<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number: 0-30166
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CONMAT TECHNOLOGIES, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Florida 23-2999072
------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Franklin Avenue and Grant Street, Phoenixville, PA 19460
--------------------------------------------------------
(Address of Principal Executive Offices)
(610) 935-0225
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Transitional Small Business Format: YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $0.001 par value, outstanding on May 9, 2000: 2,541,666 shares
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II.OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
2
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Item 1. Financial Statements.
CONMAT TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS (Unaudited)
March 31, December 31,
2000 1999
----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 81,771 $ 101,592
Accounts receivable - net........................................................ 4,717,313 4,569,426
Inventories...................................................................... 1,375,562 1,275,042
Prepaid expenses ................................................................ 68,185 58,341
----------------- ------------------
Total current assets....................................................... 6,242,831 6,004,401
Property, plant and equipment - net.............................................. 969,678 1,010,748
Deferred income taxes............................................................ 78,493 78,493
Other assets..................................................................... 284,503 264,696
----------------- ------------------
Total assets.............................................................. $ 7,575,505 $ 7,358,338
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit................................................................... $ 2,098,285 $ 2,127,628
Current portion of long-term debt................................................ 444,641 444,641
Current portion of capital lease obligations..................................... 95,126 95,461
Accounts payable................................................................. 2,107,864 1,722,364
Accrued expenses................................................................. 430,704 447,778
----------------- ------------------
Total current liabilities.................................................. 5,176,620 4,837,872
----------------- ------------------
Long-term debt................................................................... 2,664,795 2,775,771
Obligations under capital leases................................................. 63,930 86,625
Other liabilities................................................................ 180,700 176,900
----------------- ------------------
Total liabilities.......................................................... 8,086,045 7,877,168
----------------- ------------------
Series B preferred stock - $.001 par value, 166,667 shares issued and outstanding 500,000 500,000
Stockholders' equity (deficiency)
Series A preferred stock - $.001 par value, 10,000,000 shares authorized, 788,000
and 1,073,000 shares issued and outstandng..................................... 788 1,073
Series C preferred stock - $.001 par value, 382,500 shares authorized issued and
outstanding.................................................................... 383 0
Common stock, $.001 par value, 40,000,000 shares authorized, 2,175,000 and
2,250,000 shares issued and oustanding......................................... 2,175 2,250
Additional paid-in capital....................................................... (682,032) (666,986)
Accumulated earnings (deficit).................................................. (281,854) (305,167)
Less note receivable for shares sold............................................ (50,000) (50,000)
----------------- ------------------
Total stockholders' equity (deficiency).................................... (1,010,510) (1,018,830)
----------------- ------------------
----------------- ------------------
Total liabilities and stockholders' equity................................. $ 7,575,505 $ 7,358,338
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CONMAT TECHNOLOGIES, INC. AND SUBSIDIARY
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales to customers................................................. $ 3,139,862 $ 3,076,866
Cost of goods sold..................................................... 2,318,378 2,343,938
------------ ------------
Gross profit......................................... 821,484 732,928
Selling, general and administrative expenses........................... 587,347 527,478
Corporate expense...................................................... 101,069 62,754
------------ ------------
Operating income (loss).............................. 133,068 142,696
Interest expense....................................................... (131,634) (102,129)
Rental Income.......................................................... 63,579 48,367
------------ ------------
Income before tax expense............................ 65,013 88,934
Income tax expense..................................................... (31,700) (32,200)
------------ ------------
Net income........................................... 33,313 56,734
Dividend requirements on Series B preferred stock...................... 10,000 10,000
Basic earnings per share............................................... $ 0.01 $ 0.02
Weighted average number of common shares outstanding................... 2,225,000 2,250,000
