<PAGE>
[FOR INFORMATION ONLY
This registration statement has been filed with the Securities and
Exchange Commission but has not yet become effective. Information contained
herein is subject to completion or amendment.
As filed with the Securities and Exchange Commission on _____________.]
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
-------------------------
ConMat Technologies, Inc.
(Name of Small Business Issuer in its Charter)
Florida 23-2999072
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Franklin Avenue and Grant Streets, Phoenixville, PA 19460
- --------------------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(610) 935-0225
-------------------------
Issuer's Telephone Number
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
to be so Registered Which Each Class is to be Registered
------------------- ------------------------------------
Common Stock Nasdaq OTC Bulletin Board
Securities to be registered pursuant to Section 12(g) of the Act:
None
----------------
(Title of Class)
<PAGE>
INFORMATION REQUIRED IN
REGISTRATION STATEMENT
PART I
Item 1. Description of Business.
General
ConMat Technologies, Inc. ("ConMat"), formerly known as EPL Systems,
Inc., was incorporated in Florida in 1989. ConMat is not an operating company
and does not have significant assets or conduct significant business except
through its wholly-owned subsidiary. In December 1998, ConMat acquired 100% of
the common stock of Polychem Corporation ("Polychem") from The Eastwind Group,
Inc. ("Eastwind"). See "Acquisition of Polychem." ConMat's strategy is to build
a material technology company focused on the development and manufacture of
proprietary custom engineered plastics and composite products to industrial end
users with a special emphasis on the wastewater treatment marketplace. ConMat's
acquisition of Polychem is the first step in executing this strategy. ConMat
plans to execute a growth strategy combining internal new product development
and corporate acquisitions. The principal executive offices of ConMat are
located at Franklin Avenue and Grant Streets, Phoenixville, PA 19460. The
telephone number is (610) 935-0225.
As of February 28, 1999, ConMat and Polychem have a total of 76 full-time and 0
part-time employees.
Acquisition of Polychem
On December 8, 1998, ConMat acquired 100% of the common stock of Polychem from
Eastwind. The basic structure and terms of the transaction were as follows:
o ConMat acquired all of the outstanding shares of common stock
of Polychem from Eastwind in exchange for (i) 1,000,000 shares
of newly issued common stock of ConMat and (ii) 1,333,333
shares of newly issued Series A convertible preferred stock of
ConMat ("Series A Preferred Stock").
o ConMat assumed and discharged the following liabilities of
Eastwind: (i) $160,000 owed to Paul DeJuliis, discharged by
the issuance to Paul DeJuliis of 53,333 shares of Series A
Preferred Stock; (ii) $100,000 owed to Clifton Capital, Ltd.,
discharged by the payment to Clifton Capital, Ltd. of
$100,000; and (iii) $500,000 owed to Mentor Special Situation
Fund, L.P. ("Mentor"), discharged by the issuance to Mentor of
166,667 shares of newly issued Series B preferred stock of
ConMat and plus Series B Warrants to purchase 166,667 shares
of common stock. In addition, Mentor Management Company
exchanged warrants to purchase 30,000 shares of Eastwind
common stock for warrants to purchase 30,000 shares of ConMat
common stock.
o At closing, Eastwind issued to Polychem a promissory note in
the amount of $940,000 to evidence the outstanding amount owed
by Eastwind to Polychem for prior advances, secured by the
pledge of 313,333 shares of Series A Preferred Stock. This
amount has been
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deemed uncollectible and accounted for as distributions by
Polychem to Eastwind either in the form of dividends or
returns of capital.
Polychem
General. Polychem is a wholly-owned subsidiary of ConMat. Polychem was
originally formed in February 1995 by its former owner for the purpose of
acquiring substantially all of the assets and business of The Polychem Division
of The Budd Company. Polychem, which has been in business since 1955, develops
and manufactures custom engineered plastic molded products which are marketed
primarily to wastewater treatment plants, as well as to other industrial users.
Products. Polychem engineers and produces an extensive line of plastic molded
products that are used in a broad array of industrial markets. Polychem's
typical products include, among others, complete non- metallic rectangular
clarifier component systems for water and wastewater treatment operations. These
systems are comprised of non-metallic chain, sprockets, stub shafts, wear shoes
and other products fabricated to customer specifications; cast nylon elevator
buckets for the handling of foundry sand, aggregate, and glass cullet; phenolic
sprockets and pulleys for agricultural and mining equipment; bearings for steel
mills; extruded thermoset profiles for aircraft applications; and molded
conveyor chains and accessories for food packaging, water and wastewater
treatment and other material handling applications. Most of the nylon buckets,
steel mill bearings and table-top conveyor chains are sold as off-the-shelf
items to steel mills and distributors. The Majority of the balance of Polychem's
products are produced for use in a complete system of wastewater treatment
clarifier equipment that Polychem sells to its customers. Such a complete system
is usually built to customer specifications and sold under an order selected
from competitive bids. The reaction injection molded ("RIM") nylon products and
the injected molded products account for between 80% and 90% of Polychem's
sales; compression molded products comprise the balance of the business.
Manufacturing Processes. Polychem's plant is equipped and organized to handle
three distinct manufacturing processes by which its diverse line of products is
fabricated. Polychem's various products are more easily categorized by these
three processes rather than by product type because each of Polychem's many
products is created through only one of the following processes:
o RIM molding, which produces nylon buckets, stub shafts, and
sprockets. In RIM molding, a compound containing a catalyst
and a compound containing a promoter are mixed in the mold
where a reaction takes place; the combination and percentage
of base chemicals and additives determine the properties of
the final product;
o Compression molding, which produces phenolic steel mill
bearings, timing gears, timing pulleys and other molded
products. In the compression molding process, phenolic
macerate or phenolic laminate is placed in heated molds
(approximately 325 degrees) and cured for a specific period of
time at pressures up to 3000 PSI; and
o Injection molding, which produces engineered resin parts used
for wastewater drive and collector chain, and tabletop
conveyor chain. In injection molding, engineered plastic
materials are melted and injected into the mold at a
controlled temperature and rate. Once in the mold, the plastic
is cooled to a shape reflecting the cavity.
Polychem's plant is laid out so that each of its manufacturing processes
occupies a separate location. In the Molding Department, products are molded in
batches and then sent to the Fabricating Department as complete orders for
machining and assembly. Raw materials for all of the manufacturing processes are
stored in tanks inside and outside the facility. Polychem's plant operates on a
three-shift basis. Most of the
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employees have been trained to operate all of the various equipment in their
departments, which gives Polychem additional flexibility in scheduling personnel
to meet production needs as they arise.
Marketing and Customers. Originally the manufacturer of a complete line of
industrial laminates, automotive timing gears, vulcanized fibre and teflon and
silicon tape, Polychem has in recent years shifted its focus to manufacturing
products designed for the wastewater treatment market, and presently the
revenues from wastewater products comprise 85% of Polychem's annual sales
volume. The wastewater treatment market is global in nature, and Polychem
presently sells product internationally in Western Europe, Asia and South
America and is expanding into Eastern Europe, the Middle East and Africa.
In addition to non-metallic clarifier component systems for wastewater
treatment, Polychem markets its traditional products (such as plastic chain,
compression molded phenolic and injection molded plastic components,
RIM-processed nylon buckets, phenolic bearings and corrugated fibre products) to
the food processing, electronics, steel, automotive, chemical, printing,
aerospace, and consumer products industries, among others. Polychem markets its
plastic chain, cast nylon buckets, steel mill bearings and compression molded
phenolics primarily through distributors. The balance of its products, including
its water and wastewater treatment component systems, are sold through
Polychem's sales force and agents. In its most recent fiscal year, Polychem's
sales force generated 62.7% of its annual sales revenue, international
distributors accounted for 15.8% and domestic distributors accounted for 21.6%.
Domestic revenues were approximately 71.4% and international revenues were
approximately 28.6% in that fiscal year.
Competition and Strategy. Polychem's competition tends to be fragmented. Many
other companies, domestically and internationally, produce one or more products
similar to Polychem's products. However, Polychem does not believe any of its
competitors offer a similar variety of light-weight plastic products for a
variety of industries. Experienced competition exists in each of Polychem's
major markets, and many of Polychem's competitors enjoy excellent working
relationships with their customers, produce a variety of quality products, and
have access to significant resources. These factors, along with product
characteristics, reliability, servicing, and pricing form the major competitive
factors in Polychem's markets.
Polychem believes that it has four significant competitors in the area of
non-metallic rectangular wastewater clarifier systems, of which it considers
Envirex to be the most significant. Together, Polychem and Envirex are believed
to possess approximately 70% of this market, in which they share approximately
equally. However, while Polychem provides products only to clarifier systems in
wastewater plants, Envirex has a much broader line of wastewater treatment
products that encompasses all of the major processes in a treatment plant. FMC
and NRG are Polychem's other less substantial (in terms of market share)
competitors, and a fifth company is attempting to enter the market. Both Envirex
and FMC are significantly larger than Polychem. Polychem believes that it has
three competitors in the market for nylon buckets and five competitors in the
market for table-top chains.
Polychem's long-term goals include solidifying its reputation as a leading
provider of quality wastewater treatment equipment products; increasing sales of
its traditional products by improving existing product lines; and seeking new
products to supplement its current line, both from internal research and
development and by acquisition.
Materials and Supplies. Polychem's business of manufacturing a broad line of
engineered plastics products necessitates the ability to obtain various sources
of raw materials, even in periods of short supply. Polychem has accumulated a
strong supply network over the past thirty years. At present, Polychem does not
maintain more than one month's supply of raw materials beyond the amount
required for its scheduled production work.
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Environmental Regulations. While no assurances can be given, Polychem does not
anticipate any significant expenses for environmental remediation projects. In
the ordinary course of its business, Polychem incurs some cost for oil
reclamation, hauling of waste products and normal energy costs associated with
recycling and waste disposal. Polychem maintains two environmental permits, one
for a dust collection system and the other for its after burner heater. The
collected dust is transported to an approved landfill and samples of the dust
are periodically analyzed. The heater is used to impregnate phenolic resin into
rolls of fabric, which are then processed into specific products. Methanol from
the heater is processed through an after burner and emits little in the way of
contaminants. Polychem maintains seven above ground storage tanks. Two are used
to store phenolic resins inside the plant; two store fuel oil; and three outside
tanks are used to store other chemicals. There are spill containment systems in
place throughout the facility.
Occasionally, there are minor and isolated spills of heat transfer oil,
caprolactam and phenolic resins. The latter two quickly solidify at room
temperature and the hardened material is removed to an approved landfill; spills
of heat transfer oil are cleaned and properly disposed of with other waste
products. Polychem has submitted a revised spill prevention and response plan to
the Pennsylvania Department of Environmental Resources in May 1994 to which no
comments have been received as of the date of this Prospectus.
The Polychem property in Phoenixville, Pennsylvania was first used as a silk
mill in the early part of this century and then as a manufacturing site for felt
carpet padding. Several environmental audits that have been commissioned over
the past two years have not revealed contamination.
Employees. Polychem employs approximately 76 employees, of whom approximately 43
are employed on an hourly basis. Hourly employees are members of United Textile
Workers of America, AFL-CIO, Phoenixville Plastic Makers' Union, Local No. 130
(the "Union"). Most are semi-skilled workers. The current Union contract expires
at the end of September, 1999.
ConMat has assumed all of Polychem's continuing obligations under its collective
bargaining agreement with the Union, which includes assumption of obligations
under a defined benefit retirement plan for hourly rated employees at its
Phoenixville, Pennsylvania plant. The plan is fully funded in accordance with
certain actuarial assumptions and to meet ERISA funding requirements; however,
there can be no assurances that market performance of plan investments will be
sufficient to meet all plan liabilities as they arise.
Equipment. Polychem owns or leases, through capital leases, all of the equipment
required to conduct its business. The equipment is comprised of compression
molding presses, transfer molding presses, injection molding presses, reactors,
dispensers and RIM press lines for nylon-6 operations, a complete fabrication
shop with computerized numerical control ("CNC") equipment and a computer aided
design ("CAD") center.
Research and Development. Polychem is the owner of a number of United States and
foreign patents and patent applications relating to water treatment plastic
products, chain conveyor links, conveyor chain bearings, sprockets with locking
mechanisms and a bucket grit elevator system. The ownership of such patents
helps Polychem from a marketing standpoint by securing its continued reputation
as an innovative competitor in its industry.
Polychem employs eight application engineers who use CAD equipment to design
custom wastewater treatment non-metallic rectangular clarifier systems or to
alter existing clarifiers to meet changing specification requirements. All new
products are evaluated for patent protection. Recently, Polychem was granted a
patent for a grit bucket system which is now undergoing marketing development.
To date, five successful applications for the system have been found, the most
significant of which is to function as part of a grit collection system in
wastewater treatment where it will be used to remove sand and gravel from
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effluent before it reaches the clarifier. The amounts spent on research and
development by Polychem were $141,000 and $155,000 for the years ended January
2, 1999 and January 3, 1998, respectively.
Debt and Encumbrances. On September 30, 1998, Polychem entered into a Lease and
Security Agreement with General Electric Capital Corporation ("GECC") which
provides for a three year $3,500,000 revolving line of credit and a three year
term loan of $1,500,000. All of Polychem's assets have been pledged to secure
the loans advanced or to be advanced under the loan agreement. The term loan is
secured by real estate and equipment. The revolving line of credit is secured by
accounts receivable and inventory. Advances under the revolving line of credit
are subject to a lending formula limiting the availability of funds to the total
of 80% of eligible accounts receivable plus up to 50% eligible inventory less a
$300,000 reserve against availability and subject to a $250,000 cap on current
retainages under 120 days. Interest rates on the loan are at a rate of 4.75% in
excess of the 30 day dealer commercial paper rate on the revolving line of
credit and 6.50% in excess of the 30 day dealer commercial paper rate for the
term loan. As of January 2, 1999, availability under the line of credit was
$286,000 and outstanding borrowings were $1,398,632.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward Looking Statements
Some of the statements contained in this Registration Statement discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
Important factors that may cause actual results to differ from
projections include, for example,
o general economic conditions, including their impact on capital
expenditures;
o business conditions in the material technology and wastewater
treatment industries;
o the regulatory environment;
o rapidly changing technology and evolving industry standards;
o new products and services offered by competitors; and
o price pressures.
ConMat does not promise to update forward-looking information to
reflect actual results or changes in assumptions or other factors that could
affect those statements.
Background and Basis of Presentation
Although ConMat was formed in March 1986, it had no significant operations until
December 8, 1998, when ConMat acquired Polychem from Eastwind. See "Description
of Business - Acquisition of Polychem."
As ConMat had minimal assets and no operations prior to the acquisition of
Polychem, and the management and stockholders of Polychem controlled ConMat
after the transaction, the transaction has been accounted for as a reverse
takeover in which Polychem effectively issued stock for the assets of ConMat and
recapitalized. Therefore, the post-transaction comparative historical financial
statements of ConMat are those of Polychem for the same period with appropriate
footnote disclosure of the change in capital structure, and adjusted for the
following:
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o In connection with the acquisition, ConMat assumed certain
liabilities of Eastwind. Such liabilities are considered to be
"contributed" to Polychem by Eastwind upon consummation of the
acquisition resulting in a reduction of Polychem's
stockholders equity. ConMat's securities issued at acquisition
to satisfy these liabilities are recorded at the amounts of
the related liabilities relieved.
o Amounts owed to Polychem by Eastwind and its subsidiary in the
form of notes receivable are considered uncollectible and
accounted for as distributions, either in the form of
dividends on common stock, or returns of capital to Eastwind
in the periods the distributions were made. These amounts will
be restored to shareholders' equity if they are collected.
Results of Operations
The following table sets forth, for each of the aforementioned periods, certain
statement of operations items as a percentage of total net sales for the periods
indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------------
January 2, 1999 January 3, 1998
--------------- ---------------
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 73.7 75.4
Gross Profit 26.3 24.6
Selling and Administrative 22.7 17.5
Interest Expense 6.7 3.4
Other Expense 3.2 4.2
Income (Loss) (6.3) (0.5)
</TABLE>
Total revenues decreased by $3,060,000 or 25%, to $9,070,000 for the Current
Annual Period from $12,130,000 for the Comparable Annual Period. This decline is
attributable in large measure to an extraordinary shift in the timing of the
start of certain projects in Asia on which ConMat anticipates that it will be a
successful bidder. This shift is a direct result of recent economic difficulties
in this region. ConMat believes, however, that these projects will ultimately be
awarded due to their environmental significance. Despite this shift, annual
revenues are expected to increase beyond the level of the current annual period.
ConMat has reduced its reliance on Asia by successfully shifting its sales focus
to projects in other parts of the world where project start dates are more
certain due to better economic stability. As a result, ConMat ended the Current
Annual Period with a booked order backlog of $5,400,000, or an increase of 135%,
over the Comparable Annual Period ending backlog of $2,300,000.
Gross profit decreased by $604,000 or 20%, to $2,384,000 for the Current Annual
Period from $2,988,000 for the Comparable Annual Period as a result of the
decrease in total revenues. Gross profit increased as a percentage of sales to
26.3% for the Current Annual Period from 24.6% for the Comparable Annual Period.
The percentage increase reflects a combination of several cost saving measures
implemented by Management which are expected to have increased benefits in the
future as costs increase more slowly than revenues. These include reductions in
direct labor and lower material costs from decreased reliance on outsourcing.
This allowed for fewer outside purchases of finished product allowing ConMat to
realize savings between the purchase of finished goods versus the conversion of
raw materials. Gross profits are expected to increase versus the Current Annual
Period reflecting an improved mix of more
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profitable international versus domestic sales, lower material costs, and
continued improvements in production efficiencies.
Selling and administrative expenses decreased by $64,000 to $2,055,000 or 3.0%,
for the Current Annual Period from $2,119,000 for the comparable Annual Period.
As a percentage, revenues, selling and administrative expenses increased to
22.7% for the Current Annual Period from 17.5% for the Comparable Annual Period.
The level of selling and administrative expense during the Current Annual Period
reflects ConMat's successful efforts to penetrate new markets around the world
and balance its reliance on Asian markets for new revenues. Selling and
administrative expenses are being closely evaluated by Management and are
projected to decrease as a percentage of sales in future periods.
Interest expense for the Current Annual Period includes a one-time charge of
$143,000 for the write off of deferred financing costs associated with the
September 1998 refinancing. Excluding this one time charge, interest expense
increased $61,000 or 15%, to $467,000 for the Current Annual Period from
$406,000 for the Comparable Annual Period. Increased average borrowings as a
result of the aforementioned refinancing were the primary reason for the
increase. Future interest costs are expected to remain fairly stable.
For the Current Annual Period, ConMat experienced a loss of $575,000, which
included corporate charges from Polychem's former parent company of $480,000,
and net cash used of $34,000. For the Comparable Annual Period, ConMat realized
net loss of $64,000, which included corporate charges from Polychem's former
parent company of $640,000, and net cash used of $79,000. ConMat anticipates
that corporate charges for the foreseeable future will be approximately $350,000
per year.
Liquidity and Capital Resources
During the Current Annual Period, despite the aforementioned loss, ConMat
realized net cash from operating activities of $422,000, related primarily to
decreases in accounts receivable and inventory of $887,000 combined, plus a
reduction in prepaid expenses of $80,000 and non-cash charges for depreciation
and amortization of $313,000. These inflows were reduced by an increase in
deferred finance costs of $167,000 and combined decreases in accounts payable
and accrued expense of $51,000. Cash flow from investing activities included
expenditures for new equipment of $177,000. Financing activities used net cash
of $330,000, reflecting net borrowings arising from a new financing after
payment of existing debt plus the scheduled amortization of our term debt, plus
a capital distribution to the former parent of $250,000 and recapitalization
costs of $173,000. In the future all capital distributions will be eliminated as
a result of the recapitalization.
For the Comparable Annual Period, ConMat realized cash from operating activities
of $442,000 related primarily to decreases in accounts receivable of $467,000
and inventory of $434,000, plus increases in accounts payable of $188,000 and
non-cash charges for depreciation and amortization of $233,000. These inflows
were reduced by decreases in accrued liabilities of $446,000 and deferred
revenues of $92,000. Cash flow from investing activities included purchases of
new equipment for $126,000. Net cash of $284,000 was used by financing
activities reflecting the excess of net borrowings under the line of credit
above scheduled principal repayments of the term debt, less repayment of
$360,000 on subordinated notes and dividends to the former parent of $768,000.
In the future these dividends will no longer take place as a result of the
recapitalization.
ConMat's primary source of working capital is an $3,500,000 credit facility
secured by Polychem's assets with borrowings limited to a percent of eligible
receivables and inventory. As of March 31, 1999, the maximum borrowing amount
was $2,439,000 and the outstanding balance was $2,343,000. Management believes
that ConMat has sufficient assets, equipment and facility to attain and absorb
forecast growth in revenues. Maintenance of existing equipment is principally
performed by in-house personnel primarily responsible for such function. ConMat
does not anticipate any material expenditures beyond this effort. ConMat has no
commitments for significant capital expenditures in the foreseeable future.
Management believes that ConMat's cash and capital resources, together with cash
flow from operations, will be sufficient to finance current and forecasted
operations including its capital spending and research and development needs.
ConMat is, however, actively seeking potential strategic acquisitions and,
depending on the size and terms of any such acquisitions, additional financing,
including equity infusions for ConMat, may be required.
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Additionally, ConMat is in discussions with several potential lenders about the
possibility of mortgaging its property. If successful, such a financing would
result in lower debt service costs and increased capital reserves.
Year 2000 Compliance
Changing from the year 1999 to 2000 has the potential to cause problems in data
processing and other date-sensitive systems. The Year 2000 date change can
affect any system that uses computer software programs or computer chips,
including automated equipment and machinery. The Year 2000 problem is the result
of computer programs using two digits rather than four to define the year. Any
of Polychem's programs that are time sensitive may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. At Polychem, computer systems are used to run all
administrative and key design and manufacturing functions. Computer software and
computer chips also are used to run security systems, communications networks
and other essential equipment. Because of its reliance on these systems,
Polychem is following a process to assure that such systems are ready for the
Year 2000 date change.
In June 1998, Polychem entered into an agreement with IBM Corporation and IBM's
authorized software licensee for systems, CNA Systems, Incorporated. Polychem
entered into the agreement, in part, to initiate a Year 2000 plan to ensure that
Polychem's existing information systems were Year 2000 compliant. In connection
with the agreement, Polychem has upgraded its computer system from an IBM System
36 to an IBM AS/400 and has purchased new software applications relating to
sales and marketing, manufacturing, financial management, materials management,
quality control and management information support systems.
During the fourth quarter of 1998, Polychem commenced the editing and
reprogramming of its existing databases. During the first quarter of 1999,
Polychem commenced testing of inter-modular software applications using the
revised databases. Polychem intends to parallel these systems during the second
quarter of 1999 and to complete its Year 2000 preparation by July 1, 1999. [In
connection with the foregoing, Polychem has completed its assessment of which
systems and equipment are most prone to placing Polychem at risk if they are not
Year 2000 compliant (i.e., mission critical systems).]
[Significant vendors have been requested to advise Polychem in writing of their
Year 2000 readiness, including actions to become compliant if they are not
already compliant. Vendors who provide significant technology-related services
to Polychem have modified their systems to become Year 2000 compliant. The
monitoring of certain vendors will continue into 1999.]
Polychem is preparing a contingency plan for how Polychem would resume business
if unanticipated problems arise from non-performance by vendors. Such plans are
expected to be completed by July 1, 1999.
Polychem spent $125,000 during the year ending December 31, 1998 relating to
costs incurred as a result of its Year 2000 Plan. Polychem anticipates incurring
approximately $50,000 in additional costs related to the implementation of the
Year 2000 plan. Management presently believes the Year 2000 issue will not pose
significant operating problems for Polychem. However, if implementation and
testing plans are not completed in a satisfactory and timely manner by Polychem
or third parties on which Polychem is dependent, or other unforeseen problems
arise, the Year 2000 issue could potentially have an adverse effect on the
operations of Polychem.
Item 3. Description of Property.
Polychem operates from a 220,000 square foot facility in Phoenixville,
Pennsylvania, which it owns, subject to a mortgage with General Electric Capital
Corporation. See "Debt and Encumbrances." Polychem uses approximately 120,000
square feet for manufacturing and warehousing, and 20,000 square feet for
offices. Polychem leases approximately 42,500 square feet of its facility as
warehouse space to Windsor Designs, a wholesale distributor of imported outdoor
furniture. The Windsor Designs lease continues until December 1999 at a rental
rate of $133,980 per year ($3.15 per square foot), net of utilities. Polychem
expects this lease to be renewed. Polychem leases an additional 4,740 square
feet of the facility as equipment storage space to Ethan Horowitz, a residential
cabinet maker. That lease
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continues until January, 2003 at a rental rate of $15,100 per year ($3.19 per
square foot). Polychem also leases a tower located on the facility to a group of
cellular phone operators including ComCast Metrophone, PageNet, Nextel and
Omnipoint that the group uses for cellular telephone transmissions. Combined
annual lease income from the tower is $48,000. The leases continue through March
2004. An additional 40,000 square feet of warehouse space is available for lease
at the facility.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information concerning the beneficial ownership
of ConMat's common stock as of March 31, 1999, by each director and executive
officer, all directors and officers as a group, and each person known to ConMat
to beneficially own 5% or more of its outstanding common stock. Except as
otherwise noted, the address for each such person is Franklin Avenue and Grant
Streets, Phoenixville, Pennsylvania 19460.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage of
Title of Class Beneficial Owner Beneficial Owner (1) Class (1)
-------------- ------------------- -------------------- -------------
<S> <C> <C> <C>
Common Stock, par value Paul A. DeJuliis 553,333 (2) 13.6
$.001 per share
Edward F. Sager, Jr. 196,667 (3) 4.8
P.O. Box 560
Yardley, PA 19067
The Eastwind Group, Inc. 1,000,000 24.5
Shareholder Trust
c/o Paul A. DeJuliis, Trustee
The Eastwind Group, Inc. 1,333,333 (4) 32.7
275 Geiger Road
Philadelphia, PA 19115
The DAR Group, Inc. 240,000 5.9
30 Broad Street
43rd Floor
New York, NY 10004
Directors and Executive 750,000 (2)(3) 18.4
Officers (4 persons)
Series A Preferred Stock, par Paul A. DeJuliis 53,333 3.85
value $.001
The Eastwind Group, Inc. 1,333,333 96.15
275 Geiger Road
Philadelphia, PA 19115
Series B Preferred Stock, par Mentor Special Situation 166,667 (5) 100.00
value $.001 Fund, L.P.
P.O. Box 560
Yardley, PA 19067
</TABLE>
- ----------
* less than one percent (1%)
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(1) Based upon 4,083,333 shares of common stock outstanding or deemed
outstanding as of March 31, 1999, calculated in accordance with Rule 13d-3
promulgated under the Securities Exchange Act of 1934. It also includes shares
owned by (i) a spouse, minor children or by relatives sharing the same home,
(ii) entities owned or controlled by the named person and (iii) other persons if
the named person has the right to acquire such shares within 60 days by the
exercise of any right or option. Unless otherwise noted, shares are owned of
record and beneficially by the named person.
(2) Includes 53,333 shares issuable upon conversion of Series A Preferred Stock
and 250,000 issuable upon the exercises of options. (See "Executive Compensation
- - Employment Agreements" for conditions of exercise.) Does not include 1,000,000
shares held by The Eastwind Group, Inc. Shareholder Trust, of which Mr. DeJuliis
is Trustee, as to which he disclaims beneficial ownership.
(3) Includes 166,667 shares issuable upon the exercise of warrants to Mentor
Special Situation Fund, L.P., of which Mr. Sager is a general partner, and
30,000 shares issuable upon the exercise of warrants to Mentor Management
Company, of which Mr. Sager is President.
(4) Includes 1,333,333 shares issuable upon conversion of Series A Preferred
Stock.
(5) Edward F. Sager, Jr., a director of ConMat is a general partner of Mentor
Special Situation Fund, L.P.
Item 5. Directors, Executive Officers Promoters and Control Persons.
Certain information concerning the directors and executive officers of ConMat is
set forth below.
<TABLE>
<CAPTION>
Name Position with Corporation Age
---- ------------------------- ---
<S> <C> <C>
Paul A. DeJuliis Chief Executive Officer, Secretary and Chairman of
the Board of Directors 43
Theodore R. Rutkowski President and a Director 63
Edward F. Sager, Jr. Director 51
William J. Crighton Vice President and Treasurer 52
</TABLE>
The following is a brief summary of the business experience of ConMat's
directors and executive officers.
Paul A. DeJuliis - Chairman of the Board of Directors and Chief Executive
Officer - Prior to assuming his current role and since 1991, Mr. DeJuliis was
Chairman and Chief Executive Officer of The Eastwind Group, Inc., a publicly
traded holding company. Previously, Mr. DeJuliis was a partner in Phoenix
Management Services, Inc., a turnaround consulting firm (1989-91),
Vice-President, Corporate Finance for Colmen & Co., a national investment
banking firm (1987-89), and Manager, Corporate Turnaround Consulting Group for
Coopers & Lybrand (1986-87). Mr. DeJuliis has a B.S. in finance and accounting
from the University of Delaware. He is also a certified public accountant.
Theodore R. Rutkowski - President and a Director of ConMat and President of
Polychem - Prior to his current role and since 1975, Mr. Rutkowski served as the
General Manager of the Polychem Division of the Budd Company. Mr. Rutkowski
previously served as President of the Budd Company Trailer Division, which was
subsequently sold to a third party in 1985. In addition, Mr. Rutkowski was
responsible for the restructuring of Greening Donald in Hamilton, Ontario, a
Budd Company subsidiary. Mr. Rutkowski graduated with a bachelor's degree in
accounting from Rutgers University.
Edward F. Sager, Jr. - Director - Mr. Sager has been the President of Mentor
Management Company, general partner of Mentor Special Situation Fund LP, an
investment fund, and President of Mentor Capital Partners Ltd., a venture
capital firm, since 1994. From 1985 to 1994 Mr. Sager was President of Sager &
Associates, a merchant banking firm
11
<PAGE>
providing access to venture capital for small to medium size companies. He is a
graduate of Lafayette College with a B.S. degree in Mechanical Engineering and
he received an MBA in finance from New York University.
William J. Crighton - Vice President and Treasurer of ConMat and Polychem -
Prior to his current role and since 1975, Mr. Crighton served as the divisional
controller of The Polychem division of The Budd Company. Prior to joining
Polychem, Mr. Crighton was employed in the automotive division and technical
center of The Budd Company. Mr. Crighton graduated with a bachelor's degree in
accounting from LaSalle University and holds an MBA from Widener University.
The following is a brief summary of the business experience (with the exception
of Mr. Rutkowski and Mr. Crighton, whose biographical information is set forth
above) of the additional members of management of Polychem, ConMat's operating
subsidiary.
J.R. Hannum - Manager of Internal Sales, Product Development and Engineering -
Mr. Hannum has served in his current role since 1995. Prior thereto, Mr. Hannum
served as General Manager of the Polychem Division of The Budd Company and as
manager of domestic sales, research and development and manufacturing
engineering. Mr. Hannum graduated with a bachelor's degree in engineering from
Villanova University and graduated with a master's degree in engineering from
Penn State University.
Donald L. Hutton - National Sales Manager - Mr. Hutton has served in his current
position since 1995. Prior thereto, he was employed with The Budd Company for 36
years in several roles including advertising manager, manager of distributor
sales and manager of customer services. Mr. Hutton is a graduate of the
University of Delaware.
Item 6. Executive Compensation.
The following summary compensation table sets forth the total annual
compensation paid to the Chief Executive Officer and each other Executive
Officer of ConMat whose total compensation for the fiscal year ended January 2,
1999 exceeded $100,000:
<TABLE>
<CAPTION>
Salary Bonus Other Long Term Securities Option
Name and Position ($) ($) ($) Compensation Match ($)
- ----------------- --- --- --- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Paul A. DeJuliis
Chairman & Chief
Executive Officer (1) 14,667 0 0 0 250,000
Theodore F. Rutkowski (1) 135,000 0 0 0 0
</TABLE>
- ----------
(1) On December 10, 1998, Mr. DeJuliis purchased 250,000 shares of common stock
from ConMat for $50,000.
Employment Agreements
On December 8, 1998, ConMat entered into an Employment Agreement with Paul A.
DeJuliis, ConMat's Chief Executive Officer and Chairman of the Board of
Directors. Under the agreement, Mr. DeJuliis will be paid an annual base salary
ranging from $170,000 to $250,000 depending on ConMat's annual net income. As
additional incentive compensation, upon executing the Employment Agreement, Mr.
DeJuliis received (i) 250,000 shares of common stock for an aggregate purchase
price of $50,000, paid by delivery of a two-year promissory note at 5% interest;
and (ii) 250,000 options to purchase shares of common stock at an exercise price
of $3.00 per share. 50,000 of the options are exercisable upon registration of
the underlying shares of common stock. 100,000 of the options are exercisable
following registration of the underlying shares of common stock if ConMat
realizes $750,000 in pre-tax income during a fiscal year. The remaining 100,000
options are exercisable following registration of the underlying shares of
common
12
<PAGE>
stock if ConMat realizes $1,000,000 in pre-tax income during a fiscal year. All
of the options are immediately exercisable upon a merger, sale of assets or
other transaction resulting in a change of control in which the holders of
shares of common stock receive not less than $5.00 per share.
Item 7. Certain Relationships and Related Transactions
None.
Item 8. Description of Securities
General
The following description of ConMat's common stock and preferred stock is a
summary only. This summary is qualified in its entirety by reference to the
applicable instruments, including without limitation, ConMat's Articles of
Incorporation and Bylaws, and is subject to the Florida Business Corporation
Act.
The authorized capital stock of ConMat consists of 40,000,000 shares of common
stock and 10,000,000 shares of preferred stock. As of February 28, 1999, there
were outstanding 2,250,000 shares of common stock, 1,386,666 shares of Series A
Preferred Stock and 166,667 shares of Series B Preferred Stock.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders, including the election of
directors, and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the dividend preferences attributable to the
preferred stock. Upon the liquidation, dissolution or winding up of ConMat,
holders of common stock are entitled to receive ratably the net assets of ConMat
available for distribution to such holders after preferred distributions to
holders of preferred stock. Holders of common stock have no preemptive or
redemption rights.
Series A Preferred Stock
Shares of the Series A preferred stock rank prior to the common stock and pari
passu with the Series B preferred stock. The creation of any class or series of
capital stock ranking senior to or pari passu with the Series A preferred stock
requires the consent of a majority of the holders of the Series A preferred
stock.
The holders of the shares of the Series A preferred stock are entitled to
receive cash dividends at a rate of 2% per year, which dividends are payable in
equal, quarterly installments, as and if declared by the Board of Directors out
of funds legally available for the payment of dividends. Such dividends shall
begin to accrue on outstanding shares of Series A preferred stock from the date
of issuance and shall accrue from day to day, whether or not earned or declared,
until paid. ConMat may, at its sole discretion, pay any or all dividends in
common stock rather than in cash. In the event of any liquidation, dissolution
or winding up of ConMat, holders of the Series A preferred stock shall be
entitled, in preference to the holders of the common stock and pari passu with
the holders of the Series B preferred stock, to be paid first out of assets and
funds of ConMat available for distribution to holders of ConMat's capital stock
in the amount of $3.00 per share.
Shares of Series A preferred stock are convertible at the option of the holder
at any time following 60 days after the date of issuance at the then effective
conversion price. The conversion price shall be the greater of $3.00 or 80% of
the closing bid price of the common stock on the conversion date, subject to
adjustments due to stock splits, stock dividends, mergers, consolidations and
other events. ConMat has the right, by written notice to each of the holders of
the Series A preferred stock, to convert all shares of the Series A preferred
stock into shares of common stock at any time on or after the first day on which
the closing bid price has been equal to or in excess of the conversion price for
45 consecutive
13
<PAGE>
calendar days. In the case of such a mandatory conversion, each share of Series
A preferred stock will be converted into a number of shares of common stock
determined by dividing the stated value by the then effective conversion price.
The holders of the Series A preferred stock will have no voting power, except as
otherwise required by the Florida Business Corporation Act. To the extent
permitted under the Florida Business Corporation Act, the Series A preferred
stock and Series B preferred stock will be considered a single class of stock
for voting purposes.
The holders of Series A preferred stock have, subject to certain limitations,
registration rights, which obligate ConMat to include shares of common stock
issued or issuable upon conversion of shares of Series A preferred stock in
registration statement filed with the Securities and Exchange Commission.
Series B Preferred Stock
Shares of the Series B preferred stock rank prior to the common stock and pari
passu with ConMat's Series A preferred stock. The creation of any class or
series of capital stock ranking senior to or pari passu with the Series B
preferred stock requires the consent of a majority of the holders of the Series
B preferred stock.
Holders of the shares of the Series B preferred stock are entitled to receive
cash dividends at a rate of 8% per year, which dividends are payable in equal,
quarterly installments, as and if declared by the Board of Directors out of
funds legally available for the payment of dividends. Such dividends will begin
to accrue on outstanding shares of Series B preferred stock from the date of
issuance and will accrue from day to day, whether or not earned or declared,
until paid. In the event of any liquidation, dissolution or winding up of
ConMat, holders of the Series B preferred stock will be entitled, in preference
to the holders of the common stock and pari passu with the holders of the Series
A preferred stock, to be paid first out of assets and funds of ConMat available
for distribution to holders of the ConMat's capital stock in the amount of $3.00
per share, plus all accrued but unpaid dividends.
ConMat may redeem the Series B preferred stock at any time. ConMat is required
to redeem the Series B preferred stock on the earliest of, (i) the date Mr.
DeJuliis ceases for any reason to serve as Chairman and Chief Executive Officer
of ConMat, or (ii) the date Mr. DeJuliis, Mr. Rutkowski and the member of
ConMat's Board of Directors elected by the holders of the Series B preferred
stock cease to constitute a majority of the Board of Directors. The redemption
price is $3.00 per share, plus all accrued but unpaid dividends.
The holders of the Series B preferred stock have the right to elect one member
of ConMat's Board of Directors. Except as otherwise required by the Florida
Business Corporation Act, the holders of the Series B preferred stock have no
other voting rights. To the extent permitted under the Florida Business
Corporation Act, the Series A preferred stock and Series B preferred stock will
be considered a single class of stock for voting purposes.
In connection with the acquisition of Polychem by ConMat, the holders of the
Series B preferred stock also received warrants to purchase 166,667 shares of
common stock at an exercise price of $3.00 per share, subject to adjustment in
the case of stock splits, stock dividends, below market issuances or a merger or
consolidation. The warrants are exercisable until December 31, 2005. Subject to
certain limitations, holders of the warrants have "piggy-back" registration
rights which, upon the request of such holders, obligate ConMat to include the
shares of common stock issuable upon exercise of the warrants in a registration
statement filed with the Securities and Exchange Commission.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Stockholder Matters.
Market for Common Stock
14
<PAGE>
The common stock of ConMat is quoted on the Nasdaq OTC Bulletin Board under the
symbol "CNMT" and began trading December 21, 1998. The following table shows
trading prices for the common stock from inception through April 16, 1999:
Price of Common Stock
1999 Low Price High Price
---- --------- ----------
First Quarter $ 1.63 $ 4.00
Second Quarter (1) 3.00 3.00
1998
----
Fourth Quarter (2) $ 1.50 $ 2.125
- ----------
(1) Through and including April 16, 1999.
(2) Commencing December 21, 1998
Market quotations reflect inter-dealer prices, without retail markups, markdown
or commissions and may not necessarily reflect actual transactions. As of April
16, 1999, there were approximately 16 holders of record of ConMat's common
stock.
Dividend Policy
ConMat has never paid a cash dividend. There can be no assurance that ConMat
will pay cash dividends in the future. The Board of Directors will determine
ConMat's future dividend policy based on an analysis of factors that the Board
of Directors deems relevant. ConMat expects that such factors will include its
results of operations, financial condition and capital needs.
