SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1999 ( ) Transition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the
transition period from ______________ to _______________
Commission File Number 0-11883
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Telebyte, Inc.
(Exact name of issuer as specified in its charter)
Delaware 11-2510138
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(State or other jurisdiction of (I.R.S. Employer
incorporation ) Identification No.)
270 Pulaski Road, Greenlawn, New York 11740
(Address of principal executive offices)
Issuer's telephone number, including area code (631) 423-3232
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Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
(Title of class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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.
__X__ Yes _____ No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge,in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. (X)
The issuer's revenues for its most recent fiscal year were $5,670,600
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at March 15, 2000 was $10,145,127
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares of common stock outstanding at March 15, 2000 was 1,253,631
Transitional Small Business Disclosure Format (check one): Yes _____; No __X__
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DOCUMENTS INCORPORATED BY REFERENCE: None
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FORWARD LOOKING STATEMENTS
Cautionary Statements Regarding Forward-Looking Statements. Statements in this
Annual Report on Form 10-KSB under the captions "Description of Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors" and elsewhere in this Form 10-KSB, as well as
statements made in press releases and oral statements that may be made by the
Company or by officers, directors or employees of the Company acting on the
Company's behalf, that are not statements of historical fact, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the actual
results of the Company to be materially different from the historical results or
from any future results expressed or implied by such forward-looking statements.
In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"believes," "belief," "expects," "plans," "anticipates," or "intends," to be
uncertain and forward-looking. All cautionary statements made in this Form
10-KSB should be read as being applicable to all related forward-looking
statements wherever they appear.
PART 1
Item 1. Description of Business
Introduction
Telebyte, Inc. (herein either the "Company" or "Telebyte") is focused in two
separate business segments. In the first segment (data communications business
segment), the Company designs, manufactures, and markets electronic data
communications products that operate over copper and fiber optic cables. The
Company's operations in this segment are carried out in a single location and,
except for sales to foreign distributors, the Company does not conduct any
foreign operations. The second segment (e-commerce business segment) is
concentrated in a wholly owned subsidiary, DeliverNextday.com, Inc. d/b/a
Nextday.com ("Nextday.com"). This subsidiary's activity entails the reselling of
business-to-business products manufactured principally by other companies. The
reselling is accomplished through an electronic commerce (e-commerce)
marketplace. This e-commerce marketplace has the Internet Universal Resource
Locator (URL) of http://www.Nextday.com. Operations of this segment are carried
out in several locations with each devoted to a separate activity of the
segment. Nextday.com was launched as a separate business segment of the Company
in October 1999. The Company was formed as a New York corporation in 1983,
re-incorporated in Nevada in 1987, and re-incorporated in Delaware in 1999.
DeliverNextday.com, Inc. was incorporated in New York in 1999.
The Company's data communications products business segment is concerned with
equipment that is designed principally to provide connectivity solutions and
maintain data communications networks. Telebyte's products effectively link
computers to other computers and peripheral devices in a manner that enables
them to operate as a complete system. The Company's products are used with Local
Area Networks (LAN's), Internet access, data acquisition systems, process
control systems, and various peripheral devices such as computerized time
clocks, intelligent scales, and bar code reading equipment. The Company's six
principal data communications product categories are interface converters, short
haul modems, data communications test equipment, Local Area Network (LAN)
products, surge/lightning protectors and multiplexers. The Company also sells a
variety of data communications switching equipment and accessories.
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In the large data communication marketplace, Telebyte focuses on the area of
"premises data communication" and local area networks. Telebyte addresses the
needs of customers that have computer systems with data communications
applications where distances range from a few feet to a few miles. Accordingly,
Telebyte's products are used in data communication networks in facilities such
as industrial plants, factories, high rise office buildings, or campus like
environments. The transmission media used in these environments are principally
Unshielded Twisted Pair (UTP) copper cable and/or fiber optic cable.
The Company's products meet a variety of needs of a total data communications
network architecture. These products are the "glue" that allow many different
network elements to function together properly. The Company's prospective market
is increasing as the ubiquitous personal computer (PC) embraces more
applications. The Company endeavors to maintain the market position of its
product line by developing both improved versions of current products and new
products. Fiber optic and Digital Subscriber Line (DSL) test equipment products
are important factors in the Company's business and future product development
is expected to continue to emphasize these areas.
The Company's e-commerce business segment is involved with the reselling of
business-to-business products through its cross industry e-marketplace available
on the Internet at http://www.Nextday.com. In carrying out the activities of
this segment the Company procures products from various suppliers on a
consignment and/or purchase basis and stocks them as inventory items in a
warehouse. Suppliers currently are principally in the computer peripheral and
networking equipment industries. The Company procures these items at a discount
from the price to which they are sold to the final customer. This e-commerce
marketplace can provide multi-tier pricing. Thus, products can be priced for
single unit sale to an end-user or with multiple unit quantity discounts or for
indeterminate quantity to other resellers of the product suppliers' products.
Products can be ordered through Nextday.com at any time. If the product is
ordered by 12 Midnight Central Time it can be delivered in most places in the
United States and Canada by the end of the next business day. Nextday.com can
obtain customer payment both by credit card and through purchase order. The
Company is carrying out various activities in order to increase the depth of
products available through Nextday.com and to promote the Nextday.com e-commerce
marketplace. Such activities include attendance at trade shows, use of a public
relations firm, bulk and selective e-mail and the development of software to
enhance the capability of this e-commerce marketplace.
Business Developments for 1998 and 1999
During 1998, the Company concentrated efforts on visiting customers both within
and outside the United States in order to solidify existing long-standing
relationships and uncover opportunities for new standard and customized
products. In October 1998, Joel A. Kramer, in his capacity as International
Sales Manager visited Eastern Europe, including Russia, in order to meet and
recruit distributors for the Company's products. The Company's technology focus
in this period was aimed at developing versions of its products with DIN rail
mounting. Such mounting had become popular for equipment in factories in Europe.
It allowed data communications devices to be mounted on tracks placed on
surfaces rather than to be left free-standing or put in card cages. It was
expected that this popularity would migrate to the United States and then
elsewhere around the world.
During the second half of 1998 the Company began negotiations with Joel A.
Kramer, then the Company's Chairman of the Board and Chief Executive Officer,
for the purchase of his equity interest in the Company. Effective January 20,
1999, Joel A. Kramer, then the Chairman of the Board, President and Chief
Executive Officer of Telebyte Technology, Inc. resigned such positions. However,
it was intended that Mr. Kramer serve as a consultant to the Company through
January 19, 2002 for an aggregate consideration of $165,000 plus reimbursement
for certain expenses. In addition, the Company purchased all of the shares of
common stock of the Company owned by Mr. Kramer and Mr. Kramer agreed to cancel
options to purchase 10,000 shares of common stock of the Company for an
aggregate consideration of $1,075,190 of which $867,510 was for such shares,
$17,680 was for the cancellation of such options and $190,000 was in exchange
for Mr. Kramer's restrictive covenant. In addition, Mr. Kramer agreed not to
compete with the business of the Company until January 19, 2003 and released the
Company from certain potential claims relative to his previous employment. The
Company also transferred a life insurance policy to Mr. Kramer, previously
maintained for Mr. Kramer's benefit and having a cash value of approximately
$80,000. See "Certain Relationships and Related Transactions."
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With the departure of Mr. Kramer, Company leadership transferred to a new team.
This team is led by Dr. Kenneth S. Schneider, a founder, who became Chairman/
CEO and Mr. Michael Breneisen who became President/COO. During 1999 the Company
went through a major internal reorganization which included staff changes. These
changes resulted in greater efficiencies in operations. Product development
activity in the Company's data communications product segment was directed at
the continued enhancement of the Company's Digital Subscriber Line (DSL)
simulators. This included the introduction of the Model 454, 455, 456 and 457.
DSL is a popular approach to achieving high speed access to the Internet. The
attention paid to this end of the Company's product line was based on its
alignment for growth with the Internet. The Company also began the development
of a number of Universal Serial Bus (USB) converters. In particular, this
included a USB-to-fiber optic converter. USB is emerging as the new and more
efficient data input/output interface standard for computers, computer
peripherals and other data generating devices. The development of the USB
converters is aligned with the Company's continued interest in its interface
converter product line. The Company also continued to enhance and improve
existing offerings in its data communications product line in order to keep them
market competitive. Activity in the Company's e-commerce business segment in
1999 was directed at beginning operations and other preparatory activity.
Significant work was performed in developing the e-commerce marketplace by
integrating component systems. Significant testing of the total e-commerce
marketplace was then performed prior to its release in the fourth quarter of
1999. Michael Breneisen, President/COO of Telebyte, Inc. was designated as CEO
of the Nextday.com subsidiary where these e-commerce business segment activities
are carried out.
Products
Telebyte's data communications product segment offers products in six different
categories. These categories are interface converters, short haul modems, test
equipment, Local Area Network (LAN) products, lighting/surge protection and
multiplexers. The Company also sells a variety of data communications switching
equipment and accessories.
Interface Converters
These transform the characteristics of the electrical interface of one device to
enable it to become compatible with the electrical interface of another. This
conversion may also include modifying the protocol and/or the physical
transmission medium, i.e., copper wire to fiber cable. By employing interface
converters, a data communications network can be established or expanded using
heterogeneous equipment types. Without the use of interface converters, such
equipment would be unable to communicate. The sale of interface converters
represented 52.2% of Telebyte's revenue in 1999 as compared to 43.5% in 1998.
Because the industry continues to develop new interface standards, the Company
anticipates that the market may require new varieties of interface converters.
We anticipate an expansion of the market for existing products and the creation
of opportunities for new products. Telebyte's line of interface converters is
available in most of the configurations now required by the market and includes
programmable devices. If the appropriate opportunity presents itself, the
Company will attempt to manufacture custom interface converters to meet a
particular customer's requirements.
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Short Haul Modems
These are often alternatively referred to as either line drivers or limited
distance modems. These are signaling devices generally used to implement a data
communications link in the premises environment. The premises environment is
that of the office building, campus or industrial site. Data communication
distances here vary from a few feet to a few miles. Short haul modems are used
to connect computers and accessory equipment such as terminals, printers, badge
readers, scales, bar code readers, and other computer controlled machines. Short
haul modems are also used in establishing data communications between personal
computers and mini computers or mainframe computers. In some cases, short haul
modems can be used to signal on Telephone Company (Telco) provided lines used
for special services such as Internet access. Short haul modems are often
confused with `dial-up' modems used for wide area network and/or Internet
communications.
The role of the short haul modem has been expanded from connecting terminals to
a central processing unit to creating extensive computer to computer/peripheral
networks. The Company's short haul modem devices are designed to provide data
communications links ranging from relatively short distances to several miles.
The Company manufactures and sells a variety of short haul modems designed for
particular applications and the electromagnetic environment of the user. For
example, Telebyte has three types of short haul modems, with transmission
capabilities that are suited for (i) factories or heavy manufacturing
operations, (ii) light manufacturing, and (iii) industrial office areas or
general office locations. Due to technological changes and innovations, the
Company is always considering the need to modify and improve its short haul
modem products so that it can better meet customers' technical requirements and
remain competitive in this market. Short haul modems represented 25.2% of
Telebyte's net sales in 1999 as compared to 24.1% in 1998.
Test Equipment
This category consists of two distinctly different product groups, namely
Digital Subscriber Line (DSL) local loop simulators and protocol analyzers. Test
equipment products represented 6.2% of the Company's net sales in 1999 as
compared to 10% in 1998.
The Digital Subscriber Line (DSL) Local Loop simulators manufactured by the
Company are principally used in engineering development and in production
testing. Products in this category simulate the frequency characteristics of a
Telco Local Loop. The Local Loop is the pair of copper cables connecting a
telephone customer to the Telephone Company's central office. The DSL Local Loop
simulator products simulate the amplitude and delay of the Local Loop at various
frequencies and for various Local Loop lengths.
Digital Subscriber Line (DSL) services encompass such new communications
offerings as ISDN (Integrated Services Digital Network), HDSL, ADSL (Asymmetric
Digital Subscriber Line) and T1. These services are key elements in providing
high-speed Internet connections. As evidenced by examining industry reports,
these services have created new modem product opportunities that are being
satisfied by many companies. These modem manufacturers either are at present
customers for Telebyte's Digital Subscriber Line (DSL) Local Loop simulators or
are potential customers. Present or potential customers for these simulators
also include the semi-conductor manufacturers that provide special
microprocessor chip sets to these modem manufacturers. These chip sets are key
elements in these modems. Other customers for these Local Loop simulators are
the common carriers that provide the ISDN, HDSL and ADSL services.
The protocol analyzers are used to analyze and test the integrity of data
communications networks. Telebyte's protocol analyzer test equipment product
line includes "plug-in" printed circuit boards and stand alone units for use
with personal computers. These items are supplied with the software necessary to
enable the personal computer user to monitor or emulate the data line with other
devices in the data communications network. This test equipment product assists
in maintenance because it can rapidly identify open leads, missing signals and
other errors, and intermittent problems can be tracked and stored in memory for
later analysis.
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LAN Products
There has been significant growth in the deployment of Local Area Networks
(LANs). LANs allow a plethora of computers and computational equipment to share
applications programs. This leads to greater productivity. The Ethernet LAN is
the principal means by which computational equipment shares applications
programs. LANs are often connected by UTP copper cable. However, such cable
restricts the distances separating the various communicating computational
devices using the LAN to 100 meters. By employing multi-mode fiber optic cable
rather than UTP this communicating distance can be extended to several
kilometers. For several years, the Company has sold converters, called LAN
extenders, that allow the extension of Ethernet LAN distances by using fiber
optic cables. These products take Ethernet signals designed for use on UTP and
convert them for use on fiber optic cables and vice versa. In 1998, the Company
developed several new LAN extenders. All of these operate over single-mode fiber
optic cable. All of these operate with both standard 10BaseT and 100BaseT
Ethernet LANs. LAN products represented 7.3% of Telebyte's net sales in 1999 as
compared with 10% in 1998.
Manufacturing
The Company generally manufactures and maintains an inventory of products based
upon historical levels of demand and sales forecasts. Most of its products are
standard or catalog items. On occasion, the Company produces custom products
manufactured to a customer's specifications or for a specific application.
The Company has not experienced a shortage of manufacturing materials or
components, and it purchases raw materials and supplies from domestic and
foreign sources. During 1999, the Company purchased approximately 18% of its
products from one supplier. If required, raw material and supplies are readily
available from various sources.
Research and Development
The research and new product development budget for 2000 is $550,000 compared to
approximately $518, 000 spent in 1999. The cost of research and development is
not borne directly by the Company's customers.
Government Regulation
Federal, state, and local environmental laws and regulations have no material
impact on Telebyte or its business. The Company is subject to the governmental
regulations that apply to businesses generally.
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Sales and Marketing
In the years prior to 1999, the Company's data communications business segment
marketed its data communications products through promotional activities on the
Internet, catalog circulation, telephone sales, paid advertising, press
releases, post card decks, direct mail campaigns, and participation in trade
shows. During these years, the Company conducted its sales and marketing efforts
through an in-house sales staff and a network of distributors.
However, in 1999, the Company carried out a detailed statistical analysis of its
sales-to-lead tracking system. As a result the Company believes that the most
effective way to increase its end user business is to follow a strategy that is
based primarily on marketing through its Internet Web site. Accordingly, the
Company plans to increase promotional and sales activities on the Internet.
While the Company has embraced an Internet Web site based approach to sales the
Company continued printing and circulating its catalog in 1999, but at a reduced
level, compared to previous years.
During 1996, the Company established a Web site on the Internet that contains
the Company's complete catalog. The Company continued to make improvements to
its Web site in 1997 and 1998. In particular, during 1998, the Company expanded
its Web site by placing an electronic version of application articles on it for
all of the Company's products. This continued in 1999, with the placement of two
data communications monographs, authored by Company staff, on the Web site. In
1999, the Company also continued placing product manuals on the Web site. This
allowed customers to use the Web site for technical support. In 1998, the
Company also followed a strategy of judicious placement of key words in search
engines. These keywords were associated with the Company's products and
technical activities, and helped direct customers to the Company's Web site. As
a result of all of these activities the Web site produced an increasing number
of inquiries about the Company's products. These inquiries in turn added a large
number of qualified leads to the Company's database. The Company's Web address
is www.telebyteusa.com. The Company plans regular improvement of the Company's
Web site. It plans to carry out promotional activities to attract customers to
its Web site.
During 1999, Company management concluded that its Internet Web site approach to
sales did not require the large sales staff that the Company had been employing.
Accordingly, there was a reorganization of sales and marketing with an attendant
reduction in overall staff. Sales and marketing is now managed by a Director of
Sales and Marketing, who has three sales support staff assistants and one
marketing staff assistant. In contrast to previous years, the Director of Sales
and Marketing manages both domestic and international sales and the position of
International Sales Manager was eliminated. Joel A.Kramer previously held this
position along with his other positions of Chairman of the Board, Chief
Executive Officer and President. The Director of Sales and Marketing is paid a
combination of base salary and commissions. In contrast to previous years, the
Director of Sales and Marketing is the only member of the Sales and Marketing
staff to receive commissions.
Domestic sales generated by all of these promotional activities are primarily to
end-users rather than resellers. Such end-users include OEM's (Original
Equipment Manufacturer), system integrators or installers and customers who may
be employing the product for their own specific use. The Company also uses a few
distributors as resellers for domestic sales. Internationally, the Company uses
distributors. However, beginning in 1999, the Company decided to abandon its
previous practice of giving such distributors countrywide exclusivity.
Accordingly, it renegotiated its agreements with these distributors to eliminate
this exclusivity.
The Company does not depend upon sales to any single customer or a limited group
of customers. Sales to a single customer have not, during the last three fiscal
years accounted for 10% of net sales. The Company's sales are not materially
affected by seasonal factors.
The e-commerce business segment, NextDay.com, was launched in October 1999.
Consequently, the sales activities of the e-commerce business segment in 1999
were very limited. By the very nature of e-commerce, such sales are carried out
in a highly automated fashion, with no personnel directly involved. Marketing
activities for the e-commerce business segment commenced in the fourth quarter
of 1999. These activities included attendance at two trade shows and the
recruitment of a public relations firm.
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Competition
There are a significant number of companies engaged in manufacturing and selling
data communications equipment in the same markets as the Company's data
communications business segment. Since Telebyte's product line is diverse, it is
difficult to define and enumerate this competition. Several competitors are
larger and more established than Telebyte. Such competitors have greater
technical, capital and other resources than does the Company. These competitors
also have greater sales and marketing resources than does the Company.
The Company's principal competitors are RAD Data Communications, Ltd. (which is
based in Israel with local offices in New Jersey), Black Box (with headquarters
based in Pennsylvania), Patton Electronics (based in Maryland), B & B
Electronics (based in Illinois), Dataforth (based in Arizona) and a number of
smaller companies. Telebyte competes with these companies on the basis of
availability, price, quality, breadth of product line, technical support
innovation and its willingness to accommodate requests for modifications and
customization.
Of these factors the Company relies principally upon the price/performance ratio
of its many products. However, Telebyte also attracts market share by its
ability to fill orders quickly and provide technical support to its customers.
The Company does not have a significant market presence with its serial data
communications test equipment and data communications accessories.
Historically, the Company has not relied upon patents, registered trademarks or
licenses to give it a competitive advantage. The Company does not have any
patents or copyrights. The Company has one trademark, `Telebyte.'
The Company is not currently aware of any e-commerce site providing products on
a next day delivery basis using the same approach as the Company's e-commerce
business segment, which is the primary basis on which it competes in the
e-commerce segment.
Employees
As of December 31, 1999, the Company had 45 employees. Of these employees, six
were executives; four are in sales and marketing, six in research and
engineering, seven in administration and accounting, and the balance in
manufacturing, shipping, and related activities. In addition, the Company uses
subcontractors to support its current operations. None of the employees are
represented by a labor union, and the Company considers its employee relations
to be good.
Backlog
At December 31, 1999, the Company's backlog was $200,669, all of which the
Company expects to fill in fiscal 2000. Comparable backlog at December 31, 1998
was $388,690.
Item 2. Properties
Telebyte's executive office, plant, and manufacturing facility are located in a
20,000 square foot building on 3.2 acres, at 270 Pulaski Road, Greenlawn, New
York 11740. The Company purchased the land and building in September 1985. The
Company refinanced the existing mortgage in March 1998 and the property now
secures a mortgage loan payable on a fully self-amortizing basis over 10 years.
Under the Mortgage Modification Agreement, interest is payable at 9% through
June 1, 2000. At that time and every three years thereafter, the interest rate
will be adjusted to the three-year weekly average US Treasury Constant Maturity
Rate plus 3%. The outstanding principal balance of the mortgage loan, as of
December 31, 1999, was $864,203. Management believes that all of its properties,
plant, and equipment are well maintained and adequate for its requirements.
Management believes that the property is adequately covered by insurance.
Of the 20,000 square feet, the Company has leased 5,300 square feet to an
unaffiliated tenant. Management believes that Telebyte's existing manufacturing
facilities are sufficient to support its present needs and anticipated growth,
and the Company does not foresee any significant capital expansion of its plant
in Greenlawn.
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Item 3. Legal Proceedings
There is one pending legal proceeding to which the Company is a party. On July
7, 1999 the Company filed a complaint in the United States District Court for
the Eastern District of New York against Kendaco, Inc. d/b/a Telebyte NW. This
complaint is directed at Kendaco as Kendaco is using the Internet domain name
Telebyte.com. The Company alleges that Kendaco has obtained the use of this
domain name improperly. The Company alleges that Kendaco is using this domain
name in such a way as subject the Company to unfair competition. The Company
alleges that Kendaco's use of this domain name is inappropriate because it is an
act of trademark infringement, and that as a result the Company is and has lost
business due to deceptive advertising on Kendaco's part. The Company is seeking
to recover ownership of the domain name in addition to unspecified damages for
loss of business.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over the counter bulletin board
under the symbol "TBTI."
The following table sets forth the high and low bid prices for the common stock
for each fiscal quarter during 1999 and 1998 as reported by NASDAQ Trading and
Market Services. The bid and ask prices for the common stock on March 15, 2000
were $ 7.25 and $ 8.125 respectively.
1999 1998
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High Low High Low
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First Quarter $2 5/8 $1 1/32 $5 $2
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2nd Quarter 2 1/4 1 4 3/4 3
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3rd Quarter 1 11/16 7/8 4 1/2 1 1/4
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4th Quarter 3 13/16 1 1/4 2 1/8 1 1/8
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The above quotations reflect inter-dealer prices, and may not include retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
At March 15, 2000, there were approximately 239 holders of record of the
Company's common stock. Most of the shares of the common stock are held in
street name for a larger number of beneficial owners.
To date, Telebyte has not paid a cash dividend. The payment and amount of any
future dividends will necessarily depend upon conditions then existing,
including the Company's earnings, financial condition, working capital
requirements, and other factors. The Company does not anticipate paying any
dividends in the foreseeable future. The Company has no agreements which
prohibit dividends.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Fiscal 1999 Compared to Fiscal 1998
Sales for the year ended December 31, 1999 increased by $101,813 to $5,670,600
compared to $5,568,787 for 1998. The marginal increase in sales is due primarily
to success of the Company's Internet marketing strategy.
The gross margin for 1999 was 53.6% as compared to 52.8% for 1998. This was
primarily a function of product mix and better capacity utilization.
Selling, general, and administrative costs decreased by $329,153 to $1,747,820
in 1999, compared to $2,076,973 in 1998. The decrease was due primarily to a
reduction in the Company's sales staff and other cost cutting measures. These
decreases reflect management's commitment to moving the Company from selling via
telephone to a combination of telephone and automated, Internet based,
Electronic Commerce. Selling expenses during 1999 also included the distribution
of approximately 100,000 product catalogs as compared to approximately 186,000
in 1998.
During the second half of 1999 the Company began operations of a separate,
wholly owned, subsidiary, Nextday.com. Nextday.com is a business to business,
cross industry e-marketplace focusing on express fulfillment. The new subsidiary
sells products manufactured by the Company and products manufactured by other
suppliers. Nextday.com is differentiated from other e-commerce web sites in that
it is able to take orders up until midnight central time and have the orders
delivered anywhere in the US and most of Canada the next business day. On
weekends, customers who order before 10 am central time on Sunday can expect
delivery on Monday morning. Sales for Nextday.com in 1999 were very limited. The
Company believes this new subsidiary will enhance its future growth.
Research and development expenses increased in 1999 to $518,096, or 9.1% of
sales, from $469,415, or 8.4% of sales in 1998. The increase illustrates the
Company's continued commitment to new product development. Product development
was directed at the continued enhancement of the Company's Digital Subscriber
Line (DSL) simulators. This included the introduction of the Model 454, 455, 456
and 457. DSL is a popular approach to achieving high-speed access to the
Internet. The attention paid to this end of the Company's product line was based
on its alignment for growth with the Internet. The Company also began the
development of a number of Universal Serial Bus (USB) converters.
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Interest expense of $111,738 in 1999 increased to 2% of sales as compared to
$97,352, or 1.7% in 1998. This increase was due to higher debt.
Interest income decreased by $19,070. The decrease in 1999 was due to lower
average levels of cash on hand during 1999. In 1999, the Company had rental
income of $48,195, equal to the 1998 rental income. For 2000, the Company
expects rental income of approximately $48,000.
The Company generated net income of $423,305 or $0.34 per share, 7.5% of sales,
compared to $333,500 or $0.22 per share, and 5.9% of sales, for 1998. The
increase is primarily attributable to the improved efficiencies and staff
reductions described above.
The effective tax rate in 1999 was 40.8%, compared with 9.7% in 1998. The
increase in the effective tax rate is primarily due to the Company's utilization
of most of its net operating loss carryforward in the 1998 period. The Company
expects its effective tax rate for 2000 to be approximately 40%.
Liquidity and Capital Resources
In 1999, the Company invested $167,844 in property and equipment, which was
financed through internally generated funds. The Company generated $586,536 of
cash flow from operations in 1999, compared to $274,302 in 1998.
Working capital decreased as of December 31, 1999 by $290,923 to $2,266,957
compared with $2,557,880 at December 31, 1998. The current ratio decreased to
4.4 to 1 at December 31, 1999, compared to 5.6 to 1 at December 31, 1998.
The Company has an agreement with a financial institution, Merrill Lynch,
expiring July 2000, which provides the Company with a line of credit of up to
$500,000 ("Original Facility") based on eligible accounts receivable, purchased
components, materials and finished goods inventories of the Company, as defined
in the agreement between the Company and Merrill Lynch. Further, the agreement
contains certain financial covenants which require the Company to maintain a
minimum level of tangible net worth and places limitations on the ratio of the
Company's total debt to Company's tangible net worth, as defined in the
agreement. Borrowings under the line of credit bear interest at the bank's
specified prime rate plus .75% (9.25% at December 31, 1999). There was no
outstanding balance against this line at December 31, 1999.
In January 1999, the Company secured an additional Reducing Revolving Line of
Credit from Merrill Lynch, which provides for initial borrowings up to a maximum
of $1,000,000. Availability under the Reducing Revolving Line of Credit will be
reduced monthly by approximately $11,900 and will expire January 2006.
Borrowings under this loan agreement bear interest at the 30-Day Commercial
Paper Rate plus 2.90%. (8.53% at December 31, 1999). The outstanding balance
against this line at December 31, 1999 was $221,941.
The Company believes that cash generated by the Company's operations, current
cash and cash equivalents, and the line of credit should supply the cash
resources to meet its cash needs for at least the next twelve months.
Effect of Inflation
During the five-year period ending December 31, 1999, the Company was able to
decrease its costs of sales of its products to compensate for the effect of
inflation on the cost of components. This was accomplished by changes in
manufacturing methodology, namely, increasing the amount of product manufactured
on a sub-contractor basis.
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Risk Factors
WE HAVE A LIMITED OPERATING HISTORY WITH RESPECT TO THE INTERNET, AND WE EXPECT
TO ENCOUNTER RISKS FREQUENTLY FACED BY EARLY-STAGE COMPANIES IN NEW AND RAPIDLY
EVOLVING MARKETS.
We incorporated our company in 1983 and launched Telebyteusa.com in 1995.
