in lieu of, or in addition to, a Real Estate
Tax, as hereinbefore provided) shall not be deemed a Real Estate
Tax for the purposes hereof. Notwithstanding anything contained
herein to the contrary, Lessee shall assume and pay to Lessor in
full at the time of paying the Term Basic Rent any excise, sales,
use, gross receipts or other taxes (other than a net income or
excess profits tax) which may be imposed on or measured by such
Term Basic Rent or Additional Rent or may be imposed on Lessor or
on account of the letting or which Lessor may be required to pay
or collect under any law now in effect or hereafter enacted.
(D) Lease Year. As used in this Lease, Lease Year shall mean the twelve
(12) month period commencing on the Commencement Date and each twelve
(12) month period thereafter. Once the base costs are established, in
the event any lease period is less than twelve (12) months, then the
Base Period Costs for the categories listed above shall be adjusted to
equal the proportion that said period bears to twelve (12) months, and
Lessee shall pay to Lessor as Additional Rent for such period, an
amount equal to Lessee's Percentage, as hereinafter defined, of the
excess for said period over the adjusted based with respect to each of
the aforesaid categories. Notwithstanding anything contained herein to
the contrary, once the base costs are established, Lessor reserves the
right to calendarize billing and payment in order to establish
operating consistency.
(E) Payment. At any time, and from time to time, after the establishment
of the Base Period Costs for each of the categories referred to above,
Lessor shall advise Lessee in writing of Lessee's Percentage with
respect to each of the categories as estimated for the current Lease
Year (and for each succeeding Lease Year or proportionate part thereof
if the last period prior to the Lease's termination is less than
twelve (12) month's) as then known to Lessor, and thereafter, Lessee
shall pay as Additional Rent, Lessee's Percentage, as hereinafter
defined, of the excess of these costs over the Base Period Costs for
the then current period affect by such advice (as the same may be
periodically revised by Lessor as additional costs are incurred) in
equal installments of Monthly Basic Rent on the first day of each
month, such new rates being applied to any months for which the
Monthly Basic Rent shall have already been paid which are affect by
the Operating Cost escalation and/or Utility and Energy Costs
Escalation and/or Tax Escalation Costs above referred to, as well as
the unexpired months of the current period, the adjustment for the
then expired months to be made at the payment of the next succeeding
installment of Monthly basic Rent, all subject to final adjustment at
the expiration of each Lease Year as defined in Subsection 22(D)
hereof (or proportionate part thereof, if the last period prior to the
Lease's termination is less than twelve (12) months). However, at
Lessor's option, Lessor shall be reimbursed by Lessee monthly during
the first Lease Year of the Lease Term for additional utility and
Energy Cost Escalations resulting from an increase in the monthly rate
over the Base Utility Rate.
In the event the last period prior to the Lease's termination is less
than twelve (12) months, the base Period Costs during said period
shall be proportionately reduced to correspond to the duration of said
final period.
(F) Books and Records. For the protection of Lessee, Lessor shall maintain
books of account which shall be open to Lessee and its representatives
at all reasonable times so that Lessee can determine that such
Operating, Utility, Energy and Tax Costs have, in fact, been paid or
incurred. Any disagreement with respect to any one or more of said
charges if not satisfactorily settled between Lessor and Lessee shall
be referred by either party to an independent certified public
accountant to be mutually agreed upon, and if such an accountant
cannot be agreed upon, the American Arbitration Association may be
asked by either party to select an arbitrator, whose decision on the
dispute will be final and binding upon both parties, who shall jointly
share any
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cost of such arbitration. Pending resolution of said dispute, Lessee
shall pay to Lessor the sum so billed by Lessor subject to its
ultimate resolution as aforesaid.
(G) Right to Review. Once Lessor shall have finally determined said
Operating, Utility and Energy or Tax Costs at the expiration of a
Lease Year, then as to the item so established, Lessee shall only be
entitled to dispute said charge as finally established for a period of
six (6) months after such charge is finally established, and Lessee
specifically waives any right to dispute any such charge at the
expiration of said six (6) month period.
(H) Occupancy Adjustment. If, with respect to Operating Cost Escalation,
as established in Subsection 22(A) hereof, and Utility and Energy Cost
Escalation, as established in Subsection 22(B) hereof, the Building is
not ninety (90%) percent occupied during the establishment of the
respective Base periods then the Base costs incurred with respect to
said Operating Costs or Utility and Energy Costs shall be adjusted
during any such period within the Base period so as to reflect ninety
(90%) percent occupancy. Similarly, if, during any Lease Year or
proportionate part thereof subsequent to the Base Period the Building
is less than ninety (90%) percent occupied then the actual costs
incurred for Operating Cost and Utility and Energy Cost shall be
increased during any such period to reflect ninety (90%) percent
occupancy so that at all times after the Base Period the Utility and
Energy Cost or Operating Cost shall not be less than that which would
have been incurred had ninety (90%) percent of the Building been
occupied. The aforesaid adjustment shall only be made with respect to
those items that are in fact affected by variations in occupancy
levels. To the extent any Operating Cost or Utility and Energy Costs
is separately billed or metered or paid for directly by any Building
tenant, to include but not to be limited to Lessee, or for which
Lessor receives reimbursements, said space shall be considered vacant
space for purposes of the aforesaid adjustment.
23. LESSEE'S ESTOPPEL.
(A) Lessee shall, from time to time, within fourteen (14) days of Lessor's
written request, execute, acknowledge, and deliver to Lessor a written
statement certifying that the Lease is unmodified and in full force
and effect, or that the Lease is in full force and effect as modified
and listing the instruments of modification; the dates to which the
Monthly Basic Rent and Additional Rent and charges have been paid;
and, to the best of Lessee's knowledge, whether or not Lessor is in
default hereunder, and if so, specifying the nature of the default and
any such other reasonable information as Lessor may request. It is
intended that any such statement delivered pursuant to this Section
may be relied on by a prospective purchaser of Lessor's interest or
mortgagee of Lessor's interest or assignee of any mortgage of Lessor's
interest.
(B) Lessee's failure to deliver such statement within such time shall be
conclusive upon Lessee that:
(i) this Lease is in full force and effect and not modified except as
Lessor may represent;
(ii) not more than one month's Monthly Basic Rent payment has been
paid in advance;
(iii) there are no such defaults; and,
(iv) notices to Lessee shall be sent to Lessee's mailing address as
set forth in this Lease. Notwithstanding the presumptions of this
Section, Lessee shall not be relieved of its obligation to
deliver said statement.
24. HOLDOVER TENANCY. If Lessee hold possession of the Premises after the Term
of this Lease, Lessee shall become a tenant from month to month under the
provisions herein provided, but at a Monthly Basic Rent of 150% of the last
months base rental and without the requirement for demand or notice by
Lessor to Lessee demanding delivery of possession of said Premises (but
Additional Rent shall continue as provided in this lease), which sum shall
be payable in advance on the first day of each month, and such tenancy
shall continue until terminated by Lessor, until Lessee shall have given to
Lessor, at least sixty (60) days prior to the intended date of termination,
a written notice of intent to terminate such tenancy, which termination
date must be as of the end of a calendar month. The time limitations
described in this Section 24 shall not be subject to extension for Force
Majeure.
25. RIGHT TO SHOW PREMISES. Lessor may show the Premises to prospective
purchaser and mortgagees; and, during the nine (9) months prior to
expiration of this Lease, to prospective tenants, during Building Hours or
reasonable notice to Lessee.
26. LESSOR'S WORK - LESSEE'S DRAWINGS.
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(A) Lessor agrees that, at Lessor's expense, prior to the commencement of
the Term of this Lease, it will do substantially all of the work in
the Demised Premises in accordance with Exhibit C attached hereto and
made a part hereof. All of said Exhibit C work, whether paid for in
whole or in part by Lessee, is and shall remain the Lessor's property.
(B) Lessee will supply such drawings and information to Lessor as and when
required as set forth in Exhibit C. Any delay occasioned by Lessee's
failure to supply such drawings and information on or before the dates
set forth in Exhibit C shall not delay the Commencement Date of the
Term, as hereinafter defined, and Lessee's obligations hereunder and
the Commencement Date shall be the date the Premises would have been
delivered to Lessee as stated in the Preamble, but for Lessee's delay.
(C) Lease Commencement shall occur and the Commencement Date is defined as
that date when Lessor has done substantially all of the work to be
done by Lessor in accordance with Exhibit C unless Lessor as been
precluded from completing said work as a result of Lessee's act or
omissions including but not limited to its failure to comply with
Subsection 26(B) above. Occupancy by Lessee for the delivery of a
Certificate of Occupancy (temporary or permanent) by Lessor (if
required pursuant to local law) shall be prima facie evidence that
Lessor has done substantially all of the work.
27. WAIVER OF JURY TRIAL/NON-MANDATORY COUNTERCLAIMS. If Lessor commences any
summary proceedings or an action for nonpayment of Rent, Lessee shall not
interpose any non-mandatory counterclaim of any nature or description in
any such proceedings or action. Lessee and Lessor both waive a trial by
jury of any or all issues arising in any action or proceeding between the
parties hereto or their successors, under or connected with this Lease, or
any of its provisions.
28. LATE CHARGE. Anything in this Lease to the contrary notwithstanding, at
Lessor's option, Lessee shall pay a "Late Charge" of six (6%) percent of
any installment of Monthly Basic Rent or Additional Rent paid more than
seven ()(7) days after the due date thereof for each monthly period or
portion thereof that the same remains unpaid, such Late Charge to cover the
extra expense involved in handling delinquent payments.
29. INSURANCE.
(A) Lessee's Insurance.
(1) Lessee covenants and represents, said representation being
specifically designed to induce Lessor to execute this Lease,
that during the entire Term hereof, at its sole cost and expense,
Lessee shall obtain, maintain and keep in full force and effect
the following insurance:
(a) "All Risk" property insurance against fire, theft,
vandalism, malicious mischief, sprinkler leakage and such
additional perils as are now, or hereafter may be, included
in an standard extended coverage endorsement from time to
time in general use in the State of New Jersey upon property
of every description and kind owned by Lessee and or under
Lessee's care, custody or control located in the Building or
within the Officer Building Area or for which Lessee is
legally liable or installed by or on behalf of Lessee,
including by way of example not by way of limitation,
furniture, fixtures, fittings, installations and any other
personal property (but excluding the work done by Lessor in
connection with Exhibit C which is owned by Lessor) in an
amount equal to the full replacement cost thereof.
(b) Comprehensive General Liability Insurance coverage to
include personal injury, bodily injury, broad from property
damage, operations hazard, owner's protective coverage,
blanket contractual liability, products and completed
operations liability naming Lessor and lessor's mortgagee or
trust deed holder and ground lessor (if any) as additional
named insureds in an amount per occurrence of not less than
One Million and 0/100 ($1,000,000.00) Dollars combined
single limit bodily injury and property damage.
(c) Business interruption insurance in such amounts as will
reimburse Lessee for direct or indirect loss of earnings
attributable to all perils commonly insured against by
prudent tenants or assumed by Tenant pursuant to this Lease
or attributable to prevention or denial of access to the
Premises, Building or Office Building Area as a result of
such perils.
(d) Workers Compensation insurance in form and amount as
required by law.
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(e) Any other form or forms of insurance or any increase in the
limits of any of the aforesaid enumerated coverages or other
forms of insurance as Lessor or the mortgagees or ground
lessors (if any) of Lessor may reasonably require from time
to time if in the reasonable opinion of Lessor or said
mortgagees or ground lessors said coverage and/or limits
become inadequate or less than that commonly maintained by
prudent tenants in similar buildings in the area by tenants
making similar uses.
(2) All insurance policies required pursuant to this Subsection 29(A)
shall be taken out with insurers rated A+XV by A.M. Best Company,
Oldwick, New Jersey who are licensed to do business in the State
of New Jersey and shall be in form satisfactory from time to time
to Lessor. A policy or certificate evidencing such insurance
together with a paid bill shall be delivered to Lessor not less
than fifteen (15) days prior to the commencement of the Term
hereof. Such insurance policy or certificate will unequivocally
provide any undertaking by the insurers to notify Lessor and the
mortgagees or ground lessors (if any) or Lessor in writing not
less than thirty (30) days prior to any material change,
reduction in coverage, cancellation, or other termination
thereof. Should a certificate of insurance initially be provided,
a policy shall be furnished by Lessee within thirty (30) days of
the Term's commencement. The aforesaid insurance shall be written
with a deductible of no more than Five hundred ($500.00) Dollars.
(3) In the event of damage to or destruction of the Building and/or
Premises entitling Lessor or Lessee to terminate this lease
pursuant to Section 9 hereof, and if this Lease be so terminated,
Lessee will immediately pay to Lessor all of its insurance
proceeds, if any, relating to the leasehold improvements and
alterations (but not Lessee's trade fixtures, equipment,
furniture or other personal property of Lessee in the Premises)
which have become Lessor's property on installation or would have
become Lessor's property at the Term's expiration or sooner
termination. If the termination of the Lease, at Lessor's
election, is due to damage to the Building, and if the Premises
have not been so damaged, Lessee will deliver to Lessor, in
accordance with the provisions of this Lease, the improvements
and alterations to the Premises which have become on installation
or would have become at the Term's expiration, Lessor's property.
(4) Lessee agrees that it will not keep or use or offer for sale (if
sales of goods is a permitted use pursuant to Section 4 hereof)
if or upon the Premises or within the Building or Office Building
Area any article which may be prohibited by any insurance policy
in force time to time covering the Building or Office Building
Area. In the event Lessee's occupancy or conduct of business in
or on the Premises or Building or Office Building Area, whether
or not the Lessor has consented to the same, results in any
increase in premiums for insurance carried from time to time by
Lessor with respect to the Building or Office Building Area,
Lessee shall pay such increase in premiums as Additional Rent
within ten (10) days after being billed therefor by Lessor. In
determining whether increased premiums are a result of Lessee's
use and occupancy a schedule issued by the organization computing
the insurance rate on the Building or Office Building Area
showing the components of such rate shall be conclusive evidence
of the items and charges making up such rate. Lessee shall
promptly comply with all reasonable requirements of the insurance
authority or of any insurer not or hereafter in effect relating
to the Building, Office Building Area or Premises.