Item 2. Legal Proceedings
ConMat Technologies, Inc. ("ConMat") is currently a defendant in a Pennsylvania
state court action filed on January 28, 1999, captioned John R. Thach v. The
Eastwind Group, et al. (Montgomery County C.C.P., Civil Action No. 99- 01195).
Plaintiff maintains that Eastwind, his former employer, breached the terms of
his severance agreement, and that the sale of Polychem to ConMat was part of a
conspiracy to avoid payments to him and has violated Pennsylvania's Uniform
Fraudulent Transfer Act. Among the other named defendants is Paul A. DeJuliis,
President of ConMat and the former Chief Executive Officer of Eastwind.
Initially, the plaintiff sought a temporary restraining order and preliminary
injunction seeking to set aside the sale of Polychem to ConMat. However, by
Order dated February 19, 1999, the Court denied plaintiff's request for
injunctive relief. ConMat and Paul A. DeJuliis subsequently filed preliminary
objections to the complaint seeking to have themselves dismissed as a party to
the action. Currently, the parties are preparing briefs relating to ConMat's
preliminary objections and a decision by the Court is not expected until July,
1999 at the earliest.
Item 3. Changes in and Disagreements with Accountants
None.
15
<PAGE>
Item 4. Recent Sales of Unregistered Securities
In connection with the acquisition of Polychem on December 8, 1998 and pursuant
to Section 4(2) of the Securities Act, ConMat issued (i) 1,000,000 shares of
common stock, (ii) 1,386,666 shares of Series A convertible preferred stock,
(iii) 166,667 shares of Series B convertible preferred stock and (iv) warrants
to purchase 196,667 shares of common stock.
On December 10, 1998, Paul A. DeJuliis, President and Chief Executive Officer of
ConMat, purchased 250,000 shares of common stock at a purchase price of $50,000,
paid by delivery to ConMat of Mr. DeJuliis' promissory note in that amount. The
note has a maturity date of December 10, 2000, bears interest at 5% per annum
and is secured by a pledge of the purchased shares.
Item 5. Indemnification of Directors and Officers
ConMat's charter provides that to the fullest extent permitted by law, no
director or officer of ConMat shall be personally liable to ConMat or its
shareholders for damages for breach of any duty owed to ConMat or its
shareholders and that ConMat may, in its by-laws or in any resolution of its
stockholders or directors, undertake to indemnify the officers and directors of
ConMat against any contingency or peril as may be determined to be in the best
interests of ConMat, and in conjunction therewith, to procure, at ConMat's
expense, policies of insurance. Florida law, under which ConMat is incorporated,
allows a corporation to indemnify its directors and officers if such director or
officer acted in good faith and in a manner such director or officer 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 his conduct was unlawful. ConMat maintains a director and officer
liability insurance policy covering each of ConMat's directors and executive
officers.
16
<PAGE>
PART F/S
ConMat Technologies, Inc.
Index to Consolidated Financial Statements
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS..................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS........................F-4
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIENCY)............................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS........................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................F-7
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
ConMat Technologies, Inc.
We have audited the accompanying consolidated balance sheets of ConMat
Technologies, Inc. and Subsidiary (a Florida corporation) as of January 2, 1999,
and January 3, 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the fiscal years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ConMat Technologies, Inc. and Subsidiary as of January 2, 1999, and January 3,
1998, and the consolidated results of their operations and their consolidated
cash flows for the fiscal years then ended, in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
----------------------
Philadelphia, Pennsylvania
March 25, 1999
F-2
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS January 2, January 3,
1999 1998
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 29,430 $ 63,840
Accounts receivable, net 2,622,261 3,524,622
Due from related parties - 10,900
Inventories 1,159,545 1,144,202
Prepaid expenses 14,768 105,911
Prepaid income taxes 35,577 24,677
----------- -----------
Total current assets 3,861,581 4,874,152
Property, plant and equipment, net 1,188,823 1,232,162
Deferred income taxes 78,493 78,493
Other assets 386,128 286,438
----------- -----------
$ 5,515,025 $ 6,471,245
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Lines of credit $ 1,398,632 $ 1,492,511
Current portion of long-term debt 625,260 680,660
Current portion of capitalized lease obligations 103,744 68,947
Accounts payable 1,183,913 1,162,738
Accrued expenses 302,374 247,620
----------- -----------
Total current liabilities 3,613,923 3,652,476
Long-term debt 2,075,775 1,897,597
Capitalized lease obligations 151,761 122,293
Other liabilities 181,900 209,170
----------- -----------
Total liabilities 6,023,359 5,881,536
----------- -----------
Stockholders' equity (deficiency)
Preferred stock, $.001 par value, 10,000,000 shares authorized,
Series A preferred stock, 1,333,333 shares issued and outstanding 1,386 -
Series B preferred stock, 166,687 shares issued and outstanding 167 -
Common stock, $.001 par value, 40,000,000 shares authorized, 2,250,000
shares issued and outstanding 2,250 -
Common stock, $.01 par value, 5,000,000 shares authorized, 1,000
shares issued and outstanding - 10
Additional paid-in capital 277,345 504,490
Less capital repayment (250,000) -
Accumulated earnings (deficit) (489,482) 85,209
Less note receivable for shares sold (50,000) -
----------- -----------
Total stockholders' equity (deficiency) (508,334) 589,709
----------- -----------
$ 5,515,025 $ 6,471,245
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal year ended
----------------------------
January 2, January 3,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 9,069,668 $12,129,981
Cost of goods sold 6,685,177 9,142,517
----------- -----------
Gross profit 2,384,491 2,987,464
Selling, general and administrative expenses 2,055,063 2,119,615
Eastwind corporate support fees 480,000 640,000
----------- -----------
Operating (loss) income (150,572) 227,849
Interest expense (609,996) (406,021)
Rental income 185,877 177,832
----------- -----------
Loss before income tax expense (574,691) (340)
Income tax expense - (63,573)
----------- -----------
NET LOSS $ (574,691) $ (63,913)
=========== ===========
Per share data - basic and diluted
Net loss per share $ (0.28) $ (0.03)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Fiscal years ended January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
Series A Series B
----------------------- ----------------------
Common stock preferred stock preferred stock
------------------------ ----------------------- ----------------------
Shares Amount Shares Amount Shares Amount
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1,000 $ 10 - $ - - $ -
Cash dividends on common stock - - - - - -
Net loss - - - - - -
--------- --------- --------- --------- ------- ---------
Balance, January 3, 1998 1,000 10 - - - -
Reclassification of $.01 common
stock (1,000) (10) - - - -
Issuance of $.001 common stock
and Series A preferred stock
in connection with
reclassification of equity 2,000,000 2,000 1,333,333 1,333 - -
Assumption of stockholders'
liabilities - - - - - -
Issuance of Series A preferred
stock - - 53,333 53 - -
Issuance of Series B preferred
stock - - - - 166,667 167
Issuance of common stock 250,000 250 - - - -
Receivable from stockholder - - - - - -
Capital repayment - - - - - -
Net loss - - - - - -
--------- --------- --------- --------- ------- ---------
Balance, January 2, 1999 2,250,000 $ 2,250 1,386,666 $ 1,386 166,667 $ 167
========= ========= ========= ========= ======= =========
</TABLE>
[RESTUB]
<TABLE>
<CAPTION>
Note Total
Additional Accumulated receivable stockholders'
paid-in earnings for shares equity
capital, net (deficit) sold (deficiency)
------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 504,490 $ 917,068 $ - $ 1,421,568
Cash dividends on common stock - (767,946) - (767,946)
Net loss - (63,913) - (63,913)
----------- ----------- ---------- -----------
Balance, January 3, 1998 504,490 85,209 - 589,709
Reclassification of $.01 common
stock - - - (10)
Issuance of $.001 common stock
and Series A preferred stock
in connection with
reclassification of equity (176,675) - - (173,342)
Assumption of stockholders'
liabilities (760,000) - - (760,000)
Issuance of Series A preferred
stock 159,947 - - 160,000
Issuance of Series B preferred
stock 499,833 - - 500,000
Issuance of common stock 49,750 - - 50,000
Receivable from stockholder - - (50,000) (50,000)
Capital repayment (250,000) - - (250,000)
Net loss - (574,691) - (574,691)
----------- ----------- ---------- -----------
Balance, January 2, 1999 $ 27,345 $ (489,482) $ (50,000) $ (508,334)
=========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
ConMat Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal year ended
-----------------------------
January 2, January 3,
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (574,691) $ (63,913)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization 312,980 233,354
Changes in assets and liabilities, net of effect from acquisitions
(Increase) decrease in assets
Accounts receivable 902,361 467,378
Inventories (15,343) 434,495
Prepaid expenses 91,143 (212,334)
Prepaid income taxes (10,900) (33,076)
Patents, net (25,666) (54,668)
Deferred financing charges (166,660) -
Increase (decrease) in liabilities
Accounts payable 21,175 188,082
Accrued expenses (45,256) (220,391)
Other current liabilities - (225,607)
Other liabilities (27,270) (91,589)
------------ -----------
Net cash provided by operating activities 461,873 421,731
------------ -----------
Cash flows from investing activities
Purchase of property and equipment (177,005) (125,651)
Advances to affiliated companies 10,900 (10,900)
Other - (80,000)
------------ -----------
Net cash used in investing activities (166,105) (216,551)
------------ -----------
Cash flows from financing activities
Net (repayments) borrowings under lines of credit (93,879) 1,182,372
Borrowings on term notes 1,800,000 -
Repayments of term notes (1,677,222) (356,400)
Repayments of capitalized lease obligations (84,155) (52,012)
Proceeds from capitalized lease obligations 148,420 69,922
Recapitalization costs (173,342) -
Repayment of subordinated debenture - (360,000)
Dividends on common stock - (767,946)
Capital distribution (250,000) -
------------ -----------
Net cash used in financing activities (330,178) (284,064)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (34,410) (78,884)
Cash and cash equivalents at beginning of year 63,840 142,724
------------ -----------
Cash and cash equivalents at end of year $ 29,430 $ 63,840
============ ===========
Supplemental cash flow information
Cash paid for interest $ 609,996 $ 406,021
============ ===========
Cash paid for taxes $ - $ 25,000
============ ===========
Noncash transactions
Assumption of stockholders' liabilities $ 760,000 $ -
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 2, 1999 and January 3, 1998
NOTE A - NATURE OF BUSINESS
ConMat Technologies, Inc. (ConMat or the Company), organized under the
laws of the State of Florida, is engaged in the development and manufacture of
proprietary custom engineered plastics and composite products for industrial end
users with a special emphasis on the wastewater treatment marketplace. ConMat
conducts its operations through its wholly owned subsidiary, the Polychem
Corporation (Polychem), located in Phoenixville, Pennsylvania. Polychem
manufactures and sells clarifier components for wastewater treatment
applications and other plastic-molded products, including buckets, sprockets,
and bearings. The wastewater treatment market is global in nature, and Polychem
presently sells products internationally in Western Europe, Asia and South
America, as well as in the United States.
NOTE B - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ConMat
and its wholly owned subsidiary, Polychem.
On December 8, 1998, ConMat, a non-operating public company with
1,000,000 common shares outstanding and immaterial net assets, acquired 100% of
the outstanding common stock of Polychem from The Eastwind Group, Inc.
(Eastwind) (the Acquisition). The Acquisition resulted in the owners and
management of Polychem having effective operating control of the combined
entity.
Under generally accepted accounting principles, the Acquisition is
considered to be a capital transaction in substance, rather than a business
combination. That is, the Acquisition is equivalent to the issuance of stock by
Polychem for the net monetary assets of ConMat, accompanied by a
recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the Acquisition is identical to that resulting
from a reverse acquisition, except that no goodwill is recorded. Under reverse
takeover accounting, the post reverse-acquisition comparative historical
financial statements of the "legal acquirer" (ConMat), are those of the "legal
acquiree" (Polychem) (i.e. the accounting acquirer).
Accordingly, the consolidated financial statements of ConMat as of
January 2, 1999, and January 3, 1998, and for the fiscal years then ended, are
the historical financial statements of Polychem for the same periods adjusted
for the following transactions contained in the Share Exchange Agreement
executed at consummation of the Acquisition. The basic structure and terms of
the Acquisition, together with the applicable accounting effects, were as
follows:
o ConMat acquired all of the outstanding shares of common stock of Polychem
from Eastwind in exchange for (I) 1,000,000 shares of newly issued common
stock of ConMat and (II) 1,333,333 shares of newly issued cumulative, 2%,
Series A convertible preferred stock of ConMat (Series A preferred
stock). The common stock and Series A preferred stock exchanged, in
addition to the existing ConMat shares outstanding, collectively resulted
in the recapitalization of the Company. Earnings per share (EPS)
calculations include the Company's change in capital structure for all
periods presented.
F-7
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
o ConMat assumed and, in certain instances, discharged the following
liabilities of Eastwind: (I) $160,000 owed to Eastwind's former Chairman
and Chief Executive Officer, who is the current Chairman and Chief
Executive Officer of ConMat, discharged by the issuance of 53,333 shares
of Series A preferred stock; (II) $100,000 owed to Clifton Capital, Ltd.;
and (III) $500,000 owed to Mentor Special Situation Fund, L.P. (Mentor),
discharged by the issuance to Mentor of 166,667 shares of newly issued
cumulative, 8%, Series B preferred stock of ConMat plus warrants to
purchase 166,667 shares of ConMat common stock, at $3.00 per share. The
general partner of Mentor is a member of ConMat's Board of Directors.
ConMat issued an option to purchase 30,000 shares of common stock to this
director for $1.00 per share.
o At closing, Eastwind issued to Polychem a promissory note in the amount
of $940,000 to evidence certain outstanding amounts owed by Eastwind to
Polychem for prior advances, secured by the pledge of 313,333 shares of
Series A preferred stock. This amount, in addition to other amounts owed
to Polychem by Eastwind, were deemed uncollectible and accounted for as
distributions, either in the form of dividends on common stock, or
returns of capital to Eastwind in the periods the distributions were
made.
The Company incurred $173,342 of costs related to the Acquisition.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Cash and Cash Equivalents
The Company's cash management system provides for the short-term investment
of cash and the transfer or deposit of sufficient funds to cover checks as
they are submitted for payment. The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.
3. Inventories
Inventories consist of raw materials, work-in-process, and finished goods.
Work-in-process and finished goods include raw materials, direct labor, and
a portion of manufacturing overhead. The Company's inventory is stated at
the lower of cost or market, with cost determined by the last-in, first-out
(LIFO) method.
(Continued)
F-8
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is recorded using the straight-line and
accelerated depreciation methods over the estimated useful lives of the
assets. Leasehold improvements are amortized over the term of the lease or
estimated useful life, whichever is shorter.
5. Income Taxes
The Company accounts for its income taxes under the liability method
specified by Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates which
will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities.
6. Loss Per Share
The Company reports earnings per share in accordance with the provisions
of SFAS No. 128, Earnings Per Share. SFAS No. 128 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of
the methodology used in computing such earnings per share. Basic earnings
per share excludes dilution and is computed by dividing income available to
common shareholders by the weighted average common shares outstanding during
the period. Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised and converted into common stock.
The following are the basic and diluted earnings per share calculations for
the periods presented:
January 2, January 3,
1999 1998
------------ ------------
Loss per share
Net loss $ (574,691) $ (63,913)
=========== ===========
Weighted average shares outstanding 2,017,170 2,000,000
----------- -----------
Basic and diluted loss per share $ (0.28) $ (0.03)
=========== ===========
Series A preferred stock, convertible into 1,386,666 and 1,333,333 shares of
common stock, were outstanding during the fiscal years ended January 2,
1999, and January 3, 1998, respectively, which were not included in the
computation of diluted earnings per share because to do so would be
antidilutive.
There were stock options outstanding at January 2, 1999, to purchase 280,000
shares of common stock which were not included in the computation of diluted
earnings per share because to do so would be antidilutive.
F-9
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE D - ACCOUNTS RECEIVABLE
January 2, January 3,
1999 1998
------------ ------------
Trade receivables $ 2,241,801 $ 3,401,519
Retainage receivables 608,481 361,124
Allowance for doubtful accounts (75,000) (85,000)
----------- -----------
2,775,282 3,677,643
Less retainage receivables due
in over one year 153,021 153,021
----------- -----------
$ 2,622,261 $ 3,524,622
=========== ===========
The Company sells clarifier components to general contractors for use in
building and maintaining wastewater treatment facilities operated by
government municipalities. Sales of these components under contracts
generally require retainage provisions which become due upon completion of
the entire contract. Retainage receivables expected to be collected after
one year are included in other assets in the accompanying balance sheets.
NOTE E - INVENTORIES
January 2, January 3,
1999 1998
----------- ------------
Raw materials $ 327,412 $ 320,826
Work-in-process 362,255 356,763
Finished goods 469,878 466,613
---------- ------------
$1,159,545 $ 1,144,202
========== ============
Had the FIFO method of valuing inventory been used, the value of inventories
would not have been significantly different as of January 2, 1999, and
January 3, 1998.
NOTE F - PROPERTY, PLANT AND EQUIPMENT
Estimated January 2, January 3,
useful lives 1999 1998
------------- ----------- -----------
Land - $ 56,000 $ 56,000
Buildings and improvements 10 - 15 years 976,155 968,826
Machinery and equipment 3 - 7 years 860,612 690,935
----------- -----------
1,892,767 1,715,761
Less accumulated depreciation 703,944 483,599
----------- -----------
$ 1,188,823 $ 1,232,162
=========== ===========
Depreciation expense was $220,345 and $199,668 for the fiscal years ended
January 2, 1999, and January 3, 1998, respectively.
Machinery and equipment as of January 2, 1999, and January 3, 1998, includes
$448,236 and $299,816, respectively, of equipment under capital leases, with
accumulated depreciation of $192,731 and $108,576, respectively.
F-10
<PAGE>
ConMat Technologies, Inc., Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE G - OTHER ASSETS
January 2, January 3,
1999 1998
----------- -----------
Retainage receivables due in over one year $ 153,021 $ 153,021
Deferred financing, net 152,773 78,749
Patents, net 80,334 54,668
----------- -----------
$ 386,128 $ 286,438
=========== ===========
NOTE H - LINES OF CREDIT AND LONG-TERM DEBT
On September 30, 1998, Polychem entered into a three year loan and security
agreement (the Agreement) with a commercial lender which provided to
Polychem a revolving credit line up to $3,500,000 based upon eligible
accounts receivable and inventory, as defined. The revolving credit line
bears interest at the index rate, based on the rate for 30-day dealer paper,
plus 4.75% (9.65% at January 2, 1999). The Agreement also provided for a
term loan for $1,500,000, secured by real estate and equipment, with
interest at the index rate plus 6.5% (11.4% at January 2, 1999). At January
2, 1999, the Company was not in compliance with certain financial covenants
contained in the Agreement with respect to $2,798,632 of obligations. These
instances of noncompliance were waived by the commercial lender.
At January 2, 1999, there was approximately $286,000 available for advances
under the revolving line of credit.
<TABLE>
<CAPTION>
January 2, January 3,
1999 1998
------------ ------------
<S> <C> <C>
Polychem term note payable to the Budd Company, interest at 8%, principal
payable in quarterly installments of $81,305, commencing March 1998
through March 2003 $ 1,301,035 $ 1,626,093
Polychem note payable, interest at index rate plus 6.5% (11.4% at January
2, 1999), payable in 36 monthly installments of $25,000 plus interest,
with a final payment in September 2001 1,400,000 -
Polychem note payable to bank, interest at the bank's prime rate plus
1.5% (10% at January 3, 1998), payable in 18 monthly installments of
$21,155 and 41 monthly installments of $29,617 plus interest, with a
final payment in March 2000 - 952,164
----------- -----------
2,701,035 2,578,257
Less current portion 625,260 680,660
----------- -----------
$ 2,075,775 $ 1,897,597
=========== ===========
</TABLE>
F-11
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE H - LONG-TERM DEBT - Continued
The carrying amount of the Company's long-term debt approximates market
value as of January 2, 1999, and January 3, 1998.
Interest expense of $414,123 and $266,831 on the term notes was charged to
operations for the years ended January 2, 1999, and January 3, 1998,
respectively.
NOTE I - CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under capital leases. The weighted
average interest rate was 9.96% and 14.2% for the years ended January 2,
1999, and January 3, 1998, respectively. Interest expense of $23,184 and
$24,553 on the capitalized lease obligations was charged to operations for
the years ended January 2, 1999, and January 3, 1998, respectively. Future
minimum lease payments as of January 2, 1999, are as follows:
1999 $ 122,958
2000 88,168
2001 44,356
2002 25,439
2003 10,600
----------
Total minimum lease payments 291,521
Less amounts representing interest 36,016
----------
Present value of future minimum lease payments 255,505
Less current portion 103,744
----------
$ 151,761
==========
NOTE J - EMPLOYEE BENEFIT PLANS
1. Defined Contribution Plans
Management and nonunion employees of Polychem participate in a qualified
401(k) savings plan. Participants can contribute a portion of their pretax
compensation, and Polychem matches 50% of the first 4% of compensation
contributed by the employee. Contributions to the plan for the years ended
January 2, 1999, and January 3, 1998, were $29,093 and $30,270,
respectively. Participants vest in Polychem's contributions pro rata over
two to five years. At the direction of the Board of Directors, Polychem may
elect to contribute a maximum of 9% of each employee's compensation, in
addition to the regular match, if sufficient profits are generated.
Discretionary contributions were $-0- and $93,964 for the years ended
January 2, 1999, and January 3, 1998, respectively.
(Continued)
F-12
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE J - EMPLOYEE BENEFIT PLANS - Continued
2. Defined Benefit Pension Plan
Polychem maintains a non-contributory defined benefit pension plan for
hourly union employees. The pension benefits are based on years of service
and the benefit rate in effect at the date of retirement.
The plan status was as follows:
January 2, January 3,
1999 1998
----------- ------------
Change in benefit obligation
Benefit obligation at beginning of year $ 2,213,711 $ 2,146,767
Service cost 31,139 28,445
Interest cost 148,996 155,221
Actual gain 120,755 102,831
Benefits paid (185,822) (219,553)
----------- -----------
Benefits obligation at end of year 2,328,779 2,213,711
Change in plan assets
Fair value of plan assets at beginning
of year 2,157,972 1,907,362
Actual return on plan assets 316,663 470,163
Employer contribution - -
Benefits paid (185,822) (219,553)
----------- -----------
Fair value of plan assets at end of year 2,288,813 2,157,972
Funded status 39,966 55,739
Unrecognized net actuarial gain 233,319 221,635
Unrecognized prior service cost (55,872) (61,393)
----------- -----------
Prepaid (accrued) benefit cost $ 217,413 $ 215,981
=========== ===========
Weighted average assumptions as of
December 31
Discount rate 6.75% 7.00%
Expected return on plan assets 9.00% 9.00%
Components of net periodic benefit cost
Service cost $ (31,139) $ (28,445)
Interest cost (148,996) (155,221)
Expected return on plan assets 316,663 470,163
Amortization of prior service cost (5,521) (5,521)
Recognized net actuarial loss (132,439) (308,375)
----------- ----------
Net periodic benefit cost $ (1,432) $ (27,399)
=========== ==========
(Continued)
F-13
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE J - EMPLOYEE BENEFIT PLANS - Continued
3. Postretirement Life Insurance Benefits
Polychem provides postretirement life insurance benefits to all union
employees. The life insurance plan provides coverage ranging from $3,000 to
$6,000 for qualifying retired employees. A discount rate of 7% was used in
determining the actuarial present value of the obligations as of January 2,
1999, and January 3, 1998. The unfunded accumulated postretirement benefit
obligation as of January 2, 1999, and January 3, 1998, was $20,000 and
$25,782, respectively, and the net periodic postretirement benefit cost for
the years ended January 2, 1999, and January 3, 1998, was immaterial.
NOTE K - INCOME TAXES
The components of income tax expense are as follows:
January 2, January 3,
1999 1998
---------- ----------
Current
Federal $ - $ -
State - 7,240
--------- ----------
- 7,240
--------- ----------
Deferred
Federal - 56,333
State - -
--------- ----------
56,333
----------
$ - $ 63,573
========= ==========
The reconciliation of the statutory federal rate to the Company's effective
income tax rate is as follows:
January 2, January 3,
1999 1998
---------- ----------
Statutory tax (benefit) provision $(195,395) $ (116)
State income tax provision, net of federal
tax benefit - 4,778
Increase (decrease) in valuation allowance 189,492 46,944
Nondeductible expense 4,027 5,841
Other 1,876 6,126
--------- ----------
$ - $ 63,573
========= ==========
Under SFAS No. 109, Accounting for Income Taxes, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates.
(Continued)
F-14
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE K - INCOME TAXES - Continued
The tax effect of temporary differences that give rise to deferred income
taxes is as follows:
January 2, January 3,
1999 1998
----------- ------------
Deferred tax assets
Accruals and reserves $ 25,500 $ 28,900
Inventory 62,906 49,498
Net operating loss carryforwards 166,406 -
Valuation allowance on deferred tax asset (236,436) (46,944)
Other 60,117 47,039
---------- ----------
$ 78,493 $ 78,493
========== ==========
NOTE L - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
The Company leases certain facilities and equipment under noncancellable
operating leases that expire through May 2001. Rent expense of $31,148 and
$30,458 has been charged to operations for the years ended January 2, 1999,
and January 3, 1998, respectively. Minimum future rental payments under
leases as of January 2, 1999, are as follows:
1999 $ 27,204
2000 16,695
2001 490
---------
$ 44,389
=========
2. Litigation
ConMat is currently a defendant in a Pennsylvania state court action filed
on January 28, 1999. The plaintiff maintains that Eastwind, his former
employer, breached the terms of his severance agreement, and that the sale
of Polychem to ConMat was part of a conspiracy to avoid payments to him and
has violated Pennsylvania's Uniform Fraudulent Act. Among the other named
defendants is the Chairman and Chief Executive Officer of ConMat who was the
former Chief Executive Officer of Eastwind.
Initially, the plaintiff sought a temporary restraining order and
preliminary injunction seeking to set aside the sale of Polychem to ConMat.
However, by Order dated February 19, 1999, the Court denied plaintiffs'
request for injunctive relief. ConMat subsequently filed preliminary
objections to the complaint seeking to have itself dismissed as a party to
the action. Currently, the parties are preparing briefs relating to ConMat's
preliminary objections and a decision by the Court is not expected until
July 1999 at the earliest.
(Continued)
F-15
<PAGE>
ConMat Technologies, Inc. and Subsidiary
NOTES TO FINANCIAL STATEMENTS - CONTINUED
January 2, 1999 and January 3, 1998
NOTE L - COMMITMENTS AND CONTINGENCIES - Continued
From time to time, ConMat and its subsidiary are parties to routine
litigation which arises in the normal course of business. In the opinion of
management, the resolution of these lawsuits would not have a material
adverse effect on the Company's consolidated financial position or
consolidated results of operations.
NOTE M - EMPLOYMENT AGREEMENTS
In conjunction with the Acquisition, ConMat entered into an Employment
Agreement with ConMat's Chief Executive Officer and Chairman of the Board of
Directors. Under the agreement, he will be paid an annual base salary
ranging from $170,000 to $250,000, depending on ConMat's annual net income.
As additional incentive compensation, upon executing the Employment
Agreement, he received (i) 250,000 shares of common stock for an aggregate
purchase price of $50,000, paid by delivery of a two-year promissory note at
5% interest; and (ii) 250,000 options to purchase shares of common stock at
an exercise price of $3.00 per share (the Stock Option Award). 50,000 of the
options are exercisable following registration of the underlying shares of
common stock. 100,000 of the options are exercisable following registration
of the underlying common stock if ConMat realizes $750,000 in pre-tax income
during a fiscal year. The remaining 100,000 options are exercisable
following registration of the underlying shares of common stock if ConMat
realizes $1,000,000 in pre-tax income during a fiscal year. All of the
options expire ten years from the grant date and are immediately exercisable
upon a merger, sale of assets, or other transaction resulting in a change of
control in which the holders of shares of common stock receive not less than
$5.00 per share.
The Stock Option Award is accounted for under Accounting Principles Board
(APB) Opinion No. 25 and related interpretations. Had compensation cost for
the options been determined based on the fair value of the options on the
grant date consistent with the method of SFAS No. 123, Accounting for Stock
Based Compensation, the Company's net loss per share for the fiscal year
ended January 2, 1999, would not be materially different from the amount
reported.
NOTE N - INDUSTRY SEGMENT AND FOREIGN SALES INFORMATION
Management has determined that it operates in one industry segment (see
note A).
For the year ended January 2, 1999, Polychem's sales to foreign customers
were approximately $2,826,505, or 31.2% of consolidated net sales, and
consist of sales to customers in Asia (15.2%), Europe (11.0%), and North
America (5.0%). Receivables from these customers were approximately $339,096
as of January 2, 1999.
For the year ended January 3, 1998, Polychem's sales to foreign customers
were approximately $2,722,000, or 22.4% of consolidated net sales, and
consist of sales to customers in Asia (3.6%), Europe (10.7%), and North
America (8.1%).
F-16
<PAGE>
PART III
Index to Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------
<S> <C>
2.1 Articles of Incorporation of ConMat Technologies, Inc., as amended.
2.2 By-laws of ConMat Technologies, Inc.
3.1 Specimen common stock certificate.
3.2 Specimen Series A preferred stock certificate.
3.3 Specimen Series B preferred stock certificate.
3.4 Series A Warrant No. 1 from ConMat to Mentor Special Situation Fund, L.P. dated
December 8, 1998.
3.5 Series B Warrant No. 1 from ConMat to Mentor Management Company dated
December 8, 1998
3.6 Option Agreement between ConMat and Paul A. DeJuliis dated December 8, 1998.
10.1 Employment Agreement between ConMat and Paul A. DeJuliis dated December 8,
1998.
10.2 Loan and Security Agreement between Polychem and General Electric Capital
Corporation dated September 30, 1998.
10.3 $3,500,000 Revolving Credit Note payable by Polychem to General Electric Capital
Corporation dated September 30, 1998.
10.4 $1,500,000 Term Note payable to Polychem to General Electric Capital Corporation
dated September 30, 1998.
10.5 Stock Pledge Agreement between ConMat and General Electric Capital Corporation
dated December 8, 1998.
10.6 Guarantee dated December 8, 1998 between ConMat and General Electric Capital
Corporation.
10.7 Waiver and Amendment Agreement among General Electric Capital Corporation,
ConMat, Polychem and Eastwind.
27 Financial Data Schedule
</TABLE>
III-1
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ConMat Technologies, Inc.
Date: By: _____________________________________
Paul A. DeJuliis
Chief Executive Officer and
Chairman of the Board of Directors
III-2
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
EPL SYSTEMS, INC.
(present name - FL corp # J03523)
Pursuant to the provisions of Section 607.0704, Florida Statutes, this Florida
profit corporation adopts the following articles of amendment to its articles of
incorporation:
FIRST: Amendment(s) adopted: (indicate article number(s) being amended,
added or deleted)
ARTICLE I is hereby amended to read in its entirety as follows:
The name of the corporation shall be:
ConMat Technologies, Inc.
ARTICLE IV is hereby amended to read in its entirety as follows:
The capital stock of this Corporation shall consist of 40,000,000 shares of
Common Stock, each share with a par value of $0.001 per share; and 10,000,000
shares of Preferred Stock, each share with a par value of $0.001 per share or a
par value as otherwise specified in the Series of Preferred Stock designated as
follows:
Series A Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 1,500,000 shares of
Preferred Stock, is the Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the stated value shall be Three Dollars ($3.00) per share
(the "Stated Value").
II. Rank
All shares of the Series A Preferred Stock shall rank (i) prior to the
Corporation's Common Stock, par value $0.001 per share (the "Common Stock");
(ii) prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX of Article IV of the Articles of
Incorporation
<PAGE>
of the Corporation (Article IX and such other Articles within Article IV of the
Articles of Incorporation of the Corporation hereinafter to be referred to
solely as Articles numbered within Article IV of the Articles of Incorporation
of Incorporation of the Corporation and not as separate and distinct Articles of
Incorporation of the Corporation), such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series A
Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with 166,667 shares of the Corporation's Series B Preferred
Stock created pursuant to a Certificate of Designation, Preferences and Rights
of even date herewith and with any class or series of capital stock of the
Corporation hereafter created (with the consent of the holders of Series A
Preferred Stock obtained in accordance with Article IX hereof) specifically
ranking, by its terms, on parity with the Series A Preferred Stock (the "Pari
Passu Securities"); and (iv) junior to any class or series of capital stock of
the Corporation hereafter created (with the consent of the holders of Series A
Preferred Stock obtained in accordance with Article IX hereof) specifically
ranking, by its terms, senior to the Series A Preferred Stock (the "Senior
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
III. Dividends
A. The holders of shares of Series A Preferred Stock
shall be entitled to receive cash dividends at the rate (the "Dividend Rate") of
Two Percent (2.0%) per annum, which dividends shall be payable in equal
quarterly installments on March 31, June 30, September 30 and December 31 each
year (each such date, regardless of whether any dividends have been paid or
declared and set aside for payment on such date, being a "Dividend Payment
Date") to holders of record as they appear on the stock books on such record
dates as are fixed by the Board of Directors, but only when, as and if declared
by the Board of Directors out of funds at the time legally available for the
payment of dividends. For purposes of calculation of such cash dividends, the
Series A Preferred Stock shall be valued at the Stated Value. Such dividends
shall begin to accrue on outstanding shares of Series A Preferred Stock from the
date of issuance and shall be deemed to accrue from day to day whether or not
earned or declared until paid; provided, however, that dividends accrued or
deemed to have accrued for any period shorter than the full three-month period
between Dividend Payment Dates shall be computed based on the actual number of
days elapsed in the three-month period for which such dividends are payable.
Dividends on account of any dividend that has accrued or been deemed to have
accrued but which have not been paid (a "Dividend Arrearage") may be declared
and paid at any time, in whole or in part, without reference to any regular
Dividend Payment Date, to holders of record on such date as may be fixed by the
Board of Directors of the Corporation.
B. Notwithstanding Clause A above, the Corporation
may, in its sole discretion, but is not obligated to, pay any or all dividends,
including without limitation any or all dividends payable as a result of a
Dividend Arrearage, in Common Stock rather than cash. The Corporation shall pay
such dividend by issuing to such holder shares of Common Stock that have an
aggregate Market Value (as defined below) equal to the amount of the cash
dividends otherwise payable to such holder on the applicable Dividend Payment
Date. For purposes of this paragraph,
<PAGE>
the aggregate "Market Value" of the Common Stock with respect to any Dividend
Payment Date shall mean the average of the Closing Prices (as defined in Article
V.B) of the shares of Common Stock for the 20 consecutive Trading Days preceding
the date that is five Trading Days prior to the Dividend Payment Date,
multiplied by the number of shares to be issued to such holder.
C. No dividends or other distributions, other than
dividends or other distributions payable solely in shares of capital stock of
the Corporation and liquidating distributions which are subject to the
provisions of Article IV, shall be paid or set aside for payment on, and no
purchase, redemption or other acquisition shall be made of, any shares of
capital stock of the Corporation (other than any class or series of Senior
Securities, or any class or series of Pari Passu Securities so long as any
dividend payments per share on Pari Passu Securities as a percentage of accrued
and unpaid dividends per share on Pari Passu Securities do not exceed
contemporaneous dividend payments per share on the Series A Preferred Stock as a
percentage of accrued and unpaid dividends per share on the Series A Preferred
Stock), unless and until all accrued and unpaid dividends on the Series A
Preferred Stock, including the full dividend for the then current quarterly
dividend period and all outstanding Dividend Arrearages shall have been declared
and paid or a sum sufficient for the payment thereof set aside for such
purposes.
D. Any reference to "distribution" contained in this
Article III shall not be deemed to include any stock dividend consisting solely
of shares of Common Stock or distributions made in connection with any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
E. The holders of shares of Series A Preferred Stock
shall not be entitled to receive any dividends or other distributions except as
provided herein.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or State bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such event (a
"Liquidation Event"), the Corporation shall liquidate, dissolve or wind up, or
if the Corporation shall otherwise liquidate, dissolve or wind up, no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon
<PAGE>
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series A Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.D) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series A Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series A
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. After payment in full of the Liquidation Preference of the
Series A Preferred Stock, holders of Series A Preferred Stock shall not be
entitled to receive any additional cash, property or other assets of the
Corporation upon liquidation, dissolution or winding up of the Corporation.
C. Neither the consolidation, merger or other business
combination of the Corporation with or into any other entity, nor the sale,
exchange or transfer of all or substantially all the assets of the Corporation
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Article IV unless such sale, exchange or
transfer is in connection with a plan of liquidation, dissolution or winding up
of the Corporation.
D. For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series A Preferred Stock shall mean an amount equal to
the Stated Value thereof.
V. Redemption of Series A Preferred Stock
A. Except as provided in Article V.B below, the Series A
Preferred Stock is not subject to redemption.
B. In the event that the Corporation (i) fails to issue shares
of Common Stock to the holders of Series A Preferred Stock upon exercise by the
holders of their conversion rights in accordance with the terms of this
Certificate of Designation (for a period of at least sixty (60) days if such
failure is solely as a result of the circumstances governed by the second
paragraph of Article VI.D. below and the Corporation is using all commercially
reasonable efforts to authorize a sufficient number of shares of Common Stock as
soon as practicable), or (ii) fails to transfer any certificate for shares of
Common Stock issued to the holders upon conversion of the Series A Preferred
Stock as and when required by this Certificate of Designation (each of the
foregoing failures being a "Mandatory Redemption Event") and any such failure
shall continue uncured for ten (10) business days after the Corporation shall
have been notified thereof in writing by the holder; then, upon the occurrence
and during the continuation of any Mandatory Redemption Event specified in
clauses (i) and (ii) above, at the option of the holders of at least 50% of the
then outstanding shares of Series A Preferred Stock by written notice (the
<PAGE>
"Mandatory Redemption Notice") to the Corporation of such Mandatory Redemption
Event, the Corporation shall purchase the holder's shares of Series A Preferred
Stock for an amount per share (the "Mandatory Redemption Amount") equal to 125%
multiplied by the Redemption Price in effect at the time of the redemption
hereunder.
The "Redemption Price" with respect to each share of Series A
Preferred Stock shall mean the amount equal to the greater of (A) the number of
shares of Common Stock to which such failure relates multiplied by the Closing
Price (as defined below) on the Conversion Default Date (as defined below) and
(B) the Stated Value thereof.
"Closing Price" of the Common Stock on any day shall mean the
last reported sale price regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices
regular way of the Common Stock in each case on a national securities exchange,
or, if the Common Stock is not listed or admitted to trading on any such
exchange, on the NASDAQ National Market, Small Cap Market or other quotation
system on which the Common Stock is listed or admitted to trading or quoted, or,
if not listed or admitted to trading or quoted on any national securities
exchange or quotation system, the average of the closing bid and asked prices of
the Common Stock in the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated, or a similarly generally
accepted reporting service, or, if not so available in such manner, as furnished
by any NASD member firm selected from time to time by the Board of Directors of
the Corporation for that purpose. In the event that the Closing Price as of any
date cannot be determined using any of the foregoing methods, it shall be an
amount equal to the fair market value of a share of Common Stock as determined
by a recognized investment banking firm selected by the Corporation and
reasonably satisfactory to the holder of the Series A Preferred Stock being
redeemed.
If the Corporation fails to pay the Mandatory Redemption
Amount for each share within five (5) business days of written notice that such
amount is due and payable, then each holder of Series A Preferred Stock shall
have the right at any time, so long as the Mandatory Redemption Event continues
to require the Corporation, upon written notice, to immediately issue (in
accordance with the terms of Article VI below), in lieu of the Mandatory
Redemption Amount, with respect to each outstanding share of Series A Preferred
Stock held by such holder, the number of shares of Common Stock of the
Corporation equal to the Mandatory Redemption Amount divided by the Conversion
Price then in effect.
VI. Conversion at the Option of the Holder
A. Each holder of shares of Series A Preferred Stock may, at
its option, at any time, upon surrender of the certificates therefor, convert
shares of Series A Preferred Stock held by such holder into shares of Common
Stock (an "Optional Conversion"). Each share of Series A Preferred Stock shall
be convertible into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Stated Value thereof by the
then-effective Conversion Price (as defined below).