Diluted earnings per share............................................. $ 0.01 $ 0.01
Weighted average number of common and common equivalent
shares outstanding................................................... 3,437,926 3,451,199
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CONMAT TECHNOLOGIES, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................................... $ 33,313 $ 56,734
Adjustments to reconcile to net income to net cash provided (used in) by
operating activities:
Depreciaiton and amortization................................................. 49,751 79,259
Changes in assets and liabilities:
(Increase) decrease in assets
Accounts receivable....................................................... (147,887) (1,098,670)
Inventories............................................................... (100,520) 50,439
Prepaid expenses.......................................................... (9,844) (2,775)
Other assets.............................................................. (19,807) (99,381)
Increase (decrease) in liabilities
Accounts payable.......................................................... 385,501 465,774
Accrued expenses.......................................................... (19,107) (156,512)
Net cash provided by (used in) operating activities............... 171,400 (705,132)
Cash flows from investing activities:
Purchase of property and equipment.............................................. (12,848) (33,269)
Net cash used in investing activities............................... (12,848) (33,269)
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit............................... (29,343) 968,384
Repayments of term notes........................................................ (110,976) (182,979)
Repayments of capital lease obligations......................................... (23,031 (27,558)
Proceeds from capital lease obligations......................................... 0 45,000
Offering costs associated with Series C Preferred Stock......................... (15,023) 0
Net cash provided by financing activities........................... (178,373) 802,847
NET INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS......................................................... (19,821) 64,446
Cash and cash equivalents at beginning of year........................................ 101,592 29,430
----------- ------------
Cash and cash equivalents at end of period............................................$ 81,771 $ 93,876
=========== ============
Supplemental cash flow information:
Cash paid for interest.......................................................... $ 131,634 $ 102,129
=========== ============
</TABLE>
5
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of Series C Preferred Stock in exchange redemption of Series A
Preferred Stock and Common Stock:
Issued:
Series C preferred stock........................... 383 0
Aditional paid - in capital......................... 1,199,097 0
Redeemed:
Series A preferred stock............................ (285) 0
Common stock........................................ (75) 0
Additional paid - in capital........................(1,199,120) 0
See accompanying notes to consolidated financial statements.
6
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ConMat Technologies, Inc and Subsidiary
NOTES TO FINANCIAL STATEMENTS
NOTE A - INTERIM FINANCIAL INFORMATION
The financial statements of ConMat Technologies, Inc. as of March 31, 2000, and
for the three months ended March 31, 2000 and March 31, 1999 and related
footnote information are unaudited. All adjustments (consisting only of normal
recurring adjustments) have been made which, in the opinion of management, are
necessary for a fair presentation. Results of operations for the three months
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for any future period. The balance sheet at December 31, 1999 was
derived from audited financial statements.
NOTE B - CHANGES IN SECURITIES
On February 29, 2000, pursuant to an Exchange Agreement between ConMat and
Odyssey Capital Group, L. P., ConMat issued 382,500 shares of ConMat Series C
Preferred Stock and a warrant to purchase 382,500 shares of ConMat common stock
to Odyssey in exchange for 285,000 shares of ConMat Series A Preferred Stock and
75,000 shares of ConMat common stock which were owned by Odyssey. As additional
consideration to ConMat, Odyssey agreed to provide, subject to ConMat's
financial performance, additional financing of $1,500,000 to ConMat in the
future by purchasing subordinated notes with attached warrants or convertible
preferred stock. Odyssey also agreed to assist ConMat in obtaining additional
financing to the extent ConMat's growth or acquisitions require such.
NOTE C - EARNINGS (LOSS) PER SHARE
ConMat 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.
7
<PAGE>
The following are basic and diluted earnings per share calculations for the
periods presented.
Quarter Ended March 31, 2000
----------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Net Earnings....................... $33,013
Less Preferred Stock
Dividends........................ 10,000
-------
Basic EPS
Income available to Common
stockholders..................... 23,013 2,225,000 $0.01
=====
Effect of dilutive securities
Convertible Preferred Stock........ 10,000 978,030
Warrants and Options............... 234,896
-------
Diluted EPS
Income available to Common
stockholders..................... $33,013 3,437,926 $0.01
======= ========= =====
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD LOOKING STATEMENTS
Some of the statements contained in this report 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 materials 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.