We formed Nextday.com, Inc. as a wholly owned subsidiary in 1999, and launched
its Web site, Nextday.com, that same year. Accordingly, the Internet segment of
our business has a limited operating history upon which you can evaluate that
portion of our business. In order to be successful, we must attract more traffic
to Telebyteusa.com and Nextday.com, and generate significant e-commerce
revenues. However, as a relatively recent entrant in a new and rapidly evolving
market like the Internet, we face numerous risks and uncertainties. Some of
these risks and uncertainties relate to our ability to:
- develop further Telebyteusa.com and Nextday.com awareness and brand
loyalty;
- attract a larger audience to, and increase frequency of use of, our
Telebyteusa.com and Nextday.com Web sites;
- increase customer acceptance of the online purchase of products through
our sites;
- generate increased e-commerce revenues through our Web site from
consumers and other commercial vendors;
- anticipate and adapt to the changing market for Internet services and
e-commerce;
- respond to actions taken by our competitors;
- manage our growth effectively;
- implement our advertising and marketing strategies;
- develop and renew strategic relationships, particularly with suppliers;
- attract, retain and motivate qualified personnel; and
- continue to upgrade and enhance our technologies and services to
accommodate expanded service offerings and increased consumer traffic.
We may not be successful in accomplishing any or all of these objectives,
and we cannot be certain that we will be able to maintain our current
level of revenues from our present operations.
Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WE EXPECT LOSSES FROM OPERATIONS, AND OUR FUTURE PROFITABILITY OF SUCH
OPERATIONS REMAINS UNCERTAIN.
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Our ability to generate significant revenue from our Web sites is uncertain.
We have incurred and will incur substantial costs to create, launch and enhance
Telebyteusa.com and Nextday.com, to build brand awareness and to grow our
business. We expect losses from operations and negative cash flows from our
Internet business for the foreseeable future because we plan to incur
significant expenses as we expand our advertising and marketing programs,
continue to develop and extend the Telebyteusa.com and Nextday.com brands,
expand our infrastructure and data collection capabilities, and seek to acquire
complementary businesses and technologies. If our revenues do not increase and
if our spending levels are not adjusted accordingly, we may not generate
sufficient revenues to achieve profitability of this segment. Even if we do
achieve profitability, we may not sustain or increase profitability on a
quarterly or annual basis in the future. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
THE LOSS OF THE SERVICES OF OUR KEY PERSONNEL, OR OUR FAILURE TO ATTRACT,
ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE, COULD
SERIOUSLY HARM OUR BUSINESS.
Our future success depends, in part, on the continued services of our
senior management. Our future success also depends on our ability to retain and
motivate our key employees. The loss of the services of our Chief Executive
Officer, Dr. Kenneth S. Schneider or any key employee would have a material
adverse effect on our business, results of operations and financial condition.
Except for Dr. Schneider and Michael Breneisen, our President, none of our
officers or key employees is currently bound by an employment agreement for any
specific term. Our relationships with these remaining officers and key employees
can be terminated at any time.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial, merchandising,
marketing and customer service personnel. Competition for such personnel is
intense, and we cannot be certain that we will be able to successfully attract,
assimilate or retain sufficiently qualified personnel. Our inability to do so
could have a material adverse effect on our business, results of operations and
financial condition.
OUR OPERATING RESULTS ARE VOLATILE, WHICH COULD AFFECT OUR AND YOUR ABILITY TO
PREDICT OUR OPERATING RESULTS IN ANY GIVEN PERIOD AND COULD ALSO AFFECT OUR
MARKET PRICE.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of public
market analysts and investors. In this event, the price of our common stock is
likely to fall. We expect our quarterly operating results to vary significantly
in the future due to a variety of factors, many of which are outside of our
control. These factors include:
-the demand for technology and technology-related products on the Interne
in general or on Telebyeusa.com or Nextday.com in particular;
- traffic levels on Telebyeusa.com and Nextday.com and on other Web sites
that refer consumers to our Web site;
- the announcement or introduction of new or enhanced sites, services and
products by us or our competitors;
- our ability to attract and retain qualified personnel in a timely and
effective manner;
- acceptance by consumers and companies of the Internet for technology and
technology-related products and advertising;
- our ability to maintain and implement strategic alliances and
relationships with manufacturers, suppliers, high-traffic Web sites and
portals and other third parties;
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- changes in product sales resulting from competition or other factors;
- technical difficulties or system downtime affecting the Internet or the
operation of Telebyteusa.com and Nextday.com;
- the amount and timing of our costs related to advertising and marketing
efforts, sales and other initiatives and the timing of revenues generated
from such activities;
- fees we may pay for distribution or content or other costs we may incur
as we expand our operations;
- changes in state and federal government regulations and their
interpretations, especially with respect to the Internet;
- costs related to possible acquisitions of businesses, technologies and
services; and
- general economic conditions and those conditions that specifically
affect the Internet and Internet services.
Traffic levels on Web sites may fluctuate on a seasonal basis, which could
result in a decrease in user traffic on Telebyteusa.com and Nextday.com during
certain periods. Seasonal or other patterns may develop in our industry which
can effect the quarterly revenue of our firm within a year. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE EXPECT TO INCUR SIGNIFICANT COSTS IN DEVELOPING OUR BRAND.
To be successful, we must continue to build the brand identity of
Telebyteusa.com and Nextday.com. To build brand awareness, which may be
particularly critical for Internet companies, we must succeed in our marketing
efforts, provide high-quality services and increase traffic to Telebyteusa.com
and Nextday.com. If our marketing efforts are unsuccessful or if we cannot
increase our brand awareness, our business, financial condition and results of
operations would be materially adversely affected. We may find it necessary to
further increase our financial commitment to creating and maintaining a strong
brand name among consumers. If we incur excessive expenses in our attempt to
promote and maintain Telebyteusa.com and Nextday.com, our business, results of
operations and financial condition could be materially adversely affected.
IF INTERNET USAGE DECREASES AS A RESULT OF DECLINES IN USER CONFIDENCE IN THE
INTEGRITY OF THE INTERNET, OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED.
Our future success is substantially dependent on the continued growth in
the use of the Internet. The Internet is relatively new and is rapidly evolving.
Our business would be adversely affected if Internet usage does not continue to
grow. Internet usage may be inhibited for a number of reasons, such as:
- the Internet infrastructure may not be able to support the demands placed
on it, or its performance and reliability may decline as usage grows;
- security and authentication concerns with respect to transmission over
the Internet of confidential information, such as credit card numbers, and
attempts by unauthorized computer users, commonly referred to as hackers,
to penetrate online security systems; and
- privacy concerns, such as those related to the placement by Web sites of
certain information to gather user information, known as "cookies," on a
user's hard drive without the user's knowledge or consent.
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WE MAY NOT BE ABLE TO ADAPT TO RAPIDLY CHANGING TECHNOLOGIES, OR WE MAY INCUR
SIGNIFICANT COSTS IN DOING SO.
Our market is characterized by rapidly changing technologies, evolving
industry standards, frequent new service introductions and changing customer
demands. To be successful, we must adapt to our rapidly evolving market by
continually enhancing our Web site and introducing new services to address our
customers' changing demands. We may use new technologies ineffectively or we may
fail to adapt our Web site, transaction-processing systems and network
infrastructure to customer requirements, competitive pressures or emerging
industry standards. We could incur substantial costs if we need to modify our
services or infrastructure in order to adapt to these or other changes affecting
providers of Internet services. Our business, results of operations and
financial condition could be materially adversely affected if we incurred
significant costs to adapt, or cannot adapt, to these changes. Due to the
rapidly changing nature of the Internet business, we may be subject to risks,
now and in the future, of which we are not currently aware.
WE MAY BE UNABLE TO CONTINUE TO DEVELOP COMPETITIVE PRODUCTS.
The technology upon which our products are based is subject to continuous
development of materials and processes. Our business is in large part contingent
upon the continuous refinement of our technological and engineering expertise
and the development of new or enhanced products and technologies to meet the
rapidly developing demands of an evolving market and increased competition.
There can be no assurance that we will continue to be successful in our efforts
to develop new or refine existing products, that such new products will meet
with anticipated levels of market acceptance or that we will otherwise be able
to timely identify and respond to technological improvements made by our
competitors. Significant technological breakthroughs by others could also have a
material adverse effect on our business.
THE INABILITY TO RESPOND TO PRICING PRESSURES WITHIN THE INDUSTRY MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Competition in the data communications and business-to-business reselling
industries is intense and, in general, is based primarily on price. We compete
with a number of electronic data communications manufacturers who have broader
product lines and greater financial, marketing and technical resources than us.
There can be no assurance that we will be able to improve the productivity and
efficiency of our manufacturing processes in order to respond to pricing
pressures, and the failure to do so could have a material adverse effect on our
business. Our subsidiary competes with a number of providers of similar services
who offer a broader array of services and greater financial, marketing and
technical resources. There can be no assurance that we will be able to improve
the productivity and efficiency of our servicing processes in order to respond
to pricing pressures, and the failure to do so could have a material adverse
effect on our business.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INDIVIDUAL STOCKHOLDERS.
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The price of our Common Stock has fluctuated substantially recently.
The trading price of our Common Stock may continue to be volatile in response to
factors such as:
- actual or anticipated variations in our quarterly operating results;
- announcements of new product or service offerings;
- technological innovations;
- competitive developments;
- changes in financial estimates by securities analysts;
- conditions and trends in the Internet and electronic commerce industries;
- changes in the economic performance and/or market valuations of other
electronic data communications companies; and
- general market conditions and other general factors.
Further, the stock markets have experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology companies, and have often been unrelated or
disproportionate to the operating performance of such companies. Additionally,
the market price of our common stock could be adversely affected by losses or
other negative news regarding one or more other companies, despite the fact that
such information is not related specifically to us and may even be contradictory
to information that is specifically applicable to us. These broad market factors
may adversely affect the market price of our common stock. In addition, general
economic, political and market conditions such as recessions, interest rates or
international currency fluctuations, may adversely affect the market price of
the common stock. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such a company. Such litigation, if instituted, could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on our business, results
of operations and financial condition.
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS.
We have never paid any cash or other dividends on our common stock.
Payment of dividends on our common stock is within the discretion of the Board
of Directors and will depend upon our earnings, our capital requirements and
financial condition, and other factors deemed relevant by the Board. For the
foreseeable future, the Board intends to retain future earnings, if any, to
finance our business operations and does not anticipate paying any cash
dividends with respect to the common stock.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
We may need to raise additional funds in the future in order to fund more
aggressive brand promotion or more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to acquire complementary
businesses, technologies or services. We cannot assure you that any required
additional financing will be available on terms favorable to us, or at all. If
additional funds are raised by our issuing equity securities, stockholders may
experience dilution of their ownership interest and such securities may have
rights senior to those of the holders of our common stock. If additional funds
are raised by our issuing debt, we may be subject to certain limitations on our
operations, including limitations on the payment of dividends. If adequate funds
are not available or not available on acceptable terms, we may be unable to fund
our expansion, successfully promote our brand name, take advantage of
acquisition opportunities, develop or enhance services or respond to competitive
or business pressures, which could have a material adverse effect on our
business, results of operations and financial condition.
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WE DEPEND ON RELATIONSHIPS WITH THIRD PARTIES, AND THE LOSS, OR CHANGE IN TERMS,
OF ANY RELATIONSHIP COULD ADVERSELY AFFECT US.
Our business could be adversely affected if we do not maintain our
existing commercial relationships on terms as favorable as currently in effect,
if we do not establish additional commercial relationships on commercially
reasonable terms or if our commercial relationships do not result in the
expected increased use of our Web site. We have entered into commercial
relationships with various third parties, some of which require us to feature
them prominently in certain sections of our Web site. Existing and future
arrangements may prevent us from entering into other content agreements,
advertising or sponsorship arrangements or other commercial relationships. Many
companies that we may pursue for a commercial relationship may also offer
competing services. As a result, these competitors may be reluctant to enter
into commercial relationships with us.
We also depend on establishing and maintaining a number of commercial
relationships with various Web sites and networks to increase traffic on
Telebyteusa.com and Nextday.com. There may be intense competition for placements
on these sites and networks, and in the future we may not be able to enter into
distribution relationships for such placement on commercially reasonable terms
or at all. Even if we enter into distribution relationships with these Web sites
and networks, they may not attract significant numbers of consumers. Therefore,
our Web site may receive less than the number of additional consumers we expect
from these relationships. Moreover, we may have to pay significant fees to
establish or renew these or comparable relationships.
WE MAY NOT BE ABLE TO CONTINUE TO DEVELOP OUR CONTENT AND SERVICE OFFERINGS TO
REMAIN COMPETITIVE.
If we fail to develop and introduce new features, functions or services
effectively, it could have a material adverse effect on our business, results of
operations and financial condition. To remain competitive, we must continue to
enhance and improve our content offerings, the ease of use, responsiveness,
functionality and features of the Telebyteusa.com and Nextday.com sites and
develop new services in addition to continuing to improve the consumer
purchasing experience on our site. These efforts may require the development or
licensing of increasingly complex technologies. We may not be successful in
developing or introducing new features, functions and services, and these
features, functions and services may not achieve market acceptance or enhance
our brand loyalty.
WE MAY NOT BE ABLE TO INCREASE OR RETAIN OUR INTERNAL DIRECT SALES FORCE TO
SUPPORT OUR ANTICIPATED GROWTH.
We rely on our sales personnel to sell our products and services. To
support our growth, we need to substantially maintain, and may need to increase,
our internal sales force over time. Our ability to do this involves a number of
risks, including:
- the competition we face in hiring sales personnel;
- our ability to integrate, motivate and retain our sales personnel; and
- the length of time it takes new sales personnel to become productive.
Our business, results of operations and financial condition will be
adversely affected if we do not develop, retain and grow an effective internal
sales force.
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THE NUMBER OF INTERNET COMPETITORS CONTINUES TO INCREASE, AND WE MAY NOT BE ABLE
TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS.
Increased competition could result in less traffic to our Web site, and
reduced margins or loss of market share, any of which would have a material
adverse effect on our business, results of operations and financial condition.
We compete with other Web sites for Internet advertisers' and e-commerce
marketers' dollars. The number of these Web sites has increased significantly,
and we expect such competition to continue to increase. Competition may also
increase as a result of ongoing industry consolidation.
We believe that our ability to compete depends on many factors, many of
which are beyond our control. We believe that the principal competitive factors
in attracting consumers to our Web site are:
- brand awareness and loyalty;
- strategic relationships with high-traffic Web sites and networks;
- a positive shopping and purchasing experience for the consumer in our
clients sites;
- breadth and depth of selection of product;
- price;
- ease of use;
- quality of content, other service offerings, and speed of our site:
- quality of content, fulfillment and customer service by our clients;
and
- Web site functionality, responsiveness, reliability, and speed.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of customer services. Such competitors may
also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, manufacturers,
retailers, distribution partners, and advertisers and e-commerce partners. Our
competitors may develop services that are equal or superior to those of
Telebyteusa.com and Nextday.com or that achieve greater market acceptance than
Telebyteusa.com and Nextday.com. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their services to address the
needs of advertisers and e-commerce marketers. As a result, it is possible that
new competitors may emerge and rapidly acquire significant market share. We may
not be able to compete successfully or competitive pressures may have a material
adverse effect on our business, results of operations and financial condition.
IF THE INTERNET DOES NOT GROW AS A MEDIUM FOR COMMERCE, OUR BUSINESS COULD BE
MATERIALLY ADVERSELY AFFECTED.
Our future success and revenue growth will depend upon the adoption of
the Internet by consumers and manufacturers as a mainstream medium for commerce.
While we believe that our services offer significant advantages to consumers and
manufacturers and retailers, we cannot be certain that widespread acceptance of
Internet commerce in general, or of our services in particular, will occur. Our
success assumes that consumers who have historically relied upon traditional
means of commerce to purchase technology or technology-related products will
accept new methods of conducting business and exchanging information. Moreover,
critical issues concerning remote purchases on the Internet, including clarity
of picture, and the commercial use of the Internet, including ease of access,
security, reliability, cost, and quality of service, remain unresolved and may
impact the growth of Internet use. If the market for Internet-based technology
sales fails to develop, develops more slowly than expected or becomes saturated
with competitors, or if our services do not achieve market acceptance, our
business, results of operations and financial condition could be materially
adversely affected.
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The market for Internet-based purchasing services has only recently
begun to develop and is rapidly evolving. While many Internet commerce companies
have grown in terms of revenue, few are profitable. We cannot assure that we
will be profitable, and we anticipate losses for the foreseeable future. As is
typical for a new and rapidly evolving industry, demand and market acceptance
for recently introduced services and products over the Internet are subject to a
high level of uncertainty and there are few proven services and products.
Moreover, as the market for selling technology products online is relatively new
and evolving, it is difficult to predict the future growth rate, if any, and
size of this market.
IF OUR SYSTEM'S OR THE INTERNET'S INFRASTRUCTURE DO NOT GROW OR IMPROVE TO MEET
INCREASED CONSUMER DEMANDS, THE GROWTH OF OUR BUSINESS COULD BE MATERIALLY
ADVERSELY AFFECTED.
Our ability to retain and attract consumers and advertisers, and to
achieve market acceptance of our services and our brand, depends significantly
upon the performance of our systems and network infrastructure. Our revenues
depend on the number of visitors to our Web site and the traffic and activity
created by those visitors. Any system or network failure that causes
interruption or slower response time of our services could result in less
traffic to our Web site and, if sustained or repeated, could reduce the
attractiveness of our services to consumers, manufacturers, retailers and
advertisers. We have experienced periodic system interruptions, which we believe
may continue to occur from time to time. An increase in the volume of our Web
site traffic could strain the capacity of our technical infrastructure, which
could lead to slower response times or system failures. This would cause the
number of, advertising impressions, click throughs to our clients and our
information offerings to decline, any of which could hurt our revenue growth and
our brand loyalty. In addition, if traffic increases, we cannot assure you that
our technical infrastructure, such as a reliable network backbone with the
necessary speed and data capacity and the development of complementary products
such as high-speed modems, will be able to increase accordingly, and we face
risks related to our ability to scale up to expected consumer levels while
maintaining performance. Further, security and authentication concerns regarding
the transmission of confidential information over the Internet, such as credit
card numbers, may continue. Any failure of our server and networking systems to
handle current or higher volumes of traffic could have a material adverse effect
on our business, results of operations and financial condition.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. If Internet usage continues to
increase rapidly, the Internet infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. If these outages or delays on the Internet occur frequently, overall
Internet usage or usage of our Web site could increase more slowly or decline.
Our ability to increase the speed with which we provide services to consumers
and to increase the scope of such services is limited by and dependent upon the
speed and reliability of the Internet. Consequently, the emergence and growth of
the market for our services is dependent on future improvements to the entire
Internet.
In addition, our operations depend upon our ability to maintain and
protect our computer systems. Our third party provider maintains, within their
own control and to their own specifications, the only backup disaster recovery
program. The system therefore is vulnerable to damage from a disastrous event,
such as fire, flood, earthquake, power loss, telecommunications failures,
hackers and similar occurrences which cannot be controlled or corrected by the
third party as well as being vulnerable to any failure by the third party to
adequately maintain or protect our equipment or their own facilities. The
occurrence of a disastrous event could have a material adverse effect on our
business, results of operations and financial condition.
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WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.
We could be exposed to liability for third-party information that may
be accessible through our Web site. Such claims might assert, among other
things, that, by directly or indirectly providing links to Web sites operated by
third parties, we should be liable for copyright or trademark infringement or
other wrongful actions by such third parties through such Web sites. It is also
possible that, if any third-party content information provided on our Web site
contains errors, consumers might make claims against us for losses incurred in
reliance on such information.
At times, we also enter into agreements with other companies under
which any revenue that results from the purchase of services through direct
links to or from our Web site is shared. Such arrangements may expose us to
additional legal risks and uncertainties, including local, state, federal and
foreign government regulation and potential liabilities to consumers of these
services, even if we do not provide the services ourselves. We cannot assure you
that any indemnification provided to us in our agreements with these parties, if
available, will be adequate.
Even to the extent any of the claims referred to above do not result in
liability to us, we could incur significant costs in investigating and defending
against such claims. The imposition on us of potential liability for information
carried on or disseminated through our system could require us to implement
measures to reduce our exposure to such liability, which might require the
expenditure of substantial resources or limit the attractiveness of our services
to consumers and others.
We may not be able to obtain and maintain adequate insurance. Our
general liability insurance may not cover all potential claims to which we are
exposed and may not be adequate to indemnify us for all liability that may be
imposed. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on our
business, results of operations and financial condition.
IF OUR ONLINE SECURITY MEASURES FAIL, OUR BUSINESS WOULD BE MATERIALLY ADVERSELY
AFFECTED.
Our network is vulnerable to computer viruses, physical or electronic
break-ins and similar disruption. We expect that these problems will occur from
time to time. The inadvertent transmission of computer viruses could expose us
to litigation or to a material risk of loss. Such security breaches and
inadvertent transmissions could have a material adverse effect on our business,
results of operations and financial condition.
In our prior offerings of certain online payment services, we relied on
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as consumer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the algorithms that we use
to protect our consumers, transaction data or our software vendors and products.
Any well-publicized compromise of security could deter use of the Internet in
general or use of the Internet to conduct transactions that involve transmitting
confidential information or downloading sensitive materials. Someone who is able
to circumvent our security measures could misappropriate proprietary information
or cause interruptions in our operations. We may be required to expend
significant capital and other resources to protect against such security
breaches or alleviate problems caused by such breaches. Such expenditures could
have a material adverse effect on our business, results of operations and
financial condition.
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WE MAY BE UNSUCCESSFUL IN ENTERING NEW BUSINESS AREAS.
We may choose to expand our operations by developing new Web sites,
promoting new or complementary products or formats, expanding the breadth and
depth of products and services offered or expanding our market presence through
relationships with third parties. In addition, we may pursue the acquisition of
new or complementary businesses, products or technologies, although we have no
present plans or commitments with respect to any material acquisition or
investment. If we acquire a company, we could face difficulties in assimilating
that company's personnel and operations. In addition, key personnel of the
acquired company might decide not to work for us. Furthermore, any new business
or Web site launched by us not favorably received by consumers could damage the
reputation of the Telebyteusa.com and Nextday.com brand. The lack of market
acceptance of such efforts or our inability to generate satisfactory revenues
from such expanded services or products to offset their cost could have a
material adverse effect on our business, results of operations and financial
condition.
IF GOVERNMENT REGULATION INCREASES, WE MAY NEED TO CHANGE THE MANNER IN WHICH WE
CONDUCT OUR BUSINESS.
The adoption of new legislation or regulation which impacts Internet
businesses, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the Internet and other online services could have a material
adverse effect on our business. We are not currently subject to direct
regulation by any domestic or foreign governmental agency, other than
regulations applicable to businesses generally, and laws or regulations directly
applicable to access to online commerce. However, due to the increasing
popularity and use of the Internet and other online services, it is possible
that laws and regulations may be adopted with respect to the Internet or other
online services covering issues such as user privacy, pricing, content,
copyrights, distribution, and characteristics and quality of products and
services. Furthermore, the growth and development of the market for online
commerce may prompt more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may decrease the growth of the Internet or
other online services, which could, in turn, decrease the demand for our
products and services and increase our cost of doing business. Moreover, the
applicability to the Internet and other online services of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes and personal privacy is uncertain and may take years to resolve. In
addition, as our Web site is available over the Internet in many states and
foreign countries, and as we sell to numerous consumers residing in such states
and foreign countries, such jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each such state and foreign
country. We are qualified to do business in only two states, and our failure to
qualify as a foreign corporation in a jurisdiction where such qualification is
required could subject us to taxes and penalties for the failure to qualify.
IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS IS INADEQUATE, OUR
BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED.
Although our ability to compete depends, to some extent, upon copyright
law and confidentiality agreements, we believe that the technical and creative
skills of our personnel, continued development of our proprietary systems and
technology, brand name recognition and reliable Web site maintenance are more
essential in establishing and strengthening our brand. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our services or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our proprietary rights is difficult. Other than our
registration of certain domain names, we do not have any other protection for
the "Telebyteusa.com and Nextday.com" names. We do not believe that we or anyone
else can obtain protection for such names in the United States. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our products and services are made available
online. In addition, litigation may be necessary in the future to enforce or
protect our intellectual property rights or to defend against claims or
infringement. As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants. We cannot assure that the steps
taken by us will prevent misappropriation of technology or that the agreements
entered into for that purpose will be enforceable. Misappropriation of our
intellectual property or the costs associated with litigation related thereto
could have a material adverse effect on our business, results of operations and
financial condition.
21
<PAGE>
WE MAY BE UNABLE TO ACQUIRE OR MAINTAIN THE NECESSARY WEB DOMAIN NAMES.
We currently hold various Web domain names relating to our brand,
including the "Telebyteusa.com and Nextday.com" domain names. The acquisition
and maintenance of domain names generally is regulated by governmental agencies
and their designees. For example, in the United States, the National Science
Foundation has appointed Network Solutions, Inc. as the current exclusive
registrar for the ". com," ".net" and ".org" generic top-level domains. The
regulation of domain names in the United States and in foreign countries is
subject to change in the near future. Such changes in the United States are
expected to include a transition from the current system to a system which is
controlled by a non-profit corporation and the creation of additional top-level
domains. Governing bodies may establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. As a result, we may be unable to acquire or maintain relevant domain
names in all countries in which we conduct business. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our proprietary rights.
EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER US.
Approximately 22% of the outstanding common stock is beneficially owned
by Dr. Kenneth S. Schneider, our Chief Executive Officer. Accordingly,
Dr.Schneider will have substantial influence over the outcome of any matter
submitted to a vote of stockholders, including the election of directors and the
approval of significant corporate transactions (such as acquisitions of us or
our assets). Such influence could delay or prevent a change of control of our
Company. Please see "Principal Stockholders" and "Description of Securities."
WE MAY BE UNABLE TO RESPOND TO EVENTS OUTSIDE OUR CONTROL
Our business may also be adversely affected by matters and events
affecting businesses generally, including, without limitation, political and
economic events, labor unrest, acts of God, war and other events outside of our
control.
Item 7. Financial Statements
The audited financial statements of the Company as of December 31, 1999 and 1998
and for the years then ended are included in this Annual Report on Form 10-KSB
following Item 13 thereof.
Item 8. Changes in and Disagreements with Accountants in Accounting and
Financial Disclosures
None
22
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following table sets forth certain information concerning Company's officers
and directors as of December 31, 1999. Telebyte's directors are elected to serve
until the next annual meeting of shareholders or until their successors are
elected and qualified. The executive officers are appointed annually by, and
serve at the pleasure of, the Board of Directors.
<TABLE>
<CAPTION>
Name, age, and positions Business experience during past Director
held with the Company five years and principal occupation since
- --------------------- ----------------------------------- -----
<S> <C> <C>
Kenneth S. Schneider, Ph.D., Dr. Schneider served as Vice President 1983
age 54, Chairman, CEO, and Treasurer from August 1983 to
Secretary, and January 1999. He was elected
Director (1) Secretary in June 1991. He became
Chairman of the Board and CEO in
January 1999.
Jamil Sopher, age 56 Mr. Sopher is with the World Bank 1996
Director (2) Bank where he has been employed
since 1980.
Michael Breneisen, age 35, Mr. Breneisen served as Controller, 1999
President, COO, CFO, and from July 1992 and Vice President
Director and CFO from January 1997. He
became President, COO and CFO
in January 1999. He became CEO
of Nextday.com, Inc. in June 1999.
</TABLE>
- ----------
(1) Dr. Schneider received BS, M.Eng. (Elect.) and Ph.D. degrees' all from
Cornell University.
(2) Mr. Sopher received BS and M.Eng. (Elect.) degrees from Cornell University
and the MBA degree from Harvard University.
Section 16 Compliance
Based upon a review of copies of the forms required to be filed under Section
16(a) of the Securities Exchange Act of 1934 or written representations from
officers and directors, the Company believes all officers and directors, and
greater than ten percent owners of the Company's common stock have complied with
Section 16(a.)
23
<PAGE>
Item 10. Executive Compensation
The following table provides summary information concerning the cash and certain
other compensation paid or accrued by the Company during the last three fiscal
years to the executive officers of the Company whose cash compensation exceeded
$100,000. The table includes Company contributions on the officer's behalf to
the Company's 401(k) Plan.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- -----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Annual Restricted Stock Long-Term All Other
Principal Position Year Salary Bonus Compensation Stock Awards Options/SARs Incentive Payout Compensation
------------------ ---- ------ ----- ------------ ------------ ------------ ---------------- ------------
($) ($) ($) (No.) (No.) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel A. Kramer 1999 $10,574 0.00 $1,726(2) 0 0 0 $95,243(4)
(Former) (1)
President, 1998 $124,306 $25,000 $20,130(2) 0 0 $5,747(3) $8,040
CEO 1997 $111,631 $2,000 $16,629(2) 0 0 $12,662(3) $4,116
&
Director
Kenneth S. Schneider 1999 $125,685 0 0 0 0 $4080(3) $5,112
(1)
Chairman, CEO, 1998 $112,534 $22,000 $10,170(2) 0 0 $4,080(3) $7,104
Secretary & Director 1997 $100,686 $2,000 $8,804(2) 0 0 $4,080(3) $2,814
</TABLE>
- ----------------
(1) Mr. Kramer left the employ of the Company in January 1999 at which time Dr.