<PAGE>
B. The "Conversion Price" shall be the greater of $3.00 or 80%
of the Closing Price on the Conversion Date (defined below), subject to
adjustment from time to time as follows:
(a) Adjustment to Conversion Price Due to Stock Split,
Stock Dividend, Etc. If at any time when the Series A Preferred Stock is issued
and outstanding, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, combination reclassification or other similar
event, the Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at
any time when Series A Preferred Stock is issued and outstanding and prior to
the conversion of all Series A Preferred Stock, there shall be (i) any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged), (iii) any sale or transfer of
all or substantially all of the assets of the Corporation or (iv) any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, then the holders of Series A
Preferred Stock shall, upon being given at least thirty (30) days prior written
notice of such transaction, thereafter have the right to purchase and receive
upon conversion of Series A Preferred Stock, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series A Preferred Stock held
by such holders had such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event not taken place, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of the holders of the Series A Preferred Stock to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the Conversion Price and of the number of shares issuable upon conversion of the
Series A Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
transaction described in this subsection (b) unless (i) each holder of Series A
Preferred Stock has received written notice of such transaction at least thirty
(30) days prior thereto, and (ii) the provisions of this paragraph have been
complied with. The above provisions shall apply regardless of whether or not
there would have been a sufficient number of shares of Common Stock authorized
and available for issuance upon conversion of the shares of Series A Preferred
Stock outstanding as of the date of such transaction, and shall similarly apply
to successive reclassifications, consolidations, mergers, sales, transfers or
share exchanges.
<PAGE>
(c) No Fractional Shares. If any adjustment under this
Article VI.B. would create a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares of Common Stock issuable
upon conversion shall be the next higher number of shares.
C. In order to convert Series A Preferred Stock into full
shares of Common Stock, a holder shall: (i) fax a copy of the fully executed
notice of conversion in the form attached hereto ("Notice of Conversion") to the
Corporation at the office of the Corporation or its designated Transfer Agent,
if any, for the Series A Preferred Stock that the holder elects to convert the
same, which notice shall specify the number of shares of Series A Preferred
Stock to be converted, the applicable Conversion Price and a calculation of the
number of shares of Common Stock issuable upon such conversion (together with a
copy of each certificate to be converted) prior to Midnight, New York City time
(the "Conversion Notice Deadline") on the date of conversion specified on the
Notice of Conversion (the "Conversion Date"); and (ii) surrender the original
certificates representing the Series A Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice
of Conversion and a signed Lock-Up Agreement ("Lock-Up Agreement") in the form
attached hereto as soon as practicable thereafter to the office of the
Corporation or the Transfer Agent, if any, for the Series A Preferred Stock;
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless either the Preferred Stock Certificates are delivered to the Corporation
or its Transfer Agent as provided above, or the holder notifies the Corporation
or its Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (a) below). In the case of a
dispute as to the calculation of the Conversion Price, the Corporation shall
promptly issue such number of shares of Common Stock to purchase shares of
Common Stock that are not disputed in accordance with subparagraph (b) below.
The Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion. The accountant shall audit the calculations and notify the
Corporation and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant's calculation shall be
deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Corporation, and upon surrender and cancellation
of the Preferred Stock Certificate(s), if mutilated, the Corporation shall
execute and deliver new Preferred Stock Certificate(s) of like tenor and date.
However, the Corporation shall not be obligated to reissue such lost or stolen
Preferred Stock Certificate(s) if the holder contemporaneously requests the
Corporation to convert such Series A Preferred Stock.
(b) Delivery of Common Stock Upon Conversion. Upon the
surrender of certificates as described above from a holder of Series A Preferred
Stock accompanied by a Notice of Conversion and Lock-Up Agreement, the
Corporation shall issue and, within two (2)
<PAGE>
business days (the "Delivery Period") after such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of agreement and
indemnification pursuant to subparagraph (a) above), deliver to or upon the
order of the holder (i) that number of shares of Common Stock for the portion of
the shares of Series A Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance of the
shares of Series A Preferred Stock not converted, if any.
(c) No Fractional Shares. If any conversion of Series A
Preferred Stock would result in a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock shall be the next
higher number of shares.
(d) Conversion Date. The "Conversion Date" shall be the
date specified in the Notice of Conversion, provided (i) that the advance copy
of the Notice of Conversion is faxed to the Corporation before Midnight, New
York City time, on the Conversion Date, and (ii) that the original Preferred
Stock Certificate(s), duly endorsed, are surrendered along with a copy of the
Notice of Conversion as soon as practicable thereafter to the office of the
Corporation or the Transfer Agent for the Series A Preferred Stock. The person
or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to the
shares of Series A Preferred Stock surrendered shall forthwith terminate except
the right to receive the shares of Common Stock or other securities or property
issuable on such conversion.
D. A number of shares of the authorized but unissued Common
Stock sufficient to provide for the conversion of the Series A Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. If the Corporation shall issue any securities or make any change in
its capital structure which would change the number of shares of Common Stock
into which each share of the Series A Preferred Stock shall be convertible at
the then current Conversion Price the Corporation shall at the same time also
make proper provision so that thereafter there shall be a sufficient number of
shares of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Preferred Stock on the new basis. If, at
any time, a holder of shares of Series A Preferred Stock submits a Conversion
Notice and the Corporation does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article VI (a "Conversion Default"), the Corporation
shall issue to the holder all of the shares of Common Stock which are available
to effect such conversion. The number of shares of Series A Preferred Stock
included in the Notice of Conversion which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the holder's
option at any time after) the date additional shares of Common Stock are
authorized by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the first day of the Conversion Default (the "Conversion Default Date")
and
<PAGE>
(ii) the Conversion Price on the Conversion Date subsequently elected by the
holder in respect thereof. The Corporation shall send notice to the holder of
the authorization of additional shares of Common Stock and the Authorization
Date
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock as required pursuant to the terms of this
Article VI.D or to cause a Mandatory Redemption pursuant to Article V.B, and
each holder shall have the right to pursue all remedies available at law or in
equity (including a decree of specific performance and/or injunctive relief).
E. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Article VI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series A Preferred Stock.
VII. Mandatory Conversion
A. The Corporation shall have the right, by written note to
each holder of Series A Preferred Stock, to convert all shares of Series A
Preferred Stock into shares of Common Stock (a "Mandatory Conversion") at any
time on or after the first day on which the Closing Price (determined without
use of the last sentence of the definition of Closing Price) has been equal to
or in excess of the Conversion Price for forty-five (45) consecutive calendar
days (the Closing Price on any Saturday, Sunday or holiday shall be deemed to be
the Closing Price on the last preceding trading day). Each share of Series A
Preferred Stock shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Stated
Value by the then effective Conversion Price.
B. All shares of Series A Preferred Stock shall be deemed
canceled as of the date of the Corporation's notice of Mandatory Conversion.
<PAGE>
VIII. Registration Rights.
Each present and future holder of Series A Preferred Stock shall be
entitled to the benefits of the registration rights granted pursuant to this
Article VIII.
A. For purposes of this Article VIII:
(i) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document;
(ii) The term "Registrable Securities" means the shares of
Common Stock into which the shares of Series A Preferred Stock are convertible
and all shares of Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
any of the Series A Preferred Stock excluding in all cases, however, any
Registrable Securities (x) sold by a person in a transaction in which his rights
under this Article VIII are not assigned, (y) sold in a public offering
registered under the Securities Act or (z) sold pursuant to Rule 144 promulgated
under the Securities Act;
(iii) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
issuable upon conversion of Series A Preferred Stock which are, and the number
of shares of Common Stock issuable pursuant to then exercisable or convertible
securities which are, Registrable Securities;
(iv) The term "Holder" means any person owning or having
the right to acquire Registrable Securities;
(v) The term "SEC" means the Securities and Exchange
Commission; and
(vi) The term "Securities Act" shall mean the Securities
Act of 1933, as from time to time amended.
B. (i) No later than December 31, 1999 the Company shall file
with the Securities and Exchange Commission ("SEC") a registration statement
covering the Registerable Securities, and shall use its best offers to cause
such registration statement to become effective on or before ninety (90) days
after the date such registration statement is filed (the "Initial
Registration"). If such Initial Registration is not declared effective by the
end of such period or does not include all Registrable Securities, or the
Company is not in compliance with its obligations under Section VIII.D, the
Holders of a majority of the Registrable Securities shall have the right to
require by notice in writing that the Company register all or any part of the
Registrable Securities held by such Holders (a "Demand Registration") and the
Company shall thereupon effect such registration
<PAGE>
in accordance herewith. The parties agree that if such Holders demand
registration of less than all of the Registrable Securities, the Company, at its
option, may nevertheless file a registration statement covering all of the
Registrable Securities. Upon the filing by the Company of a Registration
Statement under Section VIII.C below, and if the Company is in compliance with
its obligations under Sections VIII.C and D below, the Demand Registration
rights granted pursuant to this Section VIII.B shall cease. If such Registration
statement is not declared effective with respect to all Registrable Securities
or if the Company is not in compliance with such obligations, the Demand
Registration rights described herein shall remain in effect.
(ii) If the Holders initiating the registration request
hereunder (the "Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section
VIII.B and the Company shall include such information in the written notice
referred to in Section VIII.B (i). In such event, the right of any Holder to
include its, his or her Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in Section VIII.D(v)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section VIII.B, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares of securities that may be
included in the underwriting shall be allocated among all Initiating Holders and
other Holders who have been provided the notice required by Section VIII.B(i) in
proportion (as nearly as practicable) to the number of shares of Registrable
Securities requested to be included in such registration by such Holder and
which would be eligible for inclusion in the registration but for the
application of this sentence.
(iii) Notwithstanding the foregoing, the Company shall not
be required to file a registration statement following the effective date of any
registration of Company securities with respect to which Holders were given the
opportunity to register Registrable Shares under Section VIII.C below, or (B)
during the period of time beginning on the date the Company files a registration
statement with the SEC described in Section VIII.C below and ending on the
earlier to occur of (x) the date which is 120 days after such registration
becomes effective, or (y) the date on which the Company withdraws such
registration with the SEC. In addition, if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section VIII.B a
certificate signed by the President of the Company stating that in the good
faith judgment of the board of directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Holders; provided, however, that the
<PAGE>
Company may not utilize this right more than once in any twelve (12) month
period.
C. If (but without any obligation to do so) the Corporation
proposes to register (including for this purpose a registration effected by the
Corporation for stockholders other than the Holders) any shares of its Common
Stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to employees pursuant to stock option awards and/or to
participants in a Company employee benefit or stock plan, or a registration on
any form which does not include substantially the same information, other than
information related to the selling stockholders or their plan of distribution,
as would be required to be included in a registration statement covering the
sale of the Registrable Securities), the Corporation shall, at such time,
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Corporation, the Corporation shall, subject to the provisions of
the immediately preceding sentence and Section VIII.E hereof, cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be so registered.
D. Whenever required under this Article VIII to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
<PAGE>
(vi) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(vii) In the case of an underwritten public offering,
furnish, at the request of any Holder requesting registration of Registrable
Securities pursuant to this Article VIII, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Article VIII, (A) an opinion, dated such date, of
the counsel representing the Company for the purposes of such registration, in
such form and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters and (B) a letter
dated such date, from the independent certified public accountants of the
Company, in such form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters.
E. It shall be a condition precedent to the obligations of the
Corporation to take any action pursuant to this Article VIII with respect to the
Registrable Securities of any selling Holder that such Holder shall have
furnished to the Corporation such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
F. Except as set forth in this Section VIII.F, the Company
shall bear and pay all expenses incurred by it in connection with any
registrations, filings or qualifications pursuant to Section VIII.B, including
without limitation all registration, filing and qualification fees, printers,
and accounting fees, and fees and disbursements of counsel for the Company, but
excluding underwriter's commissions and/or discounts with respect to shares sold
by Holders, which shall be the responsibility of the Holders; provided, however,
that (subject to Section VIII.B(ii) hereof) the Holders participating in any
registration pursuant to Section VIII.B shall reimburse the Company for any
expenses of any Demand Registration proceeding begun pursuant to Section VIII.B
if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all Holders participating in such withdrawn registration shall bear such
expenses pro rata based upon the number of Registrable Securities to be included
in such registration). In no event shall the Company be required to pay any
expenses incurred by a Holder in connection with any registration, filing or
qualification pursuant to Section VIII.B.
G. The Corporation shall bear and pay all expenses incurred by
it in connection with any registration, filing or qualification of Registrable
Securities with respect to the registrations pursuant to Section VIII.C.,
including without limitation all registration, filing, and qualification
<PAGE>
fees, printers and accounting fees and all fees and disbursements of counsel for
the Corporation relating or allocable thereto. The Corporation shall not pay any
expenses incurred by a Holder in connection with any such registration, filing
or qualification, including, but not limited to underwriting discounts and
commissions relating to Registrable Securities and the fees and disbursements of
any professional advisors (including attorneys and accountants) utilized by the
selling Holders in connection with such registration, filing or qualification.
H. In connection with any offering involving an underwriting
of shares being issued by the Corporation, the Corporation shall not be required
under Section VIII.B or C hereof to include any of the Holders' securities in
such underwriting unless they accept the customary and reasonable terms of the
underwriting as agreed upon between the Corporation and the underwriters
selected by it, and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by the Corporation. If
the total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Corporation that the underwriters reasonably believe
compatible with the success of the offering, then the Corporation shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters believe will not
jeopardize the success of the offering (the securities so included to be
allocated first among all holders of Other Securities and next apportioned among
the Holders who have provided notice required by Section VIII.B or C and all
other holders of securities subject to registration rights granted by the
Corporation in proportion (as nearly as practicable) to the number of shares of
securities requested to be included in such registration by such Holder and such
other holders and which would have been eligible for inclusion in such
registration but for the application of this sentence, or in such other
proportions as shall mutually be agreed to by such selling stockholders). For
purposes of the provision of the preceding sentence concerning apportionment
amongst the selling stockholders, for any selling stockholder which is a
partnership or corporation, the partners, retired partners and stockholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any reduction with respect to
such "selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
I. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any registration by the Corporation
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Article VIII.
J. In the event any Registrable Securities are included
pursuant to a registration statement under this Article VIII:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Securities Act) and each person if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
<PAGE>
as amended (the "Exchange Act") against any losses, claims, damages or
liabilities (joint or several) to which they or any of them may become subject
under the Securities Act, the Exchange Act or any other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (A) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus (but only if such is not
corrected in the final prospectus) contained therein or any amendments or
supplements thereto, (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading (but only if such is not corrected in the final
prospectus), or (C) any violation or alleged violation by the Company in
connection with the registration of Registrable Securities under the Securities
Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section VIII.J(i) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(ii) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with information furnished by such Holder for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section VIII.J(ii), in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
VIII.J(ii) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided that in no event shall any indemnity under this Section VIII.J(ii)
exceed the net proceeds from the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party under
this Section VIII.J of notice of the commencement of any action (including any
governmental action), such
<PAGE>
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section VIII.J, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
VIII.J, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section VIII.J.
(iv) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section VIII.J(i) and (ii) is applicable but for any reason is held to be
unavailable from the Company with respect to all Holders or any Holder, the
Company and the Holder or Holders, as the case may be, shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted) to which
the Company and one or more of the Holders may be subject in such proportion as
is appropriate to reflect the relative fault of the Company on the one hand, and
the Holder or Holders on the other, in connection with statements or omissions
which resulted in such losses, claims, damages or liabilities. Notwithstanding
the foregoing, no Holder shall be required to contribute any amount in excess of
the net proceeds received by such Holder from the Registrable Securities as the
case may be, sold by such Holder pursuant to the registration statement. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Each person, if any,
who controls a Holder within the meaning of the Securities Act shall have the
same rights to contribution as such Holder.
(v) The obligations of the Company and Holders under this
Section VIII.J shall survive the completion of any offering of Registrable
Securities in a registration statement under this Article VIII or otherwise.
IX. Voting Rights
The holders of the Series A Preferred Stock have no voting
power whatsoever, except as otherwise provided by the Florida Business
Corporation Act ("FBCA"), and in this Article IX, and in Article X below.
<PAGE>
Notwithstanding the above, the Corporation shall provide each
holder of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or 30 days prior to the consummation of the transaction or
event, whichever is earlier), of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent permitted under the FBCA, the Series A Preferred
Stock shall be considered a single class of stock for voting purposes. To the
extent that under the FBCA the vote of the holders of the Series A Preferred
Stock, voting separately as a class or series as applicable, is required to
authorize a given action of the Corporation, the affirmative vote or consent of
the holders of at least a majority of the shares of the Series A Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of the shares of Series A Preferred Stock (except as
otherwise may be required under the FBCA) shall constitute the approval of such
action by the class. To the extent that under the FBCA holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series A Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of shareholders as the date as of which the Conversion Price is calculated.
Holders of the Series A Preferred Stock shall be entitled to notice of (and
copies of proxy materials and other information sent to shareholders) all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
by-laws and the FBCA.
X. Protection Provision
So long as shares of Series A Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the FBCA) of the holders of at least a majority
of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges
of the Series A Preferred Stock or any Senior Securities or Pari Passu
Securities so as to affect adversely the Series A Preferred Stock;
<PAGE>
(b) create any new class or series of capital stock having
a preference over the Series A Preferred Stock as to dividends or distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking
pari passu with the Series A Preferred Stock as to dividends or distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of Series A
Preferred Stock; or
(e) do any act or thing not authorized or contemplated by
this Certificate of Designation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series A Preferred Stock.
XI. Cancellation of Series A Preferred Stock
In the event any shares of Series A Preferred Stock shall be
converted pursuant to Article VI, the shares so converted shall be canceled,
shall return to the status of unauthorized, but unissued preferred stock of no
designated series, and shall not be issuable by the Corporation as Series A
Preferred Stock.
Series B Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 166,667
shares of Preferred Stock, is the Series B Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be Three Dollars ($3.00) per share
(the "Stated Value").
<PAGE>
II. Rank
All shares of the Series B Preferred Stock shall rank (i)
prior to the Corporation's Common Stock, par value $0.001 per share (the "Common
Stock"); (ii) prior to any class or series of capital stock of the Corporation
hereafter created (unless, with the consent of the holders of Series B Preferred
Stock obtained in accordance with Article VII hereof, such class or series of
capital stock specifically, by its terms, ranks senior to or pari passu with the
Series B Preferred Stock) (collectively, with the Common Stock, "Junior
Securities"); (iii) pari passu with 1,386,666 shares of the Corporation's Series
A Convertible Preferred Stock created pursuant to the Articles of Amendment
filed with the Florida Secretary of State as of the date hereon and with any
class or series of capital stock of the Corporation hereafter created with the
consent of the holders of Series B Preferred Stock obtained in accordance with
Article VII hereof specifically ranking, by its terms, on parity with the Series
B Preferred Stock (the "Pari Passu Securities"); and (iv) junior to any class or
series of capital stock of the Corporation hereafter created with the consent of
the holders of Series B Preferred Stock obtained in accordance with Article VII
hereof specifically ranking, by its terms, senior to the Series B Preferred
Stock (the "Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
III. Dividends
A. The holders of shares of Series B Preferred Stock shall
be entitled to receive cumulative cash dividends at the rate (the "Dividend
Rate") of Eight Percent (8.0%) per annum, which dividends shall be payable in
equal quarterly installments on March 31, June 30, September 30 and December 31
each year (each such date, regardless of whether any dividends have been paid or
declared and set aside for payment on such date, being a "Dividend Payment
Date") to holders of record as they appear on the stock books on such record
dates as are fixed by the Board of Directors, but only out of funds at the time
legally available for the payment of dividends. For purposes of calculation of
such cash dividends, the Series B Preferred Stock shall be valued at the Stated
Value. Such dividends shall begin to accrue on outstanding shares of Series B
Preferred Stock from the date of issuance and shall be deemed to accrue from day
to day whether or not earned or declared until paid and shall be cumulative;
provided, however, that dividends accrued or deemed to have accrued for any
period shorter than the full three-month period between Dividend Payment Dates
shall be computed based on the actual number of days elapsed in the three-month
period for which such dividends are payable. Dividends on account of any
dividend that has accrued or been deemed to have accrued but which have not been
paid (a "Dividend Arrearage") may be declared and paid at any time, in whole or
in part, without reference to any regular Dividend Payment Date, to holders of
record on such date as may be fixed by the Board of Directors of the
Corporation.
B. No dividends or other distributions, other than
dividends or other distributions payable solely in shares of capital stock of
the Corporation and liquidating distributions which are subject to the
provisions of Article IV, shall be paid or set aside for payment
<PAGE>
on, and no purchase, redemption or other acquisition shall be made of, any
shares of capital stock of the Corporation (other than any class or series of
Senior Securities or Pari Passu Securities so long as any dividend payments per
share on Pari Passu Securities as a percentage of accrued and unpaid dividends
per share on Pari Passu Securities do not exceed contemporaneous dividend
payments per share on the Series B Preferred Stock as a percentage of accrued
and unpaid dividends per share on the Series B Preferred Stock), unless and
until all accrued and unpaid dividends on the Series B Preferred Stock,
including the full dividend for the then current quarterly dividend period and
all outstanding Dividend Arrearages shall have been declared and paid or a sum
sufficient for the payment thereof set aside for such purposes.
C. Any reference to "distribution" contained in this
Article III shall not be deemed to include any stock dividend or distributions
made in connection with any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
D. The holders of shares of Series B Preferred Stock shall
not be entitled to receive any dividends or other distributions except as
provided herein
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or State bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such event (a
"Liquidation Event"), the Corporation shall liquidate, dissolve or wind up, or
if the Corporation shall otherwise liquidate, dissolve or wind up, no
distribution shall be made to the holders of any shares of capital stock of the
Corporation (other than Senior Securities) upon liquidation, dissolution or
winding up unless prior thereto, the holders of shares of Series B Preferred
Stock shall have received the Liquidation Preference (as defined in Article
IV.D) with respect to each share. If upon the occurrence of a Liquidation Event,
the assets and funds available for distribution among the holders of the Series
B Preferred Stock and holders of Pari Passu Securities shall be insufficient to
permit the payment to such holders of the preferential amounts payable thereon,
then the entire assets and funds of the Corporation legally available for
distribution to the Series B Preferred Stock and the Pari Passu Securities shall
be distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
<PAGE>
B. After payment in full of the Liquidation Preference of
the Series B Preferred Stock, holders of Series B Preferred Stock shall not be
entitled to receive any additional cash, property or other assets of the
Corporation upon liquidation, dissolution or winding up of the Corporation.
C. Neither the consolidation, merger or other business
combination of the Corporation with or into any other entity, nor the sale,
exchange or transfer of all or substantially all the assets of the Corporation
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Article IV unless such sale, exchange or
transfer is in connection with a plan of liquidation, dissolution or winding up
of the Corporation.
D. For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series B Preferred Stock shall mean an amount equal to
the Stated Value thereof plus all accrued but unpaid dividends thereon.
V. Redemption of Series B Preferred Stock
A. Except as provided in this Article V, the Series B
Preferred Stock is not subject to redemption.
B. The Corporation may, by written notice to the holders of
Series B Preferred Stock, redeem shares of Series B Preferred Stock at a price
(the "Redemption Price") equal to the Stated Value thereof plus all accrued but
unpaid dividends thereon. Within ten (10) days following receipt of notice of
redemption, the holders of Series B Preferred Stock shall deliver to the
Corporation for cancellation certificates evidencing the Series B Stock, and the
Corporation shall tender the Redemption Price for such shares promptly upon
receipt of such certificates. Upon payment of the Redemption Price, all shares
of Series B Preferred Stock shall be deemed canceled for all purposes.
C. The Corporation shall redeem for cash at the Redemption
Price all of the then outstanding shares of Series B Preferred Stock on the
earlier of (i) December 31, 2005, (ii) the date Paul A. DeJuliis ceases for any
reason to serve as Chairman and Chief Executive Officer of the Corporation and
(iii) the date that Paul A. DeJuliis, Theodore Rutkowski and the member of the
Board of Directors elected by the holders of Series B Preferred Stock cease to
constitute a majority of the Board of Directors with power as such majority to
control decisions by the Board.
D. The Corporation shall redeem for cash at the Redemption
Price so many of the shares of the Series B Preferred Stock as may be redeemed
(i) from and immediately upon receipt by the Corporation of the proceeds from
any issuance of securities of the Corporation (but only to the extent that the
net proceeds received by the Corporation after payment of all related expenses
exceeds $1,000,000) and (ii) from assets of the Corporation to the extent of the
amount by which the tangible net worth of the Corporation as of the end of any
fiscal quarter, determined
<PAGE>
in accordance with generally accepted accounting principles consistently
applied, exceeds $5,000,000.
E. If on a mandatory redemption date the Board determines
that funds of the Corporation legally available for redemption of the Series B
Preferred Stock shall be insufficient to discharge such redemption requirements
in full, such funds as are so available for such purpose shall be set aside and
used for the redemption. Such redemption requirements shall be cumulative, so
that if such requirements shall not be fully discharged as they accrue because
of the insufficiency of funds legally available, legally available funds shall
be applied thereto until such requirements are fully discharged. There shall be
a redemption within 10 days after such funds become available.
F. In the event of the redemption of only a part of the
outstanding shares of Series B Preferred Stock, the Corporation shall effect
such redemption pro rata according to the number of shares of Series B Preferred
Stock held by each holder of Series B Preferred Stock as of 10 days before the
mandatory redemption date.
G. Not less than 10 days nor more than 60 days prior to
mandatory redemption date, written notice (the "Mandatory Redemption Notice")
shall be mailed, postage prepaid, to each holder of record of the Series B
Preferred Stock to be redeemed at his post office address last shown on the
records of the Company. The Mandatory Redemption Notice shall state:
(i) The total number of shares of Series B Preferred
Stock being redeemed;
(ii) The total number of shares of Series B Preferred
Stock held by the holder that the Corporation intends to redeem;
(iii) The mandatory redemption date and the Redemption
Price for the Series B Preferred Stock; and
(iv) That the holder is to surrender to the Corporation,
in the manner and at the place designated, his certificate or certificates
representing the shares of Series B Preferred Stock to be redeemed.
H. If the Mandatory Redemption Notice shall have been duly
given, and if on the mandatory redemption date the Redemption Price is paid,
then notwithstanding that the certificates evidencing any of the shares of
Series B Preferred Stock so called for redemption shall not have been
surrendered, the Redemption Price with respect to such shares shall cease to
increase after the mandatory redemption date and all rights with respect to such
shares shall forthwith after the mandatory redemption date terminate, except
only the right of the holders to receive the Redemption Price upon surrender of
their certificate or certificates therefor.
<PAGE>
VI. Voting Rights
A. The holders of the Series B Preferred Stock have no
voting power whatsoever, except as otherwise provided by the Florida Business
Corporation Act ("FBCA"), and in this Article VI, and in Article VII below.
B. The holders of the Series B Preferred Stock, voting as a
class, shall have the right to elect one (1) member of the Corporation's Board
of Directors.
C. The Corporation shall provide each holder of Series B
Preferred Stock with prior notification of any meeting of the shareholders (and
copies of proxy materials and other information sent to shareholders). In the
event of any taking by the Corporation of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or 30 days prior to the consummation of the transaction or
event, whichever is earlier), of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
VII. Protection Provision
So long as shares of Series B Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the FBCA) of the holders of at least a majority
of the then outstanding shares of Series B Preferred Stock, voting as a class:
(a) alter or change the rights, preferences or
privileges of (i) the Series B Preferred Stock in any manner, or (ii) any Senior
Securities or Pari Passu Securities so as to affect adversely the Series B
Preferred Stock;
(b) create any new class or series of capital stock
having a preference over the Series B Preferred Stock as to redemption rights or
as to payment of dividends or distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, "Senior Securities");
(c) create any new class or series of capital stock
ranking pari passu with the Series B Preferred Stock as to redemption rights or
as to payment of dividends or distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, "Pari Passu Securities");
<PAGE>
(d) increase the authorized number of shares of Series B
Preferred Stock or issue any additional shares of Series A Preferred Stock; or
(e) do any act or thing not authorized or contemplated
by this Certificate of Designation which would result in taxation of the holders
of shares of the Series B Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
SECOND: Because these Articles of Amendment of the Articles of the
Articles of Incorporation of the Corporation do not provide for
a reclassification of issued and outstanding shares, no
provisions for implementing any such amendment as to issued and
outstanding shares are contained in these Articles of
Amendment.
THIRD: ARTICLES II, III, V, VI, VII, VIII, IX, X and XI of the
Articles of Incorporation of the Corporation shall read in
their entirety as set forth in Articles of Amendment filed
August 7, 1998 with and by the Secretary of State of Florida,
with no amendments thereto as of the date of filing of these
Articles of Amendment.
FOURTH: The date of each amendment's adoption: December 7, 1998
FIFTH: Adoption of Amendment(s):
The amendments were approved by a majority of the shareholders
of the Corporation. The number of votes cast for the amendments
was sufficient for approval.
Signed this 7th day of December, 1998
Signature /s/ Steven B. Rosner
---------------------------------------
By: Steven B. Rosner, President
<PAGE>
CONMAT TECHNOLOGIES, INC.
* * * * *
B Y L A W S
* * * * *
ARTICLE I
OFFICES
Section 1. The initial registered office shall be located at
526 East Park Avenue, Tallahassee, Florida and thereafter shall be at such place
as the Board of Directors may designate from time to time.
Section 2. The corporation may also have offices at such other
places both within and without the State of Florida as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. All meetings of shareholders for the election of
directors shall be held in the City of Philadelphia, State of Pennsylvania, at
such place as may be fixed from time to time by the board of directors.
Section 2. Annual meetings of shareholders, commencing with
the year 1999, shall be held on the 1st Monday in April if not a legal holiday,
and if a legal holiday, then on the next secular day following, at 10:00 A.M.,
at which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
Section 3. Written or printed notice of the annual meeting
stating the place, day and hour of the meeting shall be delivered not less than
ten nor more than sixty days before the date of the meeting,
<PAGE>
either personally or by mail, by or at the direction of the president,
secretary, or the officer or person calling the meeting, to each shareholder of
record entitled to vote at such meeting.
ARTICLE III
SPECIAL MEETINGS OF SHAREHOLDERS
Section 1. Special meetings of shareholders for any purpose
other than the election of directors may be held at such time and place within
or without the State of Florida as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Special meetings of shareholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the president, the board of directors, or the
holders of not less than twenty-five percent (25%) of all the shares entitled to
vote at the meeting.
Section 3. Written or printed notice of a special meeting
stating the place, day, and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be delivered not less than ten nor more than
sixty days before the date of the meeting, either personally or by mail, by or
at the direction of the board, president, or the holders of not less than
twenty-five percent (25%) of all the shares entitled to vote at the meeting to
each shareholder of record entitled to vote at such meeting.
Section 4. The business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice.
ARTICLE IV
QUORUM AND VOTING OF STOCK
Section 1. The holders of a majority of the shares of stock
issued and outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at all meetings of the
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shareholders for the transaction of business except as otherwise provided by the
articles of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the share holders present in
person or represented by proxy shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally notified.
Section 2. If a quorum is present, the affirmative vote of a
plurality of the shares of stock represented at the meeting shall be the act of
the shareholders unless the vote of a greater number or voting by classes is
required by law or the articles of incorporation.
Section 3. Each outstanding share of stock, having voting
power, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or by his duly authorized
attorney-in-fact.
Except as otherwise provided in the articles of
incorporation, in all elections for directors every shareholder entitled to vote
shall have the right to vote, in person or by proxy, the number of shares of
stock owned by him, for as many persons as there are directors to be elected
Section 4. Any action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by shareholders
holding a majority of the shares entitled to vote with respect to the subject
matter thereof.
ARTICLE V
DIRECTORS
Section 1. The Board of Directors shall consist of at least
one (1) director and not more than five (5) directors. Directors need not be
residents of the State of Florida nor shareholders of the corporation. The
directors, other than the first board of directors, shall be elected at the
annual meeting of
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the shareholders, and each director elected shall serve until the next
succeeding annual meeting and until his successor shall have been elected and
qualified. The first board of directors shall hold office until the first annual
meeting of shareholders.
The number of directors may be increased or decreased by
amendment to the articles of incorporation or to these bylaws.
Section 2. Any vacancy occurring in the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the board of directors, or by the shareholders,
unless the articles of incorporation provide otherwise. A director elected to
fill a vacancy shall be elected for the unexpired portion of the term of his
predecessor in office. A director elected to fill a newly created directorship
shall serve until the next succeeding annual meeting of shareholders and until
his successor shall have been elected and qualified.
Section 3. The business affairs of the corporation shall be
managed by its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the articles of incorporation or by these bylaws directed or required to be
exercised or done by the shareholders.
Section 4. The directors may keep the books of the
corporation, except such as are required by law to be kept within the state,
outside of the State of Florida, at such place or places as they may from time
to time determine.
Section 5. The board of directors, by the affirmative vote of
a majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise.
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ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Meetings of the board of directors, regular or
special, may be held either within or without the State of Florida.
Section 2. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or it may convene at such place and
time as shall be fixed by the consent in writing of all the directors.
Section 3. Regular meetings of the board of directors may be
held upon such notice, or without notice, and at such time and at such place as
shall from time to time be determined by the board.
Section 4. Meetings of the board of directors may be called by
the chairman of the board or by the president. Special meetings of the board of
directors shall be preceded by Ten (10) days' notice sent to directors of the
date, time, and place of the meeting. Notice may be sent in writing or orally,
and communicated in person, by telephone, telegraph, teletype, electronic
communication, or by mail. The notice shall include the purpose of the meeting.
Section 5. Attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened.
Section 6. A majority of the directors shall constitute a
quorum for the transaction of business unless a different number is required by
law or by the articles of incorporation. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
board of directors, unless the act of a greater number is required by statute or
by the articles of incorporation. Whether or not a quorum shall be present at
any meeting of directors, the directors present thereat may
5
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adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
Section 7. Any action required or permitted to be taken at a
meeting of the directors may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the directors
entitled to vote with respect to the subject matter thereof.
ARTICLE VII
EXECUTIVE COMMITTEES
Section 1. The board of directors, by resolution adopted by a
majority of the full board of directors, may designate two or more directors to
constitute an executive committee, to the extent provided in such resolution,
shall have and exercise all of the authority of the board of directors in the
management of the corporation, except as otherwise required by law. Vacancies in
the membership of the committee shall be filled by the board of directors at a
regular or special meeting of the board of directors. The executive committee
shall keep regular minutes of its proceedings and report the same to the board
when required.
ARTICLE VIII
NOTICES
Section 1. Whenever any notice whatever is required to be
given under the provisions of the statutes or under the provisions of the
articles of incorporation or these by-laws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
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ARTICLE IX
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the board of directors and shall be a chairman of the board, a chief executive
officer, a president, a secretary and a treasurer. The board of directors may
also choose additional vice-presidents, and one or more assistant secretaries
and assistant treasurers.
Section 2. The board of directors at its first meeting after
each annual meeting of shareholders shall choose a president, a secretary and a
treasurer, none of whom need be a member of the board.
Section 3. The board of directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board of directors.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the board of directors may be removed at any time by the affirmative vote of
a majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside at all meetings of
the Board of Directors and of the shareholders. He shall be the Chief Executive
Officer of the corporation, unless the Board has designated the President as the
Chief Executive Officer. In the absence or disability of the Chairman of the
Board: (a) the Chief Executive Officer shall preside at all meetings of the
Board of Directors and of the
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shareholders, and (b) the powers and duties of the Chairman of the Board shall
be exercised jointly by the Chief Executive Officer and the President until such
authority is altered by action of the Board of Directors.
THE CHIEF EXECUTIVE OFFICER
Section 7. The Chief Executive Officer of the corporation shall
supervise, coordinate and manage the corporation's business and activities and
supervise, coordinate and manage its operating expenses and capital allocation,
shall have general authority to exercise all the powers necessary for the Chief
Executive Officer of the corporation and shall perform such other duties and
have such other powers as may be prescribed by the Board of Directors or these
Bylaws, all in accordance with basic policies as established by and subject to
the oversight of the Board of Directors. In the absence or disability of the
Chairman of the Board, the duties of the Chairman of the Board shall be
performed and the Chairman of the Board's authority may be exercised by the
Chief Executive Officer and, in the event the Chief Executive Officer is absent
or disabled, such duties shall be performed and such authority may be exercised
by an officer designated for such purpose by the Board of Directors.
THE PRESIDENT
Section 8. The president shall be the chief operating officer
of the corporation, shall have general and active management of the business of
the day-to-day operations of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect.
Section 9. He shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
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THE VICE-PRESIDENTS
Section 10. The vice-president, or if there shall be more than
one, the vice-presidents in the order determined by the board of directors,
shall, in the absence or disability of the president, perform the duties and
exercise the powers of the president and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 11. The secretary shall attend all meetings of the
board of directors and all meetings of the shareholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the board of
directors, shall, in the absence or disability of the secretary, perform the
duties and exercise the powers of the secretary and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors.
Section 14. He shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the board of directors, he shall
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful performance of
the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 16. The assistant treasurer, or, if there shall be
more than one, the assistant treasurers in the order determined by the board of
directors, shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
ARTICLE X
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented
by a certificate or shall be uncertificated. Certificates shall be signed by the
president of the corporation, and may be sealed with the seal of the corporation
or a facsimile thereof.
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When the corporation is authorized to issue shares of more
than one class there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that the corporation will
furnish to any shareholder upon request and without charge, a full or summary
statement of the designations, preferences, limitations, and relative rights of
the shares of each class authorized to be issued and, if the corporation is
authorized to issue any preferred or special class in series, the variations in
the relative rights and preferences between the shares of each such series so
far as the same have been fixed and determined and the authority of the board of
directors to fix and determine the relative rights and preferences of subsequent
series.
Section 2. The signature of the officer of the corporation
upon a certificate may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon such 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 he were such officer at the date of
its issue.
UNCERTIFICATED SHARES
Section 3. The board of directors of the corporation may
authorize the issue of some or all of the shares of any or all of its classes or
series without certificates. Shares already represented by certificates shall
not be affected until they are surrendered to the corporation.
Section 4. Within ten (10) days after the issue or transfer of
shares without certificates, the corporation shall send shareholders a written
statement of the information required on the certificates by F.S.
section 607.0625 (2) and (3), and, if applicable, F.S. section 607.0627.
LOST CERTIFICATES
Section 5. The board of directors may direct a new certificate
or an equivalent new uncertificated security in place of any certificate
theretofore issued by the corporation alleged to have been
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lost, destroyed, or wrongfully taken. When authorizing such issue of a new
certificate or an equivalent new uncertificated security, the board of
directors, in its discretion and as a condition precedent to the issuance
thereof, may prescribe such terms and conditions as it deems expedient, and may
require such indemnities as it deems adequate, to protect the corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost, destroyed, or wrongfully taken.
TRANSFERS OF SHARES
Section 6. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate or an equivalent new uncertificated security shall
be issued to the person entitled thereto, and the old certificate canceled and
the transaction recorded upon the books of the corporation.
FIXING OF RECORD DATE
Section 7. For the purpose of determining shareholders entitled
to notice of a shareholders' meeting, to demand a special meeting, to vote, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors may provide that the record date be fixed not more than
seventy days before the meeting or action requiring a determination of
shareholders. For the purpose of determining those shareholders entitled to
demand a special meeting, such record date shall be ten (10) days before the
special meeting. For the purpose of determining those shareholders entitled to
take action without a meeting, such record date shall be ten (10) days before
the action requiring a determination of shareholders. For the purpose of
determining those shareholders entitled to notice of and to vote at an annual or
special shareholders' meeting, such record date shall be ten (10) days before
the meeting. When a determination of
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shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
LIST OF SHAREHOLDERS
Section 8. After fixing a record date for a meeting, the
officer or agent in charge of the records for shares shall prepare an
alphabetical list of the names of all shareholders who are entitled to notice of
a shareholders' meeting, arranged by voting group, with the address of, and the
number and class and series, if any, of shares held by each.