In addition, in this report, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect", "plan", and similar
expressions, as they relate to the business or management of ConMat
Technologies, Inc. or its wholly-owned subsidiary, Polychem Corporation, are
intended to identify forward-looking statements.
ConMat undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this report. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
Results of Operations
Three Month Periods Ended March 31, 2000 and March 31, 1999
The following table sets forth certain statement of operation items as a
percentage of net sales for the period indicated:
Three Months Ended March 31, 1999
---------------------------------
2000 1999
---- ----
Net Sales........................................ 100.0% 100.0%
Cost of Goods Sold............................... 73.8 76.2
Gross Profit..................................... 26.2 23.8
Selling and Administrative....................... 18.7 17.1
Interest Expense................................ 4.2 3.3
Other Expense.................................... 1.2 0.5
Income Tax....................................... 1.0 1.0
----- -----
Income (Loss).................................... 1.1 1.9
===== =====
9
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Cost of goods sold is determined as the sum of material costs, direct
manufacturing labor costs and an allocation of utilities and other overhead
costs attributable to manufacturing activities.
Total revenues increased by $63,000 or 2.1% to $3,140,000 for the three months
ended March 31, 2000 from $3,077,000 for the three months ended March 31, 1999.
This increase is attributable to Polychem's successful effort to increase market
penetration internationally where it has previously done business as well as
increased volume from the domestic market. As a result of these efforts,
Polychem ended the first quarter of 2000 with an order backlog of $6,890,000
compared to $4,870,000 at the end of the comparable quarter in 1999, an increase
of 41.5%.
Gross profit increased by $90,000 or 12.3% to $822,000 for the three month
period ended March 31, 2000 from $732,000 for the comparable quarter in 1999.
Gross profit increased as a percentage of sales to 26.2% for the three month
period ended March 31, 2000 from 23.8% for the comparable quarter in 1999. These
increases are a result of increased utilization of existing plant capacity which
increased production without substantial increases in manufacturing costs, as
well as the ongoing effect of several cost saving measures implemented by
management. These measures include improved productivity as a result of
mechanization through new equipment purchases. This increase in productivity
allows Polychem to maintain the same level of production with lower direct labor
costs. While difficult to quantify, management estimates that improved
productivity arising from the purchase of new automated machinery should yield
approximately $25,000 to $37,500 in quarterly cost savings. Further, Polychem
has internalized previously outsourced production and eliminated procurement
steps resulting in lower material costs. Management estimates cost savings of
$12,500 to $25,000 quarterly from these two changes.
Selling and administrative expenses increased by $60,000 or 11.4% to $587,000
for the three month period ended March 31, 2000 from $527,000 for the comparable
quarter in 1999. As a percentage of revenues, selling and administrative
expenses increased to 18.7% for the three month period ended March 31, 2000 from
17.1% of total revenues for the comparable quarter in 1999. This increase is
attributable to initial spending relating to ConMat's E-business platform,
estimated at $10,000, incremental set up costs associated with ConMat's
reporting obligations as a public company of $25,000 and startup costs
associated with the establishment of a full time sales representative in South
America of about $15,000. ConMat expects to spend an estimated additional
$70,000 on its E-business platform in the next three quarters.
Management is closely monitoring selling and administrative expenses and expects
such expenses to decrease as a percentage of sales in future periods due to the
discontinuance of these one-time costs and expected increased revenues due to
the realization of benefits from expenditures made in late 1997 and early 1998
in an effort to increase Polychem's global sales focus, including the hiring of
additional sales personnel. As the efforts of Polychem's global sales force
progress, Polychem anticipates increased revenues without significant increases
in selling and administrative expenses.
Interest expense for the three month period ended March 31, 2000 increased
$29,000 or 29%, to $131,000 from $102,000 for the comparable quarter in 1999.
