SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996 Commission file number 1-4680
EA INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
New Jersey 21-0606484
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
185 Monmouth Parkway 07764-9989
West Long Branch, New Jersey (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (908) 229-1100
Former name, former address and former fiscal year, if changed since last report
NOT APPLICABLE
________________________________________________________________
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 N
________________________________________________________________
As of June 29, 1996, there were 19,080,510 outstanding shares of the
Registrant's common stock.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(UNAUDITED)
(thousands of dollars)
June 29, Dec. 31,
1996 1995
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 729 $ 9,830
Restricted cash 8,197 8,004
Receivables, less allowance of $323 in 1996 and $385
in 1995 for doubtful accounts 14,300 12,092
Inventories 10,910 12,978
Prepaid expenses and other assets 1,393 1,610
-------- --------
TOTAL CURRENT ASSETS 35,529 44,514
-------- --------
Equipment and leasehold improvements 18,546 15,023
Less accumulated depreciation (7,794) (6,952)
-------- --------
10,752 8,071
-------- --------
Investments including those in affiliates 12,536 1,083
-------- --------
Intangible assets 12,331 12,331
Less accumulated amortization (1,221) (813)
-------- --------
11,110 11,518
-------- --------
Other assets 824 454
Note receivable 793 985
-------- --------
$ 71,544 $ 66,625
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving Credit Facility $ 10,184 $ 9,146
Current portion of Capital Lease Obligations 1,337 558
Accounts payable 10,501 13,522
Accrued expenses 2,567 2,712
-------- --------
TOTAL CURRENT LIABILITIES 24,589 25,938
-------- --------
Long-Term Liabilities:
Long-term portion of Capital Lease Obligations 3,437 1,731
Convertible Notes and Debentures 13,005 12,200
Other long-term liabilities 3,317 3,672
-------- --------
TOTAL LONG-TERM LIABILITIES 19,759 17,603
-------- --------
TOTAL LIABILITIES 44,348 43,541
-------- --------
Minority interest 3,682 3,694
-------- --------
Shareholders' Equity:
Common Stock 70,839 63,397
Accumulated deficit since January 1, 1986 (46,833) (43,532)
Cumulative Translation Adjustment (17)
-------- --------
23,989 19,865
Less common stock in treasury, at cost (475) (475)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 23,514 19,390
-------- --------
$ 71,544 $ 66,625
======== ========
The accompanying notes are an integral part of
these consolidated condensed financial statements.
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(UNAUDITED)
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 22,388 $ 18,178 $ 46,413 $ 37,233
------------ ------------ ------------ ------------
Cost of sales 20,799 18,111 43,433 37,061
Selling, general and
administrative expenses 2,466 2,037 4,693 4,195
Purchased research and
development -- -- -- 6,012
------------ ------------ ------------ ------------
Total 23,265 20,148 48,126 47,268
------------ ------------ ------------ ------------
Loss from operations (877) (1,970) (1,713) (10,035)
------------ ------------ ------------ ------------
Interest expense 558 350 993 678
Interest income (155) (44) (313) (77)
Other expense 347 208 908 449
------------ ------------ ------------ ------------
Net loss $ (1,627) $ (2,484) $ (3,301) $ (11,085)
============ ============ ============ ============
Loss per common share $ (0.09) $ (0.23) $ (0.19) $ (1.05)
============ ============ ============ ============
Weighted average common shares
outstanding 18,953,234 10,976,000 17,785,089 10,608,804
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Shareholders' Equity
For The Six Months Ended June 29, 1996
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------ -------------- Accumulated
Shares Amount Shares Amount Deficit Cumulative
Since Translation
Jan. 1, Adjustment
1986
--------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995 16,045,447 $63,397 (218,476) $(475) $(43,532)
Net loss (3,301)
Exercise of stock
options 3,979 8
Exercise of Class A
and B Warrants 961,798 1,415
Notes receivable from stock
sales -- (1,096)
Debt conversion 2,270,946 7,074
Other 16,816 41
-- --
Translation Adjustment $(17)
----------------------------------------------------------------------------
Balance, June 29, 1996 19,298,986 $70,839 (218,476) $(475) $(46,833) $(17)
============================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 29, July 1,
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (3,301) $(11,085)
Adjustments to reconcile net loss to net
cash provided/(used) by operating activities:
Depreciation and amortization 1,546 1,123
Valuation adjustment - Note Receivable 192 --
Purchased research and development -- 6,012
Equity in loss of affiliate 577 337
Cash provided/(used) by changes in:
Restricted Cash (193) --
Receivables (2,208) 1,385
Inventories 2,068 (807)
Prepaid expenses & other assets 217 667
Accounts payable and accrued expenses (3,091) 1,270
Accrued excess leased space costs (216) (213)
Other operating items - net (382) 29
-------- --------
Net cash used by operations (4,791) (1,282)
-------- --------
Cash flows from Investing Activities:
Capital expenditures (3,859) (3,199)
Purchase of proprietary software (371) --
Investment in affiliates (12,030) (5,431)
Cash acquired in purchase of Tanon -- 890
Proceeds from the sale of discontinued operations -- 200
-------- --------
Net cash provided/(used) by investing activities (16,260) (7,540)
-------- --------
Cash flows from Financing Activities:
Net borrowings/(repayments) under credit facilities 1,038 (1,271)
Net proceeds from capital leases 2,485 --
Net proceeds from issuance (repayments) of long-term debt 8,100 (407)
Proceeds from the exercise of stock options or rights 8 790
Net proceeds from sale of common stock (private
placement) and exercise of warrants 319 4,640
Issuance of note receivable in connection with
acquisition -- (1,000)
-------- --------
Net cash provided/(used) by financing activities 11,950 2,752
Net Increase (Decrease) in Cash and Cash Equivalents (9,101) (6,070)
Cash and Cash Equivalents at Beginning of Period 9,830 6,157
-------- --------
Cash and Cash Equivalents at End of Period $ 729 $ 87
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 844 $ 438
======== ========
Non cash financing activities:
Conversion of debt to equity $ 7,074
Common shares issued in payment of interest 75
--------
TOTAL $ 7,149
========
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Description of Business and Basis of Presentation
EA Industries, Inc., a New Jersey corporation formerly known as "Electronic
Associates, Inc." ("EAI" or the "Company"), through its wholly-owned
subsidiary, Tanon Manufacturing, Inc. ("Tanon"), is engaged principally in
the business of providing contract electronic manufacturing services
ranging from the assembly of printed circuit boards to the complete
procurement, production, assembly, test and delivery of entire electronic
products and systems. Tanon was acquired by the Company on January 4, 1995.
References to the Company with respect to any time period after January 3,
1995 shall be deemed to include Tanon unless the context otherwise
requires.
In addition, the Company, through its one-third investment in BarOn
Technologies, Ltd. ("BarOn") a privately owned Israeli corporation based in
Haifa, Israel and its indirect interest in a joint venture with Israel
Aircraft Industries, Ltd., an Israeli government corporation ("IAI"), seeks
to develop and market new, high technology products. BarOn has developed
and is in the process of commercializing an electronic computer input pen
that captures handwriting independent of surface or language. The joint
venture with IAI which was formed in August 1995, was organized to review,
evaluate and exploit the commercial potential of products based on
technologies developed by IAI.
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K for the year
ended December 31, 1995. These condensed financial statements reflect, in
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the results for the
interim period. Results of operations for the interim period ended June 29,
1996 are not necessarily indicative of results of operations expected for
the full year.
The Company operates on a 52 week year, with each fiscal week and quarter
ending on Saturday, except for the fourth quarter which ends on December
31.
Loss per share amounts have been computed based on the weighted average
number of common shares outstanding. Shares issuable upon the exercise of
stock options, warrants and convertible notes and debentures have not been
included in per share computations, because their impact would have been
antidilutive in each period.
<PAGE>
(2) Operations and Liquidity
The Company has incurred significant losses and had negative cash flows
from operations in each of the last four years and in the six months ended
June 29, 1996. In order to continue operations, the Company has had to
raise additional capital to offset cash utilized in operating and investing
activities. The Company raised approximately $33,200,000 and $8,100,000
during 1995 and the first six months of 1996, respectively, from the
issuance of common stock, the exercise of stock options and warrants and
the sale of convertible notes and debentures. In November 1995, the Company
completed the sale of 10% convertible debentures in the aggregate principal
amount of $2,200,000 to four purchasers. As of the date of this report all
of these debentures have been converted into 646,756 shares of the
Company's common stock in accordance with their terms. In December 1995,
the Company completed the sale of 7% convertible notes of the Company in
the aggregate principal amount of $10,000,000 to GFL Advantage Fund Limited
and GFL Performance Fund Limited. As of this date $6,905,000 of such notes
have been converted into 2,211,986 shares of the Company's stock in
accordance with their terms. In May and June, 1996, the Company raised an
additional $8,100,000 from the sale of 9% convertible debentures which was
used in part, in purchasing approximately 11.64% of the outstanding shares
of common stock of Aydin Corporation ("Aydin"). See Note 5 below.
On July 1, 1996, the Company entered into a Loan Agreement (the "BarOn Loan
Agreement"), with BarOn. Pursuant to the BarOn Loan Agreement, the Company
has agreed to maintain a revolving line of credit of $2 million until July
1, 1998. The amount available under the line will be reduced by any
additional equity obtained by, or borrowings of, BarOn. Advances under the
line will be made in the Company's sole discretion. Such advances bear
interest at an annual rate equal to the sum of the base commercial rate
(the "Base Rate") as determined by IBJ Schroder Bank & Trust Company from
time to time plus one and one half percent (1 1/2%). Interest is due each
calendar quarter and, at the option of BarOn, any payment for such interest
may be deferred until the succeeding July 1. Deferred interest bears
additional interest at the rate of two and one half percent (2 1/2%) plus
the Base Rate. The Company, at its option, may require that interest be
paid in cash or
<PAGE>
by issuance of ordinary shares of BarOn at an agreed value of $4.00 per
share (the "Agreed Value"). BarOn, at its option, may make any interest
payments due on or before July 1, 1997 in ordinary shares of BarOn at the
Agreed Value. As of July 30, 1996, there was $430,000 of outstanding
principal on the line of credit. The entire amount outstanding under the
line of credit is due on the earliest of (i) an initial public offering by
BarOn, (ii) sale of equity or borrowings by BarOn exceeding the amount
outstanding by at least $500,000 (unless prohibited by such lender or
investor), (iii) availability of sufficient cash flow, or (iv) June 1,
2000.
In consideration of the Company's agreement to open the line of credit,
BarOn has granted the Company antidilution protection for all shares
currently owned by the Company. This protection provides that the Company
will be issued additional shares if BarOn issues shares of its capital
stock, instruments convertible into such stock, or options or warrants to
purchase such shares, at any price below the Agreed Value. In addition,
BarOn issued the Company a warrant (the "Warrant") to purchase 1 million
shares of BarOn's ordinary shares at any time before July 1, 2001 at an
exercise price equal to the agreed Value. The Warrant has antidilution
provisions substantially similar to those described above and the Company
has piggyback and demand registration rights for shares purchased pursuant
to the Warrant.
The Company and BarOn have also revised their agreement, effective on July
1, 1996, regarding the manufacture of the products of BarOn. The revised
agreement has a five year term and provides that the Company or its
subsidiary will manufacture all of BarOn's products at a price established
based on actual component costs plus labor charges, overhead and an agreed
upon profit margin. This price is consistent with prices charged to
unrelated customers of the Company for comparable manufacturing services.
The Company is not yet manufacturing products for BarOn.
The Company's joint venture with IAI has selected one application for
development and exploitation, the Vista Application ("Vista") and a
Licensee, Vista Computer Vision, Ltd. ("VCV") has been formed. Vista is a
system for the automatic inspection of manufactured parts, capable of
detecting defects as small as 20 microns. The funding for the initial
operations of VCV was made by the Company's subsidiary, Electronic
Associates Technologies Israel, Ltd. ("EATI") in June 1996 as a capital
contribution of $250,000 to VCV and a $750,000 Subordinated Capital Note.
The note matures five years after its issuance and bears interest at 8% per
annum. Payments on the note may be made only out of remaining profits of
VCV after distribution of at least 50% of all accumulated profits. Upon
liquidation of VCV, the note would be subordinate to all other debts of VCV
but would have a preference over payments to equity holders of VCV.
The Company, on June 28, 1996, loaned $1 million to EATI to enable EATI to
make the above capital contribution and loan to VCV. The Loan bears
interest at 10% per annum, payable annually. The principal is repayable in
five equal annual installments beginning on June 1, 2002 and continuing on
June 1 of each year thereafter. The Company may at its option, accelerate
the loan and demand repayment 18 months after the date of issuance of the
loan. This loan is subordinated to all other debts of EATI but would have a
preference over payments to equity holders of EATI.
<PAGE>
At June 29, 1996, the Joint Venture formed with IAI had remaining cash of
$7,597,000. Such cash can only be used to fund expenses of the Joint
Venture and accordingly has been classified as Restricted Cash by the
Company.
During May 1996, the Company purchased 11.64% of the outstanding shares of
Aydin and initiated discussions with the management of Aydin concerning the
possibility of a merger or other business combination. Since that time,
both companies have been conducting due diligence on the business and
prospects of each other and have had a number of discussions about the
structure and terms of possible combinations. As of the date of this
report, the due diligence and negotiation process is continuing. A merger
may require, among other things, additional cash resources in excess of
those presently available. See Note 5 below.
The purchase of the Aydin common stock, the Loan Agreement with BarOn
(hereinafter discussed) and the Loan to EATI in the amount of $1,000,000 to
enable EATI to fund VISTA (hereinafter discussed) have resulted in the need
to raise additional capital. The Company is presently seeking to borrow up
to $3,000,000 for up to six months to fund its holding company expenses,
make advances to BarOn under the Loan Agreement and pay costs incurred and
to be incurred in conducting the Aydin due diligence reviews (hereinafter
discussed). Such loan will be secured by the Aydin common stock owned by
the Company. The Company's financial projections indicate that operating
losses and negative cash flows will continue, although at a declining rate,
during most of 1996. Although the Company's credit facility with Schroder
(hereinafter defined) is sufficient to fund the Company's contract
manufacturing operations conducted through Tanon, the Company will need to
raise additional capital during the second half of 1996 or the first half
of 1997 through the sale of common stock or the issuance of debt securities
to repay the $3,000,000 short term loan, to fund future holding company
expenses and anticipated expansion of contract manufacturing operations
conducted through Tanon. There can, however, be no assurance that the
Company will be successful in obtaining the $3,000,000 short term loan or
the subsequent raising of additional capital.
The remaining unexercised Class A and Class B warrants issued in February
1994, if exercised, could provide the Company with additional capital of
approximately $1,700,000. To date, Class A and Class B warrants to purchase
2,202,977 shares have been exercised and the Company received $1,584,121 in
proceeds. In addition, in February 1996, the Company received unsecured
promissory notes in the aggregate principal amount of $1,096,000 as payment
for the exercise of Class A and Class B warrants to purchase 796,084 shares
of common stock. These promissory notes bear interest at the rate of 7% per
annum and are due on or before February 14, 1997. No assurance can be given
that the remaining unexercised warrants will be exercised or that such
promissory notes will be paid in full.
(3) Lines of Credit
On May 3, 1996, Tanon replaced the Company's existing asset based credit
facility and the Tanon separate revolving line of credit with a new asset
based credit facility provided by IBJ Schroder Bank & Trust Company
("Schroder") to Tanon. Under the terms of this new facility, Schroder will
advance up to $13,000,000 in the form of a revolving loan with availability
subject to the amount of a borrowing base comprised generally of the sum of
(1) up to between 80% and 85% of eligible accounts receivable, (2) up to
18% of eligible inventory subject to an availability sublimit of $3,000,000
and (3) up to 75% (reduced by one percentage point on the first day of each
month following May 3, 1996) of the liquidation value of certain of the
Company's machinery and equipment, subject to an availability sublimit of
$1,250,000 (the "Schroder Loan Facility"). The Schroder Loan Facility has a
three-year term and bears interest at an annual rate equal to the sum of
the base commercial rate determined by Schroder and publicly announced to
be in effect from time to time plus 1-1/2%. Each fiscal quarter, Tanon will
also be obligated to pay a fee at a rate equal to one-half of one percent
(1/2%) per annum of the average unused portion of the Schroder Loan
Facility. The Company paid a commitment issuance fee of $75,000 to Schroder
on March 25, 1996 and an additional $50,000 fee at the closing of the
Schroder Loan Facility. Advances under the Schroder Loan Facility can only
be used to fund the Company's electronic contract manufacturing operations
which are now being conducted solely by Tanon. The agreement with Schroder
requires Tanon to maintain certain financial ratios, including current
assets to current liabilities and earnings to certain fixed charges, and to
maintain a minimum net worth. At June 29, 1996, Tanon was in compliance
with all of these requirements. As a result of the new facility Tanon's
available borrowing capacity increased by approximately $3,000,000 as
compared to the sum of the two prior facilities.
<PAGE>
Concurrent with, and as a condition to, the closing of the Schroder Loan
Facility, the Company consolidated all of its contract electronic
manufacturing business into its wholly-owned subsidiary, Tanon, by
assigning to Tanon all of the assets and liabilities related to the
contract electronic manufacturing business conducted directly by the
Company. As a result, EAI is now principally a holding company with all
operations being conducted by various subsidiaries with EAI providing
strategic, financial and other support to such subsidiaries.
(4) Other Long-Term Liabilities
Other long-term liabilities include $1,575,000 of subordinated debentures
issued by EATI to its shareholders other than the Company. The Company has
no liability on or with respect to any of such debentures. Moreover, the
debentures are payable by EATI only if, as, when, and out of any profits
earned by EATI.
(5) Acquisition of Aydin Corporation equity interest and issuance of
convertible debentures
On May 6, 1996, the Company purchased 596,927 shares of the common stock of
Aydin Corporation ("Aydin"), a New York Stock Exchange listed company, in a
private purchase from the then Chairman and Chief Executive Officer of
Aydin. The purchase price for such shares was $18 per share or an aggregate
of $10,752,186 and the purchase represented approximately 11.64% of the
outstanding shares of common stock of Aydin. On May 6, 1996, the closing
price of the common stock of Aydin as reported by the New York Stock
Exchange was $15.50. Aydin designs, manufactures and sells wireless,
digital LOS radios and various other telecommunications equipment and
systems, computer monitors and workstations, mostly for utilities, network
access equipment, airborne and ground data acquisition, radar simulation,
modernization and air-defense C3 equipment and systems.