(5) If any insurance policy carried by Lessor Lessee shall be
canceled or cancellation shall be threatened or the coverage
thereunder reduced or threatened to be reduced in any way by
reason of the use or occupation of the Premises, Office Building
Area or Building or any part thereof by Lessee or any assignee or
sublessee of Lessee or anyone permitted by Lessee to be upon the
Premises, and if Lessee fails to remedy the conditions giving
rise to said cancellation or threatened cancellation or reduction
in coverage on or before the earlier of
(i) forty-eight hours after notice thereof from Lessor, or
(ii) prior to said cancellation or reduction becoming effective,
Lessee shall be in default hereunder and Lessor shall have
all of the remedies available to Lessor pursuant to this
Lease.
(B) Lessor's Insurance. Lessor covenants and agrees that throughout the
Term it will insure the Building (excluding any property with respect
to which Lessee is obligated to insure pursuant to Subsection
29(A)(1)(a) above) against damage by fire and standard extended
coverage perils and
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public liability insurance in such reasonable amounts with such
reasonable deductibles as required by any mortgagee or ground lessor
(if any), or if none, as would be carried by a prudent owner of a
similar building in the area. In addition, Lessor shall maintain and
keep in force and effect during the term, rental income insurance
insuring Lessor against abatement or loss of Term Basic Rent,
including items of Additional Rent, in case of fire or other casualty
similarly insured against, in an amount at least equal to the Term
Basic Rent and Additional Rent during, at the minimum, one Calendar
Year hereunder. Lessor may, but shall not be obligated, to take out
and carry any other forms of insurance as it or the mortgagee or
ground lessor (if any) of Lessor may require or reasonably determine
available. All insurance carried by Lessor on the Building or Office
Building Areas shall be included as an Operating Expense pursuant to
Subsection 22(A). Notwithstanding its inclusion as an Operating
Expense or any contribution by Lessee to the cost of insurance
premiums by Lessee as provided herein, Lessee acknowledges that it has
no right to receive any proceeds from any such insurance policies
carried by Lessor. Lessee further acknowledges that the exculpatory
provisions of this Lease as set forth in Subsection 29(A) as to
Lessee's insurance are designed to insure adequate coverage as to
Lessee's property and business without regard to fault and to avoid
Lessor obtaining similar coverage for said loss for its negligence or
that of its agent, servants or employees which could result in
additional costs includable as part of Operating Expenses which are
payable by Lessee. Lessor will not carry insurance of any kind on
Lessee's furniture or furnishing, or on any fixtures, equipment,
appurtenances or improvements (other than those enumerated in Exhibit
C which belong to Lessor) of Lessee under this Lease and Lessor shall
not, except as to the aforesaid Exhibit C items owned by Lessor, be
obligated to repair any damage thereto or replace the same.
(C) Waiver of Subrogation. Any all risk policy or similar casualty
insurance, which either party obtains in connection with the Premises,
Building or Office Building Area shall include a clause or endorsement
denying the insurer any rights or subrogation against the other party
(i.e. Lessor or Lessee) for all perils covered by said policy. Should
such waiver not be available then the policy for which the waiver is
not available must name the other party as an additional named insured
affording it the same coverage as that provided the party obtaining
said coverage.
30. NO OTHER REPRESENTATIONS. No representations or promises shall be binding
on the parties hereto except those representations and promises contained
herein or in some future writing signed by the party making such
representation(s) or promises(s).
31. QUIET ENJOYMENT. Lessor covenants that if, and so long as, Lessee pays the
Term Basic Rent, and any Additional Rent as herein provided, and performs
the covenants hereof, Lessor shall do nothing to affect Lessee's right to
peaceable and quietly have, hold and enjoy the Premises for the Term herein
mentioned, subject to the provisions of this Lease and to any mortgage or
deed of trust to which this Lease shall be subordinate.
32. INDEMNITY. Lessee shall indemnify and save harmless Lessor and its agents
against and from
(a) any and all claims
(i) arising from (x) the conduct or management by Lessee, its
subtenants, licensees, its or their employees, agents,
contractors or invitees on the Demised Premises or of any
business therein, or (y) any work or thing whatsoever done, or
any condition created (other than by Lessor for Lessor's or
Lessee's account) in or about the Demised Premises during the
Term of this Lease or during the period of time, if any, period
to the Commencement Date that Lessee may have been given access
to the Demised Premises, or
(ii) arising from any neglect or otherwise wrongful act or omission of
Lessee or any of its subtenants or licensees or its or their
employees, agents, contractors or invitees, and
(b) all costs, expenses and liabilities incurred in or in connection with
each such claim or action or proceeding brought thereon. In case any
action or proceeding be brought against Lessor by reason of any such
claim, Lessee, upon notice from Lessor, shall resist and defend such
action or proceeding. The provisions of this Section 32 shall survive
the expiration or earlier termination of this Lease.
33. APPLICABILITY TO HEIRS AND ASSIGNS. The provisions of this Lease shall
apply to, bind and inure to the benefit of Lessor and Lessee and their
respective heirs, successors, legal representatives and assigns. It is
understood that the term "Lessor" as used in this Lease means only the
owner, a mortgagee n possession or a term lessee of the Building, so that
in the event of any sale of the Building or of any lease thereof or if a
mortgagee shall take possession of the Premises, Lessor named herein shall
be and hereby is entirely freed and relieved of all covenants and
obligations of Lessor hereunder accruing
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thereafter, and it shall be deemed without further agreement that the
purchaser, the term lessee of the Building, or the mortgagee in possession
has assumed and agreed to carry our any and all covenants and obligations
of Lessor hereunder.
34. PARKING SPACES. Lessee's occupancy of the Demised Premises shall include
the use of those assigned and unassigned parking spaces as enumerated in
the Preamble. Lessee shall, upon request, promptly furnish to Lessor the
license numbers of the cars operated by Lessee and its subtenants,
licensees, invitees, concessionaires, officers, and employees. If any
vehicle of Lessee, or if any subtenant, licensee, concessionaire, or of
their respective officers, agents or employees, is parked in any part of
the Common Facilities other than the employee parking area(s) designated
therefor by Lessor, Lessee shall pay to Lessor such reasonable penalty as
may be fixed by Lessor from time to time, provided such penalties are
imposed upon all tenants. All amounts due under the provisions of this
Section shall be deemed to be Additional Rent. Lessor reserves the right to
reassign assigned parking to comparable facilities in connection with any
modification to the Building or Office Building Area permitted pursuant to
this Lease. Nothing contained herein shall be deemed to impose any
obligation on Lessor to police the parking area.
35. LESSOR'S EXCULPATION. Except as set forth in this Lease, Lessor shall not
be liable to Lessee for any loss suffered by Lessee under any
circumstances, including, but not limited to
(i) that arising from the negligence of Lessor, its agents, servants or
invitees, or from defects, efforts or omissions in the construction or
design of the Premises and/or the Building and Office Building Area
including the structural and nonstructural portions thereof; or
(ii) loss of or injury to Lessee or to Lessee's property or that for which
Lessee is legally liable from any cause whatsoever, including but not
limited to theft or burglary; or
(iii) that which results from or is incidental to the furnishing of or
failure to furnish or the interruption in connection with the
furnishing of any service which Lessor is obligated to furnish
pursuant to this Lease; or
(iv) that which results from any inspection, repair, alteration or addition
or the failure thereof undertaken or failed to be undertaken by
Lessor; or
(v) any interruption to Lessee's business, however occurring, but this
exculpatory provision shall not preclude Lessee's remedies as
specifically provided for in Section 20 with respect to interruption
of services or use.
The aforesaid exculpatory Section is to induce the Lessor, in its
judgment, to avoid or minimize covering risks which are better
quantified and covered by Lessee either through insurance or
self-insurance or combinations thereof thereby permitting potential
costs savings in connection with the Operating Expenses borne by
Lessee pursuant to Section 22.
36. RULES OF CONSTRUCTION/APPLICABLE LAW. Any table of contents, captions,
heading and titles in this Lease are solely for convenience of reference
and shall not affect its interpretation. This Lease shall be construed
without regard to any presumption or other rule requiring construction
against the party causing this Lease to be drafted. If any words or phrases
in this Lease shall have been stricken out or otherwise eliminated, whether
or not any other words or phrases have been added, this Lease shall be
construed as if the words or phrases so stricken out or otherwise
eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that said words or phrases were so
stricken out or otherwise eliminated. Each covenant, agreement, obligation
or other provision of this Lease on Lessee's part to be performed, shall be
deemed and construed as a separate and independent covenant of Lessee, not
dependent on any other provision of this Lease. All terms and words used in
this Lease, regardless of the number or gender in which they are used,
shall be deemed to include any other number and any other gender as the
context may require. This Lease shall be governed and construed in
accordance with the laws of the State of New Jersey (excluding New Jersey
conflict of laws) and by the State courts of New Jersey. If any of the
provisions of this Lease, or the application thereof to any person or
circumstances, shall to any extent to invalid or unenforceable, the
remainder of this Lease, or the application of such provision or provisions
to persons or circumstances other than those as to whom or which it is held
invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
37. BROKER. Lessee and Lessor represent and warrant one to the other that the
Broker, as defined in the Preamble, is the sole broker with whom wither
party has negotiated in bringing about this Lease, and Lessee and Lessor
agree to indemnify and hold each other and Lessor's mortgagee(s) harmless
and from any and all claims of other brokers and expenses in connection
therewith arising out of or in connection with any conduct inconsistent
with the representations tendered by one to the other herein. In no event
shall
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Lessor's mortgagee(s) have any obligation to any broker involved in this
transaction. Lessor agrees to be solely responsible for all brokerage fees
owed to the Broker as defined in the Preamble.
38. PERSONAL LIABILITY. Notwithstanding anything to the contrary provided in
this Lease, it is specifically understood and agreed being a primary
consideration for the execution of this Lease by Lessor, that there shall
be absolutely no personal liability on the part of Lessor, its constituent
members (to include but not be limited to officers, directors, partners and
trustees), their respective successors, assigns or any mortgagee in
possession (for the purposes of this Section, collectively referred to as
"Lessor"), with respect to any of the terms, covenants and conditions of
this Lease, and that Lessee shall look solely to the equity of Lessor in
the Building for the satisfaction of each and every remedy of Lessee in the
event of any breach of Lessor of any of the terms, covenants and conditions
of this Lease to be performed by Lessor, such exculpation of liability to
be absolute and without exceptions whatsoever. A deficit capital account of
any portion in Lessor shall not be deemed an asset or property of Lessor.
The foregoing limitation of liability shall be noted in any judgment
secured against Lessor and in the judgment index.
39. NO OPTION. The submission of this Lease Agreement for examination does not
constitute a reservation of or option for the Premises, and this Lease
Agreement becomes effective as a Lease Agreement only upon execution and
delivery thereof by Lessor and Lessee.
40. DEFINITIONS.
(A) Lessee's Percentage. The parties agree that lessee's Percentage, as
defined in the Preamble, reflects and will be continually adjusted to
reflect the sum arrived at by dividing the gross square feet of the
area rented to Lessee (including an allocable share of all Common
Facilities) as set forth in Section 1 (the Numerator), plus any
additional gross square footage leased from time to time pursuant to
this Lease, by the total number of gross square feet of the entire
Building (or additional building that may be constructed within the
Office Building Area) (the denominator), measured outside wall to
outside wall but excluding therefrom any storage areas. Lessor shall
have the right to make changes or revisions in the Common Facilities
of the Building so as to provided additional leasing area. Lessor
shall also have the right to construct additional building in the
Office Building Area for such proposes as Lessor may deem appropriate
and subdivide the lands for the purpose if necessary, and upon so
doing, the Office Building Area shall become the subdivided lot on
which the Building in which the Demised Premises is located. If any
service provided for in Subsection 22(A) or any utility provided for
in Subsection 22(B) is separately billed or separately metered within
the Building, then the square footage so billed or metered shall be
deemed vacant and if applicable subject to the Occupancy Adjustment
set forth in Subsection 22(H). Lessee understands that as a result of
changes in the layout of the Common Facilities from time to time
occurring due to, by way of example and not by way of limitation, the
rearrangement of corridors, the aggregate of all Building tenant
proportionate shares may be equal to, less than or greater than one
hundred (100%) percent.
(B) Common Facilities. Common Facilities shall include, by way of example
and not by way of limitation, the non-assigned parking areas; lobby;
elevator(s); fire stairs; public hallways; public lavatories; all
other general Building facilities that service all Building tenants;
air conditioning rooms; fan rooms; janitors' closets; electrical
closets; telephone closets; elevator shafts and machine rooms; flues;
stacks; pipe shafts; and vertical ducts with their enclosing walls.
Lessee's use of those Common Facilities not open to all tenants is
subject o Lessor's consent which may be denied for any reason. Lessor
may at any time close temporarily any Common Facilities to make
repairs or changes therein or to effect construction, repairs or
changes within the Building or Office Building Area, or to discourage
non-tenant parking or to prevent the dedication of the same, and may
do such other acts in and to the Common Facilities as in its judgment
may be desirable to improve the convenience thereof but shall always
in connection therewith endeavor to minimize any inconvenience to
Lessee.
(C) Force Majeure. Force Majeure shall mean and include those situations
beyond both party's control, including by way of example and not by
way of limitation, acts of God; accidents; repairs; strikes; shortages
of labor, supplies or materials; inclement weather; or, where
applicable, the passage of time while waiting for an adjustment of
insurance proceeds. Any time limits required to be met by either party
hereunder, whether specifically made subject to Force Majeure or not,
except those related to the payment of Term Basic Rent or Additional
Rent and except as to the time periods set forth in Section 24, shall,
unless specifically stated to the contrary elsewhere in this Lease, be
automatically extended by the number of days by which any performance
called for is delayed due for Force Majeure.