This higher cost reflects ConMat's increased borrowing on its working capital
line to finance increased receivables and inventory arising from increased
volume. Additionally, ConMat was required to get an extension of credit on a
single receivable that accounted for 25% of its outstanding receivables as of
March 31, 2000. This receivable has been outstanding for over 120 days and its
incremental carrying cost, together with the extension, cost ConMat an estimated
$25,000. ConMat expects to collect a material portion of this receivable by the
end of the second quarter. Interest costs as a percentage of total revenues
increased to 4.2% in the three month period ended March 31, 2000 compared to
3.3% in the comparable quarter in 1999.
ConMat realized a profit of $33,000 for the three month period ended March 31,
2000. For the comparable quarter in 1999, ConMat experienced a profit of
$56,000. The decrease in profitability was a direct result of one-time expenses
10
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associated with developing ConMat's E-business platform, establishing a South
American representative and incremental finance charges associated with the
aforementioned aged receivable. At the current level of revenues, ConMat is
operating above its break-even point.
Liquidity and Capital Resources
ConMat realized a net cash deficit of $19,000 for the three month period ended
March 31, 2000. For the comparable quarter in 1999, ConMat realized a net cash
surplus of $64,000. The decrease in net cash realized was the result of one-
time expenses associated with developing the E-business platform, establishing a
South American representative and incremental finance charges associated with
the extension of credit.
ConMat's primary source of working capital is a credit facility of up to $5
million, subject to a lending formula limit, secured by Polychem's receivables
and inventory. As of March 31, 2000, the maximum borrowing amount was
$2,215,000, and the outstanding balance was $2,098,000. Management believes that
ConMat has sufficient assets, equipment and facility to attain and absorb
forecasted growth in revenues. 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.
Year 2000 Compliance
ConMat has not experienced any material business interruptions or supplier
delays from Year 2000 computer issues to date and has not discovered any Year
2000 problems in internal computer systems material to its operations. However,
the failure of ConMat's internal systems or those of any of its customers,
vendors, suppliers or service providers could have a material adverse affect on
operations.
11
<PAGE>
PART II
Item 1. Legal Proceedings.
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. The
plaintiff seeks damages of at least $350,0000 and punitive damages of at least
$500,000. In addition, the plaintiff seeks to have the acquisition of Polychem
declared null and void and to have a receiver appointed to oversee the affairs
of Eastwind, Polychem and ConMat. 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. 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 parties to the action. The
court denied the preliminary objections. Defendants Answer to the Complaint is
due May 12, 2000, and discovery is expected to follow.
ConMat is currently a defendant in a federal district court action filed on
April 11, 2000, captioned ProFutures Special Equities Fund, L.P. v. The Eastwind
Group, Inc., et al. (U.S.D.C., E. D. Pa. Civil Action No. 00-CV-1888).
ProFutures maintains that Eastwind and others violated federal and state
securities laws and committed common law fraud in connection with the June 1998
Purchase by ProFutures of $750,000 in Series C Convertible Preferred Stock of
Eastwind. ProFutures seeks damages in the amount of $750,000 and seeks to have
the acquisition of Polychem by ConMat declared null and void. Among other named
defendants is Paul A. DeJuliis, President of ConMat and former Chief Executive
Officer of Eastwind.
Defendants' answers to the complaint are due May 26, 2000.
Item 2. Changes in Securities.
On February 29, 2000, pursuant to an Exchange Agreement between ConMat and
Odyssey Capital Group, L.P., ConMat issued 382,500 shares of ConMat Series C
Preferred Stock and a warrant to purchase 382,500 shares of ConMat common stock
to Odyssey in exchange for 285,000 shares of ConMat Series A Preferred Stock and
75,000 shares of ConMat common stock which were owned by Odyssey. As additional
consideration to ConMat, Odyssey agreed to provide, subject to ConMat's
financial performance, additional financing of $1,500,000 to ConMat in the
future by purchasing subordinated notes with attached warrants or convertible
preferred stock. Odyssey also agreed to assist ConMat in obtaining additional
financing to the extent ConMat's growth or acquisitions require such.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
12
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Exchange Agreement, dated as of February 29,
2000, between ConMat and Odyssey Capital
Group, L.P.