To fund a portion of the purchase price of the Aydin common stock, the
Company, on May 3, 1996, sold 9% convertible debentures in the aggregate
principal amount of $7,000,000. The balance of the purchase price was
funded with existing cash of the Company. The Company sold additional 9%
convertible debentures in the aggregate principal amount of $1,100,000
during the remainder of May and June, 1996. The Company has agreed to pay a
placement fee equal to 5% of the proceeds raised in the sale of the
debentures, payable in installments during August and September 1996. These
debentures will mature on May 3, 1998 and are convertible into shares of
the Company's common stock at a conversion price equal to the lesser of (i)
four dollars ($4) per share, provided that in no event shall holder convert
less than $100,000 unpaid principal balance of Debentures at one time, or
(ii) 80% of the average closing price of the Company's common stock as
traded on the New York Stock Exchange for the five (5) days preceding the
date of the notice to the Company that the holder wishes to exercise its
conversion right. Such conversion is conditioned on, among other things,
the Company causing the shares underlying the debentures to be listed on
the New York Stock Exchange. The holders of such debentures have agreed not
to sell any shares received on conversion until October 31, 1996 and the
Company has agreed to promptly file a registration statement with the
Securities and Exchange Commission covering the shares of the Company's
common stock underlying the debentures. In the event the registration
statement is not declared effective or the New York Stock Exchange has not
approved the listing of the underlying shares by November 30, 1996, the
Company
<PAGE>
will be obligated to pay certain penalties and the holders of the
debentures may then declare the entire unpaid principal and interest due
and payable.
The Company has initiated discussions with the Board of Directors of Aydin
concerning a possible merger or other combination with Aydin. The Company
is presently conducting due diligence reviews in concert with Aydin, and
any merger or other combination with Aydin would be subject to the outcome
of these due diligence reviews, the execution of a definitive acquisition
agreement and the approval of such transaction by both Boards of Directors.
There can be no assurance that these conditions will be satisfied and that
a transaction will be consummated.
At June 29, 1996, the Market Value of the common stock of Aydin was $13.50.
The Company is discussing a possible merger or other combination with Aydin
and accordingly, no adjustment to current market value has been made for
the difference between the purchase price of $18 per share and the closing
price as reported by the New York Stock Exchange at June 29, 1996 of $13.50
per share.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
On January 4, 1995, the Company acquired Tanon, a privately-owned contract
electronic manufacturing firm with operations located in Fremont, California.
The acquisition has been reported as a purchase for accounting purposes and,
accordingly, the results of operations of Tanon are included with those of the
Company from January 4, 1995 forward.
The Company's investment in BarOn has been accounted for as a purchase of a
minority interest using the equity method of accounting, and accordingly, the
Company's equity interest in the results of BarOn are included in the
consolidated results of the Company from January 16, 1995 forward. As of
July 30, 1996, the Company has loaned additional funds to BarOn of
$430,000. For a more thorough discussion of these transactions, see "Liquidity
and Capital Resources" below.
On August 8, 1995, the Company, through a 52.3% owned subsidiary, EATI,
entered into a Joint Venture Agreement with IAI to review, develop and exploit
non-classified technological applications developed by IAI. The Company's
investment in the Joint Venture, ITI, was accounted for using the purchase
method of accounting. On June 28,1996, the Company, through its subsidiary,
EATI, provided the initial funding in the amount of $1,000,000 for the
establishment of VCV, the first licensee formed under the Joint Venture
Agreement. For a more thorough discussion of this transaction, see "Liquidity
and Capital Resources" below.
Results of Operations
During the first six months of 1996, the Company's sales increased and cost
of sales increased in total value but decreased as a percentage of sales.
Selling, general and administrative expenses increased in total but also
decreased as a percentage of sales. The Company had a loss from operations of
$1,713,000 for the first six months of 1996. This compared with a loss from
operations of $10,035,000 in the first six months of 1995 which included a
non-recurring charge of $6,012,000 representing the charge to expense for
purchased in-process research and development resulting from the Company's
investment in BarOn. During the second quarter of 1996, the Company's sales
increased, and cost of sales increased in total value but decreased as a
percentage of sales in comparison to the same period in 1995. Selling, general
and administrative expenses increased in total value but also decreased as a
percentage of sales compared to the second quarter of 1995.
The increase in sales to $46,413,000 in the first six months of 1996 from
$37,233,000 during the same period in 1995 resulted primarily from an increase
in sales to its existing customer base and sales to several new customers
partially offset by the loss of two customers. Sales of $22,388,000 in the
second quarter of 1996 increased from $18,178,000 during the same period in
1995, however, they were lower by $1,637,000 than the quarter ended March 31,
1996 due to rescheduling of orders to later in the year by the Company's two
largest customers.
Cost of sales increased to $43,433,000 in the first six months of 1996 from
$37,061,000 in the same period in 1995 and decreased, as a percentage of revenue
to 93.6% in the first six months of 1996 compared with 99.5% in the same period
of 1995. Contributing to this decline was the Company's emphasis on inventory
management and purchasing controls in the fourth quarter of 1995 to
<PAGE>
reduce its materials cost as a percentage of revenues. In addition, there was a
decrease in materials cost resulting from a market driven decline in prices on
certain components, specifically memory chips. This decrease in materials cost,
combined with the increased sales volume in the first six months of 1996, has
returned the Company's New Jersey facility to a positive gross margin. Gross
profit from contract manufacturing operations increased from $172,000 in the
first six months of 1995 to $2,980,000 in the first six months of 1996,
reflecting improved margins at both the New Jersey and California facilities.
Selling, general and administrative expenses increased to $4,693,000 in the
first six months of 1996, from $4,195,000 in the same period of 1995. The
increase was a result of fees paid to consultants, additional sales, general and
administrative staff hired during the 4th quarter of 1995 to support the
increased level of sales and additional general and administrative expenses
incurred in connection with establishing EAI principally as a holding company.
All operations are now conducted by various subsidiaries with EAI providing
strategic, financial and other support to these subsidiaries. Selling, general
and administrative expenses declined as a percentage of revenue to 10.1% in 1996
from 11.3% in the same period in 1995 because the increase in sales exceeded the
rate of the increase in selling, general and administrative expenses. Selling,
general and administrative expenses increased to $2,466,000 in the second
quarter of 1996 from $2,037,000 in the second quarter of 1995 and decreased, as
a percentage of revenue to 11.0% in the second quarter of 1996, compared with
11.2% in the same quarter of 1995. The increase in quarterly selling, general
and administrative expenses are primarily the result of the factors discussed
above.
Interest expense was $993,000 in the first six months of 1996 as compared
to $678,000 in the same period of 1995. The increase is attributable to interest
on convertible notes and debentures in the amount of $10,000,000 issued in
December 1995, and $8,100,000 issued in May 1996, interest on capitalized leases
related to equipment additions in 1995 and 1996, and an increase in the interest
rate on the Tanon revolving line of credit, partially offset by reductions in
amounts borrowed under the Company's asset based credit facility. Interest
expense for the second quarter of 1996 was $558,000 as compared to $350,000 for
the same period in 1995. This increase is primarily due to the factors discussed
above.
Interest income increased by $236,000 in the first six months of 1996 and
$111,000 for the second quarter of 1996, as compared to the same periods,
respectively, in 1995. These increases were a result of the investment of funds
received from the sale of convertible notes in December 1995 in the amount of
$10,000,000, and interest income arising from the investment of funds by ITI,
the Joint Venture formed with IAI.
The increase in other expense during the six months ended June 29, 1996 as
compared to the same period in 1995 is primarily attributable to a decline in
the market value of securities securing a note receivable, an increase in the
Company's equity interest in BarOn's results of operations, and the replacement
of the Company's existing asset based credit facility and Tanon separate
revolving line of credit with a new asset based credit facility. For a more
thorough discussion of this transaction, see "Liquidity and Capital Resources"
below. The increase in other expense during the quarter ended June 29, 1996 as
compared to the same period in 1995 is primarily attributable to the increase in
the Company's equity interest in BarOn's results of operations and the
replacement of the Company's credit facility and Tanon's revolving line of
credit.
At June 29, 1996, the Market Value of the common stock of Aydin was $13.50.
The Company is discussing a possible merger or other combination with Aydin and
accordingly, no adjustment
<PAGE>
to current market value has been made for the difference between the purchase
price of $18 per share and the closing price as reported by the New York Stock
Exchange at June 29, 1996 of $13.50 per share.
The Company's consolidated backlog at June 29, 1996 was $35,213,000, a
decrease of $6,875,000 from the balance at March 30, 1996. The Company receives
purchase orders from its customer's in an irregular manner for delivery of
product over periods ranging from as short as 30 days or as long as a year.
Consequently, its backlog at the end of any period is not necessarily indicative
of future shipments to those customers. The backlog at both these dates did not
include any orders from the two customers lost this year. Although it is not
possible to predict with certainty the effect of losing the two customers
indicated above, the Company does not believe their loss will have a material
adverse effect on the Company in 1996 in view of its receipt of larger orders
from existing customers and orders received from new customers as well as the
prospects for receiving orders from existing and new customers.
Liquidity and Capital Resources
Liquidity, as discussed below, is measured in reference to the consolidated
financial position of the Company at June 29, 1996, as compared to the
consolidated financial position of the Company at December 31, 1995. Net cash
used by operations of $4,791,000 in the first six months of 1996 increased by
$3,509,000 from cash used in operations of $1,282,000 in the same period in
1995. Net cash used by operations was primarily a result of an increase in
accounts receivable resulting from increased sales volume and a decrease in
accounts payable and accrued expenses resulting from the payment of trade
payables incurred in connection with the build up of inventories at the end of
1995 and the net loss for the six months partially offset by a decrease in
inventories.
Liquidity, as measured by cash and cash equivalents, decreased to $729,000
at June 29, 1996 from $9,830,000 at December 31, 1995. Liquidity as measured by
working capital (excluding Restricted Cash of $8,197,000) decreased to
$2,743,000 at June 29, 1996 compared with $10,572,000 at December 31, 1995. The
decrease in working capital was a result of capital expenditures less the
proceeds from capital leasing activity during the first six months of 1996, the
net loss for the first six months of 1996 and the amounts paid by the Company in
connection with the acquisition of 11.64% of the outstanding shares of Aydin
Corporation and the loan to EATI to fund VCV. The Company's ability to generate
internal cash flows results primarily from the sale of materials and labor
elements of its contract electronic manufacturing services. In the first six
months of 1996, revenue from such services increased by $9,180,000 from
$37,233,000 in the same period of 1995, primarily from an increase in sales to
its existing customer base as well as increased sales volume to new customers.
Accounts receivable increased by $2,208,000 in the first half of 1996 resulting
primarily from an increase in sales for the first six months of 1996. Inventory
decreased by $2,068,000 during the first six months of 1996.
At June 29, 1996, the Company had accounts payable of approximately
$10,501,000 of which approximately $222,303 had been outstanding for over 90
days. This compares with $13,522,000 of accounts payable at December 31, 1995,
of which $167,000 had been outstanding for over 90 days.
Cash flows from financing activities during the first six months of 1996
amounted to $11,950,000 resulting from the sale of 9% convertible debentures for
$8,100,000, the exercise of 165,714 Class B Warrants and the net proceeds from
capital leases. Approximately
<PAGE>
$1,800,000 of such capital lease financing was applicable to equipment acquired
at the end of 1995. During April 1996 the Company obtained additional financing
in the amount of $750,000 on equipment acquired during the first quarter of
1996.
Net cash in the amount of $16,260,000 was used for investing activities for
the six months ended June 29, 1996. Funds in the amount of $3,859,000 were used
to purchase capital equipment, consisting primarily of two high speed surface
mount lines along with related equipment and a new computer system for the
Company's California contract manufacturing facility. In addition, funds in the
amount of $12,030,000 were used in making the investment in Aydin common stock
and the loan to EATI to fund VCV.
On May 3, 1996, Tanon replaced the Company's existing asset based credit
facility and the Tanon separate revolving line of credit with a new asset based
credit facility provided by Schroder to Tanon. Under the terms of this new
facility, Schroder will advance up to $13,000,000 in the form of a revolving
loan with availability subject to the amount of a borrowing base comprised
generally of the sum of (1) up to between 80% and 85% of eligible accounts
receivable, (2) up to 18% of eligible inventory subject to an availability
sublimit of $3,000,000 and (3) up to 75% (reduced by one percentage point on the
first day of each month following May 3, 1996) of the liquidation value of
certain of the Company's machinery and equipment, subject to an availability
sublimit of $1,250,000. The Schroder Loan Facility has a three-year term and
bears interest at an annual rate equal to the sum of the base commercial rate
determined by Schroder and publicly announced to be in effect from time to time
plus 1-1/2%. Each fiscal quarter, Tanon will also be obligated to pay a fee at a
rate equal to one-half of one percent (1/2%) per annum of the average unused
portion of the Schroder Loan Facility. The Company paid a commitment issuance
fee of $75,000 to Schroder on March 25, 1996 and an additional $50,000 fee at
the closing of the Schroder Loan Facility. Advances under the Schroder Loan
Facility can only be used to fund the Company's electronic contract
manufacturing operations which are now being conducted solely by Tanon. The
agreement with Schroder requires Tanon to maintain certain financial ratios,
including current assets to current liabilities and earnings to certain fixed
charges, and to maintain a minimum net worth. At June 29, 1996, Tanon was in
compliance with all of these requirements. As a result of the new facility
Tanon's available borrowing capacity increased by approximately $3,000,000 as
compared to the sum of the two prior facilities.
Concurrent with, and as a condition to, the closing of the Schroder Loan
Facility, the Company consolidated all of its contract electronic manufacturing
business into its wholly-owned subsidiary, Tanon, by assigning to Tanon all of
the assets and liabilities related to the contract electronic manufacturing
business conducted directly by the Company. As a result, EAI is now principally
a holding company with all operations being conducted by various subsidiaries
with EAI providing strategic, financial and other support to such subsidiaries.
The Company has incurred significant losses and had negative cash flows
from operations in each of the last four years and in the six months ended June
29, 1996. In order to continue operations, the Company has had to raise
additional capital to offset cash utilized in operating and investing
activities. The Company raised approximately $33,200,000 and $8,100,000 during
1995 and the first six months of 1996, respectively, from the issuance of common
stock, the exercise of stock options and warrants and the sale of convertible
notes and debentures. In November 1995, the Company completed the sale of 10%
convertible debentures in the aggregate principal amount of $2,200,000 to four
purchasers. As of the date of this report all of these debentures have been
converted into 646,756 shares of the Company's common stock in accordance with
their terms. In December 1995, the Company completed the sale of 7% convertible
notes of the Company in the aggregate principal amount of $10,000,000 to GFL
<PAGE>
Advantage Fund Limited and GFL Performance Fund Limited. As of this date
$6,905,000 of such notes have been converted into 2,211,986 shares of the
Company's stock in accordance with their terms. In May and June, 1996, the
Company raised an additional $8,100,000 from the sale of 9% convertible
debentures which was used in part, in purchasing approximately 11.64% of the
outstanding shares of common stock of Aydin.
On July 1, 1996, the Company entered into a Loan Agreement with BarOn.
Pursuant to the BarOn Loan Agreement, the Company has agreed to maintain a
revolving line of credit of $2 million until July 1, 1998. The amount available
under the line will be reduced by any additional equity obtained by, or
borrowings of, BarOn. Advances under the line will be made in the Company's sole
discretion. Such advances bear interest at an annual rate equal to the sum of
the base commercial rate (the "Base Rate") as determined by IBJ Schroder Bank &
Trust Company from time to time plus one and one half percent (1 1/2%). Interest
is due each calendar quarter and, at the option of BarOn, any payment for such
interest may be deferred until the succeeding July 1. Deferred interest bears
additional interest at the rate of two and one half percent (2 1/2%) plus the
Base Rate. The Company, at its option, may require that interest be paid in cash
or by issuance of ordinary shares of BarOn at an agreed value of $4.00 per share
(the "Agreed Value"). BarOn, at its option, may make any interest payments due
on or before July 1, 1997 in ordinary shares of BarOn at the Agreed Value. As of
July 30, 1996, there was $430,000 of outstanding principal on the line of
credit. The entire amount outstanding under the line of credit is due on the
earliest of (i) an initial public offering by BarOn, (ii) sale of equity or
borrowings by BarOn exceeding the amount outstanding by at least $500,000
(unless prohibited by such lender or investor), (iii) availability of sufficient
cash flow, or (iv) June 1, 2000.
The Company's joint venture with IAI has selected one application for
development and exploitation, the Vista Application and a Licensee, Vista
Computer Vision, Ltd. has been formed. Vista is a system for the automatic
inspection of manufactured parts, capable of detecting defects as small as 20
microns. The funding for the initial operations of VCV was made by EATI in June
1996 as a capital contribution of $250,000 to VCV and a $750,000 Subordinated
Capital Note. The Note matures five years after its issuance and bears interest
at 8% per annum. Payments on the note may be made only out of remaining profits
of VCV after distribution of at least 50% of all accumulated profits. Upon
liquidation of VCV, the note would be subordinate to all other debts of VCV but
would have a preference over payments to equity holders of VCV.
<PAGE>
The Company on June 28, 1996, loaned $1 million to EATI to enable EATI to
make the above capital contribution and loan to VCV. The Loan bears interest at
10% per annum, payable annually each year. The principal is repayable in five
equal annual installments beginning on June 1, 2002 and continuing on June 1 of
each year thereafter. The Company may at its option, accelerate the loan and
demand repayment 18 months after the date of issuance of the loan. This loan is
subordinated to all other debts of EATI but would have a preference over payment
to equity holders of EATI.