(D) Building Hours. As used in this Lease, the Building Hours shall be
Monday through Friday, 8:00 a.m. to 6:00 p.m. and Saturdays 8:00 a.m.
to 1:00 p.m., excluding those holidays set forth on Exhibit E attached
hereto and made a part hereof, except that Common Facilities lighting
in
19
<PAGE>
the Building and Office Building Area shall be maintained for such
additional hours as, in Lessor's sole judgment, is necessary or
desirable to insure proper operation of the Building and Office
Building Area. Lessee shall have access to the Demised Premises at all
times. However, this provision shall not be construed to mean that
Lessee shall have unlimited and unrestricted use of Building Services
at all times.
(E) Additional Rent. As used in this Lease, Additional Rent shall mean all
sums in addition to Term Basic Rent payable by Lessee to Lessor
pursuant to the provisions of this Lease.
41. LEASE COMMENCEMENT. Notwithstanding anything contained herein to the
contrary, if Lessor, for any reason whatsoever, including Lessor's
negligence, cannot deliver possession of the Premises as provided for in
Subsection 26(A) to Lessee at the commencement of the agreed Term as set
forth in Section 2, this Lease shall not be void or voidable, nor shall
Lessor be liable to Lessee for any loss or damage resulting therefrom, but
in that event, the Lease Term shall be for the full term as specified above
to commence from and after the date Lessor shall have delivered possession
of the Premises to Lessee or from the date Lessor would have delivered
possession of the Premises to Lessee but for Lessee's failure to timely
supply to Lessor such drawings and/or information required by Exhibit C or
for any other reason attributable to Lessee (herein the "Commencement
Date") and to terminate midnight of the day immediately preceding the Term
anniversary of the Commencement Date, and if requested by Lessor, Lessor
and Lessee shall, by a writing signed by the parties, ratify and confirm
said commencement and termination Dates. Nothing contained herein shall be
deemed to modify the commencement of the Lease Term as set forth in the
Preamble and Lessee's obligations hereunder if Lessor is unable to deliver
the Demised Premises on the Commencement Date by reason of Lessee's failure
to comply with the requirements of Subsection 26(B).
42. NOTICES. Any notice by either party to the other shall be in writing and
shall be deemed to have been duly given only if delivered personally or
sent by registered mail or certified mail in a postpaid envelope addressed,
if to Lessee, at the above described Building; if to Lessor, at Lessor's
Agent's address as set for below; or, to either at such other address as
Lessee or Lessor, respectively, may designate in writing. Notice shall be
deemed to have been duly given if delivered personally, on delivery
thereof, and if mailed, upon the tenth (10th) day after the mailing
thereof.
Burt Ross
c/o Carriage IV Office Center, L.L.C.
106 East Linden Street
Englewood, NJ 07631
To Lessee, M. Kurland, Irwin Balaban, CEO or Susan E. Rau
Robocom Systems, Inc.
511 Ocean Avenue
Massapequa, New York 11758
43. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor of a
lesser amount than the Monthly Basic Rent and additional charges payable
hereunder shall be deemed to be other than a payment on account of the
earliest stipulated Monthly Basic Rent and Additional Rent, nor shall any
endorsement or statement on any check or any letter accompanying any check
or payment for Basic Rent or Additional Rent be deemed an accord and
satisfaction, and Lessor may accept such check or payment without prejudice
to Lessor's right to recover the balance of such Basic Rent and Additional
Rent or pursue any other remedy provided herein or by law.
44. EFFECT OF WAIVERS. No failure by Lessor to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease, or
to exercise any right or remedy consequent upon a breach thereof, and no
acceptance of full or partial Monthly Basic Rent or Additional Rent during
the continuance of any such breach, shall constitute a waiver of any such
breach or of such covenant, agreement, term or condition. No consent or
waiver, express or implied, by Lessor to or of any breach of any covenant,
condition or duty of Lessee shall be construed as a consent or waiver to or
of any other breach of the same or any other covenant, condition or duty,
unless in writing signed by Lessor.
45. MORTGAGEE'S NOTICE AND OPPORTUNITY TO CURE. Lessee agrees TO give any
mortgagees and/or trust deed holders, by registered mail, a copy of any
notice of default served upon Lessor, provided that, prior to such notice,
Lessee has been notified in writing (by way of notice of assignment of
rents and Leases or otherwise) of the address of such mortgages and/or
trust deed holders. Lessee further agrees that, if Lessor shall have failed
to cure such default within the time provided for in this Lease, then the
mortgagees and/or trust deed holders shall have an additional thirty (30)
days within to cure such default, or if such default cannot be cured within
that time, then such additional time as may be necessary, if within such
thirty (30) days, any mortgagees and/or trust deed holder has commenced and
is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of
20
<PAGE>
foreclosure proceedings if necessary to effect such cure), in which event
this Lease shall not be terminated while such remedies are being so
diligently pursued.
46. LESSOR'S RESERVED RIGHTS. Lessor and Lessee acknowledge that the Premises
are in a Building which is not open to the general public. Access to the
Building is restricted to Lessor, Lessee, their agents, employees and to
their invited visitors. In the event of a labor dispute including a strike,
picketing, informational or associational activities directed at Lessee or
any other tenant, Lessor reserves the right unilaterally to alter Lessee's
ingress and egress to the Building or make any other change in operating
conditions to restrict pedestrian, vehicular or delivery ingress and egress
to a particular location. Additionally, Lessor reserves unto itself all
rights not granted Lessee, including by way of example and not by way of
limitation, the right to change the name by which the Building is commonly
known.
47. CORPORATE AUTHORITY. If Lessee is a corporation, Lessee represents and
warrants that this Lease and the undersigned's execution of this Lease has
been duly authorized and approved by the corporation's Board of Directors.
The undersigned officers and representatives of the corporation executing
this Lease on behalf of the corporation represent and warrant that they are
officers of the corporation with authority to execute this Lease on behalf
of the corporation, and within fifteen (15) days of execution hereof,
Lessee will provide Lessor with a corporate resolution confirming the
aforesaid.
48. GOVERNMENT REQUIREMENTS. In the event of the imposition of federal, state,
or local government control, rules, regulations, or restrictions on the use
or consumption of energy or other utilities or with respect to any other
aspect of this Lease during the Term, both Lessor and Lessee shall be bound
thereby. In the event of a difference in interpretation of any governmental
control, rule, regulation or restriction between Lessor and Lessee, the
interpretation of Lessor shall prevail, and Lessor shall have the right to
enforce compliance, including the right of entry into the Premises to
effect compliance.
49. RENEWAL OPTION. Lessee is hereby granted an option to renew this Lease upon
the following terms and conditions:
(A) At the time of the exercise of the option to renew and at the time of
the said renewal, the Lessee shall not be in default in accordance
with the terms and provisions of this Lease, and shall be in
possession of the Premises pursuant to this Lease.
(B) Notice of the exercise of the option shall be sent to the Lessor in
writing at least six (6) months before the expiration of the Term of
this Lease. TIME HEREBY BEING MADE OF THE ESSENCE.
(C) The renewal term shall be for the term of 5 years, to commence at the
expiration of the Term of this Lease, and all of the terms and
conditions of this Lease, other than the Basic Rent, shall apply
during any such renewal term.
(D) The annual basic rent to be paid during the renewal term shall not be
less than that paid for the Premises during the lease year of the
original term of the Lease (without regard to any temporary abatement
of rent then in effect pursuant to the Lease provisions). However, if
the fair rental value per square foot at the commencement of the
renewal term shall exceed the rent as established in the preceding
sentence, the Lessee shall pay such fair rental value. In determining
the fair rental value, the Lessor shall notify Lessee at least thirty
(30) days prior to the notice period above of the fair rental value as
established by Lessor. Should Lessee dispute Lessor's determination,
then the Lessee shall be free to, at the Lessee's sole cost and
exercise, employ the services of an appraiser familiar with office
buildings located within the Teaneck, New Jersey area comparable to
the Building, who shall be a member of MIA and who shall render an
appraisal. If the Lessor and the Lessee's appraiser cannot agree on
the fair rental value, or in such case, on an independent appraiser
acceptable to both, either party may request the American Arbitration
Association of Somerset, New Jersey to appoint such independent
appraiser who shall be a member of MIA familiar with office buildings
in the area of the Building and in such event the judgment of a
majority of the two appraisers and Lessor shall be final and binding
upon the parties. The parties shall share equally in the cost of any
such independent appraiser. Pending resolution of the issue of fair
rental value, the Lessee shall pay Lessor as of commencement of the
renewal term, the basic RENT as established by Lessor, subject to
retroactive ADJUSTMENT upon final determination of this issue.
50. RELOCATION BY LESSOR. Lessor hereby reserves the right, at its sole expense
and on at least sixty (60) days' prior written notice, to require Lessee to
move from the Premises to other space within the Office Building Area of
comparable size and decor in order to permit Lessor to consolidate the
space leased to Lessee with any other space leased or to be leased to
another tenant provided, however, that in the event of receipt of any such
Lessee, by written notice delivered to Lessor, within thirty (30) days of
Lessee's receipt of said notice from Lessor, may elect not to move to the
other space. If however, Lessee fails to notify Lessor of its election
within such thirty (30) days, Lessee shall be deemed to have
21
<PAGE>
accepted such request. In the event Lessee rejects Lessor's relocation
request, Lessor may, but shall not be obligated to, terminate this lease
effective ninety (90) days after the date of the original notice of
relocation by Lessor. The relocated premises shall not be materially
different from the Premises and, if the relocated premises consist of more
square footage than that comprising the Premises, Tenants shall nonetheless
be obligated only to pay the Basic Rent and Additional Rent reserved
hereunder for said relocated premises. In the event Lessor elects to
terminate as aforesaid, Lessee shall have the option to withdraw its
objection and comply with the relocation request. In the event of any such
relocation, Lessor will pay all expenses of preparing and decorating the
new premises so that they will be substantially similar, and no less in
decorative quality to the Premises as same may exist immediately prior to
such relocation, and Lessor will also pay the expense of moving Lessor's
furniture and equipment to the relocated premises. In such event, this
Lease and each and all of the terms, covenants and conditions hereof, shall
remain in full force and effect and thereupon be deemed applicable to such
new space except that the description of the Premises shall be revised and
if applicable Lessee's Percentage shall likewise be revised.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the day and year first above written.
CARRIAGE IV OFFICE CENTER, L.L.C.
Lessor
/s/ <illegible> By: /s/ Burt Ross
- ---------------------------- -----------------------------
Witness Burt Ross
ROBOCOM SYSTEMS, INC.
-----------------------------
Lessee
/s/ Susan <illegible> By: /s/ Irwin Baladan
- ---------------------------- -----------------------------
Witness Irwin Baladan
22
<PAGE>
EXHIBIT A-1
1086 Teaneck Road
Teaneck, New Jersey
BEGINNING at a point in the westerly side of the New Jersey State Highway Ramp
leading from the westerly side of Teaneck Road to the northerly side of New
Jersey State Highway Route #4 where said line is intersected by the dividing
line between property now or formerly of Wm. A. Ohmsieder and property of the
late Jacob H. Schilling, which is intended to be hereby described and running
thence
(1) North 64 degrees 19 minutes 30 seconds West and in part over and along the
said dividing line between property now or formerly of Ohmsieder and that
of the late Jacob H. Schilling 322.39 feet to a point; running thence
(2) South 20 degrees 48 minutes 30 seconds West 208.59 feet to a point; running
thence
(3) South 65 degrees 00 minutes 00 seconds East 274.80 feet to a point in the
westerly line of the aforesaid State Highway Ramp, running thence
(4) North 25 degrees 26 minutes 30 seconds East along the westerly line of said
Highway Ramp 95.33 feet to a point; running thence
(5) Still along the westerly line of said State Highway Ramp on a curve to the
right having a radius of 210 feet a distance of 115.12 feet to the point or
place of BEGINNING.
BEING commonly known as 1086 Teaneck Road, Teaneck, New Jersey.
<PAGE>
7. No machinery of any kind or articles of unusual weight or size will be
allowed in the Building without the prior written consent of Lessor.
Business machines and mechanical equipment shall be placed and maintained
by Lessee, at Lessee's expense, in settings sufficient, in Lessor's
judgment, to absorb and prevent vibration, noise and annoyance.
8. No additional lock or locks shall be placed by Lessee on any door in the
Building without the prior written consent of Lessor. Two keys will be
furnished Lessee by Lessor; any additional keys requested by Lessee shall
be paid for by Lessee. Lessee, its agents and employees, shall not change
any locks. All keys to doors and washrooms shall be returned to Lessor at
the termination of tenancy, and, in the event of loss of any keys
furnished, Lessee shall pay Lessor the cost thereof.
9. Lessee shall not employ any person of persons other than Lessor's janitors
for the purpose of cleaning the Premises without the prior written consent
of Lessor. Lessor shall not be responsible to Lessee for any loss of
property from the Premises, however occurring, or for any damage done to
the effects of Lessee by such janitors or any of its employees, or by any
other person or any other cause. The janitor's service furnished by Lessor
does not include the beating or cleaning of carpets or rugs.
10. No bicycles, vehicles or animals of any kind shall be brought into or kept
in or about the Premises, except animals such as seeing-eye dogs, etc., as
may be reasonably required to accommodate the needs of individuals with
disabilities.
11. The requirements of Lessee will be attended to only upon the application at
the office of the Building. Employees of Lessor shall not perform any work
for Lessee or do anything outside of their regular duties unless under
special instructions from the office of the Lessor. Lessor agrees to keep
Lessee advised at all times of how to contact the Building Manager.
12. The Premises shall not be used for lodging or sleeping purposes.
13. Lessee shall not conduct, or permit any other person to conduct, any
auction on the Premises, or manufacture or store goods, wares or
merchandise upon the Premises without the prior written approval of Lessor,
except for the storage of usual supplies and inventory to be used by Lessee
in the conduct of business; permit the Premises to be used for gambling,
make any unusual noise in the Building; permit to be played any musical
instrument in the Premises; permit to be played any radio, television,
recorded or wire music in such a loud manner as to disturb or annoy other
tenants; or permit any unusual odors to be produced upon the Premises.
