<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SENTEX SENSING TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW JERSEY 3829 22-2333899
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
553 BROAD AVENUE
RIDGEFIELD, NEW JERSEY, 07657
(201) 945-8050
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT S. KENDALL, CHAIRMAN
553 BROAD AVENUE
RIDGEFIELD, NEW JERSEY, 07657
(201) 945-8050
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM APPLETON, ESQ. LAWRENCE M. BELL, ESQ.
BAKER & HOSTETLER BENESCH, FRIEDLANDER, COPLAN, & ARONOFF P.L.L.
3200 NATIONAL CITY CENTER 2300 BP AMERICA BUILDING
CLEVELAND, OHIO 44114 200 PUBLIC SQUARE
(216) 621-0200 CLEVELAND, OHIO 44114
(216) 363-4500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Merger referred to herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Class A Convertible Notes.................. $485,586(1) N/A N/A $ 117 (4)
Common Shares, $0.01 par value per share... 11,659,681(2) N/A N/A $ 328 (5)
Common Shares, $0.01 par value per share... 18,689,424(3) $0.140625 $2,628,200 $ 907 (6)
Credit................................... N/A N/A N/A $ (926)(7)
Total.................................... N/A N/A N/A $ 425
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the aggregate balance of the Class A Convertible Notes that will
be issued upon consummation of the Merger described herein in exchange for
all the shares of Monitek Class A Common Stock.
(2) Represents the number of shares that will be issued upon consummation of the
Merger in exchange for all the shares of the Monitek Common Stock.
(3) Represents an additional and indeterminable number of shares issuable in
connection with the Merger, which is composed of (a) up to 8,640,320 shares
issuable upon conversion of the Class A Convertible Notes, (b) up to
7,031,684 shares issuable upon conversion of a privately place note to be
issued in connection with the Merger and (c) 3,015,456 estimated to be
issuable as interest on the Class A Convertible Notes and the privately
placed note and an indeterminable additional number of shares as may be
necessary to issue as interest thereon.
(4) This portion of the registration fee has been computed pursuant to Rule
457(f)(2) under the Securities Act of 1933, as amended (the "Securities
Act"), on the basis of 1/29 of 1% of the product of $0.27 (the book value of
Monitek Class A Common Stock as of June 30, 1996) and 1,252,676 (the number
of issued and outstanding shares of such class).
(5) This portion of the registration fee has been computed pursuant to Rule
457(f)(1) of the Securities Act on the basis of 1/29 of 1% of the product of
1,690,424 (the average bid and ask price of the Monitek Common Stock on the
OTC Bulletin Board on September 25, 1996) and $0.5625 (the number of issued
and outstanding shares of such class).
(6) This portion of the registration fee has been computed pursuant to Rule
457(c) of the Securities Act on the basis of 1/29 of 1% of $0.140625 (the
average high and low of the Sentex Common Shares on September 26, 1996).
(7) Pursuant to Rule 457 of the Securities Act, $926 previously paid on
September 13, 1996 upon filing with the Commission of preliminary proxy
materials is being credited against the registration fee payable in
connection with this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
[MONITEK TECHNOLOGIES, INC. LETTERHEAD]
October , 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Monitek Technologies, Inc., a Delaware corporation ("Monitek"), to be held at
1495 Zephyr Avenue, Hayward, California, on ,
, at , Pacific Time.
At the Special Meeting you will be asked to vote on a proposal to approve
an Amended and Restated Agreement and Plan of Merger, dated as of July 30, 1996
(the "Merger Agreement"), providing for the merger (the "Merger") of Sentex
Merger Corp., a wholly owned subsidiary of Sentex Sensing Technology, Inc.
("Sentex"), with and into Monitek. If the Merger is approved, Monitek will
become a wholly owned subsidiary of Sentex. In the Merger, each outstanding
share of Monitek Common Stock will be converted, based on the Stock Exchange
Ratio (as described in the accompanying material), into 6.8974890 Sentex Common
Shares and each outstanding share of Monitek Class A Common Stock will be
converted into a Class A Convertible Note in an original principal amount equal
to one share of Monitek Class A Common Stock multiplied by the Note Exchange
Ratio of $0.3876389. After three years (or earlier under certain conditions),
the principal amount of the Class A Convertible Notes is convertible at a rate
of $0.0562 per share (for an aggregate amount of 8,640,320 Sentex Common
Shares). After conversion the holders of the Class A Convertible Notes will
receive 6.8974890 Sentex Common Shares for each share of Monitek Class A Common
Stock owned by such holder immediately prior to the consummation of the Merger.
The Class A Convertible Notes will be subordinated to all existing debt
obligations of Sentex.
In order to facilitate the consummation of the Merger, Clarion Capital
Corporation, a Delaware corporation and the principal stockholder of Monitek
("Clarion"), has agreed to exchange a promissory note in the aggregate principal
amount of $476,940 that is secured by substantially all the assets of Monitek,
for a convertible note issued by Sentex in a reduced principal amount of
$136,414 that is subordinated to all existing debt obligations of Sentex (the
"Clarion Note"). After three years (or earlier under certain conditions), the
principal amount of the Clarion Note is convertible at a rate of $0.0194 per
share (into an aggregate amount of 7,031,649 Sentex Common Shares).
Sentex Common Shares will also be issued as interest on the Class A
Convertible Notes and the Clarion Note and pursuant to the exercise of each
outstanding option to purchase Monitek Common Stock that will be converted in
the Merger into options to purchase Sentex Common Shares.
It is anticipated that up to approximately 11,659,681 Sentex Common Shares
will be issued upon the consummation of the Merger and approximately 21,270,535
Sentex Common Shares will be reserved for issuance upon conversion of the Class
A Convertible Notes and the Clarion Note, in payment of interest on the Class A
Convertible Notes and Clarion Note, and upon exercise of stock options of
Monitek to be converted into stock options of Sentex pursuant to the Merger.
The Board of Directors has received an opinion from NatCity Investment,
Inc. ("NatCity") to the effect that, as of the date the Merger Agreement was
executed and as of the date of NatCity issued its written opinion dated
September 24, 1996 the Note Exchange Ratio and the stock Exchange Ratio are
fair, from a financial point of view, to the holders (other than Clarion) of
Monitek's capital stock. NatCity was not requested to render an opinion with
respect to the fairness of the consideration to be paid to Clarion. A copy of
such opinion is attached as Annex D to the Joint Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS OF THE PROPOSED
TRANSACTION AND BELIEVES IT IS IN THE BEST INTERESTS OF AND FAIR TO MONITEK
STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT MONITEK STOCKHOLDERS VOTE FOR THE PROPOSAL.
COMPLETE
<PAGE> 3
DETAILS OF THE MERGER ARE SET FORTH IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES THERETO.
Approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Monitek Class A Common Stock and a
majority of the outstanding shares of the Monitek Common Stock (each voting as a
separate class). Clarion, a holder of approximately 97% of the issued and
outstanding shares of Monitek Class A Common Stock, has entered into an Amended
and Restated Voting Agreement with CPS Capital, Ltd., an Ohio limited liability
company and the principal shareholder of Sentex, pursuant to which Clarion has
agreed to vote its shares in favor of the Merger.
In view of the importance of the action to be taken at the Special Meeting,
we urge you to review carefully the accompanying Notice of Special Meeting of
Stockholders and the Joint Proxy Statement/Prospectus, which also includes
information on Sentex and Monitek. Whether or not you expect to attend the
Special Meeting, please complete, sign and date the enclosed proxy and return it
as promptly as possible.
Sincerely,
Morton Cohen,
Chairman of the Board
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME
<PAGE> 4
MONITEK TECHNOLOGIES, INC.
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
To the Stockholders of
Monitek Technologies, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Monitek
Technologies, Inc., a Delaware corporation ("Monitek"), will be held on
, , 1996, at ,
Pacific Time, at 1495 Zephyr Avenue, Hayward, California, for the following
purposes:
1. To consider and vote on a proposal (the "Monitek Merger Proposal") to
approve and adopt the Amended and Restated Agreement and Plan of Merger, dated
as of July 30, 1996 (the "Merger Agreement"), by and among Monitek, Sentex
Sensing Technology, Inc., a New Jersey corporation ("Sentex"), and Sentex Merger
Corp., a Delaware corporation and a wholly owned subsidiary of Sentex
("Subcorp"), pursuant to which, among other things, (i) Subcorp will be merged
with and into Monitek (the "Merger") and Monitek will become a wholly owned
subsidiary of Sentex; (ii) all outstanding shares (other than shares as to which
dissenters' rights are perfected) of Monitek Class A Common Stock, $0.01 par
value (the "Monitek Class A Common Stock"), will be converted into convertible
notes issued by Sentex (the "Class A Convertible Notes") pursuant to a formula
set forth in the Merger Agreement; and (iii) all outstanding shares (other than
shares as to which dissenters' rights are perfected) of Monitek common stock,
$0.01 par value ("Monitek Common Stock"), will be converted into Sentex common
shares, $0.01 par value, of Sentex ("Sentex Common Shares"), pursuant to a
formula set forth in the Merger Agreement. It is currently expected that, under
such formulas, each outstanding share of Monitek Class A Common Stock will be
converted into a Class A Convertible Note in an original principal amount equal
to one share of Monitek Class A Common Stock multiplied by the Note Exchange
Ratio of $0.3876389 and each share of Monitek Common Stock will be converted,
based on the Stock Exchange Ratio (as described in the accompanying material),
into 6.8974890 Sentex Common Shares. Each option outstanding under any stock
option plan of Monitek (each a "Monitek Option") will be converted into an
option (a "Sentex Option") to purchase that number of Sentex Common Shares equal
to the number of shares of Monitek Common Stock issuable immediately prior to
the effective time of the Merger upon exercise of the Monitek Option multiplied
by the Stock Exchange Ratio of 6.8974890. After three years (or earlier under
certain conditions), the principal amount of Class A Convertible Notes is
convertible at a rate of $0.0562 per share. After conversion the holders of the
Class A Convertible Notes will receive 6.8974890 Sentex Common Shares for each
share of Monitek Class A Common Stock owned by such holders immediately prior to
the consummation of the Merger. A copy of the Merger Agreement is attached as
Annex A to the accompanying Joint Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on October , 1996,
as the record date for the determination of the holders of Monitek Class A
Common Stock and Monitek Common Stock entitled to notice of, and to vote at, the
meeting and adjournments or postponements thereof. The Monitek Merger Proposal
requires the affirmative vote of the holders of a majority of the outstanding
shares of Monitek Class A Common Stock and the affirmative vote of the holders
of a majority of the outstanding shares of Monitek Common Stock (each voting as
a separate class). Clarion Capital Corporation, a Delaware corporation
("Clarion") and the holder of approximately 97% of the issued and outstanding
shares of Monitek Class A Common Stock, has entered into an Amended and Restated
Voting Agreement with CPS Capital, Ltd., an Ohio limited liability company and
the principal shareholder of Sentex ("CPS"), pursuant to which Clarion has
agreed to vote its shares in favor of the Merger.
<PAGE> 5
Information regarding the Merger and related matters is contained in the
accompanying Joint Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice. Stockholders of
Monitek will be entitled to dissent from the Merger and to assert appraisal
rights under Section 262 of the Delaware General Corporation Law which is
attached as Annex D to, and summarized under "Rights of Dissenting
Shareholders," in the attached Joint Proxy Statement/Prospectus.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
IT IS IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT THE MEETING. YOU MAY
REVOKE YOUR PROXY AS OF ANY TIME PRIOR TO ITS EXERCISE. ANY STOCKHOLDER PRESENT
AT THE MEETING OR ADJOURNMENTS OR POSTPONEMENTS THEREOF MAY REVOKE HIS OR HER
PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE MONITEK MERGER PROPOSAL.
By Order of the Board of Directors
, Secretary
October , 1996
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME
<PAGE> 6
[SENTEX SENSING TECHNOLOGY INC., LETTERHEAD]
October , 1996
Dear Shareholder:
I am pleased to forward to you the enclosed Joint Proxy
Statement/Prospectus for the Special Meeting of Shareholders of Sentex Sensing
Technology, Inc. ("Sentex") to be held on ,
, 1996, at Sentex's corporate offices at 553 Broad Avenue,
Ridgefield, New Jersey, to consider and act upon the proposals set forth in the
enclosed Notice of Special Meeting of Shareholders. Among other things, you will
be asked to consider and vote on the proposal to approve the Amended and
Restated Agreement and Plan of Merger, dated July 30, 1996 (the "Merger
Agreement"), pursuant to which Sentex Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Sentex ("Subcorp"), will be merged (the "Merger")
with and into Monitek Technologies, Inc. Pursuant to the Merger, Sentex will
issue up to an aggregate amount of 11,659,681 common shares, $0.01 par value, of
Sentex ("Sentex Common Shares") in exchange for all the common stock, $0.01 par
value of Monitek ("Monitek Common Stock"), in accordance with a formula
described in the accompanying materials. Sentex will also issue up to $485,586
in convertible notes (the "Class A Convertible Notes") in exchange for the Class
A common stock, $0.01 par value, of Monitek ("Monitek Class A Common Stock"), in
accordance with a formula described in the accompanying materials. Based on the
number of shares of Monitek Common Stock and Monitek Class A Common Stock
presently outstanding, each share of Monitek Common Stock will be exchanged for
6.8974890 Sentex Common Shares and each share of Monitek Class A Common Stock
will be exchanged for $0.3876389 of principal of a Class A Convertible Note. The
principal amount of Class A Convertible Notes can be converted into 8,640,320
Sentex Common Shares (at a rate of $0.0562 per share) after approximately three
years. The conversion rate of $0.0562 enables the holders of the Class A
Convertible Notes to receive 6.8974890 Sentex Common Shares for each share of
Monitek Class A Common Stock owned by such holders immediately prior to the
consummation of the Merger. The Class A Convertible Note will be subordinated to
all the other debt obligations of Sentex.
Clarion Capital Corporation, a Delaware corporation and the principal
stockholder of Monitek ("Clarion"), has also agreed to exchange a promissory
note in the aggregate principal amount of $476,940 that is secured by
substantially all the assets of Monitek for a $136,414 principal amount
convertible note issued by Sentex that is subordinated to all other debt
obligations of Sentex (the "Clarion Note"). After three years (or earlier under
certain conditions), the principal amount of the Clarion Note is convertible at
a rate of $0.0194 per share (into an aggregate amount of 7,031,649 Sentex Common
Shares).
Sentex Common Shares will also be issued as interest under the Class A
Convertible Notes and the Clarion Note and pursuant to the exercise of each
outstanding option to purchase Monitek Common Stock that is converted into
options to purchase Sentex Common Shares.
It is anticipated that up to approximately 11,659,681 Sentex Common Shares
will be issued upon the consummation of the Merger and approximately 21,270,535
Sentex Common Shares will be reserved for issuance upon conversion of the Class
A Convertible Notes and, the Clarion Note, in payment of interest on the Class A
Convertible Notes and Clarion Note, and upon exercise of stock options of
Monitek to be converted into Stock Options of Sentex pursuant to the Merger.
At the meeting, in addition to approving the Merger Agreement, you will
also be asked to: (i) adopt the Sentex Sensing Technology, Inc. 1996 Long-Term
Incentive Plan; (ii) adopt an amendment to the Bylaws of Sentex to allow
Sentex's Board of Directors to determine the size of Sentex's Board of
Directors, from time to time, without shareholder approval; and (iii) elect, as
the five members of Sentex's Board of Directors, Robert S. Kendall, James G.
Few, Julius L. Hess, Amos Linenberg, and Ronald M. Lipson, all of whom (except
Mr. Linenberg), are currently serving as directors, until the next annual
meeting and until their respective successors are elected and qualified.
<PAGE> 7
Your Board of Directors has carefully considered the terms of the Merger
and each of the other proposals to be acted upon, has determined that these
proposals are in the best interests of Sentex and its shareholders, and
unanimously recommends that you vote for the Merger, for each of the other
proposals set forth herein, and for the election of the Directors. Complete
details of the Merger with Monitek and the other proposals to be acted upon at
the Special Meeting are set forth in the accompanying Joint Proxy
Statement/Prospectus. Please review and consider the enclosed materials
carefully.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY CARD. YOU MAY
REVOKE YOUR PROXY BY (I) FILING WITH THE SECRETARY OF SENTEX AT OR BEFORE THE
TAKING OF THE VOTE AT THE MEETING A NOTICE OF REVOCATION BEARING A LATER DATE
THAN THE PROXY OR A LATER-DATED PROXY RELATING TO THE SAME SHARES, OR (II)
ATTENDING THE MEETING AND VOTING IN PERSON.
Very truly yours,
Robert S. Kendall,
Chairman
<PAGE> 8
SENTEX SENSING TECHNOLOGY, INC.
---------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
---------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Sentex
Sensing Technology, Inc., a New Jersey corporation ("Sentex"), will be held at
on , , 1996, at
.m., Eastern Time, for the following purposes:
1. To vote on a proposal (the "Sentex Merger Proposal") to approve the
Amended and Restated Agreement and Plan of Merger, dated as of July 30,
1996 (the "Merger Agreement"), by and among Sentex, Sentex Merger Corp., a
Delaware corporation and a wholly owned subsidiary of Sentex ("Subcorp"),
and Monitek Technologies, Inc. ("Monitek"), pursuant to which, among other
things, (i) Subcorp will be merged with and into Monitek (the "Merger"),
with Monitek as the surviving corporation; (ii) all the outstanding shares
(other than shares as to which dissenters' rights are perfected) of class A
common stock, par value $0.01, of Monitek ("Monitek Class A Common Stock")
will be converted into convertible notes issued by Sentex ("Class A
Convertible Notes") as determined pursuant to a formula set forth in the
Merger Agreement; (iii) each outstanding share (other than shares as to
which dissenters' rights are perfected) of common stock, $0.01 par value,
of Monitek ("Monitek Common Stock") will be converted into common shares,
$0.01 par value, of Sentex ("Sentex Common Shares"), as determined pursuant
to a formula set forth in the Merger Agreement; and (iv) each outstanding
option under any stock option plan of Monitek (each a "Monitek Option")
will be converted into an option (a "Sentex Option") to purchase that
number of Sentex Common Shares equal to the number of shares of Monitek
Common Stock issuable immediately prior to the Effective Time (as defined
in the Merger Agreement) upon exercise of the Monitek Option, as determined
pursuant to a formula set forth in the Merger Agreement. Under such
formulas, and based on the number of shares of Monitek Class A Common Stock
and Monitek Common Stock presently outstanding, each share of Monitek Class
A Common Stock will be converted into $0.3876389 of principal of a Class A
Convertible Note, each share of Monitek Common Stock will be converted into
6.8974890 Sentex Common Shares and each Monitek Option will be converted
into a Sentex Option to purchase 6.8974890 Sentex Common Shares for each
share of Monitek Common Stock entitled to be purchased under such Monitek
Option. After three years (or earlier under certain conditions), the
principal amount of the Class A Convertible Notes are convertible at a rate
of $0.0562 per share. After conversion, the holders of the Class A
Convertible Notes will receive 6.8974890 Sentex Common Shares for each
share of Monitek Class A Common Stock owned by such holder immediately
prior to the consummation of the Merger. A copy of the Merger Agreement is
attached as Annex A to the accompanying Joint Proxy Statement/Prospectus.
Approval of Proposals 2 and 3 below are conditions to the consummation of
the Merger. Subject to the satisfaction of certain conditions, the Merger
will be consummated if Proposals 1, 2 and 3 are approved, and whether or
not Proposal 4 is approved.
2. To vote on a proposal to adopt the Sentex Sensing Technology, Inc.
1996 Long-Term Incentive Plan (the "Sentex 1996 Long-Term Incentive Plan"
or the "Plan"). This proposal will be presented at the meeting whether or
not the Merger is approved, but its adoption is a condition of the Merger.
3. To vote on a proposal to amend one section of the bylaws of Sentex
(the "Amended Bylaw"). This proposal will be presented at the meeting
whether or not the Merger is approved, and its adoption is a condition to
consummation of the Merger.
4. To elect the following nominees as Directors: (a) Robert S.
Kendall, (b) James G. Few, (c) Julius L. Hess, (d) Amos Linenberg, and (e)
Ronald M. Lipson until the next annual meeting and until their respective
successors are elected and qualified.
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
<PAGE> 9
Only shareholders of record on October , 1996 are entitled to notice of
and to vote at the meeting or any adjournments or postponements thereof. More
detailed information concerning each proposal is set forth in the accompanying
Joint Proxy Statement/Prospectus and the Annexes thereto.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL
OF PROPOSALS 1, 2 AND 3 AND FOR THE ELECTION OF THE FIVE PERSONS NOMINATED FOR
DIRECTORS.
By Order of the Board of Directors
,
Secretary
October , 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY BY (I) FILING WITH THE
SECRETARY OF SENTEX AT OR BEFORE THE TAKING OF THE VOTE AT THE MEETING A NOTICE
OF REVOCATION BEARING A LATER DATE THAN THE PROXY OR A LATER-DATED PROXY
RELATING TO THE SAME SHARES, OR (II) ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE> 10
SUBJECT TO COMPLETION, DATED OCTOBER , 1996
SENTEX SENSING TECHNOLOGY, INC.
and
MONITEK TECHNOLOGIES, INC.
JOINT PROXY STATEMENT
---------------
SENTEX SENSING TECHNOLOGY, INC.
PROSPECTUS
---------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
common shares, $0.01 par value ("Sentex Common Shares"), of Sentex Sensing
Technology, Inc., a New Jersey corporation ("Sentex"), in connection with the
solicitation of proxies by the Board of Directors of Sentex for use at the
Special Meeting of Sentex Shareholders to be held on ,
, 1996, at Sentex's corporate offices at 553 Broad Avenue,
Ridgefield, New Jersey, 07657, commencing at :00 .m., Eastern Standard Time,
and at any adjournment or postponement thereof (the "Sentex Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
shares of class A common stock, $0.01 par value ("Monitek Class A Common
Stock"), of Monitek Technologies, Inc., a Delaware corporation ("Monitek"), and
holders of shares of common stock, $0.01 par value (the "Monitek Common Stock"),
of Monitek in connection with the solicitation of proxies by the Monitek Board
of Directors for use at the Monitek Special Meeting of Stockholders to be held
on , , 1996, at Monitek's corporate
offices at 1495 Zephyr Avenue, Hayward, California, commencing at :00 .m.,
Pacific Time, and at any adjournment or postponement thereof (the "Monitek
Meeting").
This Joint Proxy Statement/Prospectus constitutes Sentex's Prospectus with
respect to (i) 11,659,681 Sentex Common Shares to be issued in the Merger in
exchange for and cancellation of the outstanding shares of Monitek Common Stock
and (ii) up to $485,586 in convertible notes (the "Class A Convertible Notes")
issuable by Sentex in the Merger (defined herein) in exchange for the
cancellation of the outstanding shares of the Monitek Class A Common Stock.
In addition, this Joint Proxy Statement/Prospectus constitutes Sentex's
Prospectus with respect to 8,640,320 Sentex Common Shares issuable upon
conversion of the Class A Convertible Notes, 7,031,649 Sentex Common Shares
issuable upon conversion of a $136,414 convertible subordinated note to be
issued by Sentex to Clarion Capital Corporation, a Delaware corporation and
principal holder of Monitek Class A Common Stock ("Clarion"), in exchange for a
$476,940 secured nonconvertible note issued by Monitek to Clarion, and
approximately 3,015,456 Sentex Common Shares that are estimated to be issuable
to the holders of the Class A Convertible Notes and the Clarion Notes as
interest.
Sentex Common Shares are reported in the Nasdaq Small Cap Market under the
symbol "SENS." On June 21, 1996 (the last trading day prior to the date Sentex,
Sentex Merger Corp, a Delaware corporation and wholly owned subsidiary of Sentex
("Subcorp") and Monitek executed the Agreement and Plan of Merger (the "Original
Merger Agreement")), on June 25 (the last trading day prior to the public
announcement of the Merger) and on July 29, 1996 (the last trading day prior to
the date the Original Merger Agreement was amended and restated (the "Merger
Agreement")), the last reported sale prices of Sentex Common Shares on the
Nasdaq Small Cap Market were $0.1406, $0.0925, and $0.1430, respectively.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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All information contained or delivered with this Joint Proxy
Statement/Prospectus with respect to Monitek has been supplied by Monitek. All
information contained in this Joint Proxy Statement/Prospectus with respect to
Sentex has been supplied by Sentex.
This Joint Proxy Statement/Prospectus, the Sentex Chairman's Letter, the
Notice of the Sentex Meeting and the form of proxy for use at the Sentex Meeting
are first being mailed to shareholders of Sentex ("Sentex Shareholders") on or
about October , 1996. This Joint Proxy Statement/Prospectus, the Monitek
Chairman's Letter, the Notice of the Monitek Meeting and the form of proxy for
use at the Monitek Meeting are first being mailed to stockholders of Monitek
("Monitek Stockholders") on or about October , 1996. Any shareholder or
stockholder who has given his proxy may revoke it at any time prior to its use.
See "The Special Meetings--Voting of Proxies."
The date of this Joint Proxy Statement/Prospectus is October , 1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF CLASS A CONVERTIBLE NOTES OR SENTEX
COMMON SHARES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SENTEX OR MONITEK
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN IS CORRECT AS OF ANY TIME AFTER THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION............................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................... 1
SUMMARY............................................................................. 3
The Companies..................................................................... 3
Business of Sentex............................................................. 3
Business of Monitek............................................................ 3
The Special Meetings.............................................................. 3
Sentex Meeting................................................................. 3
Date, Time and Place of Sentex Meeting....................................... 3
Record Date.................................................................. 4
Required Vote................................................................ 4
Revocability of Proxies...................................................... 5
Monitek Meeting................................................................ 5
Date, Time and Place of Monitek Meeting...................................... 5
Record Date.................................................................. 5
Required Vote................................................................ 5
Revocability of Proxies...................................................... 6
The Merger........................................................................ 6
General; Exchange Ratio........................................................ 6
Monitek Options................................................................ 7
Effective Time of the Merger; Closing Date..................................... 7
Conditions to Consummation of the Merger....................................... 7
Accounting Treatment........................................................... 8
Advantages and Disadvantages of the Merger..................................... 8
Sentex....................................................................... 8
Monitek...................................................................... 8
Opinion of Monitek's Financial Advisor......................................... 9
Interests of Certain Persons in the Merger..................................... 9
Exchange Procedures............................................................ 9
Federal Income Tax Consequences................................................... 9
Availability of Dissenters' Rights................................................ 9
Sentex Shareholders............................................................ 9
Monitek Stockholders........................................................... 10
Comparison of Stockholder and Shareholder Rights.................................. 10
Summary Financial Information..................................................... 11
RISK FACTORS........................................................................ 12
Decrease in Revenues of Sentex and Operating Losses of Monitek.................... 12
Sentex......................................................................... 12
Monitek........................................................................ 12
Challenges of Operating Combined Companies........................................ 12
Competition....................................................................... 13
Sentex......................................................................... 13
Monitek........................................................................ 13
Risks Relating to Ownership of a German Subsidiary and Foreign Investments........ 13
Control By CPS.................................................................... 14
Transactions with Related Parties................................................. 14
Antitakeover Provisions........................................................... 14
Risk of Delisting of Sentex Common Shares......................................... 14
Dilution.......................................................................... 14
Effect of Future Sales on Market Price of Sentex Common Shares.................... 14
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COMPARATIVE PER SHARE DATA.......................................................... 16
MARKET PRICE AND DIVIDEND DATA...................................................... 17
COMPARATIVE MARKET VALUES........................................................... 17
THE SPECIAL MEETINGS................................................................ 17
General........................................................................... 17
Matters to Be Considered at the Meetings.......................................... 18
Sentex Meeting................................................................. 18
Monitek Meeting................................................................ 18
Record Dates; Vote Required; Voting at the Meetings............................... 19
Sentex......................................................................... 19
Monitek........................................................................ 19
Voting of Proxies................................................................. 19
Solicitation of Proxies........................................................... 20
SELECTED FINANCIAL DATA............................................................. 20
SENTEX MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................................... 21
Fiscal 1995 as Compared to Fiscal 1994............................................ 21
Fiscal 1994 as Compared to Fiscal 1993............................................ 22
Financial Condition............................................................... 23
Changes in Accounting Standards................................................... 23
Second Quarter Ended May 31, 1996 Compared to May 31, 1995........................ 24
Financial Condition............................................................ 24
THE MERGER.......................................................................... 24
Background of the Merger.......................................................... 24
Recommendations of the Boards of Directors; Reasons for the Merger................ 26
Sentex......................................................................... 26
Monitek........................................................................ 27
Opinion of Monitek Financial Advisor.............................................. 28
Interests of Certain Persons in the Merger........................................ 32
Security Ownership............................................................. 32
Clarion Representation on Sentex Board......................................... 32
Clarion Note................................................................... 32
New Jersey Shareholder Protection Act.......................................... 32
Regulatory Approvals.............................................................. 33
Accounting Treatment.............................................................. 33
Federal Securities Law Consequences............................................... 33
THE MERGER AGREEMENT................................................................ 34
The Merger........................................................................ 34
Merger Consideration.............................................................. 34
Terms of the Class A Convertible Notes............................................ 35
Exchange Procedures............................................................... 36
Monitek Stock Options............................................................. 36
Representations and Warranties.................................................... 37
Covenants......................................................................... 37
Interim Borrowings................................................................ 38
No Negotiations or Solicitations.................................................. 38
Conditions........................................................................ 38
Mutual Conditions.............................................................. 38
Condition to Obligations of Monitek............................................ 39
Condition to Obligations of Sentex............................................. 40
Termination; Amendment and Waiver................................................. 40
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Expenses.......................................................................... 41
Ancillary Documents............................................................... 41
Amended and Restated Note Exchange Agreement................................... 41
Clarion Note................................................................... 41
Board Representation Agreement................................................. 41
Participation Rights Agreement................................................. 42
Amended and Restated Voting Agreement.......................................... 42
Shareholders Agreement......................................................... 43
Interim Letter Agreement and Other Documents................................... 43
Clarion Management Agreement................................................... 44
Sentex Management Agreement.................................................... 44
RIGHTS OF DISSENTING SHAREHOLDERS................................................... 44
Sentex Shareholders............................................................... 44
Monitek Stockholders.............................................................. 44
FEDERAL INCOME TAX CONSEQUENCES..................................................... 46
General........................................................................... 46
The Merger........................................................................ 46
Original Issue Discount........................................................... 47
Backup Withholding................................................................ 48
Conclusion........................................................................ 48
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)............................... 49
BUSINESS OF SENTEX.................................................................. 54
Development of Business........................................................... 54
Description of Business........................................................... 54
Gas Chromatography............................................................. 54
Existing Products.............................................................. 54
Products Under Development..................................................... 55
Research and Development....................................................... 55
Marketing, Distribution and Sales.............................................. 55
Manufacturing/Suppliers........................................................ 56
Warranties and Disclaimers..................................................... 56
Competition.................................................................... 56
Patents, Trademarks and Trade Secrets.......................................... 56
Employees...................................................................... 56
Government Regulations......................................................... 56
Sentex's Properties............................................................... 57
Legal Proceedings................................................................. 57
COMPARISON OF THE RIGHTS OF THE MONITEK STOCKHOLDERS AND THE
SENTEX SHAREHOLDERS............................................................... 57
Voting Requirements............................................................... 57
Cumulative Voting................................................................. 58
Rights of Dissenting Stockholders................................................. 58
Stockholder Consent to Corporate Action........................................... 58
Dividends......................................................................... 59
Bylaws............................................................................ 59
Preemptive Rights................................................................. 59
Transactions Involving Officers or Directors...................................... 59
Limitations of Liability of Directors and Officers................................ 60
Stockholder Protection Legislation................................................ 60
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OTHER ACTION TO BE TAKEN AT THE SENTEX MEETING...................................... 61
Proposal 2--Proposal to Adopt the Sentex 1996 Long-Term Incentive Plan............ 61
General........................................................................ 61
Administration................................................................. 61
Participation and Limits on Grants............................................. 62
Terms of Incentive and Nonqualified Options.................................... 62
Stock Appreciation Rights...................................................... 63
Terms of Restricted and Nonrestricted Share Awards............................. 63
Termination of Employment...................................................... 63
Change in Control.............................................................. 64
Adjustments.................................................................... 64
Termination and Modification of the Plan....................................... 64
Federal Tax Consequences....................................................... 64
Proposal 3--Proposal to Adopt the Amended Bylaw................................... 66
Proposal 4--Election of Directors................................................. 67
Security Ownership of Certain Beneficial Owners and Management.................... 69
Section 16(a) Beneficial Ownership Reporting Requirements......................... 70
Sentex's Executive Compensation................................................... 70
Long-Term Compensation......................................................... 70
Employment, Consulting and Management Agreements............................... 70
Stock Options.................................................................. 71
Compensation Pursuant to Plans................................................. 71
Compensation of Directors...................................................... 71
Certain Relationships and Related Transactions.................................... 71
CPS Acquisition................................................................ 71
Linenberg Employment Agreement................................................. 72
Bianco Consulting Agreement.................................................... 72
CPS Management Agreement....................................................... 72
Office Lease................................................................... 73
Other.......................................................................... 73
DESCRIPTION OF SENTEX SECURITIES.................................................... 73
Sentex Common Shares.............................................................. 73
Class A Convertible Notes......................................................... 74
EXPERTS............................................................................. 75
LEGAL MATTERS....................................................................... 76
Merger Agreement--ANNEX A........................................................... A-1
Monitek's Form 10-K--ANNEX B........................................................ B-1
Monitek's Form 10-Q--ANNEX C........................................................ C-1
Fairness Opinion--ANNEX D........................................................... D-1
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AVAILABLE INFORMATION
Sentex and Monitek are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information filed by Sentex and Monitek with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at its principal office at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048, and Chicago Regional Office, Northwestern Atrium Center,
500 West Madison, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. Such material may also
be accessed electronically by means of the Commission's web site on the Internet
at http://www.sec.gov. Securities of Sentex are listed on the Nasdaq Small Cap
Market and reports and other information concerning Sentex can be inspected at
the offices of the National Association of Securities Dealers, 1735K Street N.W.
Washington, D.C. 20006. Securities of Monitek are traded on the OTC Bulletin
Board and reports and other information concerning Monitek can be inspected at
the offices of the National Association of Securities Dealers, 1735 K Street
N.W. Washington, D.C. 20006.
Sentex has filed with the Commission a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Class A Convertible Notes and the Sentex Common Shares to be
issued in the Merger and the Sentex Common Shares issuable upon conversion of
the Class A Convertible Notes, upon conversion of the Clarion Note and as
interest on the Class A Convertible Notes and the Clarion Note. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and related exhibits for further information with respect
to Sentex and the securities offered hereby. Statements contained herein
concerning the provisions of any document are necessarily summaries of such
documents and not complete, and in each instance, reference is made to the copy
of such document attached hereto or filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. The information in this Joint Proxy
Statement/Prospectus concerning Sentex and Monitek has been furnished by Sentex
and Monitek, respectively.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO
WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO MONITEK TECHNOLOGIES, INC., JAMES S. O'LEARY, SECRETARY, 1495 ZEPHYR
AVENUE, HAYWARD, CALIFORNIA 94544. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY October , 1996.
The following documents, which have been filed by Monitek with the
Commission pursuant to the Exchange Act, are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended March 31,
1996 (the "Monitek Form 10-K"), a copy of which is attached hereto as Annex
B; and
(b) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
a copy of which is attached hereto as Annex C.
All documents filed by Monitek pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the special meetings of the
stockholders of Monitek shall be deemed to be incorporated by reference herein
and to be a part hereof
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from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statements. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included herein is
forward-looking, such as information relating to the effects of the combined
operations of the companies and competition. Such forward-looking information
involves important risks and uncertainties that could cause actual future
results to differ significantly from those expressed in any forward-looking
statements made by, or on behalf of, Sentex or Monitek. These risks and
uncertainties include, but are not limited to uncertainties relating to economic
conditions, acquisitions and divestitures, government and regulatory policies,
the pricing and availability of equipment, materials, and inventories,
technological developments and changes in the competitive environment in which
Sentex and Monitek operate.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus and the annexes hereto (the "Joint Proxy
Statement/Prospectus"). This summary is not intended to be complete and is
qualified in its entirety by the more detailed information and financial
statements appearing elsewhere in, delivered with or incorporated by reference
in this Joint Proxy Statement/Prospectus. Shareholders of Sentex and
stockholders of Monitek are urged to read and consider carefully all of the
information contained in, delivered with, or incorporated by reference in this
Joint Proxy Statement/Prospectus.
THE COMPANIES
BUSINESS OF SENTEX
Sentex is engaged in the business of developing, manufacturing and selling
automated instruments designed to identify and measure the concentration of
certain chemicals in air, soil and water. Sentex sells portable and walk-through
explosive detectors, two portable air analyzers, a portable and fixed-site water
monitoring system and a sensor which measures the total organic content of air.
Sentex's products are sold to customers who use them for bomb detection,
environmental testing and process control applications. Sentex also provides
technical assistance and service to its customers and, on occasion, performs
research and development on a contractual basis to develop instrumentation
designed to fulfill customer-specific analytical requirements. All of Sentex's
products employ gas chromatography as the method of analysis. Sentex's business
operations are almost exclusively conducted through a wholly owned subsidiary
named Sentex Sensing, Inc., a Delaware corporation. The principal executive
offices of Sentex are located at 553 Broad Avenue, Ridgefield, New Jersey, and
its telephone number is (201) 945-3694.
BUSINESS OF MONITEK
Monitek designs, develops, assembles and markets instruments for the
measurement of clarity (turbidity), suspended solids content, color, purity,
flow, level and volume of liquids in industrial and waste water environments.
Monitek's products are typically used in-line (i.e., inserted directly into the
monitored liquid), thereby facilitating automation and control of various
industrial processes by providing on-line (i.e., continuous) measurement of the
characteristic being monitored. Monitek's current line of products, which are
based on optical, ultrasonic, acoustic and magnetic technologies, has been
specially adapted for various applications in the chemical and petrochemical,
water treatment, food and beverage, pulp and paper, and biotechnology and
pharmaceutical industries, where their abilities to withstand high temperature,
extremes in pressure and corrosive environments are important factors. Monitek
believes its instruments are capable of adaptation and enhancement for use in
other industries, as well as for additional applications in those industries
which Monitek currently serves. Monitek owns a German subsidiary named Monitek
GmbH, which over the last three years accounted for over 60% of the total
revenues of Monitek. Monitek's products are currently sold worldwide. The
principal executive offices of Monitek are located at 1495 Zephyr Avenue,
Hayward, California, and its telephone number is (510) 471-8300.
THE SPECIAL MEETINGS
SENTEX MEETING
Date, Time and Place of Sentex Meeting. The Sentex Meeting will be held at
Sentex's corporate offices at 553 Broad Avenue, Ridgefield, New Jersey on
, , 1996, at :00 p.m., Eastern Time, for the following purposes:
1. To vote on a proposal (the "Sentex Merger Proposal") to approve the
Amended and Restated Agreement and Plan of Merger, dated as of July 30,
1996 (the "Merger Agreement"), by and among Sentex Sensing Technology,
Inc., a New Jersey corporation ("Sentex"), Sentex Merger Corp., a Delaware
corporation and a wholly owned subsidiary of Sentex ("Subcorp"), and
Monitek Technologies,
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Inc. ("Monitek"), pursuant to which, among other things, (i) Subcorp will
be merged with and into Monitek (the "Merger"), with Monitek as the
surviving corporation; (ii) all the outstanding shares (other than shares
as to which dissenters' rights are perfected) of class A common stock, par
value $0.01, of Monitek ("Monitek Class A Common Stock") will be converted
into convertible notes issued by Sentex ("Class A Convertible Notes") as
determined pursuant to a formula set forth in the Merger Agreement; (iii)
each outstanding share (other than shares as to which dissenters' rights
are perfected) of common stock, $0.01 par value, of Monitek ("Monitek
Common Stock") will be converted into common shares, $0.01 par value, of
Sentex ("Sentex Common Shares"), as determined pursuant to a formula set
forth in the Merger Agreement; and (iv) each outstanding option under any
stock option plan of Monitek (each a "Monitek Option") will be converted
into an option (a "Sentex Option") to purchase that number of Sentex Common
Shares equal to the number of shares of Monitek Common Stock issuable
immediately prior to the Effective Time (as defined in the Merger
Agreement) upon exercise of the Monitek Option, as determined pursuant to a
formula set forth in the Merger Agreement. Under such formulas, and based
on the number of shares of Monitek Class A Common Stock and Monitek Common
Stock presently outstanding, each share of Monitek Class A Common Stock
will be converted into $0.3876389 of principal of a Class A Convertible
Note, each share of Monitek Common Stock will be converted into 6.8974890
Sentex Common Shares and each Monitek Option will be converted into a
Sentex Option to purchase 6.8974890 Sentex Common Shares for each share of
Monitek Common Stock entitled to be purchased under such Monitek Option.
After three years (or earlier under certain conditions), the principal
amount of the Class A Convertible Notes are convertible at a rate of
$0.0562 per share. After conversion, the holders of the Class A Convertible
Notes will receive 6.8974890 Sentex Common Shares for each share of Monitek
Class A Common Stock owned by such holder immediately prior to the
consummation of the Merger. A copy of the Merger Agreement is attached as
Annex A to the accompanying Joint Proxy Statement/Prospectus. Approval of
Proposals 2 and 3 below are conditions to the consummation of the Merger.
Subject to the satisfaction of certain conditions, the Merger will be
consummated if Proposals 1, 2 and 3 are approved, and whether or not
Proposal 4 is approved.
2. To vote on a proposal to adopt the Sentex Sensing Technology, Inc.
1996 Long-Term Incentive Plan (the "Sentex 1996 Long-Term Incentive Plan"
or the "Plan"). This proposal will be presented at the meeting whether or
not the Merger is approved, but its adoption is a condition of the Merger.
3. To vote on a proposal to amend one section of the bylaws of Sentex
(the "Amended Bylaw"). This proposal will be presented at the meeting
whether or not the Merger is approved, and its adoption is a condition to
consummation of the Merger.
4. To elect the following nominees as Directors: (a) Robert S.
Kendall, (b) James G. Few, (c) Julius L. Hess, (d) Amos Linenberg, and (e)
Ronald M. Lipson until the next annual meeting and until their respective
successors are elected and qualified.
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Record Date. Only holders of Sentex Common Shares of record on October ,
1996, will be entitled to notice of and to vote at the Sentex Meeting. On that
date there were 67,360,081 Sentex Common Shares outstanding, which were held by
approximately 1200 holders of record. See "The Special Meetings."
Required Vote. Proposals 1, 2 and 3 require the affirmative vote of a
majority of the votes cast at the Sentex Meeting. New Jersey law provides that
the candidates receiving the greatest number of votes in the election of
directors will be elected. CPS Capital, Ltd., an Ohio limited liability company
("CPS"), is the principal shareholder of Sentex and has power to direct the vote
of approximately 40.2% of the Sentex Common Shares. CPS has entered into an
Amended and Restated Voting Agreement with the principal owner of the Monitek
Class A Common Stock, pursuant to which CPS has agreed to vote in favor of the
Sentex Merger Proposal (Proposal 1). CPS has also expressed its intention to
vote in favor of Proposals 2 and 3 and to elect the five nominated directors. As
of August 30, 1996, CPS and Sentex's directors, officers and their other
affiliates were entitled to vote 27,595,665 Sentex Common Shares, which
currently represents approximately 41% of the outstanding Sentex Common Shares.
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Revocability of Proxies. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before it is voted. Proxies may
be revoked by (i) filing with the Secretary of Sentex, at or before the taking
of the vote at the Sentex Meeting, a written notice of revocation bearing a
later date than the proxy or a later-dated proxy relating to the same shares, or
(ii) attending the Sentex Meeting and voting in person.
MONITEK MEETING
Date, Time and Place of Monitek Meeting. The Monitek Meeting will be held
at Monitek's corporate offices at 1495 Zephyr Avenue, Hayward, California, on
, , 1996, at :00 a.m., Pacific Time, for the following
purposes:
1. To consider and vote on a proposal (the "Monitek Merger Proposal")
to approve and adopt the Amended and Restated Agreement and Plan of Merger,
dated as of July 30, 1996 (the "Merger Agreement"), by and among Monitek
Technologies, Inc., a Delaware corporation ("Monitek"), Sentex Sensing
Technology, Inc., a New Jersey corporation ("Sentex"), and Sentex Merger
Corp., a Delaware corporation and a wholly owned subsidiary of Sentex
("Subcorp"), pursuant to which, among other things, (i) Subcorp will be
merged with and into Monitek (the "Merger") and Monitek will become a
wholly owned subsidiary of Sentex; (ii) all outstanding shares (other than
shares as to which dissenters' rights are perfected) of Monitek Class A
Common Stock, $0.01 par value (the "Monitek Class A Common Stock"), will be
converted into convertible notes issued by Sentex (the "Class A Convertible
Notes") pursuant to a formula set forth in the Merger Agreement; and (iii)
all outstanding shares (other than shares as to which dissenters' rights
are perfected) of Monitek common stock, $0.01 par value ("Monitek Common
Stock"), will be converted into Sentex common shares, $0.01 par value, of
Sentex ("Sentex Common Shares"), pursuant to a formula set forth in the
Merger Agreement. It is currently expected that, under such formulas, each
outstanding share of Monitek Class A Common Stock will be converted into a
Class A Convertible Note in an original principal amount equal to one share
of Monitek Class A Common Stock multiplied by the Note Exchange Ratio of
$0.3876389 and each share of Monitek Common Stock will be converted, based
on the Stock Exchange Ratio (as described in the accompanying material),
into 6.8974890 Sentex Common Shares. Each option outstanding under any
stock option plan of Monitek (each a "Monitek Option") will be converted
into an option (a "Sentex Option") to purchase that number of Sentex Common
Shares equal to the number of shares of Monitek Common Stock issuable
immediately prior to the effective time of the Merger upon exercise of the
Monitek Option multiplied by the Stock Exchange Ratio of 6.8974890. After
three years (or earlier under certain conditions), the principal amount of
Class A Convertible Notes is convertible at a rate of $0.0562 per share.
After conversion the holders of the Class A Convertible Notes will receive
6.8974890 Sentex Common Shares for each share of Monitek Class A Common
Stock owned by such holders immediately prior to the consummation of the
Merger. A copy of the Merger Agreement is attached as Annex A to the
accompanying Joint Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Record Date. Only holders of Monitek Class A Common Stock and Monitek
Common Stock of record at the close of business on October , 1996, will be
entitled to notice of and to vote at the Monitek Meeting. On that date, there
were 1,252,676 shares of Monitek Class A Common Stock outstanding held by 12
holders of record and there were 1,690,424 shares of Monitek Common Stock
outstanding held by approximately 115 holders of record (which number of shares
does not include shares of Monitek Common Stock issuable upon the exercise of
outstanding options prior to the Effective Time (defined below)). See "The
Special Meetings."