Schneider was elected the Chief Executive Officer by the Board of Directors
and at which time he dropped the title of Vice President.
(2) Commissions-Mr. Kramer received a 2.5% commission of net sales to customers
not located within the United States
(3) Deferred Compensation - see Long-Term Incentive Plans Table below.
(4) Consulting services and fringes.
Long-Term Incentive Plans - Awards in Last Fiscal Year
<TABLE>
<CAPTION>
Estimated Future Payouts under Non-Stock Price-Based Plans
Performance or Other ----------------------------------------------------------
Number of Shares, Period Until Threshold Target Maximum
Units or Other Maturation
Name Rights (#) Or Payout ($ or #) ($ or #) ($ or #)
- ----------------------- ------------------ ---------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Kenneth S. Schneider April 16, 2010 $26,667(1) $26,667(1) $26,667(1)
Chairman, CEO
Secretary & Director
</TABLE>
(1) In 1990, the Company entered into a deferred compensation agreement with
Kenneth S. Schneider, pursuant to which he will receive a defined amount,
approximately 30% of his 1990 base salary, each year for a period of 10
years after reaching age 65. The deferred compensation plan is funded
through life insurance and is being provided for currently. The expense
charged to operations in 1999 for such future obligations was $4,080.
24
<PAGE>
Aggregate Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total Options Exercise or
Number of Options Granted to Employees Base Price Expiration
Name Granted in Fiscal Year 1999 ($/Share) Date
---- ------- ------------------- --------- ----
<S> <C> <C> <C> <C>
Joel A. Kramer 0 0 -- --
Kenneth S. Schneider 200,000 43.5% $1.03 6/29/09
</TABLE>
The following table sets forth information concerning each exercise of stock
options during fiscal 1999 by each of the named executive officers and fiscal
year-end value of unexercised options:
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Number of Shares Value Unexercised Options at In-the-Money Options
Name Acquired on Exercise Realized ($) December 31, 1999 at December 31, 1999
---- -------------------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Joel A. Kramer 0 0 0 $0
Kenneth S. Schneider 0 0 200,000 (2) $394,000
</TABLE>
- ----------
(1) Calculation based upon the closing price of the Company's Common Stock
($3.00 per share) as reported by Nasdaq Trading & Market Services on
December 31, 1999.
(2) 100,000 option shares vest June 30, 2004, and the remaining 100,000 option
shares vest January 1, 2005; subject, however, to accelerated events if
certain targets are met.
Compensation Plans and Other Compensation
The Company's Board of Directors with the approval of the stockholders has
adopted a Stock Option Plan (the "1999 Plan") and has reserved for issuance
thereunder 500,000 shares of the Company's common stock. As of December 31,
1999, options to purchase an aggregate of 418,000 shares have been granted
and there were 82,000 shares available for grants under the 1999 Plan. Pursuant
to the 1999 Plan, the Company may grant options under the 1999 Plan which are
intended either to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("Incentive Stock Options"), or not so qualify ("Nonstatutory Stock Options").
The 1999 Plan provides for its administration by the Board of Directors or by a
committee (the "Stock Option Committee") consisting of at least one director
chosen by the Board of Directors. The Board of Directors or the Stock Option
Committee has authority (subject to certain restrictions) to select from the
group of eligible employees, non-employee directors, consultants and advisors
the individuals or entities to whom options will be granted, and to determine
the times at which and the exercise price for which options will be granted.
The option price of the shares subject to an Incentive Stock option may not be
less than the fair market value (as such term is defined in the 1999 Plan) of
the common stock on the date upon which such option is granted. In addition, in
the case of a recipient of an Incentive Stock Option who, at the time the option
is granted, owns more than 10% of the total combined voting power of all classes
of stock of the Company or of a parent or subsidiary corporation of the Company
(a "10% Stockholder"), the option price of the shares subject to such option
must be at least 110% of the fair market value of the common stock on the date
upon which such option is granted.
The option price of shares subject to a Nonstatutory Stock Option will be
determined by the Board of Directors or the Stock Option Committee at the time
of grant and need not be equal to or greater than the fair market value for the
Company's common stock.
In 1994 the Company adopted the 1993 Stock Option Plan (the "1993 Plan") under
which options to purchase 100,000 shares of the common stock were reserved. All
directors, officers or other key
25
<PAGE>
employees of the Company are eligible to participate in the 1993 Plan. The Board
of Directors of the Company administers the 1993 Plan. The 1993 Plan is similar
to the 1999 Plan. As of December 31, 1999, there were 34,750 shares available
for grants under the 1993 Plan. Pursuant to the 1993 Plan, the Company is
permitted to issue incentive stock options.
In 1987, the Company adopted a plan which provided for the granting, to officers
and key employees of the Company of incentive stock options, as defined in the
Internal Revenue Code, for the purchase of a maximum of 250,000 shares of the
Company's common stock. Options to purchase 10,800 shares are outstanding.
The Company has an informal bonus plan in which officers and other key personnel
participate. The bonus award, if any, is fixed annually by the Board of
Directors. Bonuses were allocated and paid to executive officers under this plan
during fiscal 1999 and shown on the foregoing Summary Compensation Table. The
Company maintains a deferred compensation plan under Internal Revenue Code
Section 401(k). All employees are eligible to participate; the Company
contributes 50% of the first 2% deferred by the employee. Each employee may
voluntarily contribute up to 15% of annual compensation, or the maximum allowed
as determined by the Internal Revenue Code.
During 1997, the Company entered into a three-year employment agreement with
Kenneth S. Schneider. The employment agreement provides that Dr. Schneider would
receive a minimum salary of $105,155. During the employment period Dr. Schneider
is entitled upon termination or expiration of the agreement under certain
circumstances (including a change of control) to certain severance benefits. The
term of the agreement is for three years.
During 1999, the Company entered into employment agreement with Michael
Breneisen. The employment agreement provides that Mr. Breneisen will receive
a minimum salary of $75,000. During the employment period Mr. Breneisen is
entitled upon termination or expiration of the agreement under certain
circumstances (including a change of control) to certain severance benefits.
The term of the agreement is for three years.
Except for life and medical insurance benefit programs, which are available to
all employees, the Company has no other compensation plans. The outside director
does not receive a per meeting fee. The outside director does receive
reimbursement of expenses for attending each meeting and is eligible to receive
stock options.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 1999 information concerning
(i) the shares held by each person or group known to own beneficially more than
5% of the outstanding shares of common stock, (ii) shares owned by the Chief
Executive Officer (iii) shares owned by all executive officers and directors
as a group.
26
<PAGE>
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ ----------
Kenneth S. Schneider 283,037(1) 22%
270 Pulaski Road
Greenlawn, NY 11740
Jamil Sopher 31,730(2) 2.5%
270 Pulaksi Road
Greenlawn, NY 11740
Michael Breneisen 36,900(1)(4) 2.9%
270 Pulaksi Road
Greenlawn, NY 11740
All executive officers and directors 351,667 27.4%
As a group (5 in number)
(1) Does not include 200,000 shares issuable upon exercise of stock options
under the 1999 Plan. Of such options 100,000 option shares vest June 30,
2004, and the remaining 100,000 option shares vest January 1, 2005;
subject, however, to acceleration if certain targets are met.
(2) Includes 20,000 shares issuable upon exercise of stock options granted
under the Company's 1993 Stock Option Plan.
(3) Includes 10,000 shares issuable upon exercise of stock options granted
under the Company's 1999 Stock Option Plan.
(4) Includes 5,000 shares issuable upon exercise of stock options granted under
the Company's 1987 Stock Option Plan.
Item 12. Certain Relationships and Related Transactions
Effective January 20, 1999, Joel A. Kramer, then the Chairman of the Board,
President and Chief Executive Officer of the Company resigned such positions.
However, it was intended that Mr. Kramer would serve as a consultant to the
Company through January 19, 2002 for an aggregate consideration of $165,000 plus
reimbursement for certain expenses. In addition, the Company purchased all of
the shares of common stock of the Company owned by Mr. Kramer and Mr. Kramer
agreed to cancel options to purchase 10,000 shares of common stock of the
Company for an aggregate consideration of $1,075,190 of which $867,510 was for
such shares, $17,680 was for the cancellation of such options and $190,000 was
in exchange for Mr. Kramer's restrictive covenant. In addition, Mr. Kramer
agreed not to compete with the business of the Company until January 19, 2003
and released the Company from certain potential claims relative to his
previous employment. The Company transferred a life insurance policy to
Mr. Kramer, previously maintained for Mr. Kramer's benefit and having a cash
value of approximately $80,000.
In December of 1999, the Company received information indicating that Mr. Kramer
had breached certain of the non-competition provisions of the Consulting
Agreement entered into by Mr. Kramer and the Company and also of the Stock
Purchase Agreement and the Termination Agreement entered into by Mr. Kramer and
the Company. In response to this information, the Company asserted its rights
under the Consulting Agreement and cancelled it for cause on January 12, 2000,
and ceased making payments thereunder. The Company is considering what further
legal action it may take with respect to this situation as warranted under the
circumstances.
Effective January 20, 1999 Dr. Kenneth S. Schneider was elected as Chairman of
the Board and Chief Executive Office and Michael Breneisen as President and
Chief Operating Officer of the Company. Dr. Schneider was a co-founder of the
Company and has served as a Senior Vice President, Secretary, Treasurer and
Director. Mr. Breneisen has served as Vice President and Chief Financial
Officer; he will also continue to serve as Chief Financial Officer and act as a
Director.
27
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a) The Company's Certificate of Incorporation under the State of Nevada was
filed as an Exhibit with the Proxy Statement filed in June 1987 (File No.
0-11883) and is incorporated by reference herein.
3(b) The By-laws of the Company as a Nevada corporation were filed as an Exhibit
on Form 8-K in third quarter of 1987 (File No. 0-11883) and are incorporated by
reference herein.
3(c) The Company's Certificate of Incorporation under the State of Delaware and
is attached herein.
3(d) The By-laws of the Company as a Delaware corporation and is attached
herein.
3(e) Certificate of Ownership and Merger, merging Telebyte Technology, Inc.(a
Nevada corporation) into Telebyte Technology, Inc.(a Delaware corporation)and is
attached herein.
10(a) The Company's 1993 Stock Option Plan was filed as an Exhibit to the
Company's definitive 1994 proxy statement filed in May 1994 (File No. 0-11883),
and is incorporated by reference herein.
10(b) Commercial mortgage and consolidation agreement dated May 25, 1988 between
Home Federal Savings Bank (now known as North Fork Bank) and Telebyte
Technology, Inc., filed as an Exhibit to the Company's 1988 Annual Report on
Form 10-K (File No. 0-11883) and is incorporated by reference herein.
10(c) Deferred compensation agreements dated December 12, 1990 between Telebyte
Technology, Inc. and Joel A. Kramer and Kenneth S. Schneider, filed as an
Exhibit to the Company's 1990 Annual Report on Form 10-K (File No. 0-11883) and
is incorporated by reference herein.
10(e) $1,000,000 Revolving Line of Credit agreement dated June 23, 1994 between
Merrill Lynch and Telebyte Technology, Inc. and was filed as an exhibit on Form
10-KSB for the year ended December 31, 1994 (File No. 0-11883) and is
incorporated by reference herein.
10(f) Employment Agreements between the Company and Kenneth S. Schneider dated
August 1, 1997 and was filed as an exhibit on Form 10-KSB for the year ended
December 31, 1997 (File No. 0-11883) and is incorporated by reference herein.
10(g) Mortgage Loan Modification Agreement dated March 18, 1998 between the
Company and Home Federal Savings Bank 1997 and was filed as an exhibit on Form
10-KSB for the year ended December 31, 1998 (File No. 0-11883) and is
incorporated by reference herein.
10(h) Stock Purchase Agreement dated January 20, 1999 between the Company and
Joel A. Kramer and was filed as an exhibit to the Company's current report on
Form 8K filed on January 27, 1999.
10(i) Consulting Agreement dated January 20, 1999 between the Company and Joel
A. Kramer and was filed as an exhibit to the Company's current report on Form 8K
filed on January 27, 1999.
10(j) Termination Agreement dated January 20, 1999 between the Company and Joel
A. Kramer and was filed as an exhibit to the Company's current report on Form 8K
filed on January 27, 1999.
10(k) Agreement and Release dated January 20, 1999 between the Company and Joel
A. Kramer and was filed as an exhibit to the Company's current report on Form 8K
filed on January 27, 1999.
10(l) Employment Agreement between the Company and Michael Breneisen dated June
25, 1999 and is attached herein.
28
<PAGE>
10(m) The Company's 1999 Stock Option Plan and is attached herein.
10(n) $1,000,000 Reducing Revolving Line of Credit Agreement dated January 20,
1999 between Merrill Lynch and Telebyte Technology, Inc. and is attached herein.
(21) Subsidiaries of the Small Business Issuer
(23) Consent of Grant Thornton LLP, independent certified public accountants.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter for the fiscal
year ended December 31, 1999.
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant had duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELEBYTE, INC.
By: \s\ Kenneth S. Schneider
-------------------------
Kenneth S. Schneider
Chairman of the Board
(Chief Executive Officer)
By: \s\ Michael Breneisen
-------------------------
Michael Breneisen
President
(Chief Operating Officer and Principal Financial and Accounting Officer)
Date: March 30, 2000
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant, and in the
capacities and on the dates indicated.
March 30, 2000 /s/ Kenneth S. Schneider
----------------------------------
Kenneth S. Schneider, Director
March 30, 2000 /s/ Jamil Sopher
----------------------------------
Jamil Sopher, Director
March 30, 2000 /s/ Michael Breneisen
----------------------------------
Michael Breneisen, Director
29
<PAGE>
Telebyte, Inc and Subsidiary
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Earnings for the years ended
December 31, 1999 and 1998 F-5
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Telebyte, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Telebyte, Inc.
and Subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of earnings, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Telebyte, Inc. and
Subsidiary as of December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
March 17, 1999
F-2
<PAGE>
Telebyte, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1999 1998
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 370,527 $ 919,630
Accounts receivable, net of allowance of
$16,000 in 1999 and $15,000 in 1998 858,917 648,467
Inventories 1,519,277 1,421,974
Prepaid expenses and other 55,124 70,977
Deferred income taxes 135,000 50,000
---------- ----------
Total current assets 2,938,845 3,111,048
PROPERTY AND EQUIPMENT - AT COST,
less accumulated depreciation 1,124,583 1,064,143
OTHER ASSETS, NET 235,351 157,156
---------- ----------
$4,298,779 $4,332,347
========== ==========
The accompanying notes are an integral part of these statements
F-3
<PAGE>
Telebyte, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS (continued)
December 31,
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 272,516 $ 352,009
Accrued expenses 147,633 131,305
Accrued taxes payable 181,329 5,366
Current maturities of long-term debt 70,410 64,488
----------- -----------
Total current liabilities 671,888 553,168
LONG-TERM DEBT, less current maturities 1,015,734 862,846
DEFERRED INCOME TAXES 195,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 9,000,000 shares authorized; 1,248,631 and
1,661,066 shares issued in 1999 and 1998, respectively; 1,248,631 and
1,506,266 shares outstanding in
1999 and 1998, respectively 12,486 16,611
Capital in excess of par value 1,740,472 2,760,921
Retained earnings 663,199 239,894
Treasury stock - 154,800 shares at cost (101,093)
----------- -----------
2,416,157 2,916,333
----------- -----------
$ 4,298,779 $ 4,332,347
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Telebyte, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
1999 1998
----------- -----------
Net sales $ 5,670,600 $ 5,568,787
Cost of sales 2,633,510 2,630,486
----------- -----------
Gross profit 3,037,090 2,938,301
----------- -----------
Operating expenses
Selling, general and administrative 1,747,820 2,076,973
Research and development 518,096 469,415
----------- -----------
2,265,916 2,546,388
----------- -----------
Operating profit 771,174 391,913
----------- -----------
Other income (expense)
Interest income 7,674 26,744
Rental income 48,195 48,195
Interest expense (111,738) (97,352)
----------- -----------
(55,869) (22,413)
----------- -----------
Earnings before income taxes 715,305 369,500
Income tax provision 292,000 36,000
----------- -----------
NET EARNINGS $ 423,305 $ 333,500
=========== ===========
Earnings per common share:
Basic $ .34 $ .22
=========== ===========
Diluted $ .31 $ .22
=========== ===========
Weighted average shares:
Basic 1,262,159 1,501,783
=========== ===========
Diluted 1,349,348 1,524,233
=========== ===========
The accompanying notes are an integral part of these statements
F-5
<PAGE>
Telebyte, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Number of Capital in Retained
shares Common excess of Earnings Treasury
issued stock par value (deficit) stock Total
------------ ---------- -------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 1,636,566 $16,366 $2,751,988 $(93,606) $(101,093) $2,573,655
Common stock issued upon exercise of options 24,500 245 8,933 9,178
Net earnings 333,500 333,500
------------ --------- --------------- --------- ------------ ----------
Balance at December 31, 1998 1,661,066 16,611 2,760,921 239,894 (101,093) 2,916,333
Common stock issued upon exercise of options 5,000 50 3,900 3,950
Purchase of treasury stock (927,431) (927,431)
Retirement of treasury stock (417,435) (4,175) (1,024,349) 1,028,524
Net earnings 423,305 423,305
------------ --------- --------------- --------- ------------- ----------
Balance at December 31, 1999 1,248,631 $12,486 $1,740,472 $ 663,199 $ $2,416,157
============ ========= =============== ========= ============= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Telebyte, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998
--------- ---------
Cash flows from operating activities
Net earnings $ 423,305 $ 333,500
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 232,333 99,648
Deferred income taxes 110,000 30,000
Decrease (increase) in operating assets
Accounts receivable (210,450) 103,674
Inventories (97,303) (200,206)
Prepaid expenses and other 15,853 (19,297)
(Decrease) increase in operating liabilities
Accounts payable (79,493) (63,111)
Accrued expenses and taxes 192,291 (9,906)
--------- ---------
Net cash provided by operating activities 586,536 274,302
--------- ---------
Cash flows from investing activities
Additions to property and equipment (167,844) (43,356)
Cost of non-compete agreement (203,124)
--------- ---------
Net cash used in investing activities (370,968) (43,356)
--------- ---------
Cash flows from financing activities
Principal payments under mortgage obligation (63,131) (50,778)
Purchase of treasury stock (927,431)
Net borrowings under line-of-credit agreement 221,941
Proceeds from exercise of stock options 3,950 9,178
--------- ---------
Net cash used in financing activities (764,671) (41,600)
--------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (549,103) 189,346
Cash and cash equivalents at beginning of year 919,630 730,284
--------- ---------
Cash and cash equivalents at end of year $ 370,527 $ 919,630
========= =========
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Telebyte, Inc. and Subsidiary (formerly Telebyte Technology, Inc., the
"Company") designs, manufactures and markets electronic data
communications products. The Company's products are primarily sold to
end-users, domestic dealers and distributors, foreign dealers and
distributors and original equipment manufacturers. Through the Company's
wholly owned subsidiary, Nextday.com, Inc., the Company, utilizing
electronic commerce (e-commerce) via the Internet, resells products
manufactured principally by other companies in the business to business
marketplace. The Company currently operates in two business segments, data
communications and e-commerce; however, the e-commerce segment, which
began operations in October 1999, is not reported separately as its assets
and operating results are not significant during 1999. The Company does
not depend upon sales to a single customer or a limited group of customers
and there were no sales to a single customer during the last two years
exceeding 10% of net sales. The Company has no foreign operations. Export
sales were $694,000 and $770,000 in 1999 and 1998, respectively.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements
follows:
1. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Telebyte Inc. and its subsidiary, Nextday.com (formerly known as
DeliverNextDay.com). All significant intercompany balances have been
eliminated in consolidation.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
3. Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line basis over
the estimated useful lives of the assets, which are 35 years for
building and improvements, 5 years for equipment and 2 years for
software.
F-8
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE A (continued)
4. Other Assets
Other assets include the unamortized costs of certain intangible assets
including a restrictive covenant, license agreement and deferred loan
costs. Amortization is provided for on a straight-line basis over the
shorter of the estimated useful lives or the related contractual life.
5. Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and
loss carryforwards for which income tax benefits are expected to be
realized in future years. A valuation allowance is established to
reduce the deferred tax assets if it is more likely than not that all,
or some portion, of such deferred tax assets will not be realized. The
effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
6. Advertising
Advertising costs are expensed as incurred and totaled $37,000 and
$69,000 in 1999 and 1998, respectively.
7. Earnings Per Share
Basic earnings per share is determined by dividing the Company's net
earnings by the weighted average shares outstanding. Diluted earnings
per share includes the dilutive effects of outstanding stock options.
Excluded from the calculation of diluted earnings per share are 103,200
options to purchase the Company's common stock in 1998, as their
inclusion would have been anti-dilutive.
8. Stock-Based Compensation Plans
The Company maintains three fixed stock option plans, as more fully
described in Note G to the financial statements, accounted for using
the "intrinsic value" method pursuant to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations, and, accordingly, recognizes
no compensation expense. Therefore, the Company has elected the
disclosure provisions only of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
F-9
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE A (continued)
9. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers
highly liquid cash investments with an original maturity of three
months or less to be cash equivalents. The Company paid interest of
$90,579 and $94,302 and income taxes of $6,419 and $1,562 in 1999 and
1998, respectively.
10. Revenue Recognition
Revenue is recognized from sales when a product is shipped and title
passes to customers. Service fees are recognized upon the completion of
the related service.
11. Use of Estimates and Fair Value of Financial Instruments
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Management of the Company believes that the fair value of financial
instruments, consisting of cash, accounts receivable and debt,
approximate carrying value due to the immediate or short-term maturity
associated with its cash and accounts receivable and the interest rates
associated with its debt.
NOTE B - INVENTORIES
Inventories consist of the following at December 31:
1999 1998
---------- -----------
Purchased components and materials $ 555,299 $ 596,171
Work in process 347,596 275,073
Finished goods 616,382 550,730
---------- ----------
$1,519,277 $1,421,974
========== ==========
F-10
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
1999 1998
------------ ------------
Land $ 300,000 $ 300,000
Building and improvements 1,024,583 1,024,583
Equipment 685,859 595,578
Software 77,563
----------- -----------
2,088,005 1,920,161
Less accumulated depreciation 963,422 856,018
----------- -----------
$1,124,583 $1,064,143
=========== ===========
NOTE D - DEBT
1. Line of Credit Facility
The Company has an agreement with a financial institution, expiring
July 2000, which provides the Company with a line of credit facility
of up to $500,000 based on eligible accounts receivable and purchased
components and materials and finished goods inventories of the
Company, as defined in the agreement. Further, the agreement contains
certain financial covenants which require the Company to maintain a
minimum level of tangible net worth and places limitations on the
ratio of the Company's total debt to Company's tangible net worth, as
defined in the agreement. Borrowings under the line of credit bear
interest at the bank's specified prime rate plus .75% (9.25% at
December 31, 1999). There was no outstanding balance against this line
at December 31, 1999.
In January 1999, the Company secured an additional Reducing Revolving
line of credit from this institution which provides for initial
borrowings up to a maximum of $1,000,000. Availability under the
Reducing Revolving line of credit will be reduced monthly by
approximately $11,900 and will expire January 2006. Availability under
this line at December 31, 1999 was approximately $647,000. Borrowings
under this loan agreement bear interest at the 30 Day Commercial Paper
Rate plus 2.90%. (8.53% at December 31, 1999).
F-11
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE D (continued)
2. Mortgage Note
The Company's first mortgage note is collateralized by land and
building. The remaining unpaid mortgage note balance at December 31,
1999 is payable in equal monthly installments of $12,111 (inclusive of
interest at 9%) with a maturity date of June 2008. In March 1998, the
Company modified the mortgage note agreement, reducing the existing
interest rate to 9% through June 1, 2000. At that time, and every
three years thereafter, the interest rate will be adjusted to the
three-year weekly average U.S. Treasury Constant Maturity Rate plus
3%.
Financing and other costs aggregating $95,122 incurred in connection
with the acquisition of real property and the refinancing of mortgage
debt are stated at cost, net of accumulated amortization of $58,402
and $53,222 at December 31, 1999 and 1998, respectively, and are
included in "Other assets" in the accompanying balance sheets.
Amortization is provided on a straight-line basis over the life of the
mortgage note. Long-term debt is summarized as follows at December 31:
1999 1998
---------- ---------
Reducing revolving line of credit $221,941 $
First mortgage note payable to bank in
equal monthly installments, including
interest, through June 2008 864,203 927,334
---------- --------
1,086,144 927,334
Less current maturities 70,410 64,488
---------- --------
$1,015,734 $862,846
========== ========
Aggregate maturities of long-term debt as of December 31, 1999 are as follows:
2000 $ 70,410
2001 77,015
2002 84,240
2003 92,142
2004 100,786
Thereafter 661,551
----------
$1,086,144
----------
F-12
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE E - EMPLOYEE BENEFIT PLANS
The Company sponsors an employee investment savings 401(k) plan to which
both the Company and employees contribute. All employees are eligible to
participate; the Company contributes 50% of the first 2% deferred by the
employee. Each employee may voluntarily contribute up to 15% of annual
compensation, or the maximum allowed as determined by the Internal Revenue
Code. Benefits are 100% vested and are payable upon the employee's death,
disability, retirement, termination and under certain financial
circumstances. Employer contributions of $6,564 and $8,285 were made to
the plan in 1999 and 1998, respectively.
The Company maintains deferred compensation agreements with key officers,
whereby the officers will receive a defined amount approximating 30% of
their 1990 base salary for a period of 10 years after reaching age 65. The
deferred compensation plans are funded through life insurance and are
being provided for currently. The expense charged to operations in 1999
and 1998 for such future obligations was approximately $4,080 and $9,800,
respectively.
NOTE F - INCOME TAXES
The provision for income taxes is summarized as follows:
1999 1998
-------- --------
Current
Federal $140,000 $ 2,000
State 42,000 4,000
-------- =-------
182,000 6,000
Deferred tax expense 110,000 30,000
-------- --------
$292,000 $36,000
======== ========
F-13
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE F (continued)
The actual income tax expense differs from the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- -----------------------------
Amount % Amount %
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Federal statutory rate $243,000 34.0% $ 126,000 34.0%
State income taxes, net of
Federal income tax benefit 39,000 5.4 3,000 .8
Officers' life insurance 3,000 .4 8,000 2.2
Adjustment of net operating loss
carryforwards and other non-
recurring items 85,000 11.9
Benefit of net operating loss
carryforward and other credits (78,000) (10.9) (101,000) (27.3)
-------- ------ ---------- ------
$292,000 40.8% $ 36,000 9.7%
======== ====== ========== ======
</TABLE>
The tax effects of temporary differences which give rise to deferred tax
assets (liabilities) at December 31, 1999 and 1998, are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ $ 70,000
Investment and other tax credit carryforwards 66,000
Deferred compensation 46,000 46,000
Inventory valuation 67,000 8,000
Allowance for doubtful accounts 6,000 6,000
Accrued expenses 16,000 6,000
-------- ---------
Gross deferred tax assets 135,000 202,000
Deferred tax liabilities
Excess tax over book depreciation and amortization (195,000) (152,000)
-------- ---------
Net deferred tax asset/(liability) $(60,000) $ 50,000
======== =========
</TABLE>
F-14
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE G - STOCK OPTION PLANS
In 1987, the Company adopted a plan which provided for the granting, to
officers and key employees of the Company of incentive stock options, as
defined in the Internal Revenue Code, for the purchase of a maximum of
250,000 shares of the Company's common stock. Options to purchase 10,800
shares are outstanding under this plan. Under the terms of the plan, the
options, which expire ten years after grant, are exercisable at a price
equal to the fair market value of the stock at the date of the grant. The
options become exercisable in four annual installments, the first
installment occurring within one year after the date of grant.
In 1994, the Company adopted the 1993 Stock Option Plan (the "1993 Plan"),
which provides for the granting to directors and key employees of the
Company of incentive stock options and nonqualified stock options for the
purchase of a maximum of 100,000 shares of the Company's common stock.
Under the terms of the 1993 Plan, the options, which expire ten years after
grant, are exercisable at a price equal to the fair market value of the
stock at the date of the grant for incentive stock options and at prices
determined by the Board of Directors for nonqualified stock options, and
become exercisable in accordance with terms established at the time of the
grant. At December 31, 1999, there were 34,750 shares available for grant
under the 1993 Plan.