The Company has initiated discussions with the Board of Directors of Aydin
concerning a possible merger or other combination with Aydin. The Company is
presently conducting due diligence reviews in concert with Aydin, and the
Company and Aydin have had a number of discussions about the structure and terms
of possible combinations. Any merger or other combination with Aydin would be
subject to the outcome of these due diligence reviews, the execution of a
definitive acquisition agreement and the approval of such transaction by both
Boards of Directors. There can be no assurance that these conditions will be
satisfied and that a transaction will be consummated. A merger may require,
among other things additional cash resources in excess of those presently
available.
The purchase of the Aydin common stock, the Loan Agreement with BarOn and
the Loan to EATI in the amount of $1,000,000 to enable EATI to fund VISTA have
resulted in the need to raise additional capital. The Company is presently
seeking to borrow up to $3,000,000 for up to six months to fund its holding
company expenses, make advances to BarOn under the Loan Agreement and pay cost
incurred and to be incurred in conducting the Aydin due diligence reviews. Such
loan will be secured by the Aydin common stock owned by the Company. The
Company's financial projections indicate that operating losses and negative cash
flows will continue, although at a declining rate, during most of 1996. Although
the Company's credit facility with Schroder is sufficient to fund the Company's
contract manufacturing operations conducted through Tanon, the Company will need
to raise additional capital during the second half of 1996 or the first half of
1997 through the sale of common stock or the issuance of debt securities to
repay the $3,000,000 short term loan, to fund future holding company expenses
and anticipated expansion of contract manufacturing operations conducted through
Tanon. There can, however, be no assurance that the Company will be successful
in obtaining the $3,000,000 short term loan or the subsequent raising of
additional capital.
The remaining unexercised Class A and Class B warrants issued in February
1994, if exercised, could provide the Company with additional capital of
approximately $1,700,000. To date, Class A and Class B warrants to purchase
2,202,977 shares have been exercised and the Company received $1,584,121 in
proceeds. In addition, in February 1996, the Company received unsecured
promissory notes in the aggregate principal amount of $1,096,000 as payment for
the exercise of Class A and Class B warrants to purchase 796,084 shares of
common stock. These promissory notes bear interest at the rate of 7% per annum
and are due on or before February 14, 1997. No assurance can be given that the
remaining unexercised warrants will be exercised or that such promissory notes
will be paid in full.
Reference is made to "Legal Proceedings" in Item 3, Part I of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, Item 1,
Part II of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1996 and in Item 1, Part II of this Report, for information concerning
certain pending claims which could have an adverse impact on the Company's
income and cash flows.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed by the Company, in October, 1992, Lemco Associates
L.P., a limited partnership ("Lemco"), the owner of property previously owned by
EAI, initiated an action against EAI and others alleging, among other things,
that the defendants created environmental contamination at the property and is
seeking damages in unspecified amounts. EAI has denied Lemco's allegations,
asserted numerous defenses to the claims asserted and asserted a counterclaim
against Lemco and cross claims against co-defendants and others for
indemnification and contribution. Discovery in this matter is ongoing and there
have been no material developments in this matter during the period of time
covered by this report.
Reference is made to "Legal Proceedings" in Item 3, Part I of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and Item
1, Part II of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1996 for additional information concerning this claim and other
pending claims.
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. STOCKHOLDERS MEETING
The Company held its annual meeting of shareholders on May 30, 1996. At
that meeting the shareholders re-elected Jules M. Seshens, Seth Joseph Antine
and Mark S. Hauser to the Board of Directors. In addition, the shareholders (by
a vote of 2,736,761 for and 1,564,795 against with 66,191 abstentions) approved
a proposal to amend the Company's 1994 Equity Incentive Stock Option Plan to
increase the number of shares of the Common Stock of the Company reserved for
issuance under such plan from 6 million to 9 million shares. Finally, the
shareholders (by a vote of 10,707,020 for and 118,278 against with 23,101
abstentions) ratified the selection of Arthur Andersen, LLP as the Company's
auditors for the fiscal year ending December 31, 1996.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
10.1 Master Note dated July 1, 1996 from BarOn
Technologies, Ltd. to the Company.
10.2 Master Note Agreement dated July 1, 1996, between
the Company and BarOn Technologies, Ltd.
10.3 Manufacturing and Consulting Agreement dated as of
July 1, 1996 between the Company and BarOn
Technologies, Ltd.
10.4 Warrant to Purchase Ordinary Shares of BarOn
Technologies, Ltd.
27 Financial Data Schedule
(b) The registrant filed the following Form 8-K during the quarter
for which this report is filed:
NONE
<PAGE>
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.
EA INDUSTRIES, INC.
(Registrant)
Date: August 13, 1996 By: /s/ Stanley O. Jester
---------------------
Stanley O. Jester,
Treasurer and Vice President - Finance
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Exhibit No.
- -----------
10.1 Master Note dated July 1, 1996 from BarOn Technologies, Ltd.
to the Company.
<PAGE>
MASTER NOTE
$2,000,000 July 1, 1996
FOR VALUE RECEIVED, BarOn Technologies, Ltd., an Israeli corporation
("Borrower") promises to pay to the order of EA Industries, Inc. ("Lender") the
lesser of (x) the principal sum of Two Million Dollars ($2,000,000) or (y) the
unpaid principal amount of all Loans made by Lender to Borrower under the Master
Loan Agreement of even date herewith between Borrower and Lender (the "Loan
Agreement") together with interest thereon at the sum of (i) the base commercial
lending rate (the "Base Rate") of I.B.J. Schroder Bank & Trust Company as
publicly announced to be in effect from time to time, such rate to be adjusted
automatically, without notice, on the effective date of any change in such rate,
and (ii) one and half percent (1 1/2%), payable, as hereinafter provided. All
initially capitalized terms used herein shall have the same meanings as ascribed
to them in the Loan Agreement unless the context clearly requires to the
contrary.
All payments of principal, interest, and fees hereunder shall be made by
Borrower without defense, set off, or counterclaim and in same day funds and
delivered to Lender not later than 2:00 P.M. (Philadelphia time) on the date due
at Lender's office located at 185 Monmouth Parkway, West Long Branch, NJ 07764
or such other place as shall be designated in writing for such purpose in
accordance with the terms of the Loan Agreement. Funds received by Lender after
that time shall be deemed to have been paid by Borrower on the next succeeding
Business Day.
Interest on all Loans shall be payable on the first day of each calendar
quarter beginning on September 1, 1996 in arrears on the unpaid balance thereof
at the rate provided herein, and with a final payment of all accrued but unpaid
interest and outstanding principal at Maturity (as defined below). Interest on
Loans shall be calculated on the basis of a 360 day year, but charged for the
number of days actually elapsed during any year or part thereof.
Maturity shall be defined as the first to occur of (i) the end of any
calendar quarter during the term of this Agreement during which the cash flows
from operating activities of the Borrower and its subsidiaries exceeds the sum
of (x) net cash used by operations and (y) the outstanding principal and accrued
interest on the Line at the end of such quarter, (ii) June 1, 2000, (iii) sale
of equity, issuance of debentures or additional borrowings from third parties in
one or a series of transactions, with aggregate proceeds to the Borrower
exceeding all unpaid principal and interest by at least $500,000, unless
repayment of such sums to the Lender is prohibited at the request of such
investor(s) or lender(s), or (iv) the closing of an initial public offering of
equity of (or equivalent right to or in) the Borrower.
<PAGE>
Loans may be prepaid in whole or in part at any time without premium or
penalty, with any such prepayments being applied first to accrued and unpaid
interest then to principal in the inverse order of maturity.
Whenever any payment on this Master Note shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Master Note.
Any principal payments on Loans not paid when due and, to the extent
permitted by applicable law, any interest payment on Loans not paid when due,
and any other amount due to Lender under the Loan Agreement not paid when due,
in any case whether at stated maturity, by notice of prepayment, by acceleration
or otherwise, shall thereafter bear interest payable upon demand at a rate which
is the lesser of (i) 10% per annum in excess of the Base Rate, or (ii) the
highest rate allowed by law.
It shall be an event of default hereunder if an Event of Default shall have
occurred under the Loan Agreement (a "Default").
In addition to other remedies of Lender as set forth in this Master Note or
the Loan Agreement upon the occurrence of a Default, Lender may, without demand,
by written notice to Borrower, cause this Master Note to become immediately due
and payable in the manner, upon the conditions and with the effect provided in
the Loan Agreement.
Borrower hereby waives presentment, demand for payment, notice of dishonor,
protest or notice of protest and any and all notices or demands and, to the full
extent permitted by law, the right to plead any statute of limitations as a
defense to any demand hereunder in connection with the delivery, acceptance,
performance, or default of this Master Note.
The liabilities and obligations of Borrower hereunder shall be
unconditional without regard to the liability or obligations of any other party
and shall not be in any manner affected by any indulgence whatsoever granted or
consented to by Lender, including, but not limited to, any extension of time,
renewal, waiver or other modification. Any failure of Lender to exercise any
right hereunder shall not be construed as a waiver of the right to exercise the
same or any other right at any time and from time to time thereafter.
No shareholder, officer, director or employee of the Borrower shall have
any personal liability or obligation to make principal or interest payments to
Lender for loans made to BarOn pursuant to this Note and the Loan Agreement.
<PAGE>
This Master Note shall be governed as to its validity, interpretation and
effect by the internal laws of the State of New Jersey. Any and all actions at
law or in equity relating to this Master Note and the Indebtedness shall be
brought, and jurisdiction shall be had exclusively, in the courts of the State
of New Jersey, or at the election of the holder hereof, the United States
District Court for the Eastern District of New Jersey. Borrower consents in
advance to service of process by mail to the address set forth in the Loan
Agreement.
BORROWER AND LENDER EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION BROUGHT BY ANY PARTY WITH RESPECT TO THE INDEBTEDNESS.
This Master Note may not be changed or amended orally but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
If any provision of this Master Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision hereof, but this Master Note shall be construed as if such
invalid or unenforceable provision had never been contained herein.
Borrower promises to pay all Lender's costs and expenses, including
reasonable attorneys' fees, as provided in the Loan Agreement, incurred in the
collection and enforcement of this Master Note. Borrower and endorsers of this
Master Note hereby consent to renewals and extensions of time at or after the
maturity hereof, without notice.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Borrower has
executed this Master Note as an instrument under seal, and Lender has received
this Master Note in Philadelphia, Pennsylvania, the day and year first above
written.
BarOn Technologies, Ltd.
Attest:_________________________ By:____________________________
[Corporate Seal]
Exhibit No.
- -----------
10.2 Master Note Agreement dated July 1, 1996, between the
Company and BarOn Technologies, Ltd.
<PAGE>
MASTER NOTE AGREEMENT
July 1, 1996
BarOn Technologies, Ltd.
Gutwirth Science Park
Technion City
Haifa 32000 Israel
Gentlemen:
We have agreed to make available a line of credit in the amount of
$2,000,000 (the "line of credit" or the "line") under which you may request, and
we may grant, loans or other extensions of credit to you from time to time for
business purposes ("Loan(s)" or "Extension(s) of Credit"). This Agreement sets
forth the procedures, terms and conditions for borrowing under the line. As used
in this Agreement, the terms we, us, our and EAI mean EA Industries, Inc., a New
Jersey corporation and the terms you and your mean BarOn Technologies, Ltd. an
Israeli corporation. This letter does not constitute a commitment to lend or to
extend credit but instead describes the procedures for application for advances
under the line. It is understood and agreed that Loans and Extensions of Credit
granted under the line will be governed by the following:
1. Requests for Loans. A person duly authorized under Paragraph 2 may
request Loans or Extensions of Credit by telephone or letter. We will consider
the request and will notify you within three (3) weeks of the request as to
whether it will make a loan for all, part or none of the amount requested. Such
decision shall be made at our sole discretion for any reason. If we elect to
make a Loan or Extension of Credit, then we will wire such sum upon your written
instructions. Upon your request we will forward to you a written advice or
statement of each Loan or Extension of Credit which will specify the manner of
disbursement, the rate or rates of interest payable on the Loan or Extension of
Credit if different from the rate set forth in Paragraph 5 and such other terms
as may have been agreed to.
2. Resolutions Authorizing Loans. Any and all documents required to be
executed in conjunction with Loans or Extensions of Credit may be signed by any
of the officers or other persons duly authorized by your borrowing resolutions
as in effect from time to time, provided that a copy of such resolutions is
certified by the Secretary of your corporation and delivered to us. We shall
incur no liability to you or any other person in acting upon any request for a
Loan or
1
<PAGE>
Extension of Credit which we believe in good faith to have been made by a person
duly authorized to borrow on your behalf as set forth in your borrowing
resolutions.
3. EAI Records Conclusive. The amount and terms of Loans or Extensions of
Credit and the rate or rates of interest payable on them and your repayments and
those made on your behalf shall be established and evidenced by our records
which shall be conclusively deemed to be correct in the absence of manifest
error.
4. Amount of Line and Payment of Loans. As long as the line of credit
remains outstanding, you may borrow, repay and reborrow up to the maximum
specified in this Agreement. The line of credit will terminate on July 1, 1998
or upon the occurrence of any event of default as described in Section 13, if
earlier, the amount available under the line shall initially be $2,000,000, and
shall be reduced dollar for dollar by the proceeds to the Company from any sale
of equity, issuance of Debentures or additional borrowings from third parties.
Upon the payment of any Loan or Extension of Credit as provided above, accrued
and unpaid interest on the amount repaid shall be simultaneously paid unless we
agree otherwise. All unpaid principal and any remaining unpaid but accrued
interest shall be due and payable upon the first to occur of (i) the end of any
calendar quarter during the term of this Agreement during which the cash flows
from sales of the Borrower and its subsidiaries exceeds the sum of (x) net cash
used by operations, and (y) the outstanding principal and accrued interest on
the line at the end of such quarter, (ii) June 1, 2000, (iii) sale of equity,
issuance of debentures or additional borrowings from third parties in one or a
series of transactions, with aggregate proceeds to the Borrower exceeding such
unpaid principal and interest by at least $500,000, unless repayment of such
sums to the Lender is prohibited at the request of such investor(s) or
lender(s), or (iv) the closing of an initial public offering of equity of (or
equivalent right to or in) the Borrower.
5. Interest. Unless otherwise agreed in writing, interest on all
outstanding Loans and Extensions of Credit shall be computed at a rate per annum
equal to one and one-half percent (1 1/2%) in excess of the rate established and
announced publicly by I.B.J. Schroder Bank & Trust Company as the base
commercial lending rate (the "Base Rate"). Said per annum rate shall change each
time the Base Rate shall change effective as of the date of the change. Each
overdue payment of principal on any Loan and any Extension of Credit and, to the
extent permitted by law, each overdue payment of interest shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the
lesser of (i) 10% in excess of the Base Rate, or (ii) the maximum interest rate
allowed by law. Interest on all Loans and Extensions of Credit shall be computed
on the basis of a year of 360 days for each day of the year actually elapsed.
During each year of the term of this Agreement, the Borrower shall have the
option, exercisable by delivery of written notice to Lender at least ten (10)
days before the date interest
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would otherwise be due and payable, to defer any and all quarterly payments of
interest until the succeeding anniversary date of this Agreement. Deferred
interest shall accrue additional interest of two and one half percent (2 1/2%)
in excess of the Base Rate. Deferred interest shall be due and payable upon such
anniversary date.
The Borrower shall have the option, during the first year of this Agreement
to make any deferred interest payments to Lender on the first anniversary date
in ordinary shares, par value N.I.S. 0.01 per share of the Borrower ("Common
Stock"). This option may be exercised by delivery of written notice to the
Lender at least five days before such payment date. If the option is elected,
the Borrower shall issue and dispatch to the Lender one or more Certificates for
the aggregate number of whole shares of Common Stock determined by dividing
$4.00, U.S. Dollars, into the total amount of lawful money of the United States
of America which the Holder would receive if the aggregate amount of interest on
this Note which is being paid in shares of Common Stock were being paid in such
lawful money. No fractional shares will be issued in payment of interest on this
Note. In lieu thereof, the Borrower may issue a number of shares of Common Stock
which reflects a rounding up to the next whole number or may pay lawful money of
the United States of America.
The Lender shall have the option to have interest payments made to it in
shares of Common Stock. This option may be exercised on any one or more of the
dates interest is payable under this Agreement by delivery of written notice to
the Borrower at least five days before such payment date. If the option is
elected, the Borrower shall issue and dispatch to the Lender one or more
Certificates for the aggregate number of whole shares of Common Stock determined
by dividing $4.00, U.S. Dollars into the total amount of lawful money of the
United States of America which the Holder would receive if the aggregate amount
of interest on this Note which is being paid in shares of Common Stock were
being paid in such lawful money. No fractional shares will be issued in payment
of interest on this Note. In lieu thereof, the Borrower may issue a number of
shares of Common Stock which reflects a rounding up to the next whole number or
may pay lawful money of the United States of America.
6. Payment of Costs. In addition to the principal and interest payments
specified in paragraphs 4 and 5, you agree to pay, upon demand, all costs and
expenses (including reasonable attorneys' fees and legal expenses) we incur in
enforcing this Agreement.
7. Conditions Precedent.
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(a) Conditions Precedent to Initial Loan or Extension of Credit. As
conditions precedent to the performance by us of any of our obligations
hereunder, you agree to deliver or cause to be delivered to us on or before the
funding date of the first Loan or Extension of Credit (the "Closing Date") in
form and substance acceptable to us and our counsel, in addition to this
Agreement, the following documents and instruments:
(i) The Master Note;
(ii) Resolutions adopted by your board of directors authorizing
the execution and delivery of this Agreement, the Master Note and any other
document or instrument required by us for the implementation of this Agreement
to which you are a party, all certified by your Secretary to be true and correct
copies of the originals thereof and to be in full force and effect as of the
Closing Date;
(iii) A good standing certificate of each of the officers
authorized to execute and deliver this Agreement, the Master Note and all other
documents and instruments required by us for the implementation of this
Agreement to which you are a party;
(iv) The opinion of your counsel; and
(v) Such additional documents or instruments as may be required
by this Agreement or as we may reasonably require.
(b) Conditions Precedent to all Loans or Extensions of Credit. As
additional conditions precedent to our present or future obligations hereunder:
(i) all representations and warranties made by you hereunder or in any other
document delivered to us in connection herewith shall be true, complete and
correct; and (ii) you shall be in compliance with all of the terms and
conditions hereof, the Master Note and any other document delivered pursuant to
this Agreement.