Required Vote. The Monitek Merger Proposal requires the affirmative vote of
the holders of a majority of the shares of Monitek Class A Common Stock
outstanding and the affirmative vote of holders of a majority of the shares of
Monitek Common Stock outstanding. Clarion, a holder of approximately 97% of the
shares of Monitek Class A Common Stock, has entered into an Amended and Restated
Voting Agreement with CPS, pursuant to which Clarion has agreed to vote in favor
of the Monitek Merger Proposal. As of June 30, 1996, Monitek's directors,
officers and their affiliates were entitled to cast (i) 1,220,631 votes of
Monitek Class A
5
<PAGE> 21
Common Stock, which represents approximately 97% of the shares of the
outstanding Monitek Class A Common Stock and (ii) 35,500 votes of Monitek Common
Stock outstanding, which represents approximately 2% of the outstanding Monitek
Common Stock. See "The Special Meetings--Voting at the Meetings; Record Dates."
Revocability of Proxies. Any proxy given pursuant to this solicitation may
be revoked by (i) filing with the Secretary of Monitek, before the taking of the
vote at the Monitek Meeting, a written notice of revocation bearing a later date
than the proxy or a later-dated proxy relating to the same shares or (ii)
attending the Monitek Meeting and voting in person.
THE MERGER
GENERAL; EXCHANGE RATIO
Pursuant to the Merger Agreement, Sentex will issue two separate types of
securities. Holders of Monitek Common Stock will receive 11,659,689 Sentex
Common Shares in the aggregate. Holders of Monitek Class A Common Stock will
receive Class A Convertible Notes in the aggregate principal amount of $485,586
of Sentex in aggregate principal amount of $485,586, which, subject to certain
conditions, can be converted into 8,640,320 Sentex Common Shares in the
aggregate. See "The Merger--Terms of the Class A Convertible Notes."
Upon consummation of the Merger, each share of Monitek Common Stock issued
and outstanding immediately prior to the Effective Time (except shares as to
which dissenters' rights are perfected) will be converted into that number of
Sentex Common Shares equal to such number of shares of Monitek Common Stock
multiplied by the Stock Exchange Ratio (as defined in the Merger Agreement).
Based on 1,690,424 shares of Monitek Common Stock issued and outstanding on
October , 1996, the Stock Exchange Ratio will equal 6.8974890 Sentex Common
Shares for each share of Monitek Common Stock. No certificates for fractional
Sentex Common Shares will be issued in the Merger. Holders of Monitek Common
Stock will receive cash in lieu of such fractional shares. See "Exchange
Procedures." In no event will more or less than 11,659,681 Sentex Common Shares
be issued in exchange for the Monitek Common Stock pursuant to the Merger
Agreement.
In addition, upon consummation of the Merger, each share of Monitek Class A
Common Stock issued and outstanding immediately prior to the Effective Time
(except shares as to which dissenters' rights are perfected) will be converted
into a principal amount of a Class A Convertible Note equal to one share of
Monitek Class A Common Stock multiplied by the Note Exchange Ratio (as defined
in the Merger Agreement). Based on 1,252,676 shares of Monitek Class A Common
Stock issued and outstanding on October , 1996, the Note Exchange Ratio will
equal $0.3876389 principal amount of a Class A Convertible Note for each share
of Monitek Class A Common Stock. The shares of Monitek Class A Common Stock for
each holder will be aggregated and one Class A Convertible Note (the principal
amount of which shall be rounded to the nearest whole dollar, with $.50 being
rounded up) will be issued to each such holder. In no event, however, will the
aggregate principal balance of the Class A Convertible Notes exceed or be less
than $485,586.
The Class A Convertible Notes, subject to certain conditions, may be
converted into Sentex Common Shares. The number of Sentex Common Shares into
which each Class A Convertible Notes may be converted will equal the principal
balance of such Class A Convertible Note divided by $0.0562, which, based on an
aggregate principal of $485,586, equals an aggregate of 8,640,320 Sentex Common
Shares. Subject to certain conditions which would accelerate the ability of the
holders to convert the Class A Convertible Note into Sentex Common Shares, the
Class A Convertible Notes are not convertible until approximately three years
after the date of the consummation of the Merger. The conversion rate of $0.0562
enables the holders of the Class A Convertible Notes to receive 6.8974890 Sentex
Common Shares for each share of Monitek Class A Common Stock owned by such
holder immediately prior to the consummation of the Merger. See "The Merger
Agreement--Terms of the Class A Convertible Notes."
6
<PAGE> 22
Clarion has also agreed to exchange a promissory note in the aggregate
principal amount of $476,940 that is secured by substantially all the assets of
Monitek (the "Monitek Note"), for a $136,414 principal amount convertible note
issued by Sentex that is subordinated to all other debt obligations of Sentex
(the "Clarion Note"). After three years (or earlier under certain conditions),
the principal amount of the Clarion Note is convertible at a rate of $0.0194 per
share (into an aggregate amount of 7,031,649 Sentex Common Shares). The terms of
the Clarion Note are otherwise similar to the Class A Convertible Notes. See
"The Merger Agreement--The Ancillary Documents--Clarion Note."
Interest on the Class A Convertible Notes and the Clarion Note will accrue
at a rate of 5.05%, and is payable annually in Sentex Common Shares. The number
of Sentex Common Shares payable as interest under the notes is computed by
dividing the amount of interest due in U.S. Dollars by the average bid and ask
price of Sentex Common Shares on the last ten trading days prior to the date
such interest payment is due. Assuming such notes were held to maturity and that
the average bid and ask price of the Sentex Common Shares over the last ten
trading days for each interest calculation period was $0.031 per share, Sentex
would have to issue an aggregate of 3,015,456 Sentex Common Shares as interest
on the Class A Convertible Notes and the Clarion Note. The assumed trading price
of $0.031 per share is the lowest trading price of the Sentex Common Share
during each of the last 10 fiscal quarters. See "Market Price and Dividend
Data."
MONITEK OPTIONS
At the Effective Time, each outstanding option to purchase Monitek Common
Stock, under any Monitek stock option plan in effect on the date of the Merger
Agreement (each, a "Monitek Option") will be amended to become an option (a
"Sentex Exchange Option") to purchase (for the same amount of consideration
required under the Monitek Option) that number of Sentex Common Shares equal to
the number of shares of Monitek Common Stock issuable upon exercise of the
Monitek Option multiplied by the Stock Exchange Ratio. The average exercise
price of outstanding Monitek Options is $0.71629 per share. Following the
Merger, the average exercise price of outstanding Sentex Exchange Options will
be adjusted to $0.1038479 per share to account for the increase in the number of
Sentex Common Shares issuable upon conversion. Assuming the exercise of all
Sentex Exchange Options immediately after the Effective Time, the holders
thereof would hold approximately 2,583,110 Sentex Common Shares, representing
approximately 3.2% of Sentex Common Shares issued and outstanding immediately
after the Effective Time. See "The Merger--Interests of Certain Persons--Monitek
Options."
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Merger will become effective (the "Effective Time") when a certificate
of merger is filed with the Delaware Secretary of State. This filing is expected
to be made on a date (the "Closing Date") within ten business days following the
date upon which all conditions set forth in the Merger Agreement have been
satisfied or waived, as the case may be. See "The Merger Agreement--Conditions."
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to, among other things: approval by
Sentex Shareholders of the Merger and the adoption of the Sentex 1996 Long-Term
Incentive Plan; approval of the Merger by Monitek Stockholders; no temporary
restraining order, preliminary or permanent injunction or other order or decree
being in effect which prevents the consummation of the Merger; receipt or
satisfaction of all applicable government approvals, filing requirements and
waiting periods; receipt by Monitek of a favorable fairness opinion; the
execution and delivery of certain ancillary agreements in forms previously
agreed to, including agreements that provide for a designee of Clarion to be
elected to Sentex's Board of Directors and provide Clarion and the holders of
the Class A Notes certain rights to participate in subsequent offerings of
Sentex Common Shares by Sentex; and receipt by Monitek of a legal opinion, in
form and substance previously agreed to by Monitek, from Pitney, Hardin, Kipp &
Szuch, to the effect that certain resolutions adopted by Sentex's Board should
exclude Clarion from certain prohibitions and restrictions under the New Jersey
Shareholders Protection Act. In addition, consummation of the Merger by any
party to the Merger Agreement is conditioned upon performance in all material
respects of each of the covenants to be performed by the other parties thereto.
See "The Merger Agreement--Covenants" and " --Conditions."
7
<PAGE> 23
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase and, accordingly, the
purchase price will be allocated to the assets and liabilities of Monitek based
on estimated fair values as of the date of the Merger.
ADVANTAGES AND DISADVANTAGES OF THE MERGER
The Merger may have certain advantages and disadvantages to Sentex
Shareholders and Monitek Stockholders as summarized below.
Sentex. The Sentex Board of Directors, in determining to recommend that
Sentex Shareholders approve and adopt the Sentex Merger Proposal, identified a
number of reasons why the Merger should be advantageous to Sentex Shareholders
(see "The Merger--Recommendations of the Boards of Directors and "--Reasons for
the Merger"), including among others:
- the opportunity for Sentex to sell its products through Monitek's
existing worldwide marketing network (which consists of over 70
independent marketing companies);
- the opportunity for Sentex to sell its products to Monitek's larger
customer base; and
- the opportunity for Sentex to acquire products of Monitek, which have
been installed in locations worldwide.
Although Sentex's Board of Directors has determined that the Merger is fair
to, and in the best interests of, Sentex Shareholders, all business
combinations, including the Merger, also include disadvantages. With respect to
the Merger, disadvantages to Sentex Shareholders include:
- ownership dilution, in that the holders of Sentex Common Shares
immediately prior to the Merger will hold 100% of Sentex Common Shares
and immediately after the Merger will hold approximately 85% of the
Sentex Common Shares, and upon conversion of the Class A Convertible
Notes and the Clarion Note, assuming all such notes are converted into
the maximum number of shares into which such notes can be converted, will
hold approximately 71% of Sentex Common Shares; and
- the required use of excess cash of Sentex to fund working capital
requirements of Monitek.
Monitek. Similarly, the Monitek Board of Directors identified a number of
potential advantages of the Merger to Monitek Shareholders. See "The
Merger--Recommendations of the Boards of Directors and "--Reasons for the
Merger." These advantages include, among others:
- the opportunity for Monitek's existing network of sales representatives
to sell Sentex's line of existing products, thereby increasing sales
without greatly increasing the costs of that sales force;
- the opportunity to use Sentex's technical expertise to improve Monitek's
efforts to develop new products; and
- the opportunity to be a part of an organization with more extensive
working capital resources than those of Monitek, which are necessary to
fund new product development, capital improvements, and overall business
growth.
Although Monitek's Board of Directors has determined that the Merger is fair to,
and in the best interests of, Monitek's Shareholders, all business combinations,
including the Merger, also include disadvantages. With respect to the Merger,
disadvantages to Monitek Stockholders include:
- the loss of the independence of Monitek and the loss of control by its
stockholders over the operations and management of Monitek;
- the recent operating losses of Sentex and its decline in sales; and
- the risk that Sentex will not have adequate working capital to fund or
human resources to accomplish, over the long term the integration of the
two companies and the growth and development of the combined entity into
a profitable enterprise.
8
<PAGE> 24
OPINION OF MONITEK'S FINANCIAL ADVISOR
NatCity Investments, Inc. ("NatCity") rendered its written opinion, dated
September 24, 1996, to the Board of Directors of Monitek to the effect that,
based upon and subject to certain matters stated therein, as of the date of such
opinion, the Note Exchange Ratio and the Stock Exchange Ratio are fair, from a
financial point of view, to holders of Monitek Class A Common Stock and Monitek
Common Stock, respectively, other than Clarion (as to which no opinion has been
requested). A copy of the opinion is attached hereto as Annex D and should be
read carefully. See "The Merger--Opinion of Monitek Financial Advisor" and Annex
D.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Monitek's Board of Directors with
respect to the Merger Agreement, Monitek's Stockholders should be aware that
certain members of Monitek's management and Board of Directors (or their
affiliates) have certain interests in the Merger that are different from and in
addition to the interests of Monitek Stockholders generally. These interests
include the fact that: the executive officers and directors of Monitek currently
hold Monitek Options; Sentex has agreed to nominate a nominee designated by
Clarion (Morton A. Cohen) to Sentex's Board of Directors; and Clarion will
receive, in exchange for the Monitek Note, the Clarion Note. See "The
Merger--Interests of Certain Persons in the Merger."
EXCHANGE PROCEDURES
As soon as practicable after the Effective Time, a letter of transmittal
will be mailed or delivered to each Monitek Stockholder to be used in forwarding
certificates evidencing shares of Monitek Class A Common Stock or Monitek Common
Stock for surrender and exchange for Class A Convertible Notes and certificates
evidencing Sentex Common Shares to which such holder has become entitled (and,
if applicable, cash in lieu of fractional Sentex Common Shares). After receipt
of such letter of transmittal, each holder of certificates formerly representing
Monitek Class A Common Stock or Monitek Common Stock, as the case may be, should
surrender such certificates to the exchange agent designated in the letter of
transmittal pursuant to and in accordance with the instructions accompanying
such letter of transmittal, and each holder will receive in exchange therefor a
Class A Convertible Note or certificates evidencing the whole number of Sentex
Common Shares to which he is entitled and any cash which may be payable in lieu
of fractional Sentex Common Shares. Such letter of transmittal will be
accompanied by instructions specifying other details of the exchange.
MONITEK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
LETTER OF TRANSMITTAL.
FEDERAL INCOME TAX CONSEQUENCES
The Merger will not qualify as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, for federal income
tax purposes each holder of Monitek Common Stock will recognize gain or loss on
the exchange of his shares for Sentex Common Shares and each holder of Monitek
Class A Common Stock will recognize gain or loss on the exchange of his shares
for Class A Convertible Note. Interest will be imputed to the holders of the
Class A Convertible Notes pursuant to the original issue discount rules. See
"Federal Income Tax Consequences."
AVAILABILITY OF DISSENTERS' RIGHTS
SENTEX SHAREHOLDERS
The Sentex Shareholders will not be entitled to dissenters' rights under
Section 14A:11-1 of the New Jersey Business Corporation Act, because the Sentex
Common Shares are held by more than 1,000 holders as of the record date. See
"Rights of Dissenting Shareholders."
9
<PAGE> 25
MONITEK STOCKHOLDERS
Pursuant to Section 262 of the Delaware General Corporation Law, Monitek
Stockholders who object to the Merger and do not vote in favor of the Merger
have certain rights to dissent and demand to be paid the "fair value" of their
Monitek Common Shares. See "Rights of Dissenting Shareholders." Section 262 is
set forth in Annex E to this Joint Proxy Statement/Prospectus.
COMPARISON OF STOCKHOLDER AND SHAREHOLDER RIGHTS
As a result of the Merger, the Monitek Class A Common Stock and the Monitek
Common Stock, which are issued by a Delaware corporation, will be converted into
either Class A Convertible Notes (which are convertible into Sentex Common
Shares) or Sentex Common Shares, as the case may be, all of which are issued by
a New Jersey corporation. There are differences between the rights of Monitek
Stockholders and the rights of Sentex Shareholders. These differences result
from (i) differences between New Jersey and Delaware law and (ii) differences
between the governing instruments of Monitek and Sentex. For a discussion of the
various differences between the rights of Monitek Shareholders and Sentex
Shareholders. See "Comparison of Rights of the Monitek Stockholders and the
Sentex Shareholders."
10
<PAGE> 26
SUMMARY FINANCIAL INFORMATION
The following summary of selected financial information concerning Sentex,
other than the pro forma information reflecting the Merger, has been derived
from the financial statements (including the related notes thereto) of Sentex
included elsewhere in this Joint Proxy Statement/Prospectus (the "Financial
Statements"). This information should be read in conjunction with the Financial
Statements and the section hereof entitled "Sentex Management's Discussions and
Analysis of Financial Condition and Results of Operations." The financial
information presented below for each of the fiscal years ended November 30, 1995
and 1994 has been derived from audited financial statements. The financial
information presented below for each of the six-month periods ended May 31, 1996
and 1995 is unaudited, but in the opinion of management of Sentex, includes all
adjustments necessary for a fair presentation of the results of operations of
Sentex for the interim periods presented.
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT MAY 31, 1996 AT NOVEMBER 30,
--------------------------- --------------------------
PRO FORMA(1) HISTORICAL 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Working Capital (2).................... $ 3,076,678 $ 2,204,115 $ 2,699,017 $ 2,884,528
Total Assets........................... $ 5,357,787 $ 2,452,046 $ 2,876,892 $ 3,157,678
Total Liabilities...................... $ 2,422,618 $ 144,877 $ 118,149 $ 192,789
Total Long-Term Obligations............ $ 655,333 $ 33,333 $ -- $ --
Stockholders' Equity (3)............... $ 2,935,169 $ 2,307,169 $ 2,758,743 $ 2,964,889
</TABLE>
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
MAY 31, NOVEMBER 30,
--------------------------- --------------------------
1996 1995 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................... $ 488,356 $ 882,651 $ 1,553,851 $ 1,726,812
Operating Profit (Loss)................ $ (445,400) $ 40,753 $ (177,343) $ (123,750)
Net Income (Loss)...................... $ (445,400) $ 38,639 $ (114,877) $ (127,625)
Net Income (Loss) Per Share of Common
Stock................................ $ -- $ -- $ -- $ --
PRO FORMA(1)
Pro Forma Net Income (Loss)(4)......... $ (907,055) $ (489,458) $(1,065,683) $ (425,692)
Pro Forma Net Income (Loss) Per Share
of Common Stock...................... $ (.01) $ (.01) $ (.01) $ --
Weighted Average Number of Common
Shares Used in Computation........... 79,019,762 80,785,845 79,684,440 84,622,233
- ---------------
<FN>
(1) As adjusted to reflect the Merger. The Merger Agreement provides that
Monitek Common Stock will be exchanged for 11,659,681 Sentex Common Shares.
The Merger Agreement also provides that all the shares of Monitek Class A
Common Stock can be exchanged for convertible notes issued by Sentex in the
aggregate principal sum of $485,586. Upon completion of the Merger, Clarion,
the controlling stockholder of Monitek, will also receive a convertible note
issued by Sentex in the aggregate principal amount of $136,414 in exchange
for certain indebtedness owed to it by Monitek.
(2) Working capital represents total current assets less total current
liabilities.
(3) Gives effect to Sentex Common Shares to be issued as described in (1) above.
(4) Gives effect to the pro forma adjustments as described in the notes to the
pro forma condensed combined financial statements regarding the statements
of operations.
</TABLE>
11
<PAGE> 27
RISK FACTORS
In considering whether to vote in favor or the Sentex Merger Proposal and
the Monitek Merger Proposal, holders of Sentex Common Shares and holders of the
Monitek Class A Common Stock and the Monitek Common Stock should consider the
following matters.
DECREASE IN REVENUES OF SENTEX AND OPERATING LOSSES OF MONITEK
Sentex. In the last three years Sentex has experienced a significant
reduction in its revenues. In fiscal year 1993 Sentex's net revenues were
$2,022,808, in fiscal year 1994 its net revenues decreased to $1,593,414, and in
fiscal year 1995, they decreased to $1,313,138. In addition, net revenues
through the six months of fiscal year 1996 were only $453,570 as compared with
net revenues of $709,982 for the same period of fiscal year 1995. Sentex
experienced a net profit (loss) from operations during fiscal year 1993, fiscal
year 1994, and fiscal year 1995 of $33,889, ($127,625) and ($114,877),
respectively and anticipates a net loss for fiscal year 1996. There can be no
assurance that combining the operations of Sentex and Monitek will enable Sentex
to return to being a profitable business.
Monitek. During the last three years, Monitek has incurred recurring losses
from operations. In addition, Monitek's certified public accountants, KPMG Peat
Marwick LLP, have included in their auditors' report, which covers Monitek's
financial statements for each of the years in the three-year period then ended
March 31, 1996, a statement that Monitek's recurring losses from operations
raise substantial doubt about Monitek's ability to continue as a going concern.
Operating losses decreased from $784,000 for fiscal 1994 to $414,000 for fiscal
1995. However, in fiscal 1996, operating losses increased to $498,000 as a
result of an increase in cost of sales, selling, general and administrative
expense, and research, development and product engineering expense. In addition,
Monitek anticipates a net loss for fiscal 1997. There can be no assurance that
Sentex will be able to provide sufficient working capital to fund the operations
of Monitek. There also can be no assurance that combining the operations of
Sentex and Monitek will result in Monitek (and Sentex on a consolidated basis)
becoming a profitable business.
CHALLENGES OF OPERATING COMBINED COMPANIES
Sentex's management will face a number of significant and complex
challenges in combining the business of Monitek with Sentex. It is anticipated
that Sentex will have to provide substantial working capital to Monitek. From
December 1993 through June 1996 Clarion funded working capital in an amount
equal to the $476,900, which is evidenced by the Monitek Note. From July 1996
through August 1996 Clarion advanced additional funds totalling $125,000 (which
as a condition to consummation of the Merger, Sentex must pay to Clarion,
together with accrued interest). In addition, Sentex provided $65,000 in working
capital through October , 1996. Presently, additional working capital is being
provided pursuant a factoring arrangement. After the Merger, Sentex anticipates
the need to provide Monitek with $500,000 of additional working capital through
fiscal year 1997. In order to meet Monitek's needs, Sentex anticipates borrowing
funds from a financial banking institution. There can be no assurances that
Sentex will be able to meet such working capital needs. See "The Merger
Agreement--Ancillary Documents--Interim Letter Agreement and Other Documents."
Both Sentex and Monitek are currently incurring losses. As a result of the
Merger, an additional annual expense of $200,000 will be paid to CPS for
strategic planning, financial planning and operational consultation. The
$200,000 fee is based on CPS's estimated fair market value of such services and
has been approved by the independent directors of Sentex. See "Other Action to
Be Taken at the Sentex Meeting--Election of Directors--Certain Relationships and
Related Transaction--CPS Management Agreement. It is not anticipated that Sentex
will generate a profit before the end of fiscal year 1997. There can be no
assurances that combining the operations of Sentex and Monitek will result in
Monitek (and Sentex on a consolidated basis) becoming a profitable business.
The operations of Sentex are located in New Jersey and the operations of
Monitek are located in Germany and California. Sentex management has not
determined the extent to which it will be able to consolidate the operations of
the two companies. Sentex management believes, however, that some consolida-
12
<PAGE> 28
tion is necessary in order for Sentex to return to being a profitable company
after the Merger. The fact that there are three locations each a substantial
distance from the other creates a number of logistical challenges in terms of
consolidating operating systems. In addition, because of the language
difference, it will be difficult to achieve significant savings in consolidating
management information systems of Sentex with the those of Monitek GmbH, the
German subsidiary of Monitek. Accordingly, there can be no assurance that Sentex
will be able to consolidate the business operations of Sentex and Monitek in way
that will significantly reduce overhead.
The Sentex business and the Monitek business will each continue to face
significant competition after they have been combined. It is not anticipated
that combining the two companies will significantly reduce competition. See
"Competition--Sentex" and "--Monitek."
Based on the above described risks, there can be no assurance that Sentex
can successfully combine the operations of Sentex and Monitek.
COMPETITION
Sentex. There are companies, including Photovac and Siemens, which produce
products which compete with Sentex's existing products. Most of these companies
have substantially greater resources than Sentex. Sentex's competitors primarily
compete against its portable and stationary gas chromatography products. Sentex
is aware of several other portable gas chromatography and one water-monitoring
system that are capable of detecting toxic chemicals. Sentex's portable and
walk-through explosives detectors also face competition from other companies
which currently sell such devices. There can be no assurances that if Sentex's
competitors substantially reduced their prices that Sentex could sustain the
demand on its capital resources this price reduction would cause, particularly
in light of Sentex's commitments to Monitek. Sentex's competitors may have
greater financial, manufacturing, technological or marketing resources and
current sales which exceed those of Sentex. There are relatively few barriers to
entry for new manufacturers and Sentex could face competition from other
companies currently not engaged in the sale or development of hazardous
substance detectors.
Monitek. Monitek sells products which are used in a wide variety of
applications in many industrial and municipal markets. BTG, Hach, Sigrist,
Wedgewood, McNabb, Optek and General Signal are Monitek's principal competitors.
They sell products using the same or similar technologies as those of Monitek.
Valmet Automation Inc., Royce Instruments and Kay-Ray Inc. sell devices based on
mechanical, ultrasound and nuclear technologies which compete with certain of
the products sold by Monitek. Certain of Monitek's competitors have production
facilities in Europe and consequently may not be subject to the same
fluctuations in the value of the United States Dollar as Monitek is with respect
to its German subsidiary. The most significant competitive factors with respect
to the industrial market are technical performance and adaptability, quality,
maintenance and service, while price is the major competitive factor for the
municipal market. All such companies, and many smaller entities that specialize
in a limited number of products competitive with those of Monitek, have
financial, marketing and other resources substantially greater than those of
Monitek.
RISKS RELATING TO OWNERSHIP OF A GERMAN SUBSIDIARY AND FOREIGN INVESTMENTS
Monitek owns a German subsidiary named Monitek GmbH (the "Subsidiary").
Over the last three years, revenues from the Subsidiary accounted for over 60%
of the total revenues of Monitek. On a pro forma basis for the Merger, the
Subsidiary's revenues would account for over 45% of Sentex's total revenues on a
consolidated basis. The investment in the Subsidiary is subject to risks and
uncertainties relating to the economic, social and political climate of Germany.
Risks specifically related to a foreign investments in general or doing business
in foreign countries may include risk of fluctuation in currency valuation,
expropriation, confiscatory taxation and nationalization, increased regulation
and approval requirements and governmental regulation limiting returns to
foreign investors.
13
<PAGE> 29
CONTROL BY CPS
Under New Jersey law the vote required to seek shareholder approval on most
matters is the affirmative vote of a majority of votes cast at a meeting. CPS
currently has the power to direct 40.2% of the vote of the Sentex Common Shares
and after the Merger will have the power to direct 34.3% of such vote. As a
result of such share ownership and the applicable requirements of New Jersey
law, CPS is and will be able to influence significantly the election of the
Board of Directors of Sentex and the outcome of the votes on all matters
submitted to Sentex's Shareholders for approval.
TRANSACTIONS WITH RELATED PARTIES
Sentex has entered into an Amended and Restated Management Agreement (as
defined herein) with CPS, pursuant to which CPS is paid an annual fee of
$393,800 in exchange for CPS providing executive management services to Sentex.
The services are mainly performed by Robert S. Kendall, the Chairman and
President of CPS, and James G. Few, the Chief Financial Officer of CPS. Mr.
Kendall and Mr. Few are also directors and officers of Sentex. As a result, CPS,
Mr. Kendall and Mr. Few may have interests that differ from those of Sentex and
its other shareholders. See "Other Action to Be Taken at the Sentex
Meeting--Proposal 4--Election of Directors--Certain Relationships and Related
Transactions."
ANTITAKEOVER PROVISIONS
The New Jersey Shareholder Protection Act (the "Act") may make the
acquisition of control of Sentex in a transaction not approved by the Sentex's
Board of Directors prior to such acquisition of control more difficult or
expensive. Generally, the Act prohibits an "interested stockholder" of a New
Jersey corporation from engaging in certain "business combinations" for a period
of five years, unless the board of directors of such corporation approves the
business combination prior to the date the interested stockholder becomes an
interested stockholder in such corporation. The Act could discourage an
acquisition attempt or other transactions in which stockholders might receive a
premium over the then current market price for their Sentex Common Shares. See
"Comparison of the Rights of the Sentex Shareholders and the Monitek
Stockholders--Stockholder Protection Legislation."
RISK OF DELISTING OF SENTEX COMMON SHARES
The Sentex Common Shares are currently traded on the Nasdaq Small Cap
Market. In June 1996, Sentex received a letter from The Nasdaq Stock Market,
Inc. ("Nasdaq Corp."), which was sent to companies that may fall outside revised
listing standards that are currently under consideration by Nasdaq Corp. Nasdaq
Corp. is considering several minimum bid prices ranging from $1.00 to $2.00 per
share. Currently, Sentex would not meet the proposed listing standards
pertaining to the minimum price. Sentex has never achieved a bid price over
$1.00. If Nasdaq Corp. instituted a minimum bid price at a level above where the
Sentex Common Shares are currently trading, Sentex would consider implementing a
reverse stock split to maintain its listing on the Nasdaq Small Cap Market.
There can be no assurances, however, that Sentex will be able to maintain its
listing on Nasdaq Small Cap Market.
DILUTION
As a result of the Merger, the existing holders of Sentex Common Shares
will incur dilution in the ownership of Sentex in that the holders of Sentex
Common Shares immediately prior to the Merger will hold 100% of the Sentex
Common Shares and immediately after the Merger will hold approximately 85% of
the Sentex Common Shares and upon conversion of the Class A Convertible Notes
and the Clarion Note, assuming all such notes are converted into the maximum
number of shares into which such notes can be converted, will hold approximately
71% of the outstanding Sentex Common Shares.
EFFECT OF FUTURE SALES ON MARKET PRICE OF SENTEX COMMON SHARES
No prediction can be made as to the effect, if any, that future market
sales of Sentex Common Shares or the availability of such shares for sale will
have on the prevailing market price of Sentex Common Shares following the
Merger. Upon consummation of the Merger, CPS and Clarion will have the potential
to control
14
<PAGE> 30
the sale of up to approximately 27% and 14%, respectively, of the Sentex Common
Shares on a fully diluted basis.
CPS is currently the record holder of 17,706,461 Sentex Common Shares. All
such shares are restricted securities and cannot be sold until March 1, 1998,
unless such shares are registered pursuant to the Securities Act. After March 1,
1998, CPS can only sell such shares in accordance with Rule 144 of the
Securities Act, which places certain trading, price and volume restrictions on
the sale of such shares. In addition, CPS is a party to a shareholders agreement
with Amos Linenberg, who is the record holder of 8,389,204 Sentex Common Shares.
CPS has the right to purchase any Sentex Common Shares Dr. Linenberg desires to
sell, but also must permit Dr. Linenberg to participate, on a pro rata basis, in
any private or public sale of CPS's Sentex Common Shares. See "Other Action to
be Taken at the Sentex Meeting--Proposal 4--Election of Directors--Certain
Relationships and Related Transactions--CPS Acquisition."
Upon the consummation of the Merger, Clarion will not receive any Sentex
Common Shares. Instead, it will receive a Class A Convertible Note and the
Clarion Note, which are convertible into approximately an aggregate of
15,412,758 Sentex Common Shares. Under most circumstances, these notes are not
convertible until approximately three years after the Effective Time. At the
Effective Time, Clarion will have the right to designate at least one person to
Sentex's Board of Directors, which will make it an affiliate of Sentex. Through
its control of Sentex, CPS believes it can generally ensure that these notes
will not be convertible before the three year time period. Sentex may, however,
under certain circumstances, compel conversion of these notes. See "The Merger
Agreement--Terms of the Class A Convertible Notes." Upon conversion of the
notes, Clarion will own Sentex Common Shares that have been or will be
registered pursuant to the Securities Act, but, because it will be an affiliate
of Sentex, it may only sell its Sentex Common Shares in accordance with the
limitations of Rule 144 under the Securities Act.
The sale of Sentex Common Shares by either CPS or Clarion will be further
restricted by the terms of a shareholders agreement they will enter into on the
Closing Date. Pursuant to this agreement, CPS and Clarion will agree to give the
other an option to purchase any Sentex Common Shares the other intends to sell
and each will agree not to buy or sell any Sentex Common Shares on the open
market for three years after the Effective Date without the consent of the
other. In addition, under this agreement Clarion will be permitted to
participate with CPS, on a pro rata basis, in any private or public sale of
CPS's Sentex Common Shares.
15
<PAGE> 31
COMPARATIVE PER SHARE DATA
Set forth below are net (loss) and book value per share data for Sentex and
Monitek on both historical and pro forma combined bases. Pro forma combined net
earnings (loss) per share are derived from the unaudited pro forma combined
financial information presented elsewhere in this Joint Proxy
Statement/Prospectus, which gives effect to the Merger under the purchase method
of accounting for business combinations. Book value per share for the pro forma
combined presentation is based upon the Sentex Common Shares to be issued in the
Merger for the outstanding shares of Monitek Common Stock at the Effective Time.
See "The Merger Agreement--The Merger." The information set forth below should
be read in conjunction with the respective audited and unaudited financial
statements of Sentex and Monitek included elsewhere in this Joint Proxy
Statement/Prospectus and the unaudited pro forma condensed combined financial
statements and the notes thereto presented elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
NOVEMBER 30, MAY 31,
------------------ ------------------
1995 1994 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
SENTEX-HISTORICAL:
Net (Loss) Per Common Share.......................... $ 0.00 $ 0.00 $ 0.00 $ 0.00
Book Value........................................... $ 0.04 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
MARCH 31, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
MONITEK-HISTORICAL:
Net (Loss) Per Common Share.......................... $ (0.19) $ (0.09) $ (0.08) $ (0.05)
Book Value........................................... $ 0.35 $ 0.27
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
NOVEMBER 30, MAY 31,
------------------ ------------------
1995 1994 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
SENTEX AND MONITEK--PRO FORMA COMBINED:
Net (Loss) Per Common Share
Primary.............................................. $ (0.01) $ (0.00) $ (0.01) $ (0.01)
Fully Diluted(1)..................................... $ (0.01) $ 0.00 $ (0.01) $ 0.00
Book Value........................................... $ 0.02 $ 0.01
- ---------------
<FN>
(1) Fully diluted net (loss) per share gives effect to the conversion of both
the outstanding Note Payable -- Class A Convertible of $485,586 and the Note
Payable -- Convertible of $136,414 into Sentex Common Shares of 8,640,320
and 7,031,649, respectively, as stated in the Merger Agreement. See the "Pro
Forma Condensed Combined Financial Statements" presented elsewhere in this
Joint Proxy Statement/Prospectus.
</TABLE>
16
<PAGE> 32
MARKET PRICE AND DIVIDEND DATA
The Sentex Common Shares are traded on the Nasdaq Small Cap Market tier of
The Nasdaq Stock Market under the symbol "SENS." The range of high and low
closing bid prices by fiscal quarter is presented below.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ----- -----
<S> <C> <C>
1st quarter................................ .094 .031
2nd quarter................................ .718 .031
1995 HIGH LOW
---- ----- -----
1st quarter................................ .031 .031
2nd quarter................................ .031 .031
3rd quarter................................ .042 .031
4th quarter................................ .073 .031
1994 HIGH LOW
---- ----- -----
1st quarter................................ .031 .031
2nd quarter................................ .031 .031
3rd quarter................................ .031 .031
4th quarter................................ .031 .031
</TABLE>
The bid quotations represent interdealer quotations and do not include
retail markup, mark-down or commissions, and may not represent actual
transactions. On October , 1996, there were 67,360,081 Sentex Common Shares
outstanding and approximately 1,200 holders of record of the outstanding Sentex
Common Shares. Sentex has not paid a dividend since becoming a public company in
November of 1980. Sentex does not plan to pay cash dividends in the foreseeable
future.
The Monitek Common Stock is traded in on the OTC Bulletin Board.
Information relating to historical market prices of, and dividends on, the
Monitek Common Stock is contained in Annual Reports on Form 10-K filed by
Monitek and included herein as Annex B. See "Incorporation of Certain Documents
By Reference." The Monitek Class A Common Stock is not traded on any market.
COMPARATIVE MARKET VALUES
Set forth below are the last reported closing price reported for Sentex
Common Shares (on a historical basis) and the last reported closing price for a
share of the Monitek Common Stock (on a historical and equivalent per share
basis) on June 21, 1996 (the last trading day prior to the execution of the
Original Merger Agreement), July 25, 1996 (the last trading day prior to public
announcement of the Merger), July 29, 1996 (the last trading day prior to the
day the Merger Agreement was amended and restated) and October , 1996 (the
last trading day prior to when Sentex and Monitek noticed their special
meetings). The equivalent per share basis for a share of Monitek Common Stock is
calculated by multiplying the historical closing sale price of Sentex Common
Shares by the Stock Exchange Ratio.
<TABLE>
<CAPTION>
SENTEX MONITEK MONITEK
COMMON SHARES COMMON STOCK COMMON STOCK
(HISTORICAL) (EQUIVALENT) (HISTORICAL)
------------- ------------ ------------
<S> <C> <C> <C>
June 21, 1996...................... $0.1406 $ 0.9698 $ 0.1250
June 25, 1996...................... $0.9256 $ 6.3843 $ 0.1250
July 29, 1996...................... $0.2500 $ 1.7244 $ 0.4375
October , 1996................... $ $ $
</TABLE>
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to Sentex
Shareholders in connection with the solicitation of proxies by the Board of
Directors of Sentex for use at the Sentex Meeting to be held on
17
<PAGE> 33
, , 1996, at Sentex's corporate offices at 553 Broad Avenue,
Ridgefield, New Jersey, commencing at :00 .m., Eastern Time, and at any
adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to Monitek
Stockholders in connection with the solicitation of proxies by the Board of
Directors of Monitek for use at the Monitek Meeting to be held on ,
, 1996, at Monitek's corporate offices at 1495 Zephyr Avenue,
Hayward, California, commencing at :00 a.m., Pacific Time, and at any
adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus, the Sentex Chairman's Letter, the
Notice of the Sentex Meeting and the form of proxy for use at the Sentex Meeting
are first being mailed to Sentex Shareholders on or about October , 1996. This
Joint Proxy Statement/Prospectus, the Monitek Chairman's Letter, the Notice of
the Monitek Meeting and the form of proxy for use at the Monitek Meeting are
first being mailed to Monitek Stockholders on or about October , 1996.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Sentex Meeting. At the Sentex Meeting, Sentex Shareholders will consider
and vote on:
1. The Sentex Merger Proposal, which is a proposal to approve the
Merger Agreement, pursuant to which, among other things, (i) Subcorp will
be merged with and into Monitek, with Monitek as the surviving corporation;
(ii) all the outstanding shares (other than shares as to which dissenters'
rights are perfected) of Monitek Class A Common Stock will be converted
into Class A Convertible Notes; (iii) each outstanding share (other than
shares as to which dissenters' rights are perfected) of Monitek Common
Stock will be converted into Sentex Common Shares; and (iv) each Monitek
Option will be converted into a Sentex Exchange Option to purchase that
number of Sentex Common Shares equal to the number of shares of Monitek
Common Stock issuable immediately prior to the Effective Time upon exercise
of the Monitek Option. Approval of Proposals 2 and 3 below are conditions
to the consummation of the Merger. Subject to the satisfaction of certain
conditions, the Merger will be consummated if Proposals 1, 2 and 3 are
approved, and whether or not Proposal 4 is approved.
2. To vote on a proposal to adopt the Sentex 1996 Long-Term Incentive
Plan. This proposal will be presented at the meeting whether or not the
Merger is approved, but its adoption is a condition of the Merger.
3. To vote on a proposal to adopt the Amended Bylaw. This proposal
will be presented at the meeting whether or not the Merger is approved, and
its adoption is a condition to consummation of the Merger.
4. To elect the following nominees as Directors: (a) Robert S.
Kendall, (b) James G. Few, (c) Julius L. Hess, (d) Amos Linenberg, and (e)
Ronald M. Lipson until the next annual meeting and until their respective
successors are elected and qualified.
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Monitek Meeting. At the Monitek Meeting, Monitek Stockholders will
consider and vote on:
1. The Monitek Merger Proposal, which is a proposal to adopt the
Merger Agreement pursuant to which, among other things, (i) Subcorp will be
merged with and into Monitek and Monitek will become a wholly owned
subsidiary of Sentex; (ii) all outstanding shares (other than shares as to
which dissenters' rights are perfected) of Monitek Class A Common Stock,
will be converted into Class A Convertible Notes; and (iii) all outstanding
shares (other than shares as to which dissenters' rights are perfected) of
Monitek Common Stock. Each Monitek Option will be converted into a Sentex
Exchange Option to purchase that number of Sentex Common Shares equal to
the number of shares of Monitek Common Stock issuable immediately prior to
the Effective Time of the Merger upon exercise of the Monitek Option
multiplied by the Stock Exchange Ratio of 6.8974890.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
18
<PAGE> 34
RECORD DATES; VOTE REQUIRED; VOTING AT THE MEETINGS
Sentex. The Board of Directors of Sentex has fixed October , 1996 as the
record date for the determination of Sentex Shareholders entitled to notice of
and to vote at the Sentex Meeting. Accordingly, only Sentex Shareholders of
record at the close of business on October , 1996 will be entitled to notice
of and to vote at the Sentex Meeting. Each Sentex Shareholder of record on the
record date is entitled to cast one vote per share at the Sentex Meeting on each
of the proposals set forth herein, exercisable in person or by properly executed
proxy. As of October , 1996, there were 67,360,081 Sentex Common Shares
outstanding held by approximately 1,200 holders of record.
The majority of outstanding Sentex Common Shares present in person or by
proxy is required for a quorum at the Sentex Meeting. The affirmative vote of a
majority of the votes cast at the Sentex Meeting in person or by proxy is
required to authorize the Sentex Merger Proposal (Proposal 1), adopt the Sentex
1996 Long-Term Incentive Plan (Proposal 2), and adopt the Amended Bylaw
(Proposal 3). New Jersey law provides that the candidates receiving the greatest
number of votes in the election of directors will be elected (Proposal 4). CPS,
the principal holder of Sentex Common shares, has entered into an Amended and
Restated Voting Agreement dated July 30, 1996, with Clarion, pursuant to which
CPS has agreed to vote its shares FOR the Merger. CPS has the power to direct
the vote of approximately 40.2% of the Sentex Common Shares. CPS has indicated
that it intends to vote FOR the adoption of the Sentex 1996 Long-Term Incentive
Plan, FOR the adoption of the Amended Bylaw and FOR each of the five Directors
who have been nominated for election. As of August 30, 1996, CPS and Sentex's
directors, officers and their other affiliates were entitled to vote 27,595,665
Sentex Common Shares, which represents 41% of the outstanding Sentex Common
Shares. See "Other Action to Be Taken at the Sentex Meeting--Election of
Directors."
Monitek. The Board of Directors of Monitek has fixed October , 1996 as
the record date for determination of Monitek Stockholders entitled to notice of
and to vote at the Monitek Meeting. Accordingly, only holders of Monitek Class A
Common Stock and Monitek Common Stock of record at the close of business on
October , 1996, will be entitled to notice of and to vote at the Monitek
Meeting. Each holder of record of Monitek Class A Common Stock and Monitek
Common Stock on the record date is entitled to cast one vote per share (voting
as a class), exercisable in person or by properly executed proxy, at the Monitek
Meeting. As of October , 1996, there were 1,252,676 and 1,690,424 shares of
Monitek Class A Common Stock and Monitek Common Stock, respectively, outstanding
held by approximately 12 and approximately 115 holders of record, respectively.
A majority of outstanding shares of Monitek Class A Common Stock and
Monitek Common Stock represented in person or by proxy is required to constitute
a quorum for each class. The affirmative vote of the holders of a majority of
the outstanding shares of Monitek Class A Common Stock and the affirmative vote
of the holders of a majority of outstanding shares of Monitek Class A Common
Stock (each voting as a separate class) is required to authorize the Monitek
Merger Proposal. Clarion, a holder of approximately 97% of the outstanding
shares of Monitek Class A Common Stock, has entered into the Amended and
Restated Voting Agreement referred to above, pursuant to which Clarion has
agreed to vote its shares FOR the Merger. As of June 30, 1996, Monitek's
directors, officers and their affiliates are entitled to vote (i) 1,220,631
shares of Monitek Class A Common Stock, which represents approximately 97% of
the outstanding shares of Monitek Class A Common Stock, and (ii) 35,500 shares
of Monitek Common Stock, which represents approximately 2% of the outstanding
Monitek Common Stock.
VOTING OF PROXIES
The proxies of all the Sentex Shareholders and Monitek Stockholders who are
entitled to vote and are represented at the Sentex Meeting (in the case of
Sentex Shareholders) or at the Monitek Meeting (in the case of Monitek
Stockholders) by properly executed proxies received prior to or at such meeting
and not revoked will be voted at such meeting in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
proxies will be voted:
(i) at the Sentex Meeting:
FOR approval and adoption of the Sentex Merger Proposal;
FOR approval and adoption of the Sentex 1996 Long-Term Incentive Plan;
FOR approval and adoption of the Amended Bylaw; and
19
<PAGE> 35
FOR the election of the five persons who have been nominated for
election as Directors.
(ii) at the Monitek Meeting:
FOR approval and adoption of the Monitek Merger Proposal.
If any other matters are properly presented at the Sentex Meeting (in the
case of Sentex Shareholders) or the Monitek Meeting (in the case of Monitek
Stockholders) for consideration, including, among other things, consideration of
a motion to adjourn such meeting to another time or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed form of proxy and acting thereunder will have discretion to vote
on such matters in accordance with their best judgment (unless authorization to
use such discretion is withheld). Neither Monitek nor Sentex is aware of any
matters expected to be presented at the meetings other than as described in its
respective Notice of Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Sentex or Monitek, as the case may be, at or before the
taking of the vote at the relevant meeting, a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a later-dated proxy
relating to the same shares and delivering it to either the Secretary of Sentex
or the Secretary of Monitek, as the case may be, before the taking of the vote
at the relevant meeting, or (iii) attending the relevant meeting and voting in
person. In order to vote in person at either the Sentex Meeting or the Monitek
Meeting, Sentex Shareholders and Monitek Stockholders must attend the relevant
meeting and cast their votes in accordance with the voting procedures
established for such meeting. Attendance at a meeting will not in and of itself
constitute a revocation of a proxy. Any written notice of revocation or
subsequent proxy should be sent so as to be delivered at or before the taking of
the vote at the relevant meeting as follows:
(i) in the case of Sentex Shareholders, to Sentex Sensing Technology,
Inc., James G. Few, Attention: Secretary; and
(ii) in the case of Monitek Stockholders, to Monitek Technologies, Inc.,
James S. O'Leary, Attention: Secretary.
PURSUANT TO APPLICABLE LAW, BROKER NON-VOTES AND ABSTAINING VOTES WILL NOT
BE COUNTED IN FAVOR OF OR AGAINST THE ELECTION OF ANY NOMINEE FOR DIRECTOR OF
SENTEX OR ANY OF THE PROPOSALS TO BE PRESENTED AT THE SENTEX MEETING, INCLUDING
THE SENTEX MERGER PROPOSAL.
PURSUANT TO APPLICABLE LAW, ABSTAINING VOTES WILL NOT BE COUNTED IN FAVOR
OF THE MONITEK MERGER PROPOSAL. ANY MONITEK STOCKHOLDER WHO ABSTAINS FROM VOTING
ON THE MONITEK MERGER PROPOSAL WILL IN EFFECT BE VOTING AGAINST SUCH PROPOSAL.
SOLICITATION OF PROXIES
The expenses of the solicitations for the Sentex and Monitek Meetings,
including the cost of printing and distributing this Joint Proxy
Statement/Prospectus and the forms of proxy, will be borne by Sentex and
Monitek, subject to each party's obligation to reimburse the other for its
expenses under certain circumstances. See "The Merger Agreement--Termination;
Amendment; Waiver" and "--Expenses." In addition to solicitation by mail,
proxies may be solicited by directors, officers and employees of Sentex and
Monitek in person or by telephone, telegram or other means of communication.
These persons will receive no additional compensation for solicitation of
proxies, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation.
