<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------
Commission file number 1-7081
CUSTOMEDIX CORPORATION
(Exact name of registrants specified in its charter)
Delaware #22-1844840
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P. O. Box 724, 53 North Plains Industrial Road, Wallingford, CT 06492
(Address of principal executive offices)
(Zip Code)
203-284-9079
(Registrant's telephone number, including area code)
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 1995
Common stock $.01 par value 3,691,064
<PAGE> 2
Item 1. PART I
CUSTOMEDIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
(Unaudited) (a)
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 162,812 $ 477,983
Accounts receivable, less allowance
for possible losses of $391,000 and $339,000 6,638,995 6,861,308
Inventory (Note 3) 7,882,959 6,955,852
Other 160,589 1,094,623
------------ ------------
TOTAL CURRENT ASSETS 14,845,355 15,389,766
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $3,631,442
and $3,194,465 (Note 6) 3,203,773 3,298,265
EXCESS OF COST OVER NET ASSETS OF BUSINESSES
ACQUIRED, less accumulated amortization of
$3,314,746 and $3,013,449 4,910,095 5,211,392
OTHER ASSETS 503,056 447,910
------------ ------------
TOTAL ASSETS $ 23,462,279 $ 24,347,333
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,511,863 $ 4,382,285
Current portion of long-term debt and
obligations under capital leases (Note 5) 976,109 1,281,383
------------ ------------
TOTAL CURRENT LIABILITIES 4,487,972 5,663,668
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, less current portion (Note 5) 6,539,570 6,987,749
LONG-TERM PENSION OBLIGATION AND OTHER 1,763,717 1,567,830
------------ ------------
TOTAL LIABILITIES 12,791,259 14,219,247
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value - 100,000
shares authorized; none issued -- --
Common stock, $.01 par - 3,900,000 shares
authorized; outstanding 3,691,064 and 3,697,299 36,911 36,973
Additional paid-in capital 27,423,057 27,444,217
Accumulated deficit (16,788,948) (17,353,104)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,671,020 10,128,086
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 23,462,279 $ 24,347,333
============ ============
</TABLE>
- - --------------------
(a) Derived from the audited financial statements
See accompanying "Notes to Condensed Consolidated Financial Statements".
2
<PAGE> 3
CUSTOMEDIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Sales $ 37,124,566 $ 33,813,586
Other income 382,047 369,467
------------ ------------
Total revenues 37,506,613 34,183,053
------------ ------------
COSTS, EXPENSES AND OTHER:
Cost of sales 26,977,964 23,658,510
Selling, general and administrative
expenses 9,012,817 9,129,370
Interest expense - net of interest
income of $121 and $3,716 666,676 633,915
------------ ------------
36,657,457 33,421,795
------------ ------------
Income before income taxes 849,156 761,258
PROVISION FOR INCOME TAXES (Note 4) (285,000) (200,000)
------------ ------------
NET INCOME $ 564,156 $ 561,258
============ ============
INCOME PER SHARE (Note 2) $ .15 $ .15
============ ============
</TABLE>
See accompanying "Notes to Condensed Consolidated Financial Statements".
3
<PAGE> 4
CUSTOMEDIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Sales $ 12,909,888 $ 11,851,882
Other income 138,846 127,923
------------ ------------
Total revenues 13,048,734 11,979,805
------------ ------------
COSTS, EXPENSES AND OTHER:
Cost of sales 9,350,884 8,254,311
Selling, general and administrative
expenses 3,084,106 3,175,158
Interest expense - net of interest
income of $121 and $1,259 224,296 203,586
------------ ------------
12,659,286 11,633,055
------------ ------------
Income before income taxes 389,448 346,750
PROVISION FOR INCOME TAXES (Note 4) (100,000) (85,000)
------------ ------------
NET INCOME $ 289,448 $ 261,750
============ ============
INCOME PER SHARE (Note 2) $ .08 $ .07
============ ============
</TABLE>
See accompanying "Notes to Condensed Consolidated Financial Statements".
4
<PAGE> 5
CUSTOMEDIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities: $ 564,156 $ 561,258
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 437,132 444,086
Amortization 325,852 337,524
Stock issued in lieu of compensation -- 67,187
Provision for loss on accounts receivable 83,997 102,568
Loss on disposal of assets 788 --
Change in assets and liabilities:
Accounts receivable 138,316 (625,748)
Inventory (927,107) (747,084)
Other assets 887,570 (138,686)
Accounts payable and accrued expenses (870,422) 566,588
Other liabilities 195,887 250,306
----------- -----------
Net cash provided by operating
activities 836,169 817,999
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (223,485) (423,786)
----------- -----------
Cash flows from financing activities:
Borrowing from bank -- 450,000
Repayments to banks and others (906,638) (1,294,726)
Repurchase and retirement of common stock (21,217) (1,113)
----------- -----------
Net cash used in financing
activities (927,855) (845,839)
----------- -----------
Net decrease in cash and cash equivalents (315,171) (451,626)
Cash and cash equivalents, beginning
of period 477,983 773,855
----------- -----------
Cash and cash equivalents, end of period $ 162,812 $ 332,229
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 717,600 $ 684,200
Income taxes 268,700 146,000
Non-cash transaction -
Capital lease obligation 153,185 367,590
</TABLE>
See accompanying "Notes to Condensed Consolidated Financial Statements".
5
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CUSTOMEDIX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
================================================================================
Note 1 - Basis of Presentation
The accompanying unaudited, condensed consolidated financial
statements have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial
information, and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to such rules
and regulations, although management believes that the
disclosures are adequate to make the information presented not
misleading. In the opinion of management, the accompanying
condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation of the results for the interim
periods presented. The results for the interim periods are not
necessarily indicative of the results to be expected for the full
year. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report to
Stockholders.
Note 2 - Earnings Per Share
Income per share was computed based on the weighted average number
of common stock and common stock equivalent shares outstanding
during each period. There were 3,719,200 and 3,709,600 weighted
average shares outstanding for the nine months ended March 31, 1995
and 1994, respectively, and 3,716,100 and 3,709,400 for the three
months ended March 31, 1995 and 1994, respectively.
Note 3 - Inventory
Inventory is summarized as follows:
<TABLE>
<CAPTION>
March 31, 1995 June 30,1994
-------------- ------------
<S> <C> <C>
Finished Products $4,930,456 $4,362,382
Work-In-Process 906,067 669,807
Raw Material & Supplies 2,046,436 1,923,663
---------- ----------
Total $7,882,959 $6,955,852
========== ==========
</TABLE>
Note 4 - Income Taxes
Taxes on income represent certain alternative minimum federal and
state income taxes. Alternative minimum taxable income is higher
than income before income taxes as reported for financial statement
purposes due primarily to goodwill amortization which is
nondeductible for alternative tax purposes for all periods
presented and the timing of recognizing a legal settlement which
was recorded for financial statement purposes in the fourth quarter
of fiscal 1994, but was not recorded until fiscal 1995 for tax
purposes. These factors have resulted in a higher effective tax
rate for financial statement purposes for fiscal 1995.