In 1999, the Company adopted the 1999 Stock Option Plan (the "1999 Plan"),
which provides for the granting to employees, non-employee directors,
consultants and advisors of the Company, of incentive stock options and
nonqualified stock options for the purchase of a maximum of 500,000 shares
of the Company's common stock. Under the terms of the 1999 Plan, the
options, which expire ten years after grant, are exercisable at a price
equal to the fair market value of the stock at the date of the grant for
incentive stock options and at prices determined by the Board of Directors
for nonqualified stock options, and become exercisable in accordance with
terms established at the time of the grant. At December 31, 1999, there
were 82,000 shares available for grant under the 1999 Plan.
F-15
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE G (continued)
The following is a summary of activity with respect to stock options under
the plans:
<TABLE>
<CAPTION>
Weighted average
Shares Price per share price per share
------ ----------------- -----------------
<S> <C> <C> <C>
Outstanding at January 1, 1998 61,750 .3125 to 2.04 $.88
Granted 27,500 1.25 to 3.80 3.25
Exercised (24,500) .3125 to .6850 .37
Expired (200) .75 .75
----------
Outstanding at December 31, 1998 64,550 .3125 to 3.80 2.08
Granted 460,000 1.03 to 1.28 1.03
Exercised (5,000) .79 .79
Expired (34,250) .6850 to 3.80 2.29
----------
Outstanding at December 31, 1999 485,300 .3125 to 3.80 1.09
==========
Balance exercisable at December 31, 1999 53,300 .90 to 3.80 1.26
==========
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------------- --------------------------
Weighted Weighted Weighted
average Average average
Ranges of remaining Exercise exercise
exercise prices Shares life in years Price Shares price
--------------- ------ ------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Under $1.00 10,800 3.28 $ .86 10,800 $.86
$1.01 to $1.28 465,000 9.47 1.04 37,750 1.06
$2.05 to $3.80 9,500 8.25 3.80 4,750 3.80
</TABLE>
The weighted-average option fair value on the grant date was $.82 and $2.63
for options issued during the years ended December 31, 1999 and 1998,
respectively.
F-16
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE G (continued)
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"); it applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for the
Plans and does not recognize compensation expense for such Plans. If the
Company had elected to recognize compensation expense based upon the fair
value at the grant dates for awards under these plans consistent with the
methodology prescribed by SFAS No. 123, the Company's reported net earnings
and earnings per share would be reduced to the pro forma amount indicated
below for the years ended December 31:
1999 1998
----------- ---------
Net earnings
As reported $423,305 $333,500
Pro forma 381,724 311,862
Basic earnings per common share
As reported $.34 $.22
Pro forma .30 .21
Diluted earnings per common share
As reported $.31 $.22
Pro forma .28 .20
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1997. The fair value of these options was estimated
at the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for the years ended December 31,
1999 and 1998, respectively: expected volatility of 121% and 95%; risk-free
interest rates ranging from 4.86% to 4.98% in 1999 and 5.602% in 1998. The
expected lives of options issued are four and seven years for 1999 and
1998, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the use of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
F-17
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE H - COMMITMENTS AND CONTINGENCIES
Former Chairman
Effective January 20, 1999, then Chairman of the Board, President and Chief
Executive Officer of the Company (the "Former Chairman") resigned his
positions with the Company. However, the Former Chairman will serve as a
consultant to the Company through January 19, 2002 for an aggregate
consideration of $165,000 plus reimbursement for certain expenses. During
1999, the Former Chairman was paid $85,000 for consulting services and will
earn $80,000 for future services through January 2002. In addition, the
Company purchased all of the shares of common stock of the Company owned by
the Former Chairman (262,835 shares) and the Former Chairman agreed to
cancel options to purchase 10,000 shares of common stock of the Company for
an aggregate cost (including related legal and professional fees of
approximately $74,000) of $1,149,456, of which $927,431 was for such
shares, $18,901 was for the cancellation of such options and $203,124 was
for the Former Chairman's restrictive covenant. In addition, the Former
Chairman has agreed not to compete with the business of the Company until
January 19, 2003 and has released the Company from certain potential claims
relative to his previous employment. Further, the Company transferred a
life insurance policy maintained under the Company's deferred compensation
plan, to the Former Chairman, having a cash value of approximately $80,000.
In December 1999, the Company received information indicating that the
Former Chairman had breached certain of the non-competition provisions of
the consulting agreement entered into by the Former Chairman and the
Company and also of the stock purchase agreement and the termination
agreement entered into by the Former Chairman and the Company. In response
to this information, the Company asserted its rights under the consulting
agreement and cancelled it for cause on January 12, 2000, and ceased making
payments thereunder. The Company is considering what further legal action
it may take with respect to this situation as warranted under the
circumstances.
Lease Commitments
The Company leases certain equipment used in its operations pursuant to
noncancellable operating leases expiring through August 2002. Rental
expense for such equipment was $10,218 and $17,247 in 1999 and 1998,
respectively. The minimum rental commitments under these noncancellable
operating leases, at December 31, 1999, are summarized as follows:
2000 $7,953
2001 3,961
2002 2,641
-------
$14,555
F-18
<PAGE>
Telebyte, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE H (continued)
Employment Contracts
The Company has employment contracts with various officers with remaining
terms of approximately three years at amounts approximating their current
levels of compensation. The Company's remaining aggregate commitment at
December 31, 1999 under such contracts is approximately $249,000.
NOTE I - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
December 31,
------------------------
1999 1998
---------- ----------
Numerator
Net income $ 423,305 $ 333,500
========== ==========
Denominator
Denominator for basic earnings per share
(weighted-average shares) 1,262,159 1,501,783
Effect of dilutive securities
(employee stock options) 87,189 22,450
---------- ----------
Denominator for diluted earnings per share
(adjusted weighted-average shares and
assumed conversions) 1,349,348 1,524,233
========== ==========
Basic earnings per share $ .34 $ .22
========== ==========
Diluted earnings per share $ .31 $ .22
========== ==========
NOTE J - MAJOR SUPPLIERS
The Company purchased approximately 18% of its raw materials from one
supplier during the year ended December 31, 1999. The Company expects this
relationship with this supplier to continue for the foreseeable future. The
Company believes that similar products could be purchased from other
sources.
F-19
<PAGE>
EXHIBIT 3(C)
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE. DO
HEREBY CERTIFY THE ATTACHED IS ATRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "TELEBYTE TECHNOLOGY, INC.", FILED IN THIS OFFICE ON
THE TWENTY-FIFTH DAY OF JUNE, A.D. 1999, AT 3:25 P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS.
3062014 8100 Edward J. Freel, Secretary of State
991260720 Authentication: 9831755
DATE: 06-28-99
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:25 PM 06/25/99
991260720-3062014
CERTIFICATE OF INCORPORATION
OF
TELEBYTE TECHNOLOGY, INC.
The undersigned, being of legal age, in order to form a corporation under and
pursuant to the laws of the state of Delaware, does hereby set forth as follows:
FIRST: The name of the corporation is:
TELEBYTE TECHNOLOGY, INC.
SECOND: The address of the initial registered and principal office of
this corporation in this state is c/o United Corporate Services, Inc., 15 East
North Street, in the City of Dover, County of Kent, State of Delaware 19901 and
the name of the registered agent at said address is United Corporate Services,
Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the corporation laws of
the State of Delaware. FOURTH: The corporation shall be authorized to issue
the following shares:
Class Number of Shares Par Value
COMMON 9,000,000 $0.01
PREFERRED 100,000 $0.01
FIFTH: The name and address of the incorporator are as follows:
NAME ADDRESS
Michael A. Barr 10 Bank Street
White Plains, New York 10606
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation, and for further
definition, limitation and regulation of the powers of the corporation and its
directors and stockholders:
(1) The number of directors of the corporation shall
be such as form time to time shall be fixed by,
or in the manner provided in the by-laws.
Election of directors need not be by ballot
unless the By-Laws so provide.
(2) The Board of Directors shall have power without the assent or vote of
the stockholders:
(a) To make, alter, amend, change, add to or repeal
the By-Laws of the corporation; to fix and vary
the amount to be reserved for any proper purpose;
to authorize and cause to be executed mortgages
and liens upon all or any part of the property of
the corporation; to determine the use and
disposition of any surplus or net profits; and to
fix the times for the declaration and payment of
dividends.
(b) To determine from time to time whether, and to
what times and places, and under what conditions
the accounts and books of the corporation (other
than the stock ledger) or any of them, shall be
open to the inspection of the stock holders.
(3) The directors in their discretion may submit any
contract or act for
approval or ratification at any annual meeting of
the stockholders, at any meeting of the stock
holders called for the purpose of considering
such an act or contract, or through a written
consent in lieu of a meeting in accordance with
the requirements of the General Corporation Law
of Delaware as amended from time to time, and any
contract or act that shall be so approved or be
so ratified by the vote of the holders of a
majority of the stock of the corporation which is
represented in person or by proxy at such
meeting, (or by written consent whether received
directly or through a proxy) and entitled to vote
thereon (provided that a lawful quorum of
stockholders be there represented in person or by
proxy) shall be as valid and as binding upon the
corporation and upon all stockholders as though
it had been approved, ratified,or consented to by
every stockholder of the corporation, whether or
not the contract or act would otherwise be open
to legal attack because of directors' interest,or
for any other reason.
(4) In addition to the powers and authorities
hereinbefore or by statute expressly conferred
upon them, the directors are hereby empowered to
exercise all such powers and do all such acts
and things as may be exercised or done by the
corporation; subject, nevertheless, to the
provisions of the statutes of Delaware, of this
certificate, and to any by-laws from time to time
made by the stockholders; provided, however, that
no by-laws so made shall invalidate any prior act
of the directors which would have been valid if
such by-law had not been made.
SEVENTH: No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a directors,
except with respect to (1) a breach of the director's duty of loyalty to the
corporation or its stockholders, (2) a acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of the
corporation's directors to the corporation or its stockholders to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law,
as amended from time to time. The corporation shall indemnify to the fullest
extent permitted by Sections 102(b)(7) and 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such sections
grant the corporation the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 Title B of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourth (3/4) in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement ant to any reorganization of
this corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, an all rights and powers conferred
herein on stockholders, directors and officers subject to this reserved power.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this twenty-fourth day of June 1999.
S/MICHAEL A. BARR
---------------
Michael A. Barr, Incorporator
<PAGE>
EXHIBIT 3(D)
BY-LAWS
OF
TELEBYTE TECHNOLOGY, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. - The registered office
shall be established and maintained at c/o United Corporate Services, Inc., 15
East North Street, Dover, Delaware 19901 and United Corporate Services, Inc.
shall be the registered agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. - The corporation may
have other offices, either within or without the State of Delaware, at such
place or places as the Board of Directors may from timeto time appoint or the
business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders
for the election of directors and for such other business as may be stated in
the notice of the meeting, shall be held at such place, either within or without
the State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of meeting.
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect a Board of
directors and they may transact such other corporate business as shall be stated
in the notice of the meeting.
SECTION 2. OTHER MEETINGS. - Meetings of
stockholders for any purpose other than the election of directors may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting.
SECTION 3. VOTING. - Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation and in accordance
with the provisions of these by-laws shall be entitled to one vote, in person or
by proxy, for each share of stock entitled to vote held by such stockholder, but
no proxy shall be voted after three years from its date unless such proxy
provided for a longer period. Upon the demand of any stockholder, the vote for
directors and the vote upon any question before the meeting, shall be by ballot.
All elections for directors shall be decided by plurality vote; all other
questions shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each, and
the number of shares held by each, shall be open to the examination of any
stockholder, for ay purpose germane to the meting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting, or if not so specified, at the place where
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
SECTION 4. QUORUM. - Except as otherwise required by law, by
the Certificate of Incorporation or by these By-Laws, the presence, in person or
by proxy, or stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting, until the requisite amount of stock entitled
to vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
notices; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote the meeting.
SECTION 5. SPECIAL MEETINGS. - Special
meetings of the stockholders for any purpose or purposes may be called by the
President or Secretary, or by resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. - Written notice, stating the
place, date and time of the meting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. - Unless otherwise provided
by the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by les than unanimous written consent shall be given to those stockholders who
have not consented in writing.
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - Then number
of directors shall be three (3). The directors shall be elected at the annual
meeting of the stockholders and each director shall be elected to serve until
his successor shall be elected and shall qualify. A director need not be a
stockholder.
SECTION 2. RESIGNATIONS. - Any director, member of a committee
or other officer may resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANIES. - If the office of any director, member
of a committee or other officer becomes vacant, the remaining director sin
office, though less than a quorum by a majority vote, may appoint any qualified
person to fill such vacancy, who shall hold office for the unexpired term and
until his successor shall be duly chosen.
SECTION 4. REMOVAL. - Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meting of the stockholders called for the purpose and the vacancies thus
created may be filled, at the meeting held for the purpose of removal, by the
affirmative vote of a majority in interest of the stockholders entitled to vote.
SECTION 5. INCREASE OF NUMBER. - The number of directors may
be increased by amendment of these By-Laws by the affirmative vote of a majority
of the directors, though less than a quorum, or, by the affirmative vote of a
majority in interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify.
SECTION 6. POWERS. - The Board of Directors
shall exercise all of the powers of the corporation except such as are by law,
or by the Certificate of Incorporation of the corporation or by these By-Laws
conferred upon or reserved to the stockholders.
SECTION 7. COMMITTEES. - The Board of Directors may, by
resolution or resolutions passed by a majority of the whole board, designate one
or more committees, each committee to consist of two or more of the directors of
the corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any such
meeting and not disqualified from voting, whether or no the or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extend provided in the resolution
of the Board of Directors, or in these By-Laws, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power of authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the By-Laws of the corporation; and unless the resolution, these
By-Laws, or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
SECTION 8. MEETINGS. - The newly elected Board of Directors
may hold their first meeting for the purpose of organization and the transaction
of business, if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent, in
writing, of all the directors.
Unless restricted by the incorporation document or elsewhere
in these By-Laws, members of the Board of Directors or any committee designated
by such Board may participate in a meeting of such Board or committee by means
of conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person such meeting.
Regular meetings of the Board of Directors may be scheduled by
a resolution adopted by the Board. The chairman of the Board or the President or
Secretary may call, and if requested by any two directors, must call a special
meeting of the Board and give five days' notice by mail, or two days' notice
personally or by telegraph or cable to each director. The Board of Directors may
hold an annual meeting, without notice, immediately after the annual meeting of
shareholders.
SECTION 9. QUORUM. - A majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned.
SECTION 10. COMPENSATION. - Directors shall not receive any
stated salary for their services as directors or as members of committees, but
by resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in ay other capacity as an
officer, agent or otherwise, and receiving compensation therefore.
<PAGE>
SECTION 11. ACTION WITHOUT MEETING. - Any action required or
permitted to be taken at any meeting of the board of Directors, or any
committees thereof, may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the board, or of such
committee as the case may be, and such written consent is filed with the minutes
of proceedings of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the corporation shall
be a President, a Treasurer, and a Secretary, all of whom shall be elected by
the Board of Directors and who shall hold office until their successors are
elected and qualified. In addition, the Board of Directors may elect a Chairman,
one or more Vice Presidents and such Assistant Secretaries and Assistant
Treasurers, as they may deem proper. None of the officers of the corporation
need be directors. The officers shall be elected at the first meeting of the
board of Directors after each annual meeting. More than two offices may be held
by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors
may appoint such other officers and agents as it may deem advisable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. - The Chairman of
the board of Directors, if one be elected, shall preside at all meetings of the
Board of Directors and he shall have and perform such other duties as from time
to time may be assigned to him by the Board of Directors.
SECTION 4. PRESIDENT. - The President shall be the chief
executive officer of the corporation and shall have the general powers and
duties of supervision and usually vested in the office of President of a
corporation. He shall preside at al meetings of the stockholders if present
thereat, and in the absence of non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT. - Each Vice
- -President shall have such powers and shall perform such duties as shall be
assigned to him by the directors.
<PAGE>
SECTION 6. TREASURER. - The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate account
of receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, or the President, taking proper
vouchers for such disbursements. He shall render to the President and Board of
Directors a the regular meetings of the Board of Directors, or whenever they may
request it, an account of all his transactions as Treasurer and of the financial
condition of the corporation. If required by the Board of Directors, he shall
give the corporation a bond for the faithful discharge of his duties in such
amount and with such surety as the board shall prescribe.
SECTION 7. SECRETARY. - The Secretary shall give, or cause to
be given, notice of all meetings of stockholders and directors, and all other
notices required by the law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have the custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. -
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - A certificate of stock,
signed by the Chairman or Vice-Chairman of the board of Directors, if they be
elected, President or Vice-president, and the Treasurer or an Assistant
Treasurer, or Secretary or Assistant Secretary, shall be issued to each
stockholder certifying the number of shares owned by him in the corporation.
When such certificates are countersigned (1) by a transfer agent other than the
corporation or its employee, or, (2) by a registrar other than the corporation
or its employee, the signatures of such officers may be facsimiles.
<PAGE>
SECTION 2. LOST CERTIFICATES. - A new certificate of stock may
be issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim hat may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. - The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. - (A) In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors. A
determination of stockholders of record entitled to notice of or to vote at a
meting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without
a meeting, the board of directors may fix a record date, which record
ate shall not precede the date upon which the resolution fixing the
record is adopted by the board of directors.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of ay rights or the stockholders entitled
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the board of
directors may fix a record sate, which record date shall not precede
the date upon which the resolution fixing the record date is adopted.
SECTION 5. DIVIDENDS. - Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of funds
legally available therefore at any regular or special meeting, declare
dividends upon the capital stock of the corporation as and when they
deem expedient. Before declaring any dividend there may be set apart
out of any funds of the corporation available for dividends, such sum
or sums as the directors from time to time in their discretion deem
proper for working capital or as a reserve d\fund to meet contingencies
or for equalizing dividends or for such other purposes as the directors
shall deem condusive to the interests of the corporation.
<PAGE>
SECTION 6. SEAL. - The corporate seal
shall be circular in form and shall contain the name of the corporation, the
year of its creation and the words "Corporate Seal, Delaware, 1999". Said seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SECTION 7. FISCAL YEAR. - The
fiscal year of the corporation shall be determined by resolution of the Board
of Directors.
SECTION 8. CHECKS. - All checks,
drafts, or other orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the corporation shall be signed by such
officer or officers, agent or agents of the corporation, and in such manner
as shall be determined from timeto time by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE.
- Whenever any notice is required by these By-Laws to be given, personal
notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage, prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given
under the provisions of any law,
or under the provisions of the Certificate of Incorporation of the corporation
of these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be
made at any annual meeting of the stockholders or at any special meeting thereof
if notice of the proposed alteration or repeal of By-Law or By-Laws to be made
be contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal of By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
<PAGE>
ARTICLE VII
INDEMNIFICATION
No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability which may be specifically defined by law or (4) a transaction from
which the director derived an improper personal benefit, it being the intention
of the foregoing provision to eliminate the liability of the corporation's
directors to the corporation or its stockholders to the fullest extent permitted
by law. The corporation shall indemnify to the fullest extent permitted by law
each person that such law grants the corporation the power to indemnify.
<PAGE>
EXHIBIT 3(E)
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
TELEBYTE TECHNOLOGY, INC. (a Nevada corporation)
INTO
TELEBYTE TECHNOLOGY, INC. (a Delaware corporation)
Pursuant to Section 253 of the General Corporation Law of the State of Delaware
Telebyte Technology, Inc., a corporation organized and existing
under the laws of the State of Nevada
("Telebyte Nevada"), DOES HEREBY CERTIFY:
FIRST: Telebyte Nevada was incorporated on May 19, 1987, pursuant to
Chapter 78 of the Nevada Revised Statutes, the provisions of which permit the
merger of a corporation of another and a corporation organized and existing
under the laws of Nevada.
SECOND: Telebyte Nevada owns all of the outstanding shares of
Common Stock of Telebyte Technology,Inc., a corporation incorporated on
une 25, 1999 pursuant to the General Corporation Law of the State of
Delaware (Telebyte Delaware").
THIRD: The Board of Directors of Telebyte Nevada, by the following
resolutions duly adopted at a meeting held on April 16, 1999, determined to
merge Telebyte Nevada with and into a corporation to be formed as a Delaware
corporation and a wholly-owned subsidiary of Telebyte Nevada, and to effect an
amendment to the Certificate of Incorporation of said corporation, changing the
name of said corporation to "Telebyte, Inc." as follows:
"RESOLVED, that the Corporation effect a change in its corporate
domicile from Nevada to Delaware and, in connection therewith, enter
into an Agreement and Plan of Merger with Telebyte Technology, Inc.
("Telebyte Delaware"), a corporation to be formed as a Delaware
corporation and a wholly owned subsidiary of the Corporation, pursuant
to which the Corporation shall merge with and into Telebyte Delaware
(the "Merger")."
"RESOLVED, that the Certificate of Incorporation of Telebyte Delaware
as in effect on the effective date of the Merger shall continue in full
force and effect as the Certificate of Incorporation of Telebyte
Delaware, except that, upon the effective date of the Merger, Article I
thereof shall be amended to read as follows: `The name of the
corporation is Telebyte, Inc.'"
RESOLVED, that the shares of Common Stock of Telebyte Nevada issued and
outstanding on the effective date of the Merger shall, by virtue of the
Merger and without any action on the part of either the holders of such
shares or of Telebyte Delaware, be converted into fully paid and
nonassesable share of Common Stock, par value $.01 per share, of
Telebyte Delaware on the basis of one share of Common Stock of Telebyte
Delaware for each one share of Common Stock of Telebyte Nevada;
provided, however, that, after the effective date of the Merger,
holders of certificates representing shares of Common Stock of Telebyte
Nevada shall be entitled to receive, upon surrender of such
certificates at the principal office of the Corporation, certificates
for the number of shares of Common Stock of Telebyte Delaware equal to
the number of shares of Common Stock of Telebyte Nevada represented by
the certificates so surrendered."
FOURTH: The merger has been adopted, approved, certified, executed
and acknowledged by Telebyte Nevada
in accordance with the laws of the State of Nevada.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under penalty of perjury, this
25th day of June 1999.
TELEBYTE TECHNOLOGY, INC.
(a Nevada corporation)
By:_____________________________
Kenneth S. Schneider,
Chief Executive Officer
EXHIBIT 10(L)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of June 25, 1999, by
and between Telebyte Technology, Inc., a Nevada corporation (the "Company"), and
Michael Breneisen (the "Executive").
RECITALS:
1. The Company wishes to employ the Executive upon the terms
and subject to the conditions set forth in this Agreement.
2. The Executive is willing to serve in the employ of the
Company upon the terms and subject tothe conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and agreements hereinafter set forth, the Company and the
Executive hereby agree as follows:
1. EMPLOYMENT; DUTIES.
(a) The Company hereby employs the Executive as President,
Chief Operating Officer and Chief Financial Officer of the Company, and the
Executive hereby accepts such employment.
(b) In his capacity as President, Chief Operating Officer and
Chief Financial Officer of the Company, the Executive shall report to the Chief
Executive Officer of the Company and shall have such responsibilities and duties
consistent with his respective positions, and of such a nature as are usually
associated with his offices as may be designated from time to time by the Board
of Directors of the Company (the "Board of Directors").
(c) The Executive shall faithfully and diligently discharge
his duties hereunder, including the implementation of the policies established
by the Board of Directors. In the performance of his duties and functions under
this Agreement, the Executive shall devote such time as is consistent with his
position as President, Chief Operating Officer and Chief Financial Officer.
(d) During the Employment Term, the Employee shall (i) if
elected or appointed, serve as (a) an officer of any subsidiaries of the Company
in existence or hereafter created or acquired and (b) a Director of the Company
and/or any such subsidiaries of the Company, and (ii) serve as the Chief
Executive Officer of the Company's subsidiary, DeliverNextDay.com, Inc. (the
"Subsidiary") for so long as the Company has the power to appoint the Employee
to such positions and such Subsidiary is in existence, in each case without any
additional compensation for such services.
<PAGE>
11
(a) Initial Term. Unless renewed or sooner terminated as
provided herein, the initial term (the "Initial Term") of this Agreement shall
begin on the date hereof and shall continue for a period of three (3) years.
(b) Renewal Term. After the expiration of the Initial Term,
this Agreement shall be deemed renewed for a successive three (3) year term, and
thereafter for successive two year terms (such three (3) year term and each
successive two (2) year term being hereinafter referred to as a "Renewal Term"),
unless the Company or the Executive gives written notice to the other on or
prior to the date which is one (1) year prior to the end of the Initial Term or
any Renewal Term, of the election to terminate this Agreement at the end of the
Initial Term or the then current Renewal Term. The Initial Term and any Renewal
Terms shall be hereinafter collectively referred to as the "Employment Term".
3. COMPENSATION.
(a) Salary. The Company shall pay the Executive an annual base
gross salary which is not less than $75,000 per year (as the same may be
increased from time to time as hereinafter provided, the "Salary").
The Salary may be increased (but not decreased) from time to
time by the Board of Directors, and shall in any event be subject to annual
review at the meeting of the Board of Directors immediately following the annual
meeting of the shareholders of the Company.
(b) Incentive Compensation. The Executive shall be
entitled to an annual performance bonus as may be determined by the Board of
Directors, in its sole discretion.
4. BENEFITS.
(a) Benefit Plans. The Executive shall be entitled to
participate in and receive the benefits under any pension, profit-sharing,
bonus, stock purchase, stock option, stock bonus, health, life, accident and
disability insurance plans or programs and any other employee benefit or fringe
benefit plans, perquisites or arrangements which the Company makes available
generally to other employees, including, without limitation, to the senior
executive officers of the Company, to the extent that the Executive is otherwise
eligible to participate in such plans or arrangements pursuant to the provisions
of such plans or arrangements as they may be in effect from time to time.
(b) Automobile. The Company shall provide the Executive with a
leased vehicle, substantially equivalent to the vehicle presently being provided
to the Executive, for use by the Executive. In addition, the Company shall also
pay for insurance, maintenance, fuel and other costs incurred by the Executive
in the use and maintenance of such a vehicle.
(c) Life Insurance; Medical Benefits.
<PAGE>
(i) The Company shall, at its own cost and expense,
(x) obtain a whole life insurance policy on the life of the
Executive in the amount of $250,000, which policy shall be
owned by the Executive and shall be payable to such
beneficiary or beneficiaries as the Executive may designate,
and, (y) provide medical benefits at least equivalent to those
benefits which the Executive heretofore received, for the
period required herein under Section 6 hereof.
(ii) In the event the acquired whole life insurance
referred to in (c)(i) above is terminated, and such
termination is due to a default by the Company under such
policy or is otherwise the fault of the Company, the Company
shall obtain an equivalent life insurance policy and maintain
such life insurance policy for the period required herein. In
the event the acquired whole life insurance referred to in
(c)(i) above is terminated, and such termination is not the
result of any action or inaction by the Company, the Company
shall purchase such whole life insurance as shall be available
at a cost equivalent to the premium being paid for the
acquired whole life insurance, and maintain the same for the
period required herein.
(d) Annual Leave and Holidays. The Executive shall be entitled
to four (4) weeks paid annual leave during each year of the Employment Term
hereof. To the extent the Executive shall not take four (4) weeks annual leave
during any year, the unused time shall accrue and carry forward to future years.
Upon termination of the Executive's employment for any reason, the Executive
shall receive a cash payment for any accrued but unused annual leave up to a
maximum of six (6) months. The Executive shall be entitled to such holidays as
determined by the Company's policy with respect to employees in effect on the
date hereof, and as amended.
(e) Expenses. The Company shall pay or reimburse the Executive
for all reasonable expenses actually incurred or paid by the Executive in the
performance of his services hereunder (including 100% of reasonable travel and
entertainment expenses), provided, that the expenses are consistent with the
Company's established policies with respect to the incurrence of expenses and
the Executive submits expense statements or vouchers or such other supporting
information as the Company may reasonably require of the Executive.
5. TERMINATION OF EMPLOYMENT.
(a) Notwithstanding the provisions of paragraph 2 hereof, this
Agreement may be terminated as follows:
(i) Upon Notice. At the end of the Employment
Term with respect to which notice is given by the Executive or the Company
pursuant to paragraph 2(b) hereof electing not to renew this Agreement.
(ii) Death. The Executive's employment hereunder
shall terminate automatically as of the date of his death.