SELECTED FINANCIAL DATA
The selected financial information presented below for Sentex for the
fiscal years ended November 30, 1995 and 1994 has been derived from the
financial statements of Sentex which have been audited by Moore Stephens, PC,
independent certified public accountants, as indicated in their reports included
elsewhere herein. The selected financial data presented below for Sentex for the
six months ended May 31, 1996 and 1995 is unaudited but, in the opinion of
management of Sentex, includes all adjustments necessary for a fair presentation
of the results of operations of Sentex for the interim periods presented. The
following selected financial information should be read in conjunction with the
financial statements and other financial information contained herein.
20
<PAGE> 36
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT MAY 31, 1996 AT NOVEMBER 30,
---------------------------- ---------------------------
PRO FORMA(1) HISTORICAL 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Working Capital (2)................. $ 3,076,678 $ 2,204,115 $ 2,699,017 $ 2,884,528
Total Assets........................ $ 5,357,787 $ 2,452,046 $ 2,876,892 $ 3,157,678
Total Liabilities................... $ 2,422,618 $ 144,877 $ 118,149 $ 192,789
Total Long-Term Obligations......... $ 655,333 $ 33,333 $ -- $ --
Stockholders' Equity (3)............ $ 2,935,169 $ 2,307,169 $ 2,758,743 $ 2,964,889
</TABLE>
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
MAY 31, NOVEMBER 30,
---------------------------- ---------------------------
1996 1995 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................ $ 488,356 $ 882,651 $ 1,553,851 $ 1,726,812
Operating Profit (Loss)............. $ (445,400) $ 40,753 $ (177,343) $ (123,750)
Net Income (Loss)................... $ (445,400) $ 38,639 $ (114,877) $ (127,625)
Net Income (Loss) Per Share of
Common Stock...................... $ -- $ -- $ -- $ --
PRO FORMA(1)
Pro Forma Net Income (Loss)(4)...... $ (907,055) $ (489,458) $(1,065,683) $ (425,692)
Pro Forma Net Income (Loss) Per
Share of Common Stock............. $ (.01) $ (.01) $ (.01) $ --
Weighted Average Number of Common
Shares Used in Computation........ 79,019,762 80,785,845 79,684,440 84,622,233
- ---------------
<FN>
(1) As adjusted to reflect the Merger. The Merger Agreement provides that
Monitek Common Stock will be exchanged for 11,659,681 Sentex Common Shares.
The Merger Agreement also provides that all the shares of Monitek Class A
Common Stock can be exchanged for convertible notes issued by Sentex in the
aggregate principal sum of $485,586. Upon completion of the Merger, Clarion,
the controlling stockholder of Monitek, will also receive a convertible note
issued by Sentex in the aggregate principal amount of $136,414 in exchange
for certain secured indebtedness owed to it by Monitek.
(2) Working capital represents total current assets less total current
liabilities.
(3) Gives effect to Sentex Common Shares to be issued as described in (1) above.
(4) Gives effect to the pro forma adjustments as described in the notes to the
pro forma condensed combined financial statements regarding the statements
of operations.
</TABLE>
SENTEX MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1995 AS COMPARED TO FISCAL 1994
Net sales of Sentex's products decreased significantly to $1,313,138 in
fiscal 1995, as compared to $1,593,414 in fiscal 1994. This decrease resulted
from decreases in sales of the Aquascan as well as a slight decrease in sales of
accessory items which normally accompany product sales. Sales of other products
and revenue derived from service and technical assistance remained stable during
fiscal 1995 as compared to fiscal 1994.
Cost of Sales decreased to 37.1% in fiscal 1995 as contrasted to 41.5% in
fiscal 1994, principally, as a result of decreases in purchases of raw materials
and production equipment.
Selling, general and administrative expense remained stable during fiscal
1995, at $925,029 as compared to $941,502 for the 1994 fiscal year. As a
percentage of total revenue, however, selling, general and
21
<PAGE> 37
administrative expenses increased to 59.5% during fiscal 1995 as compared to
54.5% during fiscal 1994. This is a result of the decrease in product sales,
while rent, insurance and other overhead costs remained fixed, certain
nonrecurring administrative and legal expenses and a bad debt expense of
$35,000.
Due to the decrease in product sales, during fiscal 1995 total revenue
decreased to $1,553,851 from $1,726,812 for the 1994 fiscal year. Interest and
Other Income increased, however, during fiscal 1995 to $240,713 as compared to
$133,398 for the 1994 fiscal year, principally as a result of proceeds from a
research and development contract. Due to the aforementioned decrease in net
product sales, as well as the reserve for bad debt expense, Sentex experienced
an operating loss for fiscal 1995 of ($177,343), which was offset by an income
tax benefit of $62,466 to a net loss of ($114,877). This is compared to an
operating loss, for fiscal 1994, of ($123,750), offset by an income tax benefit
of $3,875 to a net loss of ($127,625).
In response to decreases in net product sales, Sentex has realigned its
direct marketing and sales practices, seeking, instead, joint marketing
arrangements with companies that market and sell in large quantities, generally
under their individual tradenames. For several products, marketing and sales
efforts have been refocused from large industrial users who were Sentex's
principal customers in former years to smaller, application-specific, product
users. Sentex has also begun offering its customers laboratory and on-site
technical service and shortterm leasing programs. In an attempt to improve
profitability, Sentex initiated cost reduction measures, including decreases in
personnel, the closing of a Sentex facility and reductions in inventory and
capital equipment purchases.
During fiscal 1994 Sentex converted investments in long-term certificates
of deposits, and U.S. Governmental Agency Bonds into shorter term money-market
accounts and certificates of deposits to anticipate cash requirements in fiscal
1996. As a consequence, cash and cash equivalents increased, substantially,
during fiscal 1995 to $1,885,975 as compared to $576,157 at November 30, 1994, a
net increase of $1,309,818. Net cash used in investing activities amounted to
$1,386,931 due, primarily, to the aforementioned redemption of short-term
investments. Net cash used by financing activities amounted to $97,443, which
represents Sentex's purchase of treasury stock.
Liquidity is provided, principally, by cash generated by operating
activities and from investment income. For the fiscal year ended November 30,
1995, net cash used by operating activities amounted to $20,330 which
represents, primarily, the significant decrease in the net loss for the current
fiscal year. Despite the net loss from operations, Sentex does not anticipate
the need to raise additional funds nor does it expect to experience difficulty
in satisfying its cash requirements in fiscal 1996.
The effective income tax rate decreased from an actual expense of 3.1%, at
the 1994 fiscal year-end, to (34.5%) at November 30, 1995, resulting from a
utilization of net operating loss carry-backs for both fiscal 1994 and 1995. At
November 30, 1995 Sentex had a net operating loss carryforward of approximately
$75,000 for income tax purposes. The carryforward will expire in the year 2010.
FISCAL 1994 AS COMPARED TO FISCAL 1993
Net sales of Sentex products decreased significantly to $1,593,414 in
fiscal 1994 from $2,022,808 in fiscal 1993. This decrease resulted, principally,
from a decrease in export sales of the Scentograph Plus II portable gas
chromatograph, as well as slight decreases in the sales of parts, accessories
and servicing of all products. Sales of other products remained relatively
stable, although an increase in the revenue generated from sales of the Aquascan
system occurred in the last quarter of the 1994 fiscal year.
Cost of sales increased from 40.3% in fiscal 1993 to 41.2% in fiscal 1994,
which is a result of the decreases in net sales, while rent, insurance and other
overhead costs remained fixed.
Selling, general and administrative costs decreased significantly during
fiscal 1994 to $941,502 as compared to $1,106,720 in fiscal 1993. This decrease
resulted from cost-savings effected through reduction in Sentex personnel,
decreases in employee benefits, and declines in administrative expenses. As a
percentage of total revenue, selling, general and administrative costs remained
relatively stable at 54.5% as compared to 54.7% from the prior fiscal year.
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Due to the decrease in net product sales during fiscal 1994, total revenue
decreased to $1,726,812 as compared to $2,129,374 for the 1993 fiscal year,
although a slight increase in interest and other income was evidenced. Due to
the aforementioned decrease in net product revenue, Sentex experienced a net
loss of ($127,625) for the 1994 fiscal year as compared to a net income of
$33,889 for the prior fiscal year.
Sentex anticipates revenue growth during fiscal 1995 through one or more
research and development contracts and increased sales efforts, particularly of
the Aquascan system. This appears to be supported by the increase in revenue
experienced in the final quarter of the 1994 fiscal year.
Throughout fiscal 1994 Sentex converted investments in cash and
certificates of deposit with maturities of three months or less to investments
in U.S. Governmental and Agency Bonds and certificates of deposit with
maturities of six to fifteen months to maximize return. As a consequence, cash
and cash equivalents decreased in fiscal 1994 from $1,744,463 as of November 30,
1993 to $576,157 as of November 30, 1994. Cash flow used in investing activities
amounted to $913,392 primarily due to the net purchases of short-term
investments of $927,589. Net cash used by financing activities amounted to
$129,995, which represents Sentex's purchase of treasury stock.
Liquidity is provided mainly by cash generated by operating activities and
from investment income. For the fiscal year ended November 30, 1994, net cash
used by operating activities amounted to ($154,919), which is a result of the
net loss for the current fiscal year of ($127,625) and an increase in accounts
receivable due to an increase of products shipped in the last month of the
current fiscal year.
The effective pre-tax income rate decreased from 32.2% in fiscal 1993 to
2.4% for fiscal 1994. This decrease was primarily due to the current net year
loss of ($127,625). Approximately 93% of the provision for income taxes is a
result of the change in deferred income taxes together with the net effect of
the previous years under-accrual. The remaining 7% represents a combination of
corporate income and minimum taxes.
FINANCIAL CONDITION
At November 30, 1995, total current assets amounted to $2,817,166 as
compared to $3,077,317 at November 30, 1994, with approximately $2,400,000
readily available to fund present operations. Current liabilities decreased as
of November 30, 1995 to $118,149 as compared to $192,789 at November 30, 1994,
principally due to decreases in the purchases of raw materials. At November 30,
1995, working capital stood at $2,699,017 as compared to $2,884,528 at the close
of the fiscal 1994, a decrease primarily due to the operating loss experienced
in the fiscal 1995 year. Funds generated from operations and investments plus
the amount of funds currently available are expected to be sufficient to fulfill
Sentex's anticipated cash requirements in fiscal 1996.
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," in March 1995.
SFAS No. 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for the long-lived assets and certain identifiable
intangibles to be disposed of. It is effective for financial statements issued
for fiscal years beginning after December 15, 1995. SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" establishes accounting standards for the
impairment of certain loans. It is effective for financial statements for fiscal
years beginning after December 15, 1994. Adoptions of SFAS Nos. 121 and 114 is
not expected to have a material impact on Sentex's financial statements.
The FASB also issued SFAS No. 123, "Accounting for Stock Based
Compensation," in October 1995. SFAS No. 123 uses a fair value-based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued-based method of accounting proscribed by Accounting Principals
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." The
accounting requirements of SFAS No. 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995; the disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995. Sentex currently does not have any
outstanding stock options.
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In December 1994, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 94-6, "Disclosure of Certain Significant
Risks and Uncertainties," the provisions of which are effective for financial
statements issued for fiscal years ended after December 15, 1995. In general,
SOP 94-6 requires disclosures about the nature of Sentex's operations and the
use of estimates in the preparation of financial statements. Sentex does not
anticipate a significant expansion of its financial statement note disclosure as
a result of SOP 94-6.
SECOND QUARTER ENDED MAY 31, 1996 COMPARED TO MAY 31, 1995
Total revenue decreased for the quarter ended May 31, 1996, to $488,356 as
compared to $882,651 for the quarter ended May 31, 1995, primarily as a result
of a significant decrease in sales orders and other income, which in 1995
included non-recurring revenues of $107,593 ($60,000 from a research and
development contract and $47,493 from a federal income tax return). For the six
months ended May 31, 1996 net sales dropped to $453,570 from $709,982 for the
comparative period ended May 31, 1995 in the prior fiscal year. Cost of goods
sold as a percentage of sales decreased to 46% for the six months ended May 31,
1996 as compared to 62% during the comparable period the prior year. Gross
profit dollars for the six-month period ended May 31, 1996 decreased to $207,357
from $443,486 during the comparable period the prior year. The decreased margin
was due to the fixed manufacturing cost impact on the drop in sales.
Orders for the Company's products received but not yet delivered as of May
31, 1996 amounted to $63,775, which represents a decrease from orders received
but not yet delivered as of May 31, 1995 of $78,593.
Operations resulted in a net loss of $445,400 for the six months ended May
31, 1996 as compared to income of $10,753 for the six-month period ended May 31,
1995. The loss, when compared to prior year, was caused by lower sales
non-recurring revenue from the prior year of $107,593 and an increase in
Selling, General and Administrative expenses of $200,685 during the comparable
six-month period ended May 31, 1996.
Selling, general and administrative expenses increased sharply for the six
months ended May 31, 1996 to $584,476 from $383,791 for the comparable period
the prior year which ended May 31, 1995. This increase was a result of increases
in advertising, legal, consulting and bad debt expenses. Many of these expenses
were one-time expenses associated with the sale of control of Sentex to CPS in
March 1996 and subsequent expenses associated with the Merger with Monitek in
June of this year.
Inventory increased at May 31, 1996 to $211,140 as compared to $202,223 at
May 31, 1995 as a result of increases in raw materials and work-in-process
inventory.
Financial Condition. Current liabilities as of May 31, 1996 were $111,544,
a decrease from $152,478 at the end of May 31, 1995. Working capital decreased
to $2,204,115 for the period ended May 31, 1996 as compared to $2,845,899 at May
31, 1995.
Sentex's financial condition has declined slightly over the past twelve
months due to a lower-than-expected sales performance. Total current assets
amounted to $2,315,659 at May 31, 1996 as compared to $2,998,377 as of May 31,
1995.
Cash and short-term investments amounted to approximately $1,900,000 as of
May 31, 1996. Other than in connection with the Merger, Sentex has no
commitments at this time which would require that it expend a significant
portion of its capital. Accordingly, the amount of funds currently available are
expected to be sufficient to fulfill Sentex's anticipated cash requirements and
other uses throughout 1996 and 1997.
THE MERGER
BACKGROUND OF THE MERGER
As part of its growth strategy, Monitek continually maintains a variety of
contacts with potential candidates for combination within the process control
instrumentation industry. Consistent with this strategy, Monitek's Chairman,
Morton A. Cohen ("Cohen"), initiated discussions regarding a potential business
combination with Robert S. Kendall ("Kendall"), President of CPS, in late
November, 1995. At that time,
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CPS was a party to certain stock purchase agreements with the then principal
shareholders of Sentex and certain of their relatives. Upon consummation of the
transactions contemplated by such stock purchase agreements, CPS would acquire
effective control of Sentex. On November 21, 1995, Monitek and CPS executed a
mutual confidentiality agreement concerning information to be exchanged between
the parties.
Over the next two months, discussions ensued concerning the rationales for
a combination between Sentex and Monitek. Cohen and Kendall met several times to
discuss the strategic implications of such a combination, their respective
business and management philosophies and goals, and the opportunities such a
combination would afford the combined companies. Kendall and Cohen also
discussed certain challenges associated with the combination, including
integration of the two management teams, retaining and motivating key personnel,
identifying and implementing best practices of the two companies, combining
management information systems, integrating marketing, selling and product
development efforts, and effectively managing the significantly larger
organization and business operations that would result from such a combination.
Following these initial meetings and discussions, Kendall expressed an
interest in gaining control of Monitek by purchasing the Monitek Class A Common
Stock held by Clarion, which represented 72% of the voting shares of Monitek,
and certain promissory notes held by Clarion that were secured by substantially
all of the assets of Monitek (the "Secured Notes"). Cohen suggested that CPS set
forth a proposal for the acquisition of all of the outstanding shares of Monitek
Common Stock in addition to the Class A Common Stock and the Secured Notes held
by Clarion. Accordingly, on January 18, 1996, CPS set forth a proposal (the
"January 18th Proposal") to exchange all of the outstanding Monitek Class A
Common Stock and Monitek Common Stock, including those owned by Clarion, for
Sentex Common Shares. The proposal did not specify an exchange ratio, but
proposed to determine such a ratio based on the book value per share, adjusted
for certain factors, of both Monitek and Sentex (the "Book Value Approach"). CPS
also proposed to exchange convertible preferred shares of Sentex for the Secured
Notes, which at the time had an aggregate principal amount of $300,000. Sentex
did not specify a conversion ratio for the preferred shares. The January 18th
Proposal was also subject to certain terms and conditions, including, among
others, the execution of a five year voting agreement pursuant to which CPS
would vote Clarion's Sentex Common Stock and a lock-up and first refusal rights
agreement between Clarion and CPS. At that time, Cohen conferred with the other
members of the Monitek Board of Directors, and the Monitek Board authorized
Cohen to pursue negotiations with Sentex. At the same time, Mr. Kendall informed
Sentex management of the January 18th Proposal, because CPS had not yet
consummated its acquisition of a controlling interest in Sentex.
Over the next several weeks, CPS and Clarion engaged in due diligence
reviews and negotiations regarding the proper application of the Book Value
Approach to determine both a Common Stock exchange ratio and a conversion ratio
for the proposed Sentex Convertible Preferred. On February 9, 1996, CPS proposed
(i) a stock exchange ratio of 6.8974890 Sentex shares for each share of Monitek
Common Stock and each share of Monitek Class A Common Stock and (ii) a three
year lock-up, voting and first refusal rights agreement with respect to Sentex
Common Shares to be held by Clarion. CPS also agreed to Clarion's proposal of
January 24, 1996, to exchange Sentex preferred stock (convertible after three
years into approximately 7,031,000 shares of Sentex Common Shares) for the
Secured Notes (which at the time still approximated $300,000 in principal
amount). On February 2, 1996, CPS and Monitek agreed on CPS' proposed exchange
ratio of 6.8974890.
Although Monitek and Clarion agreed in principal that the general economic
terms of the share exchange and the exchange of the Secured Notes were fair,
Clarion believed the three year lock-up, voting agreement and first refusal
rights agreement turned its equity investment into the functional equivalent of
debt without any of the corresponding protection and advantages of a true debt
structure. On February 23, 1996, Clarion made a counter proposal (the "February
23rd Proposal") under which the Monitek Class A Common Stock would be exchanged
for convertible notes of Sentex with a face value and conversion price such that
at the time of conversion each share of Monitek Class A Common Stock would be
exchanged for 6.897890 shares of Sentex Common Stock. In addition, rather then
exchanging the Secured Notes for preferred stock, the February 23rd proposal
called for exchanging such notes for an unsecured Sentex convertible note with a
reduced face value ultimately convertible into approximately 7,031,000 Sentex
Common Shares. Monitek also proposed that all the notes would not be
convertible, except in certain circumstances, for three years.
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On March 1, 1996, CPS consummated the acquisition of Sentex Common Shares
pursuant to the stock purchase agreements and other related documents. Upon such
acquisition CPS obtained effective control of 40.2% of the outstanding Sentex
Common Shares and Kendall became the Chairman of the Board and President of
Sentex. See "Other Actions to Be Taken at the Sentex Meeting--Proposal
4--Election of Directors--Certain Relationships and Related Transactions--CPS
Acquisition."
Over the next month and a half, representatives of Sentex, Monitek and
Clarion held several meetings, conducted additional due diligence reviews, and
negotiated over the specific terms and conditions of the February 23rd Proposal.
On April 22, 1996, Sentex and Monitek executed a letter of intent (the "Letter
of Intent") that generally embodied the economic terms discussed above and set
the face amount of the convertible note to be exchanged for the Secured Notes at
$136,414. The Letter of Intent provided that the Merger was subject to the
approval of the Monitek and Sentex Board of Directors, the satisfactory
completion of due diligence and the execution of a definitive agreement and plan
of merger. Sentex's Board of Directors and Monitek's Board of Directors each
approved the letter of intent on April 23, 1996.
Between the time at which the initial negotiations commenced and prior to
the execution of a definitive merger agreement, the balance of the Secured
Notes, together with all other outstanding indebtedness of Monitek to Clarion,
increased to $476,940 (the "Total Debt"). Sentex and Monitek agreed that prior
to entering into the definitive merger agreement, the Total Debt would be
evidenced by a single note (defined herein as the Monitek Note) and exchanged
for the Clarion Note, which would have no corresponding increase to the face
amount from the originally agreed upon face amount of $136,414.
On June 24, 1996, each of Sentex's and Monitek's Board of Directors met to
discuss the Merger and the Merger Agreement. After a discussion of the Merger
and related matters, Sentex's and Monitek's Board of Directors each unanimously
approved the Merger and the Merger Agreement. At its meeting, Sentex's Board of
Directors also adopted resolutions that are intended to permit Clarion, its
affiliates, and associates to enter into business combinations with Sentex, its
affiliates or associates without being subject to the restrictions and
prohibitions under the New Jersey Shareholder Protection Act. See "Interest of
Certain Persons in the Merger."
On June 24, 1996, Sentex, Subcorp, and Monitek executed the Merger
Agreement. Upon completion of certain additional due diligence and agreement on
the form of certain legal opinions, the parties entered into the Amended and
Restated Merger Agreement on July 30, 1996. In addition, on June 24, 1996,
Clarion and Sentex entered into a Note Exchange Agreement, which was also
amended and restated on July 30, 1996. See "The Merger Agreement--Ancillary
Documents--Note Exchange Agreement." Clarion and CPS also entered into Voting
Agreement on June 24, 1996, which was also amended and restated on July 30,
1996. See "The Merger Agreement--Ancillary Documents--Voting Agreement." The
changes to the Voting Agreement and Note Exchange Agreement were technical in
nature.
After the Merger Agreement was executed, Monitek engaged NatCity to review
the fairness of the transaction, from a financial point of view. On September
24, 1996, NatCity delivered to Monitek's Board of Directors its oral opinion and
on September 24, 1996, NatCity delivered to Monitek's Board of Directors its
written opinion that expressed that the Note Exchange Ratio and the Stock
Exchange Ratio are fair, from a financial point of view, to the Monitek
Stockholders (other than Clarion).
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
Sentex. Sentex's Board of Directors has determined that the terms of the
Merger Agreement are fair to, and in the best interests of, Sentex Shareholders
and has recommended that Sentex Shareholders vote FOR approval and adoption of
the Sentex Merger Proposal.
In the course of reaching its decision to approve the Merger Agreement and
each of the transactions contemplated thereby, the Board of Directors of Sentex
consulted with Sentex's legal and accounting advisors, as well as with Sentex's
management, and considered a number of factors, including the following:
(i) the opportunity for Sentex to sell its products (which currently
have a narrow market focus) through Monitek's existing worldwide marketing
network (which consists of over 70 independent marketing companies);
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(ii) the opportunity for Sentex to sell its products to Monitek's
larger customer base;
(iii) the reduction in Sentex's revenues and corresponding losses
over the last two fiscal years due in large part to a lack of an
established sales and marketing network.
(iv) the opportunity for Sentex to acquire products of Monitek that
have an established position in the process controls market;
(v) the need for, the challenges relating to, and feasibility of
reducing the cost of operating Monitek's and Sentex's businesses to obtain
economics of scale;
(vi) Sentex's financial ability to fund Monitek's working capital
needs if Sentex does not begin to realize significant cost savings or
increased sales by the end of fiscal year 1997;
(vii) the opportunity to use Sentex's engineering expertise to
oversee the redesign of some existing Monitek product lines and any new
product opportunities identified by either Sentex or Monitek; and
(viii) the terms and structure of the Merger, the Merger Agreement and
related agreements, including, the dilutive effect that will occur upon
conversion of the Class A Convertible Notes and the Clarion Note.
Sentex considered that it is presently a company with strong products
without established sales and marketing networks needed to provide growth in
revenues. Sentex management believes this is mainly a function of having too
narrow a market focus and not enough sales representatives selling Sentex's
products. Sentex believes that because Monitek has an existing worldwide
marketing network, the Merger will provide Sentex an increase in its market
focus and number of sales representatives. Sentex also believes that because
many of Monitek's customers could be potential Sentex customers, the acquisition
of Monitek will increase the customer base for Sentex's products. Sentex has
also considered that it will be acquiring a number of products from Monitek that
it will be able to continue selling through Monitek's existing worldwide
marketing network.
Sentex also considered that Monitek has incurred operating losses for more
than five years and has significant working capital needs. Sentex believes that
it can meet these cash needs for the short term, while it seeks to reduce
Monitek's costs and take advantage of better economies of scale by selling more
products through Monitek's worldwide marketing network. Sentex believes that the
risk of having to invest its working capital in a business with such cash needs
is outweighed by the potential return to the Sentex Shareholders though the
opportunities to increase sales volume, reduce costs and return Sentex to being
a profitable company.
Sentex has evaluated ways it believes Monitek can reduce product costs.
Sentex believes Monitek can achieve a reduction in its product costs by
reengineering and standardizing many of the parts that are used in several of
Monitek's product lines.
The foregoing discussion of the factors considered by the Sentex Board of
Directors is not intended to be exhaustive. In view of the wide variety of
factors considered in connection with its evaluation of the Merger, the Sentex
Board did not find it practicable to, and did not, quantify or otherwise attempt
to assign relative weights to the specific factors considered in reaching its
determinations.
Monitek. The Board of Directors of Monitek has determined that the terms of
the Merger Agreement are fair and in the best interests of Monitek Stockholders
and has recommended that Monitek Stockholders vote FOR approval and adoption of
the Monitek Merger Proposal and the Merger. In the course of reaching its
decision to approve the Merger Agreement and each of the transactions
contemplated thereby, the Board of Directors of Monitek consulted with Monitek's
legal, financial and accounting advisors, as well as with Monitek's management,
and considered a number of factors, including, among others, the following:
(i) the opportunity for Monitek's existing network of sales
representatives to sell Sentex's line of existing products, thereby
increasing sales without greatly increasing the sales costs;
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(ii) the opportunity for Monitek to use Sentex's product line to gain
added recognition and loyalty from its network of sales representatives by
providing greater income earning potential for such sales representatives;
(iii) the opportunity to use Sentex's technical expertise to increase
Monitek's efforts to develop new products;
(iv) the opportunity to be a part of an organization with a better
cash position than Monitek, increasing the potential cash necessary to fund
new product development, capital improvements, and overall business growth,
compared to the risk that Sentex, despite having more cash than Monitek,
will not have sufficient working capital resources to fund, over the long
term, the integration of the two companies and the growth and development
of the combined entity into a profitable enterprise.
(v) the opportunity to augment the existing management team with new
professionals with experience in the field;
(vi) the loss of management autonomy and control of Monitek by its
stockholders;
(vii) the terms and structure of the Merger, the Merger Agreement and
related agreements, and the opinion of NatCity regarding the fairness of
the transaction to the Monitek Stockholders (other than Clarion); and
(viii) the recent operating losses of Sentex and its declining rate of
sales.
Monitek is a company that has been hampered by slow revenue growth and an
inability to develop new product offerings. Monitek management believes that
these problems mainly result from a lack of adequate capital resources to fund
product development projects and to attract new personnel with substantial
technical expertise to develop the next generation of Monitek products. The
Monitek Board of Directors believe that the Merger will allow Monitek to
leverage its network of sales representatives with the product offerings of
Sentex and thus increase the sales force commitment to the products of Monitek
and Sentex. Monitek believes that the advantages to be gained by leveraging its
sales network will outweigh the risks associated with losing management autonomy
and that the Merger will help Sentex to overcome the marketing problems that has
contributed to its recent history of operating losses.
The foregoing discussion of the information and factors considered and
given weight by the Monitek Board of Directors is not intended to be exhaustive.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Monitek Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weight to the specific
factors considered in reaching its determinations. In addition, individual
members of the Monitek Board of Directors may have given different weights to
different factors. For a discussion of the interests of certain members of
Monitek's management and Monitek's Board of Directors in the Merger, see
"Interests of Certain Persons in the Merger" below.
OPINION OF MONITEK FINANCIAL ADVISOR
On September 24, 1996, NatCity delivered its oral opinion to the Monitek
Board of Directors that, based upon such matters as it considered relevant, as
of the date of such opinion, the Note Exchange Ratio and the Stock Exchange
Ratio were fair, from a financial point of view, to the holders of Monitek Class
A Common Stock and Monitek Common Stock, respectively, other than Clarion, as to
which it expressed no opinion. (NatCity was not engaged to provide a fairness
opinion as to Clarion's stock holdings in Monitek). NatCity subsequently
confirmed its oral opinion by delivering to the Monitek Board of Directors its
written opinion, dated September 24, 1996, that, based upon and subject to the
matters set forth therein and based upon such other matters as it considered
relevant, the Note Exchange Ratio and the Stock Exchange Ratio are fair, from a
financial point of view, to the holders of the Monitek Class A Common Stock and
Monitek Common Stock, respectively, other than Clarion.
THE FULL TEXT OF THE OPINION OF NATCITY DATED SEPTEMBER 25, 1996, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX F AND
IS INCORPORATED HEREIN BY REFERENCE. NATCITY'S OPINION IS
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NECESSARILY BASED ON ECONOMIC, MARKET AND OTHER CONDITIONS IN EFFECT ON, AND THE
INFORMATION MADE AVAILABLE TO IT AS OF THE DATE OF SAID OPINION. SUBSEQUENT
DEVELOPMENTS MAY AFFECT SUCH OPINION. HOLDERS OF MONITEK CLASS A COMMON STOCK
AND MONITEK COMMON STOCK ARE URGED TO READ THE NATCITY OPINION IN ITS ENTIRETY
AND CONSIDER IT CAREFULLY. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE NATCITY OPINION IS ADDRESSED TO
THE MONITEK BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER.
In arriving at its written opinion, NatCity, among other things, examined
(i) the financial terms and conditions of the Merger Agreement; (ii) the audited
financial statements of Monitek and Sentex and certain unaudited financial
statements and internal operating reports of Monitek; (iii) certain internal
financial analyses prepared by management of Monitek; (iv) certain other
publicly available information on Monitek; (v) historical and projected
revenues, operating income (loss), net income (loss) and capitalization of
Monitek in comparison to other publicly held companies that NatCity believed to
be comparable to Monitek; (vi) the current and projected financial position and
operating results of Monitek; (vii) financial information concerning selected,
completed, and pending business combinations which NatCity deemed comparable in
whole or in part to the Merger; (viii) the historical market prices and trading
activity of securities of Monitek; (ix) the historical market price relationship
between the Monitek Common Stock and the Sentex Common Shares; and (x) general
conditions of the securities markets. In the process of arriving at its written
opinion, NatCity held discussions with members of the senior management of
Monitek.
NatCity assumed and relied on the accuracy and completeness of all
information provided to it by Monitek and did not independently verify any such
information, nor did it conduct a physical inspection of the properties and
facilities of Monitek or make or obtain an independent appraisal of its assets.
With respect to financial forecasts, NatCity assumed that they were reasonably
prepared reflecting the best currently available estimates and judgments of
Monitek's management. NatCity's opinion necessarily is based upon economic,
market and other conditions as in effect on, and circumstances existing and
disclosed to it as of the date of, the opinion, and its opinion assumes that no
material change has occurred, or will occur, to Monitek subsequent to the date
of the written opinion.
NatCity is actively engaged in the investment banking business and
regularly undertakes the valuation of investment securities in connection with
public offerings, private placements, business combinations and other similar
transactions.
In consideration of NatCity's services to Monitek, Monitek has agreed to
pay to NatCity a fee of $25,000, to reimburse it for its reasonable
out-of-pocket expenses, not to exceed $5,000, incurred in connection with its
activities in connection with this engagement, and to indemnify NatCity, and its
officers, employees, and agents, against certain liabilities in connection with
this engagement.
Financial Analyses. The following is a summary of the material financial
analyses used by NatCity in connection with its presentation to the Monitek
Board of Directors with regard to its oral opinion on September 24, 1996.
NatCity relied upon the analyses discussed below in connection with providing
its written opinion dated September 24, 1996.
(i) Discounted Cash Flow Analysis. NatCity performed a discounted cash
flow analysis of Monitek based on a revenue and profitability forecast provided
to NatCity by Monitek management. In utilizing the discounted cash flow
analysis, NatCity estimated the present value of (a) the future stream of
unleveraged consolidated cash flows (free cash flows) which management believes
Monitek could produce from fiscal year 1997 through fiscal year 2001 and (b) the
terminal value of the entity calculated using the perpetuity method. From this
analysis, NatCity calculated a range of equity values for Monitek, attributable
to both the Monitek Class A Common Stock and the Monitek Common Stock. Utilizing
this methodology, the implied present value per share of Monitek Class A Common
Stock on the date of the oral report ranged from $0.25 to $0.34. NatCity
reviewed the consideration to be received by both the holders of Monitek Class A
Common and Monitek Common Stock after the Merger, using the recent stock prices
of Sentex. The consideration due the Monitek Class A Common Stockholders based
on the Note Exchange Ratio was approximately $0.86 per
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share (after applying a liquidity discount) and the consideration due the
Monitek Common Stockholders based on the Stock Exchange Ratio was approximately
$1.08. NatCity weighted the results of the discounted cash flow analysis and
methodology more heavily than the other analyses.
(ii) Book Value Comparison and Analysis. In the course of NatCity's
investigation, discussions were held with various members of management of both
Monitek and Sentex. These discussions indicated that the relative book values of
the two companies were important considerations in the determination of the Note
Exchange and Stock Exchange Ratios. Accordingly, NatCity performed an analysis
based upon the "book value" of Monitek, as discussed below.
A book value approach is based on historical cost accounting methods
prescribed by Generally Accepted Accounting Principles and are not necessarily
indicative of the current value of the economic earning power of a company's net
assets. Nevertheless, in circumstances where there is no history of
profitability in the companies to be valued there are significant analytical
difficulties valuing two companies. Although NatCity generally does not place
significant emphasis on a book value analysis of nonfinancial enterprises, it
recognizes that the management and boards of both Sentex and Monitek reasonably
relied on a modified book value approach in obtaining the relative valuations.
NatCity compared the respective "net assets" or book values of both Monitek
and Sentex at various intervals from the time of the Merger negotiations to the
most recent publicly available financial statements filed with the Commission.
In comparing Monitek's book value to the pro forma book value of the combined
entity at these intervals, Monitek's book value represents 20% to 25% of the
combined entities' book value. The financial statements and internal analysis
used to negotiate the terms of the Merger Agreement indicated that Monitek's
relative book value contributed approximately 23.16% to the combined entity's
book value. Based on the similar stock prices of Sentex and Monitek prevailing
during the time of negotiating the Merger, this analysis illustrates the
methodology for the consideration to both the holders of Monitek Class A Common
Stock and Monitek Common Stock.
In summary, there were approximately 67,360,081 Sentex Common Shares issued
and outstanding as of the date of NatCity's written opinion to the Monitek Board
of Directors. To calculate the consideration due the Monitek Stockholders using
this methodology NatCity divided the Sentex Common Shares outstanding by the
difference between 100% and the implied 23.16% due the Monitek Stockholders
after the Merger. This resulted in approximately 87,660,081 Sentex Common Shares
outstanding after the Merger or an increase of approximately 20,300,000 Sentex
Common Shares due in consideration to both the holders of Monitek Class A Common
Stock and Monitek Common Stock. The Note Exchange Ratio and the Stock Exchange
Ratio provide for the holders of Monitek Class A Common Stock and Monitek Common
Stock to receive in the aggregate approximately 20,300,000 Sentex Common Shares.
NatCity's analysis using the book value methodology indicates that the Note
Exchange Ratio and the Stock Exchange Ratio are fair, from a financial point of
view, to the holders of Monitek Class A Common Stock and Monitek Common Stock
(other than Clarion).
(iii) Comparable Group. Comparable public company analysis involves
comparing Monitek's valuation as determined by the market for its shares of
Monitek Common Stock relative to a group of publicly traded companies deemed
comparable to Monitek on the basis of products or services produced, industry or
industries served, operating and financial characteristics, and other relevant
criteria. Based on relative performance to this group, this analysis provides an
implied market value for the subject company to be determined.
NatCity reviewed and compared selected income statement and balance sheet
data, capitalization and profitability ratios, and market trading statistics for
a group of publicly traded companies that, using these parameters, are
comparable in profile to Monitek. NatCity reviewed those companies that design
and manufacture instruments that measure, display and control industrial
processes. Although it examined eight companies, NatCity determined not to rely
upon this analyses as an adequate indicator of value for Monitek securities
because the magnitude of the valuation range it discovered precluded NatCity
from making an acceptable single point estimate as to the implied value of
Monitek based on the applicable market multiples. In addition, in light of
Monitek's lack of historic profitability, an analysis based on profitability
multiples could
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<PAGE> 46
not be done. NatCity informed the Board of Directors of Monitek that, in its
view, an analysis based on profitability multiples provides a more meaningful
representation of value when such analysis is applicable.
(iv) Selected Transactions. NatCity reviewed certain merger and
acquisition transactions that involved companies with similar revenues and
market capitalizations as that of Monitek, as well as transactions of similar
size as the proposed Merger, examining companies that design and manufacture
instruments that measure, display and control industrial processes for the
calendar years 1995 and 1996. Based on its review, NatCity was unable to find
transactions that had transaction values consistent with that of Monitek's and
Sentex's. The only multiples available for value comparison were
Price-to-Revenue and Price-to-Book ratios which, used alone without
profitability-based multiples, in NatCity's view, produced results on which
NatCity has less confidence in relying. Furthermore, the average transaction
size of the three reviewed transactions is approximately $25 million,
significantly greater in size than the proposed Merger. Therefore, NatCity
concluded that Selected Transactions did not provide an effective measure of
value.
No company or transaction used in the Comparable Group or Selected
Transactions analyses is identical to Monitek or the Merger. Accordingly, an
analysis based on these two methodologies necessarily involves complex
considerations and judgments concerning differences in financial and operational
characteristics of Monitek and other factors that could affect the public
trading value of the companies to which Monitek is being compared. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using comparable transaction data or comparable company
data.
(v) Historic Stock Trading Analysis. NatCity reviewed the historical
trading prices and volumes for both the shares of Monitek Common Stock and
Sentex Common Shares over a two-year period from June 1994 through August 1996.
NatCity concluded that there was only a limited secondary market for Monitek
Common Stock. Over the two year period under review, reported trading volume for
Monitek Common Stock averaged approximately 14,100 shares per month,
representing average monthly trading volumes that are less than 0.5% of the
fully diluted Monitek Common Stock outstanding. Furthermore, there was no
reported trading activity in the Monitek Common Stock in eight of the 24 months
of the review. The Sentex Common Shares, during the same two year period, had
reported trading volume, on average, at a rate of approximately 2,000,000 Sentex
Common Shares per month (adjusted and normalized for May 1996 where 44,600,000
Sentex Common Shares traded), which represented approximately 2% of the fully
diluted Sentex Common Shares outstanding. NatCity concluded that, for the
reasons addressed above, the historical stock trading values of Monitek Common
Stock and Sentex Common Shares do not necessarily provide an accurate indication
of Monitek's value.
(vi) Historical Exchange Ratio and Implied Values. NatCity also reviewed
historical trading prices for the shares of Monitek Common Stock and the Sentex
Common Shares in comparison to each other and reviewed, as well, the Note
Exchange Ratio and the Stock Exchange Ratio based on stock prices for both
companies, for time increments both before and after announcement of the
proposed merger (June 26, 1996). In the analyses, market capitalization of the
Monitek Class A Common Stock is less than the implied consideration due the
holders of Monitek Class A Common Stock after the Note Exchange Ratio has been
applied. With respect to the analyses of the Monitek Common Stock and the Stock
Exchange Ratio, the historical relationship between Monitek and Sentex bid
prices range from 0.80x to 3.50x, a range consistently below the proposed Stock
Exchange Ratio of 6.8974890. These analyses conclude that there is a premium in
value that both the Note Exchange Ratio and Stock Exchange Ratio provide the
holders of Monitek Class A Common Stock and Monitek Common Stock, respectively,
in the period under review.
NatCity believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create a misleading view of the
processes underlying its opinion. The preparation of a fairness opinion is a
complex process and not necessarily susceptible to summary description. In its
analyses, NatCity made numerous assumptions with respect to Monitek's
performance, general business and economic conditions and other matters, many of
which are beyond Monitek's and NatCity's control. Estimated values do not
purport to be appraisals and do not necessarily reflect the prices at which
companies or their securities may be sold in the future and such estimates are
inherently subject to uncertainty.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Monitek's Board of Directors with
respect to the Monitek Merger Proposal, Monitek Stockholders should be aware
that certain members of Monitek's management and Monitek's Board of Directors
(or their affiliates) have interests in the Merger that are different from and
in addition to the interests of Monitek Stockholders generally. The Board of
Directors of Monitek was aware of these interests and took these interests into
account in approving the Merger Agreement and the transactions contemplated
thereby.
Security Ownership. Various officers and directors of Monitek have certain
interests in the Merger as a result of their ownership of Monitek Common Stock,
Monitek Class A Common Stock, or options to purchase Monitek Common Stock.
Morton A. Cohen ("Mr. Cohen"), chairman of the Board of Directors and Chief
Executive Officer of Monitek, owns 18,500 shares of Monitek Common Stock and
holds options to purchase 89,500 shares of Monitek Common Stock. In addition,
Mr. Cohen owns 75.7% of MACAP Holding Company, which owns 94.9% of Clarion.
Clarion, in turn, owns approximately 97% of the outstanding shares of Monitek
Class A Common Stock. Frank J. Vetrovec, President and a Director of Monitek,
owns 16,700 shares of Monitek Common Stock and holds options to purchase 100,000
shares of Monitek Common Stock. James S. O'Leary ("Mr. O'Leary"), Secretary and
Chief Financial Officer of Monitek, holds options to purchase 50,000 shares of
Monitek Common Stock and holds 800 shares of Monitek Common Stock for the
benefit of his children, as to which Mr. O'Leary disclaims any beneficial
interest. Helmut H. Zoellmer and Erwin J. Weiss ("Mr. Weiss"), each a Director
of Monitek, hold options to purchase 70,000 and 20,000 shares of Monitek Common
Stock, respectively. Mr. Weiss is also a director of Clarion.
The Merger Agreement provides that each option to purchase shares of
Monitek Common Stock outstanding upon the consummation of the Merger under any
stock option plan of Monitek in effect on July 30, 1996 will be changed into
options to purchase Sentex Common Shares on equivalent prices and terms.
Clarion Representation on Sentex Board. Upon consummation of the Merger,
Sentex and Clarion will enter into the Board Representation Agreement (as
defined herein), pursuant to which Clarion will have the right to require
Sentex, to the extent permitted under applicable law, to take steps necessary to
cause a designee of Clarion (the "Clarion Designee") to be proposed for election
to Sentex's Board of Directors. Clarion has selected Morton A. Cohen to be the
initial Clarion Designee. See "The Merger--Ancillary Documents--Board
Representation Agreement."
Clarion Note. Clarion and Sentex entered into an Amended and Restated Note
Exchange Agreement, dated July 30, 1996 (the "Note Exchange Agreement"),
pursuant to which Clarion has agreed that at the Closing it will surrender a
secured promissory note issued by Monitek in favor of Clarion, dated June 24,
1996, in the original principal amount of $476,940 (defined herein as the
Monitek Note), together with all accrued interest thereon, in exchange for a
convertible note to be issued by Sentex in the original principal amount of
$136,414 (defined herein as the Clarion Note). See "The Merger
Agreement--Ancillary Documents--Clarion Note." Under the terms of the Note
Exchange Agreement, Clarion agreed not to demand any payments of principal or
interest under the Monitek Note before the consummation of the Merger. The terms
of the Clarion Note will be identical to the terms of the Class A Convertible
Notes, except that the conversion price of the Clarion Note will be $.0194 per
share unless Clarion fails to timely convert, in which case Sentex can compel
conversion at $0.0750 per share. See "The Merger--The Terms of the Class A
Convertible Note."
New Jersey Shareholder Protection Act. Clarion owns approximately 97% of
the outstanding shares of Monitek Class A Common Stock. Pursuant to the terms of
the Merger Agreement, Clarion will receive securities of Sentex convertible into
Sentex Common Shares. See "The Merger Agreement--Terms of the Class A
Convertible Notes." The receipt of such securities by Clarion will result in
Clarion becoming an "interested stockholder" of Sentex (as defined in Section
14A:10A-3(j) of the New Jersey Shareholders Protection Act (the "Act")).
Section 14A:10A-4 of the Act by its terms would prohibit Sentex from
engaging in any "business combination" (as defined in Section 14A:10A-3(e) of
the Act) with Clarion, once Clarion becomes an interested stockholder of Sentex,
for a period of five years following Clarion's "stock acquisition date" (as
defined in Section 14A:10A-3(o) of the Act) unless such business combination was
approved by the Board of
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Directors of Sentex prior to Clarion's stock acquisition date. Section
14A:10-A-5 of the Act by its terms also would prohibit Sentex from engaging in
any business combination with Clarion (with certain exceptions) other than a
business combination that, inter alia, is approved by the Board of Directors
prior to Clarion's stock acquisition date. It was a condition of the execution
of the Merger Agreement that Sentex's Board of Directors approve certain
business combinations in which Clarion, in the future, may engage as an
interested stockholder after Clarion's stock acquisition date. Sentex approved
Clarion's participation in the following business combinations on June 24, 1996:
(i) a merger or consolidation of Sentex or any of its subsidiaries
with (a) Clarion or (b) any other corporation which is, or after such
merger or consolidation would be, an Affiliate or Associate (as such terms
are defined in the Act) of Clarion;
(ii) a sale, transfer or other disposition to or with Clarion or any
Affiliate or Associate of Clarion of assets of Sentex or any subsidiary of
Sentex of any size or description;
(iii) an issuance or transfer by Sentex or any subsidiary of Sentex of
any of its capital stock to Clarion or any Affiliate or Associate of
Clarion;
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of Sentex, or a reclassification of securities or
recapitalization of Sentex or any other transaction having the direct or
indirect effect of increasing the proportionate share of Sentex's equity
securities or the equity securities of any subsidiary of Sentex directly or
indirectly owned by Clarion or by any Affiliate or Associate of Clarion,
which plan, proposal, reclassification, recapitalization or other
transaction is proposed by or on behalf of Clarion or any Affiliate or
Associate of Clarion; and
(v) A loan to Clarion or any Affiliate or Associate of Clarion by or
through Sentex.
REGULATORY APPROVALS
No material regulatory approvals are required to consummate the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase and, accordingly, the
purchase price will be allocated to the assets and liabilities of Monitek based
on estimated fair values thereof as of the date of the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All Sentex Common Shares issued in connection with the Merger will be
freely transferable, except that any Sentex Common Shares received by persons
who are deemed to be "affiliates" (as such term is defined under the Securities
Act) of Sentex or Monitek prior to the Merger may be sold by them only in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act with respect to affiliates of Monitek, or Rule 144 under the Securities Act
with respect to persons who are or become affiliates of Sentex, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of Sentex or Monitek generally include individuals or entities that control, are
controlled by, or are under common control with Sentex or Monitek, as the case
may be, and may include certain officers and directors of Sentex or Monitek, as
the case may be, as well as principal stockholders of Sentex or Monitek, as the
case may be.