8. Representations and Warranties. You represent and warrant to us as
follows:
(a) Good Standing. You: (i) are a corporation, duly organized, validly
existing and subsisting under the laws of the Country of Israel; and (ii) have
the corporate power and authority to own and operate your properties and to
carry on your business where and as contemplated.
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<PAGE>
(b) Power and Authority. The making, execution, issuance and
performance by you of this Agreement, the Master Note, and any other documents
to which you are a party: (i) have been duly authorized by all necessary
corporate action and will not violate any provision of law or regulation or of
your Articles of Association or Bylaws; (ii) will not violate any agreement,
trust or other indenture or instrument to which you are a party or by which you
or any of your property is bound, so that this Agreement, the Master Note, and
any other documents delivered pursuant to this Agreement to which you are a
party, when executed and delivered by you, will be your valid and binding
obligations, enforceable in accordance with their respective terms;
(c) Financial Condition. Your internally-prepared balance sheet
together with income and surplus statements as at and for the five months May
31, 1996 heretofore furnished to us, are complete and correct in all respects,
have been prepared in accordance with generally accepted accounting principles
("GAAP"), consistently applied, and fairly present your financial condition as
of said dates and the results of your operations for the periods then ended.
Except as set forth on 8(c) hereto, to best knowledge of the Company you have no
fixed, accrued or contingent obligation or liability for taxes or otherwise that
is not disclosed or reserved against on your balance sheets. You have filed all
tax returns required to be filed with any taxing authority. Since May 31, 1996,
there has been no material adverse change in the condition of your financial
position or otherwise from that set forth in the balance sheets as of said date.
You do not believe, and have no reason to believe, that there has been or will
be a change relating to your business that would cause a materially adverse
effect on you.
(d) No Litigation. Except as set forth on Schedule 8(d) hereto, there
are no suits or proceedings pending, or, to your knowledge, threatened against
or affecting you or title to any of your assets, and you are not in default in
the performance of any agreement to which you are a party or by which you are
bound, or with respect to any order, writ, injunction, or any decree of any
court, or any federal, state, municipal or other government agency or
instrumentality, domestic or foreign, which could have a materially adverse
effect on you.
9. Accuracy of Representations; No Default. The information set forth
herein and on each of the Schedules hereto, in each other document delivered to
us in connection herewith is complete and accurate and contains full and true
disclosure of pertinent financial and other information in connection with the
line. None of the foregoing contains any untrue statement of a material fact or
omits to state a material fact necessary to make the information contained
herein or therein not misleading or incomplete.
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10. Affirmative Covenants. As long as any portion of the Indebtedness
remains outstanding and unpaid, or Bank has any obligation to you hereunder, you
covenant and agree that, in the absence of our prior written consent, you will:
(a) Furnish to us, not later than 90 days after the close of each
fiscal year, a statement of income and expenses and source and application of
funds for such year, and balance sheet as of the last day of such fiscal year of
you and your subsidiaries. In addition, you will furnish to us, within 45 days
of the close of each fiscal quarter other than the last quarter of each fiscal
year, your internally-prepared statement of income and expense and cash flow for
such fiscal quarter and the period then ended, and a balance sheet as of the end
of such fiscal quarter. With all annual and other financial statements, you will
provide us with the certificate of your Chief Financial Officer, or Chief
Executive Officer, which certificate shall state that (i) such financial
statements are complete and correct in all material respects, subject only to
usual year-end adjustments and that the signer: (i) has reviewed the terms of
this Agreement and has made, or caused to be made under his supervision, a
review in reasonable detail of the transactions and your condition during the
accounting period covered by such financial statements and that such review has
not disclosed the existence during or at the end of such accounting period; and
(ii) does not have knowledge of the existence as at the date of the certificate,
of any condition or event which constitutes an Event of Default or Unmatured
Event of Default or if any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action Borrower has taken,
is taking and proposes to take with respect thereto.
(b) With reasonable promptness furnish to us such additional
information and data concerning your business and financial condition as may be
reasonably requested by us including delivery within three weeks after the end
of each month of a statement of operations, cash flows, material business
transactions, contracts, potential sales and other significant events during the
prior month; afford EAI or its or their agents reasonable access to your
financial books and records, computer records and properties at all reasonable
times and permit us or our agents to make copies and abstracts of same and to
remove such copies; and abstracts from your premises and permit us or our agents
the right to converse directly with your then-engaged independent accounting
firm to prepare its audited financial statements;
(c) Cause the prompt payment and discharge of all taxes, governmental
charges and assessments levied and assessed or imposed upon you or your assets
or any portion thereof, or upon the purchase, ownership, delivery, leasing,
possession, use, operation, return or other disposition thereof, or upon the
rentals, receipts or earnings therefrom, or upon or with respect to this
Agreement, and pay all other claims which, if unpaid, might become liens or
charges upon your assets, provided, however, that nothing in this Section 9(c)
shall require you to pay any such
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taxes, claims or assessments which are not overdue or which are being contested
in good faith and by appropriate proceedings, with adequate reserves therefor
being available or having been set aside;
(d) Maintain your corporate existence and all necessary foreign
qualifications in good standing; continue to comply with all applicable
statutes, rules and regulations with respect to the conduct of your business,
including ERISA and all those applying to the environment; maintain such
necessary licenses and permits required for the conduct of your business, in
each case if the failure to maintain or comply would have a materially adverse
effect on you;
(e) Promptly defend all actions, proceedings or claims which would
have a materially adverse effect on you or your business and promptly notify us
of the institution of, or any change in, any such action, proceeding or claim if
the same is in excess of $10,000 for any single action, proceeding or claim and
$10,000 (other than claims covered by insurance in the ordinary course of
business and booked on your consolidated balance sheet) in the aggregate, or
would have a materially adverse effect on your financial condition or property
if adversely determined;
(f) Maintain, preserve, protect and keep in good order and condition,
ordinary wear and tear excepted, all of your assets, and, from time to time,
make all necessary or appropriate repairs, replacements and improvements
thereto, except for such properties, taken as a whole, which are not material to
the operation of your business;
(g) Promptly give written notice to us of the occurrence or imminent
occurrence of any event which causes or would imminently cause any
representation or warranty made in Section 9 hereof to be untrue in any material
respect at any time or which would cause you to be in default hereunder for any
other reason, or the occurrence of an Event of Default or Unmatured Event of
Default;
(h) Comply in all material respects with the applicable requirements
of ERISA applicable to any employee pension benefit plan (within the meaning of
Section 3(2) of ERISA), sponsored by you. With respect to any such plan to which
ERISA is applicable, other than any "multiemployer plan" (within the meaning of
Section 3(37) of ERISA), in the case of a "reportable event" within the meaning
of Section 4043 of ERISA and the regulations thereunder for which the 30-day
notice requirement has not been waived, or in the case of any other event or
condition which presents a material risk of the termination of any such plan by
action of the PBGC or you, you shall furnish to us a certificate of your Chief
Financial Officer identifying such reportable event or such other event or
condition and setting forth the action, if any, that you intend
7
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to take or has taken with respect thereto, together with a copy of any notice of
such reportable event or such other event or condition filed with the PBGC or
any notice received by you from the PBGC evidencing the intent of the PBGC to
institute proceedings to terminate any such plan. Such certificate of your Chief
Financial Officer or such other notice to be furnished to us in accordance with
the preceding sentence shall be given in the manner provided for in Section 20
hereof: (i) within 30 days after you know of such reportable event or such other
event or condition; (ii) as soon as possible upon receipt of any such notice
from the PBGC; or (iii) concurrently with the filing of any such notice with the
PBGC, as the case may be. For purposes of this Paragraph 9(h) you shall be
deemed to have all knowledge attributable to the administrator of any such plan.
(i) Immediately notify us of: (i) the occurrence or imminent
occurrence of any event which causes or would imminently cause (A) any material
adverse change in your business, property, prospects or financial condition (B)
any representation or warranty made by you hereunder to be untrue, incomplete or
misleading, or (C) the occurrence of any other Event of Default or Unmatured
Event of Default hereunder; (ii) the institution of, or the issuance of any
order, judgment, decree or other process in, any litigation, investigation,
prosecution, proceeding or other action by any governmental authority or other
Person against you and that does, or could, materially affect you; (iii) any
material casualty to any of your assets.
(j) Furnish us, no later than the beginning of each of Borrower's
fiscal years commencing with fiscal year 1996, a month by month projected
operating budget and cash flow of Borrower for such fiscal year (including an
income statement for each month and a balance sheet as at the end of the last
month in each fiscal quarter, such projections to be accompanied by a
certificate signed by Borrower's President or Chief Financial Officer to the
effect that such projections have been prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and that
such officer has no reason to question the reasonableness of any material
assumptions on which such projections were prepared.
(k) Furnish us concurrently with the delivery of the financial
statements referred to in Section 10(a) and each monthly report, a written
report summarizing all material variances from budgets submitted by Borrower
pursuant to Section 10(j) and a discussion and analysis by management with
respect to such variances.
(l) Borrower will maintain its right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of its businesses as presently conducted and as
presently proposed to be conducted on identical terms and conditions as
currently in effect. BarOn will take all necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or uses,
the failure of which to take could adversely effect its ability to operate its
business as presently conducted and as
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presently proposed to be conducted. Borrower will not grant third parties any
rights to use such Intellectual Property.
11. Further Evidence of Loans. Upon your acceptance of this Agreement, you
will execute and deliver to us a promissory note in the form of Exhibit A
attached hereto and by this reference made a part hereof, in the principal sum
of $2,000,000, the full amount of the line of credit, payable on demand to the
order of EAI (the "Master Note"). Upon our request, you agree to execute and
deliver to us a demand promissory note or notes (or such other note or notes as
may be mutually agreed upon) prepared by the us payable to the order of EAI to
evidence all or any part of any Loans and Extensions of Credit made under the
line as further evidence of or in substitution for part or all of the Master
Note.
12. Security. Loans and Extensions of Credit may be secured by security
interests, mortgages and other liens given especially for such purposes or given
to secure other indebtedness that you have to us. Whether such security
interests and other liens were given to secure other indebtedness that you have
to us or are given to secure Loans and Extensions of Credit, you agree that such
security interests and liens shall secure all of your existing and future
indebtedness to us. In addition, to secure payment of all sums owing under this
Agreement, we shall have a lien upon, and security interest in, and right of
set-off in any amounts which may be owing from time to time by us to you.
13. Defaults. The occurrence of any of the following events shall cause you
to be in default on any Loans or Extensions of Credit that are payable on a
basis other than demand:
(a) the non-payment when due of any amount payable on any of the
Liabilities (the term "Liabilities" shall mean all loans and extensions of
credit made under this Agreement and any renewals, extensions and modifications
thereof and all of your other existing and future liabilities, whether absolute
or contingent, to us regardless of their source or nature);
(b) the failure of Borrower to observe or perform any obligation under
this Agreement or the Master Note; and
(c) if Borrower becomes insolvent or makes an assignment for the
benefit of creditors, or if any petition is filed by or against any Borrower
under any provisions of any law or statute alleging that Borrower is insolvent
or unable to pay debts as they mature.
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14. Warrant/Antidilution. The Lender currently holds 3,570,514 shares of
stock of the Borrower, which has agreed to issue additional shares to the Lender
under certain circumstances, as described in this Section 14.
(a) Definition of "Shares". As used herein, "Shares" shall mean the
Company's ordinary shares, par value N.I.S. 0.01 per share (the "Common Stock")
which is the class of capital stock currently owned by the Lender.
(b) Issuance of Additional Shares of Capital Stock. Additional Shares
of Capital Stock shall mean all shares of Capital Stock issued by the Company,
except Options to purchase shares of Common Stock granted by the Company after
the date hereof as an incentive for performance to officers, directors,
employees and consultants providing services to the Company and the shares of
Common Stock issuable upon the exercise of such options provided that the option
exercise price for such options is at least $4.00 U.S. Dollars per share, or a
lower exercise price was approved in writing by the Lender or a representative
of the Lender serving as a director of the Company. Capital Stock shall mean the
Common Stock and any other stock of any class, or series within a class, which
has the right to participate in the distribution of earnings or assets of the
Company without limit as to amount or percentage.
If the Company at any time while the Lender is a shareholder shall
issue any Additional Shares of Capital Stock at a price per share less, or for
other consideration lower than $4.00 per share, U.S. Dollars, (the "Initial
Price") or without consideration, then upon such issuance shall be issued
Additional Shares of Common Stock determined by (x) multiplying the number of
shares held by the Lender immediately prior to such event by a fraction:
(i) the numerator of which shall be the number of shares of
Capital Stock outstanding immediately prior to the issuance of such Additional
Shares of Capital Stock plus the number of such Additional Shares of Capital
Stock so issued; and
(ii) the denominator of which shall be the number of shares of
Capital Stock outstanding immediately prior to the issuance of such Additional
Shares of Capital Stock plus the number of shares of Capital Stock which the
aggregate consideration for the total number of such Additional Shares of
Capital Stock so issued would purchase at $4.00 U.S. Dollars per share; and
(y) subtracting from that result the number of shares held by Lender immediately
prior to such event.
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(c) Issuance of Warrants, Options or Other Rights. If the Company at
any time while the Lender is a shareholder shall issue any warrants, options or
other rights to subscribe for or purchase any Additional Shares of Capital Stock
and the price per share for which Additional Shares of Capital Stock may at any
time thereafter be issuable pursuant to such warrants, options or other rights
shall be less than the Initial Price then upon such issuance the Lender shall be
issued additional shares as provided in Subsection 14(b) hereof on the basis
that:
(i) the maximum number of Additional Shares of Capital Stock
issuable pursuant to all such warrants, options or other rights shall be deemed
to have been issued as of the date of actual issuance of such warrants, options
or other rights, and
(ii) the aggregate consideration for such maximum number of
Additional Shares of Capital Stock issuable pursuant to such warrants, options
or other rights, shall be deemed to be the consideration received by the Company
for the issuance of such warrants, options or other rights plus the minimum
consideration to be received by the Company for the issuance of Additional
Shares of Capital Stock pursuant to such warrants, options, or other rights.
(d) Issuance of Convertible Securities. If the company at any time
while this Warrant remains outstanding and unexpired shall issue any securities
convertible into Capital Stock and the consideration per share for which
Additional Shares of Capital Stock may at any time thereafter be issuable
pursuant to the terms of such convertible securities shall be less than the
Initial Price then upon such issuance the Lender shall be issued additional
shares as provided in Subsection 14(b) hereof on the basis that:
(i) the maximum number of Additional Shares of Capital Stock
necessary to effect the conversion or exchange of all such convertible
securities shall be deemed to have been issued as of the date of issuance of
such convertible securities, and
(ii) the aggregate consideration for such maximum number of
Additional Shares of Capital Stock shall be deemed to be the consideration
received by the Company for the issuance of such convertible securities plus the
minimum consideration to be received by the Company for the issuance of such
Additional Shares of Capital Stock pursuant to the terms of such convertible
securities.
No issuance of additional shares shall be made under this Subsection
14(d) upon the issuance of any convertible securities which are issued pursuant
to the exercise of any warrants, options or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made upon the
issuance of such warrants, options or other rights pursuant to Subsection 14(c)
hereof.
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(e) Other Provisions Applicable to Adjustments Under this Section. The
following provisions will be applicable to the making of adjustments provided in
this Section 14:
(i) Computation of Consideration. To the extent that any
Additional Shares of Capital Stock or any convertible securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Capital Stock or any convertible securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Shares of Capital Stock or convertible securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Capital Stock or convertible securities are sold to underwriters or
dealers for public offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or incurred by the
Company for and in the underwriting of, or otherwise in connection with the
issue thereof. To the extent that such issuance shall be for a consideration
other than cash, then, the amount of such consideration shall be deemed to be
the fair value of such consideration at the time of such issuance as determined
in good faith by the Company's Board of Directors. The consideration for any
Additional Shares of Capital Stock issuable pursuant to any warrants, options or
other rights to subscribe for or purchase the same shall be the consideration
received by the Company for issuing such warrants, options or other rights, plus
the minimum additional consideration payable to the Company upon the exercise of
such warrants, options or other rights. The consideration for any Additional
Shares of Capital Stock issuable pursuant to the terms of any convertible
securities shall be the consideration paid or payable to the Company in respect
of the subscription for or purchase of such convertible securities, plus the
minimum additional consideration, if any, payable to the Company upon the
exercise of the right of conversion or exchange in such convertible securities.
In case of the issuance at any time of any Additional Shares of Common Stock or
convertible securities in payment or satisfaction of any dividend upon any class
of stock preferred as to dividends in a fixed amount, the Company shall be
deemed to have received for such Additional Shares of Capital Stock or
convertible securities a consideration equal to the amount of such dividend so
paid or satisfied.
(ii) Treasury Shares. The number of shares of Common Stock at any
time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or any subsidiary
or affiliate.
(e) Ownership Limit. The Borrower has issued on the date hereof a
Warrant (the "Warrant") to EAI entitling EAI to purchase shares of stock of the
Borrower. EAI has agreed that it will not at anytime own in excess of 49% of all
of the issued and outstanding ordinary
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shares of the Borrower if the issuance of shares pursuant to the antidilution
provisions of this Section 14 would result in EAI exceeding this limit such
issuance shall be delayed to the extent necessary to keep EAI below such limit.
The issuance shall be made at the earliest date possible in light of such
agreement.
15. Acceleration. Whenever you are in default, unless we elect otherwise,
the entire unpaid amount of such of the Liabilities as are not then due and
payable shall become due and payable without notice to or demand on any Obligor.
You waive all right to stay of execution and exemption of property in' any
action to enforce the Liabilities.
16. Personal Liability. No shareholder, officer, director or employee of
the Borrower shall have any personal liability or obligation to make principal
or interest payments to EAI for loans made to BarOn pursuant to this Agreement
or for any other obligations of Borrower hereunder.
17. Governing Law. This Agreement, the Master Note, and any other notes
issued under this Agreement shall be construed in accordance with and governed
by the internal laws of the State of New Jersey.
18. Withholding. The Borrower shall have the right to deduct from any
interest payment made to the Lender any taxes that it is required by law to
withhold.