Lessee shall not occupy or permit any portion of Premises leased to it to
be occupied as an office for a public stenographer, or for the possession,
storage, manufacture or sale of intoxicating beverages or tobacco in any
form, or as a barber or manicure shop.
14. No awnings or other projections shall be attached to the outside walls of
the Building. No curtains, blinds, shades or screens shall be attached or
hung in, or used in connection with, any window or door of the Premises
without the prior written consent of Lessor. Such curtains, blinds and
shades must be of a quality, type, design, and color,
2
<PAGE>
and attached in a manner approved by Lessor.
15. Canvassing, soliciting and peddling in the Building are prohibited, and
Lessee shall cooperate to prevent the same.
16. There shall not be used in the Premises or in the Building, either by
Lessee or by others, in the delivery or receipt of merchandises, any hand
trucks except those equipped with rubber tires and side guards.
17. Each tenant, before closing and leaving its premises, shall ensure that all
windows are closed and entrance doors locked.
18. Lessor shall have the right to prohibit any advertising by Lessee which in
Lessor's opinion tends to impair the reputation of the Building or its
desirability as a building for offices, and upon written notice from
Lessor, Lessee shall refrain from or discontinue such advertising.
19. Lessor hereby reserves to itself any and all rights not granted to Lessee
hereunder, including but not limited to the following rights which are
reserved to Lessor for its purposes in operating the Building:
(a) The exclusive right to the use of the name of the Building for all
purposes, except that Lessee may use the name as its business address
and for no other purpose.
(b) The right to change the name or address of the Building, without
incurring any liability to Lessee for so doing.
(c) The right to install and maintain a sign or signs on the exterior of
the Building.
(d) The exclusive right to use or dispose of the use of the roof of the
Building.
(e) The right to limit the space on the directory of the Building to be
allotted to Lessee. Lessor shall include Lessee's name on the building
directory at no charge to Lessee.
(f) The right to grant to anyone the right to conduct any particular
business or undertaking in the Building.
(g) Lessor will provide building standard identification signage at the
entrance to Lessee's suite.
20. No tenant alterations or work of any type shall be constructed without the
written approval of the Lessor.
3
<PAGE>
EXHIBIT C
WORK LETTER (Landlord)
1. Enlarge Conference/Demo Room
2. Install (1) 4'x5' glass window into conference room
3. Install (1) dedicated line into the staging room
4. Install (1) exhaust fan (temperature controlled) in the staging room (an
extra return?)
5. Install sound batting in the manager's office ceiling
6. Clean ceiling tiles and replace lighting lens covers if needed
7. Coat rod in closet by manager's office
8. Lock on staging and manager's offices
9. Carpet - General Office: Catalina #84378
Conf./Demo: Soft Jade #33323
10. Vinyl base to match carpet
11. V.C.T. in staging and storage rooms
12 Paint - Navaho White throughout (Benjamin Moore)
Door trim to match carpet (need samples)
<PAGE>
Exhibit C
[GRAPHIC]
PARTIAL 4TH FLOOR PLAN
SCALE 1/8" = 1'-0"
CARRIAGE FOUR OFFICE CENTER
Job Title: AS-BUILT
Dahn & Krieger
Architects Planners PC
87 Summit Avenue, Hackensack, New Jersey 07601
Tel. 201 480 8575 Fax 201 480 5814
<PAGE>
EXHIBIT D
CLEANING SERVICES
The cleaning services will apply to the entire premises, including all office
space, entrance lobby, public corridors, elevator cabs, stairways, and
lavatories.
Nightly Services
1. dust sweep flooring
2. sweep all stairways
3. wipe drinking fountains
4. empty and clean wastebaskets, ashtrays, etc.
5. clean cigarette urns and replace sand or water as necessary
6. remove wastepaper and waste materials to a designated area in premises
Weekly Services
1. dust furniture, fixtures, desk equipment, telephones and window sills
2. dust baseboards, chair rails, trim, doors, etc., within reach
3. vacuum carpeted areas and rugs
4. clean entrance glass door
Occasional Service
1. dust pictures, frames, charts and similar wall hangings, not reached
in nightly cleaning
2. dust exterior of lighting fixtures
3. dust venetian blinds
4. dust vertical surfaces such as partitions, ventilating louvers, etc.,
not reached in nightly cleaning
5. damp mop flooring
Nightly Service - Restroom Area
1. sweep, mop and sanitize floors
2. wash and polish mirrors, powder shelves, bright work, etc.
3. clean and sanitize commodes, toilet seats, wash basins, and urinals
4. dust partitions, tile walls, dispensers, doors and receptacles
1
<PAGE>
5. empty and clean towel and sanitary disposal receptacles
6. remove wastepaper and refuse to a designated area in the premises
Occasional Service - Restroom Area
1. wash partitions, tile walls, and enamel surfaces
2. high dust walls and ceilings
3. dust exterior of lighting fixtures
4. fill toilet tissue, soap and towel dispenser with supplies
Entrance Lobbies & Public Areas, as required
1. sweep and wash flooring and vacuum carpeting
2. clean cigarette urns and replace sand or water
3. clean elevator cabs
4. dust and clean electric fixtures and any other fittings in public
corridors
5. clean stairways, office and utility doors
6. exterior windows and glass and interior glass doors and partition
glass will be washed inside and outside twice a year
Outside Service, as required
1. sweep driveway and curbs
2. sweep and clean sidewalks
3. remove snow from driveways, sidewalks, steps and parking areas
2
<PAGE>
EXHIBIT E
BUILDING HOLIDAYS
Building holidays shall be as follows:
1. Memorial Day
2. Independence Day
3. Labor Day
4. Thanksgiving Day and the day after
5. Christmas Day
6. New Year's Day
7. Monday before or Friday after if July 4th falls on a
Tuesday or Thursday
<PAGE>
EXHIBIT 10.7
This Agreement BETWEEN ROBOCOM PROPERTIES, INC., 511 Ocean Avenue, Massapequa,
New York 11758 as Landlord and ROBOCOM SYSTEMS, INC., 511 Ocean Avenue,
Massapequa, New York 11758 as Tenant
Witnesseth: The Landlord hereby leases to the Tenant the following premises:
511 Ocean Avenue, Massapequa, New York for the term of ten (10) years to
commence from the 1st day of June 1989 and to end on the 31st day of May 1999 to
be used and occupied only for upon the conditions and covenants following:
1st. That the tenant shall pay the annual rent of $120,000.00 yearly said rent
to be paid in equal monthly payments in advance on the 1st day of each and every
month during the term aforesaid, as follows:
6/1/89-5/31/90--$10,000.00/mo 6/1/94-5/31/95--$10,000,00/mo
6/1/90-5/31/91--$10,000.00/mo 6/1/95-5/31/96--$10,000.00/mo
6/1/91-5/31/92--$10,000~00/mo 6/1/96-5/31/97--$10,000,00/mo
6/1/92-5/31/93--S10,000.00/mo 6/1/97-5/31/98--$10,000.00/mo
6/1/93-5/31/94--S10,000.00/mo 6/1/98-5/31/99--$10,000.00/mo
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs except structural and at the end
or other expiration of the term, shall deliver up the demised premises in good
order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the <ILLEGIBLE>.
<PAGE>
ROBOCOM PROPERTIES INC.
511 OCEAN AVENUE, MASSAPEQUA, NEW YORK 11758 (516) 795-5100
- --------------------------------------------------------------------------------
AMENDMENT OF LEASE
The lease agreement entered into between ROBOCOM Properties Inc. and
ROBOCOM Systems Inc. is hereby amended as follows; effective, January l, 1990.
1. The tenant shall pay the annual rent of $144,000 yearly.
2. Said rent to be paid in equal monthly payments in advance on the first
day of each and every month during the term aforesaid, as follows:
6/1/89 - 12/31/89 - $10,000.00/mo 1/1/95 - 12/31/95 - $12,000.00/mo
1/1/90 - 12/31/90 - $12,000.00/mo 1/1/96 - 12/31/96 - $12,000.00/mo
1/1/91 - 12/31/91 - $12,000.00/mo 1/1/97 - 12/31/97 - $12,000.00/mo
1/1/92 - 12/31/92 - $12,000.00/mo 1/1/98 - 12/31/98 - $12,000.00/mo
1/1/93 - 12/31/93 - $12,000.00/mo 1/1/99 - 05/31/99 - $12,000.00/mo
1/1/94 - 12/31/94 - $12,000.00/mo
ROBOCOM SYSTEMS INC. ROBOCOM PROPERTlES INC.
BY: /s/ Irwin Baladan BY: /s/ <illegible>
-------------------------- ---------------------------------
TITLE: President TITLE: Vice Pres
------------------------ -------------------------------
DATE: 12/21/89 DATE: 12/21/89
------------------------ --------------------------------
<PAGE>
ROBOCOM PROPERTIES INC.
511 OCEAN AVENUE, MASSAPEQUA, NEW YORK 11758 (516) 795-5100
- --------------------------------------------------------------------------------
AMENDMENT OF LEASE
The lease agreement entered into between ROBOCOM Properties Inc and ROBOCOM
Systems Inc. is hereby amended as follows; effective, June 1, 1991.
1. The tenant shall pay the annual rent of $168,000 yearly.
2. Said rent to be paid in equal monthly payments in advance on the first
day of each and every month during the term aforesaid, as follows:
06/1/89 - 12/31/89 - $10,000.00/mo 1/1/95 - 12/31/95 - $14,000.00/mo
01/1/90 - 12/31/90 - $12,000.00/mo 1/1/96 - 12/31/96 - $14,000.00/mo
01/1/91 - 05/31/91 - $12,000.00/mo 1/1/97 - 12/31/97 - $14,000.00/mo
06/1/91 - 12/31/91 - $14,000.00/mo 1/1/98 - 12/31/98 - $14,000.00/mo
01/1/92 - 12/31/92 - $14,000.00/mo 1/1/99 - 05/31/99 - $14,000.00/mo
01/1/93 - 12/31/93 - $14,000.00/mo
01/1/94 - 12/31/94 - $14,000.00/mo
ROBOCOM SYSTEMS INC. ROBOCOM PROPERTlES INC.
BY: /s/ Irwin Baladan BY: /s/ <illegible>
-------------------------- ---------------------------------
TITLE: President TITLE: Vice Pres
------------------------ -------------------------------
DATE: 5/31/91 DATE: 5/31/91
------------------------ --------------------------------
<PAGE>
AMENDMENT OF LEASE
The lease agreement entered into between ROBOCOM PROPERTIES, INC. and
ROBOCOM SYSTEMS, INC. is hereby amended as follows, effective January 1, 1997:
1. The tenant shall pay the annual rent of $168,000 yearly. Said rent is
to be paid in equal monthly payments in advance of the first day of
each month and every month during the term, at $14,000 per month.
2. The rent for future years, beginning January 1, 1998, shall be
adjusted by the ratio of the prime rate as published on January 2 of
each year subsequent to the prime rate of January 2, 1997 - such rate
being 8 1/4%. Said rent to be paid in equal monthly payments in
advance of the first day of each and every month.
3. Rent shall not be less than $14,000 per month.
ROBOCOM SYSTEMS INC. ROBOCOM PROPERTlES INC.
BY: /s/ Irwin Baladan BY: /s/0<illegible>
-------------------------- ---------------------------------
TITLE: President TITLE: Vice Pres
------------------------ -------------------------------
DATE: 1/9/97 DATE: 1/9/97
------------------------ --------------------------------
<PAGE>
MASTER PROMISSORY NOTE
$2,000,000.00 15 May, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower"), jointly and
severally, if more than one, hereby promises to pay to the order of THE BANK OF
NEW YORK (the "Bank") at its 1401 Franklin Avenue, Garden City, New York office,
the principal sum of Two Million and 00/100 Dollars ($2,000,000.00) or the
aggregate unpaid principal amount of all advances made by the Bank to the
Borrower (which aggregate unpaid principal amount shall be equal to the amount
duly indorsed and set forth opposite the date last appearing on the schedule
attached to this note), whichever is less. Advances evidenced by this note shall
be payable ON DEMAND.
The Borrower agrees to pay interest on the unpaid principal balance of
each advance evidenced hereby from the date such advance is made at a rate per
annum equal to the Alternate Base Rate, but not to exceed the maximum rate
permitted by law. If any payment which is to be made hereunder is not paid when
due, such payment shall bear interest, payable on demand, at a rate per annum
equal to the Alternate Base Rate plus two percent (2%), but not to exceed the
maximum rate permitted by law. "Alternate Base Rate" shall mean, for any day, a
rate per annum equal to the higher of (i) the Prime Rate in effect on such day
and (ii) the Federal Funds Rate in effect on such day plus 1/2 of 1%. "Federal
Funds Rate" shall mean for any day, the weighted average of the rates on
overnight Federal funds transactions with member of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or if such day is
not a business day, for the next preceding business day) by the Federal Reserve
Bank of New York, or is such rate is not so published for any day which is a
business day, the average of quotations for such day on such transactions
received by the Bank from three Federal funds brokers of recognized standing
selected by the Bank. "Prime Rate" shall mean, for any day, a rate per annum
equal to the prime commercial lending rate of the Bank as publicly announced to
be in effect from time to time, such rate to be adjusted automatically, without
notice, on the effective date of any change in such rate. The Borrower
acknowledges that the Prime Rate is not the lowest rate at which the Bank may
make loans or other extensions of credit.
Interest shall be computed on the basis of a 360 day year for the
actual number of days elapsed and shall be payable monthly on the last day of
each month, and at maturity. If any payment of principal of or interest on the
advances evidenced by this note becomes due and payable on a Saturday, a Sunday
or a day on which the Bank is permitted or required by law to be closed, then
such payment shall be extended to the next succeeding business day and interest
shall be payable at the rate set forth during such extension.
Advances evidenced by this note may be prepaid at any time without
penalty, but with interest on the amount being prepaid through the date of
prepayment.