Monitek Stockholders who were affiliates of Monitek on the date the vote
occurred at the Monitek Meeting with respect to the Monitek Merger Proposal (a
"Monitek Affiliate") may not sell their Sentex Common Shares acquired in
connection with the Merger, except pursuant to an effective registration under
the Securities Act covering such shares or in compliance with Rule 145 under the
Securities Act (or Rule 144 under the Securities Act in the case of persons who
become affiliates of Sentex), or another applicable exemption from the
registration requirements of the Securities Act. In general, under Rule 145 of
the Securities Act, for two years following the Effective Time a Monitek
Affiliate (together with certain related persons) would be entitled to sell
Sentex Common Shares acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144. Additionally, the number of
shares to be sold by a Monitek Affiliate (together with
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certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 under the Securities Act may not
exceed the greater of 1% of the outstanding Sentex Common Shares or the average
weekly trading volume of such shares during the four calendar weeks preceding
such sale. Rule 145 under the Securities Act will remain available to Monitek
Affiliates if Sentex remains current with its informational filings with the
Commission under the Exchange Act. Two years after the Effective Time, a Monitek
Affiliate will be able to sell such Sentex Common Shares without being subject
to such manner of sale or volume limitations, provided that Sentex is current
with its Exchange Act informational filings and such a Monitek Affiliate is not
then an affiliate of Sentex. Three years after the Effective Time, a Monitek
Affiliate will be able to sell such Sentex Common Shares without any
restrictions so long as such Monitek Affiliate had not been an affiliate of
Sentex for at least three months prior to the date. The two-and three-year
limitations described above with respect to the Sentex Common Shares issuable
upon conversion of the Class A Convertible Notes and Clarion Note will also
commence immediately after the Effective Time.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached as Annex A to this Joint Proxy Statement/Prospectus.
This summary is qualified in its entirety by reference to the Merger Agreement,
which is incorporated herein by reference.
THE MERGER
The Merger Agreement provides that Subcorp will be merged with and into
Monitek with Monitek surviving as a wholly owned subsidiary of Sentex, subject
to the requisite approvals of Monitek Stockholders and Sentex Shareholders and
the satisfaction or waiver of the other conditions to the Merger. The Merger
will become effective upon the filing of a duly executed certificate of merger
with the Delaware Secretary of State. This filing is to be made within ten
business days following the satisfaction or waiver of all conditions to the
Merger. It is currently anticipated that the Effective Time will occur on or
about November 1, 1996.
MERGER CONSIDERATION
Pursuant to the Merger Agreement, Sentex will issue two separate types of
securities. Holders of Monitek Common Stock will receive 11,659,681 Sentex
Common Shares. Holders of Monitek Class A Common Stock will receive Class A
Convertible Notes in an aggregate principal amount of $485,506, which, subject
to certain conditions, can be converted into 8,640,320 Sentex Common Shares. See
"Terms of the Class A Convertible Notes."
Upon consummation of the Merger, each share of Monitek Common Stock issued
and outstanding immediately prior to the Effective Time (except shares as to
which dissenters' rights are perfected) will be converted into that number of
Sentex Common Shares equal to such number of shares of Monitek Common Stock
multiplied by the Stock Exchange Ratio. The Stock Exchange Ratio is equal to
11,659,681 divided by the number of shares of Monitek Common Stock issued and
outstanding immediately prior to the Effective Time, which, based on 1,690,424
shares of Monitek Common Stock issued and outstanding on October , 1996,
equals a Stock Exchange Ratio of 6.8974890 Sentex Common Shares for each such
share of Monitek Common Stock. No certificates for fractional Sentex Common
Shares will be issued in the Merger and, to the extent that a certificate
representing outstanding shares of Monitek Common Stock would otherwise have
become a fractional Sentex Common Share, the holder thereof, upon presentation
of an appropriate certificate of Monitek Common Stock representing such
fractional interest to the exchange agent designated by Sentex (or upon
presentation of such certificate to Sentex) as described under "Exchange
Procedures" below, will be entitled to receive a cash payment therefor in an
amount equal to the value (determined with reference to the last sale price of
Sentex Common Shares on the Nasdaq Small Cap Market on the day preceding the
Closing Date) of such fractional interest. In no event, however, will more than
or less than 11,659,681 Sentex Common Shares be issued in exchange for all the
Monitek Common Stock.
In addition, upon consummation of the Merger, each share of Monitek Class A
Common Stock issued and outstanding immediately prior to the Effective Time
(except shares as to which dissenters' rights are perfected) will be converted
into a Class A Convertible Note in an original principal amount equal to one
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share of Monitek Class A Common Stock multiplied by the Note Exchange Ratio. The
Note Exchange Ratio is equal to $485,586 divided by the number of shares of
Monitek Class A Common Stock issued and outstanding immediately prior to the
Effective Time, which, based on 1,252,676 shares of Monitek Class A Common Stock
issued and outstanding on October , 1996, equals a Note Exchange Ratio of
$0.3876389 of principal for each share of Monitek Class A Common Stock. The
shares of Monitek Class A Common Stock for each holder will be aggregated and
one Class A Convertible Note (the principal amount of which shall be rounded to
the nearest whole dollar, with $.50 being rounded up) will be issued to each
such holder. In no event, however, shall the aggregate principal balance of the
Class A Convertible Notes exceed or be less than $485,586. After three years (or
earlier under certain conditions), the principal amount of the Class A
Convertible Notes are convertible at a rate of $0.0562 per share. After
conversion, the holders of the Class A Convertible Notes will receive 6.8974890
Sentex Common Shares for each share of Monitek Class A Common Stock owned by
such holders immediately prior to the consummation of the Merger.
Each share of Monitek Class A Common Stock and Monitek Common Stock which
is held in the treasury of Monitek, if any, will be canceled and retired and no
payment will be made in respect thereof. Sentex Common Shares issued and
outstanding immediately prior to the Effective Time will remain issued and
outstanding and no capital stock of Sentex will be converted or canceled as a
result of the Merger.
Each share of common stock of Subcorp issued and outstanding immediately
prior to the Effective Time will be converted into one share of common stock of
Monitek as the corporation surviving the Merger (the "Surviving Corporation").
TERMS OF THE CLASS A CONVERTIBLE NOTES
Pursuant to the Merger, Sentex will issue Class A Convertible Notes in an
aggregate principal amount of $485,586. The Class A Convertible Notes will be
general unsecured obligations of Sentex and will be subordinate to all other
obligations of Sentex. Unless converted into Sentex Common Shares, the Class A
Convertible Notes will mature within approximately three years from the Closing
Date. The aggregate principal balance of the Class A Convertible Notes will not
exceed $485,586. The Class A Convertible Notes can be converted 65 days before
the third anniversary of the Closing Date, but can be converted earlier if: (i)
Sentex proposes to declare a dividend or other distribution to the Sentex
Shareholders other than a stock split or reverse stock split; (ii) Sentex
proposes to offer the Sentex Shareholders the opportunity to subscribe for
additional equity securities of Sentex or Sentex issues any equity securities
pursuant to either a private or public sale thereof; (iii) Sentex proposes to
reclassify or change the outstanding Sentex Common Shares (other than a change
in par value or as a result of a stock split); (iv) Sentex proposes to
consolidate with or merge with and into another entity (other than a
consolidation or merger in which Sentex will be the surviving corporation and
which does not result in any reclassification or change in the Sentex Common
Shares; (v) Sentex proposes to sell or convey substantially all its assets to
another company); (vi) Robert S. Kendall, the Chairman of the Board and
President of Sentex, dies or becomes permanently disabled; or (vii) there is a
change in control of Sentex.
Sentex may also compel conversion of the Class A Convertible Notes upon
written notice to the holder if (i) there is a proxy contest for control of
Sentex's Board of Directors or (ii) Sentex is unable, in the judgment of its
Board of Directors, without compelling such a conversion, to obtain the
requisite shareholder vote to approve a material transaction approved by
Sentex's Board of Directors. Upon consummation of the Merger, CPS will have the
power to direct the vote of 34.3% of the outstanding Sentex Common Shares.
Moreover, in the event CPS were to compel conversion of the Class A Convertible
Notes, it would have the power to direct the vote of all such Sentex Common
Shares issued on conversion until the third anniversary of the Closing Date. See
"The Merger Agreement--Ancillary Documents--Shareholders Agreement." See "Other
Actions to be taken at the Special Meeting--Election of Directors--Security
Ownership of Certain Beneficial Owners and Management."
Generally, at any time the Class A Convertible Notes are convertible they
can be converted into that number of Sentex Common Shares that is equal to the
principal amount of the Class A Convertible Note divided by $0.0562. If,
however, any holder does not convert his Class A Convertible Note within 20 days
before the end of the third anniversary of the Closing Date, Sentex may compel
such holder to convert his
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Class A Convertible Note at $0.0750 per share of Sentex Common Stock. If any
such holder of a Class A Convertible Note informs Sentex of his intention to
convert the Class A Convertible Note within five business days after receiving
notice of Sentex's intention to compel conversion at $0.0750 per share, the
holder may still convert his Class A Convertible Note at a rate of $0.0562.
Assuming all Class A Convertible Notes are converted at a rate of $0.0562,
Sentex will issue 8,640,320 Sentex Common Shares. The conversion rate will be
adjusted for, among other things, stock splits, non-cash dividends and
distributions, recapitalizations, or similar transactions. See "Description of
Sentex Securities--Class A Convertible Notes."
Interest accrues on the Class A Convertible Notes at the annual rate of
5.05% and is payable in Sentex Common Shares. The number of Sentex Common Shares
issuable in payment of interest is computed by dividing the amount of accrued
interest due in U.S. Dollars by the average of the bid and ask prices of Sentex
Common Shares on the last ten trading days prior to the date on which that
interest payment is due, as reflected on the exchange, quotation system or other
market on or in which the largest number of Sentex Common Shares were traded
during the preceding six-month period. Depending on the relevant applicable
federal rate at the time of issuance, interest may be imputed to the holder of
such notes if such notes are issued with original issuance discount. See
"Federal Income Tax Consequences."
EXCHANGE PROCEDURES
As soon as practicable after the Effective Time, a letter of transmittal
will be mailed to each holder of the Monitek Class A Common Stock and the
Monitek Common Stock of record at the opening of business on the Closing Date.
The letter of transmittal will be used by the Monitek Stockholders in forwarding
certificates evidencing shares of Monitek Class A Common Stock for surrender in
exchange for Class A Convertible Notes or evidencing Monitek Common Stock for
surrender in exchange for certificates evidencing Sentex Common Shares to which
such holder has become entitled and, if applicable, cash in lieu of any
fractional Sentex Common Share. After receipt of such letter of transmittal,
each holder of certificates formerly representing Monitek Class A Common Stock
or Monitek Common Stock, as the case may be, should surrender such certificates
to the Sentex Exchange Agent designated therein pursuant to and in accordance
with the instructions accompanying such letter of transmittal, and each such
holder will receive in exchange therefor either a Class A Convertible Note or a
certificate evidencing the whole number of Sentex Common Shares to which he is
entitled and any cash which may be payable in lieu of any fractional Sentex
Common Share. Such letters of transmittal will be accompanied by instructions
specifying other details of the exchange.
HOLDERS OF MONITEK CLASS A COMMON STOCK AND MONITEK COMMON STOCK SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
After the Effective Time, each certificate evidencing Monitek Class A
Common Stock and Monitek Common Stock, until so surrendered and exchanged, will
be deemed, for all purposes, to evidence only the right to receive a Class A
Convertible Note in the amount to which the holder is so entitled or the number
of Sentex Common Shares and cash in lieu of any fractional share, if any, which
the holder of such certificate is entitled to receive. The holder of such
unexchanged certificates will not be entitled to receive any dividends or other
distributions declared or made by Sentex having a record date after the
Effective Time until the certificate is surrendered. Subject to applicable laws,
upon surrender of such unexchanged certificates, such dividends and
distributions, if any, will be paid without interest.
MONITEK STOCK OPTIONS
Sentex and Monitek covenant in the Merger Agreement to cause each Monitek
Option outstanding at the Effective Time (under any stock option plan of Monitek
in effect on the date of Closing) to become a Sentex Exchange Option. In order
to compute the number of Sentex Common Shares that can be purchased upon the
exercise of the Sentex Exchange Options, the number of shares of Monitek Common
Stock that could have been purchased upon the exercise of the related Monitek
Option will be multiplied by the Stock Exchange Ratio. In order for a holder of
a Sentex Exchange Option to exercise such an option it will have to pay the same
aggregate consideration price as he would have to pay if he exercised a Monitek
Option. The exercise price of a Sentex Exchange Option will equal the exercise
price of a Monitek Option divided by the Stock
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Exchange Ratio. The average exercise price of outstanding Monitek Options is
$0.71629 per share. Following the Merger, the average exercise price of
outstanding Sentex Exchange Options will be $0.1038479 per share. Assuming the
exercise of all Sentex Exchange Options immediately after the Effective Time,
the holders thereof would hold approximately 2,583,110 Sentex Common Shares,
representing approximately 3.2% of Sentex Common Shares issued and outstanding
immediately after the Effective Time. See "The Merger--Interests of Certain
Persons in the Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations, warranties and
covenants of Sentex and Monitek. The representations and warranties made by the
parties in the Merger Agreement will not survive the Effective Time.
Generally, the representations of all the companies relate to: due
organization, qualification and authority; absence of violations of, among other
things, charter documents, bylaws, certain contracts and law; required consents
and approvals of governmental authorities; the capital structure of the
companies; absence of certain changes in the operation of the businesses;
absence of undisclosed liabilities of the companies; taxes; compliance with
applicable laws; title to properties; litigation; employee benefit matters;
labor matters; environmental matters; the accuracy of information in the Merger
Agreement, including financial statements; filing of appropriate reports with
the Commission; and brokers' and finders' fees.
COVENANTS
Pursuant to the Merger Agreement, each of Sentex and Monitek has agreed
that it will: (i) use all reasonable efforts to take all action and to do all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by the Merger Agreement (including satisfying the
conditions precedent to the Merger); (ii) permit representatives of the other
party to have appropriate access at all reasonable times to its premises,
properties, books, records, contracts, tax records, documents, customers and
suppliers; (iii) prepare and file any filings required to be filed by it under
the Securities Act, the Exchange Act or any other federal or state laws relating
to the Merger or any other transactions contemplated thereby and to use its best
efforts to respond to any comments of the Commission or any other appropriate
government official with respect thereto; (iv) cooperate with the other and
provide the other all information necessary in order to prepare such filings;
and (v) make no public announcement without prior consultation with the other as
to the timing and content thereof, except as may be required by applicable law.
Sentex covenants in the Merger Agreement: (i) to convene the Sentex Meeting
and to recommend that Sentex Shareholders (w) approve and adopt the Merger and
the Merger Agreement, (x) approve and adopt the Sentex 1996 Long-Term Incentive
Plan, (y) approve and adopt the Amended Bylaw and (z) elect the five persons who
have been nominated to be members of Sentex's Board of Directors; (ii) to
conduct its business in the ordinary course to the end that its goodwill and
ongoing business not be impaired in any material respect; (iii) to provide
directors' and officers' insurance to officers and directors of Monitek from and
after the Effective Time on the same basis and to the same extent as that
provided to other officers and directors of Sentex or its subsidiaries; and (iv)
not to receive any management fees from Monitek during the pendency of the
Merger Agreement until all Interim Borrowings (defined below), together with
accrued interest thereon, have been paid to Clarion.
Monitek covenants in the Merger Agreement: (i) to take all action necessary
in accordance with the Delaware General Corporation Law and the Monitek
certificate of incorporation and bylaws to obtain the consent and approval of
Monitek Stockholders with respect to the Merger; (ii) to use its best efforts to
furnish Sentex with all information concerning it that may be required for
inclusion in this Registration Statement in a timely fashion; (iii) to conduct
its business in the ordinary course to the end that its goodwill and ongoing
business not be impaired in any material respect; and (iv) to obtain
undertakings from each holder of Monitek Class A Common Stock and Monitek Common
Stock who is an "affiliate" of Monitek, within the meaning of Rule 145 under the
Securities Act, to the effect that such shareholder may be considered an
"underwriter" within the meaning of Rule 145, and that no distribution will be
made by such shareholder of Sentex Common
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Shares received by such shareholder in the Merger, except in accordance with the
applicable provisions of the Securities Act.
INTERIM BORROWINGS
Pursuant to the Merger Agreement, Monitek is generally restricted from
borrowing any money outside the ordinary course of business prior to the Closing
Date. Monitek may, however, borrow up to $150,000 from Clarion at 12% interest
per year any date following June 24, 1996. Monitek is also permitted to borrow
such other amounts from Clarion on the same terms to fund additional working
capital requirements. The amounts of any additional borrowings cannot exceed
$50,000 in any one month or an aggregate of $250,000 prior to the Closing Date.
In the aggregate all these borrowings may not exceed $400,000 (the "Interim
Borrowings") and must be repaid prior to the consummation of the Merger. As of
October , 1996, the Interim Borrowings were $140,000. In late August of 1996,
Sentex agreed to provide up to $100,000 of advances to Monitek. See "The Merger
Agreement--Ancillary Documents--Interim Letter Agreement and Other Documents."
NO NEGOTIATIONS OR SOLICITATIONS
Pursuant to the Merger Agreement, neither Monitek nor any of its
subsidiaries, stockholders, officers, directors, representatives or agents are
permitted to, directly or indirectly, knowingly encourage, solicit, initiate or
participate in any way in discussions or negotiations with, or knowingly provide
any confidential information to, any corporation, partnership, person or other
entity or group (other than Sentex or any affiliate or associate of Sentex and
their respective directors, officers, employees, representatives and agents)
concerning any merger of Monitek, the sale of any substantial part of the assets
of Monitek, the sale of shares of the capital stock of Monitek or similar
transactions involving any of its subsidiaries. However Monitek's Board of
Directors may (i) modify or withdraw its recommendation if it determines, with
the advice of outside counsel, that it may be required to do so in the exercise
of its fiduciary duties or (ii) respond to any unsolicited proposal or inquiry
by advising the person making such proposal or inquiry of the terms summarized
in this paragraph.
Monitek has agreed to promptly communicate to Sentex its receipt of any
proposal or inquiry in respect of any such transaction or its receipt of any
request to provide any such information or hold any such negotiations or
discussions, and to furnish Sentex with a copy of any proposal that Monitek's
Board of Directors has determined is a Superior Proposal (as defined below).
Monitek's Board of Directors may respond to any Superior Proposal and may
provide information to, and negotiate with, any person, group or entity in
connection therewith if Monitek's Board of Directors determines, with the advice
of outside counsel, that it may be required to do so in the exercise of its
fiduciary duties. A "Superior Proposal" is defined in the Merger Agreement to
mean a bona fide, written, unsolicited proposal relating to a possible
transaction described in the preceding paragraph by any person other than Sentex
that, in the reasonable good faith judgment of Monitek's Board of Directors,
with the advice of outside financial advisors, is reasonably likely to be
consummated and is more favorable to the stockholders of Monitek than the terms
of the transactions contemplated by the Merger Agreement.
The Merger Agreement requires Sentex to promptly notify Monitek and provide
it with pertinent information in the event that Sentex or, to Sentex's
knowledge, any of its subsidiaries, officers, directors, representatives or
agents (i) solicits, initiates or participates in any way in discussions or
negotiations with, or provides any confidential information to, any corporation,
partnership, person or other entity or group (other than Monitek or any
affiliate or associate of Monitek and their respective directors, officers,
employees, representatives, stockholders and agents) concerning any merger, sale
of substantially all of the assets, or sale of shares of the capital stock of
Sentex, or similar transaction involving Sentex, or (ii) receives any proposal
or inquiry in respect of any such transaction or any request to provide any such
information or hold any such negotiations or discussions.
CONDITIONS
Mutual Conditions. The respective obligations of Sentex, on the one hand,
and Monitek, on the other hand, to consummate the Merger are subject to the
following requirements (none of which may be waived except as otherwise
indicated):
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(i) (a) the Sentex Shareholders shall have duly and validly approved
the issuance of Sentex Common Shares in connection with the Merger in
accordance with New Jersey law; (b) the Sentex Shareholders shall have duly
approved and adopted the Sentex 1996 Long-Term Incentive Plan; and (c) the
holders of a majority of the outstanding shares of the Monitek Class A
Common Stock and the Monitek Common Stock, voting as separate classes,
shall have approved the Merger;
(ii) no temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
Merger shall have been issued and remain in effect, and no statute, rule or
regulation shall have been enacted by any state, federal or foreign
government or governmental agency which would prevent the consummation of
the Merger;
(iii) the Registration Statement shall have been declared effective
under the Securities Act and no stop order or similar restraining orders
with respect thereto shall have been issued;
(iv) each of the Ancillary Documents (as defined below under
"Ancillary Documents") in the form previously agreed upon shall have been
entered into and duly executed and delivered by the appropriate parties
thereto; and
(v) Monitek shall have received from an investment banking firm a
favorable fairness opinion.
Condition to Obligations of Monitek. The obligation of Monitek to
consummate the Merger is subject to the following requirements (any or all of
which may be waived):
(i) the representations and warranties of each of Sentex and Subcorp
in the Merger Agreement shall be true and correct in all material respects
on and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date,
which shall be true and correct as of the specified date) and at the
Closing Sentex shall have delivered to Monitek a certificate to that
effect;
(ii) each of Sentex and Subcorp shall have performed in all material
respects each obligation and agreement and shall have complied in all
material respects with each covenant to be performed and complied with by
it hereunder at or prior to the Effective Time and at the Closing Sentex
shall have delivered to Monitek a certificate to that effect;
(iii) the Sentex Common Shares to be issued in the Merger and the
Sentex Common Shares issuable upon exercise of Sentex Exchange Options and
conversion of the Clarion Notes or the Class A Convertible Notes shall have
been authorized for inclusion in the Nasdaq Small Cap Market, subject to
official notice of issuance;
(iv) the number of members of Sentex's Board of Directors shall have
been increased from five to six and Sentex shall have delivered
documentation approving the election, effective as of the Effective Time,
of the person designated by Clarion to the Board of Directors of Sentex,
(see "Ancillary Documents--Board Representation Agreement" set forth
below);
(v) Sentex's Board of Directors shall have adopted resolutions
relating to the New Jersey Shareholders Protection Act allowing Clarion,
its Affiliates and Associates to enter into certain business combinations
with Sentex, its Affiliates and Associates (the "Resolutions"), (see "The
Merger--Interest of Certain Persons in the Merger");
(vi) Clarion shall have received a legal opinion, dated the Closing
Date, of Pitney, Hardin, Kipp & Szuch, special counsel to Sentex, in a form
previously agreed to by Monitek;
(vii) Monitek shall have received a legal opinion, dated the Closing
Date, of Baker & Hostetler, counsel to each of Sentex and Subcorp, in a
form previously agreed to by Monitek;
(viii) Sentex's Board of Directors shall have established a
compensation plan for its members providing for annual compensation in the
amount of $6,000 for each Director;
(ix) the Management Agreement, dated March 1, 1996, by and between CPS
and Sentex shall have been amended and restated in the form previously
agreed to by the parties (the "Amended and Restated Management Agreement");
and
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(x) all Interim Borrowings, together with all interest accrued
thereon, shall have been paid to Clarion by Monitek or Sentex at or prior
to the Closing.
Sentex adopted the Resolutions on July 24, 1996 and entered into the
Amended and Restated Management Agreement on June 24, 1996.
Condition to Obligations of Sentex. The obligation of Sentex to consummate
the Merger is subject to the following requirements (any or all of which may be
waived):
(i) the representations and warranties of Monitek in the Merger
Agreement shall be true and correct in all material respects on and as of
the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall be
true and correct as of the specified date) and at the Closing Monitek shall
have delivered to Sentex a certificate to that effect;
(ii) Monitek shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects
with each covenant to be performed and complied with by it hereunder at or
prior to the Effective Time and at the Closing Monitek shall have delivered
to Sentex a certificate to that effect;
(iii) Sentex shall have received the legal opinion, dated the Closing
Date, of Benesch, Friedlander, Coplan & Aronoff, counsel to Monitek, in a
form previously agreed to by Sentex; and
(iv) Clarion shall have executed and delivered to Sentex UCC-3
termination statements covering all of Clarion's UCC filings that cover any
and all assets of Monitek.
TERMINATION; AMENDMENT AND WAIVER
The Merger Agreement may be terminated at any time prior to the Effective
Time:
(i) by mutual written consent duly authorized by the Boards of
Directors of Sentex and Monitek;
(ii) by either Sentex or Monitek (a) if, at the Sentex Meeting or the
Monitek Meeting (including any postponement or adjournment thereof), the
Merger and the other transactions contemplated hereby that require
stockholder approval shall fail to be approved by the affirmative vote
required, or (b) so long as the terminating party is not then in breach of
any of its obligations hereunder, after December 15, 1996 (the "Termination
Date") if the Merger shall not have been consummated on or before such
date;
(iii) by Monitek, provided it is not then in material breach of any of
its material obligations hereunder, if either (a) Sentex or Subcorp fails
to perform any covenant in the Merger Agreement when performance thereof is
due and does not cure the failure within 20 business days after Monitek
delivers written notice thereof or (b) any other condition that is a
precondition to Monitek's obligation to perform has not been satisfied and
is not capable of being satisfied prior to the Termination Date;
(iv) by Monitek if its Board of Directors, on the advice of outside
counsel, determines that Monitek may be required to do so in the exercise
of the Board's fiduciary duties; or
(v) by Sentex, provided it is not then in material breach of any of
its material obligations hereunder, if either (a) Monitek fails to perform
any covenant in the Merger Agreement when performance thereof is due and
does not cure the failure within 20 business days after notice by Sentex
thereof or (b) any condition that is a precondition to Sentex's obligation
to perform has not been satisfied and is not capable of being satisfied
prior to the Termination Date.
The Merger Agreement may be amended by the parties, by action taken or
authorized by their respective Boards of Directors, at any time before or after
adoption of the Merger Agreement by Sentex Shareholders or the Monitek
Stockholders, as the case may be, but after any such approval, no amendment
shall be made which by law requires further approval by such stockholders
without such further approval. All amendments to the Merger Agreement must be in
writing and signed by each of the parties.
At any time prior to the Effective Time, Sentex (with respect to Monitek)
and Monitek (with respect to Sentex or Subcorp) by action taken or authorized by
their respective Boards of Directors, may, to the extent
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legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of such party, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if in writing and signed on by such
party.
EXPENSES
Generally, Sentex and Monitek have agreed they will each bear their own
costs and expenses incurred in connection with the transactions contemplated by
the Merger Agreement. If, however, (i) the Merger Agreement is terminated by
Monitek's Board of Directors, on the advice of counsel, in the exercise of its
fiduciary duties see "Termination; Amendment and Waiver" and (ii) Monitek,
within one year following the date on which this Agreement is so terminated,
consummates a merger or other transaction similar to the Merger involving the
disposition of the business conducted by Monitek or any of its subsidiaries,
then Monitek shall promptly pay to Sentex a fee equal to $75,000 upon the
consummation of such merger or other transaction.
ANCILLARY DOCUMENTS
In accordance with the terms of the Merger Agreement, the following
documents (the "Ancillary Documents") have been or will be entered into either
by Monitek, Sentex, Clarion (the principal stockholder of Monitek), or CPS (the
principal shareholder of Sentex):
Amended and Restated Note Exchange Agreement. Clarion and Sentex entered
into an Amended and Restated Note Exchange Agreement dated July 30, 1996 (the
"Note Exchange Agreement"), pursuant to which Clarion has agreed that at the
Closing it will surrender a secured promissory note issued by Monitek, dated
June 24, 1996, in the original principal amount of $476,940 (the "Monitek
Note"), together with all accrued interest thereon, in exchange for a
convertible note issued by Sentex in the original principal amount of $136,414
(the "Clarion Note"). See "Clarion Note." Under the terms of the Note Exchange
Agreement, Clarion has agreed to not demand any payments of principal or
interest pursuant to the Monitek Note before the Closing Date.
Clarion Note. Pursuant to the Note Exchange Agreement, Clarion will
exchange the Monitek Note for the Clarion Note at the Closing. The terms of the
Clarion Note are virtually identical to the terms of the Class A Convertible
Notes, except that the conversion price of the Clarion Note is $0.0194 per share
of Sentex Common Shares, unless Clarion fails to timely convert, in which case
Sentex can attempt to compel conversion at $0.0750. See "The Merger--The Terms
of the Class A Convertible Note."
Board Representation Agreement. The Merger Agreement provides that, on the
Closing Date, Sentex and Clarion will enter into a the Board Representation
Agreement (the "Board Representation Agreement"), pursuant to which Clarion will
have the right to require Sentex, to the extent permitted under applicable law,
to take steps necessary to cause a designee of Clarion (the "Clarion Designee")
to be proposed for election to Sentex's Board of Directors. The Board
Representation Agreement contemplates that, on the Closing Date, the number of
the Directors of Sentex's Board of Directors will have been increased from 5 to
6, which Sentex intends to accomplish through the adoption of Proposal 3 and
then having Sentex's Board of Directors increase the number of Directors by a
resolution. Clarion has selected Morton A. Cohen to be the initial Clarion
Designee. On the Closing Date, Sentex's Board of Directors intends to elect
Morton A. Cohen to its Board of Directors. See "Other Action to Be Taken at the
Sentex Meeting--Proposal to Adopt the Amended Bylaw." Sentex has also agreed to
nominate the Clarion Designee for election at future elections of Sentex's Board
of Directors.
If Sentex's Board of Directors decides to further increase the number of
its Board of Directors above six, Sentex must cause to be nominated for election
to its Board of Directors that number of additional individuals designated by
Clarion ("Subsequent Designees") equal to (i) the Appointment Number (as defined
below) minus (ii) one (which is to account for the Clarion Designee that Clarion
will be able to select at all times during the term of the Board Representation
Agreement without regard to the calculation of the Appointment Number). The
Appointment Number is defined in the Board Representation Agreement to mean the
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following, rounded to the nearest whole number (with .50 being rounded up to the
nearest whole number): the product of (i) the number of total directorships and
(ii) the quotient equal to: (x) the sum of Sentex Common Shares owned by the
Clarion Group (defined below) and the Sentex Common Shares thereafter at any
time issuable to the Clarion Group pursuant to the Clarion Note and any Class A
Convertible Notes held by any member of the Clarion Group at the most favorable
conversion rate provided for therein divided by (y) the aggregate number of
Sentex Common Shares outstanding and the Sentex Common Shares that would be
outstanding upon conversion or exercise of any security or other instrument of
Sentex, including, without limitation, the Clarion Note, the Class A Convertible
Note, options, and warrants--all at the most favorable conversion rate to the
holder thereof. In addition to selecting such designee(s), Clarion will have the
right to have a representative attend and observe, but not participate in,
Sentex's Board of Directors' meetings.
If and when Sentex obtains a listing on the National Market System,
Sentex's Board of Directors will form an audit committee composed of members of
Sentex's Board of Directors (the "Audit Committee"). Upon formation of the Audit
Committee and thereafter, Clarion will have the right to have one of its
designees who has been elected as a director to Sentex's Board of Directors be a
member of the Audit Committee.
The Board Representation Agreement will terminate at any time Clarion is
not the Beneficial Owner (as defined below) of at least 10,000,000 Sentex Common
Shares. The Board Representation Agreement defines "Beneficial Owner" to mean
(i) all Sentex Common Shares that Clarion would be deemed to own under Rule
13d-3 of the rules and regulations promulgated under the Securities and Exchange
Act of 1934 ("Rule 13d-3") and (ii) all Sentex Common Shares thereafter at any
time issuable to Clarion pursuant to the Clarion Note and Class A Convertible
Notes (at the most favorable conversion rate) that Clarion is not otherwise
deemed to own under Rule 13d-3.
Participation Rights Agreement. Upon the consummation of the Merger,
Sentex, Clarion, and the holders of the Class A Convertible Notes will enter
into a Participation Rights Agreement (the "Participation Rights Agreement"),
pursuant to which Clarion and the holders of the Class A Convertible Notes will
be allowed to participate in any public or private offering by Sentex of any of
its securities. Clarion and the holders of Class A Convertible Notes will be
able to participate in such private sale or public offering in an amount
proportionate to Clarion's or such holder's percentage ownership of Sentex
Common Shares. For the purpose of calculating such percentage, the Participation
Rights Agreement assumes that the Clarion Note and the Class A Convertible Notes
have been converted into Sentex Common Shares.
Amended and Restated Voting Agreement. Clarion and CPS have entered into
an Amended and Restated Voting Agreement (the "Voting Agreement"), dated July
30, 1996. Pursuant to the Voting Agreement, Clarion agreed to vote its shares of
Monitek Class A Common Stock: (i) in favor of the Merger, the Merger Agreement
(as amended from time to time), and the other transactions relating to the
Merger with respect to which Clarion may be entitled to vote; (ii) against any
proposal for any recapitalization, merger, sale of assets or other business
combination between Monitek or any of its subsidiaries and any person or entity
other than Sentex, or any other action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of Monitek under the Merger Agreement or that would result in any of
the conditions to the obligations of Monitek under the Merger Agreement not
being fulfilled; and (iii) in favor of any other matter relating to the
consummation of the Merger or related transactions with respect to which Clarion
may be entitled to vote. Clarion is the holder of approximately 97% of the
Monitek Class A Common Stock.
Pursuant to the Voting Agreement, CPS agreed to vote its Sentex Common
Shares: (i) in favor of the Merger, the Merger Agreement (as amended from time
to time) and the other transactions relating to the Merger with respect to which
CPS may be entitled to vote; (ii) against any proposal for any recapitalization,
merger, sale of assets or other business combination between Sentex or any of
its subsidiaries and any person or entity other than Monitek, or any action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Sentex under the Merger
Agreement or that would result in any of the conditions to the obligations of
Sentex under the Merger Agreement not being fulfilled; and (iii) in favor of any
other matter relating to the consummation of the Merger or related
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transactions with respect to which CPS may be entitled to vote. CPS has the
power to direct the vote of 40.2% of the Sentex Common Shares.
Clarion and CPS also agreed not to enter into any voting agreement or grant
a proxy or power of attorney that is inconsistent with the Voting Agreement. In
addition, Clarion and CPS agreed not to transfer ownership of their respective
shares of Monitek and Sentex unless the transferee agrees in writing to be bound
by the terms and conditions of the Voting Agreement.
Shareholders Agreement. As a condition of the Merger, Clarion and CPS must
enter into a Shareholders Agreement, pursuant to which (i) Clarion and CPS will
agree not to purchase shares of Sentex Common Shares on the open market for a
period of three years from the date of the Shareholders Agreement, (ii) Clarion
and CPS each will offer the other the right to purchase its Sentex Common Shares
prior to transferring such shares to a third party, and (iii) Clarion will be
permitted to participate with CPS, on a pro rata basis, in any private or public
sale of CPS's Sentex Common Shares. Clarion will agree that so long as it is the
owner of any Sentex Common Shares that were issued upon conversion of the
Clarion Note or its Class A Convertible Note (including Sentex Common Shares
issued as an interest payment pursuant to either such note) or that were
purchased by Clarion pursuant to the Participation Rights Agreement, it will
vote such shares (to the extent it has voting power with respect thereto) for a
period of three years from the date of the Shareholders Agreement in accordance
with instructions received from CPS or its nominee. The Shareholders Agreement
will terminate at any time CPS ceases to have effective control of Sentex.
Interim Letter Agreement and Other Documents. Prior to the execution of
the Original Merger Agreement on June 24, 1996, Monitek had been funding its
working capital needs through advances from Clarion (which upon the execution of
the original Merger Agreement were evidenced by the Monitek Note) and by
borrowing against its receivables through a factoring arrangement with SJNB
Financial Services. Within two weeks prior to entering into the Original Merger
Agreement, it became apparent that Monitek would require advances of additional
working capital throughout the pendency of the Merger Agreement and could
benefit from immediate management advice of Sentex. Accordingly, concurrently
with the execution of the Merger Agreement, Sentex, Clarion, and Monitek entered
into a letter agreement to address some of Monitek's needs (the "Interim Letter
Agreement").
Pursuant to the Interim Letter Agreement, Sentex agreed that through the
Closing Date it would provide Monitek with certain strategic, operational and
financial consulting services for a fee of $16,667 per month (the "Fee"). Sentex
is not permitted to collect such Fee until all the Interim Borrowings have been
paid and in the event the Merger is not consummated, then Sentex will not be
entitled to the Fee. The payment of the Interim Borrowings is a condition of
Monitek's obligation to consummate the Merger. See "Conditions--Conditions of
Obligations of Monitek."
Although the Interim Letter Agreement does not obligate Clarion to provide
Monitek any advances, it does contemplate that Clarion could, at its option,
continue to provide Monitek advances to fund certain working capital needs, with
interest accruing on such advances at an annual rate of 12%. The advances, like
the prior advances under the Monitek Note, would also be secured by
substantially all the assets of Monitek. Pursuant to the Interim Letter
Agreement, Monitek's management, under the supervision of Sentex, is obligated
to provide a report two times a month that includes a detailed three-month
running analysis of expected working capital requirements of Monitek. Based on
such a report Sentex will recommend an appropriate amount that Monitek will
borrow from Clarion. In addition to the Interim Letter Agreement, a provision
was made in the Merger Agreement to provide for the amount Monitek would be
permitted to borrow from Clarion and the terms of such borrowings (defined
herein as Interim Borrowings). See "Interim Borrowings." Between June 24, 1996
and October , 1996, Clarion made advances to Monitek that constituted Interim
Borrowings in the aggregate principal amount of $140,000 (the "Interim Notes").
During the week of August 12, 1996, Sentex and Clarion agreed that Sentex
would take responsibility for funding the working capital needs of Monitek under
the same terms and conditions Clarion provided such working capital. In order to
induce Sentex to provide advances, Clarion entered into a Pledge Agreement on
August 12, 1996 (the "Pledge Agreement"), pursuant to which Clarion pledged its
Monitek Note and Interim Notes (all of which are secured by substantially all
the assets of Monitek) to Sentex to secure its advances to Monitek. Pursuant to
the Pledge Agreement, Sentex has agreed not to provide more than $100,000 of
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advances to Monitek, without receiving the written consent of Clarion. As of
October , 1996, Sentex has advanced $65,000 to Monitek. See "Other Actions To
Be Taken At The Sentex Meeting--Election of Directors--Certain Relationships and
Related Transactions."
Clarion Management Agreement. As a condition of the consummation of the
Merger, Sentex will enter into a Management Agreement with Clarion, pursuant to
which Clarion may, at its option, provide certain management services for
Monitek at the rate of $125 per hour if Sentex so requests such services to be
performed.
Sentex Management Agreement. As of March 1, 1996, CPS and Sentex entered
into a Management Agreement, pursuant to which CPS agreed to perform services
that would normally be performed by the executive officers of Sentex. On June
24, 1996, CPS and Sentex entered into an Amended and Restated Management
Agreement pursuant to which CPS's compensation was increased from $193,800
annually to $393,800 annually. See "Other Actions to be Taken at the Sentex
Meeting--Election of Directors--Certain Relationships and Related Transactions."
RIGHTS OF DISSENTING SHAREHOLDERS
SENTEX SHAREHOLDERS
Sentex Shareholders will not be entitled to dissenters rights under Section
14A:11-1 of the New Jersey Business Corporation Act, because the Sentex Common
Shares are held by more than 1,000 holders as of the record date set forth
herein by the Sentex Board of Directors.
MONITEK STOCKHOLDERS
Holders of Monitek Common Shares are entitled to appraisal rights under
Section 262 ("Section 262") of the Delaware General Corporation Law ("DGCL"),
provided that they comply with the conditions established by Section 262.
Section 262 is reprinted in its entirety as Annex G to this Joint Proxy
Statement/Prospectus. The following discussion is not a complete statement of
the law relating to appraisal rights and is qualified in its entirety by
reference to Annex G. This discussion and Annex G should be reviewed carefully
by any Monitek Stockholder who wishes to exercise statutory appraisal rights or
who wishes to preserve the right to do so, since failure to comply with the
procedures set forth herein or therein will result in the loss of appraisal
rights.
Monitek Stockholders of record who desire to exercise their appraisal
rights must:
- hold Monitek Common Shares on the date of making a demand for appraisal;
- make a written demand for appraisal prior to the vote on the Merger by
Monitek Stockholders;
- continuously hold such shares through the Effective Time;
- not vote in favor of the Merger or consent thereto in writing;
- file any necessary petition in the Delaware Court of Chancery (the
"Delaware Court"), as more fully described below, within 120 days after
the Effective Time; and
- otherwise satisfy all of the conditions more fully described below.
A record holder of Monitek Common Shares who makes the demand described
below with respect to such shares, who continuously is the record holder of such
shares through the Effective Time, who otherwise complies with the statutory
requirements of Section 262, and who neither votes in favor of the Merger nor
consents thereto in writing will be entitled to an appraisal by the Delaware
Court of the fair value of his Monitek Common Shares. All references in Section
262 and in this summary of appraisal rights to a "Monitek Stockholders" or
"holders" of shares are to the record holder or holders of Monitek Common
Shares.
Holders of Monitek Common Shares who desire to exercise their appraisal
rights must not vote in favor of the Merger and must deliver a separate written
demand for appraisal to Monitek prior to the vote by the Monitek Stockholders on
the Merger. A demand for appraisal must be executed by or on behalf of the
holder
44
<PAGE> 60
of record, fully and correctly, as such holder's name appears on the certificate
or certificates representing Monitek Common Shares. A person having a beneficial
interest in Monitek Common Shares that are held of record in the name of another
person, such as a broker, fiduciary or other nominee, must act promptly to cause
the record holder to follow the steps summarized herein properly and in a timely
manner to perfect whatever appraisal rights are available. If Monitek Common
Shares are owned of record by a person other than the beneficial owner,
including a broker, fiduciary (such as a trustee, guardian or custodian) or
other nominee, such demand must be executed by or for the record owner. If
Monitek Common Shares are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint
owners. An authorized agent, including an agent for two or more joint owners,
may execute the demand for appraisal for a stockholder of record; however, the
agent must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
Monitek Common Shares as a nominee for others, may exercise appraisal rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares covered by such demand. Where the
number of shares is not expressly stated, the demand will be presumed to cover
all shares of Monitek Class A Common Stock and Monitek Common Shares outstanding
in the name of such record owner.
A Monitek Stockholder who elects to exercise appraisal rights should mail
or deliver his written demand to: Monitek Technologies, Inc., 1495 Zephyr
Avenue, Hayward, California 94544, Attention: James S. O'Leary, Secretary. The
written demand for appraisal should specify the Monitek Stockholder's name and
mailing address, the number of shares of Monitek Class A Common Stock and
Monitek Common Stock owned, and that the holder is thereby demanding appraisal
of his shares. A proxy or vote against the Merger will not constitute such a
demand. Within ten days after the Effective Time, the Surviving Corporation must
provide notice of the Effective Time to all holders who have complied with
Section 262.
Within 120 days after the Effective Time, either Monitek, as the Surviving
Corporation, or any holder who has complied with the required conditions of
Section 262, may file a petition in the Delaware Court, with a copy served on
the Surviving Corporation in the case of a petition filed by a holder, demanding
a determination of the fair value of the shares of all dissenting holders. The
Surviving Corporation does not presently intend to file an appraisal petition
and holders seeking to exercise appraisal rights should not assume that the
Surviving Corporation will file such a petition or that the Surviving
Corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, Monitek Stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Within 120 days after the Effective Time, any Monitek Stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of Monitek Class A Common
Stock and Monitek Common Stock with respect to which demands for appraisal were
received by Monitek and the number of holders of such shares. Such statement
must be mailed within ten days after the written request therefor has been
received by the Surviving Corporation or within ten days after expiration of the
time for delivery of demands for appraisal under Section 262, whichever is
later.
If a petition for an appraisal is timely filed, at the hearing on such
petition the Delaware Court will determine which holders are entitled to
appraisal rights and will appraise shares of Monitek Class A Common Stock and
Monitek Common Stock owned by such holders, determining the fair value of such
shares exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining fair value,
the Delaware Court is to take into account all relevant factors. In Weinberger
v. UOP Inc., the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered, and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that in making this determination of fair value the court must consider
market value, asset value, dividends, earnings, prospects, the nature of the
enterprise and any other facts which could be
45
<PAGE> 61
ascertained as of the date of the merger which throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Section 262, however, provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Monitek Stockholders considering seeking appraisal should recognize that
the fair value of their shares determined under Section 262 could be more than,
the same as, or less than the consideration they are to receive pursuant to the
Merger Agreement if they do not seek appraisal of their shares. The cost of the
appraisal proceeding may be determined by the Delaware Court and taxed against
the parties as the Delaware Court deems equitable in the circumstances. Upon
application of a dissenting Monitek Stockholder, the Delaware Court may order
that all or a portion of the expenses incurred by any dissenting holder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all shares entitled to appraisal.
Any holder of shares of Monitek Class A Common Stock or Monitek Common
Stock who has duly demanded appraisal in compliance with Section 262 will not,
after the Effective Time, be entitled to vote for any purpose any shares subject
to such demand or to receive payment of dividends or other distributions on such
shares, except for dividends or distributions payable to stockholders of record
at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any Monitek
Stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the Merger. After this period, such stockholder may
withdraw such demand for appraisal only with the consent of the Surviving
Corporation. If no petition for appraisal is filed with the Delaware Court
within 120 days after the Effective Time, holders' rights to appraisal shall
cease, and all holders of shares of Monitek Class A Common Stock and Monitek
Common Stock will be entitled to receive the consideration offered pursuant to
the Merger Agreement. Inasmuch as the Surviving Corporation has no obligation to
file such a petition, and has no present intention to do so, any holder of
shares of Monitek Class A Common Stock and Monitek Common Stock who desires such
a petition to be filed is advised to file it on a timely basis.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion of material federal income tax consequences of the
Merger to the stockholders of Monitek is provided for general information
purposes only. The tax treatment of a stockholder may vary depending upon his
particular situation, and certain stockholders (including individuals who hold
options in respect of stock of Monitek, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, and persons who are
neither citizens nor residents of the United States, or who are foreign
corporations, foreign partnerships or foreign entities or trusts) may be subject
to special rules not discussed below.
THE MERGER
The Merger will constitute a taxable transaction for federal income tax
purposes and may constitute a taxable transaction for state, local or foreign
income tax purposes. A holder of Monitek Common Stock will recognize gain or
loss for federal income tax purposes in an amount equal to the difference
between the fair market value of the Sentex Common Shares received pursuant to
the Merger and such holder's tax basis in his Monitek Common Stock exchanged
therefor, which gain or loss will be capital gain or loss if the Monitek Common
Stock was held as a capital asset. A holder's tax basis in his Sentex Common
Shares will equal the fair market value of such shares on the effective date of
the Merger.
Assuming that the Monitek Class A Common Stock is held as a capital asset,
and assuming further that neither the Monitek Class A Common Stock nor the Class
A Convertible Notes to be received in exchange therefor are readily tradable
(within the meaning of Section 453 of the Code), a holder will recognize loss,
but
46
<PAGE> 62
not gain (unless such holder affirmatively elects out of the installment sale
treatment), on the receipt of Class A Convertible Notes in exchange for his
Monitek Class A Common Stock.