10.2 Warrant to Purchase 382,500 shares of ConMat
Common Stock
27 Financial Data Schedule
(b) ConMat did not file any reports on Form 8-K during the quarter for
which this report is filed.
13
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
CONMAT TECHNOLOGIES, INC.
Date: May 12, 2000 By:/s/ Paul A. DeJuliis
--------------------
Paul A. DeJuliis,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 By:/s/ William Crighton
--------------------
William Crighton,
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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Exhibit Index
Exhibit
Number Description
- ------ -----------
10.1 Exchange Agreement, dated as of February 29,
2000, between ConMat and Odyssey Capital
Group, L.P.
10.2 Warrant to Purchase 382,500 shares of ConMat
Common Stock
27 Financial Data Schedule.
15
<PAGE>
EXCHANGE AGREEMENT
------------------
AGREEMENT dated as of the 29th day of February, 2000, by and between
ODYSSEY CAPITAL GROUP, L.P. ("Odyssey"), a Pennsylvania limited partnership, and
CONMAT TECHNOLOGIES, INC., a Florida corporation ("ConMat").
BACKGROUND
----------
Odyssey is the owner of 285,000 shares of ConMat Series A Convertible
Preferred Stock ("ConMat Series A Shares") and 75,000 shares (the "ConMat Common
Shares") of ConMat Common Stock, $.001 par value per share (the "Common Stock").
The parties acknowledge that the merger of Polychem Corporation into ConMat
required Odyssey's consent in accordance with a Securities Purchase Agreement
between Odyssey and The Eastwind Group, Inc., dated May 10, 1996 (the "Purchase
Agreement"). In connection with Odyssey's agreement to consent to the merger and
to assist in obtaining additional financing for ConMat, the parties hereto have
agreed to exchange the ConMat Series A Shares and the ConMat Common Shares for
other ConMat securities.
The parties are entering into this Agreement to set forth their entire
understanding and agreement with respect to the exchange by Odyssey of the
ConMat Series A Shares and the ConMat Common Shares for shares of ConMat Series
C Preferred Stock and a warrant to purchase shares of ConMat Common Stock, as
provided for herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby and in consideration of the mutual covenants herein contained, agree as
follows:
<PAGE>
1. Exchange of ConMat Securities.
------------------------------
1.1 Exchange of ConMat Series A Shares and ConMat Common Shares.
Subject to the terms and conditions hereof, ConMat hereby issues, sells and
delivers to Odyssey 382,500 shares of ConMat Series C Preferred Stock ("ConMat
Series C Shares"), which have the rights and preferences set forth in the
Articles of Amendment to Articles of Incorporation, attached hereto as Exhibit
A, and a warrant to purchase 382,500 shares of ConMat Common Stock (the
"Warrant"), in the form of Exhibit B, in exchange for 285,000 shares of ConMat
Series A Shares and 75,000 ConMat Common Shares.
1.2 Transfer of Certificates. Subject to Odyssey's performance of its
obligations hereunder, the ConMat Series C Shares and the Warrant shall be
delivered to Odyssey free and clear of all liens, security interests, options,
charges, beneficial interests, claims and encumbrances of every kind.
1.3 Delivery of the ConMat Series C Shares and the Warrant. The ConMat
Series C Shares and the Warrant shall be delivered concurrently with the
execution and delivery of this Agreement. Delivery will be made against receipt
by ConMat of the certificates representing the ConMat Series A Shares and the
ConMat Common Shares.
1.4 Odyssey Waiver. In connection with the exchange of ConMat's
securities pursuant to this Section 1, Odyssey hereby consents to the merger of
Polychem with and into ConMat.