<PAGE>
2
If the Bank shall make a new advance on a day on which the Borrower is
to repay an advance hereunder, the Bank shall apply the proceeds of the new
advance to make such repayment and only the amount by which the amount being
advanced exceeds the amount being repaid shall be made available to the Borrower
in accordance with the terms of this note.
The Borrower hereby authorizes the Bank to accept telephonic
instructions from a duly authorized representative of the Borrower to make an
advance hereunder or receive any payment hereof and to indorse on the schedule
attached hereto the amount of all advances hereunder and all principal payments
hereof received by the Bank.
The Bank is hereby authorized to charge any deposit account of the
Borrower maintained at the Bank for each principal prepayment hereof on the date
made, and for each principal payment and for each interest payment due hereunder
on the due date thereof. The Bank shall credit the Borrower's deposit account
maintained at the Bank in the amount of each advance hereunder on the date of
such advance, which credit will be confirmed to the Borrower by standard advice
of credit or notation in the monthly statement sent to the Borrower in
connection with such account. The Borrower agrees that the actual crediting of
the amount of the advance to the Borrower's deposit account shall constitute
conclusive evidence that the advance was made, and neither the failure of the
Bank to indorse on the schedule attached hereto the amount of the advance nor
the failure of the Bank to forward an advice of credit to the Borrower or note
such advance in the monthly statement sent to the Borrower shall affect the
Borrower's obligations hereunder.
The Bank shall have a lien on the balances of the Borrower now or
hereafter on deposit with or held as custodian by the Bank and the Bank shall
have full authority to set off such balances against the indebtedness evidenced
by this note or any other Obligation (which term shall include any and all
present and future obligations or liabilities of the Borrower as maker,
indorser, drawer, acceptor, guarantor, accommodation party, counterparty,
purchaser, seller or otherwise, and whether due or to become due, secured or
unsecured, absolute or contingent, joint and/or several, and howsoever and
whensoever acquired by the Bank) and may at any time, without notice, to the
extent permitted by law, apply the same to the advances evidenced by this note
or such other Obligations, whether due or not.
All obligations of the Borrower to the Bank under this note are secured
pursuant to the terms of a security agreement executed by the Borrower in favor
of the Bank dated April 13, 1994 as such agreement may be amended or modified
from time to time and any other security agreement the Borrower shall have
executed or shall at any time execute in favor of the Bank, and the Bank is
entitled to all the benefits thereof.
The Borrower acknowledges that the advances evidenced hereby are
payable on demand and payment thereof may be demanded by the Bank at any time
for any reason in the sole and absolute discretion of the Bank.
<PAGE>
3
All advances evidenced hereby together with all accrued interest
thereon shall become immediately and automatically due and payable, without
demand, presentment, protest or notice of any kind, upon the commencement by or
against the Borrower, any guarantor of this note or any hypothecator of
collateral securing this note of a case or proceeding under any bankruptcy,
insolvency or other law relating to the relief of debtors, the readjustment,
composition or extension of indebtedness or reorganization or liquidation.
The Borrower waives presentment, demand, protest, notice of protest and
notice of non-payment or dishonor of this note.
The Borrower hereby agrees to pay all costs and expenses incurred by
the Bank incidental to or in any way relating to the Bank's enforcement of the
obligations of the Borrower hereunder or the protection of the Bank's rights
hereunder, including, but not limited to, reasonable attorneys' fees and
expenses, whether or not litigation is commenced.
Promptly upon the Bank's request, the Borrower agrees to furnish such
information (including, without limitation, financial statements and tax returns
of the Borrower) to the Bank and to permit the Bank to inspect and make copies
of its books and records, as the Bank shall reasonably request from time to
time.
The Borrower waives any right to claim or interpose any counterclaim or
set-off of any kind in any litigation relating to this note or the transactions
contemplated hereby.
This note may not be amended, and compliance with its terms may not be
waived, orally or by course of dealing, but only by a writing signed by an
authorized officer of the Bank.
This note may be assigned or indorsed by the Bank and its benefits
shall inure to the successors, indorsees and assigns of the Bank.
The Borrower authorizes the Bank to date this note and to complete any
blank space herein according to the terms upon which said advances were granted.
No failure on the part of the Bank to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Bank of any right,
remedy or power hereunder preclude any other or future exercise thereof or the
exercise of any other right, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or
allowed it by law or other agreement shall be cumulative and not exclusive of
any other right, remedy or power, and may be exercised by the Bank at any time
and from time to time.
Every provision of this note is intended to be severable; if any term
or provision of this note shall be invalid, illegal or unenforceable for any
reason, the validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
4
The Borrower represents and warrants that the Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York; that the execution, delivery and performance of this note are
within the Borrower's corporate powers and have been duly authorized by all
necessary action of its board of directors and shareholders; and that each
person executing this note has the authority to execute and deliver this note on
behalf of the Borrower.
THE PROVISIONS OF THIS NOTE SHALL BE CONSTRUED AND INTERPRETED, AND ALL
RIGHTS AND OBLIGATIONS HEREUNDER DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
BORROWER SUBMITS TO THE IN PERSONAM JURISDICTION OF STATE AND FEDERAL COURTS
LOCATED IN THE CITY AND STATE OF NEW YORK AND AGREES THAT ALL ACTIONS AND
PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS NOTE SHALL BE LITIGATED ONLY
IN SAID COURTS OR COURTS LOCATED ELSEWHERE AS SELECTED BY THE BANK AND THAT SUCH
COURTS ARE CONVENIENT FORUMS. THE BORROWER WAIVES PERSONAL SERVICE UPON IT AND
CONSENTS TO SERVICE OF PROCESS BY MAILING A COPY THEREOF TO IT BY REGISTERED OR
CERTIFIED MAIL.
THE BORROWER AND THE BANK WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED TO THIS
NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
This note amends, restates and replaces the Collateral Note and
Security Agreement dated April 11, 1997 made by the Borrower to the order of the
Bank in the principal amount of $800,000.00 and Collateral Note and Security
Agreement dated May 15, 1997 made by the Borrower to the order of the Bank in
the principal amount of $500,000.00 (the "Existing Notes"). This note is not
being given by the Borrower, or accepted by the Bank, in payment of the Existing
Notes (or either of them). All principal amounts, if any, outstanding under the
Existing Notes as of the date hereof, and all accrued and unpaid interest
thereon, shall be deemed outstanding under this note as of the date hereof and
shall continue to be owing hereunder by the Borrower.
ROBOCOM SYSTEMS INC. Address:
511 Ocean Avenue
Massapequa, New York 11758
Attention: Irwin Balaban
President
By: /s/ Lawrence B. Klein
---------------------------------
Name: Lawrence B. Klein
Title: Executive Vice President
<PAGE>
Schedule
to
Promissory Note
Executed by
Robocom Systems, Inc.
Date of Amount of Amount of Aggregate Unpaid
Advance Advance Payment Principal Amount
- ------- ------- ------- ----------------
<PAGE>
ROBOCOM SYSTEMS INC.
STOCK OPTION AND
LONG-TERM INCENTIVE COMPENSATION PLAN
Adopted and Effective as of May 15, 1997
<PAGE>
ROBOCOM SYTEMS INC. STOCK OPTION AND
LONG-TERM INCENTIVE COMPENSATION PLAN
1. Purpose of the Plan.
This Robocom Systems Inc. Stock Option and Long-Term Incentive
Compensation Plan is intended to promote the interests of the Company and its
shareholders by providing the Company's key employees, on whose judgment,
initiative, and efforts the successful conduct of the business of the Company
depends, and who are responsible for the management, growth, and protection of
the business, with appropriate incentives and rewards to encourage them to
continue in the employ of the Company and to maximize their performance.
2. Definitions.
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of the
Company.
(b) "Cause" shall mean, when used in connection with the termination of
a Participant's employment, the termination of the Participant's employment on
account of: (i) the willful and continued failure by the Participant
substantially to perform his or her duties and obligations to the Company (other
than any such failure resulting from incapacity due to physical or mental
illness), (ii) the willful violation by the Participant of (A) any federal or
state law or (B) any rule of the Company, which violation would materially
reflect on the Participant's character, competence, or integrity, (iii) a breach
by a Participant of the Participant's duty of loyalty to the Company such as
Participant's solicitation of customers or employees of the Company on behalf of
any other person, (iv) the Participant's unauthorized removal from the Company's
premises of any document (in any medium or form) relating to the Company, its
business, or its customers, provided, however, that no such removal shall be
deemed "unauthorized" if it is in furtherance of an individual's duties and
obligations to the Company and such removal is a common practice at the Company,
(v) the Participant's unauthorized disclosure to any person of any confidential
information regarding the Company, or (vi) the willful engaging by the
Participant in any other misconduct which is materially injurious to the
Company. For purposes of this Section 2(b), no act, or failure to act, on a
Participant's part shall be considered "willful" unless done, or omitted to be
done, by the Participant in bad faith and without reasonable belief
<PAGE>
that the action or omission was in the best interests of the Company. Any rights
the Company may have hereunder in respect of the events giving rise to Cause
shall be in addition to the rights the Company may have under any other
agreement with the participant or at law or in equity. If, subsequent to the
termination of a Participant's employment without Cause, it is determined that
the Participant's employment could have been terminated for Cause, such
Participant's employment shall, at the election of the Committee in its sole
discretion, be deemed to have been terminated for Cause.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Compensation Committee of the Board;
provided, however, the Compensation Committee shall not take any action under
the Plan unless it is at all times composed solely of not less than three
"Non-Employee Directors" within the meaning of Rule 16b-3, as promulgated under
the Securities Exchange Act of 1934, as amended. In the event the Compensation
Committee is not composed of three Non-Employee Directors when the Company is
subject to the Securities Act, or, in the event the Committee is unable to act,
the Board shall take any and all actions required or permitted to be taken by
the Committee under the Plan and shall serve as the Committee.
(e) "Company" shall mean Robocom Systems Inc., a New York corporation.
(f) "Company Stock" shall mean the common stock, par value $.01 per
share, of the Company.
(g) "Disability" shall mean any physical or mental condition as a
result of which a Participant is disabled within the meaning of Section
422(c)(6) of the Code.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" with respect to a share of Company Stock on any
relevant date shall be determined in accordance with the following provisions:
(1) If the Company Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Company Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no closing selling price for the Company Stock
on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
2
<PAGE>
(2) If the Company Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Company Stock on the date in question on the stock exchange determined
by the Committee to be the primary market for the Company Stock, as such price
is officially quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Company Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(3) For purposes of any option grants made on an underwriting
date, the Fair Market Value shall be deemed to be equal to the price per share
at which the Company Stock is sold in the initial public offering pursuant to
the underwriting agreement.
(4) For purposes of any option grants made prior to an
underwriting date, the Fair Market Value shall be determined by the Committee
after taking into account such factors as the Committee may deem appropriate.
(j) "Incentive Award" shall mean an Option, a SAR, a Restricted Stock,
or Stock Bonus Award granted pursuant to the terms of the Plan.
(k) "Incentive Stock Option" shall mean an Option that is an "incentive
stock option" within the meaning of Section 422 of the Code and that is
identified as an Incentive Stock Option in the agreement by which it is
evidenced.
(l) "Issue Date" shall mean the date established by the Committee on
which certificates representing shares of Restricted Stock shall be issued by
the Company pursuant to the terms of Section 8(d) hereof.
(m) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(n) "Option" shall mean an option to purchase shares of Company Stock
granted pursuant to Section 6 hereof. Each Option, or portion thereof, shall be
identified as either an Incentive Stock Option or a Non-Qualified Stock Option
in the agreement by which such Option is evidenced.
(o) "Participant" shall mean an employee, officer, director or outside
director of the Company or a consultant to the Company selected to participate
in the Plan and to whom an Incentive Award is granted pursuant to the Plan, and,
upon his or her death, that person's successors, heirs, executors, and
administrators, as the case may be.
3
<PAGE>
(p) "Person" shall mean a "person," such as term is used in Sections
13(d) and 14(d) of the Exchange Act.
(q) "Plan" shall mean this Robocom Systems Inc. Stock Option and
Long-Term Incentive Compensation Plan, as it may be amended from time to time.
(r) "Restricted Stock" shall mean a share of Company Stock that is
granted pursuant to the terms of Section 8 hereof and that is subject to the
restrictions set forth in Section 8(c) hereof for as long as such restrictions
continue to apply to such share.
(s) "Retirement" shall mean a Participant's termination of employment
(other than by reason of death or Disability and other than a termination that
is (or is deemed to have been) for Cause) on or after the later of (i) the date
the Participant attains age 65 and (ii) the date the Participant has completed
five years of service with the Company.
(t) "Securities Act" shall mean the Securities Act of 1933, as amended.
(u) "SAR" shall mean a stock appreciation right granted pursuant to
Section 7 hereof.
(v) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Company Stock pursuant to Section 9 hereof.
(w) "Vesting Date" shall mean the date and/or dates established by the
Committee on which an Incentive Award may vest. In the absence of provisions in
an individual grant agreement to the contrary, Options shall vest ratably over a
three (3) year period, at thirty-three and one-third (331/3%) percent per year.
3. Stock Subject to the Plan.
(a) Plan Awards.
Under the Plan, the Committee may, in its sole and absolute
discretion, grant any or all of the following types of Incentive Awards to a
Participant: an Option, a SAR, a Restricted Stock, or Stock Bonus Award.
(b) Individual Awards.
Incentive Awards granted under the Plan may be made up entirely of
one type of Incentive Award or any combination of types of Incentive Awards
available under the Plan, in the Committee's sole discretion.
4
<PAGE>
(c) Aggregate Plan Share Reserve.
The total number of shares of Company Stock available for grants of
Incentive Awards under the Plan shall be 350,000 subject to adjustment in
accordance with Section 10 of the Plan. These shares may be either authorized
but unissued, newly issued shares, or reacquired shares of Company Stock. If an
Incentive Award or portion thereof shall expire or terminate for any reason
without having been exercised in full, the unexercised shares covered by such
Incentive Award shall be available for future grants of Incentive Awards under
the Plan.