If a holder of Monitek Class A Common Stock either elects out of
installment sale treatment or realizes a taxable loss on the exchange of his
Monitek Class A Common Stock for Class A Convertible Notes, then (i) such holder
would recognize gain or loss for federal income tax purposes in an amount equal
to the difference between the "imputed principal amount" (as defined below) of
the Class A Convertible Notes received pursuant to the Merger and such holder's
tax basis in his Monitek Class A Common Stock exchanged therefor, which gain or
loss would be capital gain or loss if the Monitek Class A Common Stock was held
as a capital asset, (ii) such holder would not recognize any gain or loss on the
subsequent conversion of such holder's Class A Convertible Notes into Sentex
Common Shares, and (iii) such holder's basis in any Sentex Common Shares
received upon the conversion of his Class A Convertible Notes would equal such
holder's tax basis in the Class A Convertible Notes that were converted into
such Sentex Common Shares (which would initially be the imputed principal amount
of such Class A Convertible Notes).
If a holder of Monitek Class A Common Stock who realizes a taxable gain on
the exchange of his Monitek Class A Common Stock for the Class A Convertible
Notes does not elect out of installment sale treatment, then (i) such holder
would recognize gain for federal income tax purposes upon either the receipt of
the principal balance of the Class A Convertible Notes or upon the conversion of
the Class A Convertible Notes into shares of Sentex Common Shares (based on the
fair market value of such Sentex Common Shares as of the conversion date) in an
amount equal to the difference between the amount received and such holder's tax
basis in his Class A Convertible Notes (which would initially be such holder's
basis in his Monitek Class A Common Stock exchanged therefor), which gain would
be capital gain if the Monitek Class A Common Stock was held as a capital asset
and (ii) such holder's basis in any Sentex Common Shares received upon
conversion of such holder's Class A Convertible Notes would be the fair market
value of such Sentex Common Shares on the conversion date.
ORIGINAL ISSUE DISCOUNT
If the federal short-term rate applicable to sales or exchanges of property
occurring during the month in which the effective date of the Merger occurs (as
determined pursuant to Section 1274 of the Code) is greater than the 5.05%
stated interest rate on the Class A Convertible Notes, the Class A Convertible
Notes will be issued with original issue discount ("OID"), and holders will be
required to recognize OID as ordinary income in advance of the receipt of the
cash payments at maturity to which such OID relates. The amount of OID will
equal the excess of the stated principal amount of the Class A Convertible Notes
over the "imputed principal amount" of the Class A Convertible Notes. The
"imputed principal amount" of the Class A Convertible Notes will equal the sum
of the present value of all payments due thereunder, determined by using a
discount rate equal to the applicable federal short-term rate, compounded
semiannually, in effect as of the effective date of the Merger.
The amount of OID required to be included in a holder's income for any
taxable year (regardless of whether the holder uses the cash or accrual method
of accounting) will be determined by allocating to each day in the taxable year
during which the holder owns a Class A Convertible Note, a portion of the OID
that accrues during the taxable year as determined by a constant yield method.
The amount of OID accruing in each semiannual accrual period will be determined
by multiplying the adjusted issue price of the Class A Convertible Note at the
beginning of an accrual period by a fraction of the yield to maturity of the
Class A Convertible Note based on the length of the accrual period, and then
subtracting from such amount the portion of the stated interest on the Class A
Convertible Notes allocable to the accrual period. The adjusted issue price of a
Class A Convertible Note at the beginning of an accrual period will be equal to
its imputed principal amount increased by all previously accrued OID.
A holder of Class A Convertible Notes will be taxable on the stated
interest payments due under the Class A Convertible Notes in accordance with
such holder's method of accounting.
A holder's tax basis in a Class A Convertible Note will be increased by the
amount of OID which is required to be included in the holder's income. Gain or
loss upon a sale or other disposition of a Class A
47
<PAGE> 63
Convertible Note will be measured by the difference between the amount of cash
or fair market value of property received with respect to a sale or disposition
and a holder's tax basis in the Class A Convertible Note.
As required by law, Sentex will report annually to the IRS and to each
holder the amount of OID accrued with respect to each Class A Convertible Note.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of Sentex Common Shares or
Class A Convertible Notes may be subject to backup withholding at the rate of
31% with respect to dividends, interest and proceeds of redemption, unless such
shareholder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Any amount withheld under these rules will be credited
against the shareholder's federal income tax liability. Sentex may require
holders of Sentex Common Shares or Class A Convertible Notes, respectively, to
establish an exemption from backup withholding or to make arrangements
satisfactory to Sentex, respectively, with respect to the payment of backup
withholding. A shareholder who does not provide Sentex with his current taxpayer
identification number may be subject to penalties imposed by the Service.
CONCLUSION
THE FOREGOING DISCUSSION OF THE ANTICIPATED MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND
IS BASED ON THE LAW IN EFFECT AS OF THE DATE HEREOF, INCLUDING THE CODE, THE
TREASURY REGULATIONS PROMULGATED THEREUNDER, AND ADMINISTRATIVE AND JUDICIAL
INTERPRETATIONS THEREOF, ALL OF WHICH ARE SUBJECT TO CHANGE (POSSIBLY ON A
RETROACTIVE BASIS). THIS DISCUSSION DOES NOT ADDRESS ANY ASPECT OF STATE, LOCAL
OR FOREIGN TAXATION. IN ADDITION, THIS DISCUSSION DOES NOT ATTEMPT TO ADDRESS
ALL ISSUES THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF MONITEK COMMON STOCK
OR MONITEK CLASS A COMMON STOCK IN LIGHT OF SUCH HOLDER'S PERSONAL
CIRCUMSTANCES, AND DOES NOT APPLY TO HOLDERS SUBJECT TO SPECIAL TREATMENT UNDER
THE FEDERAL INCOME TAX LAWS. FURTHER, THIS DISCUSSION MAY NOT APPLY TO A HOLDER
OF MONITEK STOCK WHO ACQUIRED HIS STOCK PURSUANT TO THE EXERCISE OF AN EMPLOYEE
STOCK OPTION OR OTHERWISE AS COMPENSATION. ACCORDINGLY, EACH HOLDER OF MONITEK
COMMON STOCK OR MONITEK CLASS A COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER,
INCLUDING THE EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
48
<PAGE> 64
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma condensed combined financial statements as of May
31, 1996 and for the year ended November 30, 1995, and for the six months ended
May 31, 1996 give effect to the Merger. The pro forma information is based on
the historical financial statements of Sentex and Subsidiaries and Monitek and
Subsidiary giving effect to the transaction under the purchase method of
accounting and the assumptions and adjustments in the accompanying notes to the
pro forma financial statements.
The total price of the Merger is $1,500,000, which is composed of (i)
$1,113,586 in Sentex Common Shares to be issued in exchange for the Monitek
Common Stock; (ii) $136,414 of debt incurred pursuant to the issuance of the
Clarion Note and (iii) $250,000 of direct costs related to expenses incurred in
connection with the Merger.
The Merger Agreement provides that the Monitek Common Stock will be
exchanged for 11,659,681 Sentex Common Shares. The Merger Agreement also
provides that all the shares of Monitek Class A Common Stock will be exchanged
for convertible notes in the aggregate principal amount of $485,586. Upon
completion of the Merger, Clarion, the controlling stockholder of Monitek, will
also receive a convertible note in the aggregate principal amount of $136,414 in
exchange for certain secured indebtedness owed to it by Monitek.
The pro forma statements have been prepared by Sentex's management based
upon the financial statements of Sentex and Subsidiaries and Monitek and
Subsidiary. These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the dates
indicated or results of which may be obtained in the future. The pro forma
financial statements should be read in conjunction with the audited financial
statements and notes of Sentex as filed on Form 10KSB and of Monitek as filed on
Form 10K.
The pro forma condensed combined balance sheet assumes the transaction was
consummated on the balance sheet date, and the pro forma combined statements of
operations assume that the transaction was consummated at the beginning of the
fiscal year presented.
49
<PAGE> 65
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SENTEX MONITEK ADJUSTMENTS
MAY 31, JUNE 30, INCREASE/ PRO FORMA
1996 1996 (DECREASE) COMBINED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents............ $1,873,656 $ 45,166 $ -- $1,918,822
Accounts Receivable.................. 144,299 862,414 -- 1,006,713
Inventories.......................... 211,140 1,437,363 -- 1,648,503
Other Current Assets................. 86,564 183,361 -- 269,925
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS................. 2,315,659 2,528,304 -- 4,843,963
EQUIPMENT AND IMPROVEMENTS -- Net...... 37,472 107,472 -- 144,944
INVESTMENT IN MONITEK TECHNOLOGIES
INC.................................. -- -- 1,500,000 (1) --
(1,500,000)(2)
COVENANT NOT TO COMPETE................ 91,667 -- -- 91,667
GOODWILL -- NET........................ -- -- 228,621 (2) 228,621
OTHER ASSETS........................... 7,248 41,344 -- 48,592
---------- ---------- ---------- ----------
TOTAL ASSETS......................... $2,452,046 $2,677,120 $ 228,621 $5,357,787
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable..................... $ 35,643 $ 683,617 $ 250,000 (1) $ 969,260
Note Payable to Related Party........ -- 476,940 (476,940)(2) --
Accrued Expenses and Other
Liabilities....................... 75,901 722,124 -- 798,025
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES............ 111,544 1,882,681 (226,940) 2,139,285
---------- ---------- ---------- ----------
OTHER LIABILITIES
Note Payable -- Class A
Convertible....................... -- -- 485,586 (3) 485,586
Note Payable -- Convertible.......... -- -- 136,414 (1) 136,414
Other................................ 33,333 -- -- 33,333
---------- ---------- ---------- ----------
TOTAL OTHER LIABILITIES................ 33,333 -- 622,000 655,333
---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common Stock......................... 1,955,489 16,904 116,597 (1) 2,072,086
(16,904)(2)
Common Stock -- Class A.............. -- 12,527 (12,527)(2) --
Paid-in Capital...................... -- 6,117,176 996,989 (1) 511,403
(6,117,176)(2)
(485,586)(3)
Retained Earnings (Accumulated
Deficit)............................. 664,898 (5,391,157) 5,391,157 (2) 664,898
Cumulative Translation Adjustment...... -- 38,989 (38,989)(2) --
---------- ---------- ---------- ----------
Totals................................. 2,620,387 794,439 (166,439) 3,248,387
Treasury Stock -- At Cost.............. (313,218) -- -- (313,218)
---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY............. 2,307,169 794,439 (166,439) 2,935,169
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................... $2,452,046 $2,677,120 $ 228,621 $5,357,787
========== ========== ========== ==========
</TABLE>
50
<PAGE> 66
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED NOVEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SENTEX MONITEK ADJUSTMENTS
NOVEMBER 30, DECEMBER 31, INCREASE/ PRO FORMA
1995 1995 (DECREASE) COMBINED
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales.......................... $1,313,138 $6,814,555 $ -- $ 8,127,693
Interest and Other Income.......... 240,713 110,493 -- 351,206
---------- ---------- ---------- ----------
TOTAL REVENUES..................... 1,553,851 6,925,048 -- 8,478,899
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of Sales...................... 489,522 3,169,065 -- 3,658,587
Selling and Administrative......... 925,029 3,876,106 11,430(4) 5,012,565
200,000(4)
Research and Development........... 316,643 500,936 -- 817,579
Interest Expense................... -- 83,047 24,522(4) 114,459
6,890(4)
----------
TOTAL COST AND EXPENSES............ 1,731,194 7,629,154 242,842 9,603,190
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES
(BENEFIT)....................... (177,343) (704,106) (242,842) (1,374,291)
PROVISION FOR INCOME TAXES
(BENEFIT).......................... (62,466) 3,858 -- (58,608)
---------- ---------- ---------- ----------
NET LOSS........................... $ (114,877) $ (707,964) $(242,842) $(1,065,683)
========== ========== ========== ==========
NET LOSS PER SHARE................. $ -- $ (.01)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES.......................... 68,024,759 79,684,440
========== ==========
</TABLE>
51
<PAGE> 67
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
MAY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SENTEX MONITEK ADJUSTMENTS
MAY 31, JUNE 30, INCREASE/ PRO FORMA
1996 1996 (DECREASE) COMBINED
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales............................ $ 453,570 $ 2,783,394 $ -- $3,236,964
Interest and Other Income............ 34,786 43,453 -- 78,239
---------- ---------- ---------- ----------
TOTAL REVENUES....................... 488,356 2,826,847 -- 3,315,203
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of Sales........................ 246,213 1,277,773 -- 1,523,986
Selling and Administrative........... 584,476 1,709,473 5,715(4) 2,399,664
100,000(4)
Research and Development............. 103,067 99,788 -- 202,855
Interest Expense..................... -- 76,163 12,261(4) 91,869
3,445(4)
---------- ---------- ---------- ----------
TOTAL COST AND EXPENSES.............. 933,756 3,163,197 121,421 4,218,374
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (BENEFIT)... (445,400) (336,350) (121,421) (903,171)
PROVISION FOR INCOME TAXES (BENEFIT)... -- 3,884 -- 3,884
---------- ---------- ---------- ----------
NET LOSS............................. $(445,400) $ (340,234) $(121,421) $ (907,055)
========== ========== ========== ==========
NET LOSS PER SHARE................... $ (.01) $ (.01)
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES.... 67,360,081 79,019,762
========== ==========
</TABLE>
52
<PAGE> 68
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) To reflect the cost of acquisition, the pro forma adjustment reflects that
upon completion of the Merger, Clarion, the controlling shareholder of
Monitek, will receive a convertible note in the aggregate principal amount
of $136,414 in exchange for the secured Monitek Note.
(2) Pro forma adjustment eliminates Sentex's investment in Monitek and allocates
the net assets acquired of $794,439 and debt not acquired of $476,940 and
goodwill of $228,621.
(3) To reflect the issuance of debt for the Monitek Class A Common Stock.
(4) The following pro forma adjustments are incorporated in the pro forma
condensed combined statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
NOVEMBER 30, 1995 MAY 31, 1996
----------------- ----------------
<S> <C> <C> <C>
(A) Amortization of goodwill. The goodwill represents
the excess estimated purchase price of $1,500,000
over the estimated fair value of the net assets
acquired of $794,439 plus debt not assumed of
$476,940 of Monitek. Goodwill is amortized over
20 years under the straight line method. $ 11,430 $ 5,715
(B) Increase in interest expense resulting from the
issuance of Notes Payable -- Class A Convertible
in exchange for Monitek Class A Common Stock.
Notes bear interest at an interest rate of 5.05%
per annum. $ 24,522 $ 12,261
(C) Increase in interest expense resulting from the
issuance of a Note Payable -- Convertible in
exchange for Monitek's secured note payable to
related party. The note bears interest at an
interest rate of 5.05% per annum. $ 6,890 $ 3,445
(D) Increase in selling and administrative expenses
resulting from the amended and restated
management service agreement between CPS Capital
Ltd. and Sentex Sensing Technology, Inc. $ 200,000 $100,000
</TABLE>
* * * * * * *
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BUSINESS OF SENTEX
DEVELOPMENT OF BUSINESS
Initially formed in November 1980 under the name Sinex Corp., Sentex
commenced the commercial production of a portable explosives detector of its own
design, the T-54, which was sold on a worldwide basis by an unaffiliated third
party pursuant to an exclusive distribution agreement. Since 1984, Sentex has
marketed this product under the trade name Scanex Jr. Sentex also markets a
walk-through, stationary explosives detector, the Scanex I. Additionally, in
1984, Sentex entered the environmental marketplace with both portable and fixed
site gas chromatography that tests air, soil, and water for chemicals deemed
potentially hazardous.
In April 1984, Sentex sold, in a public offering, 12,500,000 units, each
unit consisting of two Sentex Common Shares and a warrant to purchase one Sentex
Common Share.
On March 1, 1996, certain shareholders of Sentex sold a substantial portion
of their shares to CPS. As a result of such acquisition, CPS became the record
holder of 17,706,461 Sentex Common Shares. In addition, pursuant to two
shareholders agreements with two of the then principal shareholder of Sentex,
CPS obtained voting control of an additional 9,389,204 Sentex Common Shares. In
total, CPS is the beneficial owner of 27,095,665 Sentex Common Shares, which
currently represents 40.25% of the outstanding Sentex Common Shares. See "Other
Action to Be Taken at The Meeting--Proposal 4--Election of Directors--Certain
Relationships and Related Transactions."
DESCRIPTION OF BUSINESS
Sentex is engaged in the business of developing, manufacturing and selling
automated instruments designed to identify and measure the concentrations of
certain chemicals in air, soil and water. Sentex sells portable and walk-through
explosive detectors, two portable air analyzers, a portable and fixed-site
water-monitoring system and a sensor which measures the total organic content of
air. Sentex products are sold to customers who employ them for bomb detection,
environmental testing and the monitor and control of specific industrial
processes. Sentex also provides technical assistance and service to its
customers and on occasion performs research and development on a contractual
basis to develop instrumentation designed to fulfill customer-specific
analytical requirements. All of Sentex's products employ gas chromatography as
the method of analysis.
Gas Chromatography. Gas chromatography, a well-established technique with
more than 30 years of application, is used to identify unknown chemicals and
determine their concentrations in a given sample. The identification of the
chemical and its concentration are obtained by comparing the speed electronic
intensity at which the pure unknown chemical travels in a controlled environment
to the known speed of and electronic intensity of a pure known chemical. Sentex
has refined this basic process to allow its products to detect minute quantities
of potentially hazardous chemicals.
Existing Products. Sentex is currently marketing six products. Two of these
products are used to detect explosives and the other four are used in
environmental testing or process control.
The Scanex Jr. and Scanex I are the two products which are used to detect
explosives. The Scanex Jr. is a portable, briefcase-sized detector that samples
air to detect the presence of the most commonly used explosives. The Scanex Jr.,
however, may be unable to detect nonconventional explosives and may not be
effective where explosives are concealed in tightly sealed containers which
prevent the escape of air. Scanex I is a walk-through explosive detector. The
Scanex I screens persons entering a restricted area or company, such as a
nuclear power plant, to determine the potential presence of explosive substances
by sampling the air surrounding the person. It is also subject to the same
limitations as the Scanex Jr. In fiscal 1995, sales of these two products
comprised approximately 6% of Sentex's total revenues.
The other four products, the Scentoscreen, the Scentograph Plus II, the
Aquascan and the Scentoscan, are primarily used by persons in environmental
industries or industries that must control a process.
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The Scentoscreen is a self-contained, portable gas chromatograph designed
specifically as a comprehensive screening tool for determination of hazardous
chemicals. It is completely automatic and detects individual volatile compounds
in air, water and soil.
The Scentograph Plus II is a battery-operated portable gas chromatograph
designed to perform a complete laboratory analysis on-site. Powered by a
detachable, lap-top computer, the Scentograph Plus II stores all data on a disk
and is capable of being operated from off-site locations.
The Aquascan is a portable or stationary water-monitoring system that can
detect volatile organic compounds to levels below one part per billion. The
Aquascan is totally computerized and the system can automatically analyze a
water sample from multiple sources and can interface with a variety of water
treatment and remediation systems.
The Scentoscan is a stationary analyzer intended to monitor volatile
compounds in air from up to 32 locations simultaneously. It is fully automatic
and controlled by a desk-top portable computer. This product has been recently
redesigned to provide rack-mounted operation, multiple computer interfaces, and
customer-selected alarm levels.
Products Under Development. Sentex has developed, for an unaffiliated third
party, a battery-operated analyzer to be used to detect underground leaks. Two
prototype systems have been developed and are currently being tested by such
third party. The product will primarily be used by utility companies to detect
gas leaks, without the need to test below the ground surface.
Sentex is developing a portable gas chromatograph which will be
incorporated into a portable mass spectrometer currently under development with
an unaffiliated third party. A prototype instrument is scheduled for completion
in the fall of 1996.
Research and Development. Sentex expensed $316,643 and $252,051 for
research and development for the fiscal years ending 1995 and 1994,
respectively. During fiscal 1995, $118,196 of the research and development costs
were paid for by the customer who contracted for such services. The balance of
$198,447 was not passed to Sentex's customers and related to the improvement of
existing products including the Aquascan and the Scentoscan, and the development
of a new product and was absorbed by Sentex.
Marketing, Distribution and Sales. The Scanex Jr. is presently sold
directly by Sentex's employees and through unaffiliated representatives. The
list price of the Scanex Jr. is $9,900. The Scanex Jr. is marketed to local and
overseas police agencies, governmental security agencies and private security
firms.
The Scanex I has been successfully marketed to nuclear power plants and to
foreign governments which are concerned about preventing terrorist activities.
The suggested list price of the Scanex I is about $27,000, with discounts on
multiple unit orders. Sentex presently markets these products directly, through
advertisements, or through nonaffiliated, nonexclusive sales representatives,
who receive a 10% commission on any sales generated by their efforts.
Sentex markets its portable and fixed-site gas chromatography products to
regulatory and municipal agencies must comply with established standards for
levels of toxic substances, to environmental consulting firms involved in
analysis and remediation of hazardous sites, and to businesses that must comply
with various environmental regulations. The list prices of these products range
from $14,980 for a portable battery-operated device to $39,350 for a
rack-mounted, plantwide system. Sentex sells these products both directly and
through sales representatives who are engaged on an exclusive basis in the
United States. Commissions paid to these sales representatives on sales of the
various products are 12%-15% of their list prices. The representatives receive
commissions for sales made in their territories even if the orders are taken
directly by Sentex. Sentex directly markets these products by placing
advertisements in trade publications and participating in trade shows. With
respect to direct sales in the territories not covered by representatives,
Sentex does not pay commissions.
Sentex has appointed international representatives in Germany, England,
Canada, Austria, Israel, Switzerland, Poland, Italy, Australia and Korea.
International representatives are sold products with a 25% discount from the
list price and are responsible for the service and the warranty repair for the
products they
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sell. All sales are made in United States currency and are net of transportation
costs, export fees and any additional charges incurred by the representatives.
During fiscal 1995 and fiscal 1994, Sentex did not derive 10% or more of
its annual net sales from any one customer. During fiscal 1993, one customer, an
international representative of Sentex, accounted for more than 10% of Sentex's
annual net sales.
Manufacturing/Suppliers. Most of the hardware components used in Sentex's
products are manufactured to Sentex's specifications by outside sources. The
assembly of the electronic components of Sentex's products is currently
performed at Sentex's plant in Ridgefield, New Jersey, by one production manager
and four full-time employees. Final assembly and testing of finished products is
also performed by Sentex at its plant. All supplies required for product
assembly are commonly available from a variety of suppliers. Sentex estimates
that it currently has the capacity to double its production within the existing
facilities without requiring a significant increase in production staff.
Warranties and Disclaimers. All of Sentex's products are sold with a
one-year warranty for defective parts. If a unit requires a repair, the customer
must pay for shipping the unit to Sentex's plant in Ridgefield, New Jersey, and
Sentex will replace defective parts at its expense. Upon the expiration of the
one-year warranty, Sentex will continue to make any necessary repairs at
Sentex's or the customer's plant, at the expense of the customer. Sentex
disclaims liability for any loss or consequential damage suffered in connection
with the use of its products. While Sentex believes such disclaimer would
protect Sentex from any liability in the event of a claim brought against
Sentex, there can be no guarantee that the courts would give effect to the
disclaimer and that Sentex would be insulated from any liability. Sentex
believes it has adequate product liability insurance to cover the costs
associated with its warranty policy.
Competition. There are companies which produce products which compete with
all of Sentex's existing products. The companies have substantially greater
resources than Sentex. Sentex's competitors primarily compete against its
portable and stationary gas chromatography products. Sentex is aware of several
other portable gas chromatography products and one water-monitoring system which
are capable of detecting toxic chemicals. Based upon price and performance
features, however, Sentex believes that its products compete favorably.
Sentex's portable and walk-through explosives detectors also face
competition from other companies which currently sell such devices. Sentex
believes, however, that its products are more sensitive and accurate, have fewer
false alarms than the competing explosives detectors, and are competitively
priced.
Sentex's competitors have greater financial, manufacturing, technological
or marketing resources and current sales which exceed those of Sentex. In
addition, there are relatively few barriers to entry for new manufacturers and,
in the future, Sentex could face competition from other companies currently not
engaged in the sale or development of hazardous substance detectors.
Patents, Trademarks and Trade Secrets. Sentex presently holds no patents
and does not believe patents would significantly protect Sentex's trade secrets
and processes. Although Sentex may, in the future, seek patent protection on
certain of the components of its products, Sentex intends to rely primarily on
common law protection of trade secrets and other confidential information and on
confidentiality agreements with its employees and distributors to protect its
trade secrets and processes from competitors. Furthermore, there can be no
assurance that Sentex's present or future products will not infringe on patents
held by others. Sentex has not registered the trademarks "Scanex I," "Scanex
Jr.," "Scentoscreen," "Scentograph Plus II," "Scentogun," "Scentoscan" or
"Aquascan." Sentex does not believe that marketing of these products will be
significantly affected in the event it is required to market these products
under other trade names.
Employees. As of August, 1996 Sentex employed a total of 13 full-time
staff. In addition, Sentex employs several consultants who work for Sentex at
such times as Sentex requests their services.
Government Regulations. Sentex complies with a number of government
regulations, including environmental regulations. The cost of such compliance is
not significant. Sentex has routinely received all governmental approvals
necessary to conduct its business.
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SENTEX'S PROPERTIES
Sentex currently leases 4,500 square feet on two floors of a three-story
building at 553 Broad Avenue, Ridgefield, New Jersey 07657, under month-to-month
leases. The premises are used for executive offices, research and development
and product assembly and are generally in good condition. The premises are
leased from a principal of Sentex, Dr. Amos Linenberg, the Executive Vice
President of Sentex. Rental expense amounted to $53,340 for the year ended
November 30, 1995. See "Other Action to Be Taken at the Sentex Meeting--Election
of Directors--Certain Relationships and Related Transactions."
LEGAL PROCEEDINGS
There are no material lawsuits pending, or to Sentex's knowledge,
threatened against Sentex or any of its subsidiaries.
COMPARISON OF THE RIGHTS OF THE MONITEK STOCKHOLDERS
AND THE SENTEX SHAREHOLDERS
Monitek is incorporated in Delaware and Sentex is incorporated in New
Jersey. The rights of Monitek stockholders are governed by Delaware law. The
rights of shareholders of Sentex are governed by New Jersey law. At the
Effective Time, a Monitek stockholder will become either a shareholder of Sentex
or a holder of a Class A Convertible Note with the right, under certain
conditions, to convert such note into Sentex Common Shares. The following
comparison is of certain provisions of New Jersey law and Delaware law. This
summary does not purport to be complete and is qualified in its entirety by
reference to the corporate statutes of those states, which statutes may change
from time to time, and the corporate charter of Sentex, which also may be
changed.
VOTING REQUIREMENTS
Unless otherwise specified in a Delaware corporation's certificate of
incorporation, Delaware law generally provides that an amendment to the
certificate of incorporation, a sale or other disposition of all or
substantially all of a corporation's assets, or a merger or consolidation of a
corporation with another corporation requires the affirmative vote of a majority
of the outstanding stock entitled to vote thereon. Monitek's Certificate of
Incorporation presently does not contain a provision specifying a greater vote
in such circumstances.
Under New Jersey law, unless a greater vote is specified in the certificate
of incorporation, any amendment to a New Jersey corporation's certificate of
incorporation, the voluntary dissolution of the corporation, the sale or a
disposition of all or substantially all of a corporation's assets otherwise than
in the ordinary course of business, or merger or consolidation of the
corporation with another corporation, or the issuance of a number of shares
totalling more than 40% of the corporation's issued and outstanding shares to
effect a sale of assets, merger or consolidation requires in each case the
affirmative vote of a majority of the votes cast by shareholders of the
corporation entitled to vote thereon. Sentex's certificate of incorporation
presently does not contain provisions specifying a greater vote in such
circumstances.
Under Delaware law, if the shares of the corporation are divided into
classes, the holders of the outstanding shares of each class are entitled to
vote as a class upon any proposed amendment to the certificate of incorporation
(whether or not entitled to vote thereon by the provisions of the certificate of
incorporation) if the amendments increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of shares of
such class, or alter or change the powers, preferences, or special rights of the
shares of such class so as to adversely affect them. However, the number of
authorized shares of any such class or classes of stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of holders of a majority of the stock of the corporation
entitled to vote (without a class vote) if the certificate of incorporation so
provides. Monitek's certificate of incorporation does not provide for such
increase or decrease of the number of authorized shares.
Under New Jersey law, the holders of a class or series of shares are
entitled to vote as a class upon a proposed amendment to the certificate of
incorporation, whether or not entitled to vote thereon by the
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provisions of the certificate of incorporation, if the amendment would exclude
or limit their right to vote on any matter, limit or deny their preemptive
rights, cancel or otherwise adversely affect their dividends which have accrued
but have not been declared, create a new class or series having (or convertible
into shares having) rights or preferences superior to the class or increase the
rights or preference of any class or series. In addition, notwithstanding any
provision of the certificate of incorporation, the holders of a class or series
of shares whose rights or preferences would be subordinated or otherwise
adversely affected by a proposed amendment are entitled to vote as a class if
the amendment would affect their shares in the following manner: (i) decrease
the par value; (ii) effect a conversion, exchange or reclassification of their
shares; (iii) effect a conversion or exchange of any shares of another class or
series into their class or series; (iv) change the designation, preferences,
limitations or relative rights of their shares; (v) change the shares into a
different number of shares, or into the same number of another class or series;
or (vi) divide their shares into a series or determine the designation,
preferences, limitation or relative rights of any such series, or authorize the
board to take any such action.
CUMULATIVE VOTING
Under both Delaware and New Jersey law, stockholders do not have cumulative
voting rights in the election of directors unless the certificate of
incorporation so provides. Neither Sentex nor Monitek provides for cumulative
voting in their charter documents.
RIGHTS OF DISSENTING STOCKHOLDERS
Generally, stockholders of a Delaware corporation who dissent from a merger
or consolidation of the corporation are entitled to appraisal rights. There are,
however, no statutory rights of appraisal with respect to stockholders of a
corporation whose shares are either (i) listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or (ii) held of
record by more than 2,000 stockholders, where such stockholders receive only
shares of stock of the corporation surviving or resulting from the merger or
consolidation or shares of stock of any other corporation which, at the
effective date of the merger or consolidation, will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders (or cash in lieu
of fractional interests therein). Delaware law does not provide appraisal rights
to stockholders who dissent from the sale of all or substantially all of the
corporation's assets unless the certificate of incorporation provides otherwise.
Since the exceptions from the Delaware statutory right of appraisal do not apply
to the Merger, stockholders of Monitek have statutory rights of appraisal with
respect to the Merger. See "The Merger--Rights of Dissenting Stockholders."
Shareholders of a New Jersey corporation who dissent from a merger,
consolidation, sale of all or substantially all of the corporation's assets or
certain other corporate transactions are generally entitled to appraisal rights.
No statutory right of appraisal exists, however, where the stock of the New
Jersey corporation is listed on a national securities exchange, or is held of
record by not less than 1,000 holders, or the consideration to be received
pursuant to the merger, consolidation or sale consists of cash or securities or
other obligations which, after the transaction, will be listed on a national
securities exchange or held of record by not less than 1,000 holders.
STOCKHOLDER CONSENT TO CORPORATE ACTION
Unless otherwise provided in the certificate of incorporation, Delaware law
provides that any corporate action or authorization which requires the
affirmative vote of stockholders may be taken without a meeting, if a consent in
writing to such action is signed by the holders of outstanding stock having not
less than the minimum number of votes necessary to approve such action.
Monitek's certificate of incorporation provides that all actions by stockholders
must be effected at an annual or special meeting, and may not be effected by a
consent in writing.
Except as otherwise provided by the certificate of incorporation (and
Sentex's certificate of incorporation presently contains no such restrictions),
New Jersey law permits any action required or permitted to be taken
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at any meeting of a corporation's shareholders, other than the annual election
of directors, to be taken without a meeting upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
necessary to authorize such action at a meeting of shareholders at which all
shareholders entitled to vote were present and voting. The annual election of
directors, if not conducted at a shareholders' meeting, may be effected only by
unanimous written consent. Under New Jersey law, a shareholder vote on a plan of
merger or consolidation, if not conducted at a shareholders' meeting, may only
be effected by either: (i) unanimous written consent of all shareholders
entitled to vote on the issue with advance notice to any other shareholders, or
(ii) written consent of shareholders who would have been entitled to cast the
minimum number of votes necessary to authorize such action at a meeting,
together with advance notice to all other shareholders.
DIVIDENDS
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of surplus (defined as net assets minus stated capital)
or, when no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Monitek's certificate of
incorporation does not include any such restrictions.
Unless there are other restrictions contained in a New Jersey corporation's
certificate of incorporation (and Sentex's certificate of incorporation
presently contains none), New Jersey law generally provides that a New Jersey
corporation may declare and pay dividends on its outstanding stock so long as
the corporation is not insolvent and would not become insolvent as a consequence
of the dividend payment.
BYLAWS
Under Delaware law, the authority to adopt, amend, or repeal the bylaws of
a Delaware corporation is held exclusively by the stockholders, unless such
authority is conferred upon the board of directors in the certificate of
incorporation. Monitek's certificate of incorporation confers this authority on
both the board of directors and the stockholders.
The board of directors of a New Jersey corporation has the power to adopt,
amend, or repeal the corporation's bylaws, unless such powers are reserved in
the certificate of incorporation to the shareholders. Sentex's certificate of
incorporation does not reserve such powers to its shareholders.
PREEMPTIVE RIGHTS
Under both Delaware and New Jersey law, stockholders have only such
preemptive rights as may be provided in their respective certificates of
incorporation. Neither Sentex's nor Monitek's certificate of incorporation
provides stockholders with preemptive rights.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
A Delaware corporation may loan money to, or guarantee any obligation
incurred by, its officers or directors if, in the judgment of the board of
directors, such loan or guarantee may reasonably be expected to benefit the
corporation. With respect to any other contract or transaction between the
corporation and one or more of its directors or officers, such transactions are
neither void nor voidable solely for that reason if either (i) the director's or
officer's interest is made known to the disinterested directors or the
stockholders of the corporation, who thereafter approve the transaction, or (ii)
the contract or transaction is fair to the corporation as of the time it is
approved or ratified by either the board of directors, a committee thereof, or
the stockholders.
A New Jersey corporation may loan money to, or guarantee any obligation
incurred by, its officers, employees or directors if, in the judgment of the
directors, such loan or guarantee may reasonably be expected to benefit the
corporation. With respect to any other contract or transaction between the
corporation and one or more of its directors (or any other corporation or entity
in which such director or directors are otherwise interested), such transactions
are neither void nor voidable if either (i) the director's or officer's interest
is
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made known to the disinterested directors or the shareholders of the
corporation, who thereafter approve the transaction, or (ii) the contract or
transaction is fair to the corporation as of the time it is approved or ratified
by either the board of directors, a committee thereof, or the shareholders.
LIMITATIONS OF LIABILITY OF DIRECTORS AND OFFICERS
Under New Jersey law, a corporation may include in its certificate of
incorporation a provision which would, subject to the limitations described
below, eliminate or limit directors' or officers' liability to the corporation
or its shareholders for monetary damage for breaches of their fiduciary duty of
care. A similar provision under Delaware law applies to directors, but not
officers. Neither Sentex's nor Monitek's certificate of incorporation eliminate
or provide for such limits to an officer's or director's liability, as the case
may be.
Under Delaware law, a director cannot be relieved of liability (i) for
breaches of the duty of loyalty, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
the payment of unlawful dividends or expenditure of funds for unlawful stock
purchases or redemptions, or (iv) for transactions from which such director
derived an improper personal benefit.
Under New Jersey law, a director or officer cannot be relieved from
liability or otherwise indemnified for any breach of duty based upon an act or
omission (i) in breach of such person's duty of loyalty to the corporation or
its shareholders, (ii) not in good faith or involving a knowing violation of
law, or (iii) resulting in receipt by such person of an improper personal
benefit.
STOCKHOLDER PROTECTION LEGISLATION
Section 203 of the Delaware General Corporation Law ("Section 203"), in
general, prohibits a "business combination" between a corporation and an
"interested stockholder" within three years of the date such stockholder became
an "interested stockholder," unless (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 35% of the voting stock of the corporation outstanding at the time the
transaction commenced, exclusive of shares owned by directors who are also
officers and by certain employee stock plans, or (iii) after such date, the
business combination is approved by the board of directors and authorized by the
affirmative vote at a stockholders' meeting of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. The
term "business combination" is defined to include, among other transactions
between the interested stockholder and the corporation or any direct or indirect
majority-owned subsidiary thereof, a merger or consolidation; a sale, pledge,
transfer or other disposition (including as a part of dissolution) of assets
having an aggregate market value equal to 10% or more of either the aggregate
market value of all assets of the corporation on a consolidated basis or the
aggregate market value of all the outstanding stock of the corporation; certain
transactions that would increase the interested stockholder's proportion of
share ownership of the stock of any class or series of the corporation or such
subsidiary; and any receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any such subsidiary. In general, and subject to
certain exceptions, an "interested stockholder" is any person who is the owner
of 15% or more of the outstanding voting stock (or, in the case of a corporation
with classes of voting stock with disparate voting power, 15% or more of the
voting power of the outstanding common stock) of the corporation, and the
affiliates and associates of such person. The term "owner" is broadly defined to
include any person that individually or with or through its affiliates or
associates, among other things, beneficially owns such stock or has the right to
acquire such stock (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement or understanding or upon the
exercise of warrants or options or otherwise or has the right to vote such stock
pursuant to any agreement or understanding, or has an agreement or understanding
with the beneficial owner of such stock for the purpose of acquiring, holding,
voting or disposing of such stock. The restrictions of Section 203 do not apply
to corporations that have elected, in the manner provided therein, not to be
subject to such Section or which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on an
interdealer quotation system of a registered national securities association or
held of record by more than 2,000 stockholders.
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The New Jersey Shareholders Protection Act (defined herein as the Act)
prohibits certain transactions involving an "interested shareholder" and a
"resident domestic corporation." An "interested shareholder" is one that is
directly or indirectly a beneficial owner of 10% or more of the voting power of
the outstanding voting stock of a resident domestic corporation. The Act
prohibits certain business combinations between an interested shareholder and a
resident domestic corporation for a period of five years after the date the
interested shareholder acquired its stock, unless the business combination was
approved by the resident domestic corporation's board of directors prior to the
"stock acquisition date." After the five-year period expires, the prohibition on
certain business combinations continues unless the business combination is
approved by the affirmative vote of two-thirds of the voting stock not
beneficially owned by the interested stockholder, the business combination is
approved by the board prior to the interested stockholder's stock acquisition
date or certain fair price provisions are satisfied. The term "business
combination" is defined to include, among other transactions between an
interested stockholder and a resident domestic corporation; a merger or
consolidation; a sale, lease exchange, mortgage, pledge, transfer or other
disposition of assets of the resident domestic corporation having an aggregate
market value in excess of 10% or more of either the aggregate market value of
all the assets of the resident domestic corporation on a consolidated basis or
the aggregate market value of all the outstanding stock of that resident
domestic corporation; certain transaction that would increase the interested
stockholder's percentage ownership in the resident domestic corporation; and any
receipt by an interested stockholder of the benefit of any loans, advances,
guarantees, pledges or certain other financial benefits provided by or through
the corporation. The Act also prohibits the interested stockholder from engaging
in any of these business combinations through its "affiliates" and "associates"
or by engaging in such business combinations with a subsidiary of the resident
domestic corporation. See "The Merger--Interest of Certain Persons in the
Merger--New Jersey Shareholders Protection Act."
OTHER ACTION TO BE TAKEN AT THE SENTEX MEETING
The Sentex Meeting has been called to consider and act upon the matters set
forth below in addition to the Sentex Merger Proposal. The following information
is presented with respect to such other matters.
PROPOSAL 2 -- PROPOSAL TO ADOPT THE SENTEX 1996 LONG-TERM INCENTIVE PLAN
General. It is a condition of the Merger that the Sentex Shareholders adopt
the Sentex Sensing Technology, Inc. 1996 Long-Term Incentive Plan (the "Plan").
Accordingly, the Plan is being submitted to the Sentex Shareholders for their
approval.
Sentex's Board of Directors also believes that the Plan will promote the
long-term growth and profitability of Sentex and its subsidiaries by (i)
providing certain officers and other employees of Sentex and its subsidiaries
with incentives to improve shareholders' values and contribute to the success of
Sentex and (ii) enabling Sentex to attract, retain and reward the best available
persons for positions of substantial responsibility. The Plan provides for
grants of "incentive stock options" within the meaning of Section 422 of the
Code ("Incentive Stock Options"), nonqualified stock options ("Nonqualified
Stock Options"), stock appreciation rights in tandem with or independent of
options ("SARs"), restricted or nonrestricted share awards, performance units,
or any combination of the foregoing. On October , 1996, the average bid and
ask price of a Sentex Common Share on the Nasdaq Small Cap Market was $. .
Administration. The Plan will be administered by a committee (the
"Committee") consisting of at least two persons. Any option granted to "covered
employees" as defined in Section 162(m) of the Code shall be approved by a
Committee consisting solely of "outside directors" within the meaning of Section
162(m) of the Code. The members of the Committee shall also be members of
Sentex's Board of Directors. Each member of the Committee must be a person who
has not at any time within one year prior to his appointment to the Committee
been granted or awarded any shares of Sentex or any of its subsidiaries or any
stock options, SARs, performance units or any other equity securities of Sentex
or any of its subsidiaries pursuant to the Plan or any other plan of Sentex or
any of its subsidiaries, except as otherwise permitted by law.
Generally, the Committee is authorized to (i) select persons to participate
in the Plan, (ii) determine the form and substance of grants made under the Plan
to each participant, and the conditions and restrictions, if
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any, of the grants, (iii) interpret the Plan, and (iv) adopt, amend, or rescind
such rules and regulations for carrying out the Plan as it may deem appropriate.
Decisions of the Committee on all matters relating to the Plan will be in the
Committee's sole discretion and will be conclusive and binding on all parties,
including Sentex, its shareholders, and the participants in the Plan. At its
discretion, the Committee is authorized to appoint a subcommittee, the members
of which it will designate and which shall be composed solely of outside
directors as permitted by applicable laws and regulations. Such subcommittee
must possess and may exercise all the powers of the Committee and must keep full
records and accounts of its proceedings and transactions. All such transactions
must be reported to the Committee and to Sentex's Board of Directors.
Participation and Limits on Grants. Participation in the Plan is limited to
those officers or employees of Sentex and its subsidiaries, selected by the
Committee. Directors who are officers of Sentex are eligible to participate in
the Plan, but no member of the Committee is eligible to participate in the Plan.
Incentive Stock Options, Nonqualified Stock Options, SARs, restricted or
nonrestricted stock awards, or any combination thereof, may be granted to such
persons and for such number of shares as the Committee shall determine (such
individuals to whom grants are made being herein called "optionees" or
"grantees" as the case may be). The maximum number of shares with respect to
which Incentive Stock Options, Nonqualified Stock Options, SARs, restricted or
nonrestricted shares, or any combination of the foregoing may be granted to any
single individual in any one calendar year shall not exceed 200,000 shares.
Terms of Incentive and Nonqualified Options. The Committee may from time to
time grant to eligible participants Incentive Stock Options, Nonqualified Stock
Options, or any combination thereof. The options granted shall take such form as
the Committee shall determine, subject to the following terms and conditions.
Unless otherwise determined by the Committee, the price per share deliverable
upon the exercise of each option ("exercise price") cannot be less than 100% of
the fair market value of the shares on the date the option is granted. In the
case of the grant of any Incentive Stock Option to an employee who, at the time
of the grant, owns more than 10% of the total combined voting power of all
classes of stock of Sentex or any of its subsidiaries, such price per share, if
required by the Code at the time of grant, shall not be less than 110% of the
fair market value of the shares on the date the option is granted.
The term during which each option may be exercised shall be determined by
the Committee, but in no event shall an option be exercisable in whole or in
part, in the case of a Nonqualified Stock Option, more than ten years and one
day from the date it is granted or, in the case of an Incentive Stock Option,
more than ten years from the date it is granted; and, in the case of the grant
of an Incentive Stock Option to an employee who at the time of the grant owns
more than 10% of the total combined voting power of all classes of stock of
Sentex or any of its subsidiaries, in no event shall such option be exercisable,
if required by the Code at the time of grant, more than five years from the date
of the grant. All rights to purchase shares pursuant to an option shall, unless
sooner terminated, expire at the date designated by the Committee. The Committee
shall determine the date on which each option shall become exercisable and may
provide that an option shall become exercisable in installments. The shares
constituting each installment may be purchased in whole or in part at any time
after such installment becomes exercisable, subject to such minimum exercise
requirement as is designated by the Committee. The Committee may accelerate the
time at which any option may be exercised in whole or in part. Unless otherwise
provided herein, an optionee may exercise an option only if he is, and has
continuously been since the date the option was granted, an employee of Sentex
or a subsidiary. Prior to the exercise of the option and delivery of the shares
represented thereby, the optionee shall have no rights to any dividends or be
entitled to any voting rights on any shares represented by outstanding options.
If required by the Code at the time of grant of an Incentive Stock Option,
the aggregate fair market value (determined as of the grant date) of shares for
which such option is exercisable for the first time during any calendar year
(under all such plans of Sentex, its parent, if any, and its subsidiaries, if
any) may not exceed $100,000.
Options may be exercised in whole or in part upon payment of the exercise
price of the shares to be acquired. Payment must be made in cash or, in the
discretion of the Committee, in shares previously acquired by the participant or
a combination of cash and Sentex Common Shares. The fair market value of the
Sentex Common Shares tendered on exercise of options will be determined on the
date of exercise.
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Stock Appreciation Rights. The Committee has the authority to grant SARs in
tandem with an option ("tandem SAR") under this Plan to any optionee, either at
the time of a grant of an option or thereafter by amendment to an option. The
exercise of an option will result in an immediate forfeiture of its
corresponding tandem SAR, and the exercise of a tandem SAR will cause an
immediate forfeiture of its corresponding option. Tandem SARs are subject to
such other terms and conditions as the Committee may specify. A tandem SAR will
expire at the same time as the related option expires and can be transferred
only when, and under the same conditions as, the related option can be
transferred.
Tandem SARs are exercisable only when, to the extent and on the conditions
that the related option is exercisable. No tandem SAR may be exercised unless
the fair market value of a Sentex Common Share on the date of exercise exceeds
the exercise price of the option to which the SAR corresponds.
Upon the exercise of a tandem SAR, the optionee will be entitled to a
distribution in an amount equal to the difference between the fair market value
of a share of Sentex Common Shares on the date of exercise and the exercise
price of the option to which the SAR corresponds. The Committee will decide
whether such distribution will be in cash, in shares, or in a combination
thereof.
All tandem SARs will be exercised automatically on the last day prior to
the expiration date of the related option, so long as the fair market value of a
share of the Sentex Common Shares on that date exceeds the exercise price of the
related option.