<PAGE>
(iii) Disability. The Company may terminate the
Executive's employment hereunder after having
established the Executive's "Disability" (as defined
below), by giving the Executive written notice of its
intention to terminate the Executive's employment due
to such Disability. For purposes of this Agreement,
"Disability" means the Executive's inability to
perform substantially his duties and responsibilities
to the Company by reason of a physical or mental
incapacity or infirmity (i) for a continuous period
of one hundred eighty (180) days, not including any
permitted annual leave days or holidays; or (ii) for
a cumulative period of one hundred eighty (180) days
in any twelve (12) month period, not including
permitted annual leave days or holidays ; or (iii) at
such earlier time as the Executive submits medical
evidence satisfactory to the Company that the
Executive has a physical or mental disability or
infirmity that will likely prevent the Executive from
substantially performing his duties and
responsibilities for one hundred and eighty (180)
days or longer. In the event of any disagreement
between the Executive and the Company as to whether
the Executive is physically or mentally incapacitated
so as to constitute a "Disability" hereunder, the
question of such incapacity shall be submitted to an
impartial and reputable physician selected by mutual
agreement of the Company and the Executive, or
failing such agreement, selected by two physicians
(one of whom shall have been selected by the Company,
and the other by the Executive), and the
determination of the question of such incapacity by
such physician shall be final and binding upon the
Company and the Executive. The Company shall pay the
fees and expenses of such physician, and the
Executive shall submit to any medical examinations
reasonably necessary to enable such physician to make
a determination as to whether the Executive's
incapacity constitutes a Disability hereunder.
(iv) Cause. The Company shall have the right
to terminate the Executive's employment for "Cause".
For purposes of this Agreement, "Cause" shall mean:
<PAGE>
(i) the willful and continued failure by the
Executive to perform substantially his
duties to the Company (other than any such
failure resulting from his Disability)
within a reasonable period of time after a
written demand for substantial performance
is delivered to the Executive by the Board
of Directors, which demand specifically
identifies the manner in which the Board of
Directors believes that the Executive has
not substantially performed his duties; (ii)
the willful misconduct by the Executive in
the performance of his material duties to
the Company; (iii) the grossly negligent
performance by the Executive of his duties
to the Company, if such grossly negligent
performance is determined by the Board of
Directors to have had or to be reasonably
likely to have a material adverse effect on
the business, assets, prospects or financial
condition of the Company, or (iv) material
breach by the Executive of Section 7 hereof.
(v) Termination for Good Reason. The Executive may
terminate his employment under this Agreement for
"Good Reason." For purposes of this Agreement, "Good
Reason" shall mean, without the Executive's express
written consent, (i) an alteration in any material
respect in the nature or status of the Executive's
responsibilities (including reporting) from those
contemplated by Section 1(a) and 1(d)(ii) or the
assignment to the Executive of any duties
inconsistent with the Executive's status as
President, Chief Operating Officer and Chief
Financial Officer of the Company or Chief Executive
Officer of the Subsidiary (provided, however, "Good
Reason" shall not include any of the forgoing with
respect to the Subsidiary in the event that the
Company does not have the power to appoint the
Executive as Chief Executive Officer of the
Subsidiary and/or the Subsidiary is not in
existence), or (ii) a reduction in the Executive's
compensation from that contemplated by Section 3(a)
(as the same may be increased from time to time), or
(iii) the willful and continued failure by the
Company to substantially perform its obligations
under this Agreement within a reasonable period of
time after written demand for substantial performance
is delivered to the Company by the Executive, which
demand specifically identifies the manner in which
the Executive believes that the Company has not
substantially performed its duties, or (iv) the
relocation of the Executive to a facility or a
location more than 50 miles from the Executive's then
present location, without the Executive's prior
express written consent.
(vi) Transfer Event. The Executive shall have the
right to terminate this Agreement upon thirty (30)
days' prior written notice to the Company, or any
successor of the Company, as the case may be, in the
event of a "Transfer Event" (as defined below). For
purposes of this Agreement, "Transfer Event" means:
<PAGE>
(A) a Transfer of substantially all of the assets of
the Company, (B) a change in control of the board of
directors of the Company pursuant to which any single
Person or two or more Persons acting in concert
(other than one or more Affiliates of the Company on
the date hereof) acquires control of such board of
directors or (C) the Transfer of at least 33 1/3% or
more of the voting equity interests in the Company
(or any parent of the Company), whether by sale,
merger, consolidation or otherwise, to any single
Person or two or more Persons acting in concert;
provided that two or more Persons shall be considered
to be acting in concert for purposes of clauses (B)
and (C) hereof only if such Persons would have been
considered to be acting in concert as a "group" for
purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended, for such purposes treating
voting equity interests of the Company held or
acquired by such Persons as if such voting equity
interests were equity securities in respect of which
a Schedule 13D would be required to be filed with the
Securities and Exchange Commission and as if the
requisite percentage and other threshold conditions
to such filing were satisfied; provided, further,
that a "Transfer Event" shall not include a pledge of
the voting equity interests in the Company to the
holders of debt financing or any refinancing thereof
(but shall include a Transfer arising from the
exercise of such holders rights under such pledge).
The Company agrees to give the Executive prompt
written notice of the occurrence of any Transfer
Event. For purposes of this Section 5(a)(vi):
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
governmental body.
"Affiliate" means, with respect to any Person, any other Person which directly
or indirectly controls, is controlled by or is under common control with such
Person.
"Transfer" means sell, transfer, convey, lease and/or deliver (other tenses of
the term have similar meaning) or sale, transfer, assignment, conveyance, lease
and/or delivery, as indicated by the context.
(b) In the event that this Agreement is terminated pursuant to
Section (a) above, except as set forth in the immediately succeeding sentence,
the Executive shall be released from any further obligations under this
Agreement, and the Company shall be released from any further obligations
hereunder, except for obligations accrued to the date of termination, including
under Section 6 hereof. Termination of this Agreement pursuant to Section 5(a)
shall in no way abrogate or relieve the Executive of his obligations, to the
extent applicable, under Sections 7 and 8 hereof.
6. EFFECT OF TERMINATION.
(a) Upon and following termination of the Executive's
employment because of death as provided in subsection 5(a)(ii) above, the
Company shall (i) continue to pay to the Executive's spouse, if any, the amount
of the Executive's Salary as provided in Section 3(a) at the rate in effect
immediately prior to termination of his employment, for a period of one (1) year
from the date of termination of the Executive's employment, (ii) continue to
provide medical benefits equivalent to the medical benefits contemplated in
Section 4(a) hereof for the Executive's spouse, if any, for a period of one (1)
year from the date of termination of the Executive's employment, and (iii)
continue to provide an automobile as contemplated in Section 4(b) hereof, to the
Executive's spouse, if any, for a period of twelve (12) months from the date of
termination of the Executive's employment.
<PAGE>
(b) Upon and following termination of the Executive's
employment because of Disability as provided in subsection 5(a)(iii) above, the
Company shall (i) continue to pay the Executive, or, in the event of the death
of the Executive, his spouse, the amount of the Executive's Salary as provided
in Section 3(a) at the rate in effect immediately prior to termination of his
employment, for a period of twelve (12) months, less the amount of any
disability payments made by the Company or any Company plan, (ii) continue to
provide medical benefits equivalent to the medical benefits contemplated in
Section 4(a) hereof and to maintain the whole life insurance contemplated in
Section 4(c) hereof for a period of one year from the date of termination of the
Executive's employment, and (iii) continue to provide an automobile as
contemplated in Section 4(b) hereof for a period of twelve (12) months from the
date of termination of the Executive's employment.
(c) In the event the Executive's employment is terminated by
the Executive for Good Reason, or by the Company other than for death,
Disability or Cause, the Company shall make a lump sum payment to the Executive
equal to the greater of (i) his Salary for the remainder of the then current
Employment Term or (ii) an amount equal to one (1) year's Salary at the then
current rate, provided, however, that if notice has been sent under Section 2(b)
hereof prior to such termination of employment, the Company shall make a lump
sum payment to the Executive equal to the Executive's Salary for the remainder
of the then current Employment Term (or, in each case, in the event of the
subsequent death of the Executive, to his spouse, if any), and, shall continue
to provide medical benefits equivalent to the medical benefits contemplated in
Section 4(a) hereof, and to maintain the whole life insurance contemplated by
Section 4(c) hereof for such period.
(d) In the event the Executive's employment is terminated upon
the occurrence of a Transfer Event, the Company shall make a lump sum payment to
the Executive in an amount equal to two and ninety-nine one hundredths (2.99)
times the Employee's "base amount," as such term is defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code").
Notwithstanding anything to the contrary contained in this paragraph (d), the
Company shall reduce the amount of any payment referred to in this paragraph (d)
to the extent that the Company is advised by tax counsel selected by the Company
that any portion of any other payment in the nature of compensation to be made
to the Executive (whether pursuant to this Agreement or otherwise) would not be
deductible by the Company as a result of the application of Section 280G of the
Code; provided, however, that the payments referred to in this paragraph (d)
shall not be reduced to the extent that such counsel advises the Company that
any amount of such payments in the nature of compensation to be made to the
Executive is "reasonable" within the meaning of Section 280G(b)(4) of the Code;
provided further that no payment which is payable to the Executive pursuant to
this paragraph (d) shall be reduced if, in the opinion of such counsel, such
payment does not constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code. Under no circumstances shall the amount payable to the
Executive under this paragraph (d) be reduced to an amount less than the amount
payable pursuant to paragraph (c) hereof.
(e) Notwithstanding anything to the contrary contained in this
Agreement, in the event of a termination by the Company of the Executive's
employment hereunder, or the termination by the Executive of his employment for
Good Reason or upon the occurrence of a Transfer Event, the Executive shall not
be required to seek other employment in mitigation of his damages, nor shall the
possibility or fact of any other such employment and the compensation which the
Executive might reasonably be expected to receive, actually receives, or to
which the Executive becomes entitled, by reason thereof, be considered as
mitigating his damages.
<PAGE>
7. COVENANTS.
(a) In view of the fact that the Company is engaged in
specialized businesses, which businesses are conducted throughout the world, and
the information, research and marketing data developed by the Company or any of
its subsidiaries or affiliates are confidential, the Executive agrees that,
during his employment and for a period of one (1) year from the termination of
his employment with the Company either (i) by the Company for Cause or based on
the Executive's Disability or (ii) by the Executive other than for Good Reason,
he will not (A) directly or indirectly engage in the business substantially
conducted by the Company at the date of such termination, either for himself or
for any person, employer, business or other entity in competition with the
Company, (B) engage in any such business on his own account, or (C) become
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, officer, director, principal, agent, employee, trustee,
consultant or in any other relationship or capacity; provided, however, that
ownership of less than 5% of any class of outstanding securities of a company
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended, shall not be deemed to constitute engaging, participating in, or
becoming interested in any such business. Notwithstanding the foregoing, if this
Agreement shall not be renewed at the end of the Initial Term or any Renewal
Term, the Executive agrees to be subject to the foregoing restrictive covenants
during the one-year period following the termination of this Agreement if the
Company pays to him during such one year period an amount equal to the Salary
payable to him at the time of such termination. Such Salary shall be payable to
the Executive in equal installments on a weekly basis.
(b) During his employment and for a period of one (1) year
thereafter, the Executive and any entity controlled by the Executive shall not,
directly or indirectly, (i) make any false or malicious statement, oral or
written, which is injurious to the business, reputation or operations of the
Company, its officers or directors, as applicable, or which may interfere with
the good will of the Company or its relations with its customers and suppliers,
or (ii) solicit, interfere with, hire, offer to hire or induce any person who is
an officer, employee or agent of the Company to discontinue his or her
relationship with the Company or any subsidiary or affiliate of the Company, or
to accept employment by any other entity or person.
<PAGE>
(c) The Executive agrees to keep secret and retain in the
strictest confidence all confidential matters which relate to the Company,
including, without limitation, customer lists, trade secrets, pricing policies
and other confidential business affairs of the Company and any of its
subsidiaries or affiliates ("Confidential Information") learned by him from the
Company or any of its subsidiaries or affiliates and not to disclose any such
Confidential information to anyone outside the Company or any of its
subsidiaries or affiliates, whether during or after his period of service with
the Company, except in the course of performing his duties hereunder; provided,
however, Confidential Information shall not include information that (i) is
known generally by the public on the date of the Executive's termination, (ii)
has otherwise come into the public domain without a breach by the Executive,
under this Agreement, (iii) is required to be disclosed pursuant to applicable
Federal, state or local laws or judicial process or (iv) was already known to
the Executive (as reasonably established by him) at the time it became available
to him by reason of his employment with the Company and was obtained without a
breach of any agreement of confidentiality or non-disclosure. Upon request by
the Company, the Executive agrees to deliver promptly to the Company upon
termination of his employment, or at any time thereafter as the Company may
request, all Company memoranda, notes, records, reports, manuals, drawings,
designs, computer files in any media and other documents (and all copies
thereof) containing such Confidential Information and all property of the
Company or any of its subsidiaries or affiliates which the Executive may then
possess or have under his control.
(d) The Executive agrees that all processes, technologies and
inventions, including new contributions, improvements, formats, packages,
programs, systems, machines, compositions of matter manufactured, developments,
applications and discoveries which are related in any manner to the business
(commercial or experimental) of the Company during the term of the Executive's
employment, whether patentable or not, conceived, developed, invented or made by
the Executive, or by the Executive jointly with others during the term of his
employment with the Company, or by the Company or its affiliates or on their
behalf (collectively, "New Developments"), shall belong to the Company, and, the
Company shall have the sole right to all proceeds arising from or related to
such New Developments. The Executive shall further: (a) promptly disclose such
New Developments to the Company; (b) assign to the Company, without additional
compensation, all patent or other rights to such New Developments for the United
States and foreign countries; (c) sign all papers necessary to carry out the
foregoing; and (d) give testimony in support of his inventorship, all at the
sole cost and expense of the Company.
(e) If the Executive commits a material breach of any of the
provisions of this Section 7, the Company shall have the right and remedy to
have the provisions of this Agreement specifically enforced by any court of
competent jurisdiction, it being acknowledged and agreed to by the Executive
that any such breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company. Such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company at law or in equity. The provisions of this
Section 7 shall survive the expiration or termination of this Agreement.
(f) Although the restrictions contained in this Section 7 are
considered to be fair and reasonable in the circumstances, it is recognized that
restrictions of the nature contained in this Section 7 may fail for technical
reasons; accordingly, if any of such restrictions shall be adjudged to be void
or unenforceable for whatever reason, but would be valid if part of the wording
thereof were deleted, or the period thereof reduced or the area dealt with
thereby reduced in scope, the restrictions contained in this Section 7 shall
apply, at the election of the Company, with such modifications as may be
necessary to make them valid, effective and enforceable, in the particular
jurisdiction in which such restrictions are adjudged to be void or
unenforceable.
(g) For purposes of this Section 7, the term "Company" shall
mean and include any and all subsidiaries, parents and affiliates of the Company
in existence from time to time. For purposes of Section 7 of this Agreement, the
term "affiliate" shall have the meaning set forth in Rule 405 promulgated under
the Securities Act of 933, as amended.
8. MISCELLANEOUS.
<PAGE>
(a) This Agreement or any rights or obligations hereunder may
not be assigned by any of the parties hereto without the prior written consent
of the other party; provided, however, that this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company upon
any sale of all or substantially all of the Company's assets, or upon any merger
or consolidation of the Company with or into any other corporation, all as
though such successors and assigns of the Company and their respective
successors and assigns were the Company, as the case may be.
(b) This Agreement and the relationships of the parties in
connection with the subject matter of this Agreement shall be construed and
enforced according to the laws of the State of New York without giving effect to
the conflict of laws rules thereof.
(c) This Agreement contains the full and complete agreement of
the parties relating to the employment of the Executive hereunder and supersedes
all prior agreements, arrangements or understandings, whether written or oral,
relating thereto. Neither this Agreement, nor any provision hereof, may be
amended, modified, waived or supplemented except by written instrument signed by
the parties hereto, and a written waiver of any of the provisions shall be valid
and effective only if signed by each of the parties hereto and shall be valid
and effective only in the instance for which given.
(d) If any provision of this Agreement is held to be invalid
or enforceable by any judgment of a tribunal of competent jurisdiction, the
remainder of this Agreement shall not be affected by such judgment, and this
Agreement shall be carried out as near to its original terms and intent as
possible.
(e) All provisions of this Agreement which, by their nature,
should survive termination of this Agreement, including, but not limited to,
Section 7, shall survive said termination.
(f) All notices, requests and demands given to or made upon
the respective parties hereto shall be deemed to have been received five (5)
business days after the date of mailing when mailed by certified mail, return
receipt requested, postage prepaid, or one business day after the date of
delivery by a recognized overnight delivery service, or upon receipt of
confirmation of transmission when sent by telecopier, addressed to the parties
at their addresses set forth below or to such other addresses furnished by
notice given in accordance with this subsection (f): (a) if to the Company, to
Telebyte Technology, Inc., 270 Pulaski Road, Greenlawn, New York 11740,
Telecopier No.: (631) 385-8184 Attention: Board of Directors, and (b) if to the
Executive, at his address set forth on the signature page hereof.
(g) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
(h) The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
<PAGE>
(i) This Agreement may be signed in any number of
counterparts, each of which shall be deemed an original, but when taken together
as a whole shall constitute one and the same instrument.
(j) The Company may withhold from any amounts payable under
this Agreement, any federal, state and local income taxes, social security taxes
and other taxes and deductions as required by applicable law.
(k) (i) The Executive and the Company agree and consent that
(A) any controversy or claim arising out of or relating to this Agreement, its
scope, or the breach or interpretation of any provision hereof shall be settled
by arbitration before a panel of three (3) arbitrators and otherwise in
accordance with the rules then obtaining of the American Arbitration
Association; (B) such arbitration shall be held in the City of Hauppauge, County
of Suffolk and State of New York; (C) the award in any such arbitration shall be
final, binding and conclusive; and (D) judgment on any award of any such
arbitration, including, but not limited to specific performance, may be entered
in any court having jurisdiction thereof. Notice of any arbitration shall be
sufficient if given in accordance with Section 8(f) hereof.
(ii) Each party shall pay its or his own expense
of arbitration, and the expenses
of the arbitrators and the arbitration proceeding shall be equally shared;
provided, however, that, if, in the opinion of a majority of the arbitrators,
any claim or defense was unreasonable, the arbitrators may assess, as part of
their award, all or any part of the arbitration expenses of the other party
(including reasonable attorneys' fees) and of the arbitrators and the
arbitration proceeding against the party raising such unreasonable claim or
defense; provided, further, that, if the arbitration proceeding relates to the
issue of "Cause" for termination of employment, (a) if, in the opinion of a
majority of the arbitrators, "Cause" existed, the arbitrators shall assess, as
part of their award, all of the arbitration expenses of the Company (including
reasonably attorneys' fees) and of the arbitrators and the arbitration
proceeding against the Executive or (b) if, in the opinion of a majority of the
arbitrators, "Cause" did not exist, the arbitrators shall assess, as part of
their award, all of the arbitration expenses of the Executive (including
reasonable attorneys' fees) and of the arbitrators and the arbitration
proceeding against the Company.
(l) The Company will pay to the Executive an amount that, on
an after-tax basis (including federal income, excise and social security taxes,
and state and local income taxes), equals any excise tax that is determined to
be payable by the Executive pursuant to Section 4999 of the Code (and any
interest or penalties related to the imposition of such excise tax), by reason
of entitlements under this Agreement (including this paragraph (l)), as well as
entitlements outside of this Agreement that are described in Section
280G(b)(2)(A)(i) of the Code (including without limitation under the Stock
Option Agreement, dates as of June 29, 1999, between the Company and the
Executive), but after taking into account the payment reduction described in
Section 6(d) hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first above written.
TELEBYTE TECHNOLOGY, INC.
By: __________________________
Kenneth S. Schneider
Chairman and CEO
-----------------------------
Michael Breneisen
12 Olympia Place
East Northport, New York 11731
STOCK OPTION AGREEMENT made as of the 25th day of June, 1999
between TELEBYTE TECHNOLOGY, INC., a Nevada corporation (the "Company"), and
MICHAEL BRENEISEN (the "Optionee").
WHEREAS, the Optionee is an officer and director of the Company;
WHEREAS, the Company desires to provide to the Optionee an
additional incentive to promote the success of the Company;
NOW, THEREFORE, in consideration of the foregoing, the Company
hereby grants to the Optionee the right and option to purchase shares of common
stock, par value $.01 per share, of the Company ("Common Shares") under and
pursuant to the terms and conditions of the Company's 1999 Stock Option Plan
(the "Plan") and upon and subject to the following terms and conditions:
1. GRANT OF OPTION. The Company hereby grants to the Optionee
the right and option (the "Option") to purchase up to two hundred thousand
(200,000) Common Shares of the Company (the "Option Shares") during the
following periods, subject to acceleration as provided in Section 6 hereof:
(i) all or any part of one hundred thousand (100,000) of the
Option Shares (the "2004 Option Shares") may be purchased during the period
commencing June 30, 2004 and terminating at 5:00 P.M. on June 29, 2009 (the
"Expiration Date"); and
(ii) all or any part of the remaining one hundred thousand
(100,000) Option Shares (the "2005 Option Shares") may be purchased during the
period commencing January 1, 2005 and terminating at 5:00 p.m. on the Expiration
Date.
Notwithstanding the foregoing, the Option shall be exercisable
sooner than the dates set forth above as follows:
(i) In the event the Company's Consolidated Net
Sales (as hereinafter defined)for any consecutive four (4) fiscal quarters,
or Market Capitalization (as hereinafter defined) as of the close of
business on each day during any consecutive three (3) month period, during
the period commencing with the fiscal quarter ending September 30, 1999 and
ending with the fiscal quarter ending March 31, 2004 equals or exceeds six
million dollars ($6,000,000), the Optionee shall have the right to purchase
up to forty thousand (40,000) of the 2004 Option Shares.
<PAGE>
15
(ii) In the event the Company's Consolidated
Net Sales for any consecutive four (4)fiscal quarters, or Market
Capitalization as of the close of business on each day during any consecutive
three (3) month period, during the period commencing with the fiscal quarter
ending September 30, 1999 and ending with the fiscal quarter ending
March 31, 2004 equals or exceeds ten million dollars ($10,000,000),
the Optionee shall have the right to purchase up to sixty thousand
(60,000) of the 2004 Option Shares.
(iii) In the event the Company's Consolidated Net
Sales for any consecutive four (4) fiscal quarters, or Market Capitalization
as of the close of business on each day during any consecutive three (3) month
period, during the period commencing with the fiscal quarter ending September
30, 1999 and ending with the fiscal quarter ending September 30, 2004 equals
or exceeds fifteen million dollars ($15,000,000), the Optionee shall have
the right to purchase up to one hundred thousand (100,000) of the 2005 Option
Shares.
The acceleration provisions set forth above shall only apply
once as to each threshold. Accordingly, for example, if the Company's
Consolidated Net Sales for the four fiscal quarters ending June 30, 2000 and
June 30, 2001, or Market Capitalization as of the close of business on each day
during any consecutive three (3) month period during each such period, are each
$7,000,000, the Optionee shall have the right to purchase only up to 40,000 of
the 2004 Option Shares.
However, if the Company's Consolidated Net Sales reach the
$10,000,000 or $15,000,000 threshold for a particular four fiscal quarter period
(or the Company's Market Capitalization as of the close of business on each day
during any consecutive three (3) month period therein reaches either such
amount, as the case may be), without first reaching a prior threshold amount,
the Optionee shall be entitled to purchase all Option Shares as if the lower
threshold had also been met. Accordingly, for example, if the Company's
Consolidated Net Sales for the four fiscal quarters ending June 30, 2001 (or the
Company's Market Capitalization as of the close of business on each day during
any consecutive three (3) month period therein) are $11,000,000 (without the
$6,000,000 threshold having been satisfied for any prior period as contemplated
above), the Optionee shall be entitled to purchase up to 100,000 of the 2004
Option Shares.
As used herein, the term "Consolidated Net Sales" for any
particular fiscal quarter shall mean the Company's consolidated net sales for
such fiscal quarter determined in accordance with generally accepted accounting
principles consistently applied, as audited and reported upon by the independent
certified public accountants of the Company with respect to Consolidated Net
Sales for a particular fiscal year and otherwise in conformity with the
Company's Securities and Exchange Commission quarterly reports. As used herein,
the term "Market Capitalization" shall mean the fair market value, as defined in
the Plan, of all then issued and outstanding Common Shares of the Company.
2. NATURE OF OPTION. The Option to purchase the initial ninety
seven thousand eighty-seven (97,087) Common Shares effective each of June 30,
2004 and January 1, 2005 is intended to meet the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended, relating to "incentive stock
options." The Option to purchase the remaining Common Shares is not intended to
meet such requirements.
<PAGE>
3. EXERCISE PRICE. The exercise price of each of the
Option Shares shall be one dollar and three cents ($1.03) (the "Option Price").
The Company shall pay all original issue or transfer taxes on the exercise of
the Option.
4. EXERCISE OF OPTIONS. (a) The Option shall be
exercised in accordance with the provisions of the Plan. As soon as
practicable after the receipt of notice of exercise and payment of the Optio
Price as provided for below, the Company shall tender to the Optionee
certificates issued in the Optionee's name evidencing the number of Option
Shares covered thereby.
(b) The Option Price shall be payable in the
manner set forth in Section 13 of the Plan and may, at the election of the
Optionee, be payable by the delivery of a Promissory Note in, or substantially
in, the form attached hereto as Exhibit A (the "Note"), payable to the order of
the Company in the principal amount of the balance of the Option Price. The
payment of the Note shall be secured by the pledge by the Optionee to the
Company of the Option Shares acquired, as provided for in a Pledge Agreement in,
or substantially in, the form attached hereto as Exhibit B, to be entered into
concurrently therewith.
5. TRANSFERABILITY. The Option shall not be transferable
---------------
of descent and distribution and, during the Optionee's lifetime, shall not
be exercisable by any person other than the Optionee.
6. ACCELERATION OF VESTING AND EXERCISING. (a) In the event of
a Transfer Event (as such term is defined in that certain Employment Agreement
dated as of June 25, 1999 between the Company and the Optionee (the "Employment
Agreement")), the death or disability of the Optionee, the termination of the
Optionee's employment without Cause (as defined in the Employment Agreement) or
the termination by the Optionee of his employment for Good Reason (as defined in
the Employment Agreement), all the Options shall become fully vested and
immediately exercisable (in the case of a Transfer Event, on the day preceding
such event) until the Expiration Date.
(b) In the event the Options become exercisable
by reason of any of the provisions of Section 6(a), such Options shall remain
exercisable until the Expiration Date notwithstanding any subsequent termination
of employment with the Company or its subsidiaries for any reason whatsoever.
7. INCORPORATION BY REFERENCE. The terms and
conditions of the Plan are hereby
incorporated by reference and made a part hereof.
8. NOTICES. Any notice or other communication given hereunder
shall be deemed sufficient if in writing and hand delivered, against written
receipt, or sent by registered or certified mail, return receipt requested, or
overnight mail or courier addressed to the Company, 270 Pulaski Road, Greenlawn,
New York, 11740, Attention: Chairman of the Board and to the Optionee at the
address indicated below. Notices shall be deemed to have been given on the date
of hand delivery or five (5) days after mailing, except notices of change of
address, which shall be deemed to have been given when received.
<PAGE>
9. BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns.
10. ENTIRE AGREEMENT. This Agreement, together with
the Plan, contains the entire understanding of the parties hereto with
respect to the subject matter hereof and may be modified only by an
instrument executed by the party sought to be charged.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
TELEBYTE TECHNOLOGY , INC.
By: --------------------------------
Kenneth S. Schneider
Chairman and CEO
--------------------------------
Michael Breneisen
12 Olympia Place
East Northport, New York 11731
EXHIBIT A
[Date]
$-------
NON-NEGOTIABLE PROMISSORY NOTE
FOR VALUE RECEIVED, MICHAEL BRENEISEN (the "Maker"), having an address
as indicated under his name, hereby promises to pay to the order of TELEBYTE
TECHNOLOGY, INC., a Nevada corporation (the "Payee"), at 270 Pulaski Road,
Greenlawn, New York or at such other place as the holder hereof may from time to
time designate in writing, in immediately available New York funds, the
principal sum of ______________________ THOUSAND DOLLARS ($__,000), together
with interest on the outstanding principal balance from the date hereof at the
rate of __ percent (__%) [the rate denominated as the "Prime Rate" and published
in The Wall Street Journal on date of Note, or if required, such other rate as
may be necessary to preserve the treatment of the options which were exercised
to purchase the Pledged Shares (as hereinafter defined) as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended] per
annum. The principal amount of this Note, together with accrued interest
thereon, shall be payable in full ten (10) years from the date hereof; provided,
however, that the amounts due under this Note shall be payable sooner to the
extent of any proceeds (net of sales expenses) received by the Maker from the
sale or other disposition of any Pledged Shares on or after the date hereof (the
net proceeds being immediately payable to the Payee); provided, further that in
no event shall the Maker be required to pay from the proceeds of the sale of the
Pledged Shares an amount in excess of the amount derived by multiplying the
number of Pledged Shares sold by one dollar and two cents ($1.02), plus accrued
interest thereon.