4. Administration of the Plan.
The Plan shall be administered by the Committee. The Committee shall
from time to time designate the employees, officers, directors and outside
directors of the Company or consultants to the Company who shall be granted
Incentive Awards and the amount and type of such Incentive Awards.
The Committee shall have the full authority and discretion to
administer the Plan, including authority to interpret and construe any provision
of the Plan and the terms of any Incentive Award issued under the Plan. The
Committee may also adopt any rules and regulations for administering the Plan as
it may deem necessary or appropriate.
Decisions of the Committee shall be final and binding on all parties.
The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the date on which any Option or SAR granted under the Plan
becomes exercisable or otherwise adjust any of the terms of such Option or SAR
(except that no such adjustment shall, without the consent of a Participant,
reduce the Participant's rights under any previously granted and outstanding
Incentive Award), (ii) accelerate the Vesting Date or Issue Date of any share of
Restricted Stock issued under the Plan, or waive any condition imposed
thereunder, and (iii) otherwise adjust or waive any condition imposed on any
Incentive Award made hereunder.
In addition, the Committee may, in its absolute discretion and without
amendment to the Plan, grant Incentive Awards of any type to Participants on the
condition that such Participants surrender to the Committee for cancellation
such other Incentive Awards of the same or any other type (including, without
limitation, Incentive Awards with higher exercise prices or values) as the
Committee specifies. Notwithstanding Section 3(a) herein, prior to the surrender
of such other Incentive Awards, Incentive Awards granted pursuant to the
preceding sentence of this Section 4 shall not count against the limit set forth
in such Section 3(a).
5
<PAGE>
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee, subject to applicable laws.
No member of the Committee shall be liable for any action, omission or
determination relating to the Plan, and the Company (and any affiliate that may
adopt the Plan), jointly and severally, shall indemnify and hold harmless each
member of the Committee and each other director or employee of the Company (or
affiliate) to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination unless such action, omission or determination was taken or made by
such member, director or employee in bad faith and without reasonable belief
that it was in the best interests of the Company and its affiliates, as the case
may be.
5. Eligibility.
The persons who shall be eligible to receive Incentive Awards pursuant
to the Plan shall be those employees, officers, directors and outside directors
of the Company or consultants to the Company who are largely responsible for the
management, growth, and protection of the business of the Company; provided,
however, that only employees of the Company shall be eligible to receive
Incentive Awards made up of Incentive Stock Options.
6. Stock Option Awards.
The Committee may grant Options pursuant to the Plan. Such Options
shall be evidenced by agreements in such form as the Committee shall from time
to time approve. Options shall comply with and be subject to the following terms
and conditions:
(a) Identification of Options.
All Options granted under the Plan shall be clearly identified
in the agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options or a combination of both.
(b) Exercise Price.
The exercise price of any Non-Qualified Stock Option granted
under the Plan shall be such price as the Committee shall determine, which may
6
<PAGE>
be equal to or less than the Fair Market Value of a share of Company Stock on
the date such Non-Qualified Stock Option is granted; provided, that such price
may not be less than the minimum price required by law. The exercise price of
any Incentive Stock Option granted under the Plan shall be not less than 100% of
the Fair Market Value of a share of Company Stock on the date on which such
Incentive Stock Option is granted.
(c) Term and Exercise of Options.
(i) Each Option shall be exercisable on such date or
dates, during such period, and for such number of shares of Company Stock as
shall be determined by the Committee on the day on which such Option is granted
and set forth in the Option agreement with respect to such Option; provided,
however that no Option shall be exercisable after the expiration of ten years
from the date such Option was granted; and, provided, further, that each Option
shall be subject to earlier termination, expiration or cancellation as provided
in the Plan.
(ii) Each Option shall be exercisable in whole or in
part. The partial exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion thereof. Upon the partial
exercise of an Option, the agreement evidencing such Option, marked with such
notations as the Committee may deem appropriate to evidence such partial
exercise, shall be returned to the Participant exercising such Option together
with the delivery of the certificates described in Section 6(c)(v) hereof.
(iii) An Option shall be exercised by delivering a
written notice to the Company's principal office to the attention of its
Secretary, no later than the effective date of the proposed exercise. Such
notice shall be accompanied by the agreement (or agreements) evidencing the
Option, shall specify the number of shares of Company Stock with respect to
which the Option is being exercised, and the effective date of the proposed
exercise, and shall be signed by the Participant. In the event the Participant
provides advance notice of his intention to exercise, the Participant may
withdraw such notice at any time prior to the close of the business day
immediately preceding the effective date of the proposed exercise, in which case
such agreement(s) shall be returned to the Participant. Payment for shares of
Company Stock purchased upon the exercise of an Option shall be made on the
effective date of such exercise in any combination of the following:
(A) in cash, by certified check, bank
cashier's check, or wire transfer,
(B) subject to the approval of the
Committee, in shares of Company Stock owned by the Participant and valued at
their Fair Market Value on the effective date of such exercise,
7
<PAGE>
(C) subject to the approval of the
Committee, pursuant to a "cashless exercise" pursuant to procedures adopted by
the Committee whereby the Participant, by a properly written notice, directs (a)
an immediate market sale or margin loan respecting all or a part of the shares
of Company Stock to which the Participant is entitled upon exercise pursuant to
an extension of credit by the Company to the Participant of the exercise price,
(b) the delivery of the shares of the Company Stock from the Company directly to
the brokerage firm, and (c) the delivery of the exercise price from the sale or
margin loan proceeds from the brokerage firm directly to the Company, or
(D) such other methods as the Committee may
approve, from time to time.
Any payments in shares of Company Stock shall be effected by the delivery of
such shares to the Secretary of the Company, duly endorsed in blank or
accompanied by stock powers duly executed in blank, together with any other
documents and evidences as the Secretary of the Company shall require from time
to time
(d) During the lifetime of a Participant, each Option granted
to him or her shall be exercisable only by him or her. No Option shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
(e) Certificates for shares of Company Stock purchased upon
the exercise of an Option shall be issued in the name of the Participant or his
or her beneficiary, as the case may be, and delivered to the Participant or his
or her beneficiary, as the case may be, as soon as practicable following the
effective date on which the Option is exercised.
(iv) Limitations on Grant of Incentive Stock Options.
(A) The aggregate Fair Market Value of shares of
Company Stock with respect to which
Incentive Stock Options granted hereunder are exercisable for the first time by
a Participant during any calendar year under the Plan and any other stock option
plan of the Company (or any "subsidiary corporation" of the Company within the
meaning of Section 424 of the Code) shall not exceed $100,000. Such Fair Market
Value shall be determined as of the date on which each such Incentive Stock
Option is granted. In the event that the aggregate Fair Market Value of shares
of Company Stock with respect to such Incentive Stock Options exceeds $100,000,
then Incentive Stock Options granted hereunder to such Participant shall, to the
extent and in the order in which they were granted, automatically be deemed to
be Non-Qualified Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged.
8
<PAGE>
(B) No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its "subsidiary corporations" (within the meaning
of Section 424 of the Code), unless (I) the exercise price of such Incentive
Stock Option is at least 110% of the Fair Market Value of a share of Company
Stock at the time such Incentive Stock Option is granted and (II) such Incentive
Stock Option is not exercisable after the expiration of five years from the date
such Incentive Stock Option is granted.
(C) No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant, such individual is not an
employee of the Company.
(v) Effect of Termination of Employment.
(i) In the event the employment of a Participant with
the Company shall terminate (as determined by the Committee in its sole
discretion) for any reason other than Retirement, Disability, death or for
Cause, (A) Options granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain exercisable until 90
days after the date of such termination, on which date they shall expire, and
(B) Options granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at the close of
business on the date of such termination; provided, however, that no Option
shall be exercisable after the expiration of its term.
(ii) In the event that the employment of a
Participant with the Company shall terminate on account of the Retirement,
Disability or death of the Participant, (A) Options granted to such Participant,
to the extent that they were exercisable at the time of such termination, shall
remain exercisable until the expiration of their term and (B) Options granted to
such Participant, to the extent that they were not exercisable at the time of
such termination, shall expire at the close of business on the date of such
termination. The effect of exercising any Incentive Stock Option on a day that
is more than 90 days after the date of such termination (or, in the case of a
termination of employment on account of Disability, on a day that is more than
one year after the date of such termination) will be to cause such Incentive
Stock Option to be treated as a Non-Qualified Stock Option.
(4) In the event of the termination of a Participant's
employment for Cause, all outstanding Options granted to such Participant shall
automatically expire at the commencement of business as of the date of such
termination.
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7. SARs.
The Committee may grant SARs pursuant to the Plan, which SARs shall be
evidenced by agreements in such form as the Committee shall from time to time
approve. SARs shall comply with and be subject to the following terms and
conditions:
(a) Exercise Price.
The exercise price of any SAR granted under the Plan shall be
determined by the Committee in its discretion at the time of the grant of such
SAR.
(b) Benefit Upon Exercise.
(i) The exercise of a SAR with respect to any number
of shares of Company Stock shall entitle a Participant to a cash payment, for
each such share, equal to the excess of (A) the Fair Market Value of a share of
Company Stock on the exercise date over (B) the exercise price of the SAR
(subject to applicable withholding payment requirements).
(ii) All payments under this Section 7(b) shall be
made as soon as practicable, but in no event later than five business days,
after the effective date of the exercise.
(c) Term and Exercise of SARs.
(i) Each SAR shall be exercisable on such date or
dates, during such period, and for such number of shares of Company Stock as
shall be determined by the Committee and set forth in the SAR agreement with
respect to such SAR; provided, however, that no SAR shall be exercisable after
the expiration of ten years from the date such SAR was granted; and provided,
further, however, that each SAR shall be subject to earlier termination,
expiration or cancellation as provided in the Plan.
(ii) Each SAR may be exercised in whole or in part.
The partial exercise of a SAR shall not cause the expiration, termination or
cancellation of the remaining portion thereof. Upon the partial exercise of a
SAR, the agreement evidencing such SAR, marked with such notations as the
Committee may deem appropriate to evidence such partial exercise, shall be
returned to the Participant exercising such SAR together with the payment
described in Section 7(b) or 7(b)(ii) hereof.
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(iii) A SAR shall be exercised by delivering notice
to the Company's principal office, to the attention of its Secretary, no less
than three business days in advance of the effective date of the proposed
exercise. Such notice shall be accompanied by the applicable agreement
evidencing the SAR, shall specify the number of shares of Company Stock with
respect to which the SAR is being exercised and the effective date of the
proposed exercise, and shall be signed by the Participant. In the event a
Participant provides advance notice of his intention to exercise, the
Participant may withdraw such notice at any time prior to the close of business
on the business day immediately preceding the effective date of the proposed
exercise, in which case the agreement evidencing the SAR shall be returned to
the Participant.
(iv) During the lifetime of a Participant, each SAR
granted to him or her shall be exercisable only by him or her. No SAR shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.
(d) (i) In the event that the employment of a
Participant with the Company shall terminate (as determined by the Committee in
its sole discretion) for any reason other than Retirement, Disability, death or
for Cause, (A) SARs granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain exercisable until the
30th day after such termination, on which date they shall expire and (B) SARs
granted to such Participant, to the extent that they were not exercisable at the
time of such termination, shall expire at the close of business on the date of
such termination; provided, however, that no SAR shall be exercisable after the
expiration of its term.
(ii) In the event that the employment of a
Participant with the Company shall terminate on account of the Retirement,
Disability or death of the Participant, (A) SARs granted to such Participant, to
the extent that they were exercisable at the time of such termination, shall
remain exercisable until the expiration of their term and (B) SARs granted to
such Participant, to the extent that they were not exercisable at the time of
such termination, shall expire at the close of business on the date of such
termination.
(iii) In the event of the termination of the
Participant's employment for Cause, all outstanding SARs granted to such
Participant shall automatically expire at the commencement of business as of the
date of such termination.
(e) Tandem SARs.
SARs may be granted in tandem with Options (or on a
stand-alone basis). To the extent SARs are granted in tandem with Options and
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SARs are exercised, the related Options shall be cancelled. Similarly, if the
Options are exercised, the related SARs shall be cancelled.
8. Restricted Stock.
The Committee may grant shares of Restricted Stock pursuant to the
Plan. Each grant of shares of Restricted Stock shall be evidenced by an
agreement in such form as the Committee shall from time to time approve. Each
grant of shares of Restricted Stock shall comply with and be subject to the
following terms and conditions:
(a) Issue Date and Vesting Date.
At the time of the grant of shares of Restricted Stock, the
Committee shall establish an Issue Date or Issue Dates and a Vesting Date or
Vesting Dates with respect to such shares. The Committee may divide such shares
into classes and assign a different Issue Date and/or Vesting Date for each
class. Except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence
of the Issue Date with respect to a share of Restricted Stock, a share of
Restricted Stock shall be issued in accordance with the provisions of Section
8(d) hereof. Provided that all conditions to the vesting of a share of
Restricted Stock imposed pursuant to Section 8(b) hereof are satisfied, and
except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the
Vesting Date with respect to a share of Restricted Stock, such share shall vest
and the restrictions of Section 8(c) hereof shall cease to apply to such share.
(b) Conditions to Vesting.
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions, not inconsistent with the
provisions hereof, to the vesting of such shares as it, in its absolute
discretion, deems appropriate. By way of example and not by way of limitation,
the Committee may require, as a condition to the vesting of any shares of
Restricted Stock, that the Participant or the Company achieve such performance
criteria as the Committee may specify at the time of the grant of such shares.
(c) Restrictions on Transfer Prior to Vesting.
Prior to the vesting of a share of Restricted Stock, no
transfer of a Participant's rights to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest, or right in, or with respect to, such share, but immediately upon
any attempt to transfer such rights, such share, and all the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.
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(d) Issuance of Certificates.