SARs may also be granted by the Committee independently of options
("Independent SARs"). An Independent SAR will entitle a participant to receive,
with respect to each Sentex Common Share as to which the SAR is exercised, the
excess of the fair market value of one Sentex Common Share on the date of
exercise over its fair market value on the date the Independent SAR was granted.
An Independent SAR will become exercisable at such time or times, and on
such conditions, as the Committee may specify. Any exercise of an Independent
SAR must be in writing, signed by the proper person and delivered or mailed to
Sentex, accompanied by any other documents required by the Committee. Each
Independent SAR will be exercised automatically on the last day prior to the
expiration date established by the Committee at the time of the award of such
SAR. Payment of the amount to which a participant is entitled upon the exercise
of an Independent SAR will be made in cash or Sentex Common Shares, or in a
combination thereof, as the Committee shall determine. To the extent that
payment is made in such shares, the shares shall be valued at their fair market
value on the date of exercise of such SAR.
Terms of Restricted and Nonrestricted Share Awards. The Committee may at
any time and from time to time award shares under the Plan to such participants
and in such amounts as it determines. Each award of shares shall specify the
applicable restrictions, if any, on such shares, the duration of such
restrictions, and the time or times at which such restrictions shall lapse with
respect to all or a specified number of shares that are part of the award. The
Committee has the discretion, however, to reduce or shorten the duration of any
restriction applicable to any shares awarded to any participant under the Plan.
The participant will be required to deposit shares with Sentex during the period
of any restriction thereon and to execute a blank stock power therefor.
Termination of Employment. If a participant ceases to be an employee of
Sentex or any subsidiary due to death or disability, each of the participant's
Incentive Stock Options, Nonqualified Stock Options and SARs will become fully
vested and exercisable and shall remain so for a period of one year from the
date of termination of employment, but in no event after its expiration date.
With respect to restricted share awards, on termination of a grantee's
employment due to death, disability, or retirement with the consent of Sentex,
during any period of restriction, all restrictions on shares awarded to such
grantee will lapse. On termination of a grantee's employment for any other
reason, however, all restricted shares subject to awards made to such grantee
will be forfeited to Sentex.
If a participant ceases to be an employee of Sentex or any subsidiary upon
the occurrence of his retirement, each of his Incentive Stock Options,
Nonqualified Stock Options and SARs shall become fully vested and exercisable
and shall remain so for a period of five years from the date of retirement, but
in no event after its expiration date, provided that the participant does not
engage in competition during that five-
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year period unless he receives written consent to do so from the Sentex's Board
of Directors. If, however, Incentive Stock Options are not exercised by such
participant within 90 days after retirement, they will cease to qualify as
Incentive Stock Options and will be treated as Nonqualified Stock Options under
the Plan if required to be so treated under the Code.
If a participant ceases to be an employee of Sentex or any subsidiary due
to cause, all of his options and SARs will be forfeited. If a participant ceases
to be an employee of Sentex or any subsidiary for any reason other than death,
disability, retirement or cause, each of his or her options and SARs that was
exercisable on the date of termination will remain exercisable for, and shall
otherwise terminate at the end of, a period of 90 days after the date of
termination of employment, but in no event after its expiration date; provided
that the participant does not engage in competition during such 90-day period
unless he receives written consent to do so from Sentex's Board of Directors.
All of the participant's options and SARs that were not exercisable on the date
of such termination shall be forfeited.
Notwithstanding anything to the contrary, if a participant ceases to be an
employee of Sentex or any subsidiary, for any reason other than cause, the
Committee at its sole discretion may accelerate the vesting of any option or SAR
so that it will become fully vested and exercisable as of the date of such
participant's termination of employment.
Change in Control. If there is a change in control of Sentex, there will be
an automatic acceleration of the vesting of any outstanding Incentive Stock
Option, Nonqualified Stock Option or SAR so that it will become fully vested and
exercisable as of the date of the change in control and all restrictions shall
lapse on restricted share awards.
Adjustments. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation,
distribution of assets, extraordinary cash or non-cash dividend or any other
change in the corporate structure or shares of Sentex, the Committee shall make
such adjustments as it deems appropriate in the number and kind of shares
reserved for issuance under the Plan, in the number and kind of shares covered
by grants made under the Plan, and in the exercise price of outstanding options.
In the event Sentex is the surviving corporation in any merger or consolidation,
each outstanding option will pertain and apply to the securities to which a
holder of the number of shares subject to the option would have been entitled.
In the event of any merger, consolidation or other reorganization in which
Sentex is not the surviving or continuing corporation, all options, SARs, and
stock awards that were granted hereunder and that are outstanding on the date of
such event will be assumed by the surviving or continuing corporation.
Termination and Modification of the Plan. The Board of Directors, without
further approval of the shareholders, may modify or terminate the Plan and from
time to time may suspend, and if suspended, may reinstate any or all of the
provisions of the Plan, unless otherwise required by Rule 16(b)-3 of the
Securities Exchange Act of 1934 or Section 422 or Section 162(m) of the Code.
With the consent of the grantee affected thereby, the Committee may amend
or modify the grant of any outstanding option, SAR, or share award in any manner
to the extent that the Committee would have had the authority to make such grant
as so modified or amended, including, without limitation, to change the date or
dates as of which (i) an option becomes exercisable, or (ii) restrictions on
shares are to be removed. The Committee is authorized to make minor or
administrative modifications to the Plan as well as modifications to the Plan
that may be dictated by requirements of federal or state laws applicable to
Sentex or that may be authorized or made desirable by such laws.
Federal Tax Consequences. With respect to Nonqualified Stock Options, in
general, for federal income tax purposes under present law:
(i) The grant of a Nonqualified Stock Option, by itself, will not
result in income to the optionee.
(ii) Except as provided in (v) below, the exercise of a Nonqualified
Stock Option (in whole or in part, according to its terms) will result in
ordinary income to the optionee at that time in an amount equal to the
excess (if any) of the fair market value of the shares on the date of
exercise over the option price.
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(iii) Except as provided in (v) below, the tax basis of the shares
acquired upon exercise of a Nonqualified Stock Option, which will be used
to determine the amount of any capital gain or loss on a future taxable
disposition of such shares, will be the fair market value of the shares on
the date of exercise.
(iv) No deduction will be allowable to the employer corporation upon
the grant of a Nonqualified Stock Option but, upon the exercise of a
Nonqualified Stock Option, a deduction will be allowable to the employer
corporation at that time in an amount equal to the amount of ordinary
income realized by the optionee exercising such option if the employer
corporation deducts and withholds appropriate federal withholding tax.
(v) With respect to the exercise of a Nonqualified Stock Option and
the payment of the option price by the delivery of Common Shares, to the
extent that the number of shares received does not exceed the number of
shares surrendered, no taxable income will be realized by the optionee at
that time, the tax
basis of the shares received will be the same as the tax basis of the
shares surrendered, and the holding period of the optionee in the shares
received will include his holding period in the shares surrendered. To the
extent that the number of shares received exceeds the number of shares
surrendered, ordinary income will be realized by the optionee at that time
in the amount of the fair market value of such excess shares; the tax basis
of such excess shares will be equal to the fair market value of such shares
at the time of exercise; and the holding period of the optionee in such
shares will begin on the date such shares are transferred to the optionee.
With respect to Incentive Stock Options, in general, for federal income tax
purposes under present law:
(i) Neither the grant nor the exercise of an Incentive Stock Option,
by itself, will result in income to the optionee; however, the excess of
the fair market value of the shares at the time of exercise over the option
price is (unless there is a disposition of the shares acquired upon
exercise of an Incentive Stock Option in the taxable year of exercise)
includable in alterative minimum taxable income which may, under certain
circumstances, result in an alterative minimum tax liability to the
optionee.
(ii) If the shares acquired upon exercise of an Incentive Stock Option
are disposed of in a taxable transaction after the later of two years from
the date on which the option is granted or one year from the date on which
such shares are transferred to the optionee, long-term capital gain or loss
will be realized by the optionee in an amount equal to the difference
between the amount realized by the optionee and the optionee's basis which,
except as provided in (v) below, is the option price.
(iii) Except as provided in (v) below, if the shares acquired upon the
exercise of an Incentive Stock Option are disposed of within the two-year
period from the date of grant or the one-year period after the transfer of
the shares to the optionee (a "disqualifying disposition"):
(a) Ordinary income will be realized by the optionee at the time of
such disposition in the amount of the excess, if any, of the fair market
value of the shares at the time of such exercise over the option price,
but not in an amount exceeding the excess, if any, of the amount
realized by the optionee over the option price.
(b) Short-term or long-term capital gain will be realized by the
optionee at the time of any such taxable disposition in an amount equal
to the excess, if any, of the amount realized over the fair market value
of the shares at the time of such exercise.
(c) Short-term or long-term capital loss will be realized by the
optionee at the time of any such taxable disposition in an amount equal
to the excess, if any, of the option price over the amount realized.
(iv) No deduction will be allowed to the employer corporation with
respect to Incentive Stock Options granted or shares transferred upon
exercise thereof, except that if a disposition is made by the optionee
within the two-year period or the one-year period referred to above, the
employer corporation will be entitled to a deduction in the taxable year in
which the disposition occurred in an amount equal to the amount of ordinary
income realized by the optionee making the disposition.
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(v) With respect to the exercise of an Incentive Stock Option and the
payment of the option price by the delivery of Common Shares, to the extent
that the number of shares received does not exceed the number of shares
surrendered, no taxable income will be realized by the optionee at that
time, the tax basis of the shares received will be the same as the tax
basis of the shares surrendered, and the holding period (except for
purposes of the one-year period referred to in (iii) above) of the optionee
in shares received will include his holding period in the shares
surrendered. To the extent that the number of shares received exceeds the
number of shares surrendered, no taxable income will be realized by the
optionee at that time; such excess shares will be considered Incentive
Stock Option stock with a zero basis; and the holding period of the
optionee in such shares will begin on the date such shares are transferred
to the optionee. If the shares surrendered were acquired as the result of
the exercise of an Incentive Stock Option and the surrender takes place
within two years from the date the option relating to the surrendered
shares was granted or within one year from the date of such exercise, the
surrender will result in a disqualifying disposition and the optionee will
realize ordinary income at that time in the amount of the excess, if any,
of the fair market value at the time of exercise of the shares surrendered
over the basis of such shares. If any of the shares received are disposed
of in a disqualifying disposition, the optionee will be treated as first
disposing of the shares with a zero basis.
Under federal law, the affirmative vote of the holders of a majority of the
outstanding Sentex Common Shares who are present at the Special Meeting in
person or by proxy, and cast their vote, is required for the approval of this
proposal.
SENTEX'S BOARD OF DIRECTORS RECOMMENDS THAT SENTEX SHAREHOLDERS VOTE FOR
THIS PROPOSAL.
PROPOSAL 3 -- PROPOSAL TO ADOPT THE AMENDED BYLAW
The Sentex Board of Directors proposes that the Sentex Shareholders replace
Section 8 of the bylaws of Sentex (the "Original Bylaw") with the Amended Bylaw.
The proposal to adopt the Amended Bylaw is being made in conjunction with
the need to satisfy a condition of the Merger to increase the number of members
of the Board of Directors from five to six (the "Condition"). Under New Jersey
law, the board of directors of a corporation is vested with the authority to
adopt, amend or repeal the bylaws, unless such authority has been reserved for
the shareholders in the certificate of incorporation or the bylaws. See
"Comparison of the Rights of the Monitek Stockholders and the Sentex
Shareholders--Bylaws." Under the Original Bylaw, the only provision that
reserves such authority for the Sentex Shareholders is Section 8.
Section 8 of the Original Bylaw provides as follows:
Any vacancy in the Board, not including a vacancy caused by an increase in
the number of Directors, may only be filled by the affirmative vote of a
majority of the remaining directors, even though less than a quorum of the
Board. Any Directorship to be filled by reason of an increase in the number of
Directors shall be filled by election at an annual meeting, or a special meeting
of the stockholders called for that purpose. This bylaw may be amended or
repealed only by the affirmative vote of a majority of votes cast at a meeting
of the shareholders.
Sentex's Board of Directors has determined it would be in the best interest
of Sentex to permit it to determine the size of its Board of Directors and to
fill any vacancies arising as a result of any increase in such number.
Accordingly, Sentex proposes to satisfy the Condition with this proposal.
The Amended Bylaw provides:
The number of directors shall not be less than one nor more than ten as may
be determined from time to time by resolution of the board. Unless otherwise
provided in the Certificate of Incorporation, any vacancy in the board,
including a vacancy caused by an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors, even
though by less than a quorum of the board, or by a sole remaining director.
The Sentex Board of Directors believes this proposal is desirable even if
the Merger is not consummated. The members of the Sentex Board of Directors may
conclude, for example, that it is desirable to increase the
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size of the Sentex Board of Directors in connection with other acquisitions. In
addition, if the Sentex Board of Directors identifies a qualified candidate for
election as a director, it may desire to add such a person to its Board of
Directors without having to wait until the next annual meeting. Passage of the
proposal for the Amended Bylaw will provide the Sentex Board of Directors with
the flexibility to meet these objectives.
Under New Jersey Law, the affirmative vote of the holders of a majority of
the outstanding Sentex Common Shares who vote at the Sentex Meeting is required
to adopt this proposal.
SENTEX'S BOARD OF DIRECTORS RECOMMENDS THAT SENTEX SHAREHOLDERS VOTE FOR
THIS PROPOSAL
PROPOSAL 4 -- ELECTION OF DIRECTORS
Listed below is information relating to each person nominated for election
as a Sentex Director and to the Clarion Designee (Morton A. Cohen) who will be
placed on Sentex's Board of Directors upon consummation of the Merger. All
information is presented as of September 30, 1996. In the election, the nominees
receiving the greatest number of votes will be elected directors. All directors
will hold office until the next annual meeting of Sentex and until their
respective successors are elected and qualified.
ROBERT S. KENDALL (age 56) has been the Chairman, President and Treasurer
of Sentex since March 1, 1996. He is also Chairman and President of CPS, a
mergers and acquisitions company based in Cleveland. Until April 1996, he was
also Chairman of the Board and founder of LDI Corporation, an asset leasing and
technology services company which he, along with two others, founded in 1972.
LDI is one of the largest independent lessors of technology and computer
equipment in the United States. Mr. Kendall is also a general partner in NCP,
Ltd., a real estate partnership actively engaged in investing, acquiring,
financing and managing commercial, industrial and other properties. From 1969 to
1972, Mr. Kendall was branch manager at Victor-Nixdorf Computer, a manufacturer
and distributor of computer systems. From 1963 to 1969, he was a salesman,
financial specialist and sales manager at Burroughs Corporation (now Unisys
Corp.). Mr. Kendall graduated from Case Western Reserve University with a
bachelor's degree in psychology in 1960, and attended graduate school at John
Carroll University.
JAMES G. FEW (age 46) has been the Chief Financial Officer and Vice
President of Sentex since March 1, 1996. He has also served as Vice President
and Chief Financial Officer for CPS since October 1995. From June 1993 to
October 1995, he was engaged as an independent financial consultant. Mr. Few
served as Senior Vice President of Boston Distributors from November 1992
through May 1993 where he was responsible for finance, accounting systems and
warehouse operations. In February 1993, Boston Distributors declared bankrupt
pursuant and was liquidated some time thereafter. From May 1991 through November
1992, Mr. Few served as Executive Vice President of Operations and Finance for
Progressive Communications Technology. Mr. Few was engaged as an independent
financial consultant from 1989 to 1991. From 1978 to 1989, he served as
Executive Vice President and Chief Financial Officer of Harris Wholesale Drug
Company, where he oversaw three operating divisions. Prior thereto, he served as
Division Controller of IT&T for eight years. Mr. Few received a bachelor's
degree in Business Management from Providence College.
JULIUS L. HESS (age 34) has served as Assistant Vice President for CPS
since November 1994 and is responsible for research and analysis. At CPS he
serves as lead analyst in the location and evaluation for acquisitions of
publicly held companies or divisions of companies which are believed to be
undervalued, or closely held companies with potential for appreciation. Prior to
joining CPS, Mr. Hess was Human Resources Manager for a division of GE Capital
from 1990 to 1994. From 1989 to 1990 he was Senior Human Resources
Representative for B.F. Goodrich and prior thereto he was Compensation and Labor
Relations Manager from 1986 to 1989 at the Mayo Clinic Medical Center. Mr. Hess
graduated from Miami University in Oxford, Ohio, with a bachelor's degree in
political science in 1983 and attended graduate school at the University of
Minnesota. Mr. Hess is Mr. Kendall's son-in-law.
RONALD M. LIPSON (age 61) has been an attorney for more than thirty-five
years in Cleveland, Ohio, practicing in various areas including corporate,
business, and real estate law. He was the incorporating attorney for LDI
Corporation and formerly served as legal counsel and a director of LDI
Corporation. Mr. Lipson is also a general partner in G&C Properties, an Ohio
real estate partnership engaged in buying, selling and managing various types of
real estate. Mr. Lipson attended Ohio University and graduated from Adelbert
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College of Case Western Reserve University with a bachelor's degree in business
administration in 1955. He also received a Doctor of Jurisprudence degree in
1958 from Case Western Reserve University School of Law.
DR. AMOS LINENBERG (age 60), except from March 1, 1996 through the present,
has been a director since founding Sentex in November 1980. He is presently a
nominee for election. From November 1980 until August 1994, Dr. Linenberg was
President of Sentex. He is currently the President of Sentex Systems, Inc., and
the Executive Vice President of Sentex. He is primarily responsible for
executive management of Sentex Systems, Inc. as well as supervising Sentex's
research, development and engineering of new products. Dr. Linenberg received
his M.Sc. in Analytical Chemistry and his Ph.D. in Analytical Chemistry from
Hebrew University.
MORTON A. COHEN (age 61), has not been nominated for election. He will be
elected to Sentex's Board of Directors as soon as practical after the
consummation of the Merger. Mr. Cohen has been Chairman of the Board of Monitek
since November 1983. Mr. Cohen has been the Chairman of the Board of Clarion, a
small business investment company and Monitek's principal stockholder, since
July 1981 and, since April 1982, has been Clarion's President and Chief
Executive Officer. Mr. Cohen is on the Board of Directors of the following
public companies: Zemex Corporation (industrial minerals and materials) since
May 1991 and Cohesant Technologies, Inc. (chemicals and coatings) since December
1994.
Two meetings of the Sentex Board of Directors were held during the fiscal
year ended November 30, 1995. Each Sentex Director attended at least one of the
meetings of the Sentex Board of Directors.
The Sentex Board of Directors does not have a nominating committee, audit
committee or a compensation committee.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Sentex Common Shares as of September 30, 1996, and as adjusted to
reflect the issuance of Sentex Common Shares in the Merger, by: (a) Sentex's
Directors (including nominees for Director); (b) each other person who is known
by Sentex to own (or is expected following the Merger to own) beneficially more
than 5% of the outstanding Sentex Common Shares; (c) Sentex's Chief Executive
Officer and the other four most highly compensated executive officers named in
the Summary Compensation Table; and (d) Sentex's executive officers and
Directors as a group. Except as otherwise described in the notes below, the
following beneficial owners have sole voting power and sole investment power
with respect to all Sentex Common Shares set forth opposite their names.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNER PERCENTAGE
- ------------------------------------------ ----------------------------- -----------------------------
PRE-MERGER POST-MERGER PRE-MERGER POST-MERGER
<S> <C> <C> <C> <C>
Robert S. Kendall(2) 27,095,665 27,095,665 40.2% 33.2%
James G. Few -- -- -- --
Julius L. Hess -- -- -- --
Ronald M. Lipson 500,000 500,000 * *
3 Laurel Hill Lane
Pepper Pike, Ohio 44124
Dr. Amos Linenberg(3) 8,389,204 8,389,204 12.5% 10.3%
Derco, Ltd.(4) 3,900,000 3,900,000 5.8% 4.8%
P.O. Box 1790
Georgetown, Grand Cayman
Cayman Islands, British West Indies
CPS Capital, Ltd.(5) 27,095,665 27,095,655 40.2% 33.2%
1801 East Ninth Street
Cleveland, Ohio 44114
All Directors and Officers (as a group
persons) 27,595,665 27,595,665 41.0% 33.9%
- ---------------
<FN>
(1) The name and address of each individual listed in the table, except where
otherwise indicated, is c/o Sentex Sensing Technology, Inc. 553 Broad
Avenue, Ridgefield, NJ 07657 or in the case of Mr. Kendall, Mr Few and Mr.
Hess, c/o Sentex Sensing Technology, Inc., 1801 East Ninth Street,
Cleveland, OH 44114.
(2) The Sentex Common Shares set forth herein with respect to Mr. Kendall are
all held of record by CPS or are beneficially owned by CPS pursuant to
certain shareholders, agreements between CPS and each of Dr. Linenberg and
Joanne Bianco. Under such shareholders agreements CPS has the power to vote
all Sentex Common Shares held by Dr. Linenberg and Ms. Bianco. See "Certain
Relationships and Related Transactions--CPS Acquisition." Mr. Kendall and
his wife own 100% of the outstanding membership interests in CPS.
(3) The Sentex Common Shares held of record by Mr. Linenberg are subject to
certain rights of CPS pursuant to a shareholders agreements. See "Certain
Relationships and Related Transactions--CPS Acquisition."
(4) Information disclosed with respect to Derco, Ltd has been obtained from its
Schedule 13(d) filed on July 1, 1996.
(5) CPS is the record holder of 17,706,461 Sentex Common Shares and has sole
voting and dispositive power with respect to such shares. CPS has sole
voting power with respect to the remaining 9,389,204 Sentex Common Shares
pursuant to shareholders agreements with each of Dr. Linenberg and Ms.
Bianco. See "Certain Relationships and Related Transactions--CPS
Acquisition."
*Represents less than 1% of the outstanding Sentex Common Shares.
</TABLE>
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<PAGE> 85
Upon consummation of the Merger, Clarion will not be a "beneficial owner"
of any Sentex Common Shares within the meaning of Rule 13d-3(a) of the Exchange
Act or have the right to acquire beneficial ownership of any Sentex Common
Shares within 60 days of the Merger. If the table set forth above assumed that
Clarion was able to immediately convert its Class A Convertible Note and the
Clarion Note into the maximum number of Sentex Common Shares into which each
such note is convertible, then Clarion would be the beneficial owner of
15,671,969 Sentex Common Shares, which would represent 16.1% of Sentex Common
Shares outstanding. The power to direct the vote of such Sentex Common Shares
will be held by CPS for a three year period from the Effective Time. See "The
Merger Agreement--The Ancillary Documents--Shareholders Agreement." In addition,
the percentage ownership of Sentex Common Share held by Mr. Linenberg and Derco,
Ltd., would be adjusted downward to 8.6% and 4%, respectively. Pursuant to the 3
year voting agreement under the Shareholders Agreement, CPS's percentage
ownership would be increased to 44%. Upon consummation of the Merger, Mr.
Wheeler will be elected to Sentex's Board of Directors. Mr. Cohen is the
Chairman of the Board of Clarion. Mr. Cohen beneficially owns 18,500 shares of
Monitek Common Stock and holds Monitek Options to purchase 89,500 shares of
Monitek Common Stock. Upon consummation of the Merger, Mr. Cohen will own
127,600 Sentex Common Shares and will hold Sentex Exchange Options to purchase
617,325 Sentex Common Shares. Mr. Cohen also owns 75.7% of Maycap Holding
Company, which in turn, owns 94.9% of Clarion.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
As under the securities laws of the United States, Sentex's directors, its
executive (and certain other) officers, and any persons holding ten percent or
more of Sentex Common Shares must report on their ownership of Sentex Common
Shares and any changes in that ownership to the Securities and Exchange
Commission and to the National Association of Securities Dealers, Inc.'s
Automated Quotation System. Specific due dates for these reports have been
established. During the year ended November 30, 1995, all reports for all
transactions were filed on a timely basis, except for one late reported
transaction by Dr. Linenberg in connection with a May 1995 transfer of shares of
Sentex Common Shares to the Daniele Linenberg Trust. Throughout the year
commencing December 1, 1996 through the date of this Joint Proxy
Statement/Prospectus, all reports for all transactions were filed on a timely
basis, except for one late reported transaction by Mr. Lipson in connection with
his purchase of 500,000 Sentex Common Shares on March 14, 1996.
SENTEX'S EXECUTIVE COMPENSATION
The following information is set forth with respect to Sentex's Chief
Executive Officer and each of Sentex's other most highly compensated executive
officers for the fiscal year ended November 30, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- OTHER ANNUAL
YEAR SALARIES BONUS COMPENSATION
------ -------- ------ -------------
<S> <C> <C> <C> <C>
Joanne Bianco 1995 $100,000(1) -0- -0-
Interim President 1994 $104,038(2) -0- -0-
1993 $ 79,500 -0- -0-
Amos Linenberg 1995 $130,676 -0- $18,545(3)
President, Sentex 1994 $132,176 -0- $18,377(3)
Systems, Inc. 1993 $121,543 -0- $22,079(3)
</TABLE>
- ---------------
(1) Includes $13,461 of accrued but unpaid salary in fiscal 1995.
(2) Includes $4,624 of deferred salary from fiscal 1993.
(3) Consists of automobile and insurance allowances.
Long-Term Compensation. No long-term compensation was paid during the
fiscal years ended November 30, 1995, 1994 or 1993 to any executive officer of
Sentex by way of restricted stock awards, options or stock appreciation rights,
or other long-term incentive plans.
Employment, Consulting and Management Agreements. As of March 1, 1996,
Sentex entered into an Employment Agreement with Amos Linenberg, a Consulting
Agreement with Joanne Bianco and a
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<PAGE> 86
Management Agreement with CPS (which was amended and restated on June 24, 1996).
See "Certain Relationships and Related Transactions--Linenberg Employment
Agreement; Bianco Consulting Agreement; CPS Management Agreement."
Stock Options. There are no Sentex stock options held by the directors or
executive officers of Sentex. Upon consummation of the Merger, Monitek Options
held by officers and directors of Monitek will be converted into Sentex Options.
See "The Merger--Interest of Certain Persons in the Merger."
Compensation Pursuant to Plans. Sentex has no plans pursuant to which cash
or non-cash equivalents were paid during the fiscal years ended November 30,
1995, 1994 or 1993.
Compensation of Directors. During fiscal years 1995, 1994 and 1993,
directors were not compensated for serving as such. Commencing December 1, 1996,
Sentex plans to compensate the directors with annual compensation of $6,000 per
year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CPS Acquisition. On March 1, 1996, CPS consummated the purchase of
17,606,461 Sentex Common Shares for a total aggregate purchase price of
$1,338,091 (the "Stock Purchase") pursuant to four separate stock purchase
agreements (the "Stock Purchase Agreements") dated October 18, 1995, between CPS
and each of (i) Amos Linenberg, ("Linenberg"), (ii) Joanne Bianco ("Bianco"),
(iii) Maxine Ganer as Trustee of the Daniele Linenberg Trust, and (iv) Salvatore
Bianco and The Estate of Marie Bianco (collectively the "Stockholders"). Upon
consummation of the Stock Purchase, Mr. Kendall, the Chairman, Chief Executive
Officer and principal owner of CPS, became the Chairman and President of Sentex
and Mr. Few, the Chief Financial Officer of CPS, became the Chief Financial
Officer and a director of Sentex. Julius L. Hess, the Assistant Vice President
of CPS, and Ronald Lipson (who has served in various capacities to companies
owned by Mr. Kendall) each became a director.
In connection with the Stock Purchase, CPS entered into a shareholder
agreement with each of Linenberg and Bianco (the "Shareholder Agreements"),
pursuant to which CPS obtained voting control of 9,389,204 additional Sentex
Common Shares. As of October , 1996, CPS beneficially owns a total of
27,095,665 Sentex Common Shares, which represents 40.2% of the outstanding
Sentex Common Shares as of October , 1996, based on 67,360,081 Sentex Common
Shares then outstanding. CPS has the sole voting and dispositive power with
respect to 17,706,461 of such shares and the sole power to direct the vote with
respect to the remaining 9,389,204 of such shares. Pursuant to the Shareholder
Agreement between CPS and Linenberg (the "Linenberg Shareholder Agreement"), CPS
has agreed to allow Linenberg, from March 1, 1996 through February 28, 2001, the
right to participate in either (i) a private sale of the Sentex Common Shares or
(ii) a public offering of such Sentex Common Shares, each on a pro rata basis
with CPS and Bianco (if Bianco elects or is eligible to participate), and each
on the same terms and conditions available to CPS.
From March 1, 1996 through February 28, 1997, pursuant to the Linenberg
Shareholder Agreement, Linenberg can require CPS to purchase up to 2,000,000
shares of his Sentex Common Shares at $.076 per share. In addition, from
September 1, 1997 through February 28, 2001, Linenberg can require CPS to
purchase up to 8,389,204 of his Sentex Common Shares at $.05 per share, so long
as he has not had the opportunity at any time after March 1, 1996 to sell at
least 5,000,000 of his Sentex Common Shares in an underwritten public offering
at a gross price equal to or greater than $.05 per share. Pursuant to the
Linenberg Shareholder Agreement, Linenberg has agreed not to sell any of his
Sentex Common Shares from March 1, 1996 through February 28, 1998 without the
consent of CPS. From March 1, 1998 through February 28, 2001, Linenberg must
give CPS the right to buy his Sentex Common Shares before he can sell any of
such shares. If Linenberg provides CPS notice (a "Notice") of his intent to sell
any of his Sentex Common Shares (the "Committed Shares"), then CPS must notify
Linenberg within 15 days that it desires to exercise its right to buy the
Committed Shares. If the Notice indicates that the Committed Shares are to be
sold privately, then CPS must pay Linenberg the price at which Linenberg was to
sell the Committed Shares to the private party. If the Notice indicates that
Linenberg desires to sell the Committed Shares in the public market, then CPS
must pay to Linenberg a price equal to the market price of the Sentex Common
Shares on the day before CPS
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<PAGE> 87
received the Notice relating to the Committed Shares. If CPS does not elect to
purchase the Committed Shares, Linenberg can sell such Committed Shares for a
period of 180 days to any third party.
Linenberg has provided CPS with an irrevocable proxy with respect to all
Sentex Common Shares held by him during the term of the Linenberg Shareholder
Agreement. The Linenberg Shareholder Agreement will terminate on the earlier of
February 28, 2001 or the date Mr. Kendall ceases to have effective control of
Sentex.
The Shareholder Agreement between CPS and Bianco (the "Bianco Shareholder
Agreement") is similar to the Linenberg Shareholder Agreement, but has a
termination date of February 28, 1998 and does not provide CPS any right to buy
or Bianco any right to require CPS to buy any of Bianco's Sentex Common Shares.
Pursuant to the Bianco Shareholder Agreement, Bianco has agreed not to sell any
of her Sentex Common Shares without the consent of CPS through February 28,
1998, and has the right to participate in (i) a private sale or (ii) a public
offering, on a pro rata basis with CPS and Linenberg (if he elects or is
eligible to participate), through February 28, 1998. Bianco has also provided
CPS with an irrevocable proxy with respect to all Sentex Common Shares held by
her during the term of the Bianco Shareholder Agreement. As of March 1, 1996,
following consummation of the Stock Purchase, Bianco owned 1,000,000 Sentex
Common Shares. The Bianco Shareholder Agreement will terminate on the earlier of
February 28, 1998 or the date Mr. Kendall ceases to have effective control of
Sentex.
Upon consummation of the Stock Purchase, Sentex entered into an employment
agreement with Linenberg (the "Employment Agreement") and a consulting agreement
with Bianco (the "Consulting Agreement"). See "Linenberg Employment Agreement"
and "-- Bianco Consulting Agreement."
Linenberg Employment Agreement. In connection with the acquisition of
Sentex Common Shares by CPS, Linenberg has entered into a four-year employment
agreement with Sentex, pursuant to which Linenberg has been retained to act as
Executive Vice President of Sentex for a base salary of $132,176 per annum, plus
annual cost-of-living increases and certain incentive compensation, and has
agreed to not engage directly or indirectly in any competing business during the
term of his employment and for one year thereafter.
Bianco Consulting Agreement. In connection with the acquisition of Sentex
Common Shares by CPS, Bianco has entered into a two-year Consulting Agreement
with Sentex pursuant to which Ms. Bianco has been retained to serve as a
part-time consultant to Sentex for a base compensation of $75,000 per annum, and
has agreed to not engage directly or indirectly in any competing business for a
three-year period. Bianco will receive an additional $100,000 from Sentex in
consideration of her agreement not to compete, payable in three equal
installments on March 1, 1996, March 1, 1997 and March 1, 1998. Sentex's
obligations under the Consulting Agreement are secured by a letter of credit.
CPS Management Agreement. Within two months after CPS acquired effective
control of Sentex, it entered into a Management Agreement with Sentex, which was
effective on March 1, 1996 (the "Original Management Agreement"). In connection
with the execution of the original Merger Agreement on June 24, 1996, CPS and
Sentex entered into an Amended and Restated Management Agreement (the "Amended
and Restated Management Agreement"). Pursuant to the Original Management
Agreement, CPS agreed to cause its personnel to perform the functions that would
normally be performed by the executive officers of Sentex. Presently, such
personnel consists mainly of Mr. Kendall, the Chairman of CPS, Mr. Few, the
Chief Financial Officer of CPS and Peggy Nutaitis, the Secretary of CPS. In
order to permit Mr. Kendall and Mr. Few to function as executive officers of
Sentex, Ms. Nutaitis to function as a nonexecutive officer and for all of them
to be properly insured as officers of Sentex, Mr. Kendall has been elected as
the President and Treasurer, Sentex, Mr. Few has been elected the Vice President
and Chief Financial Officer of Sentex, and Ms. Nutaitis has been elected
Assistant Secretary of Sentex.
Under the terms of the Original Management Agreement, CPS received an
annual fee of $193,800, which was payable monthly. Under the terms of the
Amended and Restated Management Agreement, the annual fee was increased to
$393,800 to account for the increase in tasks and responsibilities relating to
the operation of Monitek. Sentex agreed to increase CPS's fee as of June 24,
1996, because CPS would begin providing its expertise to Monitek as of that
time.
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<PAGE> 88
Both the Original Management Agreement and the Amended and Restated
Management Agreement were approved by Ms. Bianco and Mr. Lipson, the two
directors who are not affiliated with CPS.
Office Lease. Sentex currently leases 5,500 square feet on three floors of
a three-story building at 553 Broad Avenue, Ridgefield, New Jersey 07657, as
executive offices and research and product assembly facilities under
month-to-month leases from Dr. Linenberg, the current Vice President of Sentex
and President of Sentex Sensing, Inc., an operating subsidiary of Sentex. Rental
expenses amounted to $53,340 for the year ended November 30, 1995.
Other. Mr. Matthew Keshishian, a director of Sentex prior to the CPS
Acquisition, received $9,000 and $7,500 for legal and consulting services to the
Company during fiscal 1995 and fiscal 1994, respectively. Sentex believes that
the terms of his consultancy are on terms no less favorable to Sentex than could
have been received from unaffiliated third parties.
Sentex paid Maklin Ltd., a software development company, $31,137 during
fiscal 1995 for upgrades and modifications to several of the Sentex products.
Maklin Ltd. is owned, in part, by Youri Linenberg, Dr. Linenberg's son.
On August 26, 1996, Clarion pledged to Sentex the secured Monitek Note, and
several other secured notes issued in connection with the Interim Borrowings, as
security for certain advances to be made to Monitek by Sentex. As of October ,
1996, Sentex has advanced $65,000 to Monitek. See "The Merger
Agreement--Ancillary Documents--Interim Letter Agreement and Other Documents."
DESCRIPTION OF SENTEX SECURITIES
SENTEX COMMON SHARES
As of October , 1996, Sentex's authorized capital stock consisted solely
of 200,000,000 Sentex Common Shares, of which 67,360,081 shares are issued and
outstanding.
The holders of Sentex Common Shares do not have preemptive rights and have
no rights to convert their shares into any other security. All Sentex Common
Shares are entitled to participate equally and ratably in dividends as may be
declared by Sentex's Board of Directors. In the event of the liquidation of
Sentex, holders of Sentex Common Shares are entitled to share ratably in assets
remaining after payment of all liabilities, subject to prior distribution rights
of any Class A Convertible Notes then outstanding. Holders of Sentex Common
Shares are entitled to one vote per share for the election of Directors and upon
all matters on which shareholders are entitled to vote. Sentex Shareholders do
not have cumulative voting rights.
The Original Bylaw of Sentex provides that the Board of Directors shall
consist of one or more members. Presently, Sentex's Board of Directors consist
of five persons. In addition, the Original Bylaw reserves to the Sentex
Shareholders the right to determine the size of Sentex's Board of Directors. If
the proposal set forth under "Other Action to Be Taken at the Sentex
Meeting--Proposal to Adopt the Amended Bylaw" is adopted by Sentex Shareholders,
the Board of Directors will be able to determine the number of Directors who
will sit on its Board of Directors without the approval of the Sentex
Shareholders.
Certain Sentex Shareholders may be subject to The New Jersey Shareholders
Protection Act (defined herein as the "Act"). The Act prohibits certain
transactions involving an "interested shareholder" and a "resident domestic
corporation." An "interested shareholder" is one that is directly or indirectly
a beneficial owner of 10% or more of the voting power of the outstanding voting
stock of a resident domestic corporation. The Act prohibits certain business
combinations between an interested shareholder and a resident domestic
corporation for a period of five years after the date the interested shareholder
acquired its stock, unless the business combination was approved by the resident
domestic corporation's board of directors prior to the "stock acquisition date."
After the five-year period expires, the prohibition on certain business
combinations continues unless the business combination is approved by the
affirmative vote of two-thirds of the voting stock not beneficially owned by the
interested stockholder, the business combination is approved by the board prior
to the interested stockholder's stock acquisition date or certain fair price
provisions are satisfied. CPS is presently subject to this Act and upon
consummation of the Merger, Clarion, subject to certain exemptions
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<PAGE> 89
provided to it by Sentex, will be subject to the Act. See "The Merger--Interest
of Certain Person in the Merger."
CLASS A CONVERTIBLE NOTES
Pursuant to the Merger, Sentex will issue Class A Convertible Notes in an
aggregate principal amount of $485,586. The Class A Convertible Notes will be
general unsecured obligations of Sentex and will be subordinate to all other
obligations of Sentex. Unless converted into Sentex Common Shares, the Class A
Convertible Notes will mature within approximately three years from the Closing
Date. The Class A Convertible Notes can be converted 65 days before the third
anniversary of the Closing Date, but can be converted earlier if: (i) Sentex
proposes to declare a dividend or other distribution to the Sentex Shareholders
other than a stock split or reverse stock split; (ii) Sentex proposes to offer
the Sentex Shareholders the opportunity to subscribe for additional equity
securities of Sentex or Sentex issues any equity securities pursuant to either a
private or public sale thereof; (iii) Sentex proposes to reclassify or change
the outstanding Sentex Common Shares (other than a change in par value or as a
result of a stock split); (iv) Sentex proposes to consolidate with or merge with
and into another entity (other than a consolidation or merger in which Sentex
will be the surviving corporation and which does not result in any
reclassification or change in the Sentex Common Shares); (v) Sentex proposes to
sell or convey substantially all its assets to another company); (vi) Robert S.
Kendall, the Chairman of the Board and President of Sentex, dies or becomes
permanently disabled; or (vii) there is a change in control of Sentex.
Sentex may compel conversion of the Class A Convertible Notes upon written
notice to the holder if (i) there is a proxy contest for control of Sentex's
Board of Directors or (ii) Sentex is unable, in the judgment of its Board of
Directors, without compelling such a conversion, to obtain the requisite
shareholder vote to approve a material transaction approved by Sentex's Board of
Directors. Upon consummation of the Merger, Sentex will have the power to direct
the vote of 34.29% of the outstanding Sentex Common Shares. In the event CPS
were to compel conversion of the Class A Convertible Notes, it would have the
power to direct the vote of all such issued shares until the third anniversary
of the Closing Date. See "The Merger Agreement--Ancillary
Documents--Shareholders Agreement. See "Other Actions to Be Taken at the Special
Meetings--Election of Directors--Security Ownership of Certain Beneficial Owners
and Management."
Generally, at any time the Class A Convertible Notes are convertible they
can be converted into that number of Sentex Common Shares that is equal to the
principal amount of each Class A Convertible Note after divided by $0.0562. If,
however, any holder does not convert his Class A Convertible Note within 20 days
before the third anniversary of the Closing Date, Sentex may compel the holders
to convert their Class A Convertible Notes at $0.0750 per share of Sentex Common
Stock. If any such holder informs Sentex of his intention to convert the Class A
Convertible Note within five business days after receiving notice of Sentex's
intention to compel conversion at $0.0750 per share, the holder may still
convert his Class A Convertible Note at a rate of $0.0562. Assuming all Class A
Convertible Notes are converted at a rate of $0.0562, Sentex will issue
8,640,320 Sentex Common Shares.
The conversion price shall be adjusted in the event that Sentex (a) pays a
dividend in, or makes a distribution of, Sentex Common Shares (or securities
convertible into, exchangeable for or otherwise entitling a holder thereof to
receive Sentex Common Shares) on its outstanding Sentex Common Shares, (b)
subdivides its outstanding Sentex Common Shares into a greater number of shares,
(c) combines its outstanding Sentex Common Shares into a smaller number of
shares or (d) otherwise reclassifies the Sentex Common Shares. Upon such events,
the conversion price will be adjusted so that the holders will be entitled to
receive the same number of Sentex Common Shares as the holders would have owned
or would have been entitled to receive immediately following the occurrence of
any such events had the Class A Convertible Notes been converted immediately
prior to the occurrence of (or applicable record date for) such event.
In addition, in the event Sentex distributes to any holders of the capital
stock of Sentex any securities or assets (other than cash dividends payable out
of earnings) the conversion price will be adjusted by multiplying the relevant
conversion price by a fraction, the numerator of which will be based on the then
current market price per share of Sentex Common Shares less the then fair market
value of the securities, assets or debt so distributed on a per share basis and
the denominator of which will be such current market price.
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<PAGE> 90
An adjustment made in the case of a stock dividend or distribution will be
made as of the record date therefor and, in the case of a subdivision,
combination, or reclassification, will be made as of the effective date of such
event.
Interest accrues on the Class A Convertible Notes at the rate of 5.05% and
is payable in Sentex Common Shares. The number of Sentex Common Shares issuable
in payment of interest is computed by dividing the amount of accrued interest
due in U.S. Dollars by the average of the bid and ask prices of Sentex Common
Shares on the last ten trading days prior to the date on which that interest
payment is due, as reflected on the exchange, quotation system or other market
on or in which the largest number of Sentex Common Shares were traded during the
preceding six-month period. Depending on the relevant applicable federal rate at
the time of issuance, interest may be imputed to the holder of such notes if
such notes are issued with original issuance discount. See "Federal Income Tax
Consequences."
The holders of the Class A Notes will also be afforded the opportunity to
participate in certain offerings of Sentex Common Shares by Sentex. Pursuant to
the Participation Rights Agreement, each time Sentex decides to sell any equity
securities of Sentex in a private transaction or pursuant to a public offering
(other than shares registered on Form S-4 or Form S-8 or successor forms
promulgated under the Securities Act) (an "Offer"), Sentex must provide, as soon
as practicable, to the holders of the Class A Convertible Notes written notice
that describes in reasonable detail the nature of such transaction or offering,
including the sale or offer price (if applicable) and the number of shares of
the equity securities which Sentex has decided to sell the Offer (the "Notice of
Sale"). By the Notice of Sale, Sentex will be deemed to offer the holders of the
Class A Convertible Notes (which offer will remain open for 10 business days
following the receipt of such notice ("Option Period")) the opportunity to agree
to purchase a portion of such securities (an "Option") on a pro rata basis
according to the following calculation: the number of shares that each holder
will be entitled to purchase in such Offer shall be equal to the product of: (a)
the total number of Sentex Common Shares or other securities Sentex intends to
sell in such Offer and (b) the quotient equal to: (i) the total number of Sentex
Common Shares theretofore issued and outstanding and thereafter at any time
issuable (at the most favorable conversion rate) upon conversion of the holder's
Class A Convertible Note and, if applicable, the Clarion Note divided by (ii)
the sum of the issued and outstanding Sentex Common Shares and the Sentex Common
Shares thereafter at any time issuable upon conversion of the Clarion Note and
the Class A Convertible Notes.
If a holder of a Class A Convertible Note does not exercise its Option
within the Option Period by giving Sentex written notice of his agreement to
purchase such securities, then Sentex will be permitted to sell such securities
for a period of 60 days after the Option Period. If such securities are to be
sold privately, however, Sentex cannot sell such securities at a lower price or
on terms more favorable than those specified, or to any person(s) not named as
purchaser(s), in the Notice of Sale. If a holder of a Class A Convertible Note
does not exercise its Option, and Sentex does not consummate the Offer in such
60 day period no sale of such securities can be made thereafter except in
compliance with the procedures provided for in the Participation Rights
Agreement.
Delivery of and payment for any securities purchased on exercise of an
Option will be made at the closing of the private transaction or public offering
as to which Sentex gave the Notice of Sale.
The Participation Rights Agreement will terminate if the CPS Group (as
defined below) no longer has effective control of Sentex. The "CPS Group" is
defined in the Participation Rights Agreement to mean CPS and its then existing
affiliates and associates, with the terms "affiliates" and "associates" having
the meanings set forth in Section 14A:10A-3 of the Act.
EXPERTS
The consolidated financial statements of Sentex for the indicated periods
detailed in the Index to the Consolidated Financial Statements appearing in this
Joint Proxy Statement/Prospectus and Registration Statement have been audited by
Moore Stephens, P.C., independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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<PAGE> 91
The consolidated financial statements and schedule of Monitek Technologies,
Inc. and subsidiary as of March 31, 1996 and 1995, and for each of the years in
the three-year period ended March 31, 1996 have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP dated May 31, 1996, except as
to Note 17, which is as of June 24, 1996, covering the March 31, 1996, financial
statements and financial statement schedule contains an explanatory paragraph
that states that Monitek's recurring losses from operations raise substantial
doubt about the entity's ability to continue as a going concern. The
consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of that uncertainty.
LEGAL MATTERS
The validity of the Sentex Common Shares and the Class A Convertible Notes
to be issued pursuant to the Merger will be passed on by Baker & Hostetler.
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<PAGE> 92
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets at May 31, 1996 [Unaudited] and November 30, 1995......... F-3
Consolidated Statements of Operations for the six months ended May 31, 1996 and 1995
[Unaudited] and for the years ended November 30, 1995 and 1994...................... F-4
Consolidated Statements of Stockholders' Equity for the six months ended May 31, 1996
[Unaudited] and for the years ended November 30, 1995 and 1994...................... F-5
Consolidated Statements of Cash Flows for the six months ended May 31, 1996 and 1995
[Unaudited] and for the years ended November 30, 1995 and 1994...................... F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 93
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Sentex Sensing Technology, Inc.