The payment of all amounts due under this Note is secured by a pledge
of _____ shares of Common Stock of the Payee (the "Pledged Shares") acquired by
the Maker pursuant to a certain Stock Option Agreement dated as of June __, 1999
between the Payee and the Maker, which Pledged Shares are being pledged pursuant
to a Pledge Agreement of even date by and among the Maker, the Payee and
Certilman Balin Adler & Hyman, LLP, as pledge agent (the "Pledge Agreement").
<PAGE>
18
In the event (a) the Maker shall (i) fail to make any payment due
hereunder and such failure shall continue unremedied for a period of ten (10)
days following the date of written notice of default; (ii) admit in writing his
inability to pay his debts as they mature; (iii) make a general assignment for
the benefit of creditors; (iv) be adjudicated a bankrupt or insolvent; (v) file
a voluntary petition in bankruptcy or a petition or an answer seeking an
arrangement with creditors; (vi) take advantage of any bankruptcy, insolvency or
readjustment of debt law or statute or file an answer admitting the material
allegations of a petition filed against him in any proceeding under any such
law; or (vii) have entered against him a court order approving a petition filed
against him under the Federal Bankruptcy Act, which order is not discharged or
dismissed within 90 days; or (b) there shall be a breach of any representation,
warranty, covenant or other agreement set forth in the Pledge Agreement and such
breach shall continue unremedied for a period of fifteen (15) days following the
date of written notice thereof, then and in each and every such event (an "Event
of Default"), the Payee may, by written notice to the Maker, declare the entire
unpaid principal amount of this Note then outstanding plus accrued interest to
be forthwith due and payable whereupon the same shall become forthwith due and
payable.
The Maker may prepay the principal amount of this Note, in whole or in
part, from time to time, without premium or penalty, provided that the Maker
pays all interest accrued with regard to the principal prepaid to the date of
prepayment.
Notwithstanding anything to the contrary contained in this Note, the
rate of interest payable on this Note shall never exceed the maximum rate of
interest permitted under applicable law.
This Note may not be waived, changed, modified or discharged orally,
but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other court
proceedings (whether at the trial or appellate level), or should this Note be
placed in the hands of any agent or attorneys for collection upon default or
maturity, the Maker agrees to pay, in addition to all other amounts due and
payable hereunder, all reasonable costs and expenses of collection or attempting
to collect this Note, including reasonable attorneys' fees.
The Maker and any endorsers hereof, for themselves and their respective
representatives, successors and assigns, expressly (a) waive presentment,
protest, notice of dishonor, notice of non-payment, notice of maturity, notice
of protest, diligence in collection, and the benefit of any applicable
exemptions, including, but not limited to, exemptions claimed under insolvency
laws, and (b) consent that the Payee may release or surrender, exchange or
substitute any property or other collateral or security now held or which may
hereafter be held as security for the payment of this Note, and/or may release
any guarantor, and/or may extend the time for payment and/or otherwise modify
the terms of payment of any part or the whole of the debt evidenced hereby.
Any notice, demand or request relating to any matter set forth herein
shall be in writing and shall be deemed effective when hand delivered, when
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or by a nationally recognized overnight mail or courier service, to
any party hereto at its address stated herein or at such other address of which
it shall have notified the party giving such notice in writing as aforesaid.
The Payee shall not be entitled to assign all or any portion of its
right, title and interest in and to this Note except to a parent, subsidiary or
affiliate or in connection with the sale of substantially all of the assets of
the Company, the merger, sale or change of voting control of the Company or
liquidation of the Company. For purposes of this Note, the term "affiliate"
shall have the meaning set forth in Rule 405 promulgated under the Securities
Act of 1933, as amended.
<PAGE>
Notwithstanding any other provision of this Note, all payments made
hereunder shall be applied first to payment of sums payable hereunder other than
interest and principal, secondly, interest on the principal balance outstanding
hereunder from time to time, and thirdly to principal.
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York, excluding conflict of law principles thereof.
The Maker acknowledges that he has been represented by counsel in
connection with this Note. Accordingly, any rule or law or any legal decision
that would require the interpretation of any claimed ambiguities in this Note
against the party that drafted it has no application and is expressly waived by
the Maker. The provisions of this Note shall be interpreted in a reasonable
manner to give effect to the intent of the Maker and the Payee.
Michael Breneisen
Address: __________________
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW YORK )
) ss.:
COUNTY OF SUFFOLK )
On _______________ before me personally came Michael Breneisen
to me known, and known to be the individual described in, and who executed the
foregoing Note, and duly acknowledged to me that he executed the same.
Notary Public
<PAGE>
EXHIBIT B
PLEDGE AGREEMENT, dated ___________, ____, by and among
MICHAEL BRENEISEN (the "Pledgor"), TELEBYTE TECHNOLOGY, INC., a Nevada
corporation (the "Pledgee"), and CERTILMAN BALIN ADLER & HYMAN, LLP (the "Pledge
Agent").
WHEREAS, simultaneously herewith, the Pledgor is purchasing
from the Pledgee _____________ thousand (___,000) shares of Common Stock of the
Pledgee and, in partial consideration therefor, is executing and delivering to
the Pledgee a Promissory Note of even date in the principal amount of
____________ Thousand Dollars ($___,000) (the "Note").
WHEREAS, the Pledgee desires, and the Pledgor is willing, to
secure performance of the Note.
WHEREAS, certain capitalized terms used herein are defined in
Section 10 hereof.
NOW, THEREFORE, the parties hereto agree as follows:
1. PLEDGE. The Pledgor hereby grants to the Pledgee, as security for
the performance by the Pledgor of all of his obligations under the Note (the
"Obligations"), a valid and binding first security interest in the Collateral
(as hereinafter defined). The Pledgor has delivered simultaneously herewith to
the Pledge Agent, as agent for the Pledgee, and the Pledge Agent hereby
acknowledges receipt of, a certificate evidencing the Pledged Shares registered
in the name of the Pledgor (the "Pledged Certificate"), accompanied by
appropriate stock powers endorsed in blank by the Pledgor (the "Stock Powers").
2. TERM. This Agreement shall continue in effect until
terminated in accordance with Section 8 hereof.
3. SHARE RIGHTS; CASH DIVIDENDS.
----------------------------
(a) In the event of any change in the Pledged Shares during
the term of this Agreement by reason of any stock dividend, stock split-up,
reverse split, recapitalization, combination, reclassification, exchange of
shares, merger, consolidation or the like, all new, substituted, or additional
stock, or other securities, issued by reason of any such change (the "Adjusted
Shares") (the Pledged Shares and the Adjusted Shares are hereinafter referred to
collectively as the "Shares") shall be delivered to and held by the Pledge Agent
under the terms of this Agreement in the same manner as the Pledged Shares
originally pledged hereunder.
(b) Provided that no Default has occurred, any and all cash
dividends paid in respect of the Shares shall be paid promptly after receipt to
the Pledgor; provided, however, that, in any event, any extraordinary
distributions made in respect of the Shares shall be delivered to the Pledge
Agent and held by it in accordance with the terms hereof.
4. REPRESENTATIONS. The Pledgor hereby represents and warrants
to the Pledgee that:
<PAGE>
27
(a) The Pledgor is the sole record and beneficial owner of the
Pledged Shares, free and clear of all liens, pledges, security interests,
encumbrances, restrictions, subscriptions, hypothecations, charges and claims of
any kind whatsoever, other than the lien created hereby.
(b) No consents of governmental and other regulatory agencies,
foreign or domestic, or of other parties are required to be received by or on
the part of the Pledgor to enable him to enter into and carry out this Agreement
and the transactions contemplated hereby.
(c) The Pledgor has the power to enter into this Agreement and
to carry out his obligations hereunder. This Agreement constitutes the valid and
binding obligation of the Pledgor, and is enforceable in accordance with its
terms, except to the extent that enforcement may be limited by or subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect affecting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in
equity or at law).
(d) Neither the execution and delivery of this Agreement nor
compliance by the Pledgor with any of the provisions hereof nor the consummation
of the transactions contemplated hereby will violate or, alone or with notice or
the passage of time, result in the material breach or termination of, or
otherwise give any contracting party the right to terminate, or declare a
default under, the terms of any agreement, understanding or arrangement to which
the Pledgor is a party or by which he or his assets or properties may be bound.
5. COVENANTS.
---------
(a) The Pledgor hereby covenants that from and after the date
hereof and until the Obligations shall have been satisfied in full:
(i) The Pledgor will not grant, create, incur,
assume or suffer to exist any lien in the Collateral (except for the lien
created hereby).
(ii) The Pledgor will defend the Pledgee's right,
title, and security interest in and to the Collateral against the claims of
any person, firm, corporation or other entity.
(iii) The Pledgor shall at any time and from time
to time, upon the written request of the Pledgee, execute and deliver such
other instruments and documents and do such further acts and things as the
Pledgee may reasonably request in order to effect the purposes of this
Agreement.
(b) The Pledgee's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise, shall be to deal with it in the same
manner as the Pledgee deals with similar securities and property for its own
account.
<PAGE>
6. DELIVERY OF SHARES.
------------------
(a) In the event that the Pledge Agent receives a written
notice from the Pledgee, to the effect that the Pledgor has failed to pay all or
any portion of the Obligations or there shall have otherwise occurred an Event
of Default (as defined in the Note) ("Default"), the Pledge Agent shall
thereupon send a copy of such notice to the Pledgor. If, within fifteen (15)
days from the date the Pledge Agent sends a copy of such notice to the Pledgor,
the Pledge Agent does not receive a written notice from the Pledgor disputing
the Pledgee's notice, the Pledge Agent shall, subject to the discretionary
rights of the Pledge Agent under Section 9(e) hereof, deliver the Shares and any
monies held hereunder (the "Pledged Funds") to the Pledgee. If, within such
fifteen (15) day period, the Pledge Agent receives such written notice and, if
applicable, accompanying evidence from the Pledgor disputing the Pledgee's
notice, the Pledge Agent may exercise any of its rights under Section 9(e)
hereof.
(b) Upon the Pledge Agent's receipt of written notice from the
Pledgee to the effect that the Pledgor has satisfied the entire Obligation, the
Pledge Agent shall deliver the Shares, together with any Pledged Funds, to the
Pledgor.
(c) Upon the Pledge Agent's receipt of written notice from the
Pledgor to the effect that he has timely satisfied the entire Obligation
(accompanied by evidence thereof satisfactory to the Pledge Agent), the Pledge
Agent shall thereupon send a copy of such notice and evidence to the Pledgee.
If, within fifteen (15) days from the date the Pledge Agent sends a copy of such
notice to the Pledgee, the Pledge Agent does not receive a written notice from
the Pledgee disputing the Pledgor's notice, the Pledge Agent shall, subject to
the discretionary rights of the Pledge Agent under Section 9(e) hereof, deliver
the Shares, together with the Pledged Funds, to the Pledgor. If, within such
fifteen (15) day period, the Pledge Agent receives a written notice from the
Pledgee disputing the Pledgor's notice, the Pledge Agent may exercise any of its
rights under Section 9(e) hereof.
(d) Upon the Pledge Agent's receipt of written notice from the
Pledgor to the effect that the Pledgor desires to sell all or any part of the
Shares, the Pledge Agent shall deliver such Shares as directed by the Pledgor
against receipt of the net proceeds of the sale of such Shares, limited to the
amount obtained by multiplying the number of Shares sold by $1.02 plus any
accrued and unpaid interest thereon, and the remaining net proceeds shall be
paid to the Pledgor.
<PAGE>
7. DEFAULT. (a) In the event that the Pledgor fails to pay to the
Pledgee any Obligation when due, after any applicable notice and/or grace
period, or there shall otherwise occur a Default, the Pledgee shall have all of
the rights and remedies afforded to secured parties with respect to the
Collateral as set forth in the Code as well as all other rights and remedies
granted in the Note and this Agreement. Without limiting the generality of the
foregoing, the Pledgee, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law or referred to below) to or upon the Pledgor (all and each of
which demands, defenses, advertisements and notices (except any notice required
by law or referred to below) are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give an option or options to
purchase or otherwise dispose of and deliver the Collateral or any part thereof
(or contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, upon such terms and conditions and at such prices as it
may deem advisable, for cash or on credit or for future delivery without
assumption of any credit risk, provided that pursuant to Section 9-504 of the
Code, such disposition, including the method, manner, time, place and terms,
shall be commercially reasonable. The Pledgee shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold. The
Pledgee shall apply any proceeds from time to time held by it and the net
proceeds of any such sale or other disposition, after deducting all reasonable
costs and expenses of every kind incurred in respect thereof or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Pledgee hereunder, including, without
limitation, reasonable attorneys' fees and disbursements of counsel to the
Pledgee, to the satisfaction in whole or in part of the Obligations, in such
order as the Pledgee may elect and only after such application and after the
payment by the Pledgee of any other amount required by any provision of law,
including, without limitation, Section 9-504 (1)(c) of the Code, need the
Pledgee account for the surplus, if any, to the Pledgor. To the extent permitted
by applicable law, the Pledgor waives all claims, damages and demands he may
acquire against the Pledgee arising out of the lawful exercise by it of any
rights hereunder. Neither the Pledgee nor any of its respective directors,
officers, employees or agents shall be liable for failure to sell or otherwise
dispose of the Collateral or for any delay in doing so. If any notice of a
proposed sale or other disposition of the Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least ten (10)
days before such sale or other disposition. In any event, notice of a proposed
sale or other disposition shall be given at least ten (10) days before such sale
or other disposition to the Pledgor. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all of the Obligations and any and all costs and
expenses of every kind incurred by the Pledgee with respect to the collection of
such deficiency, including, without limitation, all reasonable fees and
disbursements of any attorneys employed by the Pledgee.
The Pledgor recognizes that the Pledgee may be unable to
effect a public sale of any or all the Collateral by reason of certain
restrictions contained in the Securities Act of 1933, as amended, and applicable
state securities laws or otherwise, and may be compelled to resort to one or
more private sales thereof to a restricted group of purchasers which will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to the distribution or resale
thereof. The Pledgor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public
sale and agrees that any such private sale under such circumstances shall not be
evidence that it has been made in other than a commercially reasonable manner.
The Pledgor agrees to use commercially reasonable efforts to
do or cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Collateral pursuant to this section valid
and binding and in compliance with any and all other applicable requirements of
law.
<PAGE>
(b) The rights of the Pledgee hereunder shall not be
conditioned or contingent upon the pursuit by the Pledgee of any right or remedy
against the Pledgor, any other person which may be or become liable in respect
of all or any part of the Obligations or against any collateral security
therefor, guarantee therefor or right of offset with respect thereto. Neither
the Pledgee nor any of its affiliates or representatives shall be liable for any
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so, nor shall the Pledgee be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor or any
other person or to take any other action whatsoever with regard to the
Collateral or any part thereof.
8. TERMINATION OF AGREEMENT. Upon the conclusion of the actions
contemplated by Section 6 hereof, this Agreement shall thereupon terminate.
9. TERMS OF PLEDGE.
---------------
(a) The Pledge Agent shall not be liable for any action taken
or omitted by it, or any action suffered by it to be taken or omitted, in good
faith and in the exercise of its own best judgment, and may rely conclusively
and shall be protected in acting upon any order, notice, demand, certificate,
opinion or advice of counsel (including counsel chosen by the Pledge Agent),
statement, instrument, report or other paper or document (not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth and acceptability of any information therein contained) which is
believed by the Pledge Agent to be genuine and to be signed or presented by the
proper person or persons. The Pledge Agent shall not be bound by any notice or
demand, or any waiver, modification, termination or rescission of this Pledge
Agreement unless evidenced by a writing delivered to the Pledge Agent signed by
the proper party or parties and, if the duties or rights of the Pledge Agent are
affected, unless it shall have given its prior written consent thereto.
(b) The Pledge Agent shall not be responsible for the
sufficiency or accuracy of, the form of, or the execution, validity, value or
genuineness of, any document or property received, held or delivered by it
hereunder, or of any signature or endorsement thereon, or for any lack of
endorsement thereon, or for any description therein, nor shall the Pledge Agent
be responsible or liable in any respect on account of the identity, authority or
rights of the persons executing or delivering or purporting to execute or
deliver any document or property paid or delivered to the Pledge Agent pursuant
to the provisions hereof. The Pledge Agent shall not be liable for any loss
which may be incurred by reason of any investment of any monies or properties
which it holds hereunder.
(c) The Pledge Agent shall have the right to assume, in the
absence of written notice to the contrary from the proper person or persons,
that a fact or an event by reason of which an action would or might be taken by
the Pledge Agent does not exist or has not occurred, without incurring liability
for any action taken or omitted, in good faith and in the exercise of its own
best judgment, in reliance upon such assumption.
<PAGE>
(d) The Pledge Agent shall be indemnified and held harmless by
the other parties hereto, jointly and severally, from and against any expenses,
including reasonable counsel fees and disbursements, or loss suffered by the
Pledge Agent in connection with any action, suit or other proceeding, claim or
demand, which in any way, directly or indirectly, arises out of or relates to
this Pledge Agreement, the services of the Pledge Agent hereunder, the Shares,
the Pledged Funds, if any, or other property held by it hereunder or any such
expense or loss.
(e) Promptly after the receipt by the Pledge Agent of notice
of any demand or claim or the commencement of any action, suit or proceeding,
the Pledge Agent shall, if such notice shall relate to any other party hereto,
notify such parties thereof in writing; but the failure by the Pledge Agent to
give such notice shall not relieve any party from any liability which such party
may have to the Pledge Agent hereunder. In the event of the receipt of such
notice, the Pledge Agent, in its sole discretion, may commence an action in the
nature of interpleader in an appropriate court to determine ownership or
disposition of the Shares and Pledged Funds, if any, or it may deposit the
Shares and Pledged Funds, if any, with the clerk of any appropriate court or it
may retain the Shares and Pledged Funds, if any, pending receipt of a final,
non-appealable order of a court having jurisdiction over all of the parties
hereto directing to whom and under what circumstances the Shares and Pledged
Funds, if any, are to be delivered or it may deliver the Shares and Pledged
Funds, if any, to the Pledgee or Pledgor in accordance with the provisions of
Section 6 hereof.
(f) Notwithstanding any obligation to make deliveries
hereunder, the Pledge Agent may retain and hold for such time as it deems
necessary such property as it shall from time to time in its sole discretion
deem sufficient to indemnify itself for any loss or expense or for any amounts
due it. For the purposes hereof, the term "expense or loss" shall include all
amounts paid or payable to satisfy any claim, demand or liability, or in
settlement of any claim, demand, action, suit or proceeding settled with the
express written consent of the Pledge Agent, and all costs and expenses,
including, but not limited to, reasonable counsel fees and disbursements paid or
incurred in investigating or defending any such claim, demand, action, suit or
proceeding.
(g) In the event of a dispute between the Pledgor and the
Pledgee, the Pledge Agent shall also be entitled to reimbursement from the
parties hereto for all expenses paid or incurred by it in the administration of
its duties hereunder including, but not limited to, all reasonable counsel,
advisors' and agents' fees and disbursements and all taxes or other governmental
charges.
(h) From time to time on and after the date hereof, the
parties other than the Pledge Agent shall deliver or cause to be delivered to
the Pledge Agent such further documents and instruments and shall do or cause to
be done such further acts as the Pledge Agent shall reasonably request (it being
understood that the Pledge Agent shall have no obligation to make any such
request) to carry out more effectively the provisions and purposes of this
Pledge Agreement, to evidence compliance herewith or to assure itself that it is
protected in acting hereunder.
(i) The Pledge Agent may resign at any time and be discharged
from its duties as the Pledge Agent hereunder by its giving the other parties
hereto at least thirty (30) days prior notice thereof in accordance with the
terms hereof. As soon as practicable after its resignation, the Pledge Agent
shall turn over to a successor Pledge Agent appointed by the other parties
hereto, jointly, the Shares and Pledged Funds, if any, held hereunder upon
presentation of the document appointing the new Pledge Agent and its acceptance
thereof. If no new agent is so appointed within the sixty (60) day period
following the giving of such notice of resignation, the Pledge Agent may deposit
the Shares and Pledged Funds, if any, with any court it deems appropriate.
<PAGE>
(j) The Pledge Agent shall resign and be discharged from its
duties as the Pledge Agent hereunder if so requested in writing at any time by
the other parties hereto, jointly; provided, however, that such resignation
shall become effective only upon acceptance of appointment by a successor Pledge
Agent as provided in Section 9(i) hereof.
(k) Following resignation and/or discharge of the Pledge
Agent, the provisions of this Section 9 shall nonetheless continue to be
applicable with respect to the Pledge Agent.
10. DEFINED TERMS. The following terms shall have the following
meanings:
(a) "Code" means the Uniform Commercial Code from time
to time in effect in the State of New York.
(b) "Collateral" means the Pledged Shares and all Proceeds.
----------
(c) "Pledged Shares" means ___________ thousand (___,000)
shares of Common Stock of the Pledgee, together with any and all shares, stock
certificates, options or rights of any nature whatsoever that may be issued or
granted to the Pledgor with regard thereto, in substitution or replacement
thereof, as a conversion thereof, in exchange therefor or otherwise in respect
thereof.
(d) "Proceeds" means all "proceeds" as such term is defined in
Section 9-306(1) of the Code on the date hereof and, in any event, shall
include, without limitation, all dividends or other income from the Pledged
Shares, collections thereon and distributions with respect thereto.
11. MISCELLANEOUS.
-------------
(a) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective legal representatives,
successors and assigns.
(b) This Agreement contains the entire agreement and
understanding among the parties in respect of the subject matter hereof, and
cannot be modified, changed, discharged or terminated except by an instrument in
writing, signed by the party against whom enforcement of any modification,
change, discharge or termination is sought.
(c) A waiver of the breach of any term or condition of this
Agreement shall not be deemed to constitute a waiver of any other breach of the
same or any other term or condition.
(d) This Agreement will be construed and governed in
accordance with the laws of the State of New York, excluding choice of law rules
thereof.
<PAGE>
(e) All notices, requests and demands given to or made upon
the respective parties hereto shall be deemed to have been received five (5)
business days after the date of mailing when mailed by certified mail, return
receipt requested, postage prepaid, or one business day after the date of
delivery by a recognized overnight delivery service, or, upon receipt of
confirmation of transmission when sent by telecopier and upon receipt when hand
delivered, addressed to the parties at their addresses set forth below or to
such other addresses furnished by notice given in accordance with this 11(e):
If to the Pledgor:
Mr. Michael Breneisen
12 Olympic Place
East Northport, New York 11731
Telecopier Number: (___) ___________
with a copy to:
Morgan, Lewis & Bockius, LLP
101 Park Avenue
New York, New York 10178-0060
Attention: Samuel S. Friedman, Esq.
Telecopier Number: (212) 309-6273
If to the Pledgee:
270 Pulaski Road
Greenlawn, New York 11740
Attention: Chairman and CEO
Telecopier Number: (631) 423-1884
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Steven Kuperschmid, Esq.
Telecopier Number: (516) 296-7111
If to the Pledge Agent, at:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Steven Kuperschmid, Esq.
Telecopier Number: (516) 296-7111
(f) The Pledgor waives any and all notice of the
extension or modification of the terms of the Note.
<PAGE>
(g) In the event that the Collateral or any portion thereof is
released to the Pledgor and any payments of, or proceeds of any security for,
the Obligations, or any part thereof, are subsequently invalidated, declared to
be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then the Pledgor shall redeliver the
Collateral and Stock Powers to the Pledge Agent to be held pursuant to the
provisions of this Agreement and, until so redelivered, shall hold the
Collateral and Stock Powers as agent of, and in trust for, the Pledgee.
(h) If any provision hereof is declared to be invalid and
unenforceable, then, to the fullest extent permitted by law, the other
provisions hereof shall remain in full force and effect and shall be liberally
construed in favor of the Pledgee in order to carry out the intentions of the
parties hereto as nearly as may be possible.
(i) Each party acknowledges that he or it has been represented
by counsel in connection with this Agreement. Accordingly, any rule or law or
any legal decision that would require the interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived by the parties. The provisions of this
Agreement shall be interpreted in a reasonable manner to give effect to the
intent of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
Michael Breneisen
TELEBYTE TECHNOLOGY, INC.
By:
Kenneth Schneider
Chairman and CEO
CERTILMAN BALIN ADLER & HYMAN, LLP
By:
<PAGE>
EXHIBIT 10(M)
Telebyte Technology, Inc.
1999 Stock Option Plan
1. Purpose of the Plan. The Telebyte Technology, Inc. 1999
Stock Option Plan (the "Plan") is intended to advance the interests of Telebyte
Technology, Inc. (the "Company") by inducing individuals and eligible entities
(as hereinafter provided) of outstanding ability and potential to join and
remain with, or provide consulting or advisory services to, the Company, by
encouraging and enabling eligible employees, non-employee Directors, consultants
and advisors to acquire proprietary interests in the Company, and by providing
the participating employees, non-employee Directors, consultants and advisors
with an additional incentive to promote the success of the Company. This is
accomplished by providing for the granting of "Options," which term as used
herein includes both "Incentive Stock Options" and "Nonstatutory Stock Options,"
as later defined, to employees, non-employee Directors, consultants and
advisors.
2. Administration. The Plan shall be administered by the Board
of Directors of the Company (the "Board of Directors") or by a committee (the
"Committee") consisting of at least one (1) director chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
Plan or of any Option granted under it shall be final and conclusive. The
receipt of Options by Directors, or any members of the Committee, shall not
preclude their vote on any matters in connection with the administration or
interpretation of the Plan.
<PAGE>
3. Shares Subject to the Plan. The stock subject to Options
granted under the Plan shall be shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), whether authorized but unissued or held in
the Company's treasury, or shares purchased from stockholders expressly for use
under the Plan. The maximum number of shares of Common Stock which may be issued
pursuant to Options granted under the Plan shall not exceed in the aggregate
five hundred thousand (500,000) shares plus such number of shares of Common
Stock issuable upon the exercise of Reload Options (as hereinafter defined)
granted under the Plan, subject to adjustment in accordance with the provisions
of Section 14 hereof. The Company shall at all times while the Plan is in force
reserve such number of shares of Common Stock as will be sufficient to satisfy
the requirements of all outstanding Options granted under the Plan. In the event
any Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject thereto shall
again be available for Options under the Plan.
<PAGE>
4. Participation. The class of individual or entity that shall
be eligible to receive Options under the Plan shall be (a) with respect to
Incentive Stock Options described in Section 6 hereof, all employees (including
officers) of either the Company or any subsidiary corporation of the Company,
and (b) with respect to Nonstatutory Stock Options described in Section 7
hereof, all employees (including officers) and non-employee Directors of, or
consultants and advisors to, either the Company or any subsidiary corporation of
the Company; provided, however, that Nonstatutory Stock Options shall not be
granted to any such consultants and advisors unless (i) bona fide services have
been or are to be rendered by such consultant or advisor and (ii) such services
are not in connection with the offer or sale of securities in a capital raising
transaction. For purposes of the Plan, for an entity to be an eligible entity,
it must be included in the definition of "employee" for purposes of a Form S-8
Registration Statement filed under the Securities Act of 1933, as amended (the
"Act"). The Board of Directors or the Committee, in its sole discretion, but
subject to the provisions of the Plan, shall determine the employees and
non-employee Directors of, and the consultants and advisors to, the Company and
its subsidiary corporations to whom Options shall be granted, and the number of
shares to be covered by each Option, taking into account the nature of the
employment or services rendered by the individuals or entities being considered,
their annual compensation, their present and potential contributions to the
success of the Company, and such other factors as the Board of Directors or the
Committee may deem relevant.
5. Stock Option Agreement. Each Option granted under the Plan
shall be authorized by the Board of Directors or the Committee, and shall be
evidenced by a Stock Option Agreement which shall be executed by the Company and
by the individual or entity to whom such Option is granted. The Stock Option
Agreement shall specify the number of shares of Common Stock as to which any
Option is granted, the period during which the Option is exercisable, the option
price per share thereof, and such other terms and provisions as the Board of
Directors or the Committee may deem necessary or appropriate.