6
<PAGE> 7
CUSTOMEDIX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
================================================================================
Note 5 - Long-Term Debt and Obligations Under Capital Leases
Long-term debt and obligations under capital leases are summarized
as follows:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<S> <C> <C>
Term Loan $6,444,419 $6,959,363
Revolving credit facility 300,000 450,000
Obligations under capital
leases 725,102 766,666
Other 46,158 93,103
---------- ---------
7,515,679 8,269,132
Less current portion 976,109 1,281,383
---------- ---------
Total $6,539,570 $6,987,749
========== ==========
</TABLE>
Note 6 - Property and Equipment
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, 1995 June 30, 1994
-------------- -------------
<S> <C> <C>
Machinery and equipment $3,376,268 $3,231,312
Leasehold improvements 2,092,265 2,041,390
Furniture and fixtures 1,334,141 1,187,487
Transportation equipment 32,541 32,541
---------- ----------
Total 6,835,215 6,492,730
Less accumulated depreciation
and amortization 3,631,442 3,194,465
---------- ----------
$3,203,773 $3,298,265
========== ==========
</TABLE>
Note 7 - Subsequent Event
On May 1, 1995, the Company's subsidiary, Jeneric/Pentron, Inc. and
Martin L. Schulman, Executive Vice-President of Jeneric/Pentron,Inc.,
entered into an employment agreement which provides for maximum annual
payments of salary assuming all bonuses are earned, aggregating
approximately $567,000, subject to reduction in certain circumstances,
through December 31, 2002. The base salary shall be adjusted annually
by the cost of living adjustment provided generally to employees of the
Corporation. The agreement also includes provisions pursuant to which
394,328 shares of Customedix Corporation stock held by Mr. Schulman
have been purchased by Customedix at a price of $1.50 per share. The
purchase price of the shares has been paid by delivery of Customedix's
subordinated promissory note, which bears interest at 8% per annum and
shall accrue and not be compounded until principal and interest
payments begin January 2003. Final maturity of the note is December 31,
2014. Mr. Schulman is President and Chief Operating Officer of
Customedix Corporation.
7
<PAGE> 8
Item 2. CUSTOMEDIX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
================================================================================
Operations
Sales for the nine months ended March 31, 1995 were $37,124,600
compared to $33,813,600 for the nine months ended March 31, 1994, an increase of
$3,311,000, or 9.8%. Approximately $1,500,000 of this increase resulted from an
increase in the average cost of certain precious metals found in a significant
percentage of the Company's products which increased the selling prices of these
products. Sales for the quarter ended March 31, 1995 were $12,909,900 compared
to $11,851,900 for the quarter ended March 31, 1994, an increase of $1,058,000
or 8.9%. Approximately $490,000 of this increase resulted from an increase in
the average cost of certain precious metals. The balance of the increases was
largely attributable to higher sales, both domestic and foreign, of most of the
Company's products.
Gross profit as a percentage of sales was 27.3% for the nine months
ended March 31, 1995 compared to 30.0% for the nine months ended March 31, 1994.
Gross profit as a percentage of sales was 27.6% for the quarter ended March 31,
1995 compared to 30.4% for the quarter ended March 31, 1994. These decreases of
2.7% and 2.8%, respectively, were partially attributable to the increase in the
cost of certain precious metals compared to the prior year, which reduced gross
profit as a percentage of sales. These decreases were also caused in part by an
increase in the reserve for possibly unsaleable inventory in the first nine
months of fiscal 1995 and the write-off of obsolete inventory. Gross profit as a
percentage of sales was 28.5% for the fiscal year ended June 30, 1994.
Selling, general and administrative expenses were $9,012,800 for
the nine months ended March 31, 1995 as compared to $9,129,400 for the nine
month period last year. Selling, general and administrative expenses were
$3,084,100 for the quarter ended March 31, 1995 as compared to $3,175,200 for
the quarter last year. These decreases of $116,600 and $91,100, respectively,
were due primarily to decreases in legal fees and advertising expenses which
were partially offset by increases in payroll expenses, royalties and rent
expense.
Interest expense for the nine months ended March 31, 1995 was
$666,800 compared to $637,600 for the nine months ended March 31, 1994. Interest
expense for the quarter ended March 31, 1995 was $224,400 compared to $204,800
for the quarter ended March 31, 1994. These increases of $29,200 and $19,600,
respectively, were attributable to increases in interest rates which were
partially offset by a reduction in long-term debt.
Income before income taxes was $849,200 for the nine months ended
March 31, 1995 compared to $761,300 for the nine months ended March 31, 1994.
Income before income taxes was $389,400 for the quarter ended March 31, 1995
compared to $346,800 for the quarter ended March 31, 1994. These increases of
$87,900 and $42,600, respectively, were primarily due to a reduction in selling,
general and administrative expenses.
8
<PAGE> 9
CUSTOMEDIX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
================================================================================
Provision for income taxes was $285,000 for the nine months ended
March 31, 1995 compared to $200,000 for the nine months ended March 31, 1994.
Provision for income taxes was $100,000 for the quarter ended March 31, 1995
compared to $85,000 for the quarter ended March 31, 1994. These increases of
$85,000 and $15,000, respectively, were caused by an increase in required
alternative minimum tax provisions, for which no future tax benefit has been
recorded.
Impact of Inflation
Except for changes in precious metals costs as discussed above, the
Company experienced only minor inflation-related cost increases which were not a
material factor in the increases in expenses for the periods presented.
Inflation has not had a material impact on the Company's results of operations
since most of the increases in material costs have been passed through to
customers.
Liquidity and Capital Resources
Working capital increased by approximately $631,300 to $10,357,400
at March 31, 1995 from June 30, 1994. This increase was due primarily to
earnings of the Company during the period.
For the nine months ended March 31, 1995, cash generated by
operations and cash on hand were primarily used as follows: (i) to reduce debt
by approximately $906,600 and (ii) to purchase property and equipment totaling
approximately $223,500.
As of March 31, 1995, the Company was in compliance with all of the
financial covenants contained in the loan agreement, as amended, with the
Company's principal lending bank (the "Bank"). The loan is scheduled to mature
on January 2, 1997. On October 29, 1993 the Company finalized a $600,000
Revolving Line of Credit with its Bank which, as amended, matures on November
30, 1995. Prior to October 29, 1993, the term loan had interest at 1 1/4% above
the Bank's index rate. From October 29, 1993 to November 9, 1994, both of the
above borrowings had interest at 1% above the Bank's index rate. This rate was
reduced to 1/4% above the Bank's index rate as of November 9, 1994.
9
<PAGE> 10
CUSTOMEDIX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
================================================================================
The Company expects significant demands on cash during the next
twelve months as a result of anticipated advertising expenses and anticipated
additional federal alternative minimum taxes and state income taxes. In
addition, because of the level of the Company's debt, a significant portion of
its cash flow will continue to be used to repay debt. This substantial use of
cash limits the available funds for general working capital purposes, product
research and marketing, as well as funds that can be expended on new facilities
and capital equipment expansion. Furthermore, the ability of the Company to
expand operations through mergers or acquisitions is limited by the lack of
available cash with which to fund such activities.
Future Outlook
The Company expects to continue to incur high expenses in the areas
of new product development and research and product introduction. The Company
expects these efforts will primarily focus on dental products, and the
associated expenses could contribute to reduced earnings. In addition, the
dental products market faces increasing competition and profitability pressures,
both in domestic and foreign markets. Accordingly, the Company may experience
further reduction in its margins on certain dental products. The Company is
highly leveraged and any significant increase in interest rates could materially
and adversely affect the Company's profitability and cash flow.