1.5 Odyssey - Additional Capital. As additional consideration for the
exchange of ConMat securities pursuant to this Section 1, Odyssey agrees to
provide mezzanine financing up to a maximum of $1.5 million (such as
subordinated debt with warrants or convertible preferred stock) to ConMat in
connection with future acquisitions and for internal expansion, provided that
<PAGE>
ConMat's financial performance supports the investment based on historical
profitability and cash flow. Odyssey will also, to the extent that more than
$1.5 million of mezzanine capital is required, assist ConMat in procuring the
capital from other investment funds.
2. Representations and Warranties of ConMat.
----------------------------------------
ConMat represents and warrants to Odyssey that, as of the date of this
Agreement, the following statements are true and correct:
2.1 Status of Shares. When issued and paid for as provided in this
Agreement, the Series C Shares will be validly issued and outstanding, fully
paid and nonassessable, and the issuance of such Series C Shares is not and will
not be subject to preemptive rights of any other stockholder of ConMat. The
shares of Common Stock to be issued upon exercise of the Warrant have been duly
authorized by all necessary corporate action on the part of ConMat and, as of
the date of the issuance of the Warrant , will be duly reserved for issuance.
When the shares of Common Stock are issued and paid for upon exercise of the
Warrant, such shares will be validly issued and outstanding, fully paid and
nonassessable and the issuance of such shares will not be subject to preemptive
rights of any other stockholder of ConMat.
<PAGE>
2.2 ConMat Capital Structure. (a) The authorized capital stock of
ConMat consists of 40,000,000 shares of ConMat Common Stock, of which 2,250,000
shares are issued and outstanding, and 10,000,000 shares of Preferred Stock, par
value $.001 per share, consisting of 1,386,666 shares of Series A Convertible
Preferred Stock, all of which are issued and outstanding, and 166,687 shares of
Series C Preferred Stock, all of which are issued and outstanding. Except as set
forth in Schedule 2.2, there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon
ConMat for the purchase or acquisition of any shares of capital stock of ConMat
or any other securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock. ConMat is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of the capital stock of ConMat or any convertible
securities, rights or options. Schedule 2.2 sets forth the number, exercise or
conversion price, term and vesting period of any such rights, options or
warrants.
2.3 Authority. ConMat has all requisite corporate power and authority
to enter into this Agreement and the Warrant, to issue and sell the ConMat
Series C Shares and the Warrant, and to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
Warrant by ConMat have been duly and validly authorized by all corporate
proceedings on the part of ConMat and the consummation by ConMat of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of ConMat.
2.4 Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of ConMat, enforceable in accordance with its terms, except
to the extent that its
<PAGE>
enforceability may be subject to limitations imposed by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity) and to the effect of applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws of general application relating to or
affecting creditors' rights, including the effect of statutory or other laws
regarding fraudulent conveyances and preferential transfers.
2.5 Securities Act Compliance. Assuming the accuracy of the
representations of Odyssey contained in Section 3.2, the sale by ConMat of the
ConMat securities as contemplated by this Agreement, does not violate Section 5
of the Securities Act of 1993, as amended, and the rules and regulations
promulgated thereunder, and any other applicable securities laws.
2.6 No Conflict. The execution, delivery and performance of this
Agreement and the Warrant by ConMat and the consummation by ConMat of the
transactions contemplated hereby and thereby do not conflict with or result in
any breach of any of the provisions of, or constitute a default under, result in
a violation of, result in the creation of a right of termination or acceleration
or any lien, security interest, charge or encumbrance upon any assets of ConMat,
or result in or constitute a default, breach or violation of or under the
provisions of the Articles of Incorporation or Bylaws of ConMat, or any
indenture, mortgage, lease, loan agreement or other agreement or instruments by
which ConMat is bound or affected, or any law, statute, rule or regulation or
order, judgement or decree to which ConMat is subject.