The shareholders' list shall be available for inspection by
any shareholder for a period of ten (10) days prior to the meeting and shall be
kept on file at the corporation's principal office. A shareholder or his agent
or attorney shall be entitled on written demand to inspect the list, subject to
the requirements of F.S. section 607.1602(3) during regular business hours and
at his expense, during the period it shall be available for inspection. The
shareholders' list shall be made available at the meeting, and any shareholder
or his agent or attorney shall be entitled to inspect the list at any time
during the meeting or any adjournment. The shareholders' list shall be prima
facie evidence of the identity of shareholders entitled to examine the
shareholders' list or to vote at a meeting of shareholders.
ARTICLE XI
GENERAL PROVISIONS
DISTRIBUTIONS
Section 1. Subject to the restrictions of the articles of
incorporation relating thereto, if any, and to limitation by statute,
distributions may be declared by the board of directors at any regular or
special meeting, pursuant to law. Distributions may be made in cash, in
property, or as a dividend.
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Share dividends may be issued pro rata and without
consideration to the corporation's shareholders or to the shareholders of one or
more classes or series, subject to the provisions of the articles of
incorporation.
Section 2. Before any distribution may be made, there may be
set aside out of any funds of the corporation available for distributions such
sum or sums as the directors from time to time, in their absolute discretion,
think proper to meet debts of the corporation as they become due in the usual
course of business, or for such other purpose as the directors shall think
conducive to the interest of the corporation.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Florida". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
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ARTICLE XII
AMENDMENTS
Section 1. These bylaws may be altered, amended, or repealed
or new bylaws may be adopted by the affirmative vote of a majority of the board
of directors at any regular or special meeting of the board.
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Exhibit 3.1
CONMAT TECHNOLOGIES, INC.
Incorporated Under the Laws of the State of Florida
COMMON STOCK
This certifies that
is the owner of
fully paid and non-assessable shares of Common Stock of $.001 par value of
ConMat Technologies, Inc. transferable on the books of the Corporation by the
holder hereof in person of by a duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
by the Transfer Agent. This certificate and the shares represented hereby are
issued and shall be held subject to all of the provisions of the Articles of
Incorporation and Bylaws of the Corporation, and all amendments thereto, copies
of which are on file with the Transfer Agent, to all of which the holder of this
certificate, by acceptance hereof, assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
the facsimile signatures of its duly authorized officers and to be sealed with
the facsimile seal of the Corporation.
Dated:
President:
Secretary:
<PAGE>
Exhibit 3.2
CONMAT TECHNOLOGIES, INC.
Incorporated Under the Laws of the State of Florida
SERIES A CONVERTIBLE PREFERRED STOCK, stated value $3.00 per share
This certifies that
is the owner of
fully paid and non-assessable shares of Series A Convertible Preferred Stock of
$.001 par value, stated value $3.00, of ConMat Technologies, Inc. transferable
on the books of the Corporation by the holder hereof in person of by a duly
authorized attorney upon surrender of this certificate properly endorsed. This
certificate is not valid until countersigned by the Transfer Agent. This
certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Articles of Incorporation and Bylaws of
the Corporation, and all amendments thereto, copies of which are on file with
the Transfer Agent, to all of which the holder of this certificate, by
acceptance hereof, assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
the facsimile signatures of its duly authorized officers and to be sealed with
the facsimile seal of the Corporation.
Dated:
President:
Secretary:
<PAGE>
Exhibit 3.3
CONMAT TECHNOLOGIES, INC.
Incorporated Under the Laws of the State of Florida
SERIES B CONVERTIBLE PREFERRED STOCK, stated value $3.00 per share
This certifies that
is the owner of
fully paid and non-assessable shares of Series B Convertible Preferred Stock of
$.001 par value, stated value $3.00, of ConMat Technologies, Inc. transferable
on the books of the Corporation by the holder hereof in person of by a duly
authorized attorney upon surrender of this certificate properly endorsed. This
certificate is not valid until countersigned by the Transfer Agent. This
certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Articles of Incorporation and Bylaws of
the Corporation, and all amendments thereto, copies of which are on file with
the Transfer Agent, to all of which the holder of this certificate, by
acceptance hereof, assents.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
the facsimile signatures of its duly authorized officers and to be sealed with
the facsimile seal of the Corporation.
Dated:
President:
Secretary:
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Void after 5:00 P.M. (Eastern Time),
December 31, 2005, except as otherwise provided herein.
Series A No. 1 Warrant to Purchase
- -------------- 166,667 Shares of Common Stock
Date: December 8, 1998
WARRANT
TO PURCHASE COMMON STOCK OF
CONMAT TECHNOLOGIES, INC.
THIS CERTIFIES that, Mentor Special Situation Fund, L.P. (herein called
"Holder") or registered assigns, is entitled to purchase from ConMat
Technologies, Inc. (herein called the "Company"), a corporation organized and
existing under the laws of Delaware, at any time after December 8, 1998 and
until 5:00 P.M. (Eastern Time) on December 31, 2005, One Hundred Sixty- Six
Thousand Six Hundred Sixty-Six (166,667) fully paid and nonassessable shares of
Common Stock of the Company, $0.001 par value per share (the "Common Stock"),
subject to adjustment as provided herein, at a purchase price of $3.00 per
share, subject to adjustment as provided herein.
1. Definitions. For the purpose of the Warrants:
a. "Capital Stock" shall mean the Company's common stock, and
any other stock of any class, whether now or hereafter authorized, which has the
right to participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
b. "Exercise Period" shall mean the period beginning December
8, 1998 and ending December 31, 2005.
c. "Market Price," as of any date, (i) means the average of
the closing bid prices for the shares of Common Stock as reported on the Nasdaq
SmallCap Market by Bloomberg Financial Markets ("Bloomberg") for the five (5)
consecutive trading days immediately preceding
<PAGE>
such date, or (ii) if the Nasdaq SmallCap Market is not the principal trading
market for the shares of Common Stock, the average of the last sale prices
reported by Bloomberg on the principal trading market for the Common Stock
during the same period, or, if there is no sale price for such period, the last
bid price reported by Bloomberg for such period, or (iii) if the foregoing do
not apply, the last sale price of such security in the over-the-counter market
on the pink sheets or bulletin board for such security as reported by Bloomberg,
or if no sale price is so reported for such security, the last bid price of such
security as reported by Bloomberg, or (iv) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market Price shall be the
average fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to a majority in interest of
the holders of Warrants, with the costs of the appraisal to be borne by the
Company.
d. "Warrants of this Series" or "Warrants" shall mean the
original Warrants to purchase up to 166,667 shares of Common Stock of the
Company and any and all warrants which are issued in exchange or substitution
for any outstanding Warrant pursuant to the terms of that Warrant.
e. "Warrant Price" shall mean the price per share at which
shares of Common Stock of the Company are purchasable hereunder, as such prices
may be adjusted from time to time hereunder.
f. "Warrant Shares" shall mean the stock purchased upon
exercise of Warrants.
2. Method of Exercise of Warrants.
a. This Warrant may be exercised in whole or in part (but not
as to fractional shares) on one or more occasions during the Exercise Period by
the surrender of the Warrant, with the Purchase Agreement attachment hereto as
Rider A properly completed and duly executed, at the principal office of the
Company at Franklin Avenue and Grant Street, Phoenixville, Pennsylvania, or such
other location which shall at that time be the principal office of the Company
(the "Principal Office"), and upon payment to it of the purchase price for the
shares to be purchased upon such exercise. The purchase price may be paid, at
the Holder's option, by (i) delivering a certified check or bank draft or
immediately available funds to the order of the Company for the entire purchase
price, (ii) surrendering to the Company shares of Common Stock of the Company
owned by the Holder having an aggregate market value (determined by multiplying
the Market Price by the number of shares surrendered) equal to the purchase
price, or (iii) any combination of (i) and (ii) as determined by the Holder. The
persons entitled to the shares so purchased shall be treated for all purposes as
the holders of such shares as of the close of business on the date of exercise
and certificates for the shares of stock so purchased shall be delivered to the
persons so entitled within a reasonable time, not exceeding thirty (30) days,
after such exercise. Unless this warrant has expired, a new Warrant of like
tenor and for such number of shares as the holder of this Warrant shall direct,
representing in the aggregate the right to purchase a number of shares with
respect to
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<PAGE>
which this Warrant shall not have been exercised, shall also be issued to the
holder of this Warrant within such time.
b. In addition to and without limiting the rights of the
Holder under any other terms set forth herein, the Holder shall have, upon
written request by the Holder delivered or transmitted to the Company together
with this Warrant, the right (the "Conversion Right") to require the Company to
convert this Warrant into shares of Common Stock as follows: upon exercise of
the Conversion Right, the Company shall deliver to the Holder (without any
payment by the Holder) that number of shares of Common Stock that is equal to
the quotient obtained by dividing (x) the value of this Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate purchase
price in effect immediately prior to the exercise of the Conversion Right from
the aggregate current market value (determined by multiplying the Market Price
by the applicable number of shares) of the Warrant Shares issuable upon exercise
of this Warrant immediately prior to the exercise of the Conversion Right) by
(y) the Market Price immediately prior to the exercise of the Conversion Right.
The Conversion Right may be exercised by the Holder by surrender of this Warrant
at the principal office of the Company, together with a written statement
specifying that the Holder thereby intends to exercise the Conversion Right.
Certificates for shares of Common Stock issuable upon exercise of the Conversion
Right shall be delivered to the Holder promptly following the Company's receipt
of this Warrant together with the aforesaid written statement.
c. (i) The Company shall have the right and option (the "Call
Option"), at any time after redemption by the Company of its Series B Preferred
Stock, to purchase the Warrant from the Holder in accordance with this Section.
(ii) To exercise the Call Option, the Company shall
give written notice to the Holder, specifying the date on which the purchase is
to be completed (the "Call Option Purchase Date"), which shall not, without the
agreement of the Holder, be fewer than 10 days or more than 30 days after the
receipt of such notice.
(iii) The purchase price payable upon exercise of the
Call Option shall be equal to the aggregate number of Warrant Shares then
purchasable under this Warrant times the excess of (A) the greater of $7.00 per
Share or the Market Price over (B) the Warrant Price then in effect; provided,
that for purposes of this Section 2.c. Warrant Price and the number of Warrant
Shares shall be adjusted to eliminate any prior adjustment pursuant to Section
6.a. and any adjustment pursuant to Section 6.d. below as a result of the
adjustment pursuant to Section 6.a., and Market Price shall be adjusted to take
into account any previous adjustment under Section 6.a.
(iv) On the Call Option Purchase Date, (1) the Holder
shall assign this Warrant to the Company, without any representation or warranty
other than that the Holder is conveying good and valid title thereto, free and
clear of any lien, claim, encumbrance or restriction of any kind, and (2) the
Company shall pay the purchase price (determined under subsection (iii)) to the
Holder by (a) certified or official bank check or wire transfer of immediately
available funds, or (b) delivery to the Holder of shares of the Company's Common
Stock with an aggregate current
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<PAGE>
market value (determined by multiplying the number of shares being delivered by
the Market Price) equal to the purchase price; provided that such shares of
Common Stock have been registered under the Securities Act of 1933 and is freely
tradeable by the holder without restriction.
3. Exchange. This Warrant is exchangeable, upon the surrender thereof
by the holder thereof at the Principal Office of the Company, for new Warrants
of like tenor registered in such holder's name and representing in the aggregate
the right to purchase the number of shares purchasable under the Warrant being
exchanged, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder at the time
of such surrender.
4. Transfer. Subject to compliance with the Securities Act of 1933 and
the rules and regulations promulgated thereunder and restrictions on transfer
set forth in the Securities Purchase Agreement, this Warrant is transferable, in
whole or in part, at the Principal Office of the Company by the holder thereof,
in person or by duly authorized attorney, upon presentation of the Warrant,
properly endorsed, for transfer. Each holder of this Warrant, by holding it,
agrees that the Warrant, when endorsed in blank, may be deemed negotiable, and
that the holder thereof, when the Warrant shall have been so endorsed, may be
treated by the Company and all other persons dealing with the Warrant as the
absolute owner thereof for any purpose and as the person entitled to exercise
the rights represented by the Warrant, or to the transfer thereof on the books
of the Company, any notice to the contrary notwithstanding.
5. Certain Covenants of the Company. The Company covenants and agrees
that all shares which may be issued upon the exercise of Warrants of this
Series, will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and without limiting the generality of the forgoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at all
times equal to or less than the then effective purchase price per share of the
Common Stock issuable pursuant to the Warrants. The Company further covenants
and agrees that during the period within which the rights represented by the
Warrants may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise of the purchase rights evidenced
by the Warrants, a sufficient number of shares of its Common Stock to provide
for the exercise of the rights represented by the Warrants.
6. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrants of this Series
and the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
a. Adjustment to Warrant Price Due to Stock Split, Stock
Dividend, Etc. If at any time when Warrants are outstanding, the number of
outstanding shares of Common Stock is increased by a stock split, stock
dividend, reclassification or other similar event, the Warrant Price shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is
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<PAGE>
decreased by a reverse stock split, combination or reclassification of shares,
or other similar event, the Warrant Price shall be proportionately increased. In
such event, the Corporation shall notify the Holder of such change on or before
the effective date thereof.
b. Adjustment Due to Merger, Consolidation, Etc. If, at any
time when Warrants are outstanding, there shall be (i) any reclassification or
change of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), (ii) any consolidation or merger
of the Company with any other corporation (other than a merger in which the
Company is the surviving or continuing corporation and its capital stock is
unchanged), (iii) any sale or transfer of all or substantially all of the assets
of the Company or (iv) any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, then the holders of Warrants shall, upon being given at least thirty
(30) days prior written notice of such transaction, thereafter have the right to
purchase and receive upon exercise of Warrants, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of Warrants held by such holders
had such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of the Warrants to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Warrant Price and of the
number of shares issuable upon exercise of the Warrants) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the exercise thereof. The Company
shall not effect any transaction described in this subsection (b) unless (i)
each holder of Warrants has received written notice of such transaction at least
thirty (30) days prior thereto, and (ii) the provisions of this paragraph have
been complied with. The above provisions shall apply regardless of whether or
not there would have been a sufficient number of shares of Common Stock
authorized and available for issuance upon exercise of the Warrants outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
c. Adjustment due to Below Market Issuance. If at any time
prior to the exercise of this Warrant in full, the Company shall (i) issue or
sell any Common Stock or Common Stock Equivalents without consideration or for
consideration per share (in cash, property or other assets) less than the
Warrant Price or (ii) fix a record date for the issuance of subscription rights,
options or warrants to all holders of Common Stock entitling them to subscribe
for or purchase Common Stock (or Common Stock Equivalents (as hereinafter
defined)) at a price (or having an exercise or conversion price per share) less
than the Warrant Price, the Warrant Price shall be adjusted so that the Warrant
Price shall equal such lower price. Any adjustments required by this Subsection
shall be made immediately after such issuance or sale or record date, as the
case may be. Such adjustments shall be made successively whenever such event
shall occur. To the extent that shares of Common Stock (or Common Stock
Equivalents) are not delivered in connection with such
-5-
<PAGE>
subscription rights, options or warrants, the Warrant Price shall be readjusted
to the Warrant Price which would then be in effect had the adjustments made upon
the issuance of such rights, options or warrants not been made. In the case of
an issue of additional Common Stock or Common Stock Equivalents for cash, the
consideration received by the Company therefor, before deducting therefrom any
discount or commission or other expenses allowed, paid or incurred by the
Company for underwriting of, or otherwise in connection with, the issuance
thereof, shall be deemed to be the amount received by the Company therefor. In
the case of an issue of additional Common Stock or Common Stock Equivalents for
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as reasonably determined by
the Company's Board of Directors, irrespective of any accounting treatment. No
adjustments to the Warrant Price or the number of Warrant Shares issuable upon
exercise of this Warrant shall be made pursuant to this Subsection 6.c. for any
transaction for which adjustment thereto is required to be made pursuant to any
other provision of this Warrant, the exercise of Warrants or the conversion,
exchange or exercise of any Common Stock Equivalents. No adjustments to the
Warrant Price or the number of Warrant Shares issuable upon exercise of this
Warrant shall be made as the result of the issuance of stock options to
employees of the Company pursuant to any employee's employment agreement or an
employee stock option plan. For purposes of this Subsection c., "Common Stock
Equivalents" shall mean any subscription rights, options, warrants or other
securities or rights convertible into, or exercisable or exchangeable for,
shares of Common Stock.
d. Adjustment of Number of Shares. Upon each adjustment in a
Warrant Price pursuant to any provisions of this Section 6, the number of shares
of Common Stock purchasable hereunder at that Warrant Price shall be adjusted,
to the nearest one hundredth of a whole share, to the product obtained by
multiplying such number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
7. Notice of Adjustments. Whenever any of the Warrant Price or the
number of shares of Common Stock purchasable under the terms of the Warrants at
that Warrant Price shall be adjusted pursuant to Section 6 hereof, the Company
shall promptly make a certificate signed by its President or a Vice President
and by its Treasurer or Assistant Treasurer or its Secretary or Assistant
Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Warrant Price and
number of shares of Common Stock purchasable at that Warrant Price after giving
effect to such adjustment, and shall promptly cause copies of such certificate
to be mailed (by first class and postage prepaid) to the registered holders of
the Warrants.
8. Registration Rights. Each present and future holder of Warrant
Shares shall be entitled to the benefits of the registration rights granted
pursuant to this Section 8.
a. Definitions. For purposes of this Section 8:
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<PAGE>
(i) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement or document;
(ii) The term "Registrable Securities" means the
Warrant Shares and all shares of Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, any of the Warrant Shares excluding in all cases, however, any
Registrable Securities (x) sold by a person in a transaction in which his rights
under this Section 8 are not assigned, (y) sold in a public offering registered
under the Securities Act or (z) sold pursuant to Rule 144 promulgated under the
Securities Act;
(iii) The number of shares of "Registrable Securities
then outstanding" shall be determined by the number of Warrant Shares which are,
and the number of shares of Common Stock issuable pursuant to then exercisable
or convertible securities which are, Registrable Securities;
(iv) The term "Holder" means any person owning or
having the right to acquire Registrable Securities;
(v) The term "SEC" means the Securities and Exchange
Commission; and
(vi) The term "Securities Act" shall mean the
Securities Act of 1933, as from time to time amended.
b. Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any shares of
its Common Stock under the Securities Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to employees pursuant to stock option awards and/or to
participants in a Company employee benefit or stock plan, or a registration on
any form which does not include substantially the same information, other than
information related to the selling stockholders or their plan of distribution,
as would be required to be included in a registration statement covering the
sale of the Registrable Securities), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written request
of each Holder given within twenty (20) days after mailing of such notice by the
Company, the Company shall, subject to the provisions of the immediately
preceding sentence and Section 8.e. hereof, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be so registered.
c. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 8
with respect to the Registrable Securities
-7-
<PAGE>
of any selling Holder that such Holder shall have furnished to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities.
d. Expenses of Registration. The Company shall bear and pay
all expenses incurred by it in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 8.b., including without limitation all registration, filing,
and qualification fees, printers and accounting fees and all fees and
disbursements of counsel for the Company relating or allocable thereto. The
Company shall not pay any expenses incurred by a Holder in connection with any
such registration, filing or qualification, including, but not limited to
underwriting discounts and commissions relating to Registrable Securities and
the fees and disbursements of any professional advisors (including attorneys and
accountants) utilized by the selling Holders in connection with such
registration, filing or qualification.
e. Reduction of Registrable Securities Included in
Registration Statement. In connection with any offering involving an
underwriting of shares being issued by the Company, the Company shall not be
required under Section 8.b. hereof to include any of the Holders' securities in
such underwriting unless they accept the customary and reasonable terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If the
total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters believe will not jeopardize the
success of the offering (the securities so included to be allocated first among
holders of Registrable Securities who have provided notice required by Section
8.b. and then to all other holders of securities subject to registration rights
granted by the Company in proportion (as nearly as practicable) to the number of
shares of securities requested to be included in such registration by such other
holders and which would have been eligible for inclusion in such registration
but for the application of this sentence, or in such other proportions as shall
mutually be agreed to by such selling stockholders). For purposes of the
provision of the preceding sentence concerning apportionment amongst the selling
stockholders, for any selling stockholder which is a partnership or corporation,
the partners, retired partners and stockholders of such Holder, or the estates
and family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
"selling stockholder," and any reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
f. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any registration
by the Company as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 8.
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<PAGE>
9. Payment of Taxes. All shares of Common Stock issued upon the
exercise of a Warrant shall be validly issued, fully paid and nonassessable, and
the Company shall pay all taxes and other governmental charges that may be
imposed in respect of the issue or delivery thereof. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock in
any name other than that of the registered holder of the Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Company's
satisfaction that no tax or other charge is due.
10. Fractional Shares. No fractional shares of the Company's Common
Stock will be issued in connection with any purchase hereunder but in lieu of
such fractional shares, the Company shall make a cash refund therefor equal in
amount to the product of the applicable fraction multiplied by the Warrant Price
paid by the holder for its Warrant Shares upon such exercise.
11. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company
of evidence reasonably satisfactory to it that any Warrant of this Series has
been mutilated, destroyed, lost or stolen, and in the case of any destroyed,
lost or stolen Warrant, a bond of indemnity reasonably satisfactory to the
Company, or in the case of a mutilated Warrant, upon surrender and cancellation
thereof, the Company will execute and deliver in the Holder's name, in exchange
and substitution for the Warrant so mutilated, destroyed, lost or stolen, a new
Warrant of like tenor substantially in the form thereof with appropriate
insertions and variations.
12. Computations. The certificate of any firm of independent public
accountants of recognized standing selected by the Company shall be conclusive
evidence of the correctness of any computation under Warrants of this Series.
13. Headings. The descriptive headings of the several sections of these
warrants are inserted for convenience only and do not constitute a part of these
Warrants.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Warrant.
CONMAT TECHNOLOGIES, INC.
[CORPORATE SEAL]
By:/s/ Paul A. DeJuliis
--------------------
Attest:__________________________________
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<PAGE>
Rider A
PURCHASE AGREEMENT
Date:_________________________
TO:
The undersigned, pursuant to the provisions set forth in the
attached Warrant, hereby agrees to purchase ______________________ shares of
Common Stock covered by such Warrant, and makes payment herewith in full
therefor at the price per share provided by this Warrant.
Signature:________________________________
Address:_________________________________
* * *
ASSIGNMENT
For Value Received, _________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Common Stock covered by
such Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
Dated:
Signature:________________________________
Witness:_________________________________
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<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
Void after 5:00 P.M. (Eastern Time),
October 7, 2001, except as otherwise provided herein.
Series A No. 1 Warrant to Purchase
- -------------- 30,000 Shares of Common Stock
Date: December 8, 1998
WARRANT
TO PURCHASE COMMON STOCK OF
CONMAT TECHNOLOGIES, INC.
THIS CERTIFIES that, Mentor Management Company (herein called "Holder")
or registered assigns, is entitled to purchase from ConMat Technologies, Inc.
(herein called the "Company"), a corporation organized and existing under the
laws of Delaware, at any time after December 8, 1998 and until 5:00 P.M.
(Eastern Time) on October 7, 2001, Thirty Thousand (30,000) fully paid and
nonassessable shares of Common Stock of the Company, $0.001 par value per share
(the "Common Stock"), subject to adjustment as provided herein, at a purchase
price of $1.00 per share, subject to adjustment as provided herein.
1. Definitions. For the purpose of the Warrants:
a. "Capital Stock" shall mean the Company's common stock, and any
other stock of any class, whether now or hereafter authorized, which has the
right to participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
b. "Exercise Period" shall mean the period beginning December 8,
1998 and ending October 7, 2001.
c. "Market Price," as of any date, (i) means the average of the
closing bid prices for the shares of Common Stock as reported on the Nasdaq
SmallCap Market by Bloomberg Financial Markets ("Bloomberg") for the five (5)
consecutive trading days immediately preceding
<PAGE>
such date, or (ii) if the Nasdaq SmallCap Market is not the principal trading
market for the shares of Common Stock, the average of the last sale prices
reported by Bloomberg on the principal trading market for the Common Stock
during the same period, or, if there is no sale price for such period, the last
bid price reported by Bloomberg for such period, or (iii) if the foregoing do
not apply, the last sale price of such security in the over-the-counter market
on the pink sheets or bulletin board for such security as reported by Bloomberg,
or if no sale price is so reported for such security, the last bid price of such
security as reported by Bloomberg, or (iv) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market Price shall be the
average fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to a majority in interest of
the holders of Warrants, with the costs of the appraisal to be borne by the
Company.
d. "Warrants of this Series" or "Warrants" shall mean the original
Warrants to purchase up to 166,667 shares of Common Stock of the Company and any
and all warrants which are issued in exchange or substitution for any
outstanding Warrant pursuant to the terms of that Warrant.
e. "Warrant Price" shall mean the price per share at which shares of
Common Stock of the Company are purchasable hereunder, as such prices may be
adjusted from time to time hereunder.
f. "Warrant Shares" shall mean the stock purchased upon exercise of
Warrants.
2. Method of Exercise of Warrants.
a. This Warrant may be exercised in whole or in part (but not as to
fractional shares) on one or more occasions during the Exercise Period by the
surrender of the Warrant, with the Purchase Agreement attachment hereto as Rider
A properly completed and duly executed, at the principal office of the Company
at Franklin Avenue and Grant Street, Phoenixville, Pennsylvania, or such other
location which shall at that time be the principal office of the Company (the
"Principal Office"), and upon payment to it of the Warrant Price for the shares
to be purchased upon such exercise. The Warrant Price may be paid, at the
Holder's option, by (i) delivering a certified check or bank draft or
immediately available funds to the order of the Company for the entire Warrant
Price, (ii) surrendering to the Company shares of Common Stock of the Company
owned by the Holder having an aggregate market value (determined by multiplying
the Market Price by the number of shares surrendered) equal to the Warrant
Price, or (iii) any combination of (i) and (ii) as determined by the Holder. The
persons entitled to the shares so purchased shall be treated for all purposes as
the holders of such shares as of the close of business on the date of exercise
and certificates for the shares of stock so purchased shall be delivered to the
persons so entitled within a reasonable time, not exceeding thirty (30) days,
after such exercise. Unless this warrant has expired, a new Warrant of like
tenor and for such number of shares as the holder of this Warrant shall direct,
representing in the aggregate the right to purchase a number of shares with
respect to
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<PAGE>
which this Warrant shall not have been exercised, shall also be issued to the
holder of this Warrant within such time.
b. In addition to and without limiting the rights of the Holder
under any other terms set forth herein, the Holder shall have, upon written
request by the Holder delivered or transmitted to the Company together with this
Warrant, the right (the "Conversion Right") to require the Company to convert
this Warrant into shares of Common Stock as follows: upon exercise of the
Conversion Right, the Company shall deliver to the Holder (without any payment
by the Holder) that number of shares of Common Stock that is equal to the
quotient obtained by dividing (x) the value of this Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Price in effect immediately prior to the exercise of the Conversion Right from
the aggregate current market value (determined by multiplying the Market Price
by the applicable number of shares) of the Warrant Shares issuable upon exercise
of this Warrant immediately prior to the exercise of the Conversion Right) by
(y) the Market Price immediately prior to the exercise of the Conversion Right.
The Conversion Right may be exercised by the Holder by surrender of this Warrant
at the principal office of the Company, together with a written statement
specifying that the Holder thereby intends to exercise the Conversion Right.
Certificates for shares of Common Stock issuable upon exercise of the Conversion
Right shall be delivered to the Holder promptly following the Company's receipt
of this Warrant together with the aforesaid written statement.
c. (i) The Company shall have the right and option (the "Call
Option"), at any time after redemption by the Company of its Series B Preferred
Stock, to purchase the Warrant from the Holder in accordance with this Section.
(ii) To exercise the Call Option, the Company shall give written
notice to the Holder, specifying the date on which the purchase is to be
completed (the "Call Option Purchase Date"), which shall not, without the
agreement of the Holder, be fewer than 10 days or more than 30 days after the
receipt of such notice.
(iii) The purchase price payable upon exercise of the Call Option
shall be equal to the aggregate number of Warrant Shares then purchasable under
this Warrant times excess of the Market Price over Warrant Price then in effect;
provided, that for purposes of this Section 2.c. Warrant Price and the number of
Warrant Shares shall be adjusted to eliminate any prior adjustment pursuant to
Section 6.a. and any adjustment pursuant to Section 6.d. below as a result of
the adjustment pursuant to Section 6.a., and Market Price shall be adjusted to
take into account any previous adjustment under Section 6.a.
(iv) On the Call Option Purchase Date, (1) the Holder shall
assign this Warrant to the Company, without any representation or warranty other
than that the Holder is conveying good and valid title thereto, free and clear
of any lien, claim, encumbrance or restriction of any kind, and (2) the Company
shall pay the purchase price (determined under subsection (iii)) to the Holder
by (a) certified or official bank check or wire transfer of immediately
available funds, or (b) delivery to the Holder of shares of the Company's Common
Stock with an aggregate current
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<PAGE>
market value (determined by multiplying the number of shares being delivered by
the Market Price) equal to the purchase price; provided that such shares of
Common Stock have been registered under the Securities Act of 1933 and is freely
tradeable by the holder without restriction.
3. Exchange. This Warrant is exchangeable, upon the surrender thereof
by the holder thereof at the Principal Office of the Company, for new Warrants
of like tenor registered in such holder's name and representing in the aggregate
the right to purchase the number of shares purchasable under the Warrant being
exchanged, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder at the time
of such surrender.
4. Transfer. Subject to compliance with the Securities Act of 1933 and
the rules and regulations promulgated thereunder and restrictions on transfer
set forth in the Securities Purchase Agreement, this Warrant is transferable, in
whole or in part, at the Principal Office of the Company by the holder thereof,
in person or by duly authorized attorney, upon presentation of the Warrant,
properly endorsed, for transfer. Each holder of this Warrant, by holding it,
agrees that the Warrant, when endorsed in blank, may be deemed negotiable, and
that the holder thereof, when the Warrant shall have been so endorsed, may be
treated by the Company and all other persons dealing with the Warrant as the
absolute owner thereof for any purpose and as the person entitled to exercise
the rights represented by the Warrant, or to the transfer thereof on the books
of the Company, any notice to the contrary notwithstanding.
5. Certain Covenants of the Company. The Company covenants and agrees
that all shares which may be issued upon the exercise of Warrants of this
Series, will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and without limiting the generality of the forgoing, the Company
covenants and agrees that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at all
times equal to or less than the then effective Warrant Price per share of the
Common Stock issuable pursuant to the Warrants. The Company further covenants
and agrees that during the period within which the rights represented by the
Warrants may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue upon exercise of the purchase rights evidenced
by the Warrants, a sufficient number of shares of its Common Stock to provide
for the exercise of the rights represented by the Warrants.
6. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrants of this Series
and the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
a. Adjustment to Warrant Price Due to Stock Split, Stock Dividend,
Etc. If at any time when Warrants are outstanding, the number of outstanding
shares of Common Stock is increased by a stock split, stock dividend,
reclassification or other similar event, the Warrant Price shall be
proportionately reduced, or if the number of outstanding shares of Common Stock
is
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<PAGE>
decreased by a reverse stock split, combination or reclassification of shares,
or other similar event, the Warrant Price shall be proportionately increased. In
such event, the Corporation shall notify the Holder of such change on or before
the effective date thereof.
b. Adjustment Due to Merger, Consolidation, Etc. If, at any time
when Warrants are outstanding, there shall be (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of the
Company with any other corporation (other than a merger in which the Company is
the surviving or continuing corporation and its capital stock is unchanged),
(iii) any sale or transfer of all or substantially all of the assets of the
Company or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, then the
holders of Warrants shall, upon being given at least thirty (30) days prior
written notice of such transaction, thereafter have the right to purchase and
receive upon exercise of Warrants, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of Warrants held by such holders
had such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of the Warrants to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Warrant Price and of the
number of shares issuable upon exercise of the Warrants) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the exercise thereof. The Company
shall not effect any transaction described in this subsection (b) unless (i)
each holder of Warrants has received written notice of such transaction at least
thirty (30) days prior thereto, and (ii) the provisions of this paragraph have
been complied with. The above provisions shall apply regardless of whether or
not there would have been a sufficient number of shares of Common Stock
authorized and available for issuance upon exercise of the Warrants outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
c. Adjustment due to Below Market Issuance. If at any time prior to
the exercise of this Warrant in full, the Company shall (i) issue or sell any
Common Stock or Common Stock Equivalents without consideration or for
consideration per share (in cash, property or other assets) less than the
Warrant Price or (ii) fix a record date for the issuance of subscription rights,
options or warrants to all holders of Common Stock entitling them to subscribe
for or purchase Common Stock (or Common Stock Equivalents (as hereinafter
defined)) at a price (or having an exercise or conversion price per share) less
than the Warrant Price, the Warrant Price shall be adjusted so that the Warrant
Price shall equal such lower price. Any adjustments required by this Subsection
shall be made immediately after such issuance or sale or record date, as the
case may be. Such adjustments shall be made successively whenever such event
shall occur. To the extent that shares of Common Stock (or Common Stock
Equivalents) are not delivered in connection with such
-5-
<PAGE>
subscription rights, options or warrants, the Warrant Price shall be readjusted
to the Warrant Price which would then be in effect had the adjustments made upon
the issuance of such rights, options or warrants not been made. In the case of
an issue of additional Common Stock or Common Stock Equivalents for cash, the
consideration received by the Company therefor, before deducting therefrom any
discount or commission or other expenses allowed, paid or incurred by the
Company for underwriting of, or otherwise in connection with, the issuance
thereof, shall be deemed to be the amount received by the Company therefor. In
the case of an issue of additional Common Stock or Common Stock Equivalents for
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as reasonably determined by
the Company's Board of Directors, irrespective of any accounting treatment. No
adjustments to the Warrant Price or the number of Warrant Shares issuable upon
exercise of this Warrant shall be made pursuant to this Subsection 6.c. for any
transaction for which adjustment thereto is required to be made pursuant to any
other provision of this Warrant, the exercise of Warrants or the conversion,
exchange or exercise of any Common Stock Equivalents. No adjustments to the
Warrant Price or the number of Warrant Shares issuable upon exercise of this
Warrant shall be made as the result of the issuance of stock options to
employees of the Company pursuant to any employee's employment agreement or an
employee stock option plan. For purposes of this Subsection c., "Common Stock
Equivalents" shall mean any subscription rights, options, warrants or other
securities or rights convertible into, or exercisable or exchangeable for,
shares of Common Stock.
d. Adjustment of Number of Shares. Upon each adjustment in a Warrant
Price pursuant to any provisions of this Section 6, the number of shares of
Common Stock purchasable hereunder at that Warrant Price shall be adjusted, to
the nearest one hundredth of a whole share, to the product obtained by
multiplying such number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
7. Notice of Adjustments. Whenever any of the Warrant Price or the
number of shares of Common Stock purchasable under the terms of the Warrants at
that Warrant Price shall be adjusted pursuant to Section 6 hereof, the Company
shall promptly make a certificate signed by its President or a Vice President
and by its Treasurer or Assistant Treasurer or its Secretary or Assistant
Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Warrant Price and
number of shares of Common Stock purchasable at that Warrant Price after giving
effect to such adjustment, and shall promptly cause copies of such certificate
to be mailed (by first class and postage prepaid) to the registered holders of
the Warrants.
8. Registration Rights. Each present and future holder of Warrant
Shares shall be entitled to the benefits of the registration rights granted
pursuant to this Section 8.
a. Definitions. For purposes of this Section 8:
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<PAGE>
(i) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(ii) The term "Registrable Securities" means the Warrant Shares
and all shares of Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
any of the Warrant Shares excluding in all cases, however, any Registrable
Securities (x) sold by a person in a transaction in which his rights under this
Section 8 are not assigned, (y) sold in a public offering registered under the
Securities Act or (z) sold pursuant to Rule 144 promulgated under the Securities
Act;
(iii) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of Warrant Shares which are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities;
(iv) The term "Holder" means any person owning or having the
right to acquire Registrable Securities;
(v) The term "SEC" means the Securities and Exchange Commission;
and
(vi) The term "Securities Act" shall mean the Securities Act of
1933, as from time to time amended.
b. Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any shares of
its Common Stock under the Securities Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to employees pursuant to stock option awards and/or to
participants in a Company employee benefit or stock plan, or a registration on
any form which does not include substantially the same information, other than
information related to the selling stockholders or their plan of distribution,
as would be required to be included in a registration statement covering the
sale of the Registrable Securities), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written request
of each Holder given within twenty (20) days after mailing of such notice by the
Company, the Company shall, subject to the provisions of the immediately
preceding sentence and Section 8.e. hereof, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be so registered.
c. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 8 with
respect to the Registrable Securities
-7-
<PAGE>
of any selling Holder that such Holder shall have furnished to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities.
d. Expenses of Registration. The Company shall bear and pay all
expenses incurred by it in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 8.b., including without limitation all registration, filing,
and qualification fees, printers and accounting fees and all fees and
disbursements of counsel for the Company relating or allocable thereto. The
Company shall not pay any expenses incurred by a Holder in connection with any
such registration, filing or qualification, including, but not limited to
underwriting discounts and commissions relating to Registrable Securities and
the fees and disbursements of any professional advisors (including attorneys and
accountants) utilized by the selling Holders in connection with such
registration, filing or qualification.
e. Reduction of Registrable Securities Included in Registration
Statement. In connection with any offering involving an underwriting of shares
being issued by the Company, the Company shall not be required under Section
8.b. hereof to include any of the Holders' securities in such underwriting
unless they accept the customary and reasonable terms of the underwriting as
agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters reasonably believe compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be allocated first among holders of Registrable
Securities who have provided notice required by Section 8.b. and then to all
other holders of securities subject to registration rights granted by the
Company in proportion (as nearly as practicable) to the number of shares of
securities requested to be included in such registration by such other holders
and which would have been eligible for inclusion in such registration but for
the application of this sentence, or in such other proportions as shall mutually
be agreed to by such selling stockholders). For purposes of the provision of the
preceding sentence concerning apportionment amongst the selling stockholders,
for any selling stockholder which is a partnership or corporation, the partners,
retired partners and stockholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
stockholder," and any reduction with respect to such "selling stockholder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "selling stockholder," as
defined in this sentence.
f. Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any registration by the
Company as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 8.
-8-
<PAGE>
9. Restrictions on Sale. Notwithstanding any provision hereof to the
contrary, the holder hereof may not transfer any Warrant Shares for a period of
one (1) year following the date of ecercise of this Warrant, and the Company may
issue appropriate stop transfer instructions to its transfer agent and place
appropriate legends on certificates evidencing the Warrant Shares, provided that
the foregoing restriction shall terminate upon redemption by the Company of all
of the issued and outstanding shares of its Series B Preferred Stock.
10. Payment of Taxes. All shares of Common Stock issued upon the
exercise of a Warrant shall be validly issued, fully paid and nonassessable, and
the Company shall pay all taxes and other governmental charges that may be
imposed in respect of the issue or delivery thereof. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock in
any name other than that of the registered holder of the Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Company's
satisfaction that no tax or other charge is due.
11. Fractional Shares. No fractional shares of the Company's Common
Stock will be issued in connection with any purchase hereunder but in lieu of
such fractional shares, the Company shall make a cash refund therefor equal in
amount to the product of the applicable fraction multiplied by the Warrant Price
paid by the holder for its Warrant Shares upon such exercise.
12. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company
of evidence reasonably satisfactory to it that any Warrant of this Series has
been mutilated, destroyed, lost or stolen, and in the case of any destroyed,
lost or stolen Warrant, a bond of indemnity reasonably satisfactory to the
Company, or in the case of a mutilated Warrant, upon surrender and cancellation
thereof, the Company will execute and deliver in the Holder's name, in exchange
and substitution for the Warrant so mutilated, destroyed, lost or stolen, a new
Warrant of like tenor substantially in the form thereof with appropriate
insertions and variations.
13. Computations. The certificate of any firm of independent public
accountants of recognized standing selected by the Company shall be conclusive
evidence of the correctness of any computation under Warrants of this Series.
14. Headings. The descriptive headings of the several sections of these
warrants are inserted for convenience only and do not constitute a part of these
Warrants.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer, on the date of this Warrant.