The Company expects to use the balance of its available net
operating loss carryforwards in fiscal 1995 and may incur substantial federal
and state income tax expense. Although the Company has substantial federal tax
credit carryforwards, it will incur this expense due to required alternative
minimum tax provisions.
10
<PAGE> 11
PART II
CUSTOMEDIX CORPORATION
OTHER INFORMATION
================================================================================
Item 1. Legal Proceedings
There has been no material change from the information set forth in
Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994 and Item 1 under the caption "Legal Proceeding" of the
December 31, 1994 Form 10-Q except as follows:
Jeneric/Pentron Incorporated was summoned to appear in court in
Italy in response to a claim by Synspar & Pentron Dental Products, s.r.l.
(Synspar) which seeks an injunctive order specifically to enforce an alleged
distributorship agreement. The Company has contested jurisdiction, denied that
it has any obligation regarding the alleged distributorship, and is pursuing a
declaratory judgment action against Synspar in U.S. District Court in
Connecticut, in which it seeks a declaration that it has no such obligation and
in which it has obtained a default against Synspar because of its failure to
appear. Currently, Synspar has made no damage claim.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: One
(10)(c)(v) Employment Agreement, dated January 1, 1995,
between Jeneric/Pentron Incorporated and Martin
L. Schulman, together with Confidentiality
Agreement, Promissory Note, Subordination
Agreement,and Continuing Unconditional Guarantee
Agreement.
(b) Reports on Form 8-K: None
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 10, 1995 Customedix Corporation
- - ------------ ------------------------
Date Registrant
/s/Gordon S. Cohen
------------------------
Gordon S. Cohen
Chairman and Chief Executive Officer
/s/Barry L. Kosowsky
------------------------
Barry L. Kosowsky
Principal Financial Officer
Principal Accounting Officer
12
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of the 1st day of January, 1995,
between JENERIC/PENTRON INCORPORATED, a Connecticut corporation (hereinafter
referred to as the "Corporation") and MARTIN L. SCHULMAN (hereinafter referred
to as the "Executive"):
W I T N E S S E T H:
WHEREAS, the Corporation desires to continue the employment of the
Executive, and the Executive desires to continue his employment, on the terms
herein contained;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Term of Employment; Conditions. The Corporation shall
employ the Executive in an executive capacity and, in its discretion, as an
officer and/or as a Director; in addition to the duties and responsibilities of
the Executive as set forth in this Agreement, the Executive shall, without
additional compensation therefor, if elected, serve as a Director and as
President and Chief Operating Officer of Customedix Corporation, the parent of
the Corporation. The Executive shall so serve the Corporation, for the eight (8)
year period beginning January 1, 1995 and ending December 31, 2002. The
Executive, subject to the direction and control of the Board of Directors of the
Corporation, shall use his best efforts to promote the interests of the
Corporation, to serve in the above listed offices and to hold and serve in such
other
<PAGE> 2
offices in the Corporation to which, from time to time, he may be elected or
appointed. The Executive shall also serve as a Director and officer of such of
the related companies of the Corporation which shall have duly elected or
appointed him as such; furthermore, the Executive agrees that in lieu of a part
or all of the obligations of his current position, he will serve as the primary
executive, manager or administrator of any such related company as the Board of
Directors of the Corporation shall determine. The Executive's headquarters and
principal place of activity shall not, without his written consent, be moved
from the New Haven or Fairfield county, Connecticut area.
2. Compensation.
(a) The Corporation shall compensate the Executive for the services
to be rendered by him hereunder, including, except as otherwise provided in
Paragraph 16 hereof, all services to be rendered as a Director and officer of
the Corporation and its related companies, at the rate of not less than Two
Hundred Ninety-One Thousand One Hundred Twenty-Two ($291,122.00) Dollars per
annum for each year during the term of this Agreement. Provided, however, that
commencing January 1, 1999, the Corporation in its sole discretion, but in each
instance subsequent to at least thirty (30) days prior written notice (which
notice shall set forth the revised obligations and compensation of the
Executive), shall be entitled to reduce the employment obligations, duties and
time expenditure of the Executive by ten (10%) percent of that of 1998 and an
additional ten (10%) percent (measured against 1998) in each year thereafter,
and to reduce compensation pursuant to subparagraphs 2(a) and 2(c) (reference to
subparagraph 2(c) herein and hereafter in this Agreement shall include and
incorporate
2
<PAGE> 3
subparagraph 16(a)) hereof commensurately; thus, at a maximum, the result of
such reductions shall be as follows:
(i) 1999 = 1998 employment obligations - 10%; subparagraphs
2(a) and 2(c) compensation payable 1999 - 10%;
(ii) 2000 = 1998 employment obligations - 20%; subparagraphs
2(a) and 2(c) compensation payable 2000 - 20%;
(iii) 2001 = 1998 employment obligations - 30%; subparagraphs
2(a) and 2(c) compensation payable 2001 - 30%;
(iv) 2002 = 1998 employment obligations - 40%; subparagraphs
2(a) and 2(c) compensation payable 2002 - 40%;
hereafter, such reduced employment and compensation as set forth above in (i) -
(iv) shall be referenced as "quasi-full" employment.
(b) Commencing January 1, 1996, the compensation provided for in
subparagraph (a) of this Paragraph 2 shall be adjusted annually by the
cost-of-living adjustment provided generally to employees of the Corporation.
(c) In addition to the minimum compensation provided in
subparagraph (a) of Paragraph 2 hereof, the Executive shall receive for each
year during the term of this Agreement a minimum annual bonus of Twenty-Six
Thousand ($26,000.00) Dollars plus such additional bonus amount as is determined
pursuant to Paragraph 16(a) hereof.
(d) The compensation payable to the Executive pursuant to
subparagraphs (a) and (b) of Paragraph 2 hereof shall be paid in equal monthly
installments. The compensation payable to the Executive pursuant to subparagraph
(c)
3
<PAGE> 4
of Paragraph 2 hereof shall be paid one-half in January and one-half in June
immediately following the year with respect to which the bonus is applicable.
(e) Nothing in this Agreement shall be construed as precluding an
increase during the term of employment of the minimum compensation provided or
as limiting or restricting any benefit to the Executive, his legal
representatives or beneficiaries, under any pension, profit-sharing or similar
retirement plan, or under any group life or group health or accident, disability
or other plan of the Corporation, now or hereafter in existence, for the benefit
of its employees generally or a group of them, nor shall any payment under this
Agreement be deemed to constitute payment to the Executive or his legal
representatives or beneficiaries in lieu of or in reduction of any benefit or
payment under such plan.
3. Death. In the event of the death of the Executive during the
term hereof, this Agreement shall terminate. In such event, the Executive's
personal representatives shall be entitled to receive the compensation provided
for in subparagraphs (a), (b) and (c) of Paragraph 2 hereof, and any other
compensation which would have been payable to the Executive, to the end of the
month in which his death occurs, and for one (1) year after the expiration of
said month, but not beyond the sixty-fifth (65th) anniversary of the Executive's
birth, to be paid in accordance with subparagraph (d) of said Paragraph 2.