19. Miscellaneous. Any failure by us to exercise any right under this
Agreement shall not be construed as a waiver of its right to exercise the same
or any other right at any other time. If more than one person signs this
Agreement as borrower, then such persons shall be jointly and severally liable
under this Agreement. The parties intend this Agreement to be a sealed
instrument and to be legally bound by it.
20. Notices. All notices, demands, requests, or other communications which
may be or are required to be given, served or sent by either Party to the other
Party pursuant to this agreement, shall be in writing and shall be hand
delivered, sent by express mail or other overnight delivery service or mailed by
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by telegram, telex or telecopy, addressed as follows:
(i) if to EA:
EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, New Jersey 07764-9989
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Telecopier No. (908) 571-0583
Telephone No. (908) 229-1100
Attn.: Mr. Jules M. Seshens
with a copy (which shall not constitute notice) to its counsel:
Richard P. Jaffe, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103-7598
Telecopier No. (215) 994-1111
Telephone No. (215) 994-1045
(ii) if to BarOn:
BarOn Technologies Ltd.
Gutwirth Science Park
Technion City
Haifa 32000 Israel
Telecopier No. 011 972 4 228 881
Telephone No. 011 972 4 226 388
Attn.: Dr. Ehud Baron
with a copy (which shall not constitute notice) to its counsel:
Avi Goldsobel, Esquire
Haifa 32000 Israel
Telecopier No. 011 972 48 253 663
Telephone No. 011 972 4320 225
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, sent,
delivered, telefaxed or telexed in the manner described above, or which shall be
delivered to a telegraph company, shall be deemed sufficiently given, served,
sent or received for all purposes at such time as it is delivered to the
addressee (with the return receipt, the deliver receipt or, with respect to a
telex or telefax, the answerback being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
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Please indicate your acceptance of this Agreement by signing and dating the
enclosed copy at the place provided below and returning such copy to us.
Very truly yours,
EA INDUSTRIES, INC.
By:____________________________
The terms and conditions set forth in the above Master Note Agreement are agreed
to and accepted by and on behalf of the addressee of said Agreement this _____
day of July 1996, intending to be legally bound thereby.
BARON TECHNOLOGIES, LTD.
Attest:
By:____________________________ By:____________________________
[Seal]
15
Exhibit No.
- -----------
10.3 Manufacturing and Consulting Agreement dated as of July 1,
1996 between the Company and BarOn Technologies, Ltd.
<PAGE>
MANUFACTURING AND CONSULTING AGREEMENT
This MANUFACTURING AND CONSULTING AGREEMENT, dated as of the 1st day of
July 1996 (this "Agreement"), by and between BarOn Technologies, Ltd., a
corporation duly organized and existing under the laws of Israel, with offices
at Gutwirth Science Park, Technion City, Haifa 32000 Israel (together with all
of its subsidiaries, hereinafter "BarOn") and EA Industries, Inc., a corporation
duly organized and existing under the laws of the State of New Jersey in the
United States of America, with offices at 185 Monmouth Parkway, West Long
Branch, New Jersey 07764 (hereinafter "EA").
W I T N E S S E T H
WHEREAS, BarOn is a designer and developer of technology for pen-based
computer inputting devices and other computer technology and the owner of
proprietary rights related to BarOn Technical Information (as hereinafter
defined);
WHEREAS, EA is a contract electronic manufacturing company specializing in
electronic products, subassemblies and systems;
WHEREAS, EA is willing to provide consulting services to BarOn in its
preparation for production of various products which are currently in the
research and development phase of BarOn and for the production thereof;
WHEREAS, BarOn is interested in solidifying an ongoing business
relationship with a reliable and established contract manufacturer;
WHEREAS, EA is interested in becoming, for the term of this Agreement, the
manufacturer of the hardware elements needed by BarOn for the present and future
sale of its products; and
WHEREAS, subject to the terms and conditions set forth in this Agreement,
BarOn wishes to grant to EA a right to manufacture certain Assemblies (as
hereinafter defined) and EA wishes to be granted such right to manufacture such
Assemblies for BarOn to BarOn's Specifications.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree and convenant as follows:
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SECTION 1 Definitions.
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person.
"Assemblies" or "Unit" means all hardware and electronic elements of
present or future products developed by BarOn which are to be manufactured for
BarOn for its own demand and/or as a result of products ordered pursuant to its
Customer Contracts.
"Authorized Representative" means, with respect to a Party, such person or
persons as may be designated as such in writing by such Party to the other
Party.
"BarOn Technical Information" shall have the meaning set forth in Section
6.1(a).
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Recovery Act, 42 U.S.C. ss. 9601, et seq.
"Consulting Fee" shall have the meaning set forth in Section 4.
"Cost of Materials" shall mean the amounts billed by suppliers to EA or its
Affiliates for components and materials incorporated in Units, including all
quantity or volume discounts.
"Customer Contract" shall have the meaning set forth in Section 2.2.
"Environmental Laws" means all federal, state, local and foreign laws,
statutes, rules, regulations, ordinances, codes, judicial or administrative
orders, requirements, standards, guidelines, and the like (including any future
amendments thereto) (collectively "laws"), relating to pollution, worker and
public health and safety, or the protection of the environment, including but
not limited to CERCLA, RCRA, the Federal Water Pollution Control Act, 33 U.S.C.
ss. 1251 et seq., the Clean Air Act 42 U.S.C. ss. 1857 et seq., the
Occupational Safety and Health Act of 1970, 29 U.S.C. ss. 651 et seq., and
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., and including
but not limited to all laws relating to the release, use, manufacture, storage,
treatment, transportation, discharge, disposal, or other handling of hazardous
materials, hazardous substances, or wastes. The term "Environmental Laws" shall
also include Liabilities and duties arising under any state or federal common
law in connection with any of the foregoing.
"Expiration Date" shall have the meaning set forth in Section 5.1(a).
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"Formula Price" shall have the meaning set forth in Section 3.1(a).
"Initial Term" shall have the meaning set forth in Section 5.1(a).
"Liabilities" means liabilities, debts or obligations, whether accrued,
absolute, contingent or otherwise, known or unknown.
"Manufacturing Contract" shall have the meaning set forth in Section 3.1.
"Party" shall mean either BarOn or EA.
"Permits" means all permits, licenses, orders, approvals, registrations and
any other authorizations of any federal, state, local or foreign governmental,
regulatory or judicial body or authority.
"Person" means a natural person, a corporation, a partnership, a trust, a
joint venture, any governmental authority or any other entity or organization.
"Purchase Order" means a purchase order, signed by an Authorized
Representative of BarOn, which may be substantially similar to a purchase order
delivered to BarOn by one of its customers, containing the following
information:
a. purchase order number
b. Assemblies Number or Unit Numbers, names and quantities
c. desired delivery schedules
d. Unit Price and Total Price
e. shipping instructions
f. bill of materials
g. terms of payment
"Purchase Order Proposal" means a proposal submitted by BarOn to EA
relating to the quantity and type of Assemblies BarOn requires for its own
account or to fulfill its obligations under a Customer Contract, which will
include the bill of materials and all terms or conditions requested by BarOn.
"RCRA" means Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901,
et seq.
"Right" means any right or benefit of any nature whatsoever.
"Total Price" means the respective Unit Price for each Assembly multiplied
by the number of such Units.
"Unit Price" has the meaning set forth in Section 3.1(a).
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SECTION 2 General Agreement.
2.1 Annual Manufacturing Rights. (a) EA shall work together with BarOn in
order to develop a full production file, manufacturing process, testing
procedures and quality control standards to be met by EA. BarOn shall supply EA
with blueprints, logos and packages and EA shall manufacture and package units
so they are ready for reshipment to BarOn's customers.
(b) Subject to compliance by EA with the terms and conditions set
forth in this Agreement, EA shall have the right to perform all manufacturing
for BarOn.
2.2. Procedures. The following shall be the procedure for processing an
order to deliver any of BarOn's products to one of its customers (a "Customer
Contract"):
(a) Each time BarOn receives a Customer Contract, BarOn shall submit
to EA a Purchase Order Proposal reflecting the terms of the Customer Contract (a
"Purchase Order Proposal").
(b) Within 15 business days of receiving the Purchase Order Proposal,
EA (which for purposes of fulfilling its manufacturing and consulting
obligations under this Agreement, shall include its subsidiaries and Affiliates,
including its wholly-owned subsidiary, Tanon Manufacturing, Inc.) shall either
(i) submit to BarOn a quotation for the work required by the Purchase Order
Proposal, with the Unit Price based on the Formula Price, indicating any special
requirements to be included in the terms of any Purchase Order which may be
issued related to the work described in the Purchase Order Proposal, or (ii)
notify BarOn that EA either (A) does not have the technical capability to
manufacture the Assemblies, or (B) EA cannot manufacture the necessary quantity
of the Assemblies within the time period required under the Purchase Order
Proposal.
(c) If EA submits a quotation in response to the Purchase Order
Proposal, BarOn shall, within 15 business days thereafter accept such quotation,
and issue a Purchase Order to EA for the manufacture of such Assemblies.
(d) If EA has notified BarOn that EA does not possess the technical
capability to manufacture the Assemblies subject to the Purchase Order Proposal,
BarOn shall have the right to have the Assemblies required under such Purchase
Order Proposal manufactured by a third party.
(e) If EA has notified BarOn that EA does not possess the
manufacturing capacity to manufacture the Assemblies required by the Purchase
Order Proposal within the time frame required by the Purchase Order Proposal,
BarOn shall have the right to have such Assemblies required under such Purchase
Order Proposal manufactured by a third party manufacturer, provided however,
that BarOn shall use its
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best efforts to permit EA to manufacture the number of Assemblies which EA
notifies BarOn it can manufacture.
(f) In the event that BarOn's obligation is for the supply of parts of
one of BarOn's products, all of the foregoing provisions shall apply mutatis
mutandis for such parts.
(g) Wherever a Purchase Order is required hereunder, such Purchase
Order shall contain such terms as the Parties may mutually agree, it being
intended that the Purchase Order should reflect the terms of the Purchase Order
Proposal, and such other or additional terms as the Parties may mutually agree.
If not changed by mutual agreement of the parties, the terms of payment shall be
net 30 days and the Unit price is f.o.b. Tanon's manufacturing facility.
(h) BarOn's needs for Assemblies not in relation to Customer Contracts
shall be processed in the same manner as set forth above.
SECTION 3: Manufacturing Contract.
3.1 The Manufacturing Contract. Each time BarOn issues EA a Purchase Order,
BarOn and EA, or one of their designated Affiliates, shall enter into a
manufacturing contract (the "Manufacturing Contract") reflecting the terms and
conditions set forth in the accepted Purchase Order, including such additional
or other terms as the Parties may mutually agree. In the absence of a
Manufacturing Contract, the accepted Purchase Order shall be deemed to be the
Manufacturing Contract.
(a) The Manufacturing Contract shall indicate the cost of such
materials to be incurred by EA in the manufacturing process for the Assemblies
required under the accepted Purchase Order (the "Cost of Materials") and all
other information included in the Purchase Order, including the Total Price. The
Unit Price to be paid by BarOn to EA for each Assembly shall be determined by
computing (i) the number of hours (hereinafter "Hours") of direct labor required
to manufacture the Assemblies pursuant to the Purchase Order, including all
labor required to manufacture the Assemblies, package the Assemblies, and
complete all other tasks required pursuant to the Purchase Order and this
Agreement; (ii) the labor rate (hereinafter "Labor Rate") of EA for such
services; (iii) the Cost of Materials required for such Assemblies; (iv) the
labor cost (hereinafter "Labor Cost") defined as Hours multiplied by Labor Rate;
and (v) the variable labor charge ("Variable Charge") defined as seventy percent
(70%) of the Labor Cost. The Unit Price shall equal one hundred thirty nine
percent (139%) of (Labor Cost plus Variable Charge plus Cost of Materials),
divided by the number of Assemblies under the Purchase Order. This price is
defined as the Formula Price.
(b) The Hours required for a particular Purchase Order shall be
determined by mutual agreement of BarOn and EA. If they are unable to agree on
the
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Hours, each of BarOn and EA shall appoint an expert ("Expert") who shall
have at least ten years of experience in the manufacturing of electronic
products, subassemblies and systems. A third expert shall be chosen by each of
such experts and a majority decision of the three Experts shall determine the
Hours. Each party shall bear its own expenses and the parties shall equally
share the fees and expenses of the Experts.
The Labor Rate shall initially be eleven dollars ($11) per hour and it
shall be increased on the anniversary date of the date of this Agreement to the
average hourly direct labor charge of EA at the facility providing the
manufacturing. However, in no event shall such annual increases exceed the
increase in the consumer price index for the SMSA containing such facility for
the calendar year preceding such adjustment.
(c) Notwithstanding the procedure set forth in paragraph (a) of this
Section 3, at any time and from time to time, EA or BarOn may identify a
supplier who is able to supply a component to EA at a cost which is lower than
the cost of such component listed in the Cost of Materials. In such case, EA
shall order the part from such supplier, and shall substitute such part in the
list of materials listed in the Manufacturing Contract, and adjust the Formula
Price by reducing the Cost of Materials component, for all Assemblies utilizing
such less expensive parts.
(d) In addition to the manufacturing charges pursuant to the
Manufacturing Contracts and Purchase Orders, EA shall be entitled to payment for
engineering services provided to BarOn during the process of prototype
production (i.e., before volume production has begun), during changes in design
of the Assemblies, and for any engineering services resulting from changes in
the process or methods of manufacturing after volume production (i.e.,
manufacture of at least 10,000 units per month for two or more consecutive
months) has begun. Engineering services shall be billed at EA's usual and
customary charge at the time such services are provided.
SECTION 4 Manufacturing Consulting Fees of EA
4.1 EA agrees to become BarOn's manufacturing consultant based on its
manufacturing experience by performing various consulting services as BarOn may
from time to time request, including, without limitation:
(i) the evaluation, as to suitability, dependability, etc., of any
other manufacturer with whom BarOn may be interested in doing business;
(ii) assistance with regard to any other manufacturing contracts into
which BarOn may enter;
(iii) assistance with obtaining the best available price on certain
components utilizing EA's purchasing and sourcing departments;
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(iv) subject to the consent of other manufacturers, supervision over
the quality assurance programs of other manufacturers with whom BarOn has
contracted;
(v) any of the activities of EA listed in the preamble of this
Agreement,
(vi) assistance with acquiring a second contract manufacturer in those
cases where EA will not do all of the manufacturing;
(vii) assistance with the compliance by BarOn with any United States
regulatory requirements; and
(viii) acting as a troubleshooter for BarOn's manufacturing
activities.
(Services listed in iii, vii and viii about shall be utilized only if all or
some of the manufacturing is carried out by a manufacturer other than EA.)
4.2. With respect to any such services provided by EA, BarOn shall pay to
EA for the term of this Agreement an amount equal to three percent (3%) of the
charges to BarOn by such third party manufacturer; provided that such amount
shall not apply to any manufacturing done by EA and its Affiliates. In addition,
BarOn shall promptly pay to EA any out-of-pocket expenses incurred by EA during
the performance of its services; provided, that such out-of-pocket expenses are
approved in advance by BarOn.
SECTION 5 Term of Agreement, Renewal, Insolvency Event, Material Breach,
Noncompliance, Noncompete
5.1. Term of Agreement
(a) Unless otherwise provided herein, this Agreement shall continue in
effect for an initial term (the "Initial Term") from the date of this Agreement
until the date that is five (5) years from the date of this Agreement (the
"Expiration Date"), unless extended in accordance with the provisions of
paragraph (b) below.
(b) Notwithstanding the foregoing, BarOn, at its option, shall have
the right to request that EA extend and renew this Agreement for a period not to
exceed one (1) year upon written notice given to EA at least one hundred and
twenty (120) days prior to the end of the Initial Term and any subsequent term
and EA shall use its best efforts to comply with such request. EA shall, upon
its receipt of a notice of extension from BarOn, use all commercially reasonable
efforts to retain the services of those employees who are then employed by EA in
connection with its performance of its obligations hereunder and who are
required by EA to enable it to fulfill its obligations hereunder during such
extension, but EA shall not be liable to BarOn for failure to deliver Assemblies
hereunder to the extent that EA's failure arises as a consequence of the
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departure of any of such employees subsequent to the date that is five (5) years
from the date of this Agreement.
5.2. Insolvency Event. If either BarOn or EA (i) makes a general assignment
for the benefit of creditors or becomes insolvent; (ii) files an insolvency
petition in bankruptcy; (iii) petitions for or acquiesces in the appointment of
any receiver, trustee or similar officer to liquidate or conserve its business
or any substantial part of its assets; (iv) commences under the laws of any
jurisdiction any proceeding involving its insolvency, bankruptcy,
reorganization, adjustment of debt, dissolution, liquidation or any other
similar proceeding for the release of financially distressed debtors; or (v)
becomes a party to any proceeding or action of the type described above in (iii)
or (iv) and such proceeding or action remains undismissed or unstayed for a
period of more than ninety (90) days, then the other Party may by written notice
terminate this Agreement with immediate effect.
5.3. Material Breach. Each of BarOn and EA shall (except as provided in
Section 7.1) have the right to terminate this Agreement for default upon the
other's failure to comply in any material respect with the material provisions
of Sections 5.2, 5.5 (right to terminate only on the part of BarOn) and 6 of the
Agreement.
5.4. Noncompliance. BarOn shall have the right to contract with another
manufacturer for any discontinued specific Purchase Order placed with EA or its
Affiliate and any related Purchase Order upon EA's failure to comply in any
material respect with any of the material terms and conditions of such Purchase
Order. Within a reasonable period after such noncompliance, BarOn shall give
written notice of its intention to seek another manufacturer, which notice shall
set forth the act of noncompliance which forms the basis for such Purchase Order
termination. If EA fails to correct such noncompliance to the reasonable
satisfaction of BarOn within thirty (30) days after receipt of the notification,
then BarOn immediately may terminate such Purchase Order without the requirement
of any payment to EA except with respect to payments required in connection with
Assemblies shipped by EA and accepted by BarOn prior to the date of such
termination, including, without limitation, any compensation, reimbursement,
damages, loss of prospective profit or anticipated sales, expenditures or
investments. With respect to any inventory related to such Assembly, BarOn shall
purchase such inventory at the cost of such inventory paid by EA.