2.7 Consents. Except as set forth on Schedule 2.7, no consent of any
person is required for the valid execution and delivery by ConMat of this
Agreement or the Warrant or the issuance, sale and delivery of the ConMat Series
C Shares or the Warrant pursuant hereto.
<PAGE>
2.8 Financial Statements. Attached hereto as Exhibit A is a
consolidated balance sheet at December 31, 1999 of ConMat and the related
consolidated statements of operations and cash flows for the year then ended
(the "Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and present fairly the consolidated financial condition of ConMat at
December 31, 1999 and its consolidated results of operations and cash flows for
the year then ended. Since December 31, 1999, there has not been any material
adverse change in ConMat's financial condition, results of operations, assets,
liabilities or business.
3. Representations and Warranties of Odyssey.
------------------------------------------
Odyssey hereby represents and warrants to ConMat that, at and as of the date of
this Agreement, the following statements are true and correct in all respects:
3.1 Due Authorization. This Agreement has been duly authorized by
Odyssey and is the legal, valid and binding obligation of Odyssey, enforceable
in accordance with its terms, except to the extent that its enforceability may
be subject to limitations imposed by general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity)
and to the effect of applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws of general application relating to or affecting
creditors' rights, including the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers.
3.2 Knowledge and Experience. Odyssey (a) possesses such knowledge and
experience in financial and business matters that it is capable of evaluating
the risks of its investment hereunder; and (b) has conducted such due diligence
as it has deemed appropriate.
<PAGE>
4. Indemnification.
---------------
The representations, warranties and agreements made by ConMat and
Odyssey herein shall survive the consummation of the transactions consummated
hereby. Each party (the "Indemnifying Party") agrees to indemnify, defend and
hold the other party (the "Indemnified Party") harmless against all liability,
loss or damage suffered by the Indemnified Party arising from any
misrepresentation or breach of warranty or agreement of the Indemnifying Party.
The Indemnifying Party shall have no liability for any claim for indemnification
pursuant to this Section 4 unless asserted within one year of the date of this
Agreement.
5. General Provisions.
-------------------
5.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and representatives.
5.2 Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior arrangements and understandings with respect thereto.
5.3 Notices.
5.4 All notices, requests, consents and other communications hereunder
to any party shall be deemed to be sufficient if contained in a written
instrument and shall be deemed to be duly given when delivered in person or, if
mailed, five days after such notice has been duly sent by First Class,
Registered or Certified Mail, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter in writing by the
addressee to the addressor listing all parties:
<PAGE>
(i) if to ConMat:
ConMat Technologies, Inc.
Franklin Avenue and Grant Street
Phoenixville, Pennsylvania 19460
Attention: Paul A. DeJuliis, Chairman and Chief Executive
Officer
with a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 S. Broad Street
Philadelphia, Pennsylvania 19102-3163
Attention: Lawrence Rovin, Esquire
(ii) if to Odyssey:
Odyssey Capital Group, L.P.
950 West Valley Road, Suite 2902
Wayne, PA 19087
Attention: John P. Kirwin, III
with a copy to:
McCausland, Keen & Buckman
Radnor Court
259 North Radnor-Chester Road, Suite 160
Radnor, PA 19087-5240
Attention: Nancy D. Weisberg, Esquire
5.5 Governing Law.
This Agreement shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Pennsylvania.
<PAGE>
5.6 Counterparts.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
IN WITNESS WHEREOF, ConMat and Odyssey have executed this Agreement as
of the day and year first above written.
CONMAT TECHNOLOGIES, INC., a Florida
corporation
By: /s/ Paul A. DeJuliis
--------------------------
Name: Paul A. DeJuliis
Its: Chief Executive Officer
ODYSSEY CAPITAL GROUP, L.P.
By: Odyssey Capital Group, Inc., its general
partner
By: /s/ John P. Kirwin, III
----------------------------------
Name: John P. Kirwin, III
Its:
<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), February 28, 2002
except as otherwise provided herein
Series B No. 1 Warrant to Purchase 382,500
Shares of Common Stock
Date: February 29, 2000
WARRANT
TO PURCHASE COMMON STOCK OF
CONMAT TECHNOLOGIES, INC.