4. Insurance. The Corporation may elect to enter into insurance
contracts with respect to the life or services of the Executive in such amounts
and in such manner as it may decide, and at its expense, and the Executive shall
do all acts reasonably necessary to enable the Corporation to make such
contracts. Provided,
4
<PAGE> 5
however, the Corporation shall be obligated to pay all premiums, assessments and
related costs of the life, health and disability insurance policies on the life
and/or health of the Executive, which are described on Schedule 4 hereto,
whether or not owned by the Executive or his assignee, the beneficiary of which
has or shall be designated by the Executive, and to provide to and pay on behalf
of the Executive such costs of any additional insurance which the Corporation
shall hereafter provide generally to executive employees situated similarly to
the Executive. Further provided that the Corporation shall continue, provide and
pay for all such life, disability and medical insurance coverage, or equivalent
at least equal to that set forth on Schedule 4, all on the same terms and
conditions, providing that the cost thereof is substantially as set forth on
Schedule 4 or equivalent, the Executive is insurable and the insurance is
obtainable, and, except for medical insurance, ITT Hartford policy #U01721927 at
an annual premium of Sixteen Thousand Five Hundred ($16,500.00) Dollars and then
existing group insurance applicable to all Corporation employees which shall be
continued during full and quasi-full employment, such obligation of the
Corporation shall terminate on the earlier to occur of the termination of full
or quasi-full employment of the Executive pursuant to this Agreement or the
attainment by the Executive of age 65. Upon any termination of this Agreement or
of the Executive's full or quasi-full employment, or upon the attainment by the
Executive of age 65, the Corporation shall assign to the Executive, without
charge or cost to him, its entire right, title and interest in all such life,
disability and medical policies, including the cash value thereof.
5
<PAGE> 6
5. Disability. If on account of physical or mental disability, the
Executive shall fail or be unable to perform the regular full-time or quasi-full
services required by this Agreement for a continuous period of one hundred
twenty (120) business days or an aggregate period of one hundred fifty (150)
business days during any one year of the term of this Agreement, the Corporation
may, at its option, at any time thereafter, providing such disability continues,
upon three (3) months notice to the Executive, terminate this Agreement. In such
event, this Agreement shall terminate and come to an end upon the date set forth
in such notice as if such date were the termination date of this Agreement. In
any such event, the Executive shall be entitled to receive the compensation
provided for in subparagraph (a), (b) and (c) of Paragraph 2 hereof, and any
other compensation which would have been payable to the Executive, to the
effective date of the termination of this Agreement as set forth in such notice,
and for one (1) year after the effective date of termination of this Agreement,
but not beyond the sixty-fifth (65th) anniversary of the Executive's birth, to
be paid in accordance with subparagraph (d) of said Paragraph 2.
6. Expenses. All reasonable travel and other business expenses
incident to the rendering of services by the Executive on behalf of and in
promoting the interests of the Corporation shall be paid by the Corporation. If
any such expenses are paid in the first instance by the Executive, the
Corporation shall reimburse him therefor on proper presentation of vouchers and
expense accounts.
7. Vacation. The Executive shall be entitled to six (6) weeks'
vacation during each year of the term of this Agreement, without reduction in
salary or other compensation.
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<PAGE> 7
8. Termination .
(a) The Corporation may not abridge the terms of or terminate
the Executive's employment except for cause, and then at the option of the Board
of Directors, upon written notice given him not later than thirty (30) days
after the next meeting of the Board of Directors held subsequent to an event or
occurrence constituting cause under this Agreement. For purposes of this
Paragraph 8, "cause" shall mean (i) the willful failure by the Executive to
perform substantially his duties hereunder, other than any such failure
resulting from the Executive's disability or incapacity, or as permitted
pursuant to Paragraph 7 hereof, or (ii) the willful engaging by the Executive,
in his capacity as Executive employee, in gross misconduct injurious to the
Corporation; in either case cause can be deemed to exist only after a resolution
to such effect has been adopted by the unanimous vote of the other Directors of
the Corporation then in office, after reasonable notice to the Executive and an
opportunity for the Executive to be heard before the Board of Directors. For
purposes of this definition, any act or failure to act by the Executive which is
done, or omitted to be done, by him in good faith and with reasonable belief
that his action or omission was in the best interests of the Corporation, shall
not be deemed to be willful.
(b) The Corporation shall be deemed to have terminated the
Executive's employment in violation of this Agreement if, among other things,
(i) except as authorized by this Agreement, the Executive is placed in positions
of lesser responsibility or prestige than those provided in Paragraph 1 hereof
or (ii) except as authorized by this Agreement, the Corporation shall merge or
consolidate into or sell or transfer substantially all of its assets to, or
become a majority-owned subsidiary of,
7
<PAGE> 8
another corporation and the Executive is not then elected and/or appointed to
positions of responsibility and prestige in any such surviving, new, or
purchasing corporation equivalent to those provided in Paragraph 1 hereof.
(c) If the Corporation shall terminate the employment of the
Executive without cause or otherwise in violation of this Agreement, the
Corporation shall pay to the Executive his full compensation for the remainder
of the term, periodically, as provided in subparagraphs (a) and (c) of Paragraph
2 hereof, without adjustment as provided in subparagraph (b) of Paragraph 2
hereof. There shall be no reduction of payment as a consequence of other income
earned and/or received by the Executive subsequent to such termination without
cause. In such event of termination without cause the Executive shall be bound
during the period remaining during the term of this Agreement by, but only to
the extent of and for the periods provided by, the restrictive covenant of the
non-competition agreement set forth in subparagraph (e) of this Paragraph 8.
(d) In addition to the compensation provided in subparagraph (c)
of this Paragraph 8, in the case of termination of the employment of the
Executive without cause or otherwise in violation of this Agreement, as set
forth in subparagraph (c) of this Paragraph 8, or upon the expiration of the
term of this Agreement the Corporation shall nevertheless retain the services of
the Executive as a part-time consultant acting as an independent contractor, and
the Executive shall serve as such, for a period of twelve (12) years, commencing
on the earlier of (i) the effective date of termination of the full or
quasi-full employment of the Executive or (ii) December 31, 2002. The
Corporation shall compensate the Executive for such consulting services, and in
8
<PAGE> 9
consideration of the obligations of the Executive pursuant to subparagraph 8(e),
at the rate of Six Thousand ($6,000.00) Dollars per year for services rendered
subject only to rate adjustments equal to fifty (50%) percent of the cost of
living increments and one hundred (100%) percent of cost of living decrements
provided in subparagraph 2(b) hereof, applicable to the base year 2002, and to
such additional compensation to which the parties shall agree as hereafter
provided. In no event shall the Corporation be required to provide any other
benefit including, but not limited to, any life, disability or health insurance
or any deferred benefit. Such compensation shall be paid in equal monthly
installments. In addition, all reasonable expenses incident to the rendering of
such consulting services by the Executive shall be paid by the Corporation and
if any such expenses are paid in the first instance by the Executive, the
Corporation shall reimburse him therefor upon proper presentation of vouchers
and expense accounts. During the period that the Executive shall serve as a
consultant, he shall, subject to the restrictions set forth in subparagraph (e)
of this Paragraph 8, be free to be employed by others or otherwise to be
occupied in such endeavors as he may desire; provided that he shall be available
for a reasonable number of times each year, as his schedule shall permit, at
such reasonable times and places for the purposes of attending conventions,
meeting with the Board of Directors or committees thereof and consulting with
the highest echelon of management of the Corporation; further provided that if
the Corporation shall require more than infrequent or relatively brief
consulting services, and the Executive agrees to provide same, the Corporation
and the Executive shall, in good faith, mutually agree, pursuant to supplemental
written contract, on the amount of additional compensation to be paid by the
Corporation to the Executive.