5.5. Covenant Not to Compete. Neither EA nor any Affiliate of EA shall,
during the term of this Agreement, directly or indirectly, own, manage, operate
or control or participate in the ownership, management, operation or control of,
or become associated in any capacity with, or have any financial interest in, or
lend its name or any combination thereof to, any enterprise, firm or corporation
which is engaged in the sale or distribution of Restricted Products (as
hereinafter defined). These restrictions shall not apply to the officers or
directors of EA in their individual capacities.
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"Restricted Products" shall mean products in competition with the products
currently being sold, or currently under development, by BarOn.
5.6. Intellectual Property. In view of the intimate relations hereunder
created between the Parties, the Parties hereby specifically agree that all
intellectual property including any inventions, patents or patent applications
developed by EA (or any EA employee) whether alone or together with BarOn during
the term of this Agreement and for two (2) years following its termination,
which may enhance, improve or otherwise complement BarOn's products shall be
licensed, royalty free, to BarOn on a fully paid up non-exclusive basis.
5.7. Continuing Obligations. No termination of this Agreement, whether on
the Expiration Date or otherwise, shall serve to terminate obligations of the
Parties hereto under the confidentiality provisions of Section 6, and such
obligations shall survive any such termination.
SECTION 6. Covenants of the Parties
6.1. Confidential Information.
(a) All information concerning the Specifications, Quality Assurance
Standards and any other information relating to the design of the Assemblies
(the "BarOn Technical Information") shall hereafter be deemed to be the sole and
exclusive property of BarOn.
(b) All BarOn Technical Information and business information relating
to the conduct of BarOn's business which EA may receive from BarOn, directly or
indirectly, whether by oral or written communication or by observation, shall be
treated and regarded as confidential, proprietary and trade secret information.
EA shall keep this information strictly confidential and secret and shall not
divulge, communicate or transmit this information to third parties, nor utilize
this information in any commercial manner, except for (i) the limited purposes
of producing Assemblies solely and exclusively for BarOn under this Agreement,
or (ii) other uses related to EA's position as an investor in BarOn, or the
position of EA's officers and directors as officers or directors of BarOn. EA
shall restrict disclosure of such information only to such directors, officers
and employees of EA who require such information in connection with the
performance of their duties. EA shall take whatever action may be necessary,
including legal proceedings, to prevent its directors, officers and employees
from using or disclosing such information without BarOn's written permission
except for the purposes set forth herein. The foregoing disclosure and use
restrictions shall not apply to any portion of such information which:
(i) at the time of disclosure to EA is, or thereafter becomes,
through no violation of this Agreement, part of the public domain;
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(ii) corresponds in substance to that which has been furnished to
EA by others not under a then-binding confidentiality obligation to
BarOn;
(iii) corresponds to that which is independently developed by EA
for application in areas other than the manufacture of Assemblies; or
(iv) is required to be disclosed by law.
The obligations of confidentiality and limits on use of information shall
survive the termination or expiration of this Agreement.
(c) BarOn acknowledges that it may have access, through observation,
or otherwise, to certain specifications used by EA in the production of products
and other information relating to EA's customers, other than BarOn (the "EA
Technical Information"). All EA Technical Information and business information
relating to the conduct of EA's business which is observed by, or is otherwise
disclosed to, BarOn, its employees, representatives and/or agents, shall be
treated and regarded as confidential, proprietary and trade secret information.
BarOn shall keep this information strictly confidential and secret and shall not
divulge, communicate or transmit this information to third parties, nor utilize
this information in any commercial manner. BarOn shall restrict disclosure of
such information only to such directors, officers and employees of BarOn who
require such information in connection with the performance of their duties;
provided those duties are related to this Agreement. BarOn shall take whatever
action may be necessary, including legal proceedings, to prevent its directors,
officers and employees from using or disclosing such information without EA's
written permission except for the purposes specifically set forth herein. The
foregoing disclosure and use restrictions shall not apply to any portion of such
information which:
(i) corresponds in substance to that developed or known by BarOn
before its observation by, or disclosure to, BarOn;
(ii) at the time of observation by, or disclosure to, BarOn is,
or thereafter becomes, through no violation of this Agreement, part of
the public domain;
(iii) corresponds in substance to that which has been furnished
to BarOn by others not under a then-binding confidentiality obligation
to EA; or
(iv) is required to be disclosed by law.
The obligations of confidentiality and limits on use of such information shall
survive the termination or expiration of this Agreement.
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(d) EA hereby acknowledges and certifies that, to the best of its
knowledge, all information concerning BarOn Technical Information,
Specifications, Quality Assurance Standards and any other business or technical
information relating to the Assemblies is proprietary to BarOn.
The provisions of this section 6.1 shall apply to EA's Affiliates as well and EA
is undertaking full responsibility for a breach committed by any of its
Affiliates.
6.2. Licenses. EA shall obtain and maintain all necessary federal, state
and/or local Permits which may be required to be obtained by it in connection
with the performance of its obligations hereunder, and shall otherwise comply
with all applicable federal, state or local laws or regulations applicable to
its performance hereunder.
6.3. Governmental Filings. EA shall keep all records and reports required
to be filed by it with governmental agencies in connection with the performance
of its obligations hereunder, and EA shall make its facilities and Assemblies
available at reasonable business hours for inspection by representatives of the
same.
6.4. Indemnification.
(a) EA hereby agrees to defend, hold harmless and indemnify BarOn in
respect of any loss, liability, claim, obligation, damage or deficiency,
including reasonable attorney fees and expenses ("Damages") incurred or suffered
by BarOn as a consequence of:
(i) all Liabilities, including any product liability, resulting
from any Claims asserted by a third person in connection with the
manufacture of the Assemblies or the testing performed by EA;
(ii) any breach of any of EA's covenants herein; and
(iii) all Liabilities arising under the Environmental Laws in
connection with the manufacture and testing of the Assemblies by EA.
(b) BarOn hereby agrees to defend, hold harmless and indemnify EA with
respect to any Damages incurred or suffered by EA as a consequence of:
(i) all Liabilities resulting from any Claims asserted by a third
person against EA that any product manufactured by EA according to
BarOn's specifications is an alleged infringement of such third
party's patent or other intellectual property rights, and
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(ii) all Liabilities resulting from or related to any Claims
asserted by a third person against EA, asserting that the design of
any of the products manufactured by EA for BarOn is defective.
(c) If BarOn or EA, or any of their successors or assigns (each, an
"Indemnified Party") believes that it has suffered or incurred any Damages which
are the subject of an indemnification obligation hereunder, it promptly shall
give notice to the other party, or its successors or assigns, as the case may be
(the "Indemnifying Party"), in writing, describing in reasonable detail the
facts and circumstances giving rise to the claim for indemnification, the
Damages suffered or incurred, including the amount of such Damages, if known, or
as estimated, the method of computation of such Damages, and the provisions of
this Agreement relating to such claim for indemnification. The failure of an
Indemnified Party to give notice in the manner provided herein shall not relieve
the Indemnifying Party of its obligations under this Section, except to the
extent that the Indemnifying Party actually is prejudiced by such failure to
give notice.
Upon receipt of a notice of a claim for indemnification, the Indemnifying Party
shall promptly pay to the Indemnified Party the amount of such Damages in
accordance with and subject to the provisions of this Section; provided,
however, that no such payment shall be due during any period in which the
Indemnifying Party is contesting in good faith either its obligation to make
such indemnification or the amount of Damages payable, or both; and provided
further that (i) in the case of estimated Damages, the Indemnifying Party shall
not be required to provide indemnification in excess of the amount of such
Damages as it reasonably determines are due from time to time and, (ii) in the
case of Damages resulting from third party Claims, the Indemnifying Party shall
not be required to provide indemnification until the Liability to the
third-party claimant has been determined finally by settlement or by the
judgment of a court of competent jurisdiction and all appeals therefrom have
been exhausted.
(d) If any Claim is instituted by a third party with respect to which
an Indemnified Party intends to, or may be entitled to, seek indemnification
hereunder, the Indemnified Party promptly shall notify the Indemnifying Party of
such Claim. The Indemnifying Party shall control, through counsel of its
choosing, the defense of any such third party Claim, and may compromise or
settle the same in its own discretion without consultation with or consent of
the Indemnified Party. The Indemnifying Party shall permit the Indemnified Party
to participate at its own expense in the defense of any such Claim through
counsel chosen by the Indemnified Party, subject, however, to the right of the
Indemnifying Party to control fully the defense of such Claim. Notwithstanding
anything contained herein to the contrary, however, BarOn shall control, through
counsel of its choosing, the defense of all third-party Claims, regardless of
whether they are brought against EA or BarOn, or both, which allege or seek to
enforce any limitation on, or which seek any Damages as a consequence of, EA's
or BarOn's use of any of the BarOn Technical Information; provided that BarOn
may compromise or settle the same at its own disposition. BarOn shall permit EA
to participate at its own expense in the
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defense of any such Claim through counsel chosen by EA, subject, however, to
the right of BarOn to control fully the defense of such Claim.
(e) At no time may an Indemnifying Party assert as a defense to its
obligation to provide indemnification as set forth in this Section that the
Indemnified Party or any of its employees or agents, including any former
employees of the Indemnifying Party who may become employees of the Indemnified
Party, had any knowledge of the matter to which the claim for indemnification
relates, or conducted any investigation relating thereto prior to the date
hereof, and each Party hereby irrevocably waives all such defenses.
SECTION 7 Miscellaneous Provisions
7.1. Entire Agreement: Amendment. This Agreement and the Exhibits and
Schedules appended hereto embody and constitute the entire understanding between
the Parties with respect to the transactions contemplated herein, and, all prior
agreements, understandings, representations and statements, oral or written, are
merged into this Agreement. Neither this Agreement nor any provision hereof may
be waived, modified, amended, discharged or terminated except by an instrument
signed by the Party against whom the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set
forth in such instrument.
7.2. Notices. All notices, demands, requests, or other communications which
may be or are required to be given, served or sent by either Party to the other
Party pursuant to this Agreement, shall be in writing and shall be hand
delivered, sent by express mail or other overnight delivery service or mailed by
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by telegram, telex or telecopy, addressed as follows:
(i) if to EA:
EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, New Jersey 07764-9989
Telecopier No. (908) 571-0583
Telephone No. (908) 229-1100
Attn.: Mr. Jules M. Seshens
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with a copy (which shall not constitute notice) to its counsel:
Richard P. Jaffe, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103-7598
Telecopier No. (215) 994-1111
Telephone No. (215) 994-1046
(ii) if to BarOn:
BarOn Technologies Ltd.
Gutwirth Science Park
Technion City
Haifa 32000 Israel
Telecopier No. 011 972 4 228 881
Telephone No. 011 972 4 226 388
Attn.: Dr. Ehud Baron
with a copy (which shall not constitute notice) to its counsel:
Avi Goldsobel, Esquire
Haifa 32000 Israel
Telecopier No. 011 972 48 253 663
Telephone No. 011 972 4320 225
Each Party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be mailed, sent,
delivered, telefaxed or telexed in the manner described above, or which shall be
delivered to a telegraph company, shall be deemed sufficiently given, served,
sent or received for all purposes at such time as it is delivered to the
addressee (with the return receipt, the delivery receipt or, with respect to a
telex or telefax, the answerback being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
7.3. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New Jersey, without giving effect to
the conflicts of laws provisions thereof.
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7.4. Captions. The captions in this Agreement are inserted for convenience
of reference only and in no way define, describe or limit the scope or intent of
this Agreement or any of the provisions hereof.
7.5. Benefit: No third-Party Beneficiaries. This Agreement shall be binding
upon and shall inure to the benefit of the Parties hereto and their permitted
assigns. This Agreement is entered into solely for the benefit of the Parties
hereto, and the provisions of this Agreement shall be for the sole and exclusive
benefit of such Parties. Nothing herein contained shall be deemed to create any
third party beneficiaries or confer any benefit or Rights on or to any Person
not a Party hereto, and no Person not a Party hereto shall be entitled to
enforce any provisions hereof or exercise any rights hereunder.
7.6. Construction. As used in this Agreement, the masculine shall include
the feminine and neuter, the singular shall include the plural and the plural
shall include the singular, as the context may require. This Agreement shall be
deemed to have been drafted by both EA and BarOn and shall not be construed
against either Party as the draftsman hereof.
7.7. Waiver. Neither the waiver by either of the parties hereto of a breach
of or a default under any of the provisions of this Agreement, nor the failure
of either of the Parties, on one or more occasions, to enforce any of the
provision of this Agreement or to exercise any right or privilege hereunder
shall thereafter be construed as a waiver of any subsequent breach or default of
a similar nature, or as a waiver of any such provisions, Rights, or privileges
hereunder.
7.8. Non-Business Days. If any obligation of a Party hereto falls due on a
Saturday, Sunday or a legal holiday recognized the United States Government or
the Commonwealth of Pennsylvania, then such obligation shall automatically be
postponed until the next business day.
7.9. Counterparts. To facilitate execution, this Agreement may be executed
in any number of counterparts, each of which shall constitute an original but
together shall be construed as one and the same document.
7.10. Exhibits and Schedules. Each Exhibit hereto is incorporated by
reference and made a part of this Agreement.
7.11. Limitations on Assignment. This Agreement shall not be assignable by
either Party hereto, whether by written instrument or by operation of law,
without the written consent of the other Party; provided that BarOn may assign
this Agreement in whole or in part to one or more separate corporations formed
by BarOn or any of its Affiliates for the purpose of performing any obligations
of BarOn hereunder, it being understood that such assignment shall become
effective only when EA has received written notice of such assignment from BarOn
together with a written confirmation by the assignee, reasonably satisfactory in
form and substance to EA, that such assignee agrees
15
<PAGE>
to, and agrees to be bound by, all of the terms and conditions of this
Agreement. Upon the effectiveness of any such assignment by BarOn, the assignee
shall be deemed to be "BarOn" for all purposes hereunder with the same effect as
if it were the original signatory hereto; provided, however, that no such
assignment shall, without the written consent of EA thereto, relieve BarOn from
any of its liabilities hereunder.
7.12. Survival Of Representations. Each of the representations and
warranties made herein shall, for a period of three (3) years, survive the
expiration or earlier termination of this Agreement and any and all
investigations and inquiries by BarOn and EA made prior to such expiration or
termination in connection with this Agreement and the transactions contemplated
hereby; provided, however, that the expiration of such period shall have no
effect on any action or proceeding that is pending as of the date of such
expiration.
7.13. No Joint Venture, Etc. Nothing contained herein shall be deemed to
create any joint venture or partnership between the Parties hereto or a license
granted by BarOn for any of its technology, and, except as is expressly set
forth herein, neither Party shall have any right by virtue of this Agreement to
bind the other Party in any manner whatsoever.
7.14. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective while
this Agreement remains in effect, the legality, validity and enforceability of
the remaining provisions shall not be affected thereby, and in lieu of each such
illegal, invalid or unenforceable provision there shall be added automatically
as a part of the document a provision that is legal, valid, and enforceable, and
is similar in terms to such illegal, invalid or unenforceable provision as may
be possible while giving effect to the benefits and burdens for which the
parties have bargained hereunder.
7.15. Dispute Resolution. The Parties shall follow these dispute-resolution
processes in connection with all disputes, controversies or claims, whether
based on contract, tort, statute, fraud, misrepresentation or any other legal
theory (hereinafter collectively "Disputes"), except as otherwise noted, arising
out of or relating to this Agreement:
(i) the Parties will attempt to settle all Disputes through
good-faith negotiations;
(ii) if those attempts fail to resolve the Dispute to the
satisfaction of both Parties within forty-five (45) days of the date
of initial demand for negotiation, then each Party shall nominate a
senior officer of the rank of Vice President or higher as its
representative. These representatives shall meet in person and alone
(except for one assistant) and shall attempt in good faith to resolve
the Dispute. This meeting shall be a required
16
<PAGE>
prerequisite before either Party may seek resolution of the Dispute as
provided below; and
(iii) where the Parties cannot resolve the Dispute to the
reasonable satisfaction of both Parties after the meeting required
under paragraph (ii) above, the Dispute shall be settled by binding
arbitration conducted in Philadelphia, Pennsylvania in accordance with
the then-current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). Any such arbitration shall be heard
by a panel of three arbitrators, one chosen by BarOn, one by EA and
the third chosen by the arbitrators appointed by BarOn and EA. A
majority decision of two of the three arbitrators shall be deemed
sufficient for judgment to be rendered. Each Party shall bear its own
expenses, and the Parties shall equally share the filing and other
administrative fees of the AAA and the expenses of the arbitrators.
Any award of the arbitrators shall be in writing, shall state the
reasons for the award (including any findings of fact and conclusions
of law) and shall explain the breakout of any damages awarded.
Judgment upon an award may be entered in any court having competent
jurisdiction. Notwithstanding the foregoing provisions of this
paragraph (iii), but subject to paragraphs (i) and (ii) of this
Section 7.15, either Party may apply to a court of competent
jurisdiction for injunctive or other equitable relief without breach
of this Arbitration provision.
7.16. Pricing/Manufacturing Issues. If BarOn believes that the price to be
paid for Assemblies being manufactured by EA is not commercially reasonable, or
if BarOn would like to open a manufacturing facility or engage a third party
manufacturer for some portion of its manufacturing, it may notify EA of such a
belief and the basis for the belief. In that event the Chairman of EA and
President of BarOn shall in good faith discuss the issue and attempt to reach a
mutually acceptable agreement on such manufacturing or pricing. These
representatives shall have the authority to bind EA and BarOn to a mutually
acceptable agreement. If they are unable to agree, the provisions of Section
7.15 (ii) shall be applicable. Notwithstanding the foregoing, EA shall have no
obligation to agree to pricing or other terms inconsistent with the other
provisions of this Agreement.
17
<PAGE>
7.17. Waiver of Specific Performance. Accordingly, EA waives its right to
seek specific performance or injunctions to prevent BarOn from manufacturing or
having the unit being manufactured for it by a third party.