(i) Except as provided in Sections 8(c) or 8(f)
hereof, reasonably promptly after the Issue Date with respect to shares of
Restricted Stock, the Company shall cause to be issued a stock certificate,
registered in the name of the Participant to whom such shares were granted,
evidencing such shares, provided, that the Company shall not cause to be issued
such stock certificate unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS, AND
CONDITIONS (INCLUDING FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST
TRANSFER) CONTAINED IN THE ROBOCOM SYTEMS INC. STOCK OPTION AND
LONG-TERM INCENTIVE COMPENSATION PLAN AND INCENTIVE AWARD AGREEMENT
ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND ROBOCOM
SYSTEMS INC. A COPY OF THE PLAN AND AGREEMENT IS ON FILE IN THE OFFICE
OF THE SECRETARY OF ROBOCOM SYSTEMS INC., 511 OCEAN AVENUE, MASSAPEQUA,
NEW YORK 11758.
Such legend shall not be removed from the certificate evidencing such shares
until such shares vest pursuant to the terms hereof.
(ii) Each certificate issued pursuant to Section
8(d)(i) hereof, together with the stock powers relating to the shares of
Restricted Stock evidenced by such certificate, shall be deposited by the
Company with a custodian designed by the Company. The Company shall cause such
custodian to issue to the Participant a receipt evidencing the certificates held
by it which are registered in the name of the Participant.
(e) Consequences Upon Vesting.
Upon the vesting of a share of Restricted Stock pursuant to
the terms hereof, the restrictions of Section 8(c) hereof shall cease to apply
to such share. Reasonably promptly after a share of Restricted Stock vests
pursuant to the terms hereof, the Company shall cause to be issued and delivered
to the Participant to whom such shares were granted, a certificate evidencing
such share, free of the legend set forth in Section 8(d)(i) hereof, together
with any other property of the Participant held by the custodian pursuant to
Section 8(d)(ii) hereof.
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(f) Effect of Termination of Employment.
(i) In the event that the employment of a Participant
with the Company shall terminate for any reason other than Cause prior to the
vesting of shares of Restricted Stock granted to such Participant, shall be
forfeited on the date of such termination, provided however, that the Committee
may, in its sole and absolute discretion, vest the Participant in all or any
portion of shares of Restricted Stock which would otherwise be forfeited
pursuant to the provisions of this Section.
(ii) In the event of the termination of a
Participant's employment for Cause, all shares of Restricted Stock granted to
such Participant which have not vested as of the date of such termination shall
immediately be forfeited.
9. Stock Bonuses.
The Committee may grant Stock Bonuses in such amounts as it shall
determine from time to time. A Stock Bonus shall be paid at such time and
subject to such conditions as the Committee shall determine at the time of the
grant of such Stock Bonus. Certificates for shares of Company Stock granted as a
Stock Bonus shall be issued in the name of the Participant to whom such grant
was made and delivered to such Participant as soon as practicable after the date
on which such Stock Bonus is required to be paid.
10. Adjustment Upon Changes in Company Stock.
(a) Shares Available for Grants.
In the event of any change in the number of shares of Company
Stock outstanding by reason of any stock dividend or split, reverse stock split,
recapitalization, merger, consolidation, combination or exchange of shares or
similar corporate change, the maximum number of shares of Company Stock with
respect to which the Committee may grant Options, SARs, shares of Restricted
Stock, and Stock Bonuses under Section 3 hereof shall be appropriately adjusted
by the Committee. In the event of any change in the number of shares of Company
Stock outstanding by reason of any other event or transaction, the Committee
may, but need not, make such adjustments in the number of shares of Company
Stock with respect to which Options, SARs, shares of Restricted Stock, and Stock
Bonuses may be granted under Section 3 hereof as the Committee may deem
appropriate.
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(b) Outstanding Restricted Stock.
Unless the Committee in its absolute discretion otherwise
determines, any securities or other property (including dividends paid in cash)
received by a Participant with respect to a share of Restricted Stock, the Issue
Date with respect to which occurs prior to such event, but which has not vested
as of the date of such event, as a result of any dividend, stock split, reverse
stock split, recapitalization, merger, consolidation, combination, exchange of
shares or similar corporate exchange will not vest until such share of
Restricted Stock vests and shall be promptly deposited with the custodian
designated pursuant to Section 8(d)(ii) hereof.
The Committee may, in its absolute discretion, adjust any
grant of shares of Restricted Stock, the Issue Date with respect to which has
not occurred as of the date of the occurrence of any of the following events, to
reflect any dividend, stock split, reverse stock split, recapitalization,
merger, consolidation, combination, exchange of shares or similar corporate
change as the Committee may deem appropriate to prevent the enlargement or
dilution of rights of Participants under the grant.
(c) Outstanding Options and SARs - Increase
or Decrease in Issued Shares Without Consideration.
Subject to any required action by the shareholders of the
Company, in the event of any increase or decrease in the number of issued shares
of Company Stock resulting from a subdivision or consolidations of shares of
Company Stock or the payment of a stock dividend on the shares of Company Stock,
or any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company, the Company shall proportionally adjust
the number of shares of Company Stock subject to each outstanding Option and
SAR, and the exercise price per share of Company Stock of each such Option and
SAR.
(d) Outstanding Options and SARs - Certain Mergers.
Subject to any required action by the shareholders of the
Company, in the event that the Company shall be the surviving corporation in any
merger or consolidation (except a merger or consolidation as a result of which
the holders of shares of Company Stock receive securities of another
corporation), each Option and SAR outstanding on the date of such merger or
consolidation shall pertain to and apply to the securities which a holder of the
number of shares of Company Stock subject to such Option or SAR would have
received in such merger or consolidation.
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(e) Outstanding Options, SARs - Certain Other Transactions.
In the event of a dissolution or liquidation of the Company; a
sale of substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving corporation; or
a merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of Company Stock receive
securities of another corporation and/or other property, including cash, the
Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the
occurrence of such event, each Option and SAR outstanding immediately prior to
such event (whether or not then exercisable), and, in full consideration of such
cancellation, pay to the Participant to whom such Option or SAR was granted an
amount in cash, for each share of Company Stock subject to such Option or SAR,
respectively, equal to the excess of (A) the value, as determined by the
Committee in its absolute discretion, of the property (including cash) received
by the holder of a share of Company Stock as a result of such event over (B) the
exercise price of such Option or SAR (subject to applicable withholding payment
requirements); or
(ii) provide for the exchange of each Option and SAR
outstanding immediately prior to such event (whether or not then exercisable)
for an option on or stock appreciation right with respect to, as appropriate,
some or all of the property for which such Option or SAR is exchanged and,
incident thereto, make an equitable adjustment as determined by the Committee in
its absolute discretion in the exercise price of the option or stock
appreciation right, or, if appropriate, provide for a cash payment to the
Participant to whom such Option or SAR was granted in partial consideration for
the exchange of the Option or SAR.
(f) Outstanding Options and SARs - Other Changes.
In the event of any change in the capitalization of the
Company or a corporate change other than those specifically referred to in
Section 10(c),(d) or (e) hereof, the Committee may in its absolute discretion,
make such adjustments in the number of shares subject to Options or SARs
outstanding on the date on which such change occurs and in the per share
exercise price of each such Option and SAR as the Committee may consider
appropriate to prevent dilution or enlargement or rights.
(g) No Other Rights.
Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of Company Stock,
the
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payment of any dividend, any increase or decrease in the number of shares of
Company Stock or any dissolution, liquidation, merger or consolidation of the
Company or any other corporation. Except as expressly provided in the Plan, no
issuance by the Company of Company Stock, or securities convertible into shares
of Company Stock, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number of shares of Company Stock subject to an
Incentive Award or the exercise price of any Option or SAR.
11. Rights as a Stockholder.
(a) No Rights as a Stockholder.
No person shall have any rights as a stockholder with respect to
any shares of Company Stock covered by or relating to any Incentive Award
granted pursuant to the Plan until the date the person becomes the owner of
record with respect to such shares. Except as otherwise expressly provided in
Section 10 hereof, no adjustment to any Incentive Award shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued.
(b) Accrual of Dividends.
Whenever Restricted Shares are paid to a Participant or beneficiary
under the Plan, such Participant or beneficiary shall also be entitled to
receive, with respect to each Restricted Share paid, an amount equal to any cash
dividends, and number of shares of Company Stock equal to any stock dividends,
declared and paid with respect to a share of Company Stock between the date the
relevant Restricted Share award was granted and the date the Restricted Shares
are being distributed. At the discretion of the Committee, interest may be paid
on the amount of cash dividends withheld, including cash dividends on stock
dividends, at a rate and subject to such terms as determined by the Committee.
12. No Special Employment Rights; No Rights to Incentive Award.
Nothing contained in the Plan or any Incentive Award shall confer upon
any Participant any right with respect to the continuation of his or her
employment by or service with the Company or interfere in any way with the right
of the Company, subject to the terms of any separate employment or consulting
agreement to the contrary, at any time to terminate such employment or service
or to increase or decrease the compensation of the Participant from the rate in
existence at the time of the grant of an Incentive Award.
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No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
13. Securities Matters.
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any interests in the Plan or any shares of
Company Stock to be issued hereunder or to effect similar compliance under any
state laws. Notwithstanding anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered any certificates evidencing
shares of Company Stock pursuant to the Plan unless and until the Company is
advised by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authority, and
the requirements of NASDAQ and any other securities exchange on which shares of
Company Stock are traded. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing shares of Company Stock
pursuant to the terms hereof, that the recipient of such shares make such
covenants, agreements, and representations, and that such certificates bear such
legends, as the Committee, in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall be effective
only at such time as counsel to the Company shall have determined that the
issuance and delivery of shares of Company Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authority, and
the requirements of NASDAQ and any other securities exchange on which shares of
Company Stock are traded. The Committee may, in its sole discretion, defer the
effectiveness of any exercise of an Option granted hereunder in order to allow
the issuance of shares of Company Stock pursuant thereto to be made pursuant to
registration or an exemption from registration or other methods for compliance
available under federal or state securities laws. The Committee shall inform the
Participant in writing of its decision to defer the effectiveness of the
exercise of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the Participant
may, by written notice, withdraw such exercise and obtain a refund of any amount
paid with respect thereto.
(c) All Company Stock issued pursuant to the terms of the Plan shall
constitute "restricted securities," as that term is defined in Rule 144
promulgated pursuant to the Securities Act, and may not be transferred except in
compliance
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with the registration requirements of the Securities Act or an exemption
therefrom.
(d) Certificates for shares of Company Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERD FOR SALE, SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE STATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
THAT SUCH OFFER SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICATE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Company Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
14. Withholding Taxes.
(a) Cash Remittance.
Whenever shares of Company Stock are to be issued upon the
exercise of an Option, the occurrence of the Issue Date or Vesting Date with
respect to a share of Restricted Stock or the payment of a Stock Bonus, the
Company shall have the right to require the Participant to remit to the Company
in cash an amount sufficient to satisfy federal, state, and local withholding
tax requirements, if any, attributable to such exercise, occurrence or payment
prior to the delivery of any certificate or certificates for such shares. In
addition, upon the exercise of an SAR, the Company shall have the right to
withhold from any cash payment required to be made pursuant thereto an amount
sufficient to satisfy the federal, state and local withholding tax requirements,
if any, attributable to such exercise or grant.
(b) Stock Remittance.
Subject to Section 14(c) hereof, at the election of the
Participant, subject to the approval of the Committee, when shares of Company
Stock are to be issued upon the exercise of an Option, the occurrence of the
Issue Date or
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the Vesting Date with respect to a share of Restricted Stock, or the grant of a
Stock Bonus, in lieu of the remittance required by Section 14(a) hereof, the
Participant may tender to the Company a number of shares of Company Stock
determined by such Participant, the Fair Market Value of which at the tender
date the Committee determines to be sufficient to satisfy the minimum federal,
state and local withholding tax requirements, if any, attributable to such
exercise, occurrence or grant and not greater than the Participant's estimated
total federal, state and local tax obligations associated with such exercise,
occurrence or grant.
(c) Stock Withholding.
The Company shall have the right, when shares of Company Stock
are to be issued upon the exercise of an Option, the occurrence of the Issue
Date or the Vesting Date with respect to a share of Restricted Stock or the
grant of a Stock Bonus, in lieu of requiring the remittance required by Section
14(a) hereof, to withhold a number of such shares, the Fair Market Value of
which at the exercise date the Committee determines to be sufficient to satisfy
the federal, state and local withholding tax requirements, if any, attributable
to such exercise, occurrence or grant and is not greater than the Participant's
estimated total, federal, state and local tax obligations associated with such
exercise, occurrence or grant.
15. Amendment or Termination of the Plan.
The Board may at any time, or from time to time, suspend or terminate
the Plan in whole or in part, or amend it in such respects as the Board may deem
appropriate. No amendment, suspension or termination of the Plan shall, without
the Participant's consent, alter or impair any of the rights or obligations
under any Option theretofore granted to an Participant under the Plan. The Board
may amend the Plan, subject to the limitations cited above, in such manner as it
deems necessary to permit the granting of Incentive Awards meeting the
requirements of future amendments or issued regulations, if any, to the Code or
to the Exchange Act.
16. No Obligation to Exercise.
The grant to a Participant of an Option or a SAR shall impose no
obligation upon such Participant to exercise such Option or SAR.
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17. Transfers Upon Death.
Upon the death of a Participant, outstanding Incentive Awards granted
to such Participant may be exercised only by the executors or administrators of
the Participant's estate or by any person or persons who shall have acquired
such right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award. Except as provided in this Section 17, no Incentive Award
shall be transferable, and shall be exercisable only by a Participant during the
Participant's lifetime.
18. Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general purposes.
19. Failure to Comply.
In addition to the remedies of the Company elsewhere provided for
herein, a failure by a Participant (or beneficiary) to comply with any of the
terms and conditions of the Plan or the agreement executed by such Participant
(or beneficiary) evidencing an Incentive Award, unless such failure is remedied
by such Participant (or beneficiary) within ten days after having been notified
of such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Incentive Award, in whole or in part, as the Committee, in
its absolute discretion may determine.
20. Adoption and Effective Date of Plan.
The Plan was adopted by unanimous written consent of the Board of
Directors of the Company, in lieu of a meeting of the Board, effective as of May
15, 1997 and the Plan was subsequently ratified and approved through action
taken by the written consent of a majority of the shareholders of the
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Company dated effective as of May 15, 1997, in lieu of a meeting of such
shareholders, all as permitted under New York law.