9
<PAGE> 10
(e) The Corporation and the Executive shall also enter into an
employee fidelity and non-competition agreement which shall include a post
employment period of non-competition commencing on the earlier of (i) the
effective date of termination of full or quasi-full employment of the Executive
or (ii) December 31, 2002, providing for such restrictive covenant against
competition and other obligations, a copy of which agreement is attached as
Schedule 8(e) hereto.
(f) If the Executive shall die or become disabled (as that term
is defined in Paragraph 5 hereof) during the period in which he is being
compensated pursuant to the provisions of subparagraphs (d) and (e) of this
Paragraph 8, the Corporation shall pay to the Executive or his legal
representative, as the case may be, the compensation which would have been
payable to the Executive in the manner and for such period of time as that
provided for death or disability in Paragraphs 3 and 5 hereof.
9. Successors, Assigns, etc. This Agreement shall inure to the
benefit of and be binding upon the Corporation, its successors and assigns,
including, without limitation, any corporation which may acquire all or
substantially all of the Corporation's assets and business or with or into which
the Corporation may be merged or consolidated, and the Executive, his heirs,
executors, administrators and legal representatives.
10. Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given at the time when mailed at any general or branch
United States Post Office enclosed in a registered or certified postpaid
envelope and addressed as follows:
10
<PAGE> 11
To the Corporation: Jeneric/Pentron Incorporated
53 North Plains Industrial Road
Wallingford, CT 06492
With a copy to: Robert S. Cooper, Esquire
Zeldes, Needle & Cooper, P.C.
1000 Lafayette Boulevard
Bridgeport, CT 06604
To the Executive: Mr. Martin L. Schulman
620 S. Greenbrier Drive
Orange, CT 06477
With a copy to: James M. Thorburn, Esq.
Brody & Ober, P.C.
135 Rennell Drive
Southport, CT 06490
provided, however, that any notice of change of address shall be effective only
upon receipt.
11. Automobile. In addition to reimbursement of the
Executive's expenses as set forth in Paragraph 6 hereof, the Corporation shall
either pay for or supply, at its expense, an automobile of Executive's choice
for his use in rendering his full or quasi-full services hereunder during the
term of this Agreement, and after each three (3) years of use a replacement
thereof, together with a non-accountable automobile allowance in the amount of
Three Thousand ($3,000.00) Dollars per year.
12. Entire Understanding. This Agreement sets forth the entire
understanding of the parties hereto and shall not be modified, amended or
terminated, except by another understanding in writing executed by the parties
hereto. Any previous Employment Agreement or amendment thereto shall be of no
force or effect.
11
<PAGE> 12
13. Governing Law. This Agreement and all rights, obligations, and
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of Connecticut.
14. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provisions.
15. Arbitration; Attorneys' Fees. Any dispute arising from or
pertaining to this Agreement shall be resolved in arbitration pursuant to the
rules of and under the auspices of the American Arbitration Association, and all
hearings in arbitration shall be held in Connecticut; provided, however, that
notwithstanding this Paragraph 15, in the event of breach of this Agreement by
the Corporation the Executive shall be entitled to commence an action in the
Connecticut courts in aid of arbitration and to seek therein prejudgment
remedies such as shall be provided pursuant to Connecticut law and as ordered by
the court in which such action is commenced. In the event of breach of this
Agreement, the breaching party agrees to pay reasonable attorneys' fees of the
other party.
16. Additional Bonus; Agreement to Purchase Stock.
(a) The shares of Pentron Corporation previously owned by the
Executive having been acquired in exchange for shares of Custom Energy Services,
Inc. (now Customedix Corporation), the Executive shall additionally be employed
hereunder as manager of the present business of Pentron Corporation, its
separate existence having been terminated by its merger with the Corporation; as
additional compensation for such services, the Executive shall be paid an
additional minimum bonus, not to exceed Two Hundred Fifty Thousand ($250,000.00)
Dollars annually,
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<PAGE> 13
pursuant to subparagraph (c) of Paragraph 2 equal to seven (7%) percent of gross
sales by the Corporation, or its successors and/or assigns, of composite and
dental porcelain and ceramic products in excess of base gross sales of such
products in the amount of $1,000,000.00.
(b) Any provision in subparagraph 16(a) to the contrary
notwithstanding,
(i) the Corporation in its sound discretion, and in good
faith, can at any time determine that it cannot reasonably disburse all of the
compensation due to the Executive pursuant to subparagraph 16(a) and can act to
defer that payment providing such payment(s) shall subsequently be made upon
reasonable terms and conditions;
(ii) In the event such action to defer payment is taken
when, on a consolidated basis, Customedix Corporation (the Corporation's parent)
sales are in a decline and its cash flow is impaired compared to relevant
previous periods, there shall be a presumption that Corporation management has
acted correctly, in good faith, and is entitled to reasonable deferrals of
payment; and
(iii) Whenever any such action to defer payment shall be
taken, whether or not there is a presumption that Corporation management is
correct, the Executive shall be entitled to contest such action and/or the
specific deferral plan in arbitration pursuant to Paragraph 15 hereof, and to
seek an overall determination of the rights and obligations of the parties
pertaining to such deferral and/or the specific deferral plan; in any
arbitration, the burden shall be on Corporation management if the above
referenced presumption does not exist and the burden shall be on the Executive
if such presumption does exist.
13
<PAGE> 14
(c) (i) The Executive as of the date hereof owns all right,
title and interest in and to Three Hundred Ninety-Four Thousand Three Hundred
Twenty-Eight (394,328) shares of the common stock of Customedix Corporation
("Customedix"); such shares are not subject to any lien or encumbrance
whatsoever, and Schedule 16(c)(i) annexed hereto identifies all of such shares
including designations by certificate number, a statement respecting whether
each such certificate is registered, the date of issue of each such certificate,
and the cost (basis) to the Executive of the shares represented by each such
certificate. Upon execution of this Agreement, the Executive shall sell, assign
and convey to Customedix, and Customedix shall purchase and acquire from the
Executive all such shares of Customedix which the Executive owns, free and clear
of all liens.
(ii) The purchase price to be paid by Customedix to the
Executive for the shares is One and 50/100 ($1.50) Dollars per share, a total of
Five Hundred Ninety-One Thousand Five Hundred ($591,500.00) Dollars by delivery
of a promissory note ("Promissory Note") in the form of Schedule 16(c)(ii)
annexed hereto.
(iii) The Executive represents that he has the full power
and authority to sell the Customedix shares, that he has taken all action
required by law to sell the shares, and that he has good and marketable title to
the shares, free and clear of all liens, claims or encumbrances of any nature.