6. Incentive Stock Options. The Board of Directors or the
Committee may grant Options under the Plan, which are intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and which are subject to the following terms and conditions and
any other terms and conditions as may at any time be required by Section 422 of
the Code (referred to herein as an "Incentive Stock Option"):
(a) No Incentive Stock Option shall be granted to
individuals other than employees of the Company or of a
subsidiary corporation of the Company.
(b) Each Incentive Stock Option under the Plan must be
granted prior to April 16, 2009, which is within ten
(10) years from the date the Plan was adopted by the Board of Directors of the
Company.
<PAGE>
(c) The option price of the shares subject to any
Incentive Stock Option shall not be less than the fair
market value of the Common Stock at the time such Incentive Stock Option is
granted; provided, however, if an Incentive Stock Option is granted to an
individual who owns, at the time the Incentive Stock Option is granted, more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of a parent or subsidiary corporation of the Company (a
"Principal Stockholder"), the option price of the shares subject to the
Incentive Stock Option shall be at least one hundred ten percent (110%) of the
fair market value of the Common Stock at the time the Incentive Stock Option is
granted.
(d) No Incentive Stock Option granted under the Plan
shall be exercisable after the expiration of ten (10)
years from the date of its grant. However, if an Incentive Stock Option is
granted to a Principal Stockholder, such Incentive Stock Option shall not be
exercisable after the expiration of five (5) years from the date of its grant.
Every Incentive Stock Option granted under the Plan shall be subject to earlier
termination as expressly provided in Section 12 hereof.
(e) For purposes of determining stock ownership
under this Section 6, the attribution rules of Section 424(d) of the Code shall
apply.
<PAGE>
(f) For purposes of the Plan, fair market value shall
be the closing selling price or, if not available, the
closing bid price or, if not available, the high bid price of the Common Stock
quoted on the NASD OTC Electronic Bulletin Board (the "Bulletin Board") on the
day immediately preceding the day on which the Option is granted (or, if granted
after the close of trading, on the day on which the Option is granted), or, if
there is no selling or bid price on that day, the closing selling price, closing
bid price or high bid price on the most recent day which precedes that day and
for which such prices are available. If there is no selling or bid price for the
thirty (30) day period preceding the date of grant of an Option hereunder, fair
market value shall be determined in good faith by the Board of Directors or the
Committee.
7. Nonstatutory Stock Options. The Board of Directors or the
Committee may grant Options under the Plan which are not intended to meet the
requirements of Section 422 of the Code, as well as Options which are intended
to meet the requirements of Section 422 of the Code but the terms of which
provide that they will not be treated as Incentive Stock Options (referred to
herein as a "Nonstatutory Stock Option"). Nonstatutory Stock Options shall be
subject to the following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to any
individual or entity eligible to receive an Option
under the Plan pursuant to Section 4(b) hereof.
(b) The option price of the shares subject to a
Nonstatutory Stock Option shall be determined by the Board of Directors or the
Committee, in its sole discretion, at the time of the grant of the Nonstatutory
Stock Option.
(c) A Nonstatutory Stock Option granted under the
Plan may be of such duration as shall be determined by the Board of Directors or
the Committee (subject to earlier termination as expressly provided in Section
12 hereof).
<PAGE>
8. Reload Feature. The Board of Directors or the Committee may
grant Options with a reload feature. A reload feature shall only apply when the
option price is paid by delivery of Common Stock (as set forth in Section
13(b)(ii)). The Stock Option Agreement for the Options containing the reload
feature shall provide that the Option holder shall receive, contemporaneously
with the payment of the option price in shares of Common Stock, a reload stock
option (the "Reload Option") to purchase that number of shares of Common Stock
equal to the sum of (i) the number of shares of Common Stock used to exercise
the Option, and (ii) with respect to Nonstatutory Stock Options, the number of
shares of Common Stock used to satisfy any tax withholding requirement incident
to the exercise of such Nonstatutory Stock Option. The terms of the Plan
applicable to the Option shall be equally applicable to the Reload Option with
the following exceptions: (i) the option price per share of Common Stock
deliverable upon the exercise of the Reload Option, (A) in the case of a Reload
Option which is an Incentive Stock Option being granted to a Principal
Stockholder, shall be one hundred ten percent (110%) of the fair market value of
a share of Common Stock on the date of grant of the Reload Option and (B) in the
case of a Reload Option which is an Incentive Stock Option being granted to an
individual or entity other than a Principal Stockholder or is a Nonstatutory
Stock Option, shall be the fair market value of a share of Common Stock on the
date of grant of the Reload Option; and (ii) the term of the Reload Option shall
be equal to the remaining option term of the Option (including a Reload Option)
which gave rise to the Reload Option. The Reload Option shall be evidenced by an
appropriate amendment to the Stock Option Agreement for the Option which gave
rise to the Reload Option. In the event the exercise price of an Option
containing a reload feature is paid by check and not in shares of Common Stock,
the reload feature shall have no application with respect to such exercise.
9. Rights of Option Holders. The holder of any Option
granted under the Plan shall have none of the rights of a
-------------------------
stockholder with respect to the stock covered by his Option until such stock
shall be transferred to him upon the exercise of his Option.
10. Alternate Stock Appreciation Rights.
-----------------------------------
<PAGE>
(a) Concurrently with, or subsequent to, the award
of any Option to purchase one or more shares of Common Stock, the Board of
Directors or the Committee may, in its sole discretion, subject to the
provisions of the Plan and such other terms and conditions as the
Board of Directors or the Committee may prescribe, award to the optionee with
respect to each share of Common Stock covered by an Option ("Related Option"), a
related alternate stock appreciation right ("SAR"), permitting the optionee to
be paid the appreciation on the Related Option in lieu of exercising the Related
Option. An SAR granted with respect to an Incentive Stock Option must be granted
together with the Related Option. An SAR granted with respect to a Nonstatutory
Stock Option may be granted together with, or subsequent to, the grant of such
Related Option.
(b) Each SAR granted under the Plan shall be
authorizedby the Board of Directors or the Committee, and shall be
evidenced by an SAR Agreement which shall be executed by the Company and by
the individual or entity to whom such SAR is granted. The SAR Agreement
shall specify the period during which the SAR is exercisable, and such other
terms and provisions not inconsistent with the Plan.
(c) An SAR may be exercised only if and to the extent
that its Related Option is eligible to be exercised on
the date of exercise of the SAR. To the extent that a holder of an SAR has a
current right to exercise, the SAR may be exercised from time to time by
delivery by the holder thereof to the Company at its principal office
(attention: Secretary) of a written notice of the number of shares with respect
to which it is being exercised. Such notice shall be accompanied by the
agreements evidencing the SAR and the Related Option. In the event the SAR shall
not be exercised in full, the Secretary of the Company shall endorse or cause to
be endorsed on the SAR Agreement and the Related Option Agreement the number of
shares which have been exercised thereunder and the number of shares that remain
exercisable under the SAR and the Related Option and return such SAR and Related
Option to the holder thereof.
<PAGE>
(d) An optionee may exercise an SAR only when the
market price on the exercise date of a share of Common
Stock subject to the Related Option exceeds the exercise price per share of the
Related Option (the "SAR Spread"). The amount of payment to which an optionee
shall be entitled upon the exercise of each SAR shall be equal to one hundred
percent (100%) of the SAR Spread; provided, however, the Company may, in its
sole discretion, withhold from any such cash payment any amount necessary to
satisfy the Company's obligation for withholding taxes with respect to such
payment.
(e) The amount payable by the Company to an optionee
upon exercise of a SAR may, in the sole determination
of the Company, be paid in shares of Common Stock, cash or a combination
thereof, as set forth in the SAR Agreement. In the case of a payment in shares,
the number of shares of Common Stock to be paid to an optionee upon such
optionee's exercise of an SAR shall be determined by dividing the amount of
payment determined pursuant to Section 10(d) hereof by the fair market value of
a share of Common Stock on the exercise date of such SAR. For purposes of the
Plan, the exercise date of an SAR shall be the date the Company receives written
notification from the optionee of the exercise of the SAR in accordance with the
provisions of Section 10(c) hereof. As soon as practicable after exercise, the
Company shall either deliver to the optionee the amount of cash due such
optionee or a certificate or certificates for such shares of Common Stock. All
such shares shall be issued with the rights and restrictions specified herein.
(f) SARs shall terminate or expire upon the same
onditions and in the same manner as the Related Options, and as set forth in
Section 12 hereof.
(g) The exercise of any SAR shall cancel and
terminate the right to purchase an equal number of shares covered by the
Related Option.
<PAGE>
(h) Upon the exercise or termination of any Related
Option, the SAR with respect to such Related Option shall terminate to the
extent of the number of shares of Common Stock as to which the Related Option
was exercised or terminated.
(i) No SAR granted pursuant to the Plan shall be
transferable by the individual or entity to whom it was granted otherwise
than by will or the laws of descent and distribution, and, during the lifetime
of an individual, shall not be exercisable by any other person, but only
by him.
11. Transferability. No Option granted under the Plan shall be
transferable by the individual or entity to whom it was granted otherwise than
by will or the laws of descent and distribution, and, during the lifetime of an
individual, shall not be exercisable by any other person, but only by him.
12. Termination of Employment or Death.
----------------------------------
<PAGE>
(a) Subject to the terms of the Stock Option
Agreement, if the employment of an employee by, or the services
of a non-employee Director for, or consultant or advisor to, the Company or a
subsidiary corporation of the Company shall be terminated for cause or
voluntarily by the employee, non-employee Director, consultant or advisor, then
his or its Option shall expire forthwith. Subject to the terms of the Stock
Option Agreement, and except as provided in subsections (b) and (c) of this
Section 12, if such employment or services shall terminate for any other reason,
then such Option may be exercised at any time within three (3) months after such
termination, subject to the provisions of subsection (d) of this Section 12. For
purposes of the Plan, the retirement of an individual either pursuant to a
pension or retirement plan adopted by the Company or at the normal retirement
date prescribed from time to time by the Company shall be deemed to be
termination of such individual's employment other than voluntarily or for cause.
For purposes of this subsection (a), an employee, non-employee Director,
consultant or advisor who leaves the employ or services of the Company to become
an employee or non-employee Director of, or a consultant or advisor to, a
subsidiary corporation of the Company or a corporation (or subsidiary or parent
corporation of the corporation) which has assumed the Option of the Company as a
result of a corporate reorganization, etc., shall not be considered to have
terminated his employment or services.
(b) Subject to the terms of the Stock Option
Agreement, if the holder of an Option under the Plan dies (i)
while employed by, or while serving as a non-employee Director for or a
consultant or advisor to, the Company or a subsidiary corporation of the
Company, or (ii) within three (3) months after the termination of his employment
or services other than voluntarily by the employee or non-employee Director,
consultant or advisor, or for cause, then such Option may, subject to the
provisions of subsection (d) of this Section 12, be exercised by the estate of
the employee or non-employee Director, consultant or advisor, or by a person who
acquired the right to exercise such Option by bequest or inheritance or by
reason of the death of such employee or non-employee Director, consultant or
advisor at any time within one (1) year after such death.
<PAGE>
(c) Subject to the terms of the Stock Option
Agreement, if the holder of an Option under the Plan ceases
employment or services because of permanent and total disability (within the
meaning of Section 22(e)(3) of the Code) while employed by, or while serving as
a non-employee Director for or consultant or advisor to, the Company or a
subsidiary corporation of the Company, then such Option may, subject to the
provisions of subsection (d) of this Section 12, be exercised at any time within
one (1) year after his termination of employment, termination of Directorship or
termination of consulting or advisory services, as the case may be, due to the
disability.
(d) An Option may not be exercised pursuant to this
Section 12 except to the extent that the holder was
entitled to exercise the Option at the time of termination of employment,
termination of Directorship, termination of consulting or advisory services, or
death, and in any event may not be exercised after the expiration of the Option.
(e) For purposes of this Section 12, the
employment relationship of an employee of the Company or of a
subsidiary corporation of the Company will be treated as continuing intact while
he is on military or sick leave or other bona fide leave of absence (such as
temporary employment by the Government) if such leave does not exceed ninety
(90) days, or, if longer, so long as his right to reemployment is guaranteed
either by statute or by contract.
13. Exercise of Options.
-------------------
<PAGE>
(a) Unless otherwise provided in the Stock Option
Agreement, any Option granted under the Plan shall be
exercisable in whole at any time, or in part from time to time, prior to
expiration. The Board of Directors or the Committee, in its absolute discretion,
may provide in any Stock Option Agreement that the exercise of any Options
granted under the Plan shall be subject (i) to such condition or conditions as
it may impose, including, but not limited to, a condition that the holder
thereof remain in the employ or service of, or continue to provide consulting or
advisory services to, the Company or a subsidiary corporation of the Company for
such period or periods from the date of grant of the Option as the Board of
Directors or the Committee, in its absolute discretion, shall determine; and
(ii) to such limitations as it may impose, including, but not limited to, a
limitation that the aggregate fair market value of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by any
employee during any calendar year (under all plans of the Company and its parent
and subsidiary corporations) shall not exceed one hundred thousand dollars
($100,000). For purposes of the preceding sentence, the fair market value of any
stock shall be determined as of the date the option with respect to such stock
is granted. In addition, in the event that under any Stock Option Agreement the
aggregate fair market value of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by any employee during any
calendar year (under all plans of the Company and its parent and subsidiary
corporations) exceeds one hundred thousand dollars ($100,000), the Board of
Directors or the Committee may, when shares are transferred upon exercise of
such Options, designate those shares which shall be treated as transferred upon
exercise of an Incentive Stock Option and those shares which shall be treated as
transferred upon exercise of a Nonstatutory Stock Option.
(b) An Option granted under the Plan shall be
exercised by the delivery by the holder thereof to the Company
at its principal office (attention of the Secretary) of written notice of the
number of shares with respect to which the Option is being exercised. Such
notice shall be accompanied, or followed within ten (10) days of delivery
thereof, by payment of the full option price of such shares, and payment of such
option price shall be made by the holder's delivery of (i) his check payable to
the order of the Company; (ii) previously acquired Common Stock, the fair market
value of which shall be determined as of the date of exercise; (iii) if provided
in the Stock Option Agreement at the discretion of the Board or Committee, a
promissory note made payable to the Company accompanied by cash payment of the
par value of the Common Stock being purchased; or (iv) by the holder's delivery
of any combination of the foregoing (i), (ii) and if provided in the Stock
Option Agreement at the discretion of the Board or Committee, (iii).
<PAGE>
14. Adjustment Upon Change in Capitalization.
----------------------------------------
(a) In the event that the outstanding Common Stock is
hereafter changed by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, reverse split, stock dividend or the like, an appropriate adjustment
shall be made by the Board of Directors or the Committee in the aggregate number
of shares available under the Plan and in the number of shares and option price
per share subject to outstanding Options. If the Company shall be reorganized,
consolidated, or merged with another corporation, the holder of an Option shall
be entitled to receive upon the exercise of his Option the same number and kind
of shares of stock or the same amount of property, cash or securities as he
would have been entitled to receive upon the happening of any such corporate
event as if he had been, immediately prior to such event, the holder of the
number of shares covered by his Option; provided, however, that in such event
the Board of Directors or the Committee shall have the discretionary power to
take any action necessary or appropriate to prevent any Incentive Stock Option
granted hereunder which is intended to be an "incentive stock option" from being
disqualified as such under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto.
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of
the Option granted hereunder. If fractions of a share would result from any such
adjustment, the adjustment shall be revised to the next lower whole number of
shares.
15. Further Conditions of Exercise.
------------------------------
<PAGE>
(a) Unless prior to the exercise of the Option the
shares issuable upon such exercise have been registered
with the Securities and Exchange Commission pursuant to the Act, the notice of
exercise shall be accompanied by a representation or agreement of the person or
estate exercising the Option to the Company to the effect that such shares are
being acquired for investment purposes and not with a view to the distribution
thereof, or such other documentation as may be required by the Company, unless
in the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with the Act.
(b) The Company shall not be obligated to deliver
any Common Stock until it has been listed on each
securities exchange or stock market on which the Common Stock may then be listed
or until there has been qualification under or compliance with such federal or
state laws, rules or regulations as the Company may deem applicable. The Company
shall use reasonable efforts to obtain such listing, qualification and
compliance.
16. Effectiveness of the Plan. The Plan was adopted by the
Board of Directors on April 16, 1999. The Plan shall be subject to approval on
or before April 16, 2000, which is within one (1) year of adoption of the Plan
by the Board of Directors, by a majority of the votes cast at a meeting of
stockholders of the Company by the holders of shares entitled to vote thereon
(or, in the case of action by written consent in lieu of a meeting of
stockholders, the number of votes required by applicable law to act in lieu of a
meeting) ("Stockholder Approval"). In the event such Stockholder Approval is
withheld or otherwise not received on or before the latter date, the Plan and,
subject to the terms of the Stock Option Agreement, all Options that may have
been granted hereunder shall become null and void.
17. Termination, Modification and Amendment.
---------------------------------------
<PAGE>
(a) The Plan (but not Options or SARs previously
granted under the Plan) shall terminate on April 16, 2009,
which is within ten (10) years from the date of its adoption by the Board of
Directors of the Company, or sooner as hereinafter provided, and no Option shall
be granted after termination of the Plan.
(b) The Plan may from time to time be terminated,
modified, or amended if Stockholder Approval of the
termination, modification or amendment is obtained.
(c) In addition, the Board of Directors may at any
time, on or before the termination date referred to in
Section 17(a) hereof, terminate the Plan, or from time to time make such
modifications or amendments to the Plan as it may deem advisable; provided,
however, that the Board of Directors shall not, without Stockholder Approval,
increase (except as otherwise provided by Section 14 hereof) the maximum number
of shares as to which Options may be granted hereunder, change the designation
of individuals or entities eligible to receive Options, make any other change
which would prevent any Incentive Stock Option granted hereunder which is
intended to be an "incentive stock option" from qualifying as such under the
then existing provisions of the Code or any law amendatory thereof or
supplemental thereto, or adopt any modification or amendment which, pursuant to
the applicable law, requires Stockholder Approval.
(d) No termination, modification, or amendment of
the Plan may, without the consent of the individual or
entity to whom any Option shall have been granted, adversely affect the rights
conferred by such Option.
18. Not a Contract of Employment. Nothing contained in the
Plan or in any Stock Option Agreement executed pursuant hereto shall be deemed
to confer upon any individual or entity to whom an Option is or may be granted
hereunder any right to remain in the employ or service of the Company or a
subsidiary corporation of the Company or any entitlement to any remuneration or
other benefit pursuant to any consulting or advisory arrangement.
<PAGE>
19. Use of Proceeds. The proceeds from the sale of
shares pursuant to Options granted under the Plan shall
----------------
constitute general funds of the Company.
20. Indemnification of Board of Directors or Committee. In
addition to such other rights of indemnification as they may have, the members
of the Board of Directors or the Committee, as the case may be, shall be
indemnified by the Company to the extent permitted under applicable law against
all costs and expenses reasonably incurred by them in connection with any
action, suit, or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with the
Plan or any rights granted thereunder and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a judgment of any such
action, suit or proceeding, except a judgment based upon a finding of bad faith.
Upon the institution of any such action, suit, or proceeding, the member or
members of the Board of Directors or the Committee, as the case may be, shall
notify the Company in writing, giving the Company an opportunity at its own cost
to defend the same before such member or members undertake to defend the same on
his or their own behalf.
21. Captions. The use of captions in the Plan is for
convenience. The captions are not intended to provide
--------
substantive rights.
<PAGE>
22. Disqualifying Dispositions. If Common Stock acquired upon
exercise of an Incentive Stock Option granted under the Plan is disposed of
within two years following the date of grant of the Incentive Stock Option or
one year following the issuance of the Common Stock to the Optionee, or is
otherwise disposed of in a manner that results in the optionee being required to
recognize ordinary income, rather than capital gain, from the disposition (a
"Disqualifying Disposition"), the holder of the Common Stock shall, immediately
prior to such Disqualifying Disposition, notify the Company in writing of the
date and terms of such Disqualifying Disposition and provide such other
information regarding the Disqualifying Disposition as the Company may
reasonably require.
23. Withholding Taxes. Whenever under the Plan shares of
Common Stock are to be delivered by an optionee upon exercise of a Nonstatutory
Stock Option, the Company shall be entitled to require as a condition of
delivery that the optionee remit or, in appropriate cases, agree to remit when
due, an amount sufficient to satisfy all current or estimated future Federal,
state and local income tax withholding requirements, including, without
limitation, the employee's portion of any employment tax requirements relating
thereto. At the time of a Disqualifying Disposition, the optionee shall remit to
the Company in cash the amount of any applicable Federal, state and local income
tax withholding and the employee's portion of any employment taxes.
24. Other Provisions. Each Option granted under the Plan may
contain such other terms and conditions not inconsistent with the Plan as may be
determined by the Board or the Committee, in its sole discretion.
Notwithstanding the foregoing, each Incentive Stock Option granted under the
Plan shall include those terms and conditions which are necessary to qualify the
Incentive Stock Option as an "incentive stock option" within the meaning of
Section 422 of the Code and the regulations thereunder and shall not include any
terms and conditions which are inconsistent therewith.
25. Definitions. For purposes of the Plan, the terms
"parent corporation" and "subsidiary corporation" shall
-----------
have the meanings set forth in Sections 424(e) and 424(f) of the Code,
respectively, and the masculine shall include the feminine and the neuter as the
context requires.
<PAGE>
26. Governing Law. The Plan shall be governed by, and all
questions arising hereunder shall be determined in
--------------
accordance with, the laws of the State of New York.
<PAGE>
EXHIBIT 10(N)
WCMA(R)REDUCING REVOLVERsm LOAN AND SECURITY AGREEMENT
================================================================================
WCMA REDUCING REVOLVERsm Loan and Security Agreement NO. 839-07K51
("Loan
Agreement") dated as of January 7, 1999, between TELEBYTE TECHNOLOGY INC., a
corporation organized and existing under the laws of the State of Nevada having
its principal office at 270 Pulaski Road, Greenlawn, NY 11740 ("Customer"), and
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain Working Capital Management(R) Account Agreement
No. 839-07K51 ("WCMA Agreement") between Customer and MLBFS' affiliate, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith, Customer
has requested that MLBFS make a WCMA Reducing Revolver Loan (a "Reducing
Revolver") to Customer in the amount and upon the terms hereafter specified,
and, subject to the terms and conditions hereafter set forth, MLBFS has agreed
to provide a Reducing Revolver for Customer.
A Reducing Revolver is a term credit facility, similar to a conventional term
loan, but funded out of a line of credit under the WCMA Program ("WCMA Line of
Credit") in the amount of the initial loan. With a Reducing Revolver: (i)
interest will generally be charged each month to Customer's WCMA account, and,
so long as the WCMA Line of Credit is in effect, paid with an additional loan
under the WCMA Line of Credit (i.e., added to the loan balance), (ii) the
maximum WCMA Line of Credit will be reduced each month by the amount that would
be payable on account of principal if the Reducing Revolver were a conventional
term loan amortized over the same term and in the same manner as the Reducing
Revolver, and (iii) Customer will be required to make sufficient payments on
account of the Reducing Revolver to assure that the outstanding balance of the
Reducing Revolver does not at any time exceed the Maximum WCMA Line of Credit,
as reduced each month.
Absent a prepayment by Customer, this structure results in required monthly
payments for the Reducing Revolver that are substantially the same as the
required monthly payments for a conventional term loan with the same term and
amortization. However, unlike most conventional term loans, because it is funded
out of a line of credit, the Reducing Revolver permits both a prepayment in
whole or in part at any time, and, subject to certain conditions, the
re-borrowing on a revolving basis of any such prepaid amounts up to the Maximum
WCMA Line of Credit, as reduced each month. The structure therefore will enable
Customer at its option to use any excess or temporary cash balances that it may
have from time to time to prepay the Reducing Revolver and thereby effectively
reduce interest expense on the Reducing Revolver without impairing its working
capital.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
Article I. DEFINITIONS
1.1 Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
a "Account Debtor" shall mean any party who is or may become
obligated with respect to an Account or Chattel Paper.
b "Additional Agreements" shall mean all agreements, instruments, documents and
opinions other than this Loan Agreement, whether with or from Customer or any
other party, which are contemplated hereby or otherwise reasonably required by
MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.
c "Bankruptcy Event" shall mean any of the following: (i) a proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer; or (ii)
any such proceeding shall be filed against Customer and shall not be dismissed
or withdrawn within sixty (60) days after filing; or (iii) Customer shall make a
general assignment for the benefit of creditors; or (iv) Customer shall
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (v) Customer shall be adjudicated a bankrupt or insolvent.
d "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
e "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the Loan shall have been met to the satisfaction of
MLBFS.
f "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Investment Property and Financial Assets of Customer,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records (including
computer records) directly related thereto, all proceeds thereof (including,
without limitation, proceeds in the form of Accounts and insurance proceeds),
and the additional collateral described in Section 4.6 (b) hereof.
g "Commitment Expiration Date" shall mean February 6, 1999.
h "Commitment Fee" shall mean a fee of $10,000.00 due to MLBFS in
connection with this Loan Agreement.
i "Default" shall mean either an "Event of Default" as defined in Section 4.5
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
j "General Funding Conditions" shall mean each of the following conditions
precedent to the obligation of MLBFS to make the Loan or any Subsequent WCMA
Loan hereunder: (i) Customer shall have validly subscribed to and continued to
maintain the WCMA Account with MLPF&S, and the WCMA Account shall then be
reflected as an active "Commercial" WCMA Account (i.e., one with line of credit
capabilities) on MLPF&S' WCMA computer system; (ii) no Default shall have
occurred and be continuing or would result from the making of the Loan or such
Subsequent WCMA Loan by MLBFS; (iii) there shall not have occurred and be
continuing any material adverse change in the business or financial condition of
Customer; (iv) all representations and warranties of Customer herein or in any
Additional Agreements shall then be true and correct in all material respects;
(v) MLBFS shall have received this Loan Agreement and all Additional Agreements,
duly executed and filed or recorded where applicable, all of which shall be in
form and substance reasonably satisfactory to MLBFS; (vi) the Commitment Fee
shall have been paid in full; (vii) MLBFS shall have received, as and to the
extent applicable, copies of invoices, bills of sale, loan payoff letters and/or
other evidence reasonably satisfactory to it that the proceeds of the Loan will
satisfy the Loan Purpose; (viii) MLBFS shall have received evidence reasonably
satisfactory to it as to the ownership of the Collateral and the perfection and
priority of MLBFS' liens and security interests thereon, as well as the
ownership of and the perfection and priority of MLBFS' liens and security
interests on any other collateral for the Obligations furnished pursuant to any
of the Additional Agreements; (ix) MLBFS shall have received evidence reasonably
satisfactory to it of the insurance required hereby or by any of the Additional
Agreements; and (x) any additional conditions specified in the "WCMA Reducing
Revolver Loan Approval" letter executed by MLBFS with respect to the
transactions contemplated hereby shall have been met to the reasonable
satisfaction of MLBFS.
k "Interest Due Date" shall mean the last Business Day of each calendar month
during the term hereof (or, if Customer makes special arrangements with MLPF&S,
on the last Friday of each calendar month during the term hereof).
l "Interest Rate" shall mean a variable per annum rate equal to the sum of (i)
2.90% per annum, and (ii) the interest rate from time to time published in the
"Money Rates" section of The Wall Street Journal for 30-day high-grade unsecured
notes sold through dealers by major corporations (the "30-Day Commercial Paper
Rate"). The Interest Rate will change as of the date of publication in The Wall
Street Journal of a 30-Day Commercial Paper Rate that is different from that
published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.
m "Loan" shall mean the specific Reducing Revolver by MLBFS to Customer pursuant
to this Agreement for the Loan Purpose and in the Loan Amount.
n "Loan Amount" shall mean an amount equal to the lesser of: (i) 100% of the
amount required by Customer to satisfy or fulfill the Loan Purpose, (ii) the
aggregate amount which Customer shall request be advanced by MLBFS on account of
the Loan Purpose on the Closing Date, or (iii) $1,000,000.00.
o "Loan Purpose" shall mean the purpose for which the proceeds of the Loan will
be used; to wit: to finance a loan by Customer to acquire shares of stock of
Customer from Joel Kramer.
p "Location of Tangible Collateral" shall mean the address of Customer set forth
at the beginning of this Loan Agreement, together with any other address or
addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
q "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of credit
which MLBFS will extend to Customer subject to the terms and conditions hereof,
as the same shall be reduced each month in accordance with the terms hereof. On
the Closing Date, the Maximum WCMA Line of Credit will equal the Loan Amount.
r "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer to MLBFS, howsoever created, arising or evidenced, whether now
existing or hereafter arising, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and under
that certain WCMA Note, Loan and Security Agreement No. 839-07D64.
s "Permitted Liens" shall mean with respect to the Collateral: (i) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business for sums not due, and, if MLBFS' rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for taxes or other non-consensual liens arising in the ordinary course of
business being contested in good faith by appropriate proceedings; (ii) liens in
favor of MLBFS; (iii) liens which will be discharged with the proceeds of the
Loan; (iv) existing liens upon and leases of Equipment and Fixtures, if any,
together with any future purchase money liens upon and leases of Equipment and
Fixtures; and (v) any other liens expressly permitted in writing by MLBFS.
t "Subsequent WCMA Loan" shall mean each WCMA Loan other than the Loan,
including, without limitation, each WCMA Loan to pay accrued interest.
u "Termination Date" shall mean the first to occur of: (i) the last Business Day
of the eighty-fourth (84th) full calendar month following the Closing Date, or
(ii) if earlier, the date of termination of the WCMA Line of Credit pursuant to
the terms hereof.
v "WCMA Account" shall mean and refer to the Working Capital Management Account
of Customer with MLPF&S identified as WCMA Account No. 839-07K51 and any
successor Working Capital Management Account of Customer with MLPF&S.
w "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line of
Credit, including the Loan and each Subsequent WCMA Loan.
x "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.