CONMAT TECHNOLOGIES, INC.
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<PAGE>
[CORPORATE SEAL]
By: /s/ Paul A. DeJuliis
Attest:__________________________________
-10-
<PAGE>
Rider A
PURCHASE AGREEMENT
Date:_________________________
TO:
The undersigned, pursuant to the provisions set forth in the
attached Warrant, hereby agrees to purchase ______________________ shares of
Common Stock covered by such Warrant, and makes payment herewith in full
therefor at the price per share provided by this Warrant.
Signature:________________________________
Address:__________________________________
* * *
ASSIGNMENT
For Value Received, _________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Common Stock covered by
such Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
Dated:
Signature:________________________________
Witness:__________________________________
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<PAGE>
December ___, 1998
Paul A. DeJuliis
1110 Daniel Davis Lane
West Chester, PA 19382
Re: Stock Option Award
------------------
Dear Mr. DeJuliis:
Pursuant to your Employment Agreement dated December 8, 1998, your are
hereby awarded a Non-Qualified Stock Option (the "Option") to purchase 250,000
shares (the "Option Shares") of Common Stock, par value $0.001 per share (the
"Common Stock") of ConMat Technologies, Inc. (the "Corporation") at a purchase
price of $3.00 per share (the "Option Price"). The Option is awarded pursuant to
this Award Letter Agreement (a copy of which you must countersign where
indicated on the last page and return to our attention.)
TERM: The Option expires ten (10) years from the Grant Date, which is
the date of this Award Letter Agreement.
VESTING: The following vesting schedule shall apply to your Option
award:
(a) The first 50,000 Option Shares can be purchased immediately upon
the effectiveness of a registration statement under the Securities Act of 1933
covering shares of the Company's common stock (the "Effective Date");
(b) An additional 100,000 Option Shares can be purchased following the
Effective Date upon a determination by the Corporation that it has realized
$750,000 in pre-tax income for a fiscal year.
(c) The final 100,000 Option Shares can be purchased following the
Effective Date upon a determination by the Corporation that it has realized
$1,000,000 in pre-tax income for a fiscal year;
(d) You shall have the right to exercise this Option as to all Option
Shares following any transaction, including without limitation a sale of assets
or merger, or any transaction resulting in a Change in Control (as defined in
your Employment Agreement, dated December 8, 1998), as the result of which the
holders of shares of the Company's common stock receive, or upon an immediate
liquidation of the Corporation would receive, not less than $5.00 per share. For
purposes of the foregoing calculation, all securities convertible into shares of
the Company's common stock and all
<PAGE>
Paul A. DeJuliis
December ___, 1998
Page -2-
- ----------------------
options to purchase shares of the Company's common stock (including this Option)
shall be deemed converted or exercised immediately prior to such calculation.
TERMINATION OF OPTION: If your employment by the Corporation terminates
by reason of death, the Option may thereafter be exercised, to the extent then
exercisable, for a period of one (1) year from the earlier to occur of the date
of such termination or the expiration of the stated term of the Option. If your
employment by the Corporation or any Affiliate terminates by reason of
Disability (as defined in the Employment Agreement), the Option may thereafter
be exercised, to the extent then exercisable, for a period of six (6) months
from the earlier to occur of the date of such termination or the expiration of
the stated term of the Option. If your employment by the Corporation or any
Affiliate terminates by reason of your voluntary resignation, the Option may
thereafter be exercised, to the extent then exercisable, for a period of sixty
(60) days from the earlier to occur of the date of such termination or the
expiration of the stated term of the Option. If your employment by the
Corporation is terminated by the Corporation without "just cause," or is
terminated by you for "good reason", as those terms are defined in your
Employment Agreement, then the Option shall be deemed fully vested and may be
exercised for a period of one (1) year from the earlier to occur of the date of
termination or the expiration of the stated term of the Option.
NATURE OF OPTION: This Stock Option is intended to be Non-Qualified
Stock Option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code, or to otherwise qualify for
any special tax benefits to you.
METHOD OF EXERCISING OPTION: You shall deliver to the Corporation
written notice of your election to exercise this Option, which notice shall
specify the number of shares in respect of which the Option is to be exercised.
PAYMENT FOR DELIVERY OF SHARES: If and to the extent accepted by the
Corporation at or after the exercise, payment shall be made as you elect as
follows:
(a) in cash, within five (5) days of your giving notice as provided for
in the immediately preceding paragraph, by delivering a check in the amount of
the Option Price for the shares in respect of which the Option is being
exercised. Such delivery shall be made to the Corporation at its principal
office, and such check or checks shall be drawn to the order of the Corporation;
(b) in full or in part in the form of a "cashless exercise," as
follows: If so specified in your notice of election, you may elect to receive
that number of Option Shares equal to: (i) the number of Option Shares with
respect to which the Option is being exercised, (ii) times the excess over the
Option Price of the Fair Market Value of one share of Common Stock, (iii)
divided by the
<PAGE>
Paul A. DeJuliis
December ___, 1998
Page -3-
- ----------------------
Fair Market Value of one share of Common Stock;
(c) in the form of shares of Common Stock based on the Fair Market
Value of the Stock on the date the Option is exercised; or
(d) by any other method of payment permitted under the laws to which
the Corporation is subject.
(e) "Fair Market Value" at any date shall be deemed to be the average
of the daily Closing Prices for the 20 consecutive Trading Days immediately
preceding such date for a share of Common Stock. The "Closing Price" for each
day shall be the last reported sales price regular way on that day or, in case
no such reported sale takes place on such day, the reported closing bid price
regular way, in either case as reported in the principal consolidated
transaction reporting system for the principal United States national securities
exchange or the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") National Market or Small Cap Market on which the
Common Stock is admitted to trading or listed, or if not so listed or admitted
to trading, the last quoted bid price or, if not quoted, the average of the high
bid and the low asked prices in the over-the-counter market as reported by
NASDAQ or such other system then in use. If the Common Stock is not publicly
held or so listed or traded, the "Closing Price" shall mean the fair market
value per share as determined in good faith by the Board of Directors, whose
determination shall be conclusive absent manifest abuse or error, and described
in a resolution of the Board of Directors certified by the Secretary or an
Assistant Secretary of the Corporation. A "Trading Day" shall be any day on
which the principal national securities exchange (or NASDAQ) on which the Common
Stock is admitted to trading or listed is open or, if the Common Stock is not so
admitted to trading or so listed, any day except Saturday, Sunday, a legal
holiday or any day on which banking institutions in the City of New York are
obligated or authorized to close.;
Within thirty (30) days of such payment or other arrangement, the Corporation
shall deliver to you duly endorsed and in proper form for transfer, certificates
representing the Common Stock of the Corporation in respect of which the Option
is being exercised.
NON-TRANSFERABILITY: The Option granted hereunder shall be transferable.
You must notify the Corporation of any such transactions no later than thirty
(30) days prior to the transfer.
ADJUSTMENTS: The number of shares subject to the Option shall be
proportionately adjusted for any change in the stock structure of the
Corporation because of share dividends, recapitalization, reorganization,
mergers, or other restructuring. There shall be substituted, for each share of
Common Stock of the Corporation as such shares exist as of the Grant Date of the
Option,
<PAGE>
Paul A. DeJuliis
December ___, 1998
Page -4-
- ----------------------
the number and kind of shares or other securities into which each such share is
changed or for which it is exchanged.
TAXES: You must pay all U.S. federal, state, local and foreign home
country taxes resulting from the exercise of the Option.
To accept this Award Letter Agreement, please sign and return the
duplicate original immediately. Without your signature, this Agreement is not
valid.
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed as of the ____ day of December, 1998
CONMAT TECHNOLOGIES, INC.
By: _______________________________
Name: Theodore F. Rutkowsky
Title: President
By: _______________________________
Paul A. DeJuliis
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into as of December8, 1998 and made effective
as of December 8, 1998 ("Effective Date") between Paul A. DeJuliis, presently of
1110 Daniel Davis Lane, West Chester, Pennsylvania 19382 ("Employee") and ConMat
Technologies, Inc., a Delaware corporation headquartered in Phoenixville,
Pennsylvania ("Employer").
WHEREAS, Employer desires to obtain the services and employment of
Employee, and Employee desires to secure employment from Employer, upon the
terms and conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
Section 1. Duties - Term.
Effective as of the Effective Date and continuing for a period of five
(5) years from that date Employer shall employ Employee as its Chairman and
Chief Executive Officer, the general duties of which are to supervise and direct
all business operations of Employer subject only to the directives and policies
of the Board of Directors of Employer, to whom Employee shall report, and to
perform such other duties related to those businesses as the Board of Directors
of Employer may, from time to time, determine and direct. Employee accepts said
employment and, except for vacation periods, illnesses, or as otherwise provided
herein, agrees to devote substantially all of his business time and attention to
further Employer's businesses and not to engage in any other business activity;
provided, however, that Employee may devote a reasonable amount of time to his
own personal, investment, charitable and civic activities. Commencing on the
fifth anniversary of the Effective Date the term of this Agreement shall
automatically be extended for additional and successive two (2) year terms
unless, not later than ninety (90) days prior to the end of any term, either
party shall have given notice to the other party that it does not wish to extend
this Agreement; and provided, further, that any such notice not to extend, or
any other circumstances resulting in the termination of, this Agreement to the
contrary notwithstanding, the severance provisions of this Agreement as set out
in Section 7.4(c) hereof shall continue in effect for a period of one (1) year
beyond the term provided herein if a Change in Control as defined in Section
7.1(e) hereof, shall have occurred during such term.
Section 2. Base Compensation.
The Employer shall pay Employee base compensation of $170,000 annually;
plus (i) an additional $20,000 in any fiscal year following a fiscal year in
which Employer's Net Income (pre-tax net income plus any amortization of
goodwill resulting from Employer's acquisition of Polychem Corporation) exceeds
$300,000; (ii) an additional $20,000 on any fiscal year following a fiscal year
in which Employer's Net Income exceeds $650,000; (iii) an additional $20,000 in
any fiscal year following a fiscal year in which Employer's Net Income exceeds
$1,000,000; and (iv) an additional
<PAGE>
$20,000 in any fiscal year in which Employer's Net Income exceeds $1,250,000; up
to a maximum of $250,000 annually. Such automatic increases shall be made
annually if the precondition has been satisfied. The base compensation shall be
payable in a manner consistent with Employer's normal payroll practices in
effect from time to time. For purposes of this Agreement net income means
profits net of interest, depreciation and amortization, except for amortization
of goodwill related to the original purchase of Polychem Corporation which will
not be deducted for purposes of determining net income.
Section 3. Incentive Compensation.
3.1 Concurrent with the execution of this contract, Employee
shall receive the following:
(a) 250,000 common shares of Employer for an
aggregate purchase price of $50,000, payable at Employee's option by delivery of
a promissory note bearing interest at 5% per annum, payable two years from the
date hereof and secured by a pledge of such shares, and in a form reasonably
acceptable to Employer and Employee;
(b) 250,000 options ("Original Issue Options") to
purchase additional shares of common stock at an exercise price of $3 per share.
3.2 Employee shall be eligible to exercise the options granted
under Subsection 3.1(b) in the following manner:
(a) The first 50,000 Original Issue Options can be
exercised immediately upon the effectiveness of registration statement under the
Securities Act of 1933 covering the underlying shares of Employer's common stock
(the "Effective Date");
(b) An additional 100,000 Original Issue Options can
be exercised following the Effective Date upon a determination by Employer that
it has realized $750,000 in pre- tax income for a fiscal year;
(c) The final 100,000 Original Option Issue Options
can be exercised following the Effective Date upon a determination by Employer
that it has realized $1,000,000 in pre-tax income for a fiscal year;
(d) Employee shall have the right to exercise all
Original Issue Options immediately upon any transaction, including without
limitation a sale of assets or merger, or any transaction resulting in a Change
in Control, as the result of which the holders of shares of Employer's common
stock receive, or upon an immediate liquidation of Employer would receive not
less than $5.00 per share. For purposes of the foregoing calculation, all
securities convertible into shares of Employer's common stock and all options to
purchase shares of Employee's common stock (including the Original Issue
Options) shall be deemed converted or exercised immediately prior to
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<PAGE>
such calculation. In the event that operations of Employer are sold or there is
a change in control, all options are immediately eligible for exercise.
Section 4. Fringe Benefits.
4.1 During the original term of this Agreement, and including
any extension thereof, Employee shall be entitled to all of the benefits
generally provided to other comparable employees of Employer, but with his
eligibility thereunder to begin immediately upon the Effective Date, any later
or deferred eligibility periods specified in any such benefit plan to the
contrary notwithstanding. Such benefits and prerequisites shall include all of
those general areas and specific items set forth on Exhibit A attached hereto
and made part hereof, together with all such other employee benefits for
Employee individually or generally for all comparable employees as may be
approved by the Board of Directors of Employer from time to time.
4.2 In the event of termination of Employee's employment
hereunder, for any reason, all medical, health, hospitalization and dental
benefits covering him, his spouse, and his other family dependents during his
employment hereunder will be continued for no less than the greater of (i)
eighteen (18) months following such termination; or (ii) such period of time as
required under the Consolidated Omnibus Budget Reconciliation Act (Sections
601-608 of Employee Retirement Income Security Act of 1974, as amended, and
Section 4980B of the Internal Revenue Code of 1986, as amended) ("COBRA"), all
of which continuing benefits shall be paid for solely by Employer unless such
termination of employment is for "just cause" under Section 7.1(c) in which case
the continuing benefits shall be paid solely by Employee and Employer may
terminate such benefits upon Employee's failure to pay the costs thereof upon
demand.
4.3 Employee shall be entitled to five (5) weeks of vacation
per year, which vacation shall be at such time or times as Employee desires,
subject only to the reasonable prior approval of Employer, or as otherwise
agreed to between the parties.
4.4 The Employer will reimburse Employee for expenses
reasonably incurred by Employee in connection with the business of Employer
according to policies promulgated by the Board of Directors of Employer upon
presentation by Employee of customary and appropriate substantiation for such
expenses.
Section 5. Working Conditions.
During the term of this Agreement, including any extensions thereof,
Employee shall be furnished with working facilities which are suitable to his
position and adequate for the performance of his duties. Employee shall be based
in the Philadelphia area, and any future relocations shall not exceed a 60-mile
radius from Employer's current offices in Phoenixville, Pennsylvania without
Employee's prior consent.
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<PAGE>
Section 6. Confidentiality and Non-Compete.
6.1 Employee agrees that during the term of his active
employment hereunder and following termination of his employment hereunder for
whatever reason, he shall not furnish any individual, firm, corporation or other
entity with any information regarding Employer that he may obtain during the
course of his employment and that he will keep all such information strictly
confidential, including without limitation, the names of or any list or lists of
customers of Employer or utilize such lists or information himself, except as
permitted by the written consent of the Board of Directors of Employer. Upon
termination of his employment, he will return all information regarding Employer
in his possession to it.
6.2 Employee agrees that during the term of his active
employment hereunder (and if he terminates his employment hereunder for other
than "Good Reason" or if Employer terminated him for "just cause", then for a
period of one year beyond such date of Termination) he shall not contact,
directly or indirectly, any customer of Employer for purposes of any business
conflicting with or competing with the business of Employer, nor shall he engage
in any business conflicting with or competing with the business of Employer
anywhere within the world. For purposes of the preceding sentence, Employee
shall not be regarded as engaged in a business in competition with Employer if
he holds no more than a one percent (1%) ownership interest in a corporation
whose equity securities are traded on a national exchange or the NASDAQ National
Market or Small Cap Market and is a passive investor in such corporation.
Section 7. Termination.
7.1 This Agreement may be terminated prior to the tend of the initial
five year term or, if applicable, one of the two-year term extension, but only
on the following terms and conditions:
(a) This Agreement shall terminate as a result of Employee's
death.
(b) If Employee shall fail, because of illness or incapacity,
to render, for six (6) successive months or for an aggregate of 210 days in any
twelve month period, services of the character contemplated by this Agreement,
then Employer's Board of Directors may determine that Employee has become
permanently disabled, and thereupon this Agreement and the employment of
Employee hereunder shall be deemed to be terminated, but no earlier than the
date on which such determination was made.
(c) Employer's Board of Directors may dismiss Employee for
"just cause." For purposes of this Agreement, "just cause" shall mean (i) proven
fraud or malfeasance in the office; (ii) the willful and continued failure by
Employee to substantially perform his duties with Employer (other than any such
failure resulting from either: (A) his incapacity due to physical or mental
illness; or (B) the termination of his employment by him, provided such
termination is for Good Reason, as hereinafter defined); and after a written
demand for substantial performance is delivered to Employee by the Board of
Directors, which demand shall specifically identify the manner in
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<PAGE>
which the Board of Directors believes that Employee has not substantially
performed his duties; (iii) the willful and continuous engaging by Employee is
conduct which is demonstrably and materially injurious to Employer, monetarily
or otherwise; (iv) gross neglect or reckless conduct on the part of Employee
which is demonstrably and materially injurious to Employer; or (v) Employer's
failure to realize Net Income of $300,000 or more during a period of 18
consecutive months (regardless of whether Employer has realized such income
during any other 18 month period, and regardless of the reason for such
failure.) Any of the foregoing to the contrary notwithstanding, no act, or
failure to act, on the part of Employee shall be considered "willful" unless he
has acted or failed to act, with an absence of good faith and without a
reasonable belief that his action or failure to act was in the best interests of
Employer, and Employee shall not be deemed to have been terminated for "just
cause" unless and until there shall have been delivered to him a copy of a
resolution or written consent duly adopted by the affirmative vote of not less
than a majority of the entire membership of the Board of Directors other than
Employee (if then a director) at a meeting of such Board called and held for
that purpose, and following reasonable notice to Employee and an opportunity for
him, together with his counsel, to be heard before the full Board of Directors,
finding that in the good faith opinion of the Board of Directors, he was guilty
of the conduct set forth above in the first sentence of this subsection and
specifying the particulars thereof in detail.
(d) Employee may terminate this Agreement following the
occurrence of an event constituting "good reason". For purposes of this
Agreement, "good reason" shall mean Employee's reasonable determination that he
is unable to exercise the responsibilities, authorities or duties exercised by
him during the term of this Agreement due solely to the occurrence or existence
of any of the events or conditions described in subsections (i) through (viii)
hereof without Employee's prior written consent:
(i) A material reduction in Employee's status, title,
position or responsibilities from such status, title, position or
responsibilities as in effect immediately prior to such reduction; the
assignment to him of any duties or responsibilities which are materially
inconsistent with such status, title or responsibilities; or any removal of him
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for disability, death,
retirement or "just cause;"
(ii) A reduction by Employer in Employee's annual
base compensation as in effect on the date hereof or as the same may be modified
from time to time as provided herein or a failure by Employer to increase his
compensation by the minimum amounts required under Section 2 hereof;
(iii) The relocation of Employer's principal
executive offices to a location outside a 60-mile radius of Phoenixville,
Pennsylvania, or the requirement of Employee for Employee to be based at any
place other than the headquarters or a principal office of Employer or any
material subsidiary or the location at which he performed his duties prior to
such change, except for required travel on Employer's business to the extent
substantially consistent with his business travel obligations prior to such
change;
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<PAGE>
(iv) The failure by Employer to continue in any
effect any significant incentive, bonus or other compensation plan in effect on
the date hereof or contemplated hereby and in which Employee participated prior
to such failure (a "Plan") unless an equitable arrangement embodied in an
ongoing substitute or alternative plan or arrangement, with which he has
consented, has been made with respect to any such Plan, or the failure by
Employer to continue his participation therein, or any action taken by Employer
which would directly or indirectly materially reduce his participation therein;
(v) Other than in connection with a general change
affecting all executive employees for the benefit of Employer, in the Board's
determination: (A) the failure by Employer to continue to provide Employee with
benefits substantially similar to those enjoyed by him under any of the employee
benefit or fringe benefit plans listed on Exhibit A hereto or any other benefit
plans under which he was covered prior to such failure; (B) the taking of any
action by Employer which would directly or indirectly materially reduce any of
such benefits or deprive him of any significant fringe benefit enjoyed by him
prior thereto; or (C) the failure by Employer to provide him with the number of
paid vacation days to which he is entitled on the basis of this Agreement or his
years of service in accordance with Employer's normal vacation policy in effect
on the date hereof;
(vi) Any other breach by Employer of any material
provision of this Agreement to the detriment of Employee which is not cured by
Employer within forty-five (45) days following receipt of notice of such
failure; or
(vii) The failure of Employer to obtain a reasonably
satisfactory agreement from any successor or assign of Employer to assume and
agree to perform this Agreement, all as contemplated in Section 8 hereof.
(e) Any termination for any reason by Employer, other than for
"just cause", or any voluntary termination by Employee, whether or not for "Good
Reason," shall be considered an involuntary termination without "just cause" if
such termination occurs when the Employee holds not more than 20% of the total
issued and outstanding securities of Employer and within one (1) full year
following a "Change of Control". For purposes of this Agreement, a "Change of
Control" shall be deemed to occur: (i) when Employer acquires actual knowledge
that any person other than Employee or an affiliate (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended)
is or becomes the beneficial owner (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) directly or indirectly, of securities of
Employer representing 25% or more of the combined voting power of Employer's
then outstanding securities, unless approved by two-thirds of the Board of
Directors prior to such person's public announcement of an intention or proposal
to acquire 25% or more of such securities; (ii) upon the purchase of at least
25% of Employer's common stock pursuant to a tender or exchange offer (other
than a tender or exchange offer made by Employer), unless such tender or
exchange offer has been approved by two-thirds of the Board of Directors prior
to purchase; (iii) unless two-thirds or more of the Board of Directors has
approved any of the following prior to consummation of such, upon (A) a merger
or consolidation of Employer with or into another corporation (other than a
merger or consolidation
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<PAGE>
in which Employer is the surviving corporation); (B) a sale or disposition of
all or substantially all of Employer's assets; (C) a plan of liquidation or
dissolution of Employer; or (iv) if during any period of three consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of Employer cease for any reason to constitute at least a majority
thereof, unless the election or nomination for the election by Employer's
stockholders of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of the
period. Notwithstanding the foregoing, no event shall constitute a Change of
Control if Employee, in his capacity as a director of Employer, votes in favor
thereof.
7.2 Any purported termination by Employer or Employee shall be
communicated by written Notice of Termination to the other in accordance with
Section 12 hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination if Employee's
employment under the provisions so indicated. For purposes of this Agreement, no
such purported termination shall be effective without such a Notice of
Termination being given.
7.3 The "Date of Termination" for purposes of this Agreement
shall mean:
(a) If Employee's employment is terminated by reason
of his death, such termination shall automatically be as of the date of such
death.
(b) If Employee's employment is terminated by reason
of his disability, then the Date of Termination shall be the date upon which the
Notice of Termination is given, which in no event shall be earlier than the last
date specified in or determined under subsection 7.1(b) hereof.
(c) The termination of Employee's employment pursuant
to any other subsection of Section 7.1 or for any other reason shall be the date
specified in the Notice of Termination, but in the event the party receiving
such Notice of Termination notified the party giving such notice that a dispute
exists concerning the termination, then the Date of Termination shall be (i) the
date specified in the Notice if Termination if the party seeking termination is
the prevailing party, and (ii) the date on which the dispute is finally
determined, either by mutual written agreement of the parties, or by the final
judgment of an arbitrator appointed pursuant to Section 10 hereof, if the
non-terminating party is the prevailing party. During the pendency of any
dispute Employer will continue to include Employee as a participant in all
benefit and insurance plans or any other benefit programs in which Employee was
participating when the Notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with this Section. Amounts provided
for under this Section are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
Section 7.4 The Employee shall be entitled to the following
benefits in the event of any termination of his employment with Employer:
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(a) If the termination results from the death or
permanent disability of Employee, as set forth above in subsection 7.1(a) or
(b), then Employer shall continue paying to Employee or widow (or personal
representative if the widow is no longer living) of Employee 6 months base
compensation at the rate then in effect, incentive compensation and fringe
benefits formerly provided to Employee, and thereafter all such obligation shall
cease, except that full health, medical hospitalization and dental benefits
shall continue to Employee and/or his spouse and other family dependents at no
cost to them as provided above in Section 4.2 for a period set forth therein,
and Employee, his surviving spouse and other family dependents or his personal
representative shall be entitled to those insurance or other benefits provided
under the benefit plans and programs under which Employee was covered and which
are payable pursuant to the terms of such plans in the event of his death or
permanent disability. Moreover, in such event, after the applicable COBRA period
set forth in Section 4.2 has expired, Employer may continue to cover Employee
and/or his dependents under Employer's group medical, health and hospitalization
plans for a period of time as they shall mutually agree, but at their individual
cost.
(b) If his termination results from a termination for
"just cause" or if he resigns his employment without a "good reason," and, only
in the case of his voluntary resignation without "good reason," provided there
has been no Change of Control, then Employer shall have no further obligation to
pay base compensation, incentive compensation or to provide continuing fringe
benefits to Employee, or his spouse and dependents, other than the obligation to
continue to provide the health, medical, hospitalization and dental benefits
provided under Section 4.2 hereof for the period set forth therein, but at
Employee's expense.
(c) If the termination results for any reason other
than just cause within one (1) year following a Change of Control, or if such
termination results from an involuntary termination of his employment for other
than "just cause" or if such termination results from a termination by him for
"good reason," then Employer shall continue to pay base compensation to him in
the minimum amount then in effect, together with all earned and accrued
incentive compensation (on a proportionate basis) and to continue all existing
fringe benefits to Employee for the balance of the unexpired term of his
employment, but in no event for less than one full year following the date of
such termination; provided, however, that if the termination results for any
reason other than "just cause" within one (1) year following a Change of Control
as set forth in Section 7.1(e) and Employee owns not more than 20% of the total
issued and outstanding securities of Employer, then Employer shall pay to
Employee a severance benefit in a lump sum equal to 50% of Employee's annual
base compensation in the amount in effect at the time of such termination.
Employee shall be required to use reasonable efforts to find comparable
employment in order to mitigate the amount of any such payments or benefits
provided for in this subsection (c) and if he finds and accepts other
employment, such amount shall be reduced on a dollar for dollar basis, when
earned and paid, by any compensation earned by him as the result of his
employment by another employer after the Date of Termination; provided, however,
these mitigation provision shall not apply to the lump sum severance benefit
payable following a Change of Control.
Section 8. Successors: Binding Agreement.
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8.1 The Employer will require any successor or assign (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Employer to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that Employer would be required to perform it if no such succession or
assignment had taken place. Failure of Employer to obtain such assumption and
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle Employee to the remedies
provided for in Section 7.1(d)(vii), and the date on which any such succession
or assignment becomes effective shall be deemed the Date of Termination. As used
in this Agreement, "Employer" shall mean Employer as hereinbefore defined and
any successor or assign to its business and/or assets as aforesaid which assumes
and agrees to perform this Agreement by operation of law, or otherwise.
8.2 This Agreement shall inure to the benefit of and be enforceable by
Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributes, devisees and legatees. If Employee should die,
all amounts otherwise payable hereunder shall be paid in accordance with the
terms of this Agreement to his devisee, legatee, or other designees or if there
is no such designee, to his personal representatives.
Section 9. Fees and Expenses.
Each party shall pay his or its legal fees and related expenses
(including the costs of experts, evidence and counsel and expenses incurred in
connection with an arbitration conducted pursuant to Section 10 hereof) incurred
as a result of:
(a) The termination of employment of Employee (including all
such fees and expenses, if any, incurred in contesting or disputing any such
termination of employment); or
(b) Either party seeking to obtain or enforce any right or
benefit provided by this Agreement or by any other plan or arrangement
maintained by Employer under which Employee is or may be entitled to receive
benefits.
Section 10. Arbitration.
Any dispute or controversy arising out of or relating to this
Agreement, or any breach thereof, shall be settled by arbitration in accordance
with the commercial arbitration rules of the American Arbitration Association,
and judgment upon such award rendered by the three Arbitrators may be entered in
any court having jurisdiction thereof. The Arbitrators shall each be an
arbitrator qualified to serve in accordance with the rules of the American
Arbitration Association and who are approved by both Employer and Employee. In
the absence of such approval, each party shall designate one person qualified to
serve as an arbitrator in accordance with the rules of the American Arbitration
Association and those two so designated shall select the three Arbitrators from
among those persons qualified to serve in accordance with the rules of the
American Arbitration Association. The
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<PAGE>
arbitration shall be held within a 50-mile radius of Philadelphia, Pennsylvania
or such other place as may be agreed upon at the time by the parties to the
arbitration.
Section 11. Notice.
All notices, consents, requests, instructions, approvals and other
communications pursuant to or provided for in this Agreement shall be validly
given, made or served if in writing and if delivered personally or sent by
certified mail, first class postage prepaid, return receipt requested, or by
telegraph or facsimile transmission, charges prepaid, to the following:
(a) If to Employer:
ConMat Technologies, Inc.
Franklin Avenue and Grant Street
Phoenixville, PA 19460
Attn: Chairman
Telephone No.: 610-935-0225
Telefax No.: 610-935-7151
(b) If to Employee:
Paul A. DeJuliis
1110 Daniel Davis Lane
West Chester, PA 19382
Telephone No.: ____________
Telefax No.: ______________
or to such other address as shall subsequently be furnished in writing by either
party to the other party, and sent, delivered or directed as set forth in this
Section 12. All notices and communications shall be deemed to have been received
on the date of delivery or telecopy or telegraphic transmission thereof or on
the fifth business day following the mailing thereof, except that notice of a
change of address shall be effective only upon receipt, duly acknowledged by the
other party.
Section 12. Validity; Severability.
Employer represents that this Employment Agreement has been properly
approved by its Board of Directors. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provision of this Agreement or affecting the validity or enforceability of
any term or provision of this Agreement in any other jurisdiction.
Section 13. Counterparts; Paragraph Headings.
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This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which together will constitute one
and the same instrument. All paragraph headings contained in this Agreement are
for reference purposes only and shall not be deemed to be a part of the
Agreement or to affect the meaning or interpretation of this Agreement.
Section 14. Miscellaneous.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes all prior agreements, understandings and arrangements,
verbal or written, between the parties hereto with respect to the subject matter
hereof. No waiver by either party hereto at any time of any breach by the other
party hereto of, or in compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time. No agreement or representations, verbal or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. All dollar amounts
expressed or set forth herein are in United States currency. This Agreement
shall be governed by, construed and enforced (both as to validity and
performance) in accordance with and governed by the internal laws (and not the
law of conflicts) of the Commonwealth of Pennsylvania applicable to agreements
made and to be performed wholly within such jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement by affixing their hands (and in the case of a corporate party, the
hand of its duly authorized officer) and seal the day and year first above
written.
CONMAT TECHNOLOGIES, INC.
[CORPORATE SEAL] By: /s/ Theodore F. Rutkowsky
---------------------------
Name: Theodore F. Rutkowsky
Title:
/s/ Paul A. DeJuliis (SEAL)
----------------------
Paul A. DeJuliis
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EXHIBIT A
BENEFITS FOR PAUL A. DEJULIIS
1. Full health, medical, hospitalization, dental and prescription
medicine insurance for Employee, his spouse and his other family dependents,
including major medical and supplemental Medicare and Medicaid coverages.
2. Full participation in all pension, profit-sharing, 401(k) or other
retirement benefit plans presently maintained by Employer for comparable
employees, and to permit immediate eligibility, participation and full vesting
for all accrued benefits regardless of present terms of plans or agreements.
3. Full participation in all group life and disability insurance
programs normally provided to comparable employees by Employer.
4. All normal holiday and sick leave policies for comparable employees.
5. The purchase or lease of a current model year automobile of
Employee's choice (at a cost of not more than $1,200.00 per month) for exclusive
use of Employee, together with all reasonable operating and maintenance expenses
attributable to such automobile, and such automobile to be replaced with a
comparable model every two (2) years.
6. Eligibility to be considered for the grant of stock options pursuant
to any plan or arrangement approved by the Board of Directors.
7. All other benefits granted under the attached Employment Agreement,
even if not specifically listed on this Exhibit A.
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LOAN AND SECURITY AGREEMENT
DATED AS OF SEPTEMBER 30, 1998
BETWEEN
GENERAL ELECTRIC CAPITAL CORPORATION
AS LENDER
AND
POLYCHEM CORPORATION
AS BORROWER
<PAGE>
GE Capital Commercial Finance
This LOAN AND SECURITY AGREEMENT is dated as of September 30, 1998, and agreed
to by and between POLYCHEM CORPORATION, a Pennsylvania corporation ("Borrower"),
any other Credit Party executing this Agreement, and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender").
RECITALS
A. The purpose of this Agreement is to provide to Borrower revolving credit
loans and a term loan (collectively, the "Loans") having the following general
description:
TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT
REVOLVING CREDIT LOAN
Maximum Amount: $3,500,000
Term: 3 years
Revolving Credit Rate: Index Rate plus 4.75%
Letter of Credit Subfacility: n/a
Borrowing Base: 80% (less reserves
established by Lender pursuant to Section
1.13) of the value (as determined by Lender)
of Borrower's Eligible Accounts; provided
that Lender shall reduce the foregoing
percentage by one percentage point for each
percentage point that the dilution of
Borrower's Accounts (calculated as the
average dilution from the Accounts
Receivable Roll Forward Analysis over the
most recent three months) exceeds 5%,
subject to a $250,000 limit on Current
Retainage under 120 days; plus the lesser of
(i) $750,000 or (ii) up to 50% (less
reserves established by Lender pursuant to
Section 1.13) of the value of Borrower's
Eligible Inventory consisting of raw
material and finished goods, in each case as
determined by Lender, valued on a first-in,
first-out basis (at the lower of cost or
market), less a reserve equal to $300,000
against availability.
TERM LOAN
Original Principal Amount: $1,500,000
Term: 3 years
Amortization: The Term Loan shall
amortize in equal monthly principal
installments of $25,000 payable on the
first day of each month, with a balloon
payment of the remaining outstanding
balance on the Commitment Termination Date.
Term Loan Rate: Index Rate plus 6.5%
FEES
Collateral Monitoring Fee: $1,000 per month.
Unused Line Fee: .25%
Letter of Credit Fee: n/a
Prepayment Fee: 3% in year one; 2%
in year two; and 1% in year three.
The Loans described generally here are established and governed by the terms and
conditions set forth below in this Agreement and the other Loan Documents, and
if there is any conflict between this general description and the express terms
and conditions below or elsewhere in the Loan Documents, such other express
terms and conditions shall control.
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B. Borrower desires to obtain the Loans and other financial accommodations from
Lender and Lender is willing to provide the Loans and accommodations all in
accordance with the terms of this Agreement.
C. Capitalized terms used herein shall have the meanings assigned to them in
Schedule A and, for purposes of this Agreement and the other Loan Documents, the
rules of construction set forth in Schedule A shall govern. All Schedules,
Disclosure Schedules, Attachments, Addenda and Exhibits (collectively,
"Appendices") hereto, or expressly identified to this Agreement, are
incorporated herein by reference, and taken together with this Agreement,
constitute but a single agreement. These Recitals shall be construed as part of
this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Loans. (a) Subject to the terms and conditions of this Agreement, from the
Closing Date and until the Commitment Termination Date (i) Lender agrees (A) to
make available advances (each, a "Revolving Credit Advance") and (B) to incur
Letter of Credit Obligations, in an aggregate outstanding amount not to exceed
the Borrowing Availability, and (ii) Borrower may at its request from time to
time borrow, repay and reborrow, and may cause Lender to incur Letter of Credit
Obligations, under this Section 1.1.
(b) Borrower shall request each Revolving Credit Advance by written
notice to Lender substantially in the form of Exhibit A (each a "Notice of
Revolving Credit Advance") given no later than 11:00 A.M. (New York City time)
on the Business Day of the proposed Revolving Credit Advance. Lender shall be
fully protected under this Agreement in relying upon, and shall be entitled to
rely upon, (i) any Notice of Revolving Credit Advance believed by Lender to be
genuine, and (ii) the assumption that the Persons making electronic requests or
executing and delivering a Notice of Revolving Credit Advance were duly
authorized, unless the responsible individual acting thereon for Lender shall
have actual knowledge to the contrary.
(c) The Revolving Credit Loan shall be evidenced by, and be repayable
in accordance with the terms of, the Revolving Credit Note and this Agreement.
(d) Borrower agrees that Lender, in making any Revolving Credit Advance
or incurring any other Obligation hereunder, shall be entitled to rely upon the
most recent Borrowing Base Certificate delivered to Lender by Borrower and other
information available to Lender. Borrower further agrees that Lender shall be
under no obligation to make any further Revolving Credit Advance or incur any
other Obligation if Borrower shall have failed to deliver a Borrowing Base
Certificate to Lender by the time specified in Section 4.1(b).
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<PAGE>
(e) Subject to the terms and conditions of this Agreement, Lender
agrees to make the Term Loan to Borrower on the Closing Date in the original
principal amount specified in the Transaction Summary for the Term Loan. The
Term Loan shall be evidenced by, and be repayable in accordance with the terms
of, the Term Note and this Agreement.
(f) Notwithstanding anything to the contrary contained in this
Agreement, including Schedule C, Lender shall have no obligations to incur
Letter of Credit Obligations for the account of Borrower.
1.2 Term and Prepayment. (a) The obligation of Lender to make Revolving Credit
Advances and extend other financial accommodations shall be in effect from the
Closing Date until the Commitment Termination Date. Upon the Commitment
Termination Date Borrower shall pay to Lender in full, in cash: (i) all
outstanding Revolving Credit Advances and all accrued but unpaid interest
thereon; (ii) an amount sufficient to enable Lender to hold cash collateral as
specified in Schedule C; (iii) all principal and accrued but unpaid interest on
the Term Loan; and (iv) all other non-contingent Obligations due to or incurred
by Lender. Upon payment of the amounts specified in the immediately preceding
sentence, Borrower's obligation to pay the Unused Line Fee shall simultaneously
terminate.
(b) If the Revolving Credit Loan shall at any time exceed the Borrowing
Availability, then Borrower shall immediately repay the Revolving Credit Loan in
the amount of such excess; any such excess balance outstanding shall
nevertheless constitute Obligations that are evidenced by the Revolving Credit
Note, secured by the Collateral and entitled to all of the benefits of the Loan
Documents.
(c) In the event of any Excess Cash Flow for any Fiscal Year, Borrower
shall repay the Loans on or prior to the date three (3) Business Days after
Lender's receipt of Borrower's financial statements required to be delivered
pursuant to Section 4.1(e) for such year in an amount equal to 25% of such
Excess Cash Flow.
(d) Borrower shall repay the Loans in an amount equal to the net
insurance proceeds payable in connection with the loss, destruction or
condemnation of any assets of Borrower or its Subsidiaries promptly after
receipt thereof; provided, however, that Borrower may use an amount of any such
insurance proceeds reasonably necessary to repair or replace any such assets.
(e) Borrower shall repay the Loans in an amount equal to the Net
Proceeds of any sale or other disposition of any assets of Borrower or its
Subsidiaries (other than the sale of Inventory in the ordinary course of
business) promptly after any such sale or other disposition.
(f) Any prepayment pursuant to (c), (d) or (e) above shall be applied
against principal installments due, in the inverse order of maturity, on the
Term Loan until such Loan is paid in full and thereafter against the Revolving
Credit Loan.
(g) Borrower shall have the right, at any time upon 30 days prior
written notice to Lender to (i) terminate voluntarily Borrower's right to
receive or benefit from, and Lender's obligation to
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make and to incur, Revolving Credit Advances and Letter of Credit Obligations,
(ii) prepay all or a portion of the Term Loan, provided that any prepayment of
less than all of the outstanding balance of the Term Loan shall be applied to
the remaining installments of the Term Loan in the inverse order of their
maturity, and (iii) prepay all of the Obligations. The effective date of
termination of the Revolving Credit Loan and the Term Loan specified in such
notice shall be the Commitment Termination Date.
(h) If Borrower exercises its right of termination and prepayment, or
if Borrower's right to receive or benefit from, and Lender's obligation to make
Loans, are terminated for any reason prior to the Stated Expiry Date (including
as a result of the occurrence of a Default), Borrower shall pay to Lender the
applicable Prepayment Fee.