7.18. Jurisdiction.
(a) To the fullest extent permitted by applicable law, EA hereby
irrevocably and unconditionally agrees that any suit, action or proceeding with
respect to this Agreement, or any action or proceeding to execute or otherwise
enforce any judgment in respect of a breach thereof, brought by EA against BarOn
or any of its property shall be brought in Israel, and by execution and delivery
of this Agreement, EA irrevocably submits to the jurisdiction of such court.
(b) To the fullest extent permitted by applicable law, BarOn hereby
irrevocably and unconditionally agrees that any suit, action or proceeding with
respect to this Agreement, or any action or proceeding to execute or otherwise
enforce any judgment in respect of a breach thereof, brought by BarOn against EA
or any of its property shall be brought in the United States, and by execution
and delivery of this Agreement, BarOn irrevocably submits to the jurisdiction of
such court. In addition, BarOn hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue in any suit, action or proceeding arising out of or relating to this
Agreement, brought in any such court, and hereby irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
EA INDUSTRIES, INC.
By:_______________________________
BARON TECHNOLOGIES, LTD.
By:________________________________
18
Exhibit No.
- -----------
10.4 Warrant to Purchase Ordinary Shares of BarOn Technologies,
Ltd.
<PAGE>
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED
UNLESS THERE IS A REGISTRATION STATEMENT IN EFFECT COVERING THIS WARRANT OR THE
COMMON STOCK, AS THE CASE MAY BE, OR THERE IS AVAILABLE AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS.
- --------------------------------------------------------------------------------
BARON TECHNOLOGIES, LTD.
WARRANT CERTIFICATE NO. 1996-1
DATED: July 1, 1996
Warrant to Purchase 1,000,000 Ordinary Shares
VOID after July 1, 2001
- --------------------------------------------------------------------------------
BarOn Technologies, Ltd., an Israeli corporation (the "Company"), hereby
certifies that EA Industries, Inc., a New Jersey corporation, or registered
assigns ("Holder"), for value received, is entitled to purchase from the Company
at any time after the date hereof and before 6:00 P.M., Philadelphia Local Time
on July 1, 2001 (the "Exercise Period"), 1,000,000 ordinary shares, par value
N.I.S. 0.01 per share, of the Company ("Warrant Shares"), subject to adjustment
as provided herein, at the purchase price of $4.00, U.S. Dollars, per Warrant
Share (the "Exercise Price"), in accordance with the terms and conditions set
forth herein. For purposes of this Warrant Certificate, the right to purchase
the Warrant Shares as set forth above is hereinafter referred to as the
"Warrant."
1. EXERCISE OF WARRANT.
(a) At any time or from time to time during the Exercise Period, upon
presentation and surrender of this Warrant Certificate, with the attached
Purchase Form duly executed, at the principal office of the Company at Gutwirth
Science Park, Technion City, Haifa 32000 Israel, together with (i) cash or a
certified or bank cashier's check payable to the Company in an amount equal to
the Exercise Price multiplied by the number of Warrant Shares being purchased,
and (ii) unless the Warrant Shares are covered by a then current registration
statement, or a Notification under Regulation A, under the Securities Act of
1933, as amended, and the Rules and Regulations promulgated thereunder (such Act
and Rules and Regulations being hereinafter referred to as the "Act"), such
Holder's written acknowledgment,
<PAGE>
in form and substance reasonably satisfactory to the Company, that the Holder
(A) is purchasing such Warrant Shares for investment and not for distribution or
resale in violation of the Act and applicable state securities laws; (B) has
been advised and understands that [1] such Warrant Shares have not been
registered under the Act and are "restricted securities" within the meaning of
Rule 144 under the Act and are subject to restrictions on transfer and [2]
except as provided in this Warrant Certificate, the Company is under no
obligation to register such Warrant Shares under the Act; and (C) has been
advised and understands that such Warrant Shares may not be transferred without
compliance with all applicable federal and state securities laws, the Company
shall deliver to such Holder, as promptly as practicable, certificates
representing the Warrant Shares being purchased. This Warrant may be exercised
in whole or in part; and, in case of exercise hereof in part only, the Company,
upon surrender hereof, will deliver to the Holder a new Warrant Certificate
entitling said Holder to purchase the number of Warrant Shares as to which this
Warrant Certificate has not been exercised.
(b) The Holder of this Warrant Certificate shall not sell, offer to
sell or solicit offers to buy any of the Warrant Shares until the Exercise Price
of the Warrant Shares shall have been paid in full to the Company and thereafter
until there has been compliance with the other conditions imposed by this
Agreement.
(c) EAI agrees that its exercise of rights to purchase shares pursuant
to the Warrant shall be limited so that at no time will EAI own in excess of 49%
of all of the issued and outstanding shares of the Company.
2. EXCHANGE AND TRANSFER OF WARRANT. This Warrant (a) at any time prior to
the exercise hereof, upon presentation and surrender to the Company, may be
exchanged, alone or with other warrants of like tenor registered in the name of
the same Holder, for another warrant or other warrants of like tenor in the name
of such Holder exercisable for the same aggregate number of Warrant Shares as
the warrant or warrants surrendered, and (b) may not be sold, transferred,
hypothecated, or assigned unless there is a registration statement in effect
covering the Warrant or there is available an exemption from the registration
requirements of the Act and applicable state securities laws. Any transferee
shall be subject to the same restrictions as to subsequent transfers as the
transferee was subject. The term "Warrant" as used herein includes any warrants
into which this Warrant may be exchanged.
3. RIGHTS AND OBLIGATIONS OF WARRANT HOLDERS.
(a) The Holder of this Warrant Certificate shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or in equity; provided, however, in the event that any certificate representing
Warrant Shares is issued to the Holder hereof upon exercise of some or all of
the Warrant represented hereby, such Holder shall, for all purposes, be deemed
to have become the Holder of record of such Warrant Shares on the date on which
such Warrant Shares are registered in the name of such Holder. The rights of the
Holder of this Warrant Certificate are limited to those expressed herein and the
Holder of this Warrant Certificate, by his or its acceptance hereof, consents to
and agrees to be bound by and to comply
(2)
<PAGE>
with all the provisions of this Warrant Certificate, including without
limitation all the obligations imposed upon the Holder hereof by Sections 5 and
7. In addition, the Holder of this Warrant Certificate, by accepting the same,
agrees that the Company and its warrant agent (if any) may deem and treat the
person in whose name this Warrant Certificate is registered as the absolute,
true and lawful owner for all purposes whatsoever, and neither the Company nor
any warrant agent shall be affected by any notice to the contrary.
(b) The Holder of this Warrant Certificate, by accepting the same, and
any transferee of this Warrant Certificate, by accepting the transfer of same,
represents and warrants to the Company that such Holder and any transferee who
is acquiring the Warrant, will acquire the Warrant Shares issuable upon the
exercise thereof, for investment and not for distribution or resale in violation
of the Act and applicable state securities laws.
4. WARRANT SHARES AND WARRANTS.
(a) The Company covenants and agrees that this Warrant has been duly
and validly authorized and issued, and is free from all stamp-taxes, liens and
charges with respect to the purchase thereof. In addition, the Company agrees at
all times to reserve and keep available an authorized number of shares of its
ordinary shares sufficient to permit the exercise in full of this Warrant.
(b) The Company covenants and agrees that all Warrant Shares delivered
upon exercise of this Warrant Certificate will, upon delivery, be duly and
validly authorized and issued, fully paid and non-assessable, and free from all
stamp-taxes, liens, charges with respect to the purchase thereof, and other
third parties' rights.
5. DISPOSITION OF WARRANT AND WARRANT SHARES.
(a) The Holder and any transferee of this Warrant Certificate (which
term shall include the Warrant Shares) by their acceptance hereof, hereby agree
that (a) no offer, sale or public distribution of this Warrant or the Warrant
Shares will be made in violation of the provisions of the Act or applicable
state securities laws, and (b) during such period as delivery of a prospectus
with respect to this Warrant or the Warrant Shares may be required by the Act,
no offer, sale or public distribution of this Warrant or the Warrant Shares will
be made in a manner or on terms different from those set forth in, or without
delivery of, a prospectus then meeting the requirements of Section 10 of the Act
and in compliance with all applicable state laws. The Holder of this Warrant
Certificate and any transferee hereof further agree that if any distribution or
transfer of this Warrant or the Warrant Shares is proposed to be made otherwise
than with a registration statement in effect covering this Warrant or the
Warrant Shares, as the case may be, and by delivery of a prospectus meeting the
requirements of Section 10 of the Act, such action shall be taken only after
submission to the Company of an opinion of counsel, reasonably satisfactory in
form and substance to the Company's counsel, to the effect that the proposed
distribution or transfer will not be in violation of the Act or of applicable
state law. Furthermore, it shall be a condition to the transfer of the Warrant
that any transferee thereof deliver to the
(3)
<PAGE>
Company his or its written agreement to accept and be bound by all of the terms
and conditions of this Warrant Certificate.
(b) The Company may cause the following legend to be set forth on each
Warrant and certificate representing Warrant Shares or any other security issued
or issuable upon exercise of this Warrant not theretofore distributed to the
public or sold to underwriters for distribution to the public under a
registration statement pursuant to Section 7 hereof, unless counsel for the
Company is of the opinion as to any such certificate that such legend is
unnecessary:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS
THERE IS A REGISTRATION STATEMENT IN EFFECT COVERING SUCH SECURITIES OR THERE IS
AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS."
6. ADJUSTMENT. The Exercise Price and the number of Warrant Shares
purchasable upon the exercise of this Warrant are subject to adjustment from
time to time upon the occurrence of any of the events set forth below:
(a) Definition of "Shares". As used herein, "Shares" shall mean the
Company's ordinary shares, par value N.I.S. 0.01 per share (the "Common Stock")
which is the class of capital stock purchasable upon the exercise of this
Warrant as provided herein.
(b) Distribution on Shares. In case the Company shall make any
dividend or distribution on the Shares, payable in shares of the Common Stock of
the Company, then the Exercise Price in effect immediately prior to the making
of such distribution shall be adjusted to a price (computed to the nearest cent)
determined by dividing (i) an amount equal to the product of (A) the number of
shares of Common Stock outstanding immediately prior to the making of such
distribution (including as outstanding shares the maximum number of shares of
Common Stock necessary to effect the conversion, exchange or exercise of all
then outstanding convertible stock, options or obligations theretofore issued in
distributions on the Shares, including this Warrant) multiplied by (B) the
Exercise Price, by (ii) the total number of shares of Common Stock outstanding
immediately following the making of such distribution (including as then
outstanding shares the maximum number of shares of Common Stock necessary to
effect the conversion, exchange or exercise of all then outstanding convertible
stock, options, or obligations theretofore issued in distribution on the Shares,
including this Warrant).
(c) Subdivision or Combination of Shares. In case the Shares issuable
upon exercise of this Warrant shall be subdivided into a greater or combined
into a lesser number of shares (whether with or without par value), the Exercise
Price shall be decreased or increased, as the case may be, to an amount which
shall bear the same relation to the Exercise Price in effect
(4)
<PAGE>
immediately prior to such subdivision or combination as the total number of
Shares outstanding immediately prior to such subdivision or combination bears to
the total number of Shares outstanding immediately after such subdivision or
combination. In case of a subdivision or combination, the adjustment in the
Exercise Price shall be made as of the effective date of the applicable event.
(d) Issuance of Additional Shares of Capital Stock. Additional shares
of Capital Stock shall mean all shares of Capital Stock issued by the Company,
except (i) the Warrant Shares, (ii) Options to purchase shares of Common Stock
granted by the Company after the date hereof as an incentive for performance to
officers, directors, employees and consultants providing services to the Company
and the shares of Common Stock issuable upon the exercise of such options
provided that the option exercise price for such options is at least $4.00 U.S.
Dollars per share, or a lower exercise price was approved in writing by the
Holder or by a Director of the Company appointed by the Holder. Capital Stock
shall mean the Common Stock and any other stock of any class, or series within a
class, which has the right to participate in the distribution of earnings or
assets of the Company without limit as to amount or percentage.
If the Company at any time while this Warrant remains outstanding and
unexpired shall issue any Additional Shares of Capital Stock (otherwise than as
provided in the foregoing Subsections 6(a) through 6(c) above) at a price per
share less, or for other consideration lower, than the exercise price in effect
immediately prior to such issuance, or without consideration, then upon such
issuance the Exercise Price shall be reduced to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction:
(i) the numerator of which shall be the number of shares of
Capital Stock outstanding immediately prior to the issuance of such Additional
Shares of Capital Stock plus the number of shares of Capital Stock which the
aggregate consideration for the total number of such Additional Shares of
Capital Stock so issued would purchase at the then effective Exercise Price, and
(ii) the denominator of which shall be the number of shares of
Capital Stock outstanding immediately prior to the issuance of such Additional
Shares of Capital Stock plus the number of such Additional Shares of Capital
Stock so issued.
The provisions of this Subsection 6(d) shall not apply under any of
the circumstances for which an adjustment is provided in other subsections of
Section 6. No adjustment of an Exercise Price shall be made under this
Subsection 6(d) upon the issuance of any Additional Shares of Capital Stock
which are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any convertible securities if any such adjustments shall
previously have been made upon the issuance of any such warrants, options or
other rights or upon the issuance of any convertible securities (or upon the
issuance of any warrants, options or any rights therefor) pursuant to
Subsections 6(e) or 6(f) hereof.
(5)
<PAGE>
(e) Issuance of Warrants, Options or Other Rights. If the Company at
any time while this Warrant remains outstanding and unexpired shall issue any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Capital Stock and the price per share for which Additional Shares of
Capital Stock may at any time thereafter be issuable pursuant to such warrants,
options or other rights shall be less than the Exercise Price in effect
hereunder immediately prior to such issuance, then upon such issuance the
Exercise Price shall be adjusted as provided in Subsection 6(d) hereof on the
basis that:
(i) the maximum number of Additional Shares of Capital Stock
issuable pursuant to all such warrants, options or other rights shall be deemed
to have been issued as of the date of actual issuance of such warrants, options
or other rights, and
(ii) the aggregate consideration for such maximum number of
Additional Shares of Capital Stock issuable pursuant to such warrants, options
or other rights, shall be deemed to be the consideration received by the Company
for the issuance of such warrants, options, or other rights plus the minimum
consideration to be received by the Company for the issuance of Additional
Shares of Capital Stock pursuant to such warrants, options, or other rights.
(f) Issuance of Convertible Securities. If the Company at any time
while this Warrant remains outstanding and unexpired shall issue any securities
convertible into Capital Stock and the consideration per share for which
Additional Shares of Capital Stock may at any time thereafter be issuable
pursuant to the terms of such convertible securities shall be less than the
Exercise Price in effect immediately prior to such issuance, then upon such
issuance the Exercise Price shall be adjusted as provided in Subsection 6(d)
hereof on the basis that:
(i) the maximum number of Additional Shares of Capital Stock
necessary to effect the conversion or exchange of all such convertible
securities shall be deemed to have been issued as of the date of issuance of
such convertible securities, and
(ii) the aggregate consideration for such maximum number of
Additional Shares of Capital Stock shall be deemed to be the consideration
received by the Company for the issuance of such convertible securities plus the
minimum consideration received by the Company for the issuance of such
Additional Shares of Capital Stock pursuant to the terms of such convertible
securities.
No adjustment of the Exercise Price shall be made under this
Subsection 6(f) upon the issuance of any convertible securities which are issued
pursuant to the exercise of any warrants, options or other subscription or
purchase rights therefor, if any such adjustment shall previously have been made
upon the issuance of such warrants, options or other rights pursuant to
Subsection 6(e) hereof.
(g) Liquidating Dividends, Etc. If the Company at any time while this
Warrant is outstanding and unexpired makes a distribution of its assets to the
holders of its
(6)
<PAGE>
Capital Stock as a dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing Subsections 6(a)
through 6(f)), the Warrant Holder shall be entitled to receive upon the
exercise hereof, in addition to the shares of Common Stock receivable upon such
exercise, and without payment of any consideration other than the Exercise
Price, an amount in cash equal to the value of such distribution per share of
Common Stock multiplied by the number of shares of Common Stock which, on the
record date for such distribution, are issuable upon exercise of this Warrant
(with no further adjustment being made following any event which causes a
subsequent adjustment in the number of shares of Common Stock issuable upon the
exercise hereof), and an appropriate provision therefor should be made a part of
any such distribution. The value of a distribution which is paid in other than
cash shall be determined in good faith by the Board of Directors of the Company.
(h) Increase in Shares Per Warrant. Upon each adjustment of the
Exercise Price as a result of calculations made pursuant to this Section 6, the
Warrant outstanding prior to the making of the adjustment in the Exercise Price
shall thereafter evidence the right to purchase, at the adjusted Exercise Price,
that number of Shares (calculated to the nearest whole share) obtained by (i)
multiplying the number of Shares purchasable upon exercise of the Warrant prior
to adjustment of the number of Shares by the Exercise Price in effect prior to
adjustment of the Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect after such adjustment of the Exercise Price.
(i) Effect of Sale, Merger, or Consolidation. In case of any capital
reorganization of the Company, or of any reclassification of the Shares, or in
case of the consolidation of the Company with or the merger of the Company into
any other corporation, this Warrant shall, after such capital reorganization,
reclassification of Shares, consolidation or merger, be exercisable upon the
terms and conditions specified in this Warrant Certificate, for the number of
shares of Common Stock or other securities of the Company, or of the corporation
resulting from such consolidation or surviving such merger, as the case may be,
to which the Shares issuable (at the time of such capital reorganization,
reclassification of shares, consolidation or merger) would be entitled if such
exercise had taken place; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the Holder
of this Warrant shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The subdivision
or combination of Shares at any time outstanding into a greater or lesser number
of Shares shall not be deemed to be a reclassification of the Shares of the
Company for the purposes of this Section. Anything herein contained to the
contrary notwithstanding, this Warrant shall, following any sale of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation where such sale is to be followed by a dissolution or
liquidation of the Company, remain exercisable until such dissolution or
liquidation is effected, for such securities or property of the Company or of
the
(7)
<PAGE>
corporation to which the sale was made as would have been issuable if such
exercise had taken place prior to such sale.