Ridgefield, New Jersey
We have audited the accompanying consolidated balance sheet of Sentex
Sensing Technology, Inc. and subsidiaries as of November 30, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two fiscal years in the period ended November 30, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sentex Sensing Technology, Inc. and its subsidiaries as of November 30, 1995,
and the results of their operations and their cash flows for each of the two
fiscal years in the period ended November 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in the accompanying notes to the financial statements,
effective December 1, 1994, the Company adopted a new accounting standard
promulgated by the Financial Accounting Standards Board, changing its method of
accounting for certain investments in debt and equity securities.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
January 26, 1996
[Except for Note 13 as to which
the date is September 27, 1996]
F-2
<PAGE> 94
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1996 1995
----------- ------------
[UNAUDITED]
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents........................................ $ 1,873,656 $1,885,975
Certificates of Deposit.......................................... -- 90,000
Short-Term Investments........................................... -- 209,559
Accounts Receivable [Net of Allowance for Doubtful Accounts of
$3,000 and $2,162]............................................ 144,299 248,953
Inventories...................................................... 211,140 233,975
Prepaid Expenses................................................. 11,988 11,623
Refundable Income Taxes.......................................... 16,000 12,400
Note Receivable.................................................. 38,068 90,936
Other Current Assets............................................. 20,508 33,745
---------- ----------
TOTAL CURRENT ASSETS............................................. 2,315,659 2,817,166
PROPERTY AND EQUIPMENT -- [NET OF ACCUMULATED DEPRECIATION AND
AMORTIZATION].................................................... 37,472 48,991
COVENANT NOT-TO-COMPETE [NET OF AMORTIZATION]...................... 91,667 --
OTHER ASSETS....................................................... 7,248 10,735
---------- ----------
TOTAL ASSETS..................................................... $ 2,452,046 $2,876,892
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable................................................. $ 35,643 $ 37,450
Accrued Expenses and Other Liabilities........................... 42,568 80,699
Due to Related Party............................................. 33,333 --
---------- ----------
TOTAL CURRENT LIABILITIES........................................ 111,544 118,149
DUE TO RELATED PARTY............................................... 33,333 --
COMMITMENTS AND CONTINGENCIES...................................... -- --
---------- ----------
TOTAL LIABILITIES................................................ 144,877 118,149
---------- ----------
STOCKHOLDERS' EQUITY:
Common Stock, No Par Value, Authorized 200,000,000 Shares, Issued
76,206,081 Shares, Outstanding 67,360,081 Shares.............. 1,955,489 1,955,489
Retained Earnings................................................ 664,898 1,110,298
---------- ----------
Totals........................................................... 2,620,387 3,065,787
Unrealized Holding Gain on Securities Available for Sale......... -- 6,174
Less: Treasury Stock -- At Cost -- 8,846,000 Shares.............. (313,218) (313,218)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY....................................... 2,307,169 2,758,743
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $ 2,452,046 $2,876,892
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 95
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31, YEARS ENDED NOVEMBER 30,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
[UNAUDITED] [UNAUDITED]
<S> <C> <C> <C> <C>
REVENUES:
Net Sales............................. $ 453,570 $ 709,982 $ 1,313,138 $ 1,593,414
Interest and Other Income............. 34,786 172,669 240,713 133,398
----------- ----------- ----------- -----------
TOTAL REVENUES........................ 488,356 882,651 1,553,851 1,726,812
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of Sales......................... 246,213 266,496 489,522 657,045
Selling, General and Administrative... 584,476 383,791 925,029 941,502
Research and Development.............. 103,067 191,611 316,643 252,015
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES.............. 933,756 841,898 1,731,194 1,850,562
----------- ----------- ----------- -----------
[LOSS] INCOME BEFORE INCOME TAX
EXPENSE [BENEFIT].................. (445,400) 40,753 (177,343) (123,750)
PROVISION FOR INCOME TAX EXPENSE
[BENEFIT]............................. -- 2,114 (62,466) 3,875
----------- ----------- ----------- -----------
NET [LOSS] INCOME..................... $ (445,400) $ 38,639 $ (114,877) $ (127,625)
=========== =========== =========== ===========
NET INCOME PER SHARE.................. $ -- $ -- $ -- $ --
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING........................ 67,360,081 69,126,164 68,024,759 72,962,552
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 96
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAIN ON
COMMON STOCK SECURITIES TREASURY STOCK TOTAL
------------------------ RETAINED AVAILABLE ---------------------- STOCKHOLDERS'
SHARES AMOUNT EARNINGS FOR SALE SHARES AMOUNT EQUITY
---------- ---------- ---------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- NOVEMBER 30,
1993....................... 76,206,081 $1,955,489 $1,352,800 $ -- 2,072,000 $ (85,780) $ 3,222,509
Acquisition of Treasury
Stock.................... -- -- -- -- 3,881,000 (129,995) (129,995)
Net [Loss]................. -- -- (127,625) -- -- -- (127,625)
--------- ---------- ---------- -------- --------- --------- ----------
BALANCE -- NOVEMBER 30,
1994....................... 76,206,081 1,955,489 1,225,175 -- 5,953,000 (215,775) 2,964,889
Acquisition of Treasury
Stock.................... -- -- -- -- 2,893,000 (97,443) (97,443)
Unrealized Holding Gain on
Securities Available for
Sale..................... -- -- -- 6,174 -- -- 6,174
Net [Loss]................. -- -- (114,877) -- -- -- (114,877)
--------- ---------- ---------- -------- --------- --------- ----------
BALANCE -- NOVEMBER 30,
1995....................... 76,206,081 1,955,489 1,110,298 6,174 8,846,000 (313,218) 2,758,743
Reversal of Unrealized
Holding Gain on
Securities Sold.......... -- -- -- (6,174) -- -- (6,174)
Net [Loss]................. -- -- (445,400) -- -- -- (445,400)
--------- ---------- ---------- -------- --------- --------- ----------
BALANCE -- MAY 31, 1996
[UNAUDITED]................ 76,206,081 $1,955,489 $ 664,898 $ -- 8,846,000 $(313,218) $ 2,307,169
========= ========== ========== ======== ========= ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 97
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31, YEARS ENDED NOVEMBER 30,
-------------------------- -------------------------
1995 1995 1994
----------- ---------- -----------
1996 [UNAUDITED]
-----------
[UNAUDITED]
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net [Loss] Income........................ $(445,400) $ 38,639 $ (114,877) $ (127,625)
--------- ---------- ---------- -----------
Adjustments to Reconcile Net [Loss]
Income to Net Cash [Used for] Provided
by Operating Activities:
Depreciation and Amortization......... 19,852 6,764 28,270 33,690
Deferred Income Taxes................. -- (2,760) 1,080 (615)
Gain on Sale of Assets................ (1,500) -- (4,706) (27,902)
Gain on Sale of Investments........... (6,384) -- -- --
Provision for Bad Debt................ 15,839 -- 35,000 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable................. 93,094 125,976 206,953 (106,965)
Inventories......................... 22,834 (12,918) (44,670) 30,408
Prepaid Expenses.................... (365) -- (11,567) 12,832
Refundable Income Taxes............. (3,600) (48,068) (11,682) (764)
Other Current Assets................ 23,959 (15,255) 12,760 (7,695)
Other Assets........................ 3,488 -- (10,735) --
Increase [Decrease] in:
Accounts Payable.................... (1,807) (18,128) (15,370) 24,542
Accrued Expenses and Other Current
Liabilities...................... (38,131) (19,423) (50,126) 15,175
--------- ---------- ---------- -----------
Total Adjustments..................... 127,279 16,188 135,207 (27,294)
--------- ---------- ---------- -----------
NET CASH -- OPERATING ACTIVITIES......... (318,121) 54,827 20,330 (154,919)
--------- ---------- ---------- -----------
INVESTING ACTIVITIES:
Proceeds on Sale of Equipment............ 1,500 5,311 11,200 51,325
Redemption of Short-Term Investments..... 337,635 1,593,758 1,775,370 1,290,000
Purchase of Short-Term Investments....... -- -- (387,102) (2,217,589)
Acquisition of Equipment and
Improvements.......................... -- -- (12,537) (37,128)
Payment to Related Party................. (33,333) -- -- --
--------- ---------- ---------- -----------
NET CASH -- INVESTING ACTIVITIES......... 305,802 1,599,069 1,386,931 (913,392)
--------- ---------- ---------- -----------
FINANCING ACTIVITIES:
Acquisition of Treasury Stock............ -- (87,783) (97,443) (129,995)
--------- ---------- ---------- -----------
NET [DECREASE] INCREASE IN CASH AND CASH
EQUIVALENTS -- FORWARD................ $ (12,319) $ 1,566,113 $1,309,818 $(1,198,306)
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 98
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31, YEARS ENDED NOVEMBER 30,
-------------------------- -------------------------
1996 1995 1995 1994
----------- ----------- ---------- -----------
[UNAUDITED] [UNAUDITED]
<S> <C> <C> <C> <C>
NET [DECREASE] INCREASE IN CASH AND CASH
EQUIVALENTS -- FORWARDED.................. $ (12,319) $ 1,566,113 $1,309,818 $(1,198,306)
CASH AND CASH EQUIVALENTS -- BEGINNING OF
PERIODS................................... 1,885,975 576,157 576,157 1,774,463
---------- ---------- ---------- -----------
CASH AND CASH EQUIVALENTS -- END OF
PERIODS................................... $ 1,873,656 $ 2,142,270 $1,885,975 $ 576,157
========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest............................... $ -- $ -- $ -- $ --
Income Taxes........................... $ -- $ -- $ 689 $ 9,525
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On March
1, 1996, the Company entered into a Covenant Not-to-Compete agreement with a
related party for a total of $100,000. As of May 31, 1996, the remaining $66,667
balance due is to be paid in equal installments of $33,333 during January 1997
and 1998.
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 99
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MAY 31, 1996 AND 1995 IS
UNAUDITED]
[1] ORGANIZATION, BACKGROUND AND INDUSTRY SEGMENT
The consolidated financial statements include the accounts of Sentex
Sensing Technology, Inc. and its wholly-owned subsidiaries [the "Company"]. All
material intercompany accounts and transactions have been eliminated in
consolidation.
One of the subsidiaries, Sentex Systems, Inc., is engaged in the business
of developing, manufacturing and selling automated gas chromatography devices
designed to detect the presence of certain substances by identifying and
measuring the concentrations of certain atmospheric vapors. The other
subsidiary, Sentex Acquisition Corp., is pursuing new investment opportunities
on behalf of the Company.
The Company's business is confined to a single industry segment,
manufacturing analysis equipment.
[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES -- Inventories are stated at the lower of cost, with cost being
determined on the first-in, first-out ["FIFO"] method, or market.
PROPERTY AND EQUIPMENT AND DEPRECIATION -- Equipment and improvements are
stated at cost less accumulated depreciation and amortization. Depreciation and
amortization are computed using straight-line and accelerated methods over the
estimated useful lives of the respective assets. Estimated useful lives range
from 3 to 31.5 years as follows:
<TABLE>
<S> <C>
Machinery and Equipment....... 3 -- 7 Years
Automobiles................... 3 -- 5 Years
Leasehold Improvements........ 10 -- 31.5 Years
</TABLE>
Expenditures for normal repairs and maintenance are charged against income
as incurred.
REVENUE RECOGNITION -- The Company records revenue as products are shipped
to customers.
WARRANTY COSTS -- The Company's products are sold with a warranty for parts
and labor. Estimated costs of product warranties are charged to operations at
time of sale.
RESEARCH AND DEVELOPMENT COSTS -- Research and development costs are
expensed as incurred.
CASH AND CASH EQUIVALENTS -- Cash equivalents are comprised of certain
highly liquid investments with a maturity of three months or less when
purchased. The Company did not have any cash equivalents as of November 30,
1995.
RECLASSIFICATION -- Certain prior year balances have been reclassified to
conform to current year's presentation.
CONCENTRATION OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and cash
equivalents, investments in a certificate of deposit, U.S. Government and Agency
Bonds, and accounts receivable arising from its normal business activities.
Concentrations of credit risk with respect to trade receivables are limited, due
to the number of customers comprising the Company's customer base and their
disposition across different industries and geographic areas. Bad debt expenses
have not been material. The Company places its cash and cash equivalents with
high credit quality financial institutions. The amount on deposit in any one
institution that exceeds federally insured limits is subject to credit risk. As
of November 30, 1995, the Company had $852,219 in cash balances at financial
institutions which were in excess of the federally insured limits.
F-8
<PAGE> 100
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MAY 31, 1996 AND 1995 IS
UNAUDITED]
[3] INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
NOVEMBER
30, 1995
--------
<S> <C>
Raw Materials...................... $115,812
Work-in-Process.................... 36,177
Finished Goods..................... 81,986
--------
TOTAL............................ $233,975
========
</TABLE>
[4] PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
NOVEMBER
30, 1995
--------
<S> <C>
Machinery and Equipment............ $134,475
Automobiles........................ 22,826
Leasehold Improvements............. 15,100
--------
Total -- At Cost................... 172,401
Accumulated Depreciation and
Amortization..................... 123,410
--------
NET.............................. $ 48,991
========
</TABLE>
[5] INVESTMENTS
The Company adopted Statement of Financial Accounting Standards ["SFAS"]
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," at
December 1, 1994. In accordance with SFAS No. 115, prior years' financial
statements are not to be restated to reflect the change in accounting method.
There was no cumulative effect as a result of adopting SFAS No. 115 at December
1, 1994.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale. Securities available for sale are carried at fair value,
with any unrealized holding gains and losses, net of tax, reported in a separate
component of stockholders' equity until realized. At November 30, 1995, the
Company had no investments that qualified as trading or held to maturity. Debt
securities available for current operations are classified in the balance sheet
as current assets.
At November 30, 1994, short-term investments were stated at the lower of
aggregate cost or market.
Realized gains and losses on disposition are based on the net proceeds and
the adjusted book value of the securities sold using the specific identification
method. Unrealized holding gains and losses on investment securities available
for sale are based on the difference between book value and fair value of each
security. At November 30, 1995, such securities include a gross unrealized
holding gain of $6,174. This gain is shown as an addition to stockholders'
equity. Realized gains and losses flow through the Company's yearly operations.
There were no realized gains or losses for the year ended November 30, 1995.
F-9
<PAGE> 101
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MAY 31, 1996 AND 1995 IS
UNAUDITED]
The amortized cost and fair value of investment securities available for
sale at November 30, 1995 are as follows:
<TABLE>
<CAPTION>
AMORTIZED
FAIR VALUE COST
---------- ---------
<S> <C> <C>
U.S. Government Securities.............. $ 209,559 $ 203,385
======== ========
</TABLE>
The estimated fair value of debt securities available for sale by
contractual maturity at November 30, 1995 is as follows:
<TABLE>
<S> <C>
Due during the year ending November 30,
1996....................................... $ 209,559
========
</TABLE>
Expected maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.
[6] NOTE RECEIVABLE
The note receivable had an original due date of February 28, 1994, with
interest payable at 16% per annum. The principal portion is currently in
default; however, interest was paid up to and including April of 1995. On May 4,
1995, the Company received a legal judgement for the outstanding principal and
accrued interest as of April 30, 1995. The note is collateralized by stock which
had a value of approximately $42,000 as of November 30, 1995. The Company is
currently renegotiating the remaining outstanding balance of $115,936 and feels
that an allowance of $25,000 is prudent. Therefore, the outstanding balance as
of November 30, 1995 net of the allowance is $90,936.
[7] LEASES [RELATED PARTIES]
The Company occupies premises under three operating leases, which are
renewed monthly, two of which are with a principal shareholder. Rental expense
amounted to approximately $61,551 and $61,629 [of which $53,340 and $53,418 was
for related party leases] for the years ended November 30, 1995 and 1994,
respectively.
The leases provide for reimbursement of real estate taxes above a base
amount.
[8] PROFIT-SHARING PLAN
The Company has a profit-sharing plan for the benefit of all eligible
employees. Contributions under the plan are determined at the discretion of the
Board of Directors and are credited to employees based upon a percentage of
eligible salaries. The Company elected to suspend all contributions for the
years ended November 30, 1995 and 1994.
[9] RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has been a party to research and development agreements with
unaffiliated limited partnerships. Under an agreement which commenced in
December 1981, the Company conducted research relating to the development and
commercial exploitation of a portable toxic vapor detector using preconcentrated
gas chromatography on behalf of a limited partnership.
The Company was a defendant in an action filed in which a judgment creditor
of the partnership petitioned the court to require the Company to transfer the
total amount being held in escrow to satisfy the research and development
agreement with the partnership, to the judgement creditor. In April 1995, the
action was decided in favor of the creditor. The Company obtained a release from
the partnership for any and
F-10
<PAGE> 102
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MAY 31, 1996 AND 1995 IS
UNAUDITED]
all claims it has or may have against the Company by payment of a total amount
of $40,000, of which $21,261 was paid to the creditor and $18,739 paid to the
partnership.
In 1994, the Company entered into an agreement with a non-profit
corporation organized to sponsor research and development with respect to
electric energy. Based upon the agreement, the Company is to develop an
instrument for a major utilities corporation. The total contract revenue is for
$185,500, which is to be billed in installments based upon various stages of
completion throughout the agreement. The related total estimated costs are
approximately $151,300. As the earnings process is substantially complete and
substantially all costs have been incurred, all revenue under the contract has
been accrued. For the years ended November 30, 1995 and 1994, the effect of this
contract is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30,
-------------------
1995 1994
-------- -------
<S> <C> <C>
Revenue....................... $135,500 $50,000
Costs Incurred................ $118,196 $33,104
</TABLE>
[10] INCOME TAXES
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ["SFAS 109"]. Under
SFAS 109, deferred tax assets and liabilities, are determined based on
difference between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Prior to the adoption of SFAS 109,
income tax expense was reported pursuant to Statement of Financial Accounting
Standards No. 96. ["SFAS 96"] Under SFAS 96, deferred tax assets could not be
recognized unless they offset reversals of deferred tax liabilities. The
adoption of SFAS No. 109 was not material to the financial statements.
Income tax [benefit] expense consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1994
-------- -------
<S> <C> <C>
CURRENT:
Federal.......................... $(66,976) $ 1,279
State............................ 2,950 3,211
-------- -------
TOTALS........................... (64,026) 4,490
-------- -------
DEFERRED [CREDIT]:
Federal.......................... 975 (1,725)
State............................ 585 1,110
-------- -------
TOTALS........................... 1,560 (615)
-------- -------
TOTALS........................... $(62,466) $ 3,875
======== =======
</TABLE>
F-11
<PAGE> 103
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MAY 31, 1996 AND 1995 IS
UNAUDITED]
The differences between the provision for income taxes and income taxes
computed using the U.S. federal income tax rate were as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------
1995 1994
----- -----
<S> <C> <C>
Federal Statutory Rate...................................... (34.0)% (34.0)%
Increase [Reduction] in Taxes Resulting from:
Effect of Graduated Federal Tax Rates..................... 19.0 19.0
States Taxes.............................................. 8.1 12.9
Utilization of Net Operating Loss Carryback............... (26.3) --
Other....................................................... (1.3) 5.2
----- -----
ACTUAL EXPENSE............................................ (34.5)% (3.1)%
===== =====
</TABLE>
Temporary differences between financial reporting and tax bases of assets
and liabilities related to depreciation, warranty payable, unrealized holding
gain and allowance for doubtful accounts are immaterial.
At November 30, 1995, the Company has net operating loss carryforwards of
approximately $75,000 for income tax purposes after a carryback of approximately
$80,000. Refundable income taxes of $12,400 have been established to reflect the
tax effect of this carryback. The carryforward will expire in the year 2010.
At November 30, 1995, the Company has a deferred tax asset of approximately
$42,000 and a valuation allowance of approximately $42,000 related to the asset.
The deferred tax asset primarily relates to net operating loss carryforwards.
[11] LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding for the periods presented.
[12] NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] issued Statement of
Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," establishes
accounting standards for the impairment of certain loans. SFAS No. 114 applies
to financial statement for fiscal years beginning after December 15, 1994.
Adoption of SFAS No. 121 and SFAS No. 114 is not expected to have a material
impact on the Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
accounting requirements of SFAS No. 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995; the disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995. The Company currently does not have any
outstanding stock options.
On December 30, 1994, the American Institute of Certified Public
Accountants issued Statement of Position ["SOP"] 94-6, "Disclosure of Certain
Significant Risks and Uncertainties," the provisions of which are effective for
financial statements issued for fiscal years ending after December 15, 1995. In
general, SOP 94-6 requires disclosures about the nature of a company's
operations and the use of estimates in the
F-12
<PAGE> 104
SENTEX SENSING TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
[INFORMATION AS OF AND FOR THE SIX MONTHS ENDED MAY 31, 1996 AND 1995 IS
UNAUDITED]
preparation of financial statements. The Company does not anticipate a
significant expansion of its financial statement note disclosure as a result of
SOP 94-6.
[13] SUBSEQUENT EVENTS--BUSINESS COMBINATION
As of June 26, 1996, the Company and Monitek Technologies, Inc. ["Monitek"]
jointly announced their respective approvals of an Agreement and Plan of Merger
[the "Merger Agreement"] whereby Sentex will acquire Monitek and operate Monitek
as a wholly-owned subsidiary [the "Merger"]. Both companies are designers,
developers and manufactures of instruments for analysis or monitoring of
liquids, soil and air in industrial, municipal and environmental industries. The
combination will be accounted for by the purchase method.
The Merger Agreement provides that Monitek's common stock will be exchanged
for 11,659,681 Sentex common shares with an estimated fair value of $1,113,586.
Clarion Capital Corporation ("Clarion"), the controlling stockholder of
Monitek, will also receive an unsecured convertible note in the aggregate
principal amount of $136,414 in exchange for certain secured indebtedness owed
to it by Monitek. The total purchased cost is $1,500,000, which includes
$250,000 of estimated direct costs. Goodwill of $228,621 will be amortized over
20 years under the straight-line method. Results of operations of Monitek will
be included with those of the Company from the date of closing onward.
The Merger Agreement also provides that all the shares of Monitek's Class A
common stock will be exchanged for convertible notes in the aggregate principle
sum of approximately $486,000. Upon the completion of the Merger, the number of
Board of Directors of Sentex shall be increased from five members to six
members. The additional vacancy will be filled by a nominee of Clarion.
The following unaudited pro forma combined results of operations accounts
for the acquisition as if it has occurred at the beginning of the period
presented. The pro forma results give effect to amortization of goodwill,
interest expense, and consulting agreements.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1996 NOVEMBER 30, 1995
---------------- -----------------
<S> <C> <C>
Total Revenue.................................. $3,315,203 $ 8,478,899
========== ===========
Net [Loss]..................................... $ (907,055) $(1,065,683)
========== ===========
Net [Loss] Per Common Share.................... $ (.01) $ (.01)
========== ===========
Weighted Average Number of Shares
Outstanding.................................. 79,019,762 79,648,400
========== ===========
</TABLE>
These pro forma amounts may not be indicative of results that actually
would have occurred if the combination had been in effect on the date indicated
or which may be obtained in the future.
[14] UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of May 31, 1996 and the six months
ended May 31, 1996 and 1995 are unaudited; however, in the opinion of management
all adjustments [consisting solely of normal recurring adjustments] necessary to
make the interim financial statements not misleading have been made. The results
of the interim periods are not necessarily indicative of the results to be
obtained for a full fiscal year.
F-13
<PAGE> 105
MERGER AGREEMENT -- ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
SENTEX SENSING TECHNOLOGY, INC.
("Sentex"),
SENTEX MERGER CORP.
a wholly owned direct subsidiary of Sentex
("Subcorp"),
AND
MONITEK TECHNOLOGIES, INC.
("Monitek")
July 30, 1996
<PAGE> 106
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
ARTICLE I THE MERGER...................................................................... A-1
1.1 The Merger............................................................... A-1
1.2 Effective Time........................................................... A-1
1.3 Effects of the Merger.................................................... A-1
1.4 Certificate of Incorporation and Bylaws.................................. A-1
1.5 Directors and Officers................................................... A-2
ARTICLE II CONVERSION OF SECURITIES....................................................... A-2
2.1 Conversion of Capital Stock.............................................. A-2
2.2 Dissenting Shares........................................................ A-3
2.3 Exchange of Certificates................................................. A-3
(a) Exchange Agent....................................................... A-3
(b) Exchange Procedures.................................................. A-3
(c) Distributions with Respect to Unexchanged Shares..................... A-4
(d) No Further Ownership Rights in Monitek Class A Common Stock or
Monitek Common Stock ................................................ A-4
(e) No Liability......................................................... A-4
(f) Termination of Exchange Fund......................................... A-4
2.4 Treatment of Stock Options............................................... A-4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SENTEX AND SUBCORP.......................... A-5
3.1 Organization and Standing................................................ A-5
3.2 Subsidiaries............................................................. A-5
3.3 Corporate Power and Authority............................................ A-5
3.4 Capitalization of Sentex................................................. A-5
3.5 Conflicts; Consents and Approvals........................................ A-6
3.6 Sentex SEC Documents..................................................... A-6
3.7 Financial Statements..................................................... A-7
3.8 Absence of Certain Changes............................................... A-7
3.9 Absence of Undisclosed Liabilities....................................... A-7
3.10 Taxes.................................................................... A-7
3.11 Compliance with Law...................................................... A-7
3.12 Proprietary Rights....................................................... A-7
3.13 Title to and Condition of Properties..................................... A-8
3.14 Litigation............................................................... A-8
3.15 Brokerage and Finder's Fees.............................................. A-8
3.16 Employee Benefit Plans................................................... A-8
3.17 Contracts................................................................ A-9
3.18 Accounts Receivable and Inventories...................................... A-9
3.19 Officers, Employees and Compensation..................................... A-9
3.20 Labor Relations.......................................................... A-10
3.21 Full Disclosure.......................................................... A-10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MONITEK...................................... A-10
4.1 Organization and Standing................................................ A-10
4.2 Subsidiaries............................................................. A-10
4.3 Corporate Power and Authority............................................ A-10
4.4 Capitalization of Monitek................................................ A-10
4.5 Conflicts; Consents and Approvals........................................ A-11
4.6 Monitek SEC Documents.................................................... A-11
4.7 Financial Statements..................................................... A-12
4.8 Absence of Certain Changes............................................... A-12
</TABLE>
A-i
<PAGE> 107
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
4.9 Absence of Undisclosed Liabilities....................................... A-12
4.10 Taxes.................................................................... A-12
4.11 Compliance with Law...................................................... A-12
4.12 Proprietary Rights....................................................... A-12
4.13 Title to and Condition of Properties..................................... A-13
4.14 Litigation............................................................... A-13
4.15 Brokerage and Finder's Fees.............................................. A-13
4.16 Employee Benefit Plans................................................... A-13
4.17 Contracts................................................................ A-14
4.18 Accounts Receivable and Inventories...................................... A-14
4.19 Officers, Employees and Compensation..................................... A-14
4.20 Labor Relations.......................................................... A-14
4.21 Outstanding Indebtedness to Clarion...................................... A-15
4.22 Full Disclosure.......................................................... A-15
ARTICLE V COVENANTS OF THE PARTIES........................................................ A-15
5.1 Mutual Covenants......................................................... A-15
(a) Reasonable Efforts................................................... A-15
(b) Full Access.......................................................... A-15
(c) Registration Statement............................................... A-15
(d) Other Filings........................................................ A-15
(e) Cooperation.......................................................... A-15
(f) Accuracy of Information.............................................. A-16
(g) Public Announcements................................................. A-16
(h) Board Recommendations................................................ A-16
5.2 Covenants of Sentex...................................................... A-16
(a) Sentex Meeting....................................................... A-16
(b) Registration of Certain Shares....................................... A-16
(c) Operation of Sentex's Business....................................... A-16
(d) Director's and Officer's Insurance................................... A-17
(e) Agreements of Sentex and CPS......................................... A-17
(f) Interim Borrowings................................................... A-17
5.3 Covenants of Monitek..................................................... A-17
(a) Monitek Stockholders Meeting......................................... A-17
(b) Information for the Registration Statement........................... A-17
(c) Operation of Monitek's Business...................................... A-18
(d) No Solicitation...................................................... A-18
(e) Affiliates of Monitek................................................ A-19
(f) Loans by Clarion..................................................... A-19
ARTICLE VI CONDITIONS..................................................................... A-19
6.1 Mutual Conditions........................................................ A-19
6.2 Conditions to Obligations of Monitek..................................... A-20
6.3 Conditions to Obligations of Sentex and Subcorp.......................... A-21
ARTICLE VII TERMINATION AND AMENDMENT..................................................... A-21
7.1 Termination.............................................................. A-21
7.2 Effect of Termination.................................................... A-22
7.3 Fees and Expenses........................................................ A-22
7.4 Amendment................................................................ A-22
7.5 Extension; Waiver........................................................ A-22
</TABLE>
A-ii
<PAGE> 108
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
ARTICLE VIII MISCELLANEOUS................................................................ A-22
8.1 Survival of Representations and Warranties............................... A-22
8.2 Notices.................................................................. A-23
8.3 Interpretation........................................................... A-23
8.4 Counterparts............................................................. A-23
8.5 Entire Agreement......................................................... A-23
8.6 Third Party Beneficiaries................................................ A-23
8.7 Governing Law............................................................ A-23
8.8 Specific Performance..................................................... A-23
8.9 Assignment............................................................... A-24
8.10 Expenses................................................................. A-24
8.11 Exhibits................................................................. A-24
</TABLE>
A-iii
<PAGE> 109
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (this "Agreement")
is made and entered into as of the 30th day of July, 1996, by and among Sentex
Sensing Technology, Inc., a New Jersey corporation ("Sentex"), Sentex Merger
Corp., a Delaware corporation and a wholly owned direct subsidiary of Sentex
("Subcorp") and Monitek Technologies, Inc., a Delaware corporation ("Monitek").
PRELIMINARY STATEMENTS
A. Sentex desires to combine the business operated by Monitek and its
subsidiary through the merger (the "Merger") of Subcorp with and into Monitek,
with Monitek as the surviving corporation, pursuant to which each share of
Monitek Class A Common Stock and Monitek Common Stock (each as defined in
Section 4.4) outstanding at the Effective Time (as defined in Section 1.2) will
be converted into the right to receive a Class A Convertible Note (as defined in
Section 2.1(b) or Sentex Common Shares (as defined in Section 3.3),
respectively, as more fully provided herein.
B. The Boards of Directors of Sentex and Subcorp and the Board of Directors
of Monitek have determined that the Merger is in the best interests of their
respective stockholders and have approved this Agreement.
C. The parties hereto desire to amend and restate the Agreement and Plan of
Merger they entered into on June 24, 1996 (the "Original Agreement").
AGREEMENT
Now, therefore, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and in
accordance with the provisions of the Delaware General Corporation Law (the
"DGCL"), Subcorp shall be merged with and into Monitek as soon as practicable
following the satisfaction or waiver of the conditions set forth in Article VI.
Following the Merger, the separate corporate existence of Subcorp shall cease
and Monitek shall continue its existence under the laws of the State of
Delaware. Monitek, in its capacity as the corporation surviving the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. The Merger shall be consummated by filing with the
Secretary of State of the State of Delaware (the "Delaware Secretary of State")
a certificate of merger (the "Certificate of Merger") in such form as is
required by and executed in accordance with Section 252(c) of the DGCL. The
Merger shall become effective (the "Effective Time") when the Certificate of
Merger has been filed with the Delaware Secretary of State unless a later time
is specified therein. Prior to the filing referred to in this Section 1.2, a
closing (the "Closing") shall be held at the offices of Baker & Hostetler, 3200
National City Center, Cleveland, Ohio 44114, or such other place as the parties
may agree on a date (the "Closing Date") which shall be as soon as possible (but
in any event within ten (10) business days) following the date upon which all
conditions set forth in Article VI hereof have been satisfied or waived.
1.3 Effects of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
1.4 Certificate of Incorporation and Bylaws. The Certificate of Merger
shall provide that at the Effective Time (i) the Certificate of Incorporation of
Subcorp as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, and (ii) the Bylaws
of Subcorp in effect immediately prior to the Effective Time shall be the Bylaws
of the Surviving Corporation, in each case until amended in accordance with
applicable law.
<PAGE> 110
1.5 Directors and Officers. As provided in the Certificate of Merger, from
and after the Effective Time the officers of Subcorp shall be the officers of
the Surviving Corporation and the directors of Subcorp shall be the directors of
the Surviving Corporation in each case until their respective successors are
duly elected and qualified.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Sentex, Subcorp, Monitek or the
stockholders of Monitek (the "Monitek Stockholders") or the shareholders of
Sentex (the "Sentex Shareholders"):
(a) Each share of common stock, $0.01 par value, of Subcorp shall be
converted into one share of common stock, $0.01 par value, of the Surviving
Corporation, which shall thereafter constitute all of the issued and
outstanding capital stock of the Surviving Corporation.
(b) Each share of Monitek Class A Common Stock (as defined in Section
4.4) issued and outstanding immediately prior to the Effective Time shall
be converted into a Class A Convertible Note in substantially the form
attached hereto as Exhibit A (the "Class A Convertible Note") in an
original principal amount equal to one share of Monitek Class A Common
Stock multiplied by the Note Exchange Ratio (as defined below). The "Note
Exchange Ratio" is equal to $485,586 divided by the number of shares of
Monitek Class A Common Stock (including fractions thereof) issued and
outstanding immediately prior to the Effective Time, which, based on
1,252,676 shares of Monitek Class A Common Stock issued and outstanding on
the date hereof equals a Note Exchange Ratio of $0.3876389 of principal for
each share of Class A Common Stock as of such date. If more than one
certificate representing shares of the Monitek Class A Common Stock shall
be surrendered for the account of the same holder, the principal amount of
the Class A Convertible Note for which certificates have been surrendered
shall be computed on the basis of the aggregate number of shares
represented by the certificates so surrendered and a single Class A
Convertible Note shall be issued in exchange for such shares. Prior to
issuance each Class A Convertible Note shall be rounded to the nearest
whole dollar with $.50 being rounded up; provided, however, Sentex shall
not be required to issue more than $485,586 principal amount of Class A
Convertible Notes in the aggregate.
(c) Each share of Monitek Common Stock (as defined in Section 4.4)
issued and outstanding immediately prior to the Effective Time shall be
converted into and represent Sentex Common Shares in an amount equal to one
share of Monitek Common Stock multiplied by the Stock Exchange Ratio (as
defined below). The "Stock Exchange Ratio" is equal to 11,659,681 (subject
to adjustment as provided in Section 2.1(e)) divided by the number of
shares of Monitek Common Stock (including fractions thereof) issued and
outstanding immediately prior to the Effective Time, which, based on
1,690,424 shares of Monitek Common Stock issued and outstanding on the date
hereof equals a Stock Exchange Ratio of 6.8974890 Sentex Common Shares for
each such share as of such date. No certificates for fractional Sentex
Common Shares shall be issued as a result of the conversion provided for in
this Section 2.1(c). To the extent that an outstanding share of Monitek
Common Stock (or fraction thereof) would otherwise have become a fractional
Sentex Common Share, the holder thereof, upon presentation of such
fractional interest represented by an appropriate certificate for Monitek
Common Stock to the Exchange Agent pursuant to Section 2.2, shall be
entitled to receive a cash payment therefor in an amount equal to the value
(determined with reference to the last sale price of Sentex Common Shares
on the Nasdaq Small Cap Market on the last trading day immediately prior to
the Closing Date) of such fractional interest. Such payment with respect to
fractional shares is merely intended to provide a mechanical rounding off
of and is not a separately bargained for consideration. If more than one
certificate representing shares of the Monitek Common Stock shall be
surrendered for the account of the same holder, the number of Sentex Common
Shares for which certificates have been surrendered shall be computed on
the basis of the aggregate number of shares represented by the certificates
so surrendered. Sentex shall not be required to issue more than 11,659,681
Sentex Common Shares (subject to adjustment as provided in Section 2.1(e))
in the aggregate).
A-2
<PAGE> 111
(d) Each share of capital stock of Monitek held in the treasury of
Monitek shall be cancelled and retired and no payment shall be made in
respect thereof.
(e) In the event that prior to the Effective Time Sentex shall declare
a stock dividend or other distribution payable in Sentex Common Shares or
securities convertible into Sentex Common Shares, or effect a stock split,
reclassification, combination or other change with respect to Sentex Common
Shares, the aggregate number of Sentex Common Shares set forth in Section
2.1(c) into which Monitek Common Stock shall be converted at the Effective
Time shall be adjusted such that each holder of Monitek Common Stock shall
be entitled to receive at the Effective Time that number of Sentex Common
Shares such stockholder would have received had such dividend,
distribution, stock split, reclassification, combination or other change
been declared or effected, as the case may be, immediately after the
Effective Time. The aggregate number of Sentex Common Shares into which the
Class A Convertible Notes are convertible will be adjusted in like fashion.
2.2 Dissenting Shares. The holder of any shares ("Dissenting Shares") of
Monitek Class A Common Stock or Monitek Common Stock outstanding immediately
prior to the Merger that has validly exercised such holder's dissenters' rights,
if any, under the DGCL shall not be entitled to receive, in respect of the
shares of Monitek Class A Common Stock or Monitek Common Stock, as the case may
be, as to which such holder has validly exercised dissenters' rights Sentex
Common Shares, unless and until such holder shall have failed to perfect, or
shall have effectively withdrawn or lost, such holder's right to payment for
such holder's Monitek Class A Common Stock or Monitek Common Stock, as the case
may be, under the DGCL. In such event, such holder shall be entitled to receive
the Sentex Common Shares such holder would have been entitled to receive had
such holder not exercised dissenters' rights. Monitek shall give Sentex prompt
notice upon receipt by Monitek (i) prior to or at the meeting of stockholders at
which the Merger are voted upon, of any written objection to the Merger (any
stockholder duly making such objection being hereinafter called a "Dissenting
Stockholder") and (ii) any other notices or communications made after such time
by a Dissenting Stockholder which pertains to dissenters' rights. Monitek agrees
that, prior to the Effective Time, except with the written consent of Sentex, it
will not voluntarily make any payment with respect to, or settle or offer to
settle, any such demand. Each Dissenting Stockholder who becomes entitled under
the DGCL to payment for such holder's shares of Monitek Class A Common Stock or
Monitek Common Stock shall receive payment therefor after the Effective Time
from the Surviving Corporation.
2.3 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Sentex shall deposit
with an exchange agent designated by Sentex (the "Exchange Agent"), for the
benefit of Monitek Stockholders, for exchange in accordance with this
Section 2.3, Class A Convertible Notes and certificates representing Sentex
Common Shares (such Class A Convertible Notes and Sentex Common Shares,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.1 in exchange for outstanding Monitek Class A Common Stock or
Monitek Common Stock, as the case may be.
(b) Exchange Procedures. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to
the Effective Time represented outstanding Monitek Class A Common Stock or
Monitek Common Stock whose shares were converted into a Class A Convertible
Note, pursuant to Section 2.1(b), or Sentex Common Shares, pursuant to
Section 2.1(c) respectively, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Sentex may reasonably specify) and (ii) instructions for effecting the
surrender of the Certificates in exchange for either (y) a Class A
Convertible Note or (z) a certificate representing Sentex Common Shares, as
the case may be. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a duly executed letter of transmittal, the
holder of such Certificate shall be entitled to receive, as the case may
be, in exchange therefor either (i) a Class A Convertible Note in the
original principal amount that such holder is entitled pursuant to Section
2.1 or (ii) a certificate representing that number of Sentex Common Shares
which such holder has the right to receive
A-3
<PAGE> 112
pursuant to Section 2.1 and the Certificate so surrendered shall forthwith
be cancelled. In the event of a transfer of ownership of Monitek Class A
Common Stock or Monitek Common Stock which is not registered on the
transfer records of Monitek, a Class A Convertible Note in the proper
principal amount or a certificate representing the proper number of Sentex
Common Shares, respectively, may be issued to such transferee if the
Certificate representing such shares of Monitek Class A Common Stock or
Monitek Common Stock held by such transferee is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.3, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon surrender either (i) a Class A
Convertible Note as provided in Section 2.1(b) or (ii) a certificate
representing Sentex Common Shares and cash in lieu of fractional shares
thereof as provided in Section 2.1(c), as the case may be.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Sentex Common Shares having a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate, and no cash payment
in lieu of fractional shares shall be paid to any such holder, until the
holder shall surrender such Certificate as provided in this Section 2.3. No
interest shall be paid on any of the Sentex Common Shares distributed
pursuant to this Article II or on any dividend or cash in lieu of
fractional shares withheld but subsequently paid pursuant to this Section
2.3(c). Interest on the Class A Convertible Notes will accrue beginning at
the Effective Time.
(d) No Further Ownership Rights in Monitek Class A Common Stock or
Monitek Common Stock. All Class A Convertible Notes and Sentex Common
Shares issued upon surrender of Certificates in accordance with the terms
hereof (including any cash paid pursuant to Section 2.1(b)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to either
(i) Monitek Class A Common Stock or (ii) Monitek Common Stock represented
thereby, as the case may be, and there shall be no further registration of
transfers on the stock transfer books of Monitek of Monitek Class A Common
Stock or Monitek Common Stock outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Section 2.2.
(e) No Liability. None of Sentex, Monitek or the Exchange Agent will
be liable to any holder of shares of Monitek Class A Common Stock or
Monitek Common Stock for any shares of Sentex Common Shares, dividends or
distributions with respect thereto or cash payable in lieu of fractional
shares delivered to a state abandoned property administrator or other
public official pursuant to and as requested by any applicable abandoned
property, escheat or similar law.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to Monitek Stockholders for one year after the
Effective Time shall be delivered to Sentex, upon demand, and holders of
Monitek Common Stock who have not theretofore complied with this Section
2.2 shall thereafter look only to Sentex for payment of any claim to Class
A Convertible Notes, Sentex Common Shares, cash in lieu of fractional
shares thereof, or dividends or distributions, if any, in respect thereof.
2.4 Treatment of Stock Options.
(a) Prior to the Effective Time, Sentex and Monitek shall take such
action, if any, as may be necessary to cause each option outstanding at the
Effective Time under any stock option plan of Monitek in effect on the date
hereof that has been granted to current or former directors, officers or
employees of Monitek by Monitek (each, a "Monitek Option") to be
automatically converted at the Effective Time into an option (a "Sentex
Exchange Option") to purchase that number of Sentex Common Shares equal to
the number of shares of Monitek Common Stock issuable immediately prior to
the Effective Time upon exercise of the Monitek Option (without regard to
actual restrictions on exercisability) multiplied by the Stock Exchange
Ratio, and the exercise price of each Sentex Exchange Option shall equal
the exercise price which existed under the corresponding Monitek Option
divided by the Stock Exchange
A-4
<PAGE> 113
Ratio. Any and all options that were granted by Monitek to Clarion Capital
Corporation, a Delaware corporation ("Clarion"), shall be cancelled at the
Effective Time.
(b) Sentex agrees to file with the Securities and Exchange Commission
(the "Commission") within six months of the Closing Date a registration
statement on Form S-8 or other appropriate form under the Securities Act of
1933, as amended (the "Securities Act"), to register Sentex Common Shares
issuable upon exercise of the Sentex Exchange Options and use its best
efforts to cause such registration statement to remain effective until the
exercise or expiration of such options.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SENTEX AND SUBCORP
In order to induce Monitek to enter into this Agreement, Sentex and Subcorp
hereby represent and warrant to Monitek that the statements contained in this
Article III are true, correct and complete, except as disclosed in the
disclosure schedule (the "Sentex Disclosure Schedule"), delivered by Sentex to
Monitek and dated the date hereof:
3.1 Organization and Standing. Each of Sentex and Subcorp is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation with full power and authority (corporate and other) to
own, lease, use and operate its properties and to conduct its business as and
where now owned, leased, used, operated and conducted. Each of Sentex and
Subcorp is duly qualified to do business and in good standing in each
jurisdiction listed in the Sentex Disclosure Schedule, is not qualified to do
business in any other jurisdiction and neither the nature of the business
conducted by it nor the property it owns, leases or operates requires it to
qualify to do business as a foreign corporation in any other jurisdiction,
except where the failure to be so qualified or in good standing in such
jurisdiction would not have a material adverse effect. Neither Sentex nor
Subcorp is in default in the performance, observation or fulfillment of any
provision of its Certificate of Incorporation or Bylaws, as each may have been
amended or restated.
3.2 Subsidiaries. Except for the subsidiaries set forth on the Sentex
Disclosure Schedules, Sentex does not own, directly or indirectly, any equity or
other ownership interest in any corporation, partnership, joint venture or other
entity or enterprise. Neither Sentex nor any of its subsidiaries is subject to
any obligation or requirement to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any such entity. Subcorp
has not incurred, directly or through any subsidiary, any liabilities or
obligations, except those incurred in connection with its organization and with
the negotiation of this Agreement and the performance of its obligations
hereunder and the consummation of the transactions contemplated hereby. Except
as contemplated by this Agreement, Subcorp has not engaged, directly or through
any subsidiary, in any business activities of any type or kind whatsoever, or
entered into any agreements or arrangements with any person or entity, nor is it
subject to or bound by any obligation or undertaking.
3.3 Corporate Power and Authority. Each of Sentex and Subcorp has all
requisite corporate power and authority to enter into this Agreement and,
subject to approval of the Merger and the transactions contemplated hereby by
the Sentex Shareholders, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of each of Sentex and Subcorp, subject to approval
of the Merger and the transactions contemplated hereby by the Sentex
Shareholders. This Agreement has been duly executed and delivered by each of
Sentex and Subcorp, and constitutes the legal, valid and binding obligation of
each of Sentex and Subcorp enforceable against each of them in accordance with
its terms.
3.4 Capitalization of Sentex.
(a) As of May 31, 1996, Sentex's authorized capital stock consisted
solely of 200,000,000 common shares, $0.01 par value ("Sentex Common
Shares"), of which (i) 67,360,081 shares were issued and outstanding and
(ii) 8,846,000 shares were issued and held in treasury. Each outstanding
Sentex Common Share is, and all Sentex Common Shares to be issued in
connection with the Merger will be,
A-5
<PAGE> 114
duly authorized and validly issued, fully paid and nonassessable, and none
of the outstanding Sentex Common Shares has been, and none of the Sentex
Common Shares to be issued in connection with the Merger will be, issued in
violation of any preemptive or similar rights. Except as set forth in the
Sentex Disclosure Schedule, there are no outstanding subscriptions,
options, warrants, puts, calls, agreements, understandings, claims or other
commitments or rights of any type relating to the issuance, sale or
transfer by Sentex of any debt or equity securities of Sentex, nor are
there outstanding any debt or equity securities that are convertible into
or exchangeable for any shares of capital stock of Sentex; and Sentex has
no obligation of any kind to issue any additional securities or to pay for
securities of Sentex or any predecessor. The issuance and sale of all of
the shares of capital stock described in this Section 3.4 have been in
substantial compliance with federal and state securities laws. The Sentex
Disclosure Schedule accurately sets forth for each class of Sentex capital
stock (including options and warrants to purchase such stock), a summary of
the rights relating thereto, and the names of and the number of shares of
each class held by all persons that own 5% or more of the issued and
outstanding Sentex Common Shares. Except as set forth in the Sentex
Disclosure Schedule, Sentex has no outstanding agreements to register any
securities under the Securities Act and the rules and regulations
thereunder or under any state securities law.
(b) As of the date hereof, the authorized capital stock of Subcorp
consists of 100 shares of Common Stock, $0.01 par value, all of which are
issued and outstanding and owned by Sentex.