21. Term of the Plan.
The right to grant Incentive Awards under the Plan will terminate upon
the expiration of ten years from the date the Plan was initially adopted.
22. Applicable Law.
Except to the extent preempted by an applicable federal law, the Plan
will be construed and administered in accordance with the laws of the State of
New York, without reference to the principles of conflicts of law.
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GENERAL LOAN AND SECURITY AGREEMENT
Garden City, New York April 13th, 1994
- --------------------- ----------------
(Banking Office)
FOR VALUE RECEIVED, and in order to induce THE BANK OF NEW YORK
(hereinafter referred to as the "Bank"), in its discretion, to make loans or
otherwise extend credit at any time, and from time to time to, or at the request
of, the undersigned (hereinafter referred to as "Borrower"), whether the loans
or credit so extended shall be absolute or contingent, Borrower, jointly and
severally, if more than one, hereby grants to the Bank, as security for all
present or future obligations or liabilities of any and all kinds of Borrower to
it, whether incurred by Borrower as maker, endorser, drawer, acceptor,
guarantor, accommodation party or otherwise, matured or unmatured, secured or
unsecured, absolute or contingent, joint or several, and howsoever or whatsoever
acquired by the Bank (all of which are hereinafter referred to as the
"Obligations"), a security interest in and a lien upon all personal property and
fixtures of Borrower nor or hereafter existing or acquired and wherever located
which are of the type which may be collateral under the Uniform Commercial Code
as in effect in the State of New York (hereinafter referred to as the "Code") on
the date hereof, now or hereafter owned or acquired by Borrower, or in which
Borrower may have an interest, including all goods (other than household goods
as such term is defined in 12 CFR Part 227 unless the proceeds of the Obligation
secured pursuant hereto are used to purchase such goods or such Obligation is
incurred for a business purpose or to purchase real property), money,
instruments, accounts, contract rights, documents, chattel paper and general
intangibles of Borrower, including but not limited to any property specified in
Schedule A hereto and also including all products and proceeds of, all
accessions to, and substitutions for, all of the foregoing (all of which shall
be hereafter collectively referred to as the "Collateral").
Borrower hereby agrees to deliver to the Bank whenever called for by is
such additional collateral security of a kind and of a market value satisfactory
to the Bank, so that there will, at all times, be with the Bank a margin of
security for the payment of all Obligations which shall be satisfactory to it.
In addition to the Bank's security interest in the Collateral, it shall have,
and Borrower hereby grants to the Bank, a security interest and a lien for all
the Obligations in and upon any personal property of Borrower or in which
Borrower may have an interest which is nor or may at any time hereafter come
into the possession or control of the Bank, or of any third party action or its
behalf, whether for the express purpose of being used by the Bank as collateral
security or for safekeeping or for any other of different purpose, including
such personal property as may be in transit by mail or carrier for any purpose,
or covered or affected by any documents in the Bank's possession or control, or
in the possession or control of any third party acting on its behalf. Borrower
hereby authorizes the Bank in its discretion, at any time, whether or not the
Collateral is deemed by it adequate, to appropriate and apply upon any of the
Obligations, whether or not due, any of such property of Borrower and to charge
any of the Obligations against any balance of any account standing to the credit
of Borrower on the books of the Bank (said additional personal property is also
hereinafter referred to as the "Collateral").
If any of the following events shall occur with respect to any Obligor
(which term shall include Borrower and any endorser or guarantor of any of the
Obligations): (1) the failure of Borrower to furnish satisfactory additional
Collateral upon demand; (2) the failure of any Obligor in the performance of any
of such Obligor's covenants herein or in any instrument, document or agreement
delivered in connection with any Obligation; (3) the death of the insured under
any life insurance policy held as Collateral, or the non-payment of any premiums
on any such life insurance policy; (4) default by any Obligor with respect to
the payment of any Obligation; (5) the insolvency, general assignment,
receivership, bankruptcy, or dissolution of any Obligor or the filing of any
petition by or against any Obligor with respect to any of the foregoing; (6) the
death, dissolution or incompetence of any Obligor; (7) the financial condition
or credit standing of any Obligor shall be or become materially impaired in the
sole opinion of the Bank or any of its officers; (8) non-payment when due of any
other liability of any Obligor; (9) the commencement of any proceeding,
procedure or other remedy supplemental to the enforcement of a judgment against
any Obligor; (10) any representation in any financial or other statement of any
Obligor delivered to the Bank by or on behalf of any Obligor is untrue or
incomplete; or (11) any Obligor shall fail, on request, to furnish any financial
information or to permit inspection of such Obligor's books and records; then
all Obligations shall become due and payable forthwith, upon declaration to that
effect by the Bank, without notice to Borrower or any other Obligor, anything
contained herein or in any other document, instrument or agreement to the
contrary notwithstanding.
Upon failure of Borrower to pay any Obligation when becoming or made
due, as aforesaid, the Bank shall have, in addition to all other rights and
remedies allowed by law, the rights and remedies of a secured party under the
Code as in effect at that time and, without limiting the generality of the
foregoing, the Bank may immediately, without demand of performance and without
notice of intention to sell or of time or place of sale or of redemption or
other notices or demand whatsoever to Borrower, all of which are hereby
<PAGE>
expressly waived, and without advertisement, (a) sell at public or private sale,
grant options to purchase or otherwise realize upon, in the State of New York,
or elsewhere, the whole or from time to time any part of the Collateral upon
which the Bank shall have a security interest or lien as aforesaid, or any
interest which Borrower may have therein, and (b) exercise any and all rights,
options, powers, benefits or privileges given to the Bank upon the life
insurance policies, if any, held as Collateral. After deducting from the
proceeds of any such sales or other disposition of the Collateral all expenses
(including all reasonable expenses for legal services of every kind and other
expenses as set forth below), the Bank shall apply the residue of such proceeds
toward the payment of any of the Obligations, in such order as the Bank shall
elect, Borrower remaining liable for any deficiency, plus interest thereon,
remaining unpaid after such application. If notice of any sale or other
disposition is required by law to be given, Borrower hereby agrees that a notice
sent at least two days before the time of any intended public sale or of the
time after which any private sale or other disposition of the Collateral is to
be made, shall be reasonable notice of such sale or other disposition. Borrower
agrees to assemble the Collateral at such place or places as the Bank designates
by written notice.
At any such sale or other disposition the Bank or any other person
designated by the Bank may itself purchase the whole or any part of the
Collateral sold, free from any right or redemption on the art of Borrower, which
right is hereby waived and released.
The Bank may, without any notice to Borrower, in its discretion,
whether or not any of the Obligations be due, in its name or in the name of
Borrower, demand, sue for, collect and receive any money or property at any time
due, payable or receivable on or on account of or in exchange for, and may
compromise, settle or extend the time of payment of, any of the demands or
obligations represented by any of the Collateral, and may also exchange any of
the Collateral for other property upon the reorganization, recapitalization or
other readjustment of the issuer, maker or other person who is obligated on or
otherwise has liabilities with respect to the Collateral, and in connection
therewith, may deposit any of the Collateral with any committee or depositary
upon such terms as the Bank may in its discretion deem appropriate, and Borrower
does hereby constitute and appoint the Bank's Borrower's true and lawful
attorney to compromise, settle or extend payment of said demands or obligations
and exchange such Collateral as Borrower might or could do personally; all
without liability or responsibility for action herein authorized and taken or
not taken in good faith. The Bank is entitled at any time in its discretion to
notify an account debtor or the obligor or any instrument to make payment to it,
regardless of whether or not Borrower had been previously making collections on
the Collateral, and the Bank may take control of any proceeds of any of the
Collateral.
Borrower agrees that the Collateral secures, and further agrees to pay
on demand, all expenses (including reasonable expenses for legal services of
every kind and cost of any insurance and payment of taxes or other charges) of
or incidental to, the custody, care, sale or collection of, or realization upon,
any of the Collateral or in any way relating to the enforcement or protection of
the rights of the Bank hereunder.
Borrower agrees to mark its books and records as the Bank shall request
in order to reflect the rights of the Bank granted herein, and the Bank may, in
its sole discretion, take possession of the Collateral at any time, either prior
to or subsequent to a default under any of the Obligations. Borrower agrees to
maintain such insurance on the Collateral as the Bank may require. The Bank may,
without any notice to Borrower, in its discretion, and for its own benefit,
lend, use, transfer or repledge with any person, firm or corporation all or any
part of the Collateral by itself or mingled with the property of others, in bulk
or otherwise. The Bank may, without any notice to Borrower, sell, assign or
transfer any of the Obligations and the Bank's rights and duties hereunder, and
may deliver the Collateral, or any part thereof, to the assignee or transferee
of any of the Obligations, who shall become vested with all the rights,
remedies, powers, security interests and liens herein given to the Bank in
respect thereto; and the Bank shall thereafter be relieved and fully discharged
from any liability or responsibility in the premises.
The Bank may, without any notice to Borrower, in its discretion,
transfer, or cause to be transferred, all or any part of the Collateral to its
name, or to the name of its nominee, vote the Collateral so transferred, and
receive income and make or receive collections, including money, thereon and
hold said income and collections as Collateral or apply the said income and
collections to any of the Obligations, the manner and distribution of the
application to be made as the Bank shall elect.
Calls for Collateral, demand for payment or notice to Borrower may be
given by leaving same at the address given below or any other address
hereinafter filed with the Bank, or by mailing same to such address with the
same effect as if delivered personally. Such notice given in the manner herein
provided shall be effective whether or not received by Borrower. Borrower agrees
not to change any of its places of business, remove any records of Borrower
relating to any of the Collateral or move any of the Collateral without giving
the Bank thirty days' prior written notice.
With respect to the Collateral, the Bank shall be under no duty to send
notices, perform services, exercise any rights of collection, enforcement,
conversion or exchange, vote, pay for insurance, taxes or other charges or take
any action of any kind in connection with the management thereof and its only
duty with respect thereto shall be to use reasonable care in its custody and
preservation while in its possession, which shall not include any steps
necessary to preserve rights against prior parties.
<PAGE>
Borrower hereby authorizes the Bank at Borrower's expense to file one
or more financing statements to perfect the security interests granted herein
without Borrower's signature thereon, and Borrower agrees to do, file, record,
make, execute and deliver all such acts, deeds, things, notices, instruments,
and financing statements as the Bank may request in order to perfect and enforce
the rights of the Bank therein.
If at any time it is necessary in the opinion of counsel to the Bank
that any or all of the securities held as Collateral (the "Pledged Securities")
be registered under the Securities Act of 1933, as amended, or that an indenture
with respect thereto be qualified under the Trust Indenture Act of 1939 in order
to permit the sale or other disposition of the Pledged Securities. Borrower
shall at the Bank's request and at the expense of Borrower use the best efforts
of Borrower promptly to cause the registration of the Pledged Securities and the
qualification of such indenture and to continue such registration and
qualification as long as deemed appropriate by the Bank.
Borrower hereby authorizes the Bank to date this agreement as of the
date of the granting of any Obligation secured hereby and to complete any blank
spaces herein (including any blank space in Schedule A) according to the terms
upon which said Obligation was granted.
No failure on the part of the Bank to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Bank or any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power.
Each and every right, remedy and power hereby granted to the Bank or
allowed it by law or other agreement shall be culumative and not exclusive of
any other, and may be exercised by the Bank from time to time.
Borrower and each endorser or guarantor of any of the Obligations
expressly waives presentment and demand for payment, protest and notice of
protest and of non-payment. Unless the text otherwise requires, all terms used
herein shall have the meanings specified in the Code.
THE BANK AND BORROWER HEREBY WAIVE AND AGREE TO WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM INSTITUTED WITH RESPECT
TO ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT.
The provisions of this agreement shall be construed and interpreted and
all rights and duties hereunder determined in accordance with the laws of the
State of New York.
Every provision of this agreement is intended to be serverable: if any
term or provision of this agreement shall be invalid, illegal or unenforceable
for any reason whatsoever, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby.
NAME OF BORROWER Robocom Systems, Inc. ADDRESS OF BORROWER 511 Ocean Avenue
SIGNATURE OF BORROWER Irwin Balaban, President, Massapequa, New York 11758
NAME OF BORROWER ______________________ ADDRESS OF BORROWER _________________
SIGNATURE OF BORROWER _________________ _____________________________________
<PAGE>
SCHEDULE A
Property specifically included as "Collateral" for purposes of the within
General Loan and Security Agreement:
All personal property, inventory, fixtures and equipment of debtor
wherever located and whether now owned or in existence or here after acquired or
created, including goods, documents, instruments, general intangibles, chattel
paper, accounts and contract rights, such terms having the meanings ascribed by
UCC.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 16, 1997 in the Registration Statement (Form
SB-2) and related Prospectus of Robocom Systems Inc. for the registration of up
to 1,725,000 shares of common stock.
Ernst & Young LLP
Melville, New York
May 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1996
<PERIOD-END> FEB-28-1997 MAY-31-1996
<CASH> 65,670 603,948
<SECURITIES> 0 0
<RECEIVABLES> 1,221,987 712,564
<ALLOWANCES> (18,940) (47,064)
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,146,040 2,094,105
<PP&E> 256,090 211,090
<DEPRECIATION> (208,360) (197,272)
<TOTAL-ASSETS> 5,418,228 4,636,508
<CURRENT-LIABILITIES> 1,270,835 1,464,538
<BONDS> 0 0
0 0
0 0
<COMMON> 19,364 19,364
<OTHER-SE> 4,128,029 3,152,606
<TOTAL-LIABILITY-AND-EQUITY> 5,418,228 4,636,508
<SALES> 5,084,852 6,964,097
<TOTAL-REVENUES> 5,084,852 6,964,097
<CGS> 3,318,741 4,755,440
<TOTAL-COSTS> 4,103,182 5,830,749
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 42,367 38,575
<INCOME-PRETAX> 957,423 1,125,117
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 957,423 1,125,117
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 957,423 1,125,117
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