1.3 Use of Proceeds. Borrower shall use the proceeds of the Loans to refinance
on the Closing Date certain outstanding Indebtedness as provided in Section
2.1(b) and for working capital and other general corporate purposes.
1.4 Single Loan. The Loans and all of the other Obligations of Borrower to
Lender shall constitute one general obligation of Borrower secured by all of the
Collateral.
1.5 Interest. (a) Borrower shall pay interest to Lender on the aggregate
outstanding Revolving Credit Advances at a floating rate equal to the Index Rate
plus four and seventy five hundredths percent (4.75%) per annum (the "Revolving
Credit Rate") and on the outstanding balance of the Term Loan at a floating rate
equal to the Index Rate plus six and five tenths percent (6.5%) per annum (the
"Term Loan Rate").
(b) Interest shall be payable on the outstanding Revolving Credit
Advances and balance of the Term Loan (i) in arrears for the preceding calendar
month on the first day of each calendar month, (ii) on the Commitment
Termination Date, and (iii) if any interest accrues or remains payable after the
Commitment Termination Date, upon demand by Lender.
(c) All computations of interest, and all calculations of the Letter of
Credit Fee, shall be made by Lender on the basis of a three hundred and sixty
(360) day year, in each case for the actual number of days occurring in the
period for which such interest or fee is payable. Each determination by Lender
of an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Effective upon the occurrence of any Event of Default and for so
long as any Event of Default shall be continuing, upon notice to the Borrower
(except that no notice shall be required upon the occurrence of any Event of
Default specified in Sections 7.1(e), (f) or (g)) the Revolving Credit Rate, the
Term Loan Rate and the Letter of Credit Fee shall automatically be increased by
two percentage points (2%) per annum (such increased rate, the "Default Rate"),
and all outstanding Obligations, including unpaid interest and Letter of Credit
Fees, shall continue to accrue interest from the date of such Event of Default
at the Default Rate applicable to such Obligations.
(e) If any interest or other payment (including Unused Line Fees,
Letter of Credit Fees and
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Collateral Monitoring Fees) to Lender under this Agreement becomes due and
payable on a day other than a Business Day, such payment date shall be extended
to the next succeeding Business Day and interest thereon shall be payable at the
then applicable rate during such extension.
(f) In no event will Lender charge interest at a rate that exceeds the
highest rate of interest permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable.
1.6 Cash Management System. On or prior to the Closing Date and until the
Termination Date, Borrower will establish and maintain the cash management
system described in Schedule D. All payments in respect of the Collateral shall
be made to or deposited in the blocked or lockbox accounts described in Schedule
D in accordance with the terms thereof.
1.7 Fees. As compensation for Lender's costs and efforts incurred and expended
in entering into this Agreement and in consideration of Lender's making the
Loans available to Borrower, Borrower agrees to pay to Lender the Fees set forth
in Schedule E.
1.8 Receipt of Payments. Borrower shall make each payment under this Agreement
(not otherwise made pursuant to Section 1.9) without set-off or counterclaim not
later than 11:00 A.M. (New York City time) on the day when due in lawful money
of the United States of America in immediately available funds to the Collection
Account. For purposes of computing interest and Fees, all payments shall be
deemed received by Lender 2 Business Days following receipt of good funds in the
Collection Account. For purposes of determining the Borrowing Availability,
payments shall be deemed received by Lender upon receipt of good funds in the
Collection Account.
1.9 Application and Allocation of Payments. Borrower irrevocably agrees that
Lender shall have the continuing and exclusive right to apply any and all
payments against the then due and payable Obligations in such order as Lender
may deem advisable. Lender is authorized to, and at its option may (without
prior notice or precondition and at any time or times), but shall not be
obligated to, make or cause to be made Revolving Credit Advances on behalf of
Borrower for: (a) payment of all Fees, expenses, indemnities, charges, costs,
principal, interest, or other Obligations owing by Borrower under this Agreement
or any of the other Loan Documents, (b) the payment, performance or satisfaction
of any of Borrower's obligations with respect to preservation of the Collateral
or otherwise under this Agreement, or (c) any premium in whole or in part
required in respect of any of the policies of insurance required by this
Agreement, even if the making of any such Revolving Credit Advance causes the
outstanding balance of the Revolving Credit Loan to exceed the Borrowing
Availability, and Borrower agrees to repay immediately, in cash, any amount by
which the Revolving Credit Loan exceeds the Borrowing Availability.
1.10 Accounting. Lender is authorized to record on its books and records the
date and amount of each Loan and each payment of principal thereof and such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. Lender shall provide Borrower on a monthly basis a
statement and accounting of such recordations but any failure on the part of the
Lender to keep any such recordation (or any errors therein) or to send a
statement thereof to Borrower shall not in any manner affect the obligation of
Borrower to repay (with applicable
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interest) the Loans made to Borrower under this Agreement. Except to the extent
that Borrower shall, within 30 days after such statement and accounting is sent,
notify Lender in writing of any objection Borrower may have thereto (stating
with particularity the basis for such objection), such statement and accounting
shall be deemed final, binding and conclusive upon Borrower, absent manifest
error.
1.11 Indemnity. Borrower and each other Credit Party executing this Agreement
jointly and severally agree to indemnify and hold Lender and its Affiliates, and
their respective employees, attorneys and agents (each, an "Indemnified
Person"), harmless from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses of any kind or nature
whatsoever (including attorneys' fees and disbursements and other costs of
investigation or defense, including those incurred upon any appeal) which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended, suspended or terminated under this
Agreement and the other Loan Documents or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement and the other Loan Documents or
any other documents or transactions contemplated by or referred to herein or
therein and any actions or failures to act with respect to any of the foregoing,
including any and all product liabilities, Environmental Liabilities and legal
costs and expenses arising out of or incurred in connection with disputes
between or among any parties to any of the Loan Documents (collectively,
"Indemnified Liabilities"), except to the extent that any such Indemnified
Liability is finally determined by a court of competent jurisdiction to have
resulted solely from such Indemnified Person's gross negligence or willful
misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO THE BORROWER
OR TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD
PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED
UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER
TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
1.12 Taxes. All payments to Lender under any Loan Document shall be made free
and clear of, and without deduction for, any Taxes. If Borrower shall be
required by law to deduct any Taxes from any payment to Lender under any Loan
Document, then the amount payable to Lender shall be increased so that, after
making all required deductions (including deductions applicable to additional
sums payable under this Section 1.12), Lender receives an amount equal to that
which it would have received had no such deductions been made and Borrower shall
pay the full amount deducted to the relevant taxing authority, and promptly
furnish to Lender tax receipts evidencing such payment. Borrower shall pay and
indemnify Lender for the full amount of Taxes (including any Taxes imposed by
any jurisdiction on amounts payable under this Section 1.12) paid by Lender and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes were correctly or legally
asserted.
1.13 Borrowing Base; Reserves. The Borrowing Base shall be determined by Lender
(including the eligibility of Accounts and Inventory) based on the most recent
Borrowing Base Certificate
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delivered to Lender in accordance with Section 4.1(b) and such other information
available to Lender. Without limiting any other rights and remedies of Lender
hereunder or under the other Loan Documents, the Revolving Credit Loan shall be
subject to Lender's continuing right to withhold from Borrowing Availability
reserves, and to increase and decrease such reserves from time to time, if and
to the extent that in Lender's good faith credit judgment such reserves are
necessary, including to protect Lender's interest in the Collateral or to
protect Lender against possible non-payment of Accounts for any reason by
Account Debtors or possible diminution of the value of any Inventory or possible
non-payment of any of the Obligations or for any taxes or customs duties or in
respect of any state of facts which could constitute a Default. Lender may, at
its option, implement reserves by designating as ineligible a sufficient amount
of Accounts or Inventory which would otherwise be Eligible Accounts or Eligible
Inventory, as the case may be, so as to reduce the Borrowing Base by the amount
of the intended reserves.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans. Lender shall not be obligated to make any
of the Loans, or to take, fulfill, or perform any other action hereunder, until
the following conditions have been satisfied in a manner satisfactory to Lender
in its sole discretion, or waived in writing by Lender:
(a) the Loan Documents to be delivered on or before the Closing Date
shall have been duly executed and delivered by the appropriate parties, all as
set forth in the Schedule of Documents (Schedule F);
(b) Lender shall have received evidence satisfactory to it that: (i)
all of the obligations of Borrower to Congress Financial Corporation under its
financing documentation as in effect immediately prior to the Closing Date will
be performed and paid in full from the proceeds of the initial Loans; and (ii)
all Liens upon any of the property of Borrower or any other Credit Party in
favor of Congress Financial Corporation shall have been terminated immediately
upon such payment;
(c) Lender shall have received evidence satisfactory to it that each
Credit Party has obtained all consents and acknowledgments of all Persons and
Governmental Authorities whose consents or acknowledgments may be required prior
to the execution and delivery of this Agreement and the other Loan Documents (or
pursuant to the terms hereof or thereof) and the consummation of the
transactions contemplated hereby and thereby and that such consents or
acknowledgments remain in full force and effect;
(d) Lender shall have received evidence satisfactory to it that the
insurance policies provided for in Section 3.17 are in full force and effect,
together with appropriate evidence showing loss payable or additional insured
clauses or endorsements in favor of Lender as required under such Section;
(e) as of the Closing Date Net Borrowing Availability shall be not less
than $250,000 after giving effect to the initial Revolving Credit Advance and
Letter of Credit Obligations (on a pro forma basis, with trade payables being
paid currently, and expenses and liabilities being paid in the
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ordinary course of business and without acceleration of sales);
(f) Lender shall have received an opinion of counsel to the Borrower
with respect to the Loan Documents in form and substance satisfactory to Lender;
(g) payment by Borrower of all fees, costs, and expenses payable by
Borrower hereunder that have accrued as of the Closing Date;
(h) Lender shall have received bill and hold letters from all of
Borrower's Account Debtors with bill and hold Accounts, in each case in form and
substance satisfactory to Lender;
(i) Lender shall have received an executed original copy of the
Intercompany Note properly endorsed to Lender;
(j) Borrower's cash management system shall be in compliance with
Schedule D;
(k) Lender shall have received any environmental surveys that it shall
have requested of Borrower and shall otherwise be satisfied with the
environmental condition of Borrower's Phoenixville, Pennsylvania real property;
(l) Lender shall have received an executed liquidation assistance
agreement among Borrower, members of senior management of The Eastwind Group,
Inc. and members of senior management of Borrower, substantially in the form of
Exhibit R;
(m) Lender shall have received an executed assignment, in form and
substance satisfactory to Lender, of Borrower's rights under the insurance
agreement, dated June 11, 1998, between Borrower and the Export-Import Bank of
the United States; and
(n) Lender shall have received an executed pledge agreement made by
Borrower in favor of Lender with respect to the Intercompany Note, in
substantially the form of Exhibit L-2.
2.2 Further Conditions to the Loans. Lender shall not be obligated to fund any
Loan (including the initial Loans), if, as of the date thereof:
(a) any representation or warranty by any Credit Party contained herein
or in any of the other Loan Documents shall be untrue or incorrect as of such
date, except to the extent that any such representation or warranty is expressly
stated to relate to a specific earlier date, in which case, such representation
and warranty shall be true and correct as of such earlier date; or
(b) any event or circumstance which has had or reasonably could be
expected to have a Material Adverse Effect shall have occurred since the Closing
Date; or
(c) any Default shall have occurred and be continuing or would result
after giving effect to such Loan; or
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(d) after giving effect to such Loan the Revolving Credit Loan would
exceed the Borrowing Availability; or
(e) any action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any Governmental
Authority to enjoin, restrain or prohibit, or to obtain damages in respect of,
or which is related to or arises out of, this Agreement or any other Loan
Document or the consummation of any transaction contemplated hereby or thereby
and which, in Lender's sole judgment, would make it inadvisable to consummate
any transaction contemplated by this Agreement or any other Loan Document.
The request and acceptance by Borrower of the proceeds of any Loan shall be
deemed to constitute, as of the date of such request and the date of such
acceptance, (i) a representation and warranty by Borrower that the conditions in
this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower of the
granting and continuance of Lender's Liens pursuant to the Loan Documents.
3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS
To induce Lender to enter into this Agreement and to make the Loans, Borrower
and each other Credit Party executing this Agreement represent and warrant to
Lender (each of which representations and warranties shall survive the execution
and delivery of this Agreement), and promise to and agree with Lender until the
Termination Date as follows:
3.1 Corporate Existence; Compliance with Law. Each Corporate Credit Party: (a)
is, as of the Closing Date, and will continue to be (i) a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) duly qualified to do business and in
good standing in each other jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect, and (iii) in compliance with all Requirements of Law
and Contractual Obligations, except to the extent failure to comply therewith
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect; and (b) has and will continue to have (i) the requisite
corporate power and authority and the legal right to execute, deliver and
perform its obligations under the Loan Documents, and to own, pledge, mortgage
or otherwise encumber and operate its properties, to lease the property it
operates under lease, and to conduct its business as now, heretofore or proposed
to be conducted, and (ii) all licenses, permits, franchises, rights, powers,
consents or approvals from or by all Persons or Governmental Authorities having
jurisdiction over such Corporate Credit Party which are necessary or appropriate
for the conduct of its business.
3.2 Executive Offices; Corporate or Other Names; Conduct of Business. The
location of each Corporate Credit Party's chief executive office, corporate
offices, warehouses, other locations of Collateral and locations where records
with respect to Collateral are kept (including in each case the county of such
locations) are as set forth in Disclosure Schedule (3.2) and, except as set
forth in such Disclosure Schedule, such locations have not changed during the
preceding twelve months. As of the Closing Date, during the prior five years,
except as set forth in Disclosure Schedule (3.2), no Corporate Credit Party has
been known as or conducted business in any other name (including trade
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names). No Corporate Credit Party shall change its (a) name, (b) chief executive
office, (c) corporate offices, (d) warehouses or other Collateral locations, or
(e) location of its records concerning the Collateral, or acquire, lease or use
any real estate after the Closing Date without such Person, in each instance,
giving thirty (30) days prior written notice thereof to Lender and taking all
actions deemed necessary or appropriate by Lender to continuously protect and
perfect Lender's Liens upon the Collateral.
3.3 Corporate Power; Authorization; Enforceable Obligations. The execution,
delivery and performance by each Credit Party of the Loan Documents to which it
is a party, and the creation of all Liens provided for herein and therein: (a)
are and will continue to be within such Credit Party's power and authority; (b)
have been and will continue to be duly authorized by all necessary or proper
action; (c) are not and will not be in violation of any Requirement of Law or
Contractual Obligation of such Credit Party (d) do not and will not result in
the creation or imposition of any Lien (other than Permitted Encumbrances) upon
any of the Collateral; and (e) do not and will not require the consent or
approval of any Governmental Authority or any other Person, except those
referred to in Section 2.1(c) (all of which will have been duly obtained, made
or complied with on or before the Closing Date and shall be in full force and
effect on such date). As of the Closing Date, each Loan Document shall have been
duly executed and delivered on behalf of each Credit Party party thereto, and
each such Loan Document upon such execution and delivery shall be and will
continue to be a legal, valid and binding obligation of such Credit Party,
enforceable against it in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally, and by general principles of equity.
3.4 Financial Statements and Projections; Books and Records. (a) The Financial
Statements delivered by Borrower to Lender for its most recently ended Fiscal
Year and Fiscal Month, are true, correct and complete and reflect fairly and
accurately the financial condition of Borrower as of the date of each such
Financial Statement in accordance with GAAP. The Projections most recently
delivered by Borrower to Lender have been prepared in good faith, with care and
diligence and use assumptions that are reasonable under the circumstances at the
time such Projections were prepared and as of the date delivered to Lender and
all such assumptions are disclosed in the Projections.
(b) Borrower and each other Corporate Credit Party shall keep adequate
Books and Records with respect to the Collateral and its business activities in
which proper entries, reflecting all consolidated and consolidating financial
transactions, and payments received on any and all credits granted to, and all
other dealings with, the Collateral, will be made in accordance with GAAP and
all Requirements of Law and on a basis consistent with the Financial Statements.
3.5 Material Adverse Change. Between the date of Borrower's most recently
audited Financial Statements delivered to Lender and the Closing Date: (a) no
Corporate Credit Party has incurred any obligations, contingent or
non-contingent liabilities, or liabilities for Charges, long-term leases or
unusual forward or long-term commitments which are not reflected in the
Projections delivered on the Closing Date and which could, alone or in the
aggregate, reasonably be expected to have a Material Adverse Effect; (b) there
has been no material deviation from such Projections; and (c) no events have
occurred which alone or in the aggregate has had or could reasonably be expected
to have a Material Adverse Effect. No Requirement of Law or Contractual
Obligation of any Credit
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Party has or have had or could reasonably be expected to have a Material Adverse
Effect and no Credit Party is in default, and to such Credit Party's knowledge
no third party is in default under or with respect to any of its Contractual
Obligations, which alone or in the aggregate has had or could reasonably be
expected to have a Material Adverse Effect.
3.6 Real Estate; Property. The real estate listed in Disclosure Schedule (3.6)
constitutes all of the real property owned, leased, or used by each Corporate
Credit Party in its business, and such Credit Party will not execute any
material agreement or contract in respect of such real estate after the date of
this Agreement without giving Lender prompt written notice thereof. Each
Corporate Credit Party holds and will continue to hold good and marketable fee
simple title to all of its owned real estate, and good and marketable title to
all of its other properties and assets, and valid and insurable leasehold
interests in all of its leases (both as lessor and lessee, sublessee or
assignee), and none of the properties and assets of any Corporate Credit Party
are or will be subject to any Liens, except Permitted Encumbrances. With respect
to each of the premises identified in Disclosure Schedule (3.2) on or prior the
Closing Date a bailee, landlord or mortgagee agreement acceptable to Lender has
been obtained.
3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.
Except as set forth in Disclosure Schedule (3.7), as of the Closing Date no
Credit Party has any Subsidiaries, is engaged in any joint venture or
partnership with any other Person, or is an Affiliate of any other Person. All
of the issued and outstanding Stock of each Corporate Credit Party (including
all rights to purchase, options, warrants or similar rights or agreements
pursuant to which any Corporate Credit Party may be required to issue, sell,
repurchase or redeem any of its Stock) as of the Closing Date is owned by each
of the Stockholders (and in the amounts) set forth on Disclosure Schedule (3.7).
All outstanding Indebtedness of each Corporate Credit Party as of the Closing
Date is described in Disclosure Schedule (5(c)).
3.8 Government Regulation. No Credit Party is subject to or regulated under the
Investment Company Act of 1940, the Public Utility Holding Company Act of 1935,
the Federal Power Act or any other Federal or state statute, rule or regulation
that restricts or limits such Person's ability to incur Indebtedness, pledge its
assets, or to perform its obligations under the Loan Documents. The making of
the Loans, the application of the proceeds and repayment thereof, and the
consummation of the transactions contemplated by the Loan Documents do not and
will not violate any provision of any such statute or any rule, regulation or
order issued by the Securities and Exchange Commission.
3.9 Margin Regulations. No Credit Party is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin security" as
such terms are defined in Regulations U or G of the Federal Reserve Board as now
and from time to time hereafter in effect (such securities being referred to
herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of
the proceeds of the Loans or other extensions of credit under this Agreement
will be used, directly or indirectly, for the purpose of purchasing or carrying
any Margin Stock, for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry any Margin Stock or for any other
purpose which might cause any of the Loans or other extensions of credit under
this Agreement to
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be considered a "purpose credit" within the meaning of Regulation G, T, U or X
of the Federal Reserve Board. No Credit Party will take or permit to be taken
any action which might cause any Loan Document to violate any regulation of the
Federal Reserve Board.
3.10 Taxes; Charges. Except as disclosed on Disclosure Schedule (3.10) all tax
returns, reports and statements required by any Governmental Authority to be
filed by Borrower or any other Credit Party have, as of the Closing Date, been
filed and will, until the Termination Date, be filed with the appropriate
Governmental Authority and no tax Lien has been filed against any Credit Party
or any Credit Party's property. Proper and accurate amounts have been and will
be withheld by Borrower and each other Credit Party from their respective
employees for all periods in complete compliance with all Requirements of Law
and such withholdings have and will be timely paid to the appropriate
Governmental Authorities. Disclosure Schedule (3.10) sets forth as of the
Closing Date those taxable years for which any Credit Party's tax returns are
currently being audited by the IRS or any other applicable Governmental
Authority and any assessments or threatened assessments in connection with such
audit, or otherwise currently outstanding. Except as described on Disclosure
Schedule (3.10), no Credit Party has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges.
None of the Credit Parties and their respective predecessors are liable for any
Charges: (a) under any agreement (including any tax sharing agreements) or (b)
to each Credit Party's knowledge, as a transferee. As of the Closing Date, no
Credit Party has agreed or been requested to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
could reasonably be expected to have a Material Adverse Effect.
3.11 Payment of Obligations. Each Credit Party will pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all of its Charges and other obligations of whatever nature, except where
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of such Credit Party and none of the
Collateral is or could reasonably be expected to become subject to any Lien or
forfeiture or loss as a result of such contest.
3.12 ERISA. (a) Disclosure Schedule (3.12) lists and separately identifies all
Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans. Copies of
all such listed Plans, together with a copy of the latest form 5500 for each
such Plan, have been delivered to Lender. Each Qualified Plan has been
determined by the IRS to qualify under Section 401 of the IRC, and the trusts
created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and nothing has occurred which would cause
the loss of such qualification or tax-exempt status. Each Plan is in compliance
with the applicable provisions of ERISA and the IRC , including the filing of
reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has
failed to make any contribution or pay any amount due as required by either
Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan. No
Credit Party or ERISA Affiliate has engaged in a prohibited transaction, as
defined in Section 4975 of the IRC, in connection with any Plan, which would
subject any Credit Party to a material tax on prohibited transactions imposed by
Section 4975 of the IRC.
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(b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV
Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described
in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Credit Party, threatened claims (other than claims for benefits in the
normal course), sanctions, actions or lawsuits, asserted or instituted against
any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party
or ERISA Affiliate has incurred or reasonably expects to incur any liability as
a result of a complete or partial withdrawal from a Multiemployer Plan; (v)
within the last five years no Title IV Plan with Unfunded Pension Liabilities
has been transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; and (vi)
no liability under any Title IV Plan has been satisfied with the purchase of a
contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation or the equivalent by another nationally recognized rating
agency.
3.13 Litigation. No Litigation is pending or, to the knowledge of any Credit
Party, threatened by or against any Credit Party or against any Credit Party's
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) which could reasonably
be expected to have a Material Adverse Effect. Except as set forth on Disclosure
Schedule (3.13), as of the Closing Date there is no Litigation pending or
threatened against any Credit Party which seeks damages in excess of $50,000 or
injunctive relief or alleges criminal misconduct of any Credit Party. Each
Credit Party shall notify Lender promptly upon learning of the existence or
commencement of any Litigation commenced or to the knowledge of any Credit Party
threatened against any Credit Party that: (x) may involve an amount in excess of
$50,000; (y) could reasonably be expected to have a Material Adverse Effect
whether or not determined adversely; or (z) regardless of amount (i) is asserted
or instituted, against any Plan, its fiduciaries or its assets, or against any
Credit Party or any ERISA Affiliate in connection with any Plan, (ii) includes
any demand for injunctive relief, (iii) alleges criminal misconduct by any
Credit Party, or (iv) alleges the violation of any law regarding, or seeks
remedies in connection with, any Environmental Liabilities.
3.14 Intellectual Property. As of the Closing Date, all material Intellectual
Property owned or used by any Credit Party is listed, together with application
or registration numbers, where applicable, in Disclosure Schedule (3.14). Each
Credit Party owns, or is licensed to use, all Intellectual Property necessary to
conduct its business as currently conducted except for such Intellectual
Property the failure of which to own or license could not reasonably be expected
to have a Material Adverse Effect.
3.15 Full Disclosure. No information contained in any Loan Document, the
Financial Statements or any written statement furnished by or on behalf of any
Credit Party under any Loan Document, or to induce Lender to execute the Loan
Documents, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
3.16 Hazardous Materials. Except as set forth on Disclosure Schedule (3.16), as
of the Closing Date, (a) each real property location owned, leased or occupied
by each Corporate Credit Party (the "Real Property") is maintained free of
contamination from any Hazardous Material, (b) no Corporate
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Credit Party is subject to any Environmental Liabilities or, to any Credit
Party's knowledge, potential Environmental Liabilities, in excess of $50,000 in
the aggregate, (c) no notice has been received by any Corporate Credit Party
identifying it as a "potentially responsible party" or requesting information
under CERCLA or analogous state statutes, and to the knowledge of any Credit
Party, there are no facts, circumstances or conditions that may result in any
Corporate Credit Party being identified as a "potentially responsible party"
under CERCLA or analogous state statutes; and (d) each Corporate Credit Party
has provided to Lender copies of all existing environmental reports, reviews and
audits and all written information pertaining to actual or potential
Environmental Liabilities, in each case relating to any Corporate Credit Party.
Each Corporate Credit Party: (i) shall comply in all material respects with all
applicable Environmental Laws and Environmental Permits; (ii) shall notify
Lender in writing within seven days if and when it becomes aware of any Release,
on, at, in, under, above, to, from or about any of its Real Property; and (iii)
shall promptly forward to Lender a copy of any order, notice, permit,
application, or any communication or report received by it or any other Credit
Party in connection with any such Release.
3.17 Insurance. As of the Closing Date, Disclosure Schedule (3.17) lists all
insurance of any nature maintained for current occurrences by Borrower and each
other Corporate Credit Party, as well as a summary of the terms of such
insurance. Each Corporate Credit Party shall deliver to Lender endorsements to
all of its and those of its Subsidiaries (a) "All Risk" and business
interruption insurance policies naming Lender loss payee, and (b) general
liability and other liability policies naming Lender as an additional insured.
All policies of insurance on real and personal property will contain an
endorsement, in form and substance acceptable to Lender, showing loss payable to
Lender (Form 438 BFU or equivalent) and extra expense and business interruption
endorsements. Such endorsement, or an independent instrument furnished to
Lender, will provide that the insurance companies will give Lender at least 30
days prior written notice before any such policy or policies of insurance shall
be altered or canceled and that no act or default of Borrower or any other
Person shall affect the right of Lender to recover under such policy or policies
of insurance in case of loss or damage. Each Corporate Credit Party shall direct
all present and future insurers under its "All Risk" policies of insurance to
pay all proceeds payable thereunder directly to Lender. If any insurance
proceeds are paid by check, draft or other instrument payable to any Credit
Party and Lender jointly, Lender may endorse such Credit Party's name thereon
and do such other things as Lender may deem advisable to reduce the same to
cash. Lender reserves the right at any time, upon review of each Credit Party's
risk profile, to require additional forms and limits of insurance to adequately
protect Lender's interests in accordance with Lender's normal practice for
similarly situated borrowers. Each Corporate Credit Party shall, on each
anniversary of the Closing Date and from time to time at Lender's request,
deliver to Lender a report by a reputable insurance broker, satisfactory to
Lender, with respect to such Person's insurance policies.
3.18 Deposit and Disbursement Accounts. Attachment I to Schedule D lists all
banks and other financial institutions at which Borrower, or any other Corporate
Credit Party, maintains deposits and/or other accounts, including the
Disbursement Account, and such Attachment correctly identifies the name, address
and telephone number of each such depository, the name in which the account is
held, a description of the purpose of the account, and the complete account
number. No Corporate Credit Party will establish any depository or other bank
account of any kind with any financial institution (other than the accounts set
forth on Attachment 1 to Schedule D) without Lender's prior written consent.
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3.19 Accounts. As of the date of each Borrowing Base Certificate delivered to
Lender, each Account listed thereon as an Eligible Account shall be an Eligible
Account. Borrower has not made, and will not make, any agreement with any
Account Debtor for any extension of time for the payment of any Account, any
compromise or settlement for less than the full amount thereof, any release of
any Account Debtor from liability therefor, or any deduction therefrom except a
discount or allowance for prompt or early payment allowed by Borrower in the
ordinary course of its business consistent with historical practice and as
previously disclosed to Lender in writing. With respect to the Accounts pledged
as collateral pursuant to any Loan Document (a) the amounts shown on all
invoices, statements and reports which may be delivered to the Lender with
respect thereto are actually and absolutely owing to the relevant Credit Party
as indicated thereon and are not in any way contingent; (b) no payments have
been or shall be made thereon except payments immediately delivered to the
applicable Bank Accounts or the Lender as required hereunder; and (c) to
Borrower's knowledge all Account Debtors have the capacity to contract. Borrower
shall notify Lender promptly of any event or circumstance which to Borrower's
knowledge would cause Lender to consider any then existing Account as no longer
constituting an Eligible Account. No Account Debtor has a right of offset
against Borrower under any agreement with Borrower.
3.20 Inventory. As of the date of each Borrowing Base Certificate delivered to
Lender, all Inventory listed thereon as Eligible Inventory shall be Eligible
Inventory. Borrower shall promptly notify Lender of any event or circumstance
which, to Borrower's knowledge, would cause Lender to consider any then existing
Inventory as no longer constituting Eligible Inventory.
3.21 Conduct of Business; Maintenance of Existence. Each Corporate Credit Party
(a) shall conduct its business substantially as now conducted or as otherwise
permitted hereunder and preserve all of its rights, privileges and franchises
necessary and desirable in connection therewith, and (b) shall at all times
maintain, preserve and protect all of the Collateral and such Credit Party's
other property, used or useful in the conduct of its business and keep the same
in good repair, working order and condition (taking into consideration ordinary
wear and tear) and from time to time make, or cause to be made, all necessary or
appropriate repairs, replacements and improvements thereto consistent with
industry practices.
3.22 Further Assurances. At any time and from time to time, upon the written
request of Lender and at the sole expense of Borrower, Borrower and each other
Credit Party shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Lender may
reasonably deem desirable (a) to obtain the full benefits of this Agreement and
the other Loan Documents, (b) to protect, preserve and maintain Lender's rights
in the Collateral, or any of it, and under this Agreement, or (c) to enable
Lender to exercise all or any of the rights and powers herein granted.
3.23 Year 2000 Covenants. If not previously implemented as delivered to Lender,
on or prior to August 1, 1998, each Corporate Credit Party shall implement Year
2000 Corrective Actions. On or before December 1, 1998, each Corporate Credit
Party shall complete Year 2000 Corrective Actions and Year 2000 Implementation
Testing. On or before January 1, 1999, each Corporate Credit Party
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shall eliminate all Year 2000 Problems, except where the failure to correct the
same could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.
3.24 Zoning Compliance Certificate. On or prior to the date 90 days after the
Closing Date, Borrower shall deliver to Lender a zoning compliance certificate
with respect to its headquarters in Phoenixville, Pennsylvania, which zoning
compliance certificate shall be in form and substance satisfactory to Lender.
3.25 Environmental Reports. In the event Borrower fails to refinance the
Indebtedness secured by Borrower's Phoenixville, Pennsylvania real property on
or prior to the date 30 days after the Closing Date, then Borrower, at Lender's
request, shall cause a Phase I and Phase II environmental report to be conducted
on Parcel B, which is described on Schedule 3.24.
4. FINANCIAL MATTERS; REPORTS
4.1 Reports and Notices. Borrower represents, agrees and promises that from and
after the Closing Date until the Termination Date, Borrower shall deliver to
Lender:
(a) (i) within 15 days following the end of each Fiscal Month, (x) an
aged trial balance by Account Debtor and an Inventory Perpetual or Physical (as
requested by Lender) and (y) a calculation of the Fixed Charge Coverage Ratio as
of the end of such Fiscal Month and any Restricted Payments made to The Eastwind
Group, Inc. during such Fiscal Month, and (ii) and as soon as available but in
no event later than 30 days following the end of each Fiscal Month, a
reconciliation of the aged trial balance and the Inventory Perpetual or Physical
(as the case may be) to the Borrower's general ledger and from the general
ledger to the Financial Statements for such Fiscal Month accompanied by
supporting detail and documentation as Lender may request;
(b) as frequently as Lender may request and in any event no later than
15 days following the end of each Fiscal Month, (i) a Borrowing Base Certificate
in the form of Exhibit C as of the last day of the previous Fiscal Month
detailing ineligible Accounts and Inventory for adjustment to the Borrowing Base
and (iii) a current backlog report for projects in form and substance
satisfactory to Lender, in each case certified as true and correct by the Chief
Financial Officer of Borrower or such other officer as is acceptable to Lender;
(c) within 15 days following the end of each Fiscal Month, an Accounts
Payable Analysis in the Form of Exhibit D (together with an accounts payable
aging) and an Accounts Receivable Roll Forward Analysis in the Form of Exhibit
E, each certified as true and correct by the Chief Financial Officer of Borrower
or such other officer as is acceptable to Lender;
(d) within 30 days following the end of each Fiscal Month, the
Financial Statements for such Fiscal Month, which shall provide comparisons to
budget and actual results for the corresponding period during the prior Fiscal
Year, both on a monthly and year-to-date basis, and accompanied by a
certification in the form of Exhibit J by the Chief Executive Officer or Chief
Financial Officer of Borrower that such Financial Statements are complete and
correct, that there was no Default (or specifying those Defaults of which he or
she was aware), and showing in reasonable detail the calculations used in
determining compliance with the financial covenants hereunder;
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(e) within 105 days following the close of each Fiscal Year, the
Financial Statements for such Fiscal Year certified without qualification by an
independent certified accounting firm acceptable to Lender, which shall provide
comparisons to budget and actual results for the prior Fiscal Year, both on a
monthly and annual basis, and shall be accompanied by (i) a statement in
reasonable detail showing the calculations used in determining compliance with
the financial covenants hereunder, (ii) a report from Borrower's accountants to
the effect that in connection with their audit examination nothing has come to
their attention to cause them to believe that a Default has occurred or
specifying those Defaults of which they are aware, and (iii) any management
letter that may be issued;
(f) not less than 30 days prior to the close of each Fiscal Year, the
Projections, which will be prepared by Borrower in good faith, with care and
diligence, and using assumptions which are reasonable under the circumstances at
the time such Projections are delivered to Lender and disclosed therein when
delivered; and
(g) all the reports and other information set forth on Exhibit B in the
time frames set forth therein.
4.2 Financial Covenants. Borrower shall not breach any of the financial
covenants set forth in Schedule G.
4.3 Other Reports and Information. Borrower shall advise Lender promptly, in
reasonable detail, of: (a) any Lien, other than Permitted Encumbrances,
attaching to or asserted against any of the Collateral or any occurrence causing
a material loss or decline in value of any Collateral and the estimated (or
actual, if available) amount of such loss or decline; (b) any material change in
the composition of the Collateral; and (c) the occurrence of any Default or
other event which has had or could reasonably be expected to have a Material
Adverse Effect. Borrower shall, upon request of Lender, furnish to Lender such
other reports and information in connection with the affairs, business,
financial condition, operations, prospects or management of Borrower or any
other Credit Party or the Collateral as Lender may request, all in reasonable
detail.
5. NEGATIVE COVENANTS
Borrower and each Credit Party executing this Agreement covenants and agrees
(for itself and each other Credit Party) that, without Lender's prior written
consent, from the Closing Date until the Termination Date, neither Borrower nor
any other Corporate Credit Party shall, directly or indirectly, by operation of
law or otherwise:
(a) merge with, consolidate with, acquire all or substantially all of
the assets or capital stock of, or otherwise combine with, any Person or form
any Subsidiary;
(b) except as otherwise permitted in this Section 5 below, make any
investment in, or make or accrue loans or advances of money to, any Person,
except that Borrower may hold investments
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comprised of notes payable, or stock or other securities issued by Account
Debtors to Borrower pursuant to negotiated agreements with respect to settlement
of such Account Debtors' Accounts in the ordinary course of business, so long as
the aggregate amount of such Accounts so settled by Borrower in any Fiscal
Quarter does not exceed $50,000 and such notes and securities are delivered to
Lender as Collateral;
(c) create, incur, assume or permit to exist any Indebtedness, except:
(i) the Obligations; (ii) Indebtedness other than the Obligations in an
aggregate outstanding amount for all such Credit Parties combined not exceeding
$25,000; (iii) deferred taxes; (iv) other Indebtedness set forth in Disclosure
Schedule 5(c)); (v) Indebtedness incurred to refinance the Indebtedness secured
by Borrower's Phoenixville, Pennsylvania facility; and (vi) Indebtedness
incurred in connection with any transaction permitted under clause (i)(y) below;
(d) enter into any lending, borrowing or other commercial transaction
with any of its employees, directors, Affiliates or any other Credit Party
(including upstreaming and downstreaming of cash and intercompany advances and
payments by a Credit Party on behalf of another Credit Party which are not
otherwise permitted hereunder) other than loans or advances to employees in the
ordinary course of business in an aggregate outstanding amount not exceeding
$50,000, and other than the Intercompany Loan; provided, however, that Borrower
shall only make advances under the Intercompany Note if Net Borrowing
Availability shall be not less than $250,000 after giving effect to such
advance;
(e) make any changes in any of its business objectives, purposes, or
operations which could reasonably be expected to adversely affect repayment of
the Obligations or could reasonably be expected to have a Material Adverse
Effect or engage in any business other than that presently engaged in or
proposed to be engaged in the Projections delivered to Lender on the Closing
Date;
(f) amend its charter or by-laws or other organizational documents;
(g) incur any Guaranteed Indebtedness except (i) by endorsement of
instruments or items of payment for deposit to the general account of such
Credit Party, and (ii) for Guaranteed Indebtedness incurred for the benefit of
Borrower if the primary obligation is permitted by this Agreement;
(h) create or permit any Lien on any of its properties or assets,
except for (x) Permitted Encumbrances, (y) any Lien securing Indebtedness
permitted under clause (c)(v) above or (z) any Lien created in connection with a
transaction permitted under clause (i)(y) below;
(i) sell, transfer, issue, convey, assign or otherwise dispose of any
of its assets or properties, including its Accounts or any shares of its Stock
or engage in any sale-leaseback, synthetic lease or similar transaction
(provided, that the foregoing shall not prohibit the sale of Inventory or
obsolete or unnecessary Equipment in the ordinary course of its business), other
than (x) any such asset sales the proceeds of which are used to repay the Loans
in accordance with Section 1.2 and (y) any sale-leaseback transaction with
respect to Borrower's Phoenixville, Pennsylvania facility on terms reasonably
satisfactory to Lender;
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(j) take any action or omit to take any action, which act or omission
would constitute a material default or an event of default pursuant to, or
noncompliance with, any of its Contractual Obligations;
(k) cancel any debt owing to it, except for cancellation of debt not
constituting Accounts for reasonable consideration and in the ordinary course of
its business consistent with historical practice; or
(l) make or permit any Restricted Payment; provided, however, that
Borrower may pay Restricted Payments in an aggregate amount not to exceed
$40,000 per Fiscal month to The Eastwind Group, Inc.; provided that (i) the
Fixed Charge Coverage Ratio for such Fiscal Month is not less than 1.0:1 after
giving effect to such Restricted Payments,(ii) Borrower shall provide Lender
with five (5) Business Day's prior written notice of any such Restricted Payment
and Lender shall not have objected to such Restricted Payment prior to the end
of such five Business Day period, and (iii) no Default or Event of Default shall
have occurred and be continuing at the time of such payment or after giving
effect thereto.
6. SECURITY INTEREST
6.1 Grant of Security Interest. (a) As collateral security for the prompt and
complete payment and performance of the Obligations, each of the Borrower and
any other Credit Party executing this Agreement hereby grants to the Lender a
security interest in and Lien upon all of its property and assets, whether real
or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now has or at any time in the future may acquire any
right, title, or interest, including all of the following property in which it
now has or at any time in the future may acquire any right, title or interest:
all Accounts; all bank and deposit accounts and all funds on deposit therein;
all cash and cash equivalents; all commodity contracts; all investments; all
Inventory and Equipment; all Goods; all Chattel Paper, Documents and
Instruments; all Books and Records; all General Intangibles (including all
Intellectual Property, Stock, contract rights, and choses in action); the
Intercompany Loan; all real property; and to the extent not otherwise included,
all Proceeds and products of all and any of the foregoing and all collateral
security and guarantees given by any Person with respect to any of the
foregoing, but excluding in all events Hazardous Waste (all of the foregoing,
together with any other collateral pledged to the Lender pursuant to any other
Loan Document, collectively, the "Collateral").