1.2 Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement (including, without
limitation, "Money Accounts", "Minimum Money Accounts Balance", "WCMA Directed
Reserve Program" and "WCMA Program") shall have the meanings set forth in the
WCMA Agreement.
Article II. THE LOAN
2.1 Commitment. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from
MLBFS. Except as otherwise provided in Section 3.1 hereof, the entire proceeds
of the Loan will be disbursed by MLBFS out of the WCMA Line of Credit either
directly to the applicable third party or parties on account of the Loan Purpose
or to reimburse Customer for amounts directly expended by it for the Loan
Purpose; all as directed by Customer in a Closing Certificate to be executed and
delivered to MLBFS prior to the date of funding.
2.2 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligations to
activate the WCMA Line of Credit, as hereafter set forth, and make the Loan on
the Closing Date are subject to the prior fulfillment of each of the following
conditions: (a) not less than two Business Days prior to any requested funding
date, MLBFS shall have received a Closing Certificate, duly executed by
Customer, setting forth, among other things, the amount of the Loan and the
method of payment and payee(s) of the proceeds thereof; (b) after giving effect
to the Loan, the WCMA Loan Balance will not exceed either the Maximum WCMA Line
of Credit or the Loan Amount; (c) the Commitment Expiration Date shall not then
have occurred; and (d) each of the General Funding Conditions shall then have
been met or satisfied to the reasonable satisfaction of MLBFS.
2.3 Commitment Fee. In consideration of the agreement by MLBFS to extend the
Loan and any Subsequent WCMA Loans to Customer in accordance with and subject to
the terms hereof, Customer has paid or shall, on or before the Closing Date pay,
the Commitment Fee to MLBFS. Customer acknowledges and agrees that the
Commitment Fee has been fully earned by MLBFS, and that it will not under any
circumstances be refundable.
Article III. THE WCMA LINE OF CREDIT
3.1 Activation of the WCMA Line of Credit. Subject to the terms and conditions
hereof, on the Closing Date MLBFS will activate a WCMA Line of Credit for
Customer in the Loan Amount. The Loan will be funded out of the WCMA Line of
Credit immediately after such activation (or, if and to the extent otherwise
expressly contemplated in the definition of Loan Purpose or otherwise directed
in the Closing Certificate and hereafter expressly agreed by MLBFS, all or part
of the Loan may be made available as a WCMA Line of Credit and funded by
Customer.)
3.2 Subsequent WCMA Loans. Subject to the terms and conditions hereof, during
the period from and after the Closing Date to the Termination Date: (a) Customer
may repay the WCMA Loan Balance in whole or in part at any time without premium
or penalty (except, as hereafter set forth, upon a refinancing by another
lender), and request a re-borrowing of amounts repaid on a revolving basis, and
(b) in addition to Subsequent WCMA Loans made automatically to pay accrued
interest, as hereafter provided, MLBFS will make such Subsequent WCMA Loans as
Customer may from time to time request or be deemed to have requested in
accordance with the terms hereof. Customer may request Subsequent WCMA Loans by
use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other means of
access to the WCMA Line of Credit as may be permitted by MLBFS from time to
time; it being understood that so long as the WCMA Line of Credit shall be in
effect, any charge or debit to the WCMA Account which but for the WCMA Line of
Credit would under the terms of the WCMA Agreement result in an overdraft, shall
be deemed a request by Customer for a Subsequent WCMA Loan.
3.3 Conditions of Subsequent WCMA Loans. Notwithstanding the foregoing, MLBFS
shall not be obligated to make any Subsequent WCMA Loan, and may without notice
refuse to honor any such request by Customer, if at the time of receipt by MLBFS
of Customer's request: (a) the making of such Subsequent WCMA Loan would cause
the Maximum WCMA Line of Credit, as reduced pursuant to the provisions of
Section 3.6 hereof, to be exceeded; or (b) the Termination Date shall have
occurred; or (c) an event shall have occurred and be continuing which shall have
caused any of the General Funding Conditions to not then be met or satisfied to
the reasonable satisfaction of MLBFS. The making by MLBFS of any Subsequent WCMA
Loan (including, without limitation, the making of a Subsequent WCMA Loan to pay
accrued interest or late charges, as hereafter provided) at a time when any one
or more of said conditions shall not have been met shall not in any event be
construed as a waiver of said condition or conditions or of any Default, and
shall not prevent MLBFS at any time thereafter while any condition shall not
have been met from refusing to honor any request by Customer for a Subsequent
WCMA Loan.
3.4 WCMA Note. Customer hereby promises to pay to the order of MLBFS, at the
times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing: (a) the
WCMA Loan Balance; (b) interest at the Interest Rate on the outstanding WCMA
Loan Balance (computed for the actual number of days elapsed on the basis of a
year consisting of 360 days), from and including the date on which the Loan is
made until the date of payment of all WCMA Loans in full; and (c) on demand, all
other sums payable pursuant to this Loan Agreement, including, but not limited
to, any late charges. Except as otherwise expressly set forth herein, Customer
hereby waives presentment, demand for payment, protest and notice of protest,
notice of dishonor, notice of acceleration, notice of intent to accelerate and
all other notices and formalities in connection with this WCMA Note and this
Loan Agreement.
3.5 Interest. (a) An amount equal to accrued interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date, commencing with
the Interest Due Date occurring in the calendar month in which the Closing Date
shall occur. Unless otherwise hereafter directed in writing by MLBFS on or after
the Termination Date, such interest will be automatically charged to the WCMA
Account on the applicable Interest Due Date, and, to the extent not paid with
free credit balances or the proceeds of sales of any Money Accounts then in the
WCMA Account, as hereafter provided, such interest will be paid by a Subsequent
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.
(b) Notwithstanding any provision to the contrary in this Agreement or any of
the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of any
amount in excess of the maximum amount of interest permitted to be charged by
law ("Excess Interest"). If any Excess Interest is provided for, or is
adjudicated as being provided for, in this Agreement or any of the Additional
Agreements, then: (i) Customer shall not be obligated to pay any Excess
Interest; and (ii) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional Agreements shall, at the option of MLBFS, be either
applied as a credit against the then WCMA Loan Balance, or refunded to the payer
thereof.
3.6 Periodic Reduction of Maximum WCMA Line of Credit. Commencing on the last
Business Day of the first full calendar month following the Closing Date, and
continuing on the last Business Day of each calendar month thereafter to and
including the last Business Day of the eighty-third (83rd) such calendar month,
the Maximum WCMA Line of Credit shall be reduced by an amount equal to
one-eighty-fourth (1/ 84th) of the Loan Amount per month. Unless the WCMA Line
of Credit shall have been earlier terminated pursuant to the terms hereof, on
the last Business Day of the eighty-fourth (84th) calendar month following the
Closing Date, the WCMA Line of Credit shall, without further action of either of
the parties hereto, be terminated, Customer shall pay to MLBFS the entire WCMA
Loan Balance, if any, and all other Obligations, and the WCMA Account, at the
option of Customer, will either be converted to a WCMA Cash Account (subject to
any requirements of MLPF&S) or terminated. No failure or delay on the part of
MLBFS in entering into the WCMA computer system any scheduled reduction in the
Maximum WCMA Line of Credit pursuant to this Section shall have the effect of
preventing or delaying such reduction.
3.7 Mandatory Payments. CUSTOMER AGREES THAT IT WILL, WITHOUT DEMAND, INVOICING
OR THE REQUEST OF MLBFS, FROM TIME TO TIME MAKE SUFFICIENT PAYMENTS ON ACCOUNT
OF THE WCMA LOAN BALANCE TO ASSURE THAT THE WCMA LOAN BALANCE WILL NOT AT ANY
TIME EXCEED THE MAXIMUM WCMA LINE OF CREDIT, AS REDUCED EACH MONTH PURSUANT TO
SECTION 3.6 HEREOF.
3.8 Method of Making Payments. All payments required or permitted to be made
pursuant to this Loan Agreement shall be made in lawful money of the United
States. Unless otherwise hereafter directed by MLBFS, such payments may be made
by the delivery of checks (other than WCMA Checks), or by means of FTS or wire
transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S for
credit to the WCMA Account. Payments to MLBFS from funds in the WCMA Account
shall be deemed to be made by Customer upon the same basis and schedule as funds
are made available for investment in the Money Accounts in accordance with the
terms of the WCMA Agreement. The acceptance by or on behalf of MLBFS of a check
or other payment for a lesser amount than shall be due from Customer, regardless
of any endorsement or statement thereon or transmitted therewith, shall not be
deemed an accord and satisfaction or anything other than a payment on account,
and MLBFS or anyone acting on behalf of MLBFS may accept such check or other
payment without prejudice to the rights of MLBFS to recover the balance actually
due or to pursue any other remedy under this Loan Agreement or applicable law
for such balance. All checks accepted by or on behalf of MLBFS in connection
with this Loan Agreement are subject to final collection.
3.9 Irrevocable Instructions to MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Closing Date and continuing thereafter so long as this Agreement shall be in
effect: (a) to immediately and prior to application for any other purpose pay to
MLBFS to the extent of any WCMA Loan Balance or other amounts payable by
Customer hereunder all available free credit balances from time to time in the
WCMA Account; and (b) if such available free credit balances are insufficient to
pay the WCMA Loan Balance and such other amounts, and there are in the WCMA
Account at any time any investments in Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.
3.10 Late Charge. Any payment or deposit required to be made by Customer
pursuant to this Loan Agreement or any of the Additional Agreements not paid or
made within ten (10) days of the applicable due date shall be subject to a late
charge in an amount equal to the lesser of: (a) 5% of the overdue amount, or (b)
the maximum amount permitted by applicable law. Such late charge shall be
payable on demand, or, without demand, may in the sole discretion of MLBFS be
paid by a Subsequent WCMA Loan and added to the WCMA Loan Balance in the same
manner as provided herein for accrued interest with respect to the WCMA Line of
Credit.
3.11 Prepayment. Customer may prepay the Loan and any Subsequent WCMA Loan at
any time in whole or in part without premium or penalty; provided, however, that
any refinancing of the WCMA Loan Balance by another financial institution shall:
(a) if such refinancing shall occur prior to the first anniversary of the
Closing Date, be accompanied by a premium in an amount equal to 3% of the amount
prepaid by such refinancing; (b) if such refinancing shall occur thereafter, but
prior to the second anniversary of the Closing Date, be accompanied by a premium
in an amount equal to 2% of the amount prepaid by such refinancing; and (c) if
such refinancing shall occur on or at any time after the second anniversary of
the Closing Date, be accompanied by a premium in an amount equal to 1% of the
amount prepaid by such refinancing.
3.12 Option of Customer to Terminate. Customer will have the option to terminate
the WCMA Line of Credit at any time upon written notice to MLBFS. Concurrently
with any such termination, Customer shall pay to MLBFS the entire WCMA Loan
Balance and all other Obligations.
3.13 Limitation of Liability. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
3.14 Statements. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
or the Loan should be directed to MLBFS; and any questions with respect to any
other matter in such statements or about or affecting the WCMA Program should be
directed to MLPF&S.
<PAGE>
Article IV. GENERAL PROVISIONS
4.1 Representations and Warranties.
Customer represents and warrants to MLBFS that:
a Organization and Existence. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Nevada and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.
b Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and such of the Additional Agreements to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will not violate or conflict with any law or other governmental
requirement, or any of the agreements, instruments or documents which formed or
govern Customer, and (iii) do not and will not breach or violate any of the
provisions of, and will not result in a default by Customer under, any other
agreement, instrument or document to which it is a party or by which it or its
properties are bound.
c Notices and Approvals. Except as may have been given or obtained, no notice to
or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement and the Additional Agreements to which it is a party.
d Enforceability. This Loan Agreement and such of the Additional Agreements to
which Customer is a party are the legal, valid and binding obligations of
Customer, enforceable against it in accordance with their respective terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of equity.
e Collateral. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
f Financial Statements. Except as expressly set forth in Customer's financial
statements, all financial statements of Customer furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct in all material respects, and fairly
present the financial condition of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim unaudited
financial statements, to normal year-end adjustments); and since the most recent
date covered by such financial statements, there has been no material adverse
change in any such financial condition or operation.
g Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.
h Tax Returns. All federal, state and local tax returns, reports and statements
required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).
i Collateral Location. All of the tangible Collateral is located at a
Location of Tangible Collateral.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to make the Loan and each Subsequent WCMA
Loan, and (ii) is continuing and shall be deemed remade by Customer on the
Closing Date, and concurrently with each request by Customer for a Subsequent
WCMA Loan.
4.2 Financial and Other Information.
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
a Annual Financial Statements. Within 120 days after the close of each fiscal
year of Customer, Customer shall furnish or cause to be furnished to MLBFS a
copy of the annual audited financial statements of Customer, consisting of at
least a balance sheet as at the close of such fiscal year and related statements
of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.
b Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) its statement of profit and loss for the fiscal quarter then ended, and (ii)
a balance sheet as at the close of such fiscal quarter; all in reasonable detail
and certified by its chief financial officer.
c Other Interim Reports. Within 45 days after the close of each fiscal quarter
of Customer, Customer shall furnish or cause to be furnished to MLBFS an aging
of Accounts and Chattel Paper and an Inventory report for Customer as of the end
of such fiscal quarter, all in reasonable detail and certified by its chief
financial officer.
d Other Information. Customer shall furnish or cause to be furnished to
MLBFS such other information as MLBFS may from time to time reasonably request
relating to Customer or the Collateral.
4.3 Other Covenants. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) Financial Records; Inspection. Customer will: (i) maintain at its principal
place of business complete and accurate books and records, and maintain all of
its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) Taxes. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.
(c) Compliance With Laws and Agreements. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, or the financial condition
or the continued operations of Customer.
(d) Use of Loan Proceeds; Securities Transactions. The proceeds of the Loan
shall be used by Customer solely for the Loan Purpose, or, with the prior
written consent of MLBFS, for other lawful business purposes of Customer not
prohibited hereby. The proceeds of each Subsequent WCMA Loan shall be used by
Customer solely for working capital in the ordinary course of Customer's
business, or, with the prior written consent of MLBFS, for other lawful business
purposes of Customer not prohibited hereby. Customer agrees that under no
circumstances will the proceeds of the Loan or any Subsequent WCMA Loan be used:
(i) for personal, family or household purposes of any person whatsoever, or (ii)
to purchase, carry or trade in securities, or repay debt incurred to purchase,
carry or trade in securities, whether in or in connection with the WCMA Account,
another account of Customer with MLPF&S or an account of Customer at any other
broker or dealer in securities.
(e) Notification By Customer. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer; and (iii) any
information which indicates that any financial statements of Customer fail in
any material respect to present fairly the financial condition and results of
operations purported to be presented in such statements. Each notification by
Customer pursuant hereto shall specify the event or information causing such
notification, and, to the extent applicable, shall specify the steps being taken
to rectify or remedy such event or information.
(f) Notice of Change. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer.
(g) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Customer, or (B) a material adverse change in the financial condition or
operations of Customer; (ii) Customer shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Customer
shall not engage in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business; (iv) Customer shall not
cause or permit any other person or entity to assume or succeed to any material
business or operations of Customer; and (v) Customer shall not cause or permit
any material change in its controlling ownership.
(h) Minimum Tangible Net Worth.Customer's "tangible net worth" shall at all
times exceed $1,100,000.00. For the purposes hereof, the term "tangible net
worth" shall mean Customer's net worth as shown on Customer's regular financial
statements prepared in a manner consistent with the terms hereof, but excluding
an amount equal to: (i) any assets which are ordinarily classified as
"intangible" in accordance with generally accepted accounting principles, and
(ii) any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer.
(i) Debt to Tangible Net Worth. The ratio of Customer's total debt to
Customer's tangible net worth, determined as aforesaid, shall not at
any time exceed 2 to 1.
4.4 Collateral
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(b) Liens. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) Sales and Collections. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid all
obligations arising from the repair and maintenance of such Collateral, as well
as all obligations with respect to each Location of Tangible Collateral, except
for any such obligations being contested by Customer in good faith by
appropriate proceedings.
(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) Insurance. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance policies shall provide that
MLBFS will receive not less than 10 days prior written notice of any
cancellation, and shall otherwise be in form and amount and with an insurer or
insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any expiration
or cancellation, each renewal or replacement thereof.
(i) Event of Loss. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
permanently prepay the Loan by an amount equal to the actual cash value of such
Collateral as determined by either the insurance company's payment (plus any
applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS; it being further understood that any such
permanent prepayment shall be accompanied by a like permanent reduction in the
Maximum WCMA Line of Credit. Notwithstanding the foregoing, if at the time of
occurrence of such Event of Loss or any time thereafter prior to replacement or
line reduction, as aforesaid, an Event of Default shall have occurred and be
continuing hereunder, then MLBFS may at its sole option, exercisable at any time
while such Event of Default shall be continuing, require Customer to either
replace such Collateral or prepay the Loan and reduce the Maximum WCMA Line of
Credit, as aforesaid.
(j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
4.5 Events of Default.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Failure to Pay. (i) Customer shall fail to deposit into the WCMA Account an
amount sufficient to assure that the WCMA Loan Balance does not exceed the
Maximum WCMA Line of Credit, as reduced in accordance with the provisions
hereof, or (ii) Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any other amount owing or required to be paid or deposited by
Customer under this Loan Agreement, or (iii) Customer shall fail to pay when due
any other Obligations; and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(b) Failure to Perform. Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Loan Agreement or any of the Additional Agreements (not constituting an Event of
Default under any other clause of this Section), and such default shall continue
unremedied for ten (10) Business Days after written notice thereof shall have
been given by MLBFS to Customer.
(c) Breach of Warranty. Any representation or warranty made by Customer or any
other party providing collateral for the Obligations contained in this Loan
Agreement or any of the other Additional Agreements shall at any time prove to
have been incorrect in any material respect when made.
(d) Default Under Other Agreement. A default or Event of Default by Customer
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, MLPF&S or any of their affiliates, and any
required notice shall have been given and required passage of time shall have
elapsed.
(e) Bankruptcy Event. Any Bankruptcy Event shall occur.
(f) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer of its liabilities or obligations under this Loan Agreement or any
of the Additional Agreements to which Customer is a party has been materially
impaired. The existence of such a material impairment shall be determined in a
manner consistent with the intent of Section 1-208 of the UCC.
(g) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement, undertaking, or
otherwise.
(h) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten (10)
Business Days.
4.6 Remedies.
(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Termination. MLBFS may without notice terminate its obligation to make the
Loan (if the Loan has not then been funded), terminate the WCMA Line of Credit,
and terminate any obligation to make any Subsequent WCMA Loan (including,
without limitation, any Subsequent WCMA Loan to pay accrued interest) or
otherwise extend any credit to or for the benefit of Customer (it being
understood that upon the occurrence of any Bankruptcy Event the WCMA Line of
Credit and all such obligations shall automatically terminate without any action
on the part of MLBFS); and upon any such termination MLBFS shall be relieved of
all such obligations.
(ii) Acceleration. MLBFS may declare the WCMA Loan Balance and all other
Obligations to be forthwith due and payable, whereupon all such amounts shall be
immediately due and payable, without presentment, demand for payment, protest
and notice of protest, notice of dishonor, notice of acceleration, notice of
intent to accelerate or other notice or formality of any kind, all of which are
hereby expressly waived; provided, however, that upon the occurrence of any
Bankruptcy Event the WCMA Loan Balance and other Obligations shall automatically
become due and payable without any action on the part of MLBFS.
(iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) Possession. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) Sale. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer remaining liable for any amount remaining unpaid after such
application.
(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security interest
in all such property as additional Collateral.
(c) Power of Attorney. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Customer included in the
Collateral.
(d) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(e) Notices. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
4.7 Miscellaneous.
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer therefrom, shall be effective unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the Additional Agreements and any consent to any
departure by Customer from the terms thereof shall be effective only in the
specific instance and for the specific purpose for which given. Except as
otherwise expressly provided herein, no notice to or demand on Customer shall in
any case entitle Customer to any other or further notice or demand in similar or
other circumstances.
(b) Disclosure. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
(c) Communications. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the collection of any sum payable hereunder or under
any of the Additional Agreements not paid when due, the enforcement of this Loan
Agreement or any of the Additional Agreements and the protection of MLBFS'
rights hereunder or thereunder, excluding, however, salaries and normal overhead
attributable to MLBFS' employees. The obligations of Customer under this
paragraph shall survive the expiration or termination of this Loan Agreement and
the discharge of the other Obligations.
(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.
(g) Binding Effect. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or any of the Additional Agreements.
(h) Headings. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(i) Governing Law. This Loan Agreement and, unless otherwise expressly
provided therein, each of the Additional Agreements, shall be governed in all
respects by the laws of the State of Illinois.
(j) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(k) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as: (i) MLBFS shall be obligated to
make the Loan, (ii) the WCMA Line of Credit shall be in effect, (iii) there
shall be any moneys outstanding under this Loan Agreement, or (iv) there shall
be any other Obligations outstanding.
(l) Counterparts. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(m) Jurisdiction; Waiver. Customer acknowledges that this Loan Agreement is
being accepted by MLBFS in partial consideration of MLBFS' right and option, in
its sole discretion, to enforce this Loan Agreement and the Additional
Agreements in either the State of Illinois or in any other jurisdiction where
Customer or any collateral for the Obligations may be located. Customer consents
to jurisdiction in the State of Illinois and venue in any State or Federal Court
in the County of Cook for such purposes, and Customer waives any and all rights
to contest said jurisdiction and venue. Customer further waives any rights to
commence any action against MLBFS in any jurisdiction except in the County of
Cook and State of Illinois. MLBFS and Customer hereby each expressly waive any
and all rights to a trial by jury in any action, proceeding or counterclaim
brought BY either of the parties against the other party with respect to any
matter relating to, arising out of or in any way connected with the Loan, this
Loan Agreement, any Additional Agreements and/or any of the transactions which
are the subject matter of this Loan Agreement.
(n) Integration. This Loan Agreement, together with the Additional Agreements,
constitutes the entire understanding and represents the full and final agreement
between the parties with respect to the subject matter hereof, and may not be
contradicted by evidence of prior written agreements or prior, contemporaneous
or subsequent oral agreements of the parties. There are no unwritten oral
agreements of the parties. Without limiting the foregoing, Customer acknowledges
that: (i) no promise or commitment has been made to it by MLBFS, MLPF&S or any
of their respective employees, agents or representatives to make the Loan OR ANY
SUBSEQUENT WCMA LOAN on any terms other than as expressly set forth herein, or
to make any other loan or otherwise extend any other credit to Customer or any
other party; and (ii) except as otherwise expressly provided herein, this Loan
Agreement supersedes and replaces any and all proposals, letters of intent and
approval and commitment letters from MLBFS to Customer, none of which shall be
considered an Additional Agreement. No amendment or modification of this
Agreement or any of the Additional Agreements to which Customer is a party shall
be effective unless in a writing signed by both MLBFS and Customer.
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
TELEBYTE TECHNOLOGY INC.
By: ___________________________________________________________________________
Signature (1) Signature (2)
- -------------------------------------------------------------------------------
Printed Name Printed Name
- -------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By:___________________________________________________________
<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF WCMA REDUCING REVOLVERsm LOAN AND
SECURITY AGREEMENT NO. 839-07K51 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. AND TELEBYTE TECHNOLOGY INC.
================================================================================
Locations of Tangible Collateral:
CLOSING CERTIFICATE
================================================================================
The undersigned, TELEBYTE TECHNOLOGY INC., a corporation organized and existing
under the laws of the State of Nevada ("Customer"), as a primary inducement to
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to make a loan to
Customer (the "Loan") pursuant to that certain WCMA REDUCING REVOLVERsm LOAN AND
SECURITY AGREEMENT No. 839-07K51 between Customer and MLBFS dated as of January
7, 1999 (the "Loan Agreement") DOES HEREBY REPRESENT, WARRANT AND AGREE AS
FOLLOWS:
1. All of Customer's representations and warranties in the Loan Agreement are
true and correct and remade as of the date hereof, and, without limiting the
foregoing: (i) subject only to "Permitted Liens" (as defined in the Loan
Agreement), MLBFS has a first lien and security interest upon all of the
"Collateral" under the Loan Agreement (including any Collateral financed or
refinanced with the proceeds of the Loan), and (ii) the Loan is being applied on
account of and will satisfy the "Loan Purpose" under the Loan Agreement.
2. There has not occurred any event which constitutes a "Default" under the Loan
Agreement.
3. There has not occurred any material adverse change in the business or
financial condition of Customer since the date of the last financial statements
submitted to MLBFS.
4. MLBFS is hereby authorized and directed to disburse the proceeds of the
Loan in the amount of $1,000,000.00, by wire transfer as follows:
Into Merrill Lynch Account No. 839-07D64
Dated this ____ day of ___________________, 1999
TELEBYTE TECHNOLOGY INC.
By: ___________________________________________________________________________
Signature (1) Signature (2)
- -------------------------------------------------------------------------------
Printed Name Printed Name
- -------------------------------------------------------------------------------
Title Title
SECRETARY'S CERTIFICATE
================================================================================
The undersigned hereby certifies to Merrill Lynch Business Financial Services
Inc. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of TELEBYTE TECHNOLOGY INC., a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada; and
that the following is a true, accurate and compared transcript of resolutions
duly, validly and lawfully adopted on the _______ day of ____________________,
1999 by the Board of Directors of said Corporation acting in accordance with the
laws of the state of incorporation and the charter and by-laws of said
Corporation:
"RESOLVED, that this Corporation is authorized and empowered, now and from time
to time hereafter, to borrow and/or obtain credit from, and/or enter into other
financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS"), and in connection therewith to grant to MLBFS liens and security
interests on any or all property belonging to this Corporation; all such
transactions to be on such terms and conditions as may be mutually agreed from
time to time between this Corporation and MLBFS; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered to: (a) execute and deliver to MLBFS on
behalf of this Corporation any and all loan agreements, promissory notes,
security agreements, pledge agreements, financing statements, mortgages, deeds
of trust, leases and/or all other agreements, instruments and documents required
by MLBFS in connection therewith, and any present or future extensions,
amendments, supplements, modifications and restatements thereof; all in such
form as any such officer shall approve, as conclusively evidenced by his or her
signature thereon, and (b) do and perform all such acts and things deemed by any
such officer to be necessary or advisable to carry out and perform the
undertakings and agreements of this Corporation in connection therewith; and any
and all prior acts of each of said officers in these premises are hereby
ratified and confirmed in all respects; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
The undersigned further certifies that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and the signatures set forth below are the
true signatures of said officers:
President: ___________________________________________________________
Vice President: ______________________________________________________
Treasurer: ___________________________________________________________
Secretary:____________________________________________________________
-----------------: --------------------------------------------------
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization, all
as of this ________ day of _________________, 1999.
(Corporate Seal) ___________________________________
Secretary
Printed Name:___________________________________
List of Subsidiaries of Telebyte, Inc.
Name of Subsidiary
- ------------------
DeliverNextday.com, Inc.
State of Incorporation
New York
Names Under which Subsidiary Does Business
Nexday.com
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 17, 2000, accompanying the consolidated
financial statements included in the Annual Report of Telebyte, Inc. on Form
10-KSB for the year ended December 31, 1999. We hereby consent to the
incorporation by reference of said report in the Registration Statement of
Telebyte, Inc. on Form S-8 (File No. 333-02091), effective March 29, 1996.
GRANT THORNTON LLP
Melville, New York
March 17, 2000
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