(iv) The Executive agrees immediately upon each request by
Customedix to subordinate the Promissory Note to any institutional lender to
Customedix or the Corporation or any company affiliated with either, upon terms
and conditions substantially similar to the subordination agreement annexed
hereto as
14
<PAGE> 15
Schedule 16(c)(iv); the Executive agrees, simultaneously with the execution of
this Agreement, to execute the Subordination Agreement set forth as Schedule
16(c)(iv).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
JENERIC/PENTRON INCORPORATED
By_________________________________
Gordon S. Cohen
Its Chairman
Duly Authorized
___________________________________
Martin L. Schulman, Executive
Accepted and Agreed as to subparagraphs
16(c)(i)-(iv)
CUSTOMEDIX CORPORATION
By_________________________________
Gordon S. Cohen
Its Chairman
Duly Authorized
15
<PAGE> 16
THIS AGREEMENT, effective as of the 1st day of January, 1995,
between JENERIC/PENTRON INCORPORATED, a Connecticut corporation having a place
of business at Wallingford, Connecticut ("Company") and MARTIN L. SCHULMAN an
individual residing in Orange, Connecticut ("Employee"),
W I T N E S S E T H:
WHEREAS, the Company desires to assure itself of the
confidentiality of its proprietary information and its ownership thereof,
NOW, THEREFORE, the parties, in consideration of their respective
rights and obligations hereunder, and the employment and/or continued employment
of Employee, agree with each other as follows:
1. Employee Obligations.
(a) The Employee shall during and subsequent to his employment
(initial and quasi-full employment as defined in the Employment Agreement
between the parties hereto, effective January 1, 1995) with the Company refrain
from using any of the confidential or proprietary information or work product of
the Company including but not limited to research, development, product,
manufacturing and sales information, know-how, information with respect to
suppliers to, or manufacturers on behalf of, the Company, financial information
of the Company, and names, addresses, telephone numbers, and purchase records of
the Company's customers, except as necessary during the course of the Employee's
employment, and the Employee shall keep this
<PAGE> 17
information confidential and shall refrain from disclosing any and all of such
information to any third party; the above notwithstanding, confidential
information shall not include information which is in or which enters the public
domain or is obtained from a third party unless due to a breach of obligation by
the Employee or the third party and shall exclude information which the Employee
is required to disclose in judicial or administrative proceedings, although the
Employee shall provide the Company reasonable notice of any such proceeding.
(b) Without limiting the foregoing and in addition thereto, the
Employee shall not directly or indirectly use any of the confidential or
proprietary information or work product of the Company in any subsequent
business activity, whether the Employee is self-employed or employed by or in
association with another person or entity.
(c) Without limiting the foregoing and in addition thereto,
providing he is receiving compensation pursuant to subparagraph 8(d) of the
Employment Agreement dated the date hereof and there has been no default of the
promissory note referenced in subsection 16(c)(ii) of the Employment Agreement,
the Employee shall not for a period of twelve (12) years after the Employee's
employment with the Company terminates or is terminated, solicit or aid in the
solicitation of customers of the Company for purchase of products or services
which compete with products or services the Company is offering for sale to such
customers.
(d) Without limiting the foregoing and in addition thereto,
providing he is receiving compensation pursuant to subparagraph 8(d) of the
Employment Agreement dated the date hereof and there has been no default of the
promissory note referenced in subsection 16(c)(ii) of the Employment Agreement,
the Employee shall not for a
2
<PAGE> 18
period of twelve (12) years after the Employee's employment with the Company
terminates or is terminated, engage directly or indirectly as owner, proprietor,
employee, consultant or otherwise, in competition with the Company with respect
to the manufacture, supply, distribution or sale of products or services offered
for sale by the Company, in any geographical area in which the Company is
actively engaged in business respecting and/or actively seeking sales of such
types of products or services.
(e) The Employee when requested and/or at the termination of his
employment, shall return to the Company all documents and/or copies of documents
of any kind which were prepared for, by or received by the Employee and which
relate in any way to the business, products, research or development activities
of the Company or to the Employee's work for the Company, unless the Employee
receives written permission from the Company to retain such documents.
(f) The Employee when requested and/or at the termination of his
employment, shall return to the Company all keys, credit cards, and property of
whatever description previously provided directly or indirectly by the Company.
(g) If the Employee is held to have breached any of the provisions
of this Agreement, he shall pay the Company's reasonable attorney's fees and
costs expended to enforce such provision or provisions.
(h) The provisions of this Agreement are separate and independent
covenants and should any part or provision be held to be invalid, the remainder
of the Agreement shall, nevertheless, be deemed valid and binding on the parties
hereto.
(i) The Employee expressly acknowledges that the Company's legal
remedies are insufficient to compensate it for any breach by the Employee of the
provisions of
3
<PAGE> 19
this Agreement and assents to the entry of an injunction, in addition to a
judgment for damages, in the event of such a breach.
2. Inventions. The Employee shall communicate to the Company
promptly and fully, and shall preserve as confidential and proprietary
information of the Company, all inventions relating to the business of the
Company (which shall include improvements, discoveries, and ideas whether
reduced to practice or not and whether patentable or not), conceived and/or
reduced to practice by the Employee, either solely or jointly with others during
the period of employment.
All inventions relating to the business of the Company conceived
and/or reduced to practice by the Employee, solely or jointly with others, prior
to entering the employ of the Company shall be immediately disclosed to the
Company and the Company shall promptly waive any rights thereto or negotiate in
good faith with Employee to acquire rights in and to such inventions upon
mutually agreeable terms and conditions.
Any inventions relating to the business of the Company conceived or
reduced to practice after the Employee leaves the employ of the Company shall be
conclusively deemed to have been conceived and/or reduced to practice during the
period of employment if conceived and/or reduced to practice within six (6)
months subsequent to termination of employment.
During and subsequent to such employment, the Employee shall
cooperate with and assist the Company in every proper way to obtain and maintain
for the Company's benefit patents or other rights for such inventions in any and
all countries of the world, including but not limited to executing and filing
any and all documents and doing any and all acts which, in the opinion of
counsel for the Company, may be necessary or
4
<PAGE> 20
useful to secure the issuance of patents thereon and to keep such patents in
force upon the issuance thereof; provided, however, that the costs and expenses
to effectuate any of the foregoing shall be borne by the Company. All such
inventions and any patents or other rights pertaining thereto shall be the sole
and exclusive property of the Company or its nominee.
3. Arbitration. Any controversy or claim whatsoever arising out of
or relating to this Agreement, or the breach thereof, shall be resolved in
arbitration; the agreement of the parties to arbitrate shall be governed by
Paragraph 15 of the Employment Agreement between the parties hereto dated the
date hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed by or on
behalf of the parties hereto as of the day and year first written above.
EMPLOYEE:
____________________________________
Martin L. Schulman
JENERIC/PENTRON INCORPORATED
By__________________________________
Its
5
<PAGE> 21
PROMISSORY NOTE
$591,500.00 May 1, 1995
FOR VALUE RECEIVED, the undersigned, for itself, its successors and
assigns, promises to pay to the order of MARTIN L. SCHULMAN, at 620 S.
Greenbrier Drive, Orange, Connecticut 06477, or such other address as the holder
hereof shall designate in writing, the sum of FIVE HUNDRED NINETY-ONE THOUSAND
FIVE HUNDRED ($591,500.00) DOLLARS, with interest thereon at the effective
interest rate set forth herein from the date hereof, together with all taxes
which may be assessed upon said sum against the holder hereof.
The effective interest rate shall be eight (8%) percent per annum
which shall accrue, and not be compounded, until December 31, 2002, at which
time the total amount due shall be Nine Hundred Fifty-Four Thousand Two Hundred
Sixty-Seven ($954,267.00) Dollars; thereafter, the effective interest rate shall
be eight (8%) percent per annum paid as hereafter set forth.