(b) Borrower, Lender and each other Credit Party executing this
Agreement agree that this Agreement creates, and is intended to create, valid
and continuing Liens upon the Collateral in favor of Lender. Borrower and each
other Credit Party executing this Agreement represents, warrants and promises to
Lender that: (i) Borrower and each other Credit Party granting a Lien in
Collateral is the sole owner of each item of the Collateral upon which it
purports to grant a Lien pursuant to the Loan Documents, and has good and
marketable title thereto free and clear of any and all Liens or claims of
others, other than Permitted Encumbrances; (ii) the security interests granted
pursuant to this Agreement, upon completion of the filings and other actions
listed on Disclosure Schedule (6.1) (which, in the case of all filings and other
documents referred to in said Schedule, have been delivered to the Lender in
duly executed form) will constitute valid perfected security interests in
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all of the Collateral in favor of the Lender as security for the prompt and
complete payment and performance of the Obligations, enforceable in accordance
with the terms hereof against any and all creditors of and purchasers from any
Credit Party (other than purchasers of Inventory in the ordinary course of
business) and such security interests are prior to all other Liens on the
Collateral in existence on the date hereof except for Permitted Encumbrances
which have priority by operation of law; and (iii) no effective security
agreement, financing statement, equivalent security or Lien instrument or
continuation statement covering all or any part of the Collateral is or will be
on file or of record in any public office, except those relating to Permitted
Encumbrances. Borrower and each other Credit Party executing this Agreement
promise to defend the right, title and interest of Lender in and to the
Collateral against the claims and demands of all Persons whomsoever, and each
shall take such actions, including (x) the prompt delivery of all original
Instruments, Chattel Paper and certificated Stock owned by Borrower and each
other Credit Party granting a Lien on Collateral to Lender, (y) notification of
Lender's interest in Collateral at Lender's request, and (z) the institution of
litigation against third parties as shall be prudent in order to protect and
preserve each Credit Party's and Lender's respective and several interests in
the Collateral. Borrower (and any other Credit Party granting a Lien in
Collateral) shall mark its Books and Records pertaining to the Collateral to
evidence the Loan Documents and the Liens granted under the Loan Documents. All
Chattel Paper shall be marked with the following legend: "This writing and the
obligations evidenced or secured hereby are subject to the security interest of
General Electric Capital Corporation."
6.2 Lender's Rights. (a) Lender may, (i) at any time in Lender's own name or in
the name of Borrower, communicate with Account Debtors, parties to Contracts,
and obligors in respect of Instruments, Chattel Paper or other Collateral to
verify to Lender's satisfaction, the existence, amount and terms of any such
Accounts, Contracts, Instruments or Chattel Paper or other Collateral, and (ii)
at any time and without prior notice to Borrower or any other Credit Party,
notify Account Debtors, parties to Contracts, and obligors in respect of Chattel
Paper, Instruments, or other Collateral that the Collateral has been assigned to
Lender and that payments shall be made directly to Lender. Upon the request of
Lender, Borrower shall so notify such Account Debtors, parties to Contracts, and
obligors in respect of Instruments, Chattel Paper or other Collateral. Borrower
hereby constitutes Lender or Lender's designee as Borrower's attorney with power
to endorse Borrower's name upon any notes, acceptance drafts, money orders or
other evidences of payment or Collateral.
(b) It is expressly agreed by Borrower that, notwithstanding anything
herein to the contrary, Borrower shall remain liable under each Contract,
Instrument and License to observe and perform all the conditions and obligations
to be observed and performed by it thereunder, and Lender shall have no
obligation or liability whatsoever to any Person under any Contract, Instrument
or License (between Borrower or any other Credit Party and any Person other than
Lender) by reason of or arising out of the execution, delivery or performance of
this Agreement, and Lender shall not be required or obligated in any manner (i)
to perform or fulfill any of the obligations of Borrower, (ii) to make any
payment or inquiry, or (iii) to take any action of any kind to collect or
enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times under or
pursuant to any Contract, Instrument or License.
(c) Borrower and each other Credit Party shall, with respect to each
owned, leased, or
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controlled property or facility, during normal business hours and upon
reasonable advance notice (unless a Default shall have occurred and be
continuing, in which event no notice shall be required and Lender shall have
access at any and all times): (i) provide access to such facility or property to
Lender and any of its officers, employees and agents, as frequently as Lender
determines to be appropriate; (ii) permit Lender and any of its officers,
employees and agents to inspect, audit and make extracts from all of Borrower's
and such Credit Party's Books and Records; and (iii) permit Lender to inspect,
review, evaluate and make physical verifications and appraisals of the Inventory
and other Collateral in any manner and through any medium that Lender considers
advisable, and Borrower and such Credit Party agree to render to Lender, at
Borrower's and such Credit Party's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. Borrower and each
other Credit Party shall make available to Lender and its counsel, as quickly as
practicable under the circumstances, originals or copies of all Borrower's and
such Credit Party's Books and Records and any other instruments and documents
which Lender may request. Borrower shall deliver any document or instrument
reasonably necessary for Lender, as it may from time to time request, to obtain
records from any service bureau or other Person which maintains records for
Borrower or any other Credit Party.
(d) After the occurrence and during the continuance of a Default,
Borrower, at its own expense, shall cause the certified public accountant then
engaged by Borrower to prepare and deliver to Lender at any time and from time
to time, promptly upon Lender's request, the following reports: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) test verifications of such Accounts as Lender may request.
Borrower, at its own expense, shall cause its certified independent public
accountants to deliver to Lender the results of any physical verifications of
all or any portion of the Inventory made or observed by such accountants when
and if such verification is conducted. Lender shall be permitted to observe and
consult with Borrower's accountants in the performance of these tasks.
6.3 Lender's Appointment as Attorney-in-fact. On the Closing Date, Borrower and
each other Credit Party executing this Agreement shall execute and deliver a
Power of Attorney in the form attached as Exhibit I. The power of attorney
granted pursuant to the Power of Attorney and all powers granted under any Loan
Document are powers coupled with an interest and shall be irrevocable until the
Termination Date. The powers conferred on Lender under the Power of Attorney are
solely to protect Lender's interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. Lender agrees and promises that (a) it
shall not exercise any power or authority granted under the Power of Attorney
unless an Event of Default has occurred and is continuing, (b) Lender shall only
exercise the powers granted under the Power of Attorney in respect of
Collateral, provided, except as otherwise required by applicable law, Lender
shall not have any duty as to any Collateral, and Lender shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers. NONE OF LENDER OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL BE RESPONSIBLE TO BORROWER OR ANY OTHER CREDIT PARTY FOR
ANY ACT OR FAILURE TO ACT PURSUANT TO THE POWERS GRANTED UNDER THE POWER OF
ATTORNEY OR OTHERWISE, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
Borrower and each other Credit Party executing this Agreement
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also hereby authorizes Lender to file any financing or continuation statement
without the signature of Borrower or such Credit Party to the extent permitted
by applicable law.
6.4 Grant of License to Use Intellectual Property Collateral. For the purpose of
enabling Lender to exercise its rights and remedies under the Loan Documents,
Borrower and each other Credit Party executing this Agreement hereby grants to
Lender an irrevocable, non-exclusive license (exercisable upon the occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to Borrower or such Credit Party) to use, transfer, license
or sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by Borrower or such Credit Party, and wherever the same may be located,
and including in such license access to all media in which any of the licensed
items may be recorded or stored and to all computer and automatic machinery
software and programs used for the compilation or printout thereof, and
represents, promises and agrees that any such license or sublicense is not and
will not be in conflict with the contractual or commercial rights of any third
Person; provided, that such license will terminate on the Termination Date.
7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an "Event of Default"
hereunder which shall be deemed to be continuing until waived in writing by
Lender in accordance with Section 9.3:
(a) Borrower shall fail to make any payment in respect of any
Obligations when due and payable or declared due and payable; or
(b) Borrower or any other Credit Party shall fail or neglect to
perform, keep or observe any of the covenants, promises, agreements,
requirements, conditions or other terms or provisions contained in this
Agreement or any of the other Loan Documents, regardless of whether such breach
involves a covenant, promise, agreement, condition, requirement, term or
provision with respect to a Credit Party that has not signed this Agreement; or
(c) an event of default shall occur under any Contractual Obligation of
the Borrower or any other Credit Party (other than this Agreement and the other
Loan Documents), and such event of default (i) involves the failure to make any
payment (whether or not such payment is blocked pursuant to the terms of an
intercreditor agreement or otherwise), whether of principal, interest or
otherwise, and whether due by scheduled maturity, required prepayment,
acceleration, demand or otherwise, in respect of any Indebtedness (other than
the Obligations) of such Person in an aggregate amount exceeding the Minimum
Actionable Amount, or (ii) causes (or permits any holder of such Indebtedness or
a trustee to cause) such Indebtedness, or a portion thereof, in an aggregate
amount exceeding the Minimum Actionable Amount to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment; or
(d) any representation or warranty in this Agreement or any other Loan
Document, or in any written statement pursuant hereto or thereto, or in any
report, financial statement or certificate made or delivered to Lender by
Borrower or any other Credit Party shall be untrue or incorrect as of the
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date when made, regardless of whether such breach involves a representation or
warranty with respect to a Credit Party that has not signed this Agreement; or
(e) there shall be commenced against the Borrower or any other Credit
Party any Litigation seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which remains
unstayed or undismissed for thirty (30) consecutive days; or Borrower or any
other Credit Party shall have concealed, removed or permitted to be concealed or
removed, any part of its property with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of an obligation which may be fraudulent under any bankruptcy,
fraudulent transfer or other similar law; or
(f) a case or proceeding shall have been commenced involuntarily
against Borrower or any other Credit Party in a court having competent
jurisdiction seeking a decree or order: (i) under the United States Bankruptcy
Code or any other applicable Federal, state or foreign bankruptcy or other
similar law, and seeking either (x) the appointment of a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) for such
Person or of any substantial part of its properties, or (y) the reorganization
or winding up or liquidation of the affairs of any such Person, and such case or
proceeding shall remain undismissed or unstayed for sixty (60) consecutive days
or such court shall enter a decree or order granting the relief sought in such
case or proceeding; or (ii) invalidating or denying any Person's right, power,
or competence to enter into or perform any of its obligations under any Loan
Document or invalidating or denying the validity or enforceability of this
Agreement or any other Loan Document or any action taken hereunder or
thereunder; or
(g) Borrower or any other Credit Party shall (i) commence any case,
proceeding or other action under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
conservatorship or relief of debtors, seeking to have an order for relief
entered with respect to it or seeking appointment of a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) for it or
any substantial part of its properties, (ii) make a general assignment for the
benefit of creditors, (iii) consent to or take any action in furtherance of, or,
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in paragraphs (e) or (f) of this Section 7.1 or clauses (i) and (ii) of
this paragraph (g), or (iv) shall admit in writing its inability to, or shall be
generally unable to, pay its debts as such debts become due; or
(h) a final judgment or judgments for the payment of money in excess of
the Minimum Actionable Amount in the aggregate shall be rendered against
Borrower or any other Credit Party, unless the same shall be (i) fully covered
by insurance and the issuer(s) of the applicable policies shall have
acknowledged full coverage in writing within fifteen (15) days of judgment, or
(ii) vacated, stayed, bonded, paid or discharged within a period of fifteen (15)
days from the date of such judgment; or
(i) any other event shall have occurred which has had or could
reasonably be expected to have a Material Adverse Effect and Lender shall have
given Borrower notice thereof; or
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(j) any provision of any Loan Document shall for any reason cease to be
valid, binding and enforceable in accordance with its terms, or any Lien
granted, or intended by the Loan Documents to be granted, to Lender shall cease
to be a valid and perfected Lien having the first priority (or a lesser priority
if expressly permitted in the Loan Documents) in any of the Collateral; or
(k) a Change of Control shall have occurred with respect to any
Corporate Credit Party.
7.2 Remedies. (a) If any Default shall have occurred and be continuing, then
Lender may terminate or suspend its obligation to make further Revolving Credit
Advances and to incur additional Letter of Credit Obligations. In addition, if
any Event of Default shall have occurred and be continuing, Lender may, without
notice, take any one or more of the following actions: (i) declare all or any
portion of the Obligations to be forthwith due and payable, including contingent
liabilities with respect to Letter of Credit Obligations, whereupon such
Obligations shall become and be due and payable; (ii) require that all Letter of
Credit Obligations be fully cash collateralized pursuant to Schedule C; or (iii)
exercise any rights and remedies provided to Lender under the Loan Documents or
at law or equity, including all remedies provided under the Code; provided, that
upon the occurrence of any Event of Default specified in Sections 7.1 (e), (f)
or (g), the Obligations shall become immediately due and payable (and any
obligation of Lender to make further Loans, if not previously terminated, shall
immediately be terminated) and the Obligations shall automatically begin to
accrue interest at the Default Rate, in each case, without declaration, notice
or demand by Lender.
(b) Without limiting the generality of the foregoing, Borrower and each
other Credit Party executing this Agreement expressly agrees that upon the
occurrence of any Event of Default, Lender may collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange at such prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. Lender shall have the right upon
any such public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase for the benefit of Lender the whole or any
part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption Borrower and each other Credit Party executing this
Agreement hereby releases. Such sales may be adjourned, or continued from time
to time with or without notice. Lender shall have the right to conduct such
sales on any Credit Party's premises or elsewhere and shall have the right to
use any Credit Party's premises without rent or other charge for such sales or
other action with respect to the Collateral for such time or times as Lender
deems necessary or advisable.
(c) Borrower and each other Credit Party executing this Agreement
further agrees, upon the occurrence and during the continuance of an Event of
Default and at Lender's request, to assemble the Collateral and make it
available to Lender at places which Lender shall reasonably select, whether at
its premises or elsewhere. Until Lender is able to effect a sale, lease, or
other disposition of the Collateral, Lender shall have the right to complete,
assemble, use or operate the Collateral or any part thereof, to the extent that
Lender deems appropriate, for the purpose of preserving such Collateral or its
value or for any other purpose. Lender shall have no obligation to any Credit
Party
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to maintain or preserve the rights of any Credit Party as against third parties
with respect to any Collateral while such Collateral is in the possession of
Lender. Lender may, if it so elects, seek the appointment of a receiver or
keeper to take possession of any Collateral and to enforce any of Lender's
remedies with respect to such appointment without prior notice or hearing. To
the maximum extent permitted by applicable law, Borrower and each other Credit
Party executing this Agreement waives all claims, damages, and demands against
Lender, its Affiliates, agents, and the officers and employees of any of them
arising out of the repossession, retention or sale of any Collateral except such
as are determined in a final judgment by a court of competent jurisdiction to
have arisen solely out of the gross negligence or willful misconduct of such
Person. Borrower and each other Credit Party executing this Agreement agrees
that ten (10) days prior notice by Lender to such Credit Party of the time and
place of any public sale or of the time after which a private sale may take
place is reasonable notification of such matters. Borrower and each other Credit
Party shall remain liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all amounts to which
Lender is entitled.
(d) Lender's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which Lender may
have under any Loan Document or at law or in equity. Recourse to the Collateral
shall not be required. All provisions of this Agreement are intended to be
subject to all applicable mandatory provisions of law that may be controlling
and to be limited, to the extent necessary, so that they do not render this
Agreement invalid or unenforceable, in whole or in part.
7.3 Waivers by Credit Parties. Except as otherwise provided for in this
Agreement and to the fullest extent permitted by applicable law, Borrower and
each other Credit Party executing this Agreement waives: (a) presentment, demand
and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all Loan Documents, the Notes or any
other notes, commercial paper, Accounts, Contracts, Documents, Instruments,
Chattel Paper and guaranties at any time held by Lender on which such Credit
Party may in any way be liable, and hereby ratifies and confirms whatever Lender
may do in this regard; (b) all rights to notice and a hearing prior to Lender's
taking possession or control of, or to Lender's replevy, attachment or levy
upon, any Collateral or any bond or security which might be required by any
court prior to allowing Lender to exercise any of its remedies; and (c) the
benefit of all valuation, appraisal and exemption laws. Borrower and each other
Credit Party executing this Agreement acknowledges that it has been advised by
counsel of its choices and decisions with respect to this Agreement, the other
Loan Documents and the transactions evidenced hereby and thereby.
7.4 Proceeds. The Proceeds of any sale, disposition or other realization upon
any Collateral shall be applied by Lender upon receipt, in the following order
of priorities: first, to reimburse or pay in full the actual expenses of Lender
incurred in connection with such sale, disposition or other realization,
including all other expenses, liabilities and advances incurred or made by
Lender in connection therewith; second, to the other Obligations in such order
as the Lender may deem advisable; third, to cash collateralize any outstanding
Letter of Credit Obligations pursuant to Schedule C; and finally, after the
indefeasible payment and satisfaction in full in cash of all of the Obligations,
and after the payment by Lender of any other amount required by any provision of
law,
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including Section 9-504(1)(c) of the Code (but only after Lender has received
what Lender considers reasonable proof of a subordinate party's security
interest), the surplus, if any, to Borrower or its representatives or to
whomsoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct.
8. SUCCESSORS AND ASSIGNS
Each Loan Document shall be binding on and shall inure to the benefit of
Borrower and each other Credit Party executing such Loan Document, Lender, and
their respective successors and assigns, except as otherwise provided herein or
therein. Neither Borrower nor any other Credit Party may assign, transfer,
hypothecate, delegate or otherwise convey its rights, benefits, obligations or
duties under any Loan Document without the prior express written consent of
Lender. Any such purported assignment, transfer, hypothecation, delegation or
other conveyance by Borrower or such Credit Party without the prior express
written consent of Lender shall be void. The terms and provisions of this
Agreement and the other Loan Documents are for the purpose of defining the
relative rights and obligations of Borrower, the other Credit Parties and Lender
with respect to the transactions contemplated hereby and thereby, and there
shall be no third party beneficiaries of any of the terms and provisions of any
of the Loan Documents. Lender reserves the right at any time to create and sell
participations in the Loans and the Loan Documents and to sell, transfer or
assign any or all of its rights in the Loans and under the Loan Documents.
9. MISCELLANEOUS
9.1 Complete Agreement; Modification of Agreement. This Agreement and the other
Loan Documents constitute the complete agreement between the parties with
respect to the subject matter hereof and thereof, supersede all prior
agreements, commitments, understandings or inducements (oral or written,
expressed or implied), and no Loan Document may be modified, altered or amended
except by a written agreement signed by Lender, and each other Credit Party a
party to such Loan Document. Borrower and each other Credit Party executing this
Agreement or any other Loan Document shall have all duties and obligations under
this Agreement and such other Loan Documents from the date of its execution and
delivery, regardless of whether the initial Loan has been funded at that time.
9.2 Expenses. Borrower agrees to pay or reimburse Lender for all costs and
expenses incurred in connection with: (a) the preparation, negotiation,
execution, delivery, performance and enforcement of the Loan Documents and the
preservation of any rights thereunder; (b) collection (including the fees and
expenses of all special counsel, advisors, consultants (including environmental
and management consultants) and auditors retained in connection therewith),
including deficiency collections; (c) the forwarding to Borrower or any other
Person on behalf of Borrower by Lender of the proceeds of any Loan (including a
wire transfer fee of $15 per wire transfer); (d) any amendment, extension,
modification or waiver of, or consent with respect to any Loan Document or
advice in connection with the administration of the Loans or the rights
thereunder; (e) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by or between any combination of Lender, Borrower or any
other Person or Persons), and an appeal or review thereof, in any way relating
to the Collateral, any Loan Document, or any action taken or any
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other agreements to be executed or delivered in connection therewith, whether as
a party, witness or otherwise; and (f) any effort (i) to monitor the Loans, (ii)
to evaluate, observe or assess Borrower or any other Credit Party or the affairs
of such Person, and (iii) to verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of the Collateral including the
following with respect to all of the foregoing provisions of this Section 9.2:
the fees, costs and expenses of attorneys, accountants, environmental advisors,
appraisers, investment bankers, management and other consultants, and
paralegals; court costs and expenses; photocopying and duplicating expenses;
court reporter fees, costs and expenses; long distance telephone charges; air
express charges; telegram charges; secretarial overtime charges; and expenses
for travel, lodging and food paid or incurred in connection therewith.
9.3 No Waiver. Neither Lender's failure, at any time or times, to require strict
performance by Borrower or any other Credit Party of any provision of any Loan
Document, nor Lender's failure to exercise, nor any delay in exercising, any
right, power or privilege hereunder, (a) shall waive, affect or diminish any
right of Lender thereafter to demand strict compliance and performance
therewith, or (b) shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
future exercise thereof or the exercise of any other right, power or privilege.
Any suspension or waiver of a Default or other provision under the Loan
Documents shall not suspend, waive or affect any other Default under any Loan
Document, whether the same is prior or subsequent thereto and whether of the
same or of a different type, and shall not be construed as a bar to any right or
remedy which Lender would otherwise have had on any future occasion. None of the
undertakings, indemnities, agreements, warranties, covenants and representations
of Borrower or any other Credit Party to Lender contained in any Loan Document
and no Default by Borrower or any other Credit Party under any Loan Document
shall be deemed to have been suspended or waived by Lender, unless such waiver
or suspension is by an instrument in writing signed by an officer or other
authorized employee of Lender and directed to Borrower specifying such
suspension or waiver (and then such waiver shall be effective only to the extent
therein expressly set forth), and Lender shall not, by any act (other than
execution of a formal written waiver), delay, omission or otherwise, be deemed
to have waived any of its rights or remedies hereunder.
9.4 Severability. Wherever possible, each provision of the Loan Documents shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of any Loan Document shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of such Loan Document. Except as otherwise expressly
provided for in the Loan Documents, no termination or cancellation (regardless
of cause or procedure) of any financing arrangement under the Loan Documents
shall in any way affect or impair the Obligations, duties, covenants,
representations and warranties, indemnities, and liabilities of Borrower or any
other Credit Party or the rights of Lender relating to any unpaid Obligation,
(due or not due, liquidated, contingent or unliquidated), or any transaction or
event occurring prior to such termination, or any transaction or event, the
performance of which is not required until after the Commitment Termination
Date, all of which shall not terminate or expire, but rather shall survive such
termination or cancellation and shall continue in full force and effect until
the Termination Date; provided, that all indemnity obligations of the Credit
Parties under the Loan Documents shall survive the Termination Date.
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9.5 Conflict of Terms. Except as otherwise provided in any Loan Document by
specific reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in any other Loan Document, the provision contained in this
Agreement shall govern and control.
9.6 Authorized Signature. Until Lender shall be notified in writing by Borrower
or any other Credit Party to the contrary, the signature upon any document or
instrument delivered pursuant hereto and believed by Lender or any of Lender's
officers, agents, or employees to be that of an officer of Borrower or such
other Credit Party listed in the Secretarial Certificate in the form of Exhibit
H shall bind Borrower and such other Credit Party and be deemed to be the act of
Borrower or such other Credit Party affixed pursuant to and in accordance with
resolutions duly adopted by Borrower's or such other Credit Party's Board of
Directors, and Lender shall be entitled to assume the authority of each
signature and authority of the person whose signature it is or appears to be
unless the person acting in reliance of such signature shall have actual
knowledge of the fact that such signature is false or the person whose signature
or purported signature is presented is without authority.
9.7 Notices. Except as otherwise provided herein, whenever any notice, demand,
request, consent, approval, declaration or other communication shall or may be
given to or served upon any party by any other party, or whenever any party
desires to give or serve upon any other party any communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (a) upon the earlier of actual
receipt and three (3) days after deposit in the United States Mail, registered
or certified mail, return receipt requested, with proper postage prepaid, (b)
upon transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
9.7), (c) one (1) Business Day after deposit with a reputable overnight courier
with all charges prepaid or (d) when hand-delivered, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated in Schedule B or to such other address (or facsimile number) as
may be substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to any Person
(other than Borrower or Lender) designated in Schedule B to receive copies shall
in no way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.
9.8 Section Titles. The Section titles and Table of Contents contained in any
Loan Document are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
9.9 Counterparts. Any Loan Document may be executed in any number of separate
counterparts by any one or more of the parties thereto, and all of said
counterparts taken together shall constitute one and the same instrument.
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9.10 Time of the Essence. Time is of the essence for performance of the
Obligations under the Loan Documents.
9.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS ARISING UNDER THE LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF
LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
9.12 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (A) BORROWER AND EACH
OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY CONSENT AND AGREE THAT THE
STATE OR FEDERAL COURTS LOCATED IN NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND SUCH CREDIT PARTY
AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS; PROVIDED, THAT LENDER, BORROWER AND SUCH CREDIT PARTY ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL
BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER AND EACH OTHER CREDIT PARTY
EXECUTING THIS AGREEMENT EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER AND
SUCH CREDIT PARTY HEREBY WAIVE ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER AND
EACH OTHER CREDIT PARTY EXECUTING THIS AGREEMENT HEREBY WAIVE PERSONAL SERVICE
OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE
BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER OR SUCH CREDIT PARTY AT
THE ADDRESS SET FORTH IN SCHEDULE B OF THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S OR SUCH CREDIT PARTY'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(B) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE
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THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LENDER, BORROWER AND ANY CREDIT
PARTY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO.
9.13 Press Releases. Each Credit Party executing this Agreement agrees that
neither it nor its Affiliates will in the future issue any press release or
other public disclosure using the name of GE Capital or its affiliates or
referring to this Agreement or the other Loan Documents without at least two (2)
Business Days' prior notice to GE Capital and without the prior written consent
of GE Capital unless (and only to the extent that) such Credit Party or
Affiliate is required to do so under law and then, in any event, such Credit
Party or Affiliate will consult with GE Capital before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by Lender of a tombstone or similar advertising material relating to
the financing transactions contemplated by this Agreement.
9.14 Reinstatement. This Agreement shall continue to be effective, or be
reinstated, as the case may be, if at any time payment of all or any part of the
Obligations is rescinded or must otherwise be returned or restored by the Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Borrower or any other Credit Party, or otherwise, all as though such
payments had not been made.
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly
executed as of the date first written above.
POLYCHEM CORPORATION
By: /s/ Theodore F. Rutkowski
Name: Theodore F. Rutkowski
Title: President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ James DeSantis
Name: James DeSantis
Title: Duly Authorized Signatory
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REVOLVING CREDIT NOTE
$3,500,000
September 30, 1998
New York, New York
For value received, the receipt and sufficiency of which are hereby
acknowledged, POLYCHEM CORPORATION, a Pennsylvania corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), $3,500,000 or such greater or lesser amount as
shall be advanced by Lender from time to time, together with interest on the
unpaid balance of such amount from the date of the initial Revolving Credit
Advance. This Note is the Revolving Credit Note issued under the Loan and
Security Agreement between Borrower and Lender of even date herewith (said
agreement, as the same may be amended, restated or supplemented from time to
time, being herein called the "Agreement") to which a reference is made for a
statement of all of the terms and conditions of the Loan evidenced hereby.
Capitalized terms not defined in this Note shall have the respective meanings
assigned to them in the Agreement. This Note is secured by the Agreement, the
other Loan Documents and the Collateral, and is entitled to the benefit of the
rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
Revolving Credit Rate, or, under the circumstances contemplated by the
Agreement, at the Default Rate, in immediately available United States Dollars
at the time and in the manner specified in the Agreement. The outstanding
principal and interest under this Note shall be immediately due and payable on
the Commitment Termination Date. Payments received by Lender shall be applied
against principal and interest as provided for in the Agreement. Borrower
acknowledges that (a) Lender is authorized under the Agreement to charge to the
Revolving Credit Loan unpaid Obligations of Borrower to Lender, (b) the
principal amount of the Revolving Credit Loan will be increased by such amounts,
and (c) the principal, as so increased, will bear interest as provided for
herein and in the Agreement.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all of the Obligations,
the Loan Documents or this Note; (b) all rights to notice and a hearing prior to
Lender's taking possession or control of, or to Lender's replevy, attachment or
levy upon, the Collateral or any bond or security that might be required by any
court prior to allowing Lender to exercise any of its remedies; and (c) the
benefit of all valuation, appraisal and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Upon the occurrence of any one or more of the Events of Default specified in the
Agreement, all amounts then remaining unpaid on this Note shall become, or may
be declared to be, immediately due and payable, all as provided therein.
<PAGE>
Borrower agrees to pay to Lender all Fees and expenses described in the
Agreement.
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE STATE
OF NEW YORK.
POLYCHEM CORPORATION
By: /s/ Theodore F. Rutkowski
-------------------------
Name: Theodore F. Rutkowski
Title: President
<PAGE>
TERM NOTE
$1,500,000
September 30, 1998
New York, New York
For value received, the receipt and sufficiency of which are hereby
acknowledged, POLYCHEM CORPORATION, a Pennsylvania corporation ("Borrower"),
hereby promises to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation ("Lender"), $1,500,000, together with interest on the
unpaid balance of such amount from the date of this Note. This Note is the Term
Note issued under the Loan and Security Agreement between Borrower and Lender of
even date herewith (said agreement, as the same may be amended, restated or
supplemented from time to time, being herein called the "Agreement") to which a
reference is made for a statement of all of the terms and conditions of the Loan
evidenced hereby. Capitalized terms not defined in this Note shall have the
respective meanings assigned to them in the Agreement. This Note is secured by
the Agreement, the other Loan Documents and the Collateral, and is entitled to
the benefit of the rights and security provided thereby.
Interest on the outstanding principal balance under this Note is payable at the
Term Loan Rate or, under the circumstances contemplated by the Agreement, at the
Default Rate, in immediately available United States Dollars at the time and in
the manner specified in the Agreement. The outstanding principal and interest
under this Note shall be immediately due and payable on the Commitment
Termination Date, and prior to the Commitment Termination Date, the outstanding
principal shall be due and payable in accordance with the schedule attached as
Schedule G-1 hereto and incorporated herein by reference.
Payments received by Lender shall be applied against principal and interest as
provided for in the Agreement. To the fullest extent permitted by applicable
law, Borrower waives: (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all of the Obligations, the Loan Documents or this Note; (b) all rights
to notice and a hearing prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, the Collateral or any bond or
security that might be required by any court prior to allowing Lender to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws.
Borrower acknowledges that this Note is executed as part of a commercial
transaction and that the proceeds of this Note will not be used for any personal
or consumer purpose.
Borrower agrees to pay to Lender all Fees and expenses described in the
Agreement.
Upon the occurrence of any one or more of the Events of Default specified in the
Agreement, all amounts then remaining unpaid on this Note shall become, or may
be declared to be, immediately due and payable, all as provided therein.
<PAGE>
BORROWER ACKNOWLEDGES THAT BORROWER HAS WAIVED THE RIGHT TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED
BY THE LAW OF THE STATE OF NEW YORK.
POLYCHEM CORPORATION
By: /s/ Theodore F. Rutkowski
---------------------------
Name: Theodore F. Rutkowski
Title: President
<PAGE>
SCHEDULE G-1 TO TERM NOTE DATED SEPTEMBER 30, 1998
IN THE ORIGINAL PRINCIPAL AMOUNT OF $1,500,000
MADE BY POLYCHEM CORPORATION
Amortization Schedule
The Term Loan shall amortize in equal monthly principal installments of $25,000
payable on the first day of each month, with a balloon payment of the remaining
outstanding balance on the Commitment Termination Date.
<PAGE>
STOCK PLEDGE AGREEMENT
----------------------
STOCK PLEDGE AGREEMENT, dated as of December 8, 1998, between CONMAT
TECHNOLOGIES, INC., a Florida corporation ("Pledgor"), and GENERAL ELECTRIC
CAPITAL CORPORATI0N a New York corporation ("Lender").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Pledgor is the record and beneficial owner of the shares of
common stock described in Schedule I hereto (the "Pledged Shares") issued by
Polychem Corporation ("Borrower");
WHEREAS, Borrower and Lender have entered into a Loan and Security
Agreement, dated as of September 30, 1998 (as at any time amended, modified or
supplemented, the "Loan Agreement"), pursuant to which Lender has agreed to make
Revolving Credit Advances and a Term Loan (as defined in the Loan Agreement), to
Borrower (collectively, the "Loans") the proceeds of which are to be used in
connection with working capital and other corporate purposes of Borrower and its
subsidiaries; and
WHEREAS, in connection with the making of the Loans under the Loan
Agreement and as security for all of the obligations of Borrower under the Loan
Agreement, Lender is requiring that Pledgor shall have executed and delivered
this Stock Pledge Agreement and granted the security interest contemplated
hereby;
WHEREAS, Lender, Borrower, Pledgor and The Eastwind Group, Inc. have
entered into a Waiver and Amendment Agreement (the "Waiver and Amendment") dated
as of December ___, 1998, pursuant to which Pledgor is required to execute and
deliver this Stock Pledge Agreement and grant the security interests
contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained and to induce Lender to make Loans under the Loan
Agreement and to enter into the Waiver and Amendment, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
Loan Agreement are used herein as therein defined, and the following shall have
(unless otherwise provided elsewhere in this Stock Pledge Agreement) the
following respective meanings (such meanings being equally applicable to both
the singular and plural form of the terms defined):
"Agreement" shall mean this Stock Pledge Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Bankruptcy Code" shall mean title 11, United States Code, as amended
from time to time, and any successor statute thereto.
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<PAGE>
"Pledged Collateral" shall have the meaning assigned to such term in
Section 2 hereof.
"Secured Obligations" shall have the meaning assigned to such term in
Section 3 hereof.
2. Pledge. Pledgor hereby pledges to Lender, and grants to Lender, a
first priority security interest in, all of the following (collectively, the
"Pledged Collateral"):
(a) the Pledged Shares of Pledgor and the certificates representing the
Pledged Shares, and all dividends, distributions, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Shares of
Pledgor; and
(b) all additional shares of stock of any issuer of the Pledged Shares
from time to time acquired by Pledgor in any manner (which shares shall be
deemed to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, distributions, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares.
3. Security for Obligations. This Agreement secures, and the Pledged
Collateral is security for, the prompt payment in full when due, whether at
stated maturity, by acceleration or otherwise, and performance of the
Obligations (as defined in the Loan Agreement), whether for principal, premium,
interest, fees, costs and expenses, and all obligations of Pledgor now or
hereafter existing under this Agreement and under the other Loan Documents
(collectively, the "Secured Obligations").
4. Delivery of Pledged Collateral. All certificates representing or
evidencing the Pledged Shares shall be delivered to and held by or on behalf of
Lender pursuant hereto and shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
Lender. Lender shall have the right, at any time in its discretion and without
notice to Pledgor, to transfer to or to register in the name of Lender or any of
its nominees any or all of the Pledged Shares. In addition, Lender shall have
the right at any time to exchange certificates or instruments representing or
evidencing Pledged Shares for certificates or instruments of smaller or larger
denominations.
5. Representations and Warranties. Pledgor represents and warrants to
Lender that:
(a) Pledgor is, and at the time of delivery of the Pledged Shares to
Lender pursuant to Section 4 hereof will be, the sole holder of record and the
sole beneficial owner of the Pledged Collateral pledged by Pledgor free and
clear of any Lien thereon or affecting the title thereto, except for the Lien
created by this Agreement.
(b) All of the Pledged Shares of Pledgor have been duly authorized,
validly issued and are fully paid and non-assessable.
(c) Pledgor has the right and requisite corporate authority to pledge,
assign, transfer,
2
<PAGE>
deliver, deposit and set over the Pledged Collateral pledged by Pledgor to
Lender as provided herein.
(d) None of the Pledged Shares of Pledgor has been issued or
transferred in violation of the securities registration, securities disclosure
or similar laws of any jurisdiction to which such issuance or transfer may be
subject.
(e) The authorized Stock of Borrower listed on Schedule I hereto
consists of the number of shares of common stock, with the number of shares
issued and outstanding, that are described in Schedule I hereto. As of the date
hereof, there are no existing options, warrants, calls or commitments of any
character whatsoever relating to any Stock of Borrower.
(f) No consent, approval, authorization or other order of any Person
and no consent, authorization, approval, or other action by, and no notice to or
filing with, any Governmental Authority is required either (i) for the pledge by
Pledgor of the Pledged Collateral pursuant to this Agreement for the execution,
delivery or performance of this Agreement by Pledgor or (ii) for the exercise by
the Lender of the voting or other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Agreement, except
as may be required in connection with such disposition by laws affecting the
offering and sale of securities generally.
(g) The pledge, assignment and delivery of the Pledged Collateral
pursuant to this Agreement will create a valid first priority Lien on and a
first priority perfected security interest in the Pledged Collateral pledged by
Pledgor, and the proceeds thereof, securing the payment of the Secured
Obligations, subject to no other Lien or security interest.
(h) This Agreement has been duly authorized, executed and delivered by
such Pledgor and constitutes a legal, valid and binding obligation of Pledgor
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, or other similar laws affecting the rights of
creditors generally or by the application of general equity principles.
(i) The Pledged Shares constitute one hundred percent (100%) of the
issued and outstanding shares of Stock of Borrower.
The representations and warranties set forth in this Section 5 shall
survive the execution and delivery of this Agreement.
6. Covenants. Pledgor covenants and agrees that until the Termination
Date:
(a) Without the prior written consent of Lender, Pledgor will not sell,
assign, transfer, pledge, or otherwise encumber any of its rights in or to the
Pledged Collateral pledged by Pledgor or any unpaid dividends or other
distributions or payments with respect thereto or grant a Lien in any therein
except as otherwise permitted by the Loan Agreement.
(b) Pledgor will, at its expense, promptly execute, acknowledge and
deliver all such instruments and take all such action as Lender from time to
time may request in order to ensure to Lender the benefits of the Liens in and
to the Pledged Collateral intended to be created by this
3
<PAGE>
Agreement, including the filing of any necessary Uniform Commercial Code
financing statements, which may be filed by Lender with or without the signature
of Pledgor, and will cooperate with Lender, at Pledgor's expense, in obtaining
all necessary approvals and making all necessary filings under federal or state
law in connection with such Liens or any sale or transfer of the Pledged
Collateral.
(c) Pledgor has and will defend the title to the Pledged Collateral and
the Liens of Lender thereon against the claim of any Person and will maintain
and preserve such Liens until the Termination Date.
(d) Pledgor will, upon obtaining any additional shares of Borrower,
which shares are not already Pledged Collateral, promptly (and in any event
within three (3) Business Days) deliver to Lender a Pledge Amendment, duly
executed by Pledgor, in substantially the form of Schedule II hereto (a "Pledge
Amendment"), in respect of the additional Pledged Shares which are to be pledged
pursuant to this Agreement. Pledgor hereby authorizes Lender to attach each
Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on
any Pledge Amendment delivered to Lender shall for all purposes hereunder be
considered Pledged Collateral.
7. Pledgors' Riqhts. As long as no Default or Event of Default shall
have occurred and be continuing and until written notice shall be given to
Pledgor in accordance with Section 8(a) hereof,
(a) Pledgor shall have the right, from time to time, to vote and give
consents with respect to the Pledged Collateral or any part thereof for all
purposes not inconsistent with the provisions of this Agreement, the Loan
Agreement, and any other agreement; provided, however, that no vote shall be
cast, and no consent shall be given or action taken, which would have the effect
of impairing the position or interest of Lender in respect of the Pledged
Collateral or which would authorize or effect (except as and to the extent
expressly permitted by the Loan Agreement) (i) the dissolution or liquidation,
in whole or in part, of Borrower, (ii) the consolidation or merger of Borrower
with any other Person, (iii) the sale, disposition or encumbrance of all or
substantially all of the assets of Borrower, (iv) any change in the authorized
number of shares, the stated capital or the authorized share capital of Borrower
or the issuance of any additional shares of its Stock, or (v) the alteration of
the voting rights with respect to the Stock of Borrower;
(b) (i) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends paid in respect of the Pledged Shares
to the extent not in violation of the Loan Agreement other than any and all (A)
dividends paid or payable other than in cash in respect of, and instruments and
other property received, receivable or otherwise distributed in respect of, or
in exchange for, any Pledged Collateral, (B) dividends and other distributions
paid or payable in cash in respect of any Pledged Collateral in connection with
a partial or total liquidation or dissolution, and (c) cash paid, payable or
otherwise distributed in redemption of, or in exchange for, any Pledged
Collateral; provided, however, that until actually paid all rights to such
distributions shall remain subject to the Lien created by this Agreement; and
4
<PAGE>
(ii) all dividends (other than such cash dividends as are
permitted to be paid to Pledgor in accordance with clause (i) above)
and all other distributions in respect of any of the Pledged Shares of
Pledgor, whenever paid or made, shall be delivered to Lender to hold as
Pledged Collateral and shall, if received by Pledgor, be received in
trust for the benefit of Lender, be segregated from the other property
or funds of Pledgor, and be forthwith delivered to Lender as Pledged
Collateral in the same form as so received (with any necessary
indorsement).