THIS CERTIFIES that, Odyssey Capital Group, 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 Florida, at any time from the date hereof and until
5:00 P.M. (Eastern Time) on February 28, 2002, Three Hundred Eighty-Two Thousand
Five Hundred (382,500) fully paid and nonassessable shares of Common Stock of
the Company, $0.00 1 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. "Closing Sales Price" shall mean the per share price of the
Common Stock for any trading day, as determined by reference to the price of the
last traded share of Common Stock on the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System for such date or the next preceding date that the Common Stock
was traded on such market, or, in the event the Common Stock is listed on a
stock exchange, the closing price per share of the Common Stock as reported on
such exchange for such date.
<PAGE>
b. "Exercise Period" shall mean the period beginning on the
date hereof and ending February 28, 2002, provided, however, that the Exercise
Period shall be automatically extended as follows:
(i) From February 28, 2002 to February 28, 2003 if
the Closing Sales price does not equal or exceed $6.00 per share (adjusted
proportionately with any adjustment of the Warrant Price upon the occurrence of
any of the events identified in Sections 6(a) or 6(b)) for twenty (20)
consecutive trading days during the twelve months ending February 28, 2002;
(ii) From February 28, 2003 to February 28, 2004 if
the Closing Sales Price does not equal or exceed $6.00 per share (adjusted
proportionately with any adjustment of the Warrant Price upon the occurrence of
any of the events identified in Sections 6(a) or 6(b)) for twenty (20)
consecutive trading days during the twelve months ending February 28, 2003; and
(iii) From February 28, 2004 to February 28, 2005 if
the Closing Sales Price does not equal or exceed $6.00 per share (adjusted
proportionately with any adjustment of the Warrant Price upon the occurrence of
any of the events identified in Sections 6(a) or 6(b)) for twenty (20)
consecutive trading days during the twelve months ending February 28, 2004.
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 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 382,500 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.
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<PAGE>
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 common 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 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, in whole or in part, 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
(or if exercised in part, the portion of this Warrant as to which the Conversion
Right is exercised) 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, or partial exercise as the case
may be, 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
3
<PAGE>
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 the Series C Preferred
Stock originally issued in connection with the Exchange Agreement dated February
29, 1999, 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 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 are 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, 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
4
<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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:
(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;
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<PAGE>
(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 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.
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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.
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.
9
<PAGE>
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, on the date of this Warrant.
CONMAT TECHNOLOGIES, INC.
By: /s/ Paul A. DeJuliis
-------------------------------------
Paul A. DeJuliis
Chief Executive Officer
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
- ----------------- ------- -------------
Signature:___________________________________ Dated:___________________________
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in this report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 81,771 0
<SECURITIES> 0 0
<RECEIVABLES> 4,717,313 0
<ALLOWANCES> 0 0
<INVENTORY> 1,375,562 0
<CURRENT-ASSETS> 6,242,831 0
<PP&E> 1,959,678 0
<DEPRECIATION> 990,000 0
<TOTAL-ASSETS> 7,575,505 0
<CURRENT-LIABILITIES> 5,176,620 0
<BONDS> 0 0
500,000 0
1,171 0
<COMMON> 2,175 0
<OTHER-SE> (1,007,194) 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 3,139,862 3,076,866
<TOTAL-REVENUES> 3,139,862 3,076,866
<CGS> 2,318,378 2,343,938
<TOTAL-COSTS> 2,318,378 2,343,938
<OTHER-EXPENSES> 624,837 541,865
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 131,364 102,129
<INCOME-PRETAX> 353,286 (464,011)
<INCOME-TAX> 31,700 32,200
<INCOME-CONTINUING> 33,313 56,734
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 33,313 56,734
<EPS-BASIC> 0.01 0.02
<EPS-DILUTED> 0.01 0.01
</TABLE>