The undersigned promises to pay the interest (calculated as
aforesaid) and principal in monthly installments of Ten Thousand Three Hundred
Thirty ($10,330.00) Dollars, commencing January 1, 2003 and continuing until
December 31, 2014, at which time any unpaid balance of principal, and interest
accrued, shall be due and payable.
This note is made in accordance with a stock purchase agreement
between the parties set forth in subsection 16(c) of a certain Employment
Agreement effective as of January 1, 1995, the terms of which subsection 16(c)
are incorporated herein by reference.
<PAGE> 22
Upon default in the payment of any installment of interest on this
Note, or upon default in the payment of principal when due, or upon default by
the Corporation or the maker hereof of any material provision of the Employment
Agreement, and should any such default continue for a period of fifteen (15)
days after it shall have occurred, then at the option of the holder of this
note, the entire amount of principal and interest remaining unpaid shall
immediately become due and payable upon written notice, together with all costs
of collection, including reasonable attorney's fees. Any claim of default or any
dispute arising from or pertaining to this Note shall be resolved in arbitration
pursuant to the rules of and under the auspices of the American Arbitration
Association, and all hearings in arbitration shall be held in Connecticut;
provided, however, that in the event of default under this Note, the holder of
this Note shall be entitled to commence an action in the Connecticut courts in
aid of arbitration and to seek therein prejudgment remedies such as shall be
provided pursuant to Connecticut law and as ordered by the court in which such
action is commenced. Failure to exercise this option or to resort to any
remedies provided herein or permitted by law, in the event of any such default,
shall not constitute a waiver of the right to exercise the same in the event of
any subsequent default.
The maker hereof may at any time or times prepay without penalty
all or any part of the principal sum due hereunder, together with interest to
the date of payment, and thereafter commencing January 1, 2003, or if such
prepayment shall occur subsequent to that date, commencing the following month,
pay monthly through December 31, 2014 reduced equal payments of principal
together with interest at the effective interest rate, sufficient to pay in full
by December 31, 2014 all principal and interest due hereunder.
<PAGE> 23
This note is subordinate to all indebtedness of the undersigned to
New Jersey National Bank, as more specifically provided in a certain
Subordination Agreement entered into among New Jersey National Bank, Martin L.
Schulman and Customedix Corporation.
CUSTOMEDIX CORPORATION
By_________________________________
Gordon S. Cohen
Its Chairman
<PAGE> 24
SUBORDINATION AGREEMENT
AGREEMENT made the 1st day of May, 1995 between MARTIN L. SCHULMAN
("Creditor"), JENERIC/PENTRON INCORPORATED ("Borrower") and NEW JERSEY NATIONAL
BANK ("Bank");
W I T N E S S E T H:
WHEREAS, Borrower is or is about to become indebted to Creditor and
Creditor and Borrower desire Bank to maintain or extend credit to Borrower from
time to time; and
WHEREAS, Bank is willing to consider the applications of Borrower
for maintenance or extension of credit only if it is agreed that the
indebtedness of Borrower to Creditor is subordinated and postponed in payment to
any indebtedness of Borrower to Bank; and
WHEREAS, Creditor and Borrower, by reason of the advantages which
will accrue to each of them severally, are willing so to subordinate all of
Creditor's claims against Borrower;
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that for and in
consideration of the premises and mutual promises hereinafter contained, and
intending to be legally bound, as well as for and in consideration of such
extensions of credit as Bank has made or may at any time hereafter make to
Borrower, it is agreed among the parties as follows:
1. Creditor hereby subordinates all of the claims and demands
arising or growing out of the above mentioned indebtedness of Borrower to
Creditor,
<PAGE> 25
and any and all other indebtedness, obligations or liabilities of any nature of
Borrower to Creditor, now owing or hereafter incurred, all of which are included
in the term "Indebtedness of Borrower to Creditor", or similar words, to any and
all indebtedness, obligations or liabilities of any nature of Borrower to Bank,
now owing or hereafter incurred whether direct or contingent, and whether joint
or several, all of which are included in the term "Indebtedness of Borrower to
Bank," or similar words, as used herein. Creditor agrees that Bank shall first
be paid all Indebtedness of Borrower to Bank with interest thereon to the date
on which such Indebtedness is paid in full, notwithstanding the filing of any
bankruptcy or insolvency proceedings by or against Borrower (in which event any
portion of interest as to which Borrower's obligation to pay has been discharged
shall be payable in the manner hereinafter provided), before Creditor shall be
paid anything by Borrower for or on account of any Indebtedness of Borrower to
Creditor, except as hereinafter provided. Creditor further agrees that Bank may,
at any time and from time to time, renew or extend the time of payment of any
Indebtedness, or any part thereof, of Borrower to Bank, and may make new loans
to Borrower, without notice to Creditor, who shall remain bound by this
agreement until it has been terminated in the manner provided in Paragraph 10.
2. Creditor shall not accept any payment from Borrower or any
reduction of any Indebtedness of Borrower to Creditor, nor shall Creditor accept
any security from Borrower as long as there is in existence any Indebtedness of
Borrower to Bank, except as hereinafter provided. Creditor
<PAGE> 26
and Borrower represent to Bank that Creditor presently holds no security from
Borrower. Creditor agrees that in the event Creditor receives any such payment
or acquires any such security in breach of Paragraph 17 hereof, Creditor shall
hold same in trust for, and promptly pay, assign or transfer same to Bank.
3. Borrower shall not make any payment to Creditor, either in full
or on account of any Indebtedness of Borrower to Creditor, nor shall Borrower
cause or permit to be given any security to Creditor, as long as there is in
existence any Indebtedness of Borrower to Bank, except as hereinafter provided.
4. Creditor agrees not to assign or transfer any Indebtedness of
Borrower to Creditor so long as there is in existence any Indebtedness of
Borrower to Bank. Borrower agrees not to make any loan or advance in any form to
Creditor so long as there is in existence any Indebtedness of Borrower to Bank.
Creditor agrees not to accept any loan or advance from Borrower in any form
during said period.
5. Except with respect to failure by Borrower to make authorized
payments to Creditor pursuant to Paragraph 17 hereof, Creditor agrees to forbear
to institute against Borrower any proceeding at law or in equity to collect
payment of either principal or interest of any or all Indebtedness of Borrower
to Creditor as long as there is in existence any Indebtedness of Borrower to
Bank.
6. From time to time and at such times as may be required to
prevent the barring of the claims, or any part thereof, of Creditor against
<PAGE> 27
Borrower by any statute of limitations or similar law, Borrower shall
acknowledge in writing Borrower's Indebtedness to Creditor.
7. If a petition or proceeding is commenced under the Federal
Bankruptcy Code or similar state or federal law or under any insolvency act by
or against Borrower, a petition for a receiver or custodian of Borrower is
filed, the business or assets of Borrower are assigned for the benefit of
Borrower's creditors or taken over by a committee representing Borrower's
creditors, Borrower becomes insolvent, or any step be taken in liquidation, then
all dividends and payments on account of any and all claims of Creditor against
Borrower, whether or not hereinbefore mentioned, of whatever kind or nature, all
of which are included in the term "Dividends and Payments," or similar words,
shall be payable to Bank until the total Indebtedness of Borrower to Bank has
been paid in full, together with interest thereon to the date on which such
Indebtedness is paid in full, and in the event of discharge in bankruptcy or
insolvency proceedings of any part of Borrower's obligation to pay interest, all
Dividends and Payments shall also be payable to Bank until that portion of
interest as to which Borrower has been discharged has been paid in full.