8. Defaults and Remedies. (a) Upon the occurrence of an Event of
Default and during the continuation of such Event of Default, then or at any
time after such declaration (provided that such declaration is not rescinded by
the Lender) and following written notice to Pledgor, Lender (personally or
through an agent) is hereby authorized and empowered be to transfer and register
in its name or in the name of its nominee the whole or any part of the Pledged
Collateral, to exchange certificates or instruments representing or evidencing
Pledged Securities for certificates or instruments of smaller or larger
denominations, to exercise the voting rights with respect thereto, to collect
and receive all cash dividends and other distributions made thereon, to sell in
one or more sales after seven (7) days, notice of the time and place of any
public sale or of the time after which a private sale is to take place (which
notice Pledgor agrees is commercially reasonable), but without any previous
notice or advertisement, the whole or any part of the Pledged Collateral and to
otherwise act with respect to the Pledged Collateral as though Lender was the
outright owner thereof, Pledgor hereby irrevocably constituting and appointing
Lender as the proxy and attorney-in-fact of Pledgor, with full power of
substitution to do so, and which shall remain in effect until the Secured
Obligations are paid in full; provided, however, Lender shall not have any duty
to exercise any such right or to preserve the same and shall not be liable for
any failure to do so or for any delay in doing so. Any sale shall be made at a
public or private sale at Lender's place of business, or at any public building
in the City of New York or elsewhere to be named in the notice of sale, either
for cash or upon credit or for future delivery at such price as Lender may deem
fair, and Lender may be the purchaser of the whole or any part of the Pledged
Collateral so sold and hold the same thereafter in its own right free from any
claim of Pledgor or any right of redemption. Each sale shall be made to the
highest bidder, but Lender reserves the right to reject any and all bids at such
sale which, in its discretion, it shall deem inadequate. Demands of performance,
except as otherwise herein specifically provided for, notices of sale,
advertisements and the presence of property at sale are hereby waived and any
sale hereunder may be conducted by an auctioneer or any officer or agent of
Lender.
(b) If, at the original time or times appointed for the sale of the
whole or any part of the Pledged Collateral, the highest bid, if there be but
one sale, shall be inadequate to discharge in full all the Secured Obligations,
or if the Pledged Collateral be offered for sale in lots, if at any of such
sales, the highest bid for the lot offered for sale would indicate to Lender, in
its discretion, the unlikelihood of the proceeds of the sales of the whole of
the Pledged Collateral being sufficient to discharge all the Secured
Obligations, Lender may, on one or more occasions and in its discretion,
postpone any of said sales by public announcement at the time of sale or the
time of previous postponement of sale, and no other notice of such postponement
or postponements of sale need be given, any other notice being hereby waived;
provided, however, that any sale or sales made after such postponement shall be
after seven (7) days' notice to Pledgor.
5
<PAGE>
(c) In the event of any sales hereunder Lender shall, after deducting
all costs or expenses of every kind (including reasonable attorneys, fees and
disbursements) for care, safekeeping, collection, sale, delivery or otherwise,
apply the residue of the proceeds of the sales to the payment or reduction,
either in whole or in part, of the Secured Obligations in accordance with the
agreements and instruments governing and evidencing such Obligations, returning
the surplus, if any, to Pledgor.
(d) If, at any time when Lender in its sole discretion determines,
following the occurrence and during the continuance of an Event of Default,
that, in connection with any actual or contemplated exercise of its rights (when
permitted under this Section 8) to sell the whole or any part of the Pledged
Collateral hereunder, it is necessary or advisable to effect a public
registration of all or part of the Pledged Collateral pursuant to the Securities
Act of 1933, as amended (or any similar statute then in effect) (the "Act"),
Pledgor shall, in an expeditious manner, cause Borrower to:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect to
the Pledged Collateral and use its best efforts to cause such
registration statement to become and remain effective.
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Act with
respect to the sale or other disposition of the Pledged Collateral
covered by such registration statement whenever Lender shall desire to
sell or otherwise dispose of the Pledged Collateral.
(iii) Furnish to Lender such numbers of copies of a prospectus
and a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as Lender may request in order to
facilitate the public sale or other disposition of the Pledged
Collateral by Lender.
(iv) Use its best efforts to register or qualify the Pledged
Collateral covered by such registration statement under such other
securities or blue sky laws of such jurisdictions within the United
States as Lender shall request, and do such other reasonable acts and
things as may be required of it to enable Lender to consummate the
public sale or other disposition in such jurisdictions of the Pledged
Collateral by Lender.
(v) Furnish, at the request of Lender, on the date that shares
of the Pledged Collateral are delivered to the underwriters for sale
pursuant to such registration or, if the security is not being sold
through underwriters, on the date that the registration statement with
respect to such shares of the Pledged Collateral becomes effective, (A)
an opinion, dated such date, of the independent counsel representing
such registrant for the purposes of such registration, addressed to the
underwriters, if any, and in the event the Pledged Collateral is not
being sold through underwriters, then to Lender, in customary form and
covering matters of the type customarily covered in such legal
opinions; and (B) a comfort letter, dated such date, from the
independent certified public accountants of such registrant, addressed
to the underwriters, if any, and in the event the Pledged Collateral is
not being sold
6
<PAGE>
through underwriters, then to Lenders, in a customary form and covering
matters of the type customarily covered by such comfort letters and as
the underwriters or Lender shall reasonably request. The opinion of
counsel referred to above shall additionally cover such other legal
matters with respect to the registration in respect of which such
opinion is being given as Lender may reasonably request. The letter
referred to above from the independent certified public accountants
shall additionally cover such other financial matters (including
information as to the period ending not more than five (5) Business
Days prior to the date of such letter) with respect to the registration
in respect of which such letter is being given as Lender may reasonably
request.
(vi) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, but not
later than 18 months after the effective date of the registration
statement, an earnings statement covering the period of at least 12
months beginning with the first full month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act.
(e) All expenses incurred in complying with Section 8(d) hereof,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), printing expenses, fees and disbursements of counsel for the registrant,
the fees and expenses of counsel for Lender, expenses of the independent
certified public accountants (including any special audits incident to or
required by any such registration) and expenses of complying with the securities
or blue sky laws or any jurisdictions, shall be paid by Pledgor.
(f) If, at any time when Lender shall determine to exercise its right
to sell the whole or any part of the Pledged Collateral hereunder, such Pledged
Collateral or the part thereof to be sold shall not, for any reason whatsoever,
be effectively registered under the Act, Lender may, in its discretion (subject
only to applicable requirements of law), sell such Pledged Collateral or part
thereof by private sale in such manner and under such circumstances as Lender
may deem necessary or advisable, but subject to the other requirements of this
Section 8, and shall not be required to effect such registration or to cause the
same to be effected. Without limiting the generality of the foregoing, in any
such event Lender in its discretion (x) may, in accordance with applicable
securities laws, proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Collateral or
part thereof could be or shall have been filed under said Act (or similar
statute), (y) may approach and negotiate with a single possible purchaser to
effect such sale, and (z) may restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for
investment and not with a view to the distribution or sale of such Pledged
Collateral or part thereof. In addition to a private sale as provided above in
this Section 8, if any of the Pledged Collateral shall not be freely
distributable to the public without registration under the Act (or similar
statute) at the time of any proposed sale pursuant to this Section 8, then
Lender shall not be required to effect such registration or cause the same to be
effected but, in its discretion (subject only to applicable requirements of
law), may require that any sale hereunder (including a sale at auction) be
conducted subject to restrictions (i) as to the financial sophistication and
ability of any Person permitted to bid or purchase at any such sale, (ii) as to
the
7
<PAGE>
content of legends to be placed upon any certificates representing the Pledged
Collateral sold in such sale, including restrictions on future transfer thereof,
(iii) as to the representations required to be made by each Person bidding or
purchasing at such sale relating to that Person's access to financial
information about Pledgor and such Person's intentions as to the holding of the
Pledged Collateral so sold for investment, for its own account, and not with a
view to the distribution thereof, and (iv) as to such other matters as Lender
may, in its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with
the Bankruptcy Code and other laws affecting the enforcement of creditors,
rights and the Act, and all applicable state securities laws.
(g) Pledgor acknowledges that notwithstanding the legal availability of
a private sale or a sale subject to the restrictions described above in
paragraph (f), Lender may, in its discretion, elect to register any or all the
Pledged Collateral under the Act (or any applicable state securities law) in
accordance with its rights hereunder. Pledgor, however, recognizes that Lender
may be unable to effect a public sale of any or all the Pledged Collateral and
may be compelled to resort to one or more private sales thereof. Pledgor also
acknowledges that any such private sale may result in prices and other terms
less favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. Lender shall be
under no obligation to delay a sale of any of the Pledged Collateral for the
period of time necessary to permit the registrant to register such securities
for public sale under the Act, or under applicable state securities laws, even
if Pledgor would agree to do so.
(h) Pledgor agrees that following the occurrence and during the
continuance of an Event of Default it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any part of
the Pledged Collateral or the possession thereof by any purchaser at any sale
hereunder, and Pledgor waives the benefit of all such laws to the extent it
lawfully may do so. Pledgor agrees that it will not interfere with any right,
power and remedy of Lender provided for in this Agreement or now or hereafter
existing at law or in equity or by statute or otherwise, or the exercise or
beginning of the exercise by Lender of any one or more of such rights, powers or
remedies. No failure or delay on the part of Lender to exercise any such right,
power or remedy and no notice or demand which may be given to or made upon
Pledgor by Lender with respect to any such remedies shall operate as a waiver
thereof, or limit or impair Lender's right to take any action or to exercise any
power or remedy hereunder, without notice or demand, or prejudice its rights as
against Pledgor in any respect.
(i) Pledgor further agrees that a breach of any of the covenants
contained in this Section 8 will cause irreparable injury to Lender, that Lender
has no adequate remedy at law in respect of such breach and, as a consequence,
agrees that each and every covenant contained in this Section 8 shall be
specifically enforceable against Pledgor, and Pledgor hereby waives and agrees
not to assert any defenses against an action for specific performance of such
covenants except for a defense that the Secured Obligations are not then due and
payable in accordance with the agreements and instruments governing and
evidencing such obligations. Pledgor further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by Lender by reason
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<PAGE>
of a breach of any of such covenants and, consequently, agrees that, if Lender
shall sue for damages for breach, it shall pay, as liquidated damages and not as
a penalty, an amount equal to the lesser of (i) the value of the Pledged
Collateral pledged by Pledgor on the date Lender shall demand compliance with
this Section 8, and (ii) the amount required to pay in full the Secured
Obligations.
9. Application of Proceeds. Any cash held by Lender as Pledged
Collateral and all cash proceeds received by Lender in respect of any sale of,
liquidation of, or other realization upon all or any part of the Pledged
Collateral shall be applied by Lender as follows:
first, to Lender in an amount sufficient to pay in full the expenses of
Lender in connection with such sale, disposition or other realization, including
all expenses, liabilities and advances incurred or made by Lender in connection
therewith, including, without limitation, attorney's fees;
second, to Lender in an amount equal to the then unpaid principal of
and accrued interest and prepayment premiums, if any, on the Secured
Obligations; and
third, to Lender in an amount equal to any other Secured Obligations
which are then unpaid; and finally, after payment in full of all Secured
Obligations, to pay to Pledgor, or its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct, any surplus then remaining from such proceeds.
10. Waiver. No delay on Lender's part in exercising any power of sale,
Lien, option or other right hereunder, and no notice or demand which may be
given to or made upon Pledgor by Lender with respect to any power of sale, Lien,
option or other right hereunder, shall constitute a waiver thereof, or limit or
impair Lender's right to take any action or to exercise any power of sale, Lien,
option, or any other right hereunder, without notice or demand, or prejudice
Lender's rights as against Pledgor in any respect.
11. Assignment. Lender may assign, indorse or transfer any instrument
evidencing all or any part of the Secured Obligations as provided in, and in
accordance with, the Loan Agreement, and the holder of such instrument shall be
entitled to the benefits of this Agreement.
12. Termination. Immediately following the payment of all Secured
Obligations, Lender shall deliver to Pledgor the Pledged Collateral pledged by
Pledgor at the time subject to this Agreement and all instruments of assignment
executed in connection therewith, free and clear of the Liens hereof and, except
as otherwise provided herein, all of Pledgor's obligations hereunder shall at
such time terminate.
13. Lien Absolute. All rights of Lender hereunder, and all obligations
of Pledgor hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Loan Agreement, the
Notes, any other Loan Document or any other agreement or instrument governing or
evidencing any Secured Obligations;
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<PAGE>
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any part of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Loan Agreement,
the Notes, any other Loan Document or any other agreement or instrument
governing or evidencing any Secured Obligations;
(c) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Pledgor.
14. Release. Pledgor consents and agrees that Lender may at any time,
or from time to time, in its discretion (a) renew, extend or change the time of
payment, and/or the manner, place or terms of payment of all or any part of the
Secured Obligations and (b) exchange, release and/or surrender all or any of the
Pledged Collateral, or any part thereof, by whomsoever deposited, which is now
or may hereafter be held by Lender in connection with all or any of the Secured
Obligations; all in such manner and upon such terms as Lender may deem proper,
and without notice to or further assent from Pledgor, it being hereby agreed
that Pledgor shall be and remain bound upon this Agreement, irrespective of the
existence, value or condition of any of the Pledged Collateral, and
notwithstanding any such change, exchange, settlement, compromise, surrender,
release, renewal or extension, and notwithstanding also that the Secured
Obligations may, at any time, exceed the aggregate principal amount thereof set
forth in the Loan Agreement, or any other agreement governing any Secured
Obligations. Pledgor hereby waives notice of acceptance of this Agreement, and
also presentment, demand, protest and notice of dishonor of any and all of the
Secured Obligations, and promptness in commencing suit against any party hereto
or liable hereon, and in giving any notice to or of making any claim or demand
hereunder upon Pledgor. No act or omission of any kind on Lender's part shall in
any event affect or impair this Agreement.
15. Indemnification. Pledgor jointly and severally agrees to indemnify
and hold Lender harmless from and against any taxes, liabilities, claims and
damages, including reasonable attorney's fees and disbursements, and other
expenses incurred or arising by reason of the taking or the failure to take
action by Lender, in good faith, in respect of any transaction effected under
this Agreement or in connection with the Lien provided for herein, including,
without limitation, any taxes payable in connection with the delivery or
registration of any of the Pledged Collateral as provided herein. Whether or not
the transactions contemplated by this Agreement shall be consummated, Pledgor
agrees to pay to Lender all out-of-pocket costs and expenses incurred in
connection with this Agreement and all reasonable fees, expenses and
disbursements, including registration costs under the Act (or similar statute)
and the reasonable fees of Lender's agents or representatives, incurred in
connection with the execution and delivery of this Agreement and the performance
by Lender of the provisions of this Agreement and of any transactions effected
in connection with this Agreement. The obligations of Pledgor under this Section
15 shall survive the termination of this Agreement.
16. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Pledgor
for liquidation or reorganization,
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<PAGE>
should Pledgor become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of Pledgor's assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
17. Miscellaneous. (a) Lender may execute any of its duties hereunder
by or through agents or employees and shall be entitled to advice of counsel
concerning all matters pertaining to its duties hereunder.
(b) Pledgor agrees to promptly reimburse Lender for actual
out-of-pocket expenses, including, without limitation, reasonable counsel fees,
incurred by Lender in connection with the administration and enforcement of this
Agreement.
(c) Neither Lender nor any of its officers, directors, employees,
agents or counsel shall be liable for any action lawfully taken or omitted to be
taken by it or them hereunder or in connection herewith, except for its or their
own gross negligence or willful misconduct.
(d) This Agreement shall be binding upon Pledgor and its successors and
assigns, and shall inure to the benefit of, and be enforceable by, Lender and
its successors and assigns, and shall be governed by, and construed and enforced
in accordance with, the internal laws in effect in the State of New York without
giving effect to principles of conflict of laws, and none of the terms or
provisions of this Agreement may be waived, altered, modified or amended except
in writing duly signed for and on behalf of Lender and Pledgor.
18. Severability. If for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or effect those portions of this
Agreement which are valid.
19. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other a communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and either shall be delivered in person with receipt
acknowledged or sent by registered or certified mail, return receipt requested,
postage prepaid, or by telecopy and confirmed by telecopy answerback addressed
as follows:
(a) If to Lender, at
General Electric Capital Corporation
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<PAGE>
201 High Ridge Road
Stamford, Connecticut 06927
Attention: Polychem Corporation Account Manager
(b) If to Pledgor, at its address specified in Schedule I
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback or
three (3) Business Days after the same shall have been deposited in the United
States mail. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
20. Section Titles. The Section titles contained in this Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties hereto.
21. Counterparts. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be duly executed as of the date first written above.
CONMAT TECHNOLOGIES,
/s/ Paul A. DeJuliis
-------------------------------------------
Name: Paul A. DeJuliis
Title: Chairman and Chief Executive Officer
Accepted and Acknowledged by:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ James DeSantis
--------------------------------
Name: James Desantis
Title: Duly Authorized Signatory
12
<PAGE>
SCHEDULE I
Attached to and forming a part of that certain Stock Pledge Agreement
dated as of December 8, 1998 by ConMat Technologies, Inc. to General Electric
Capital Corporation.
<TABLE>
<CAPTION>
Name and Address of Issuer Class of Stock Certificate Number(s) Number of Number of Shares
Pledgor ------ -------------- --------------------- Shares Issued and
------- ------ Outstanding
-----------
<S> <C> <C> <C> <C> <C>
ConMat Technologies, Inc. Polychem Common 2 1,000 1,000
Franklin Avenue and Corporation
Grant Street
Phoenixville, PA 19460
</TABLE>
<PAGE>
SCHEDULE II to the Stock Pledge Agreement
PLEDGE AMENDMENT
This Pledge Amendment, dated _____________, 19__ is delivered pursuant to
Section 6(d) of the Stock Pledge Agreement referred to below. The undersigned
hereby agrees that this Pledge Amendment may be attached to that certain Stock
Pledge Agreement, dated as of December ___, 1998, by the undersigned to General
Electric Capital Corporation, and that the Pledged Securities listed on this
Pledge Amendment shall be and become a part of the Pledged Collateral referred
to in said Stock Pledge Agreement and shall secure all Secured Obligations
referred to in said Stock Pledge Agreement.
CONMAT TECHNOLOGIES, INC.
_________________________
By: ___________________
Name:
Title:
<TABLE>
<CAPTION>
Name and Address of Issuer Class of Stock Certificate Number of Number of Shares
Pledgor ------ -------------- Number(s) Shares Issued and
------- --------- ------ Outstanding
-----------
<S> <C>
ConMat Technologies, Inc. Polychem
Franklin Avenue and Corporation
Grant Street
Phoenixville, PA 19460
</TABLE>
<PAGE>
GUARANTEE
GUARANTEE, dated as of December 8, 1998, made by CONMAT TECHNOLOGIES,
INC. (the "Guarantor"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, as
Lender (the "Lender") under the Loan Agreement referred to below.
W I T N E S S E T H:
WHEREAS, pursuant to the Loan and Security Agreement dated as of even
date herewith (as the same may be amended, supplemented or otherwise modified
from time to time, the "Loan Agreement") between Polychem Corporation (the
"Borrower") and Lender, the Lender has agreed to make extensions of credit to
the Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, it is a condition precedent to the effectiveness of the Loan
Agreement and the Waiver and Amendment Agreement dated as of December 8, 1998
among the Lender, the Guarantor, The Eastwind Group, Inc. and the Borrower (the
"Waiver and Amendment") that the Guarantor guarantee payment and performance of
the Borrower's obligations under the Loan Agreement and the other Loan
Documents;
WHEREAS, the Guarantor owns directly or indirectly all or substantially
all of the issued and outstanding stock of the Borrower.
NOW, THEREFORE, to induce the Lender to enter into the Loan Agreement
and the Waiver and Amendment and to induce the Lender to make its extensions of
credit to the Borrower under the Loan Agreement and for other consideration the
receipt and sufficiency of which is hereby acknowledged, the Guarantor hereby
agrees with the Lender as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined in
the Loan Agreement and used herein shall have the meanings given to them in the
Loan Agreement.
(b) As used herein, "Obligations" shall mean all loans, advances,
debts, expense reimbursement, fees, liabilities, and obligations, for the
performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or amounts are
liquidated or determinable) owing by Borrower and any other Credit Party to
Lender, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, whether arising under any of the Loan
Documents or under any other agreement between Borrower, such Credit Party and
Lender, and all covenants and duties regarding such amounts. This term includes
all principal, interest (including interest accruing at the then applicable rate
provided in the Loan Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in the Loan Agreement after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), Fees, Charges, expenses,
attorneys' fees and any other sum chargeable to Borrower under any of the Loan
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<PAGE>
Documents, and all principal and interest due in respect of the Loans and all
obligations and liabilities of the Guarantor under this Guarantee.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole and
not to any particular provision of this Guarantee, and section and paragraph
references are to this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Guarantee. (a) The Guarantor hereby unconditionally and irrevocably
guarantees to the Lender and its successors, indorsees, transferees and assigns,
the prompt and complete payment and performance by the Borrower when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(b) The Guarantor further agrees to pay any and all expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by the Lender in enforcing, or obtaining advice of counsel
in respect of, any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against,
the Guarantor under this Guarantee.
(c) The Guarantor agrees that the Obligations may at any time and from
time to time exceed the amount of the liability of the Guarantor hereunder
without impairing this Guarantee or affecting the rights and remedies of the
Lender hereunder.
(d) No payment or payments made by the Borrower, any other guarantor or
any other Person or received or collected by the Lender from the Borrower, any
other guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of the Guarantor hereunder which
shall, notwithstanding any such payment or payments, other than payments made by
the Guarantor in respect of the Obligations or payments received or collected
from the Guarantor in respect of the Obligations, remain liable for the
Obligations hereunder until the Obligations are indefeasibly paid in full.
(e) The Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Lender on account of its liability
hereunder, it will notify the Lender in writing that such payment is made under
this Guarantee for such purpose.
3. No Subrogation. Notwithstanding any payment or payments made by the
Guarantor hereunder or any set-off or application of funds of the Guarantor by
the Lender, the Guarantor shall not be entitled to be subrogated to any of the
rights of the Lender against the Borrower or any other guarantor or any
collateral security or guarantee or right of offset held by the Lender for the
payment of the Obligations, nor shall the Guarantor seek or be entitled to seek
any contribution or reimbursement from the Borrower or any other Person in
respect of payments made by the Guarantor hereunder until all amounts owing to
the Lender by the Borrower on account of the Obligations are
2
<PAGE>
indefeasibly paid in full. If any amount shall be paid to the Guarantor on
account of such subrogation rights at any time when all of the Obligations shall
not have been indefeasibly paid in full, such amount shall be held by the
Guarantor in trust for the Lender, segregated from other funds of the Guarantor
and shall forthwith upon receipt by the Guarantor, be turned over to the Lender
in the exact form received by the Guarantor (duly indorsed by the Guarantor to
the Lender, if required), to be applied against the Obligations, whether matured
or unmatured, in such order as the Lender may elect.
4. Amendments, etc. with respect to the Obligations; Waiver of Rights.
The Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor and without notice to or further
assent by the Guarantor, any demand for payment of any of the Obligations made
by the Lender may be rescinded and any of the Obligations continued, and the
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Lender, and the Loan Agreement and the other Loan Documents and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Lender) may
deem advisable from time to time, and any collateral security, guarantee or
right of offset at any time held by the Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. The Lender
shall not have any obligation to protect, secure, perfect or insure any Lien at
any time held by it as security for the Obligations or for this Guarantee or any
property subject thereto. When making any demand hereunder against the
Guarantor, the Lender may, but shall be under no obligation to, make a similar
demand on the Borrower or any other guarantor, and any failure by the Lender to
make any such demand or to collect any payments from the Borrower or any such
other guarantor or any release of the Borrower or such other or guarantor shall
not relieve the Guarantor of the obligations or liabilities hereunder, and shall
not impair or affect the rights and remedies, express or implied, or as a matter
of law, of the Lender against the Guarantor. For the purposes hereof "demand"
shall include the commencement and continuance of any legal proceedings.
5. Guarantee Absolute and Unconditional. The Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Lender upon this Guarantee
or acceptance of this Guarantee, and the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon this Guarantee; and all dealings
between the Borrower and the Guarantor, on the one hand, and the Lender on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon this Guarantee. The Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrower or the Guarantor with respect to the Obligations. The
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity, regularity or enforceability of the Loan Agreement, or any
other Loan Document, any of the Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Lender (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower
3
<PAGE>
against the Lender, or (c) any other circumstance whatsoever (with or without
notice to or knowledge of the Borrower or the Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of the
Borrower for the Obligations, or of the Guarantor under this Guarantee, in
bankruptcy or in any other instance. When pursuing its rights and remedies
hereunder against any Guarantor, the Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against the
Borrower or any other Person or against any collateral security or guarantee for
the Obligations or any right of offset with respect thereto, and any failure by
the Lender to pursue such other rights or remedies or to collect any payments
from the Borrower or any such other Person or to realize upon any such
collateral security or guarantee or to exercise any such right of offset, or any
release of the Borrower or any such other Person or any such collateral
security, guarantee or right of offset, shall not relieve the Guarantor of any
liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Lender against
the Guarantor. This Guarantee shall remain in full force and effect and be
binding in accordance with and to the extent of its terms upon the Guarantor and
the successors and assigns thereof, and shall inure to the benefit of the
Lender, and its successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Guarantor under this Guarantee shall have
been satisfied by indefeasible payment in full in cash.
6. Reinstatement. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or the Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or the Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
7. Payments. The Guarantor hereby guarantees that payments hereunder
will be paid to the Lender without set-off or counterclaim in U.S. Dollars at
the office of the Lender located at 201 High Ridge Road, Stamford, CT 06927.
8. Representations and Warranties. The Guarantor hereby represents and
warrants that:
(a) (i) it is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in which
it is currently engaged, (ii) it has the power and authority and the legal right
and capacity to execute and deliver, and to perform its obligations under, this
Guarantee and has taken all necessary action to authorize its execution,
delivery and performance of this Guarantee;
(b) this Guarantee constitutes a legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms, except as affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting the enforcement of creditors' rights
generally, general equitable principles and an implied covenant of good faith
and fair dealing;
(c) the execution, delivery and performance of this Guarantee will not
violate any
4
<PAGE>
provision of any Requirement of Law or Contractual Obligation of the Guarantor
and will not result in or require the creation or imposition of any Lien on any
of the properties or revenues of the Guarantor pursuant to any Requirement of
Law or Contractual Obligation of the Guarantor;
(d) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, any shareholder or creditor of the Guarantor) is required in
connection with the execution, delivery, performance, validity or enforceability
of this Guarantee;
(e) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Guarantor, threatened by or against the Guarantor or against any of its
properties or revenues (1) with respect to this Guarantee or any of the
transactions contemplated hereby, (2) which could have a material adverse effect
on the business, property, or financial or other condition of the Guarantor;
(f) the statements concerning the financial condition and net worth of
Guarantor previously provided to the Lender are true and correct; there is no
event, fact, circumstance or condition known to Guarantor which is inconsistent
with such statements or is required to be disclosed in order to cause such
statements not to be misleading.
The Guarantor agrees that the foregoing representations and warranties
shall be deemed to have been made by the Guarantor on the date of each borrowing
by the Borrower under the Loan Agreement on and as of such date of borrowing as
though made hereunder on and as of such date.
9. Notices. All notices, requests and demands to or upon the Lender or
the Guarantor to be effective shall be in writing (or by telex, fax or similar
electronic transfer) and shall be deemed to have been duly given or made (1)
when delivered by hand or (2) if given by mail, when deposited in the mails by
certified mail, return receipt requested, or (3) if by telex, fax or similar
electronic transfer, when sent and receipt has been confirmed, addressed as
follows:
(a) if to the Lender, at its address or transmission number for notices
provided in the Loan Agreement; and
(b) if to the Guarantor, at its address or transmission number for
notices set forth under its signature below.
The Lender, and the Guarantor may change their respective addresses and
transmission numbers for notices by notice in the manner provided in this
Section.
10. Severabilility. Any provision of this Guarantee which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. Integration. This Guarantee represents the agreement of the
Guarantor with respect to the subject matter hereof and there are no promises or
representations by the Lender relative to the subject matter hereof not
reflected herein.
5
<PAGE>
12. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of
the terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Guarantor
and the Lender, provided that any provision of this Guarantee may be waived by
the Lender in a letter or agreement executed by the Lender or by telex or
facsimile transmission from the Lender.
(b) The Lender shall not by any act (except by a written instrument
pursuant to paragraph 12(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Lender, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Lender would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
13. Negative Covenants. Guarantor covenants and agrees that, without
Lender's prior written consent, from the Closing Date until the Termination
Date, Guarantor shall not, directly or indirectly, by operation of law or
otherwise:
(a) merge with, consolidate with, acquire all or substantially all of
the assets or capital stock of, or otherwise combine with, any Person or form
any Subsidiary;
(b) make any changes in any of its business objectives, purposes, or
operations which could reasonably be expected to adversely affect repayment of
the Obligations or could reasonably be expected to have a Material Adverse
Effect or engage in any business other than that presently engaged in; or
(c) sell, transfer, issue, convey, assign or otherwise dispose of any
material portion of its assets or properties, including its Accounts or any
shares of its Stock or engage in any sale-leaseback, synthetic lease or similar
transaction (provided, that the foregoing shall not prohibit the sale of
Inventory or obsolete or unnecessary Equipment in the ordinary course of its
business).
14. Section Headings. The section headings used in this Guarantee are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
15. Successors and Assigns. This Guarantee shall be binding upon the
successors and assigns of the Guarantor and shall inure to the benefit of the
Lender and its successors and assigns.
16. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
6
<PAGE>
17. Submission to Jurisdiction; Waivers. The Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee or any other Loan Document to which it is
a party, or for recognition and enforcement of any judgment in respect thereof,
to the non-exclusive general jurisdiction of the courts of the State of New
York, the courts of the United States of America located in the state of New
York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives trial by jury and any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such Guarantor at its
address set forth under its signature below or at such other address of which
the Lender shall have been notified pursuant to Section 9; and
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to sue
in any other jurisdiction.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered as of the day and year first above written.
CONMAT TECHNOLOGIES, INC.
By: /s/ Paul A. DeJuliis
----------------------------------------
Name: Paul A. DeJuliis
Title: Chairman and Chief Executive Officer
Address for Notices:
ConMat Technologies
Franklin Avenue and Grant Street
Phoenixville, PA 19460
Attn: Chairman
7
<PAGE>
WAIVER AND AMENDMENT AGREEMENT
WAIVER AND AMENDMENT AGREEMENT (this "Agreement"), dated as of
December 8, 1998, between General Electric Capital Corporation, a New York
corporation (the "Lender"), Polychem Corporation, a Pennsylvania corporation
("Polychem"), The Eastwind Group, Inc., a Delaware corporation ("Eastwind"), and
ConMat Technologies, Inc., a Florida corporation ("ConMat"). Unless otherwise
stated or defined herein, capitalized terms used herein shall have the meanings
given to them in the Loan and Security Agreement.
WHEREAS, Lender and Polychem are parties to a Loan and Security
Agreement (the "Loan and Security Agreement"), dated as of September 30, 1998,
pursuant to which Lender has agreed to make revolving credit advances and a term
loan to Polychem;
WHEREAS, Lender and Eastwind are parties to a Guarantee (the
"Guarantee"), dated as of September 30, 1998, pursuant to which Eastwind has
agreed to guarantee the Obligations (as defined therein) of Polychem under the
Loan and Security Agreement;
WHEREAS, Eastwind currently owns all of the outstanding shares of
Polychem (the "Polychem Common Stock");
WHEREAS, Lender and Eastwind are parties to a Stock Pledge Agreement
(the "Stock Pledge Agreement"), dated as of September 30, 1998, pursuant to
which Eastwind has pledged the Polychem Common Stock to Lender;
WHEREAS, Section 5(i) of the Loan and Security Agreement requires
Polychem and Eastwind, in its capacity as a Credit Party, to obtain the written
consent of Lender prior to directly or indirectly selling, transferring or
otherwise disposing of the Polychem Common Stock;
WHEREAS, Section 6(a) of the Stock Pledge Agreement requires Eastwind
to obtain the written consent of Lender prior to selling, transferring or
otherwise disposing of the Polychem Common Stock;
WHEREAS, pursuant to Section 6.3 of the Loan and Security Agreement,
Eastwind, in its capacity as a Credit Party, has delivered a power of attorney
in favor of the Lender, dated as of September 30, 1998;
WHEREAS, Eastwind and ConMat desire to enter into a Share Exchange
Agreement (the "Share Exchange Agreement") whereby ConMat will acquire the
Polychem Common Stock from Eastwind in exchange for one million shares of newly
issued common stock of ConMat, par value $0.001 per share and one million three
hundred thirty-three thousand three hundred thirty-three (1,333,333) shares of
newly issued Series A convertible preferred stock of ConMat, par value $0.001
per share (the "Share Exchange"); and
WHEREAS, it is a condition to the closing under the Share Exchange
Agreement that the Lender release Eastwind from all liability under the
Guarantee.
1
<PAGE>
NOW THEREFORE, intending to be legally bound hereby and in
consideration of the mutual covenants contained herein and for other good,
valuable and sufficient consideration, the receipt and sufficiency of which is
hereby acknowledged, it is hereby agreed as follows:
1. Waiver. Lender hereby waives compliance by Polychem and Eastwind
with Section 5(i) of the Loan and Security Agreement in connection with the
Share Exchange.
2. Amendment to Loan and Security Agreement. Lender and Eastwind hereby
agree to amend the Loan and Security Agreement to:
a) delete all references therein to "The Eastwind Group, Inc." and to
substitute "ConMat Technologies, Inc." in lieu thereof;
b) replace Exhibit L-1 thereto in its entirety with Exhibit B hereto;
and
c) replace Exhibit M-1 thereto in its entirety with Exhibit A hereto.
3. Release of Eastwind by Lender. Upon the effectiveness of this
Agreement, Eastwind shall be released from all of its obligations and duties
arising under the Stock Pledge Agreement and the Guarantee.
4. Effectiveness. This Agreement shall become effective upon the
satisfaction of each of the following conditions:
a) Upon receipt from Lender of all the existing certificates
representing or evidencing the Polychem Common Stock, and
the existing related undated stock power endorsed in
blank, ConMat shall have delivered to the Lender new
certificates representing or evidencing all of the
Polychem Common Stock, and a related undated stock power
endorsed in blank;
b) Lender shall have received an executed guarantee made by
ConMat in favor of the Lender (the "New Guarantee"), in
substantially the form attached hereto as Exhibit A;
c) Lender shall have received an executed stock pledge
agreement made by ConMat in favor of the Lender (the "New
Stock Pledge Agreement"), in substantially the form
attached hereto as Exhibit B;
d) ConMat shall have delivered a power of attorney in favor
of the Lender (the "New Power of Attorney"), in
substantially the form attached hereto as Exhibit C;
e) Lender shall have received a copy of the resolutions of
the
2
<PAGE>
Board of Directors of ConMat certified by its secretary
approving the execution, delivery and performance by
ConMat of this Agreement, the New Guarantee, the New Stock
Pledge Agreement and the New Power of Attorney and the
transactions contemplated hereby; and
f) Lender shall have received a copy of the resolutions of
the Board of Directors of Eastwind certified by its
secretary approving the execution, delivery and
performance by Eastwind of this Agreement and the
transactions contemplated hereby.
5. Representations and Warranties.
5.1 ConMat hereby represents and warrants to the Lender that:
(a) (i) it is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority and the legal right to own and operate its
property, to lease the property it operates and to conduct the business in which
it is currently engaged, (ii) it has the power and authority and the legal right
and capacity to execute and deliver, and to perform its obligations under this
Agreement, the New Guarantee, the New Stock Pledge Agreement and the New Power
of Attorney and has taken all necessary action to authorize its execution,
delivery and performance of this Agreement, the New Guarantee, the New Stock
Pledge Agreement and the New Power of Attorney;
(b) this Agreement, the New Guarantee, the New Stock Pledge Agreement
and the New Power of Attorney constitute legal, valid and binding obligations of
ConMat enforceable in accordance with their terms, except as affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting the enforcement of creditors' rights
generally, general equitable principles and an implied covenant of good faith
and fair dealing;
(c) the execution, delivery and performance of this Agreement, the New
Guarantee, the New Stock Pledge Agreement and the New Power of Attorney will not
violate any provision of any Requirement of Law or Contractual Obligation of
ConMat and will not result in or require the creation or imposition of any Lien
on any of its properties or revenues pursuant to any Requirement of Law or any
of its Contractual Obligations;
(d) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or Governmental Authority and no consent of any other
Person (including, any shareholder or creditor of ConMat) is required in
connection with the execution, delivery, performance, validity or enforceability
of this Agreement, the New Guarantee, the New Stock Pledge Agreement and the New
Power of Attorney; and
3
<PAGE>
(e) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of ConMat
threatened by or against it or against any of its properties or revenues (1)
with respect to this Agreement, the New Guarantee, the New Stock Pledge
Agreement and the New Power of Attorney, or any of the transactions contemplated
hereby, or (2) which could have a material adverse effect on the business,
property, or financial or other condition of this Agreement, the New Guarantee,
the New Stock Pledge Agreement and the New Power of Attorney.
5.2 Polychem hereby represents and warrants to the Lender that each
and every of its representations and warranties contained in the Loan and
Security Agreement is true and correct (except to the extent that any such
representation or warranty is expressly made as of an earlier date) and that no
Event of Default or Default has occurred or is continuing.
6. Miscellaneous Terms and Conditions.
6.1 Loan and Security Agreement in Full Force and Effect. Except as
amended or waived by this Agreement, all of the provisions of the Loan
and Security Agreement shall remain in full force and effect from and
after the date hereof.
6.2 References to Loan and Security Agreement. From and after the
effectiveness of this Agreement, (a) all references in the Loan and
Security Agreement to "this Agreement," "hereof," "herein," or similar
terms, (b) all references to the Loan and Security Agreement in the
Loan Documents, or any other documents or instruments executed or
delivered in connection with the Loan and Security Agreement, and (c)
all references to the Loan and Security Agreement shall mean and refer
to the Loan and Security Agreement as amended by this Waiver and
Amendment Agreement.
6.3 Further Assurances. At the request of either party, the other
party shall deliver any further instruments and take all reasonable
actions as may be necessary or appropriate to effectuate the
transactions contemplated by this Agreement.
6.4 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the parties have executed this Waiver and Amendment
Agreement upon the date first written above.
GENERAL ELECTRIC CAPITAL CORPORATION
/s/ James DeSantis
------------------
By: James DeSantis
Title: Duly Authorized Signatory
4
<PAGE>
THE EASTWIND GROUP, INC
/s/ Paul A. DeJuliis .
--------------------
By: Paul A. DeJuliis
Title: Chairman and Chief Executive Officer
CONMAT TECHNOLOGIES, INC.
/s/ Steven B. Rosner
--------------------
By: Steven B. Rosner
Title:________________
POLYCHEM CORPORATION
/s/ Theodore F. Rutkowski
-------------------------
By: Theodore F. Rutkowski
Title: President
5
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<PERIOD-START> JAN-4-1998
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