(j) Notice to Warrant Holder of Adjustment. Whenever the Exercise
Price is adjusted as herein provided, the Company shall cause to be mailed to
the Holder, within 30 days of such adjustment, in accordance with the provisions
of this Section, a notice (i) stating that the Exercise Price and the number of
Shares purchasable upon exercise of this Warrant have been adjusted, (ii)
setting forth the adjusted Exercise Price and the adjusted number of Shares
purchasable upon the exercise of this Warrant, and (iii) showing in reasonable
detail the computations and the facts, including the amount of consideration
received or deemed to have been received by the Company, upon which such
adjustments are based.
(k) Notice to Warrant Holder of Stock Dividends, Reorganizations, etc.
In case at any time after the date hereof:
(i) The Company shall declare any dividend upon its Shares
payable otherwise than in cash out of the consolidated net income of the Company
and its subsidiaries or payable in Shares of the Company; or
(ii) The Company shall offer for subscription to the holders of
its Shares any additional shares of stock of any class or any other securities
convertible into shares of stock or any rights to subscribe thereto; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company (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), or any conversion of the Shares
into securities of another corporation, or a sale of all or substantially all of
the assets of the Company, or a consolidation or merger of the Company with
another corporation (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification or change of the Shares issuable upon exercise of this
Warrant); or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of said
cases, the Company shall cause to be delivered to the Holder, not less than 30
days before any record date or other date set for definitive action, written
notice of the date upon which the books of the Company shall close or a record
shall be taken for purposes of such dividend, distribution or subscription
rights or upon which such reorganization, reclassification, conversion, sale,
consolidation, merger, dissolution, liquidation or winding up shall take place,
as the case may be. Such notice shall also set forth facts as shall indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Exercise Price and the kind and amount of the shares of
stock and other securities and property deliverable upon exercise of the
Warrant. Such notice shall also specify the date as of which the holders of the
Shares of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Shares for securities
or other
(8)
<PAGE>
property deliverable upon such reorganization, reclassification, conversion,
sale, consolidation, merger, dissolution, liquidation or winding up, as the case
may be (on which date in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to exercise this Warrant
shall terminate).
(l) Fractional Shares. The Company shall not issue any fraction of a
Warrant Share upon the exercise of this Warrant or any portion thereof. If more
than one warrant shall be surrendered or exercised at one time by the Holder,
the number of full shares which shall be issuable upon exercise thereof shall be
computed on the basis of the aggregate number of warrants so exercised. If any
fractional interest in a Warrant Share shall be deliverable upon the exercise of
this Warrant, the Company shall pay to the Holder in cash an amount equal to
such fraction multiplied by the average closing bid price of the Shares on the
business day next preceding the day of exercise.
(m) Reissued Warrant. At the request of the Holder delivered after an
adjustment pursuant to this Section 6, the Company, or its successor or the
purchaser of its assets, shall, without payment of any additional consideration
therefor, deliver a substitute fully executed Warrant reflecting the adjusted
terms. Such delivery may be made conditional upon surrender of the existing
Warrant to the Company.
(n) Other provisions Applicable to Adjustments Under this Section. The
following provisions will be applicable to the making of adjustments in an
Exercise Price hereinabove provided in this Section 6:
(i) Computation of Consideration. To the extent that any
Additional Shares of Capital Stock or any convertible securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Capital Stock or any convertible securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Shares of Capital Stock or convertible securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Capital Stock or convertible securities are sold to underwriters or
dealers for public offering without a subscription offering, or through
underwriters or dealers for public offering without a subscription offering, the
initial public offering price, in any such case excluding any amounts paid or
incurred by the Company for and in the underwriting of, or otherwise in
connection with the issue thereof. To the extent that such issuance shall be for
a consideration other than cash, then, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time of such issuance
as determined in good faith by the Company's Board of Directors. The
consideration for any Additional Shares of Capital Stock issuable pursuant to
any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants,
options or other rights, plus the minimum additional consideration payable to
the Company upon the exercise of such warrants, options or other rights. The
consideration for any Additional Shares of Capital Stock issuable pursuant to
the terms of any convertible securities shall be the consideration paid or
payable to the Company in respect of the subscription for or purchase of
(9)
<PAGE>
such convertible securities, plus the minimum additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or exchange
in such convertible securities. In case of the issuance at any time of any
Additional Shares of Common Stock or convertible securities in payment or
satisfaction of any dividend upon any class of stock preferred as to dividends
in a fixed amount, the Company shall be deemed to have received for such
Additional Shares of Capital Stock or convertible securities a consideration
equal to the amount of such dividend so paid or satisfied.
(ii) Readjustment of Exercise Price. Upon the expiration of the
right to convert or exchange any convertible securities, or upon the expiration
of any rights, options or warrants, the issuance of which convertible
securities, rights, options or warrants effected an adjustment in an Exercise
Price, if exchanged, or if any such rights, options or warrants shall not have
been exercised, the number of shares of Common Stock deemed to be issued and
outstanding by reason of the fact that they were issuable upon conversion or
exchange of any such convertible securities or upon exercise of any such rights,
options, or warrants shall no longer be computed as set forth above, and such
Exercise Price shall forthwith be readjusted and thereafter be the price which
it would have been (but reflecting any other adjustments in the Exercise Price
made pursuant to the provisions of this Section 6 after the issuance of such
convertible securities, rights, options or warrants) had the adjustment of the
Exercise Price made upon the issuance or sale of such convertible securities or
issuance of rights, options or warrants been made on the basis of the issuance
only of the number of Additional Shares of Capital Stock actually issued upon
conversion or exchange of such convertible securities, or upon the exercise of
such rights, options or warrants, and thereupon only the number of Additional
Shares of Capital Stock actually so issued, if any, shall be deemed to have been
issued and only the consideration actually received by the Company (computed as
set forth in Subsection 6(n)(i) hereof) shall be deemed to have been received by
the Company.
(iii) Treasury Shares. The number of shares of Common Stock at
any time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or any subsidiary
or affiliate.
(iv) Other Action Affecting Capital Stock. In case after the date
hereof the Company shall take any action affecting the outstanding number of
shares of Capital Stock, other than an action described in any of the foregoing
Subsections hereof, which in the opinion of the Company's Board of Directors
would have a materially adverse effect upon the rights of the holders of the
Warrants, the Exercise Price shall be adjusted in such manner and at such time
as the Board of Directors on the advice of the Company's independent accountants
may in good faith determine to be equitable in the circumstances.
7. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) (i) Each time the Company files a registration statement under the
Act which relates to a current offering of securities of the Company (except
registrations solely for registration of shares in connection with an employee
benefit plan or a merger, consolidation or
(10)
<PAGE>
business combination), such registration statement and the prospectus included
therein shall also, during the five-year period following the issuance of this
Warrant, at the written request of the Holder to the Company, include and relate
to, and meet the requirements of the Act with respect to, the public offering of
the Warrant Shares so as to permit the public sale thereof in compliance with
the Act. The Company shall give written notice to the Holder of its intention to
file a registration statement under the Act relating to a current offering of
the aforesaid securities of the Company, not less than 30 days prior to the
filing of such registration statement, and the written request provided for in
the first sentence of this subsection shall be made by the Holder 5 or more days
prior to the date specified in the notice as the date on which the Company
intends to file such registration statement. Neither the delivery of such notice
by the Company nor of such request by the Holder shall in any way obligate the
Company to file such registration statement under this Subsection 7(a) and the
Company may, at any time prior to the effective date thereof, determine not to
offer the securities to which such registration statement relates, without
liability to the Holder, except that the Company shall pay such expenses as are
contemplated to be paid by it under Subsection 7(c) below; and
(ii) If, in any incidental registration referred to in Clause
(a)(i) of this Section 7, the managing underwriter reasonably determines that
the number of securities proposed to be sold in such registration exceeds the
number that can be sold in such offering without having a material adverse
effect on the success of the offering (including, without limitation, a material
adverse impact on the selling price or the number of shares that any participant
may sell), the Company will include in such registration only the number of
securities that, in the reasonable opinion of such underwriter, can be sold
without having a material adverse effect on the success of the offering as
follows: (1) first, all of the shares to be issued and sold by the Company, (2)
second, all of the shares to be registered pursuant to a demand made under any
contract or contracts giving the holder thereof the right to demand such
registration, and (3) third, the Warrant Shares requested to be included in such
registration by the Holder and the shares of common stock of the Company
requested to be included by any other person pursuant to such person's
"piggy-back" rights, pro rata, on the basis of the aggregate number of shares
requested to be included.
(b) In addition, upon written notice from the Holder that it
contemplates the transfer of all or any of the Warrant Shares under such
circumstances that a public offering, within the meaning of the Act, of the
Warrant Shares will be involved, the Company shall, in accordance with Section
7(d) below, as promptly as possible after receipt of such notice, file a new
registration statement with respect to such offering and sale or other
disposition of the Warrant Shares, provided, however, that the Holder may
exercise the foregoing demand registration right on two occasions only. In the
event that the Company gives notice to other holders of Company warrants and
warrant shares advising that the Company is proceeding with such registration
statement and offering to include therein the warrant shares of such holders,
Company shall obtain from any such holder who accepts such offer by notice in
writing to the Company the agreement of such holder to pay holder's pro rata
cost of such registration statement.
(11)
<PAGE>
(c) In the event that the Company shall take action to permit a public
offering or sale or other distribution of the Warrant Shares pursuant to
Subsection 7(a) or 7(b) above, the Company shall:
(i) Supply to the Holder two executed copies of each registration
statement and a reasonable number of copies of the preliminary, final and other
prospectus or offering circular in conformity with requirements of the Act and
the Rules and Regulations promulgated thereunder and such other documents as the
Holder shall reasonably request.
(ii) Cooperate in taking such action as may be necessary to
register or qualify the Warrant Shares under such other securities acts or blue
sky laws of such jurisdictions as the Holder shall reasonably request and to do
any and all other acts and things which may be necessary or advisable to enable
the Holder of such Warrant Shares to consummate such proposed sale or other
disposition of the Warrant Shares in any such jurisdiction; provided, however,
that in no event shall the Company be obligated, in connection therewith, to
qualify to do business or to file a general consent to service of process in any
jurisdiction where it shall not then be qualified.
(iii) Keep effective for a period of not less than three (3)
months after the initial effectiveness thereof all such registrations or
Notifications under the Act and cooperate in taking such action as may be
necessary to keep effective such other registrations and qualifications, and do
any and all other acts and things for such period -- not to exceed nine months
- -- as may be necessary to permit the public sale or other disposition of such
Warrant Shares by the Holder.
(iv) Indemnify and hold harmless Holder and each underwriter,
within the meaning of the Act, who may purchase from or sell for Holder, any
Warrant Shares, from and against any and all losses, claims, damages, and
liabilities (including, but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing, defending or settling any
claim) arising from (i) any untrue statement of a material fact contained in a
registration statement furnished pursuant to Clause (c)(i) of this Section 7, or
any prospectus or offering circular included therein, or (ii) any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (unless such untrue statement or omission
was based upon information furnished or required to be furnished in writing to
the Company by such Holder or underwriter expressly for use therein), which
indemnification shall include each person, if any, who controls any such Holder
or underwriter, within the meaning of the Act; provided, however, that the
Company shall not be so obligated to indemnify any such Holder or underwriter or
controlling person unless such Holder and underwriter shall at the same time
(and the Holder of this Warrant Certificate, by accepting the same, and any
transferee of this Warrant Certificate, by accepting the transfer of the same,
do hereby agree to) indemnify the Company, its directors, each officer signing
any registration statement or any amendment to any registration statement or
Notification and each person, if any, who controls the Company within the
meaning of the Act, from and against any and all losses, claims, damages and
liabilities
(12)
<PAGE>
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing, defending or settling any claim) arising
from (iii) any untrue statement of a material fact contained in any registration
statement or any amendment to any registration statement or prospectus or
offering circular furnished pursuant to Clause (c)(i) of this Section 7, or (iv)
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but the indemnity of
such Holder, underwriter or controlling person shall be limited to liability
based upon untrue statements of a material fact or omission to state a material
fact required to make such statements not misleading contained within
information furnished in writing to the Company by such Holder or underwriter or
controlling person expressly for use therein. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter (or to the
benefit of any person who controls such underwriter) on account of any losses,
claims, damages, liabilities (or actions or proceedings in respect thereof)
arising from the sale of any of such Warrant Shares by such underwriter to any
person if such underwriter failed to send or give a copy of the prospectus or
offering circular furnished pursuant to Clause (c)(i) of this Section 7, as the
same may then be supplemented or amended, to such person with or prior to the
written confirmation of the sale involved.
(d) The Company shall comply with the requirements of Subsections 7(a)
and 7(b) of this Section (including the related requirements of Subsection 7(c)
of this Section), at its own expense, excluding underwriting commissions,
transfer taxes, charges of Holder's counsel and underwriter's expense allowance
attributable to the Warrant Shares.
(e) The Company's obligation under Subsection 7(a) shall be
conditioned upon a timely receipt by the Company in writing of:
(i) Information as to the terms of such public offering furnished
by or on behalf of Holder intending to make a public distribution of his Warrant
Shares; and
(ii) Such other information as the Company may reasonably require
from Holder or any underwriter for inclusion in such registration statement or
post-effective amendment.
The Company's agreements with respect to the Warrant Shares in
this Section will continue in effect regardless of the exercise or surrender of
this Warrant.
8. SURVIVAL. The various rights and obligations of the Holder hereof and of
the Company as set forth herein shall survive the exercise of the Warrant
represented hereby and the surrender of this Warrant Certificate and the
exercise of all the Warrant represented hereby. The Company shall, if requested,
deliver to the Holder hereof its written acknowledgments of its continuing
obligations hereunder.
(13)
<PAGE>
9. NOTICE. All notices required by this Warrant Certificate to be given or
made shall be given or made by First Class Mail, postage prepaid, addressed as
follows:
If to the registered Holder hereof:
EA Industries, Inc.
185 Monmouth Parkway
West Long Branch, New Jersey 07764-9989
Telecopier No. (908) 571-0583
Telephone No. (908) 229-1100
Attn.: Mr. Jules M. Seshens
with a copy (which shall not constitute notice) to its counsel:
Richard P. Jaffe, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103-7598
Telecopier No. (215) 994-1111
Telephone No. (215) 994-1046
If to the Company:
BarOn Technologies, Ltd.
Gutwirth Science Park
Technion City
Haifa 32000 Israel
Telecopier No. 011 972 4 228 881
Telephone No. 011 972 4 226 388
Attn.: Dr. Ehud Baron
with a copy (which shall not constitute notice) to its counsel:
Avi Goldsobel
Haifa 32000 Israel
Telecopier No. 011 972 48 253 663
Telephone No. 011 972 4320 225
10. LOSS OR DESTRUCTION. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and
(14)
<PAGE>
cancellation of this Warrant Certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.
11. SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of
any action required or the expiration of any right granted herein shall be a
Sunday or a Saturday or shall be a legal holiday or a day on which banking
institutions in the City of Philadelphia are authorized or required by law to
remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in the City of Philadelphia are authorized
or required by law to remain closed.
12. APPLICABLE LAW. This Warrant Certificate shall constitute a contract
under seal and, for all purposes, shall be construed in accordance with and
governed by the internal laws of the State of Israel.
13. Enforceability. Should any provision of this Warrant be held by a court
or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Warrant, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Warrant. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Warrant in lieu of severing such unenforceable
provision from this Warrant in its entirety, whether by rewriting the offending
provision, deleting any or all of the offending provision, adding additional
language to this Warrant, or by making such other modifications as it deems
necessary to carry out the intent and agreement of the parties as embodied
herein to the maximum extent permitted by law. The parties expressly agree that
this Warrant as modified by such court or arbitration panel shall be binding
upon and enforceable against each of them. In any event, should one or more of
the provisions of this Warrant be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Warrant shall be construed as if such invalid,
illegal or unenforceable provisions had never been set forth herein.
(15)
<PAGE>
IN WITNESS WHEREOF, BarOn Technologies, Ltd. and EA Industries, Inc. have
caused this Warrant Certificate to be signed in their corporate names as a
sealed instrument and their corporate seals to be impressed hereon by their duly
authorized officers.
BARON TECHNOLOGIES, LTD.
By: ____________________
Accepted:
EA INDUSTRIES, INC.
By: ______________________
(16)
<PAGE>
PURCHASE FORM
________________, 199__
TO: BARON TECHNOLOGIES, LTD.
The undersigned hereby irrevocably elects to exercise the attached Warrant
Certificate to the extent of ____________ Shares of ordinary shares, par value
N.I.S. 0.01 per share of BarOn Technologies, Ltd. and hereby makes payment of
$________________ in payment of the Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
NAME:________________________________________________________
(Please typewrite or print in block letters)
ADDRESS:______________________________________________________
______________________________________________________
CORPORATIONS, PARTNERSHIPS AND OTHER ENTITIES:
________________________________
(Print Name of Entity)
By:____________________________
(Authorized Signature)
INDIVIDUALS:
________________________________
Signature of Individual
________________________________
Print Name of Individual
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ___________________________, hereby sells, assigns and
transfers unto ______________ [name]____________,
____________[address]___________________________________________, the right to
purchase ordinary shares, par value N.I.S. 0.01 per share of BarOn Technologies,
Ltd. (the "Company") represented by this Warrant Certificate to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ______, attorney, to transfer the same on the books of
the Company and with the Company's registrar with full power of substitution in
the premises.
By:
Signature:
Dated:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE QUARTER ENDED JUNE 29, 1996 AND THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 8,926
<SECURITIES> 0
<RECEIVABLES> 14,623
<ALLOWANCES> (323)
<INVENTORY> 10,910
<CURRENT-ASSETS> 35,529
<PP&E> 18,546
<DEPRECIATION> (7,794)
<TOTAL-ASSETS> 71,544
<CURRENT-LIABILITIES> 24,589
<BONDS> 13,005
0
0
<COMMON> 70,839
<OTHER-SE> (46,833)
<TOTAL-LIABILITY-AND-EQUITY> 71,544
<SALES> 46,413
<TOTAL-REVENUES> 46,413
<CGS> 43,433
<TOTAL-COSTS> 48,126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 993
<INCOME-PRETAX> (3,301)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,301)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,301)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