Creditor hereby assigns, transfers, and sets over unto Bank any and all claims
of Creditor against Borrower, together with Creditor's right to receive any and
all Dividends or Payments thereon, and covenants that if such Dividends or
Payments come into Creditor's possession, Creditor will receive them as trustee
for Bank, and will immediately deliver them to Bank. Borrower acknowledges
receipt of notice of said assignment and consents to it. Creditor designates and
appoints Bank as the agent of Creditor to file
<PAGE> 28
one or more proofs of claim with respect to the Indebtedness of Borrower to
Creditor in any such proceeding, and Creditor agrees to furnish Bank with all
information and evidence that Bank may request in order that Bank may do so; but
Bank shall in no way be liable for any failure to prove said claims, or to
collect any sums payable thereon, or to take any affirmative action in
connection with any of them. If such Dividends or Payments so received by Bank,
when added to the Dividends or Payments received directly by Bank, shall exceed
the total Indebtedness of Borrower to Bank, with interest thereon to the date on
which such Indebtedness is paid in full, notwithstanding the filing of any
bankruptcy or insolvency proceedings against Borrower, Bank shall pay such
excess to Creditor, and Bank shall similarly pay to Creditor any additional
Dividends and Payments it may thereafter receive on account of the Indebtedness
of Borrower to Bank.
8. In the event of a violation of any term of this agreement by
Creditor or Borrower, the entire Indebtedness of Borrower to Bank shall, at the
Bank's option and without notice, become immediately due and payable, whether or
not by its terms such Indebtedness is then due and payable, and Bank, without
demand for payment, may immediately proceed against Borrower for collection. In
the event of any such violation, Creditor agrees, upon demand by Bank,
immediately to deliver to Bank any moneys, securities, and other property
received by Creditor in violation of this agreement.
9. Nothing herein contained shall impair any rights of Bank with
respect to any collateral heretofore, now or hereafter pledged to Bank as
<PAGE> 29
security for any Indebtedness of Borrower to Bank, or to the proceeds thereof.
Bank may at any time, without notice to Creditor, release any party primarily or
secondarily liable for any Indebtedness of Borrower to Bank, and release part or
all of any collateral held by it as security for said Indebtedness without in
any manner affecting the obligations of Creditor under this agreement.
10. In the event that this agreement should be inoperative by
reason of the payment to Bank of all of Borrowers indebtedness to it, or for any
other reason, this agreement shall not be terminated, but shall immediately and
automatically become operative whenever and as often as any Indebtedness of
Borrower to Bank shall in any manner come into existence. This agreement may be
terminated by an instrument in writing signed by all of the parties hereto. This
agreement may also be terminated by Creditor with respect to Indebtedness of
Borrower to Bank coming into existence after such termination by delivering to
Bank a written notice of Creditor's election to terminate and by obtaining a
written acknowledgement executed by an officer of Bank of receipt of such
notice. No such termination by Creditor shall affect the subordination of all of
the Indebtedness of Borrower to Creditor to the Indebtedness of Borrower to Bank
before the date which is ten days after the date of receipt by Bank of such
written notice of termination or if earlier, the date on which Bank determines
in good faith that the appropriate officers have actual knowledge of Bank's
receipt of such notice.
<PAGE> 30
11. Creditor hereby specifically approves and agrees to any and all
terms and conditions contained in any note or agreement, whether written or
verbal, made between Borrower and Bank in connection with any and all
transactions between Borrower and Bank. Creditor further agrees that notice of
any such note or agreement need not be given to Creditor, and Creditor also
specifically waives notice of any and all defaults by Borrower. Creditor agrees
that no invalidity, irregularity or unenforceability of all or any part of the
Indebtedness of Borrower to Bank shall affect, impair or be a defense to this
agreement. Creditor and Borrower waive protest of any and all notes or other
negotiable instruments evidencing the Indebtedness of Borrower to Bank.
12. This instrument embodies the whole agreement of the parties
hereto, and it is acknowledged that there are no customs, representations,
promises, terms, conditions, or obligations referring to the subject matter, and
no inducements or representations leading to the execution hereof, other than
mentioned herein; and there may be no modification of this agreement except in
writing executed with the same formalities as this instrument. No failure by
Bank to exercise any right hereunder shall be construed as a waiver of the right
to exercise the same or any other right at any other time and from time to time
thereafter.
13. This agreement shall be binding upon and shall inure to the
benefit of the parties hereto, and the heirs, executors, administrators and
assigns of the individual parties, and the successors and assigns of the
corporate parties.
<PAGE> 31
14. This agreement may be executed in any number of counterparts,
each of which so executed shall be deemed an original; and such counterparts
shall together constitute but one and the same agreement.
15. This agreement and all other instruments or documents issued
hereunder or pursuant hereto shall be governed by and construed in accordance
with the laws of the State of New Jersey.
16. Any provision of this agreement 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.
17. Any provision of this agreement to the contrary
notwithstanding, Borrower shall be permitted to pay, and Creditor to receive and
retain, principal and interest in accordance with the attached promissory note,
provided that such payments and receipts shall not be permitted upon and
subsequent to default with respect to Indebtedness of Borrower to the Bank, and
under no circumstances shall Borrower prepay, or Creditor accept prepayment of,
any amount of promissory note indebtedness unless such prepayment is expressly
authorized in writing by the Bank.
<PAGE> 32
IN WITNESS WHEREOF, the individual parties hereto have set their
hands and seals and the corporate parties hereto have caused these presents to
be executed and their corporate seals, duly attested, to be hereunto affixed the
day and year above written.
Attest - Witness JENERIC/PENTRON INCORPORATED
Borrower
________________________________ By_________________________________
(Signature) (Signature)
________________________________ ___________________________________
(Print Name) (Print Name and Title)
MARTIN L. SCHULMAN
Creditor
________________________________ By_________________________________
(Signature) (Signature)
________________________________
(Print Name)
NEW JERSEY NATIONAL BANK
By________________________________
(Name and Title)
<PAGE> 33
CONTINUING UNCONDITIONAL GUARANTEE AND AGREEMENT
To induce MARTIN L. SCHULMAN to enter into the above Employment
Agreement and in consideration of his so doing or having so done, the
undersigned, for itself, its successors and assigns, agrees to be, to the same
extent as the Corporation, unconditionally liable to Martin L. Schulman for the
due performance of all the obligations of Jeneric/Pentron Incorporated (the
"Corporation") to him under the Employment Agreement and the Promissory Note,
and any and all renewals, continuations, modifications, supplements and
amendments thereof, and further agrees to be unconditionally liable to him, to
the same extent as the Corporation, for and hereby unconditionally guarantees
the prompt payment to him of any and all sums which may be presently due and
owing or shall in the future become due and owing to him from the Corporation
and agrees to pay to Martin L. Schulman all costs of collection, including
without limitation, reasonable attorneys' fees, if any claim hereunder is
referred to an attorney for collection.
The undersigned further agrees to be subject to and party to the
arbitration provisions set forth in Paragraph 15 of the Employment Agreement.
CUSTOMEDIX CORPORATION
By_________________________________
Its Chairman
Duly Authorized