3.5 Conflicts; Consents and Approvals. Neither the execution and delivery
of this Agreement by Sentex or Subcorp nor the consummation of the transactions
contemplated hereby will:
(a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws, as each may have been amended or
restated, of either Subcorp or Sentex;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate or call a default under, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of Sentex or any of its subsidiaries under, any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which Sentex or any of its
subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to Sentex or any of its subsidiaries or their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration with any third party, court or governmental body or other
agency, instrumentality or authority, other than (i) approval of the Merger
and the transactions contemplated hereby by the Sentex Shareholders, (ii)
the filing of the Merger Certificate as set forth in Section 1.2 and (iii)
such registrations or other actions required under federal and state
securities laws in connection with the transactions contemplated by this
Agreement.
3.6 Sentex SEC Documents. Sentex has heretofore made available to Monitek
true, correct and complete copies of all forms, reports, schedules, statements
and other documents filed by it since November 30, 1994, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or the Securities Act
(such documents, as amended since the time of filing, collectively, the "Sentex
SEC Documents"). The Sentex SEC Documents, including, without limitation, any
financial statements or schedules included therein, at the time filed (and, in
the case of registration statements and proxy statements, on the dates of
effectiveness and the dates of mailing, respectively) (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the Commission thereunder. The financial statements of
Sentex included in the Sentex SEC Documents at the time filed (and, in the case
of registration statements and proxy statements, on the date of effectiveness
and the date of mailing, respectively) complied as to form in all material
respects
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with applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by Form 10-Q of the
Commission), and fairly present (subject in the case of unaudited statements, to
normal, recurring audit adjustments) the consolidated financial position of
Sentex and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
3.7 Financial Statements. The Sentex Financial Statements (as defined below
in this Section 3.7) which have been furnished to Monitek by Sentex, have been
prepared from and are in accordance with the books and records of Sentex, have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and fairly present the financial condition of
Sentex as of the dates stated and the results of operations of Sentex for the
periods then ended. The balance sheets as at November 30, 1995, November 30,
1994 and November 30, 1993 and the related statements of operations and
shareholders' equity and cash flows for the fiscal years then ended, including,
in each case, the related notes, all of which have been examined by and are
accompanied by the annual audit report of Mortenson and Associates, P.C., are
referred to herein collectively as the "Sentex Financial Statements" and the
Sentex Financial Statements, as at and for the fiscal year ended November 30,
1995, are hereinafter referred to separately as the "Fiscal 1995 Statements").
3.8 Absence of Certain Changes. Except as otherwise disclosed in the Sentex
SEC Documents, since November 30, 1995, there has not been any (i) material
adverse change in the financial position, liabilities, assets or business of
Sentex except for material adverse changes due to general economic or
industry-wide conditions, or (ii) other events or conditions of any character
that, individually or in the aggregate, have or would reasonably be expected to
have a material adverse effect on Sentex and its subsidiaries taken as a whole
or on the ability of Sentex and Subcorp to perform their respective material
obligations under this Agreement.
3.9 Absence of Undisclosed Liabilities. Sentex does not have any material
indebtedness, liability or obligation of the type required to be reflected on a
balance sheet that is not reflected or reserved against in the Sentex Financial
Statements, and since November 30, 1995, neither Sentex nor any of its
subsidiaries has incurred any such material indebtedness, liability or
obligation.
3.10 Taxes.
(a) Sentex and each of its subsidiaries has duly filed all material
federal, state, foreign and local income, franchise, excise, real and
personal property and other tax returns and reports (including, but not
limited to, those filed on a consolidated, combined or unitary basis)
required to have been filed by Sentex prior to the date hereof. All of the
foregoing returns and reports are true and correct in all material
respects, and Sentex has paid or, prior to the Effective Time will pay, all
taxes, interest and penalties shown on such returns or reports as being due
or (except to the extent the same are contested in good faith) claimed to
be due to any federal, state, local, foreign or other taxing authority.
Sentex and each of its subsidiaries has paid or adequate provision has been
made in the Sentex Financial Statements for all taxes payable in respect of
all periods ending on or prior to February 29, 1996.
(b) No waivers of any applicable statute of limitations for the filing
of any tax return or payment of any taxes or assessments of any deficient
or unpaid taxes are outstanding. As of the date hereof, all deficiencies
proposed as a result of any audits have been paid or settled.
3.11 Compliance with Law. Each of Sentex and its subsidiaries is and has
operated its businesses and properties in compliance with all applicable laws,
statutes, orders, rules, regulations, policies or guidelines promulgated, or
judgments, decisions or orders entered by any federal, state, local or foreign
court or governmental authority or instrumentality relating to Sentex or its
business or properties (collectively, the "Applicable Laws"), except where the
failure to be in compliance therewith would not have a material adverse effect
on Sentex and its subsidiaries taken as a whole. Sentex and each of its
subsidiaries have all the necessary licenses and permits to conduct their
businesses as presently conducted.
3.12 Proprietary Rights. None of the Proprietary Rights (defined below)
infringe upon or violate the rights of any person, firm, corporation, or other
legal entity, except for any such infringement or violation as would not have a
material adverse effect on Sentex or any of its subsidiaries. For purposes of
this Agreement,
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the term "Proprietary Rights" shall mean: (a) all material names, trade secrets,
patents, computer software, trademarks, trade names, service marks, logos,
copyrights and franchises and all applications therefor, registrations thereof
and licenses, sublicenses or agreements in respect thereof which Sentex or any
of its subsidiaries owns or has the right to use or to which Sentex or any of
its subsidiaries is a party; and (b) all filings, registrations or issuances of
any of the foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office or offices. Other than the Proprietary
Rights, no material name, patent, invention, trade secret, proprietary right,
computer software, trademark, trade name, service mark, logo, copyright,
franchise, license, sublicense, or other such right is necessary for the
operation of the business of Sentex or any of its subsidiaries in substantially
the same manner as such business is presently conducted. To Sentex's knowledge,
the business of Sentex or any of its subsidiaries has not been and is not
conducted in contravention of any trademark, copyright or other proprietary
right of any third party except such contravention which would not have a
material adverse effect on Sentex.
3.13 Title to and Condition of Properties. Sentex and each of its
subsidiaries own or hold under valid leases all real property, plants, machinery
and equipment necessary for the conduct of the business of Sentex and its
subsidiaries as presently conducted, except where the failure to own or so hold
such property, plants, machinery and equipment would not have a material adverse
effect on Sentex and its subsidiaries taken as a whole. No hazardous waste or
toxic material has been released, disposed of or discharged on, leaked from, or
has otherwise contaminated any real property owned, leased or used by Sentex and
its subsidiaries, except such releases, dispositions, discharges or leaks which
have been in compliance with all applicable environmental laws or, where the
failure to comply with all applicable environmental laws will not have a
material adverse effect on Sentex and its subsidiaries taken as a whole. Neither
Sentex nor any of its subsidiaries is (i) subject to any contingent liability,
(ii) the subject of any written notice, or (iii) subject to any order or
agreement with or from any person or governmental authority regarding any
remedial action or cleanup, release or threatened release of any hazardous waste
or substance, contaminant, pollutant, petroleum product or toxic material that
would have a material adverse effect on Sentex and its subsidiaries taken as a
whole. The Sentex Disclosure Schedule sets forth, and Sentex has furnished or
made available to Monitek, copies of all third party environmental reports
prepared by or for Sentex or any of its subsidiaries with respect to the real
property owned, leased or used by Sentex or any of its subsidiaries.
3.14 Litigation. There is no suit, claim, action, proceeding or
investigation (an "Action") pending or, to the best knowledge of Sentex,
threatened against Sentex or any of its subsidiaries which, individually or in
the aggregate, if adversely determined, is reasonably likely to have a material
adverse effect on Sentex and its subsidiaries taken as a whole or a material
adverse effect on the ability of Sentex to consummate the transactions
contemplated hereby. Neither Sentex nor any of its subsidiaries is subject to
any outstanding order, writ, injunction or decree which individually or in the
aggregate, insofar as can be reasonably foreseen, would have a material adverse
effect on Sentex and its subsidiaries taken as a whole or a material adverse
effect on the ability of Sentex to consummate the transactions contemplated
hereby.
3.15 Brokerage and Finder's Fees. Neither Sentex nor any shareholder,
director, officer or employee thereof has incurred, on behalf of Sentex, any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
3.16 Employee Benefit Plans. Except as set forth in the Sentex Disclosure
Schedule, no member of the Sentex Controlled Group (defined below) is a party to
or bound by any written or oral (a) employment or consulting contract which is
not terminable by Sentex, whether directly or indirectly, on 60 days or less
notice, (b) employee bonus, deferred compensation, pension, stock bonus or
purchase, profit-sharing, retirement or stock option plan, or (c) other employee
benefit or welfare plan. All such pension, stock bonus, profit-sharing,
retirement, health and welfare plans set forth in the Sentex Disclosure Schedule
are hereinafter referred to collectively as the "Sentex Employee Plans." No
Sentex Employee Plan constitutes a "multiemployer plan," as defined in Section
3(37) of The Employee Retirement Income Security Act of 1974 ("ERISA"), and no
Sentex Employee Plan is maintained in connection with any trust described in
Section 501(c)(9) of the Code. Sentex Employee Plans intended to be qualified
plans under Section 401(a) of the Code meet the applicable requirements for
favorable tax treatment under the Code. All Sentex Employee Plans which
constitute employee pension benefit plans or employee welfare plans subject to
ERISA have been maintained in compliance in all material respects with ERISA.
All material notices, reports and other filings required under
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applicable law to be given or made to or with any governmental agency with
respect to the Sentex Employee Plans have been timely filed or delivered in all
material respects to Sentex and copies of the same have been made available to
Monitek for its review. Sentex has no knowledge of (i) any circumstances which
would adversely affect the qualification of the Sentex Employee Plans or their
compliance with ERISA, or which would result or have resulted in liability under
Title IV of ERISA or (ii) any unreported "reportable event" (as such term is
defined in Section 4043(b) of ERISA) or "prohibited transaction" (as such term
is defined in Section 406 of ERISA and Section 4975(c) of the Code which has
occurred since the date on which said sections became applicable to the Sentex
Employee Plans and which could reasonably be expected to result in any material
liability of Sentex to the Pension Benefit Guaranty Corporation ("PBGC"), the
Department of Treasury, the Department of Labor or any multiemployer plan.
Sentex Employee Plans which are defined benefit plans within the meaning of
ERISA meet with the minimum funding standards set forth in the Code and ERISA
and the assets of such plans equal or exceed the present value of the accrued
benefits on a termination basis under such plans as of the most recent plan
valuation date. There are no pending or, to the knowledge of Sentex, threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the Sentex Employee
Plans, any fiduciaries thereof with respect to their duties to the Sentex
Employee Plans or the assets of any of the trusts under any of the Sentex
Employee Plans which could reasonably be expected to result in any material
liability of Sentex to the PBGC, the Department of Treasury, the Department of
Labor or any multiemployer plan. For purposes of the Agreement, the "Sentex
Controlled Group" means Sentex, its subsidiaries and any person or entity
required to be aggregated with Sentex or its subsidiaries under Sections 414(b),
(c), (m) or (o) of the Code.
3.17 Contracts. The Sentex Disclosure Schedule lists all contracts,
agreements, guarantees, leases and executory commitments (each a "Sentex
Contract") to which Sentex or any of its subsidiaries is a party and which fall
within any of the following categories: (a) Sentex Contracts (excluding
executory commitments) with any of Sentex's or its subsidiaries top ten (10)
customers based on Sentex's consolidated revenues for the fiscal year ended
November 30, 1995, (b) Sentex Contracts not entered into in the ordinary course
of Sentex's business, (c) Sentex Contracts which are service contracts or
equipment leases involving payments by Sentex or any of its subsidiaries of more
than $5,000 per year, or (d) Sentex Contracts containing covenants purporting to
limit the freedom of Sentex or any of its subsidiaries to compete in any line of
business in any geographic area or to refrain from hiring any individual or
group of individuals. All such Sentex Contracts are valid and binding
obligations of Sentex or its subsidiaries, as the case may be, and, to the best
knowledge of Sentex, the valid and binding obligation of each other party
thereto except such Contracts which if not so valid and binding would not have a
material adverse effect on Sentex and its subsidiaries taken as a whole. Neither
Sentex, any of its subsidiaries nor, to Sentex's knowledge, any other party
thereto is in violation of or in default in respect of, nor has there occurred
an event or condition which with the passage of time or giving of notice (or
both) would constitute a default under, any such Sentex Contract except such
violations or defaults under such Sentex Contract which would not have a
material adverse effect on Sentex and its subsidiaries taken as a whole.
3.18 Accounts Receivable and Inventories.
(a) All accounts and notes receivable of Sentex have arisen in the
ordinary course of business and the accounts receivable reserve reflected
in the balance sheet of Sentex as of February 29, 1996 was adequate as of
such date and has been established in accordance with generally accepted
accounting principles consistently applied.
(b) The Sentex assets which are inventories had a net realizable value
on February 29, 1996 at least equal to the FIFO values (net of reserves) at
which such inventories were carried on the balance sheet of Sentex as of
February 29, 1996.
3.19 Officers, Employees and Compensation. The Sentex Disclosure Schedule
sets forth the names of all directors and officers of Sentex and its
subsidiaries, the total salary, bonus, fringe benefits and perquisites each
received in the fiscal year ended November 30, 1995, and any changes to the
foregoing which have occurred subsequent to November 30, 1995. The Sentex
Disclosure Schedule also lists and describes the current compensation of any
other employee of Sentex and its subsidiaries whose total current salary and
maximum
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bonus opportunity exceeds $75,000 annually. Except as disclosed in the Sentex
Disclosure Schedule, there are no other material forms of compensation paid to
any director, officer or employee of Sentex or its subsidiaries.
3.20 Labor Relations. There is no unfair labor practice complaint against
Sentex pending before the National Labor Relations Board ("NLRB") and there is
no labor strike, dispute, slowdown or stoppage, or any union organizing campaign
actually pending or, to the best knowledge of Sentex, threatened against or
involving Sentex, except for any of the foregoing which would not have a
material adverse effect on Sentex and its subsidiaries taken as a whole.
3.21 Full Disclosure. All of the statements made by Sentex and Subcorp in
this Agreement (including, without limitation, the representations and
warranties made by Sentex and Subcorp herein and in the schedules and exhibits
hereto which are incorporated by reference herein and which constitute an
integral part of this Agreement) do not (and on the Closing Date will not)
include or contain any untrue statement of a material fact, and do not (and on
the Closing Date will not) omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MONITEK
In order to induce Subcorp and Sentex to enter into this Agreement, Monitek
hereby represents and warrants to Sentex and Subcorp that the statements
contained in this Article IV are true, correct and complete, except as disclosed
in the disclosure schedule (the "Monitek Disclosure Schedule") delivered by
Monitek to Sentex and dated the date hereof:
4.1 Organization and Standing. Each of Monitek and each of its subsidiaries
(all of which are set forth in the Monitek Disclosure Schedule) (the
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its incorporation with
full power and authority (corporate and other) to own, lease, use and operate
its properties and to conduct its business as and where now owned, leased, used,
operated and conducted. Each of Monitek and its Subsidiaries is duly qualified
to do business and in good standing in each jurisdiction listed in the Monitek
Disclosure Schedule, is not qualified to do business in any other jurisdiction
and neither the nature of the business conducted by it nor the property it owns,
leases or operates requires it to qualify to do business as a foreign
corporation in any other jurisdiction, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a material
adverse effect. Neither Monitek nor any of its Subsidiaries is in default in the
performance, observation or fulfillment of any provision of its Certificate of
Incorporation or Bylaws (or the equivalent thereof), as each may have been
amended or restated.
4.2 Subsidiaries. Except for the Subsidiaries, Monitek does not own,
directly or indirectly, any equity or other ownership interest in any
corporation, partnership, joint venture or other entity or enterprise. Neither
Monitek nor any of its Subsidiaries is subject to any obligation or requirement
to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such entity.
4.3 Corporate Power and Authority. Monitek has all requisite corporate
power and authority to enter into this Agreement and, subject to authorization
of the Merger and the transactions contemplated hereby by Monitek Stockholders,
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Monitek, subject to authorization of the Merger and the transactions
contemplated hereby by Monitek Stockholders. This Agreement has been duly
executed and delivered by Monitek and constitutes the legal, valid and binding
obligation of Monitek enforceable against it in accordance with its terms.
4.4 Capitalization of Monitek. Monitek's authorized capital stock consists
solely of: (a) 2,000,000 shares of class A common stock, $0.01 par value per
share ("Monitek Class A Common Stock"), of which (i) 1,252,676 shares are issued
and outstanding and (ii) no shares are issued and held in treasury; and (b)
10,000,000 shares of common stock, $0.01 par value per share ("Monitek Common
Stock"), of which (i)
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1,690,424 shares are issued and outstanding, (ii) no shares are issued and held
in treasury and (iii) 382,000 shares are reserved for issuance upon the exercise
or conversion of options, warrants, or convertible securities granted or issued
by Monitek. 450,000 shares of Monitek Common Stock are reserved for issuance
pursuant to the Monitek Amended and Restated 1987 Stock Option Plan. Each
outstanding share of Monitek capital stock is duly authorized and validly
issued, fully paid and nonassessable, and has not been issued in violation of
any preemptive or similar rights. Except as set forth above and in the Monitek
Disclosure Schedule, there are no outstanding subscriptions, options, warrants,
puts, calls, agreements, understandings, claims or other commitments or rights
of any type relating to the issuance, sale or transfer by Monitek of any debt or
equity securities of Monitek, nor are there outstanding any debt or equity
securities which are convertible into or exchangeable for any shares of capital
stock of Monitek; and Monitek has no obligation of any kind to issue any
additional securities or to pay for securities of Monitek or any predecessor.
The issuance and sale of all of the shares of capital stock described in this
Section 4.4 have been in substantial compliance with federal and state
securities laws. The Monitek Disclosure Schedule accurately sets forth for each
class of Monitek capital stock (including options and warrants to purchase such
stock), a summary of the rights relating thereto, and the names of and the
number of shares of each class held by (i) all holders of Monitek Class A Common
Stock and (ii) all persons that own 5% or more of the issued and outstanding
shares of Monitek Common Stock. Monitek has no outstanding agreements to
register any securities under the Securities Act and the rules and regulations
thereunder or under any state securities law.
4.5 Conflicts; Consents and Approvals. Neither the execution and delivery
of this Agreement by Monitek, nor the consummation of the transactions
contemplated hereby will:
(a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws, as each may have been amended or
restated, of Monitek or any of its Subsidiaries;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate or call a default under, or result in
the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of Monitek or any of its Subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease
or other instrument or obligation to which Monitek or any of its
Subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Monitek or any of its Subsidiaries or any of their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration with any third party, court or governmental body or other
agency, instrumentality or authority, other than (i) authorization of the
Merger and the transactions contemplated hereby by Monitek Stockholders,
and (ii) registrations or other actions required under federal and state
securities laws in connection with the transactions contemplated by this
Agreement.
4.6 Monitek SEC Documents. Monitek has heretofore made available to Sentex
true, correct and complete copies of all forms, reports, schedules, statements
and other documents filed by it since March 31, 1994, under the Exchange Act or
the Securities Act (such documents, as amended since the time of filing,
collectively, the "Monitek SEC Documents") . The Monitek SEC Documents,
including, without limitation, any financial statements or schedules included
therein, at the time filed (and, in the case of registration statements and
proxy statements, on the dates of effectiveness and the dates of mailing,
respectively) (a) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, and (b) complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the Commission
thereunder. The financial statements of Monitek included in the Monitek SEC
Documents at the time filed (and, in the case of registration statements and
proxy statements, on the date of effectiveness and the date of mailing,
respectively) complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, were
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prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the Commission), and fairly present (subject in the case of unaudited
statements, to normal, recurring audit adjustments) the consolidated financial
position of Monitek and its consolidated subsidiaries as at the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended.
4.7 Financial Statements. The Monitek Financial Statements (as defined
below in this Section 4.7) which have been furnished to Sentex by Monitek, have
been prepared from and are in accordance with the books and records of Monitek,
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis and fairly present the financial condition of
Monitek as of the dates stated and the results of operations of Monitek for the
periods then ended. The balance sheets as at March 31, 1996, March 31, 1995 and
March 31, 1994 and the related statements of operations and shareholders' equity
and cash flows for the fiscal years then ended, including, in each case, the
related notes, all of which have been examined by and are accompanied by the
annual audit report of KPMG Peat Marwick, are referred to herein collectively as
the "Monitek Financial Statements" and the Monitek Financial Statements, as at
and for the fiscal year ended March 31, 1996, are hereinafter referred to
separately as the "Fiscal 1996 Statements").
4.8 Absence of Certain Changes. Since March 31, 1996, there has not been
any (i) material adverse change in the financial position, liabilities, assets
or business of Monitek except for material adverse changes due to general
economic or industry-wide conditions, or (ii) other events or conditions of any
character that, individually or in the aggregate, have or would reasonably be
expected to have a material adverse effect on the financial position,
liabilities, assets or business of Monitek and its Subsidiaries taken as a
whole.
4.9 Absence of Undisclosed Liabilities. Monitek has no material
indebtedness, liability or obligation of the type required by generally accepted
accounting principles to be reflected on a balance sheet that is not reflected
or reserved against in the Monitek Financial Statements, and since March 31,
1996, neither Monitek nor any of its Subsidiaries has incurred any such material
indebtedness, liability or obligation.
4.10 Taxes.
(a) Monitek and each of its Subsidiaries have duly filed all material
federal, state, foreign and local income, franchise, excise, real and
personal property and other tax returns and reports (including, but not
limited to, those filed on a consolidated, combined or unitary basis)
required to have been filed by Monitek and its Subsidiaries prior to the
date hereof. All of the foregoing returns and reports are true and correct
in all material respects, and Monitek and each of its Subsidiaries have
paid or, prior to the Effective Time, will pay all taxes, interest and
penalties shown on such returns or reports as being due or (except to the
extent the same are contested in good faith) claimed to be due to any
federal, state, local, foreign or other taxing authority. Monitek and each
of its Subsidiaries have paid or adequate provision has been made in the
Monitek Financial Statements for all taxes payable in respect of all
periods ending on or prior to March 31, 1996.
(b) No waivers of any applicable statute of limitations for the filing
of any tax return or payment of any taxes or assessments of any deficient
or unpaid taxes are outstanding. As of the date hereof, all deficiencies
proposed as a result of any audits have been paid or settled.
4.11 Compliance with Law. Each of Monitek and its Subsidiaries is and has
operated its businesses and properties in compliance with all Applicable Laws,
except where the failure to be in compliance therewith would not have a material
adverse effect on Monitek and its Subsidiaries taken as a whole. Monitek and its
Subsidiaries have all the necessary licenses and permits to conduct their
businesses as presently conducted.
4.12 Proprietary Rights. None of the Proprietary Rights (defined below)
infringe upon or violate the rights of any person, firm, corporation, or other
legal entity, except for any such infringement or violation as would not have a
material adverse effect on Monitek. For purposes of this Agreement, the term
"Proprietary Rights" shall mean: (a) all material names, trade secrets, patents,
computer software, trademarks, trade names, service marks, logos, copyrights and
franchises and all applications therefor, registrations thereof and licenses,
sublicenses or agreements in respect thereof which Monitek or any of its
Subsidiaries owns or has the right to use or to which Monitek or any of its
Subsidiaries is a party; and (b) all filings, registrations or
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issuances of any of the foregoing with or by any federal, state, local or
foreign regulatory, administrative or governmental office or offices. Other than
the Proprietary Rights, no material name, patent, invention, trade secret,
proprietary right, computer software, trademark, trade name, service mark, logo,
copyright, franchise, license, sublicense, or other such right is necessary for
the operation of the business of Monitek or any of its Subsidiaries in
substantially the same manner as such business is presently conducted. To
Monitek's knowledge, the business of Monitek or any of its Subsidiaries has not
been and is not conducted in contravention of any trademark, copyright or other
proprietary right of any third party except such contravention which would not
have a material adverse effect on Monitek and its subsidiaries taken as a whole.
4.13 Title to and Condition of Properties. Monitek and each of its
Subsidiaries own or hold under valid leases all real property, plants, machinery
and equipment necessary for the conduct of the business of Monitek and its
Subsidiaries as presently conducted, except where the failure to own or so hold
such property, plants, machinery and equipment would not have a material adverse
effect on Monitek and its Subsidiaries taken as a whole. No hazardous waste or
toxic material has been released, disposed of or discharged on, leaked from, or
has otherwise contaminated any real property owned, leased or used by Monitek
and its subsidiaries, except such releases, dispositions, discharges or leaks
which have been in compliance with all applicable environmental laws or where
the failure to comply with all applicable environmental laws will not have a
material adverse effect on Monitek and its Subsidiaries taken as a whole.
Neither Monitek nor any of its Subsidiaries is (i) subject to any contingent
liability, (ii) the subject of any written notice, or (iii) subject to any order
or agreement with or from any person or governmental authority regarding any
remedial action or cleanup, release or threatened release of any hazardous waste
or substance, contaminant, pollutant, petroleum product or toxic material that
would have a material adverse effect on Monitek and its subsidiaries taken as a
whole. The Monitek Disclosure Schedule sets forth, and Monitek has furnished or
made available to Sentex, copies of all third party environmental reports
prepared by or for Monitek or any of its Subsidiaries with respect to the real
property owned, leased or used by Monitek or any of its Subsidiaries.
4.14 Litigation. There is no Action pending or, to the best knowledge of
Monitek, threatened against, Monitek or any of its Subsidiaries which,
individually or in the aggregate, if adversely determined, is reasonably likely
to have a material adverse effect on Monitek or a material adverse effect on the
ability of Monitek to consummate the transactions contemplated hereby. Neither
Monitek nor any of its Subsidiaries is subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate, insofar as can be
reasonably foreseen, would have a material adverse effect on Monitek and its
Subsidiaries taken as a whole or a material adverse effect on the ability of
Monitek to consummate the transactions contemplated hereby.
4.15 Brokerage and Finder's Fees. Neither Monitek nor any stockholder,
director, officer or employee thereof has incurred or will incur on behalf of
Monitek any brokerage, finder's or similar fee in connection with the
transactions contemplated by this Agreement.
4.16 Employee Benefit Plans. Except as set forth in the Monitek Disclosure
Schedule, no member of the Monitek Controlled Group (defined below) is a party
to or bound by any written or oral (a) employment or consulting contract which
is not terminable by Monitek, whether directly or indirectly, on 60 days or less
notice, (b) employee bonus, deferred compensation, pension, stock bonus or
purchase, profit-sharing, retirement or stock option plan, or (c) other employee
benefit or welfare plan. All such pension, stock bonus, profit-sharing,
retirement, health and welfare plans set forth in the Monitek Disclosure
Schedule are hereinafter referred to collectively as the "Employee Plans." No
Employee Plan constitutes a "multiemployer plan," as defined in Section 3(37) of
ERISA, and no Employee Plan is maintained in connection with any trust described
in Section 501(c)(9) of the Code. Employee Plans intended to be qualified plans
under Section 401(a) of the Code meet the applicable requirements for favorable
tax treatment under the Code. All Employee Plans which constitute employee
pension benefit plans or employee welfare plans subject to ERISA have been
maintained in compliance in all material respects with ERISA. All material
notices, reports and other filings required under applicable law to be given or
made to or with any governmental agency with respect to the Employee Plans have
been timely filed or delivered in all material respects by Monitek, and copies
of the same have been made available to Sentex and Subcorp for their review.
Monitek has no knowledge of (i) any circumstances which would adversely affect
the qualification of the Employee Plans or their compliance with ERISA, or which
would result or have resulted in liability under Title IV of ERISA or
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(ii) any unreported "reportable event" (as such term is defined in Section
4043(b) of ERISA) or "prohibited transaction" (as such term is defined in
Section 406 of ERISA and Section 4975(c) of the Code) which has occurred since
the date on which said sections became applicable to the Employee Plans and
which could reasonably be expected to result in any material liability of
Monitek to the PBGC, the Department of Treasury, the Department of Labor or any
multiemployer plan. Employee Plans which are defined benefit plans within the
meaning of ERISA meet the minimum funding standards set forth in the Code and
ERISA and the assets of such plans equal or exceed the present value of accrued
benefits on a termination basis under such plans as of the most recent plan
valuation date. There are no pending or, to the knowledge of Monitek, threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the Employee Plans,
any fiduciaries thereof with respect to their duties to the Employee Plans or
the assets of any of the trusts under any of the Employee Plans which could
reasonably be expected to result in any material liability of Monitek to the
PBGC, the Department of Treasury, the Department of Labor or any multiemployer
plan. For purposes of the Agreement, the "Monitek Controlled Group" means
Monitek, its Subsidiaries and any person or entity required to be aggregated
with Monitek or its Subsidiaries under Sections 414(b), (c), (m) or (o) of the
Code.
4.17 Contracts. The Monitek Disclosure Schedule lists all contracts,
agreements, guarantees, leases and executory commitments (each a "Contract") to
which Monitek or any of its Subsidiaries is a party and which fall within any of
the following categories: (a) Contracts (excluding executory commitments) with
any of Monitek's or its Subsidiaries top ten (10) customers based on Monitek's
consolidated revenues for the fiscal year ended March 31, 1996, (b) Contracts
not entered into in the ordinary course of Monitek's business, (c) Contracts
which are service contracts or equipment leases involving payments by Monitek or
any of its Subsidiaries of more than $5,000 per year, or (d) Contracts
containing covenants purporting to limit the freedom of Monitek or any of its
Subsidiaries to compete in any line of business in any geographic area or to
refrain from hiring any individual or group of individuals. All such Contracts
are valid and binding obligations of Monitek or its Subsidiaries, as the case
may be, and, to the best knowledge of Monitek, the valid and binding obligation
of each other party thereto except such Contracts which if not so valid and
binding would not have a material adverse effect on Monitek and its Subsidiaries
taken as a whole. Neither Monitek, any of its Subsidiaries nor, to Monitek's
knowledge, any other party thereto is in violation of or in default in respect
of, nor has there occurred an event or condition which with the passage of time
or giving of notice (or both) would constitute a default under, any such
Contract except such violations or defaults under such Contracts which would not
have a material adverse effect on Monitek and its subsidiaries taken as a whole.
4.18 Accounts Receivable and Inventories.
(a) All accounts and notes receivable of Monitek have arisen in the
ordinary course of business and the accounts receivable reserve reflected
in the balance sheet of Monitek as of March 31, 1996 was adequate as of
such date and has been established in accordance with generally accepted
accounting principles consistently applied.
(b) The assets of Monitek and its Subsidiaries which were inventories
had a net realizable value on March 31, 1996 at least equal to the FIFO
values (net of reserves) at which such inventories were carried on the
consolidated balance sheet of Monitek as of March 31, 1996; and have been
purchased by Monitek or its Subsidiaries directly from the manufacturer
thereof or from an authorized distributor of such products.
4.19 Officers, Employees and Compensation. The Monitek Disclosure Schedule
sets forth the names of all directors and officers of Monitek and it
Subsidiaries, the total salary, bonus, fringe benefits and perquisites each
received in the fiscal year ended March 31, 1996, and any changes to the
foregoing which have occurred subsequent to March 31, 1996. The Monitek
Disclosure Schedule also lists and describes the current compensation of any
other employee of Monitek and its Subsidiaries whose total current salary and
maximum bonus opportunity exceeds $75,000 annually. Except as disclosed in the
Monitek Disclosure Schedule, there are no other material forms of compensation
paid to any such director, officer or employee of Monitek or its Subsidiaries.
4.20 Labor Relations. There is no unfair labor practice complaint against
Monitek pending before the NLRB and there is no labor strike, dispute, slowdown
or stoppage, or any union organizing campaign, actually
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pending or, to the best knowledge of Monitek, threatened against or involving
Monitek or its Subsidiaries, except for any of the foregoing which would not
have a material adverse effect on Monitek.
4.21 Outstanding Indebtedness to Clarion. As of June 24, 1996, the total
outstanding indebtedness of Monitek owed to Clarion (which is evidenced by a
promissory note by Monitek in favor of Clarion, dated June 24, 1996) equals
$476,940 (the "Debt").
4.22 Full Disclosure. All of the statements made by Monitek in this
Agreement (including, without limitation, the representations and warranties
made by Monitek herein and in the schedules and exhibits hereto which are
incorporated by reference herein and which constitute an integral part of this
Agreement) do not (and on the Closing Date will not) include or contain any
untrue statement of a material fact, and do not (and on the Closing Date will
not) omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period from and
after the execution of this Agreement.
5.1 Mutual Covenants.
(a) Reasonable Efforts. Each of the parties hereto agrees to use its
reasonable efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement in the most expeditious manner
practicable, including but not limited to the satisfaction of all
conditions to the Merger and seeking to remove promptly any injunction or
other legal barrier that may prevent or delay such consummation.
(b) Full Access. From and after the date of this Agreement until the
Effective Time (or the termination of this Agreement), Sentex and Monitek
shall permit representatives of the other to have appropriate access at all
reasonable times to the other's premises, properties, books, records,
contracts, tax records, documents, customers and suppliers. Information
obtained by Sentex and Monitek pursuant to this Section 5.1(b) shall be
subject to the provisions of the confidentiality provisions contained
herein.
(c) Registration Statement. Sentex and Monitek shall use their best
efforts to prepare jointly and file by August 15, 1996 or as soon as
practicable thereafter with the SEC a joint proxy statement/registration
statement (the "Preliminary Joint Proxy Statement/Prospectus") comprising
preliminary proxy materials of Monitek and Sentex under the Exchange Act
with respect to the Merger and a registration statement on Form S-4 (the
"Registration Statement") including a prospectus of Sentex under the
Securities Act with respect to the Class A Convertible Notes and the Sentex
Common Shares to be issued in the Merger and will thereafter use their
respective best efforts to respond to any comments of the SEC with respect
thereto and to cause the Registration Statement to become effective and to
cause a definitive joint proxy statement/registration statement, including
all supplements and amendments thereto (the "Joint Proxy
Statement/Prospectus"), and proxy forms to be mailed to the Monitek and
Sentex stockholders as promptly as practicable.
(d) Other Filings. As soon as practicable after the date hereof,
Sentex and Monitek shall prepare and file any other filings required to be
filed by each under the Exchange Act or any other federal or state laws
relating to the Merger and the other transactions contemplated hereby
(collectively "Other Filings").
(e) Cooperation. Sentex and Monitek shall cooperate with each other
and provide to each other all information necessary in order to prepare the
Preliminary Joint Proxy Statement/Prospectus, the Joint Proxy
Statement/Prospectus, the Registration Statement and the Other Filings
(collectively "SEC Filings") and shall provide promptly to the other party
any information that such party may obtain that
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could necessitate amending any such document. Sentex and Monitek will
notify the other party promptly of the receipt of any comments from the SEC
or its staff or any other government official and of any requests by the
SEC or its staff or any other government official for amendments or
supplements to any of the SEC Filings or for additional information and
will supply the other party with copies of all correspondence between
Sentex or any of its representatives, or Monitek and any of its
representatives, as the case may be, on the one hand, and the SEC or its
staff or any other government official, on the other hand, with respect
thereto. If at any time prior to the Effective Time, any event shall occur
that should be set forth in an amendment of, or a supplement to, any of the
SEC Filings, Sentex and Monitek agree promptly to prepare and file such
amendment or supplement and to distribute such amendment or supplement as
required by applicable law, including, in the case of an amendment or
supplement to the Joint Proxy Statement/Prospectus, mailing such supplement
or amendment to the Sentex shareholders and the Monitek stockholders.
(f) Accuracy of Information. The information provided and to be
provided by Sentex and Monitek for use in SEC Filings shall at all times
prior to the Effective Time be true and correct in all material respects
and shall not omit to state any material fact required to be stated therein
or necessary in order to make such information not false or misleading, and
Sentex and Monitek each agree to correct any such information provided by
it for use in the SEC Filings that shall have become false or misleading.
Each SEC Filing, when filed with the SEC or any government official, shall
comply in all material respects with all applicable requirements of law.
(g) Public Announcements. No party hereto shall make any public
announcements or otherwise communicate with any news media with respect to
this Agreement or any of the transactions contemplated hereby without such
prior consultation with the other parties as to the timing and contents of
any such announcement as may be reasonable under the circumstances.
Notwithstanding the foregoing, nothing contained herein shall prevent any
party from promptly making all filings with governmental authorities as
may, in its judgment, be required or advisable in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby; provided, however, that copies of the
same shall be delivered to either Sentex or Monitek, as the case may be,
contemporaneously with such filings.
(h) Board Recommendations. The Joint Proxy Statement/Prospectus shall
include the recommendations of the Boards of Directors of Sentex and
Monitek that their respective stockholders approve the Merger and related
transactions; provided, however, that the Board of Directors of Monitek may
modify or withdraw its recommendation if it determines, with the advice of
outside counsel, that it may be required to do so in the exercise of its
fiduciary duties.
5.2 Covenants of Sentex.
(a) Sentex Meeting. Sentex shall take all action necessary in
accordance with applicable law and the Certificate of Incorporation and
Bylaws (as each may have been amended or restated) of Sentex to convene a
special meeting of Sentex Shareholders (the "Sentex Meeting") (i) to
approve the Merger and the transactions contemplated thereby, (ii) to
approve the Sentex Sensing Technology, Inc. 1996 Long-Term Incentive Plan
substantially in the form set forth as Exhibit B hereto (the "Sentex 1996
Long-Term Incentive Plan"), (iii) to elect directors of Sentex, and (iv) to
vote on such other matters as the Board of Directors of Sentex may deem
appropriate in connection with the foregoing.
(b) Registration of Certain Shares. Sentex shall use its best efforts
to have the Sentex Common Shares that are issuable upon conversion of the
Class A Convertible Notes and issuable as interest on the Class A
Convertible Notes to be included in the Registration Statement. If such
shares cannot be included in the Registration Statement, then Sentex shall
use its best efforts to register such shares, as soon as reasonably
practicable and in all events maintain such registration as current, on
Form S-1 or any other appropriate form. If such shares cannot be so
registered prior to conversion, then Sentex will use its best efforts to so
register such shares for resale after conversion of the Class A Convertible
Notes.
(c) Operation of Sentex's Business. During the period from the date of
this Agreement to the Effective Time, Sentex shall conduct its operations
in the ordinary course and shall use all reasonable
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efforts to maintain and preserve its business organization, assets and to
retain the services of its officers and key employees and maintain
relationships with customers, suppliers and other third parties and renew
all licenses and permits necessary to conduct its business to the end that
their goodwill and ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time, Sentex shall
not, except as otherwise expressly provided in this Agreement or as set
forth in Section 5.2(c) to the Sentex Disclosure Schedule, without the
prior consent of Monitek:
(i) do or effect any of the following actions with respect to its
securities: (A) adjust or reclassify its capital stock, (B) make,
declare or pay any dividend or distribution on any shares of its capital
stock or (C) issue, deliver or sell or agree to issue, deliver or sell
any additional shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its
capital stock or such securities (except pursuant to its existing
benefit or other stock plans and except in connection with a Permitted
Acquisition (as defined in clause (ii) below)); or
(ii) merge or consolidate with or acquire the stock or assets of
any other person or enter into any definitive agreement or agreement in
principle therefor unless the Registration Statement would not be
required to include separate audited financial statements or proforma
financial statements respecting such other person or such merger,
consolidation or acquisition (whether alone or together with any or all
such mergers, consolidations and acquisitions) and such merger,
consolidation or acquisition would not result in any delay in any
material respect the filing or effective date of the Registration
Statement and would not increase in any material respect the possibility
of any regulatory or other action which seeks to prevent or delay the
Merger (each such permitted merger, consolidation or acquisition, a
"Permitted Acquisition");
(iii) make or propose any change in the Certificate of
Incorporation or Bylaws, as each may have been amended or restated, of
Sentex; or
(iv) agree or commit to do any of the foregoing.
(d) Director's and Officer's Insurance. Sentex covenants and agrees
from and after the Effective Time to provide, or cause the Surviving
Corporation to provide, to the officers and directors of the Surviving
Corporation directors' and officers' indemnification insurance on the same
basis and to the same extent as that, if any, provided to other officers
and directors of Sentex or any of its subsidiaries.
(e) Agreements of Sentex and CPS. Sentex covenants and agrees that the
only currently existing contracts or agreements between Sentex and CPS
Capital, Ltd., an Ohio limited liability company ("CPS) which will remain
in force and effect from and after the Effective Time are those contracts
and agreements set forth in Section 5.2 (e) to the Sentex Disclosure
Schedule.
(f) Interim Borrowings. Sentex shall not accept payment pursuant to
the Interim Letter Agreement (as defined in Section 6.1(d)) until all
Interim Borrowings (as defined in Section 5.3(f)), together with interest
accrued thereon, are paid to Clarion.
5.3 Covenants of Monitek.
(a) Monitek Stockholders Meeting. Monitek shall take all action
necessary in accordance with applicable law and the Certificate of
Incorporation and Bylaws (as each may have been amended or restated) of
Monitek to convene a special meeting of Monitek Stockholders (the "Monitek
Meeting") (i) to approve the Merger and the transactions contemplated
thereby and (ii) to vote on such other mattes as the Board of Directors may
deem appropriate in connection with the foregoing.
(b) Information for the Registration Statement. Monitek shall use its
best effort to furnish Sentex with all information concerning it as may be
required for inclusion in the Registration Statement. Monitek shall
cooperate with Sentex in the preparation of the Registration Statement in a
timely fashion. If at any time prior to the Effective Time, and to
Monitek's knowledge, any information pertaining to Monitek contained in or
omitted from the Registration Statement makes such statements contained in
the Registration Statement false or misleading, Monitek shall promptly so
inform Sentex and provide Sentex with the information necessary to make
statements contained therein not false and misleading.
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(c) Operation of Monitek's Business. During the period from the date
of this Agreement to the Effective Time, Monitek shall conduct its
operations in the ordinary course except as contemplated by this Agreement
and shall use all reasonable efforts to maintain and preserve its business
organization and to retain the services of its officers and key employees
and maintain relationships with customers, suppliers and other third
parties and renew all licenses and permits necessary to conduct its
business to the end that their goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the
Effective Time, Monitek shall not, except as otherwise contemplated by this
Agreement or as set forth in Section 5.3(c) to the Monitek Disclosure
Schedule, without the prior written consent of Sentex:
(i) do or effect any of the following actions with respect to its
securities: (A) adjust, split, combine or reclassify its capital stock,
(B) make, declare or pay any dividend or distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock (C) grant any person
any right to acquire any shares of its capital stock, (D) issue, deliver
or sell or agree to issue, deliver or sell any additional shares of its
capital stock or any securities or obligations convertible into or
exchangeable or exercisable for any shares of its capital stock or such
securities, or (E) enter into any agreement, understanding or
arrangement with respect to the sale or voting of its capital stock;
(ii) sell, transfer, pledge, mortgage, encumber or otherwise
dispose of any of its property or assets other than sales of inventory
made in the ordinary course of business and such other dispositions
which in the aggregate are not material to Monitek;
(iii) make or propose any changes in its Certificate of
Incorporation or Bylaws, as each may have been amended or restated;
(iv) merge or consolidate with any other person or acquire a
material amount of assets of any other person;
(v) incur, create, assume or otherwise become liable for any
indebtedness for borrowed money other than in the ordinary course of
business;
(vi) create any additional subsidiaries;
(vii) other than increases in compensation granted as a result of
Monitek's usual compensation review policies, enter into or modify any
employment, severance, termination or similar agreements or arrangements
with, or grant any bonuses, salary increases, severance or termination
pay to, any officer, director, consultant or employee;
(viii) change its method of doing business or change any method or
principle of accounting in a manner that is inconsistent with past
practice;
(ix) settle any claims, litigation or actions, whether now pending
or hereafter made or brought, unless such settlement does not result in
a material adverse effect on the assets, liabilities, business, results
of operations, prospects or financial condition of Monitek and its
subsidiaries taken as a whole;
(x) permit or cause any of its subsidiaries to do any of the
foregoing or agree or commit to do any of the foregoing;
(xi) enter into or carry out any other transaction other than in
the ordinary and usual course of business; or
(xii) increase or decrease the Debt owed to Clarion (other than
allowing for the accruing but not payment of interest through the
passage of time).
(d) No Solicitation. Neither Monitek nor any of its Subsidiaries,
stockholders, officers, directors, representatives or agents shall,
directly or indirectly, knowingly encourage, solicit, initiate or
participate in any way in discussions or negotiations with or knowingly
provide any confidential information to, any
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corporation, partnership, person or other entity or group (other than
Sentex or any affiliate or associate of Sentex and their respective
directors, officers, employees, representatives and agents) concerning any
merger of Monitek, the sale of any substantial part of the assets of
Monitek, the sale of shares of the capital stock of Monitek or similar
transactions involving any of its Subsidiaries; provided, however, that
nothing contained in this Section 5.3 (d) shall prohibit the Board of
Directors of Monitek (i) making such disclosure to Monitek Stockholders as,
in the judgment of the Board of Directors of Monitek, with the advice of
outside counsel, may be required under applicable law or (ii) responding to
any unsolicited proposal or inquiry by advising the person making such
proposal or inquiry of the terms of this Section 5.3 (d). Monitek will
promptly communicate to Sentex its receipt of any proposal or inquiry in
respect of any such transaction or its receipt of any request to provide
any such information or hold any such negotiations or discussions, and will
furnish Sentex with a true and complete copy of any proposal that the Board
of Directors of Monitek has determined is a Superior Proposal.
Notwithstanding anything to the contrary set forth herein, the Board of
Directors of Monitek may respond to any Superior Proposal and may provide
information to, and negotiate with, any person, group or entity in
connection therewith if the Board of Directors of Monitek determines, with
the advice of outside counsel, that it may be required to do so in the
exercise of its fiduciary duties. For purposes of this Section 5.3 (d), a
"Superior Proposal" means a bona fide, written, unsolicited proposal
relating to a possible transaction described in this Section 5.3 (d) by any
person other than Sentex that, in the reasonable good faith judgment of the
Board of Directors of Monitek, with the advice of outside financial
advisers, is reasonably likely to be consummated and is more favorable to
the stockholders of Monitek than the terms of the transactions contemplated
by this Agreement.
Sentex will promptly notify Monitek and provide it with pertinent
information in the event that Sentex or, to Sentex's knowledge, any of its
subsidiaries, officers, directors, representatives or agents (i) solicits,
initiates or participates in any way in discussions or negotiations with,
or provides any confidential information to, any corporation, partnership,
person or other entity or group (other than Monitek or any affiliate or
associate of Monitek and their respective directors, officers, employees,
representatives, stockholders and agents) concerning any merger, sale of
substantially all of the assets, or sale of shares of the capital stock of
Sentex, or similar transaction involving Sentex, or (ii) receives any
proposal or inquiry in respect of any such transaction or any request to
provide any such information or hold any such negotiations or discussions.
(e) Affiliates of Monitek. Monitek shall use all reasonable efforts to
cause each person who is at the Effective Time or was on the date hereof an
"affiliate" of Monitek for purposes of Rule 145 under the Securities Act,
to execute and deliver to Sentex at or prior to the Effective Time a
written undertaking to comply with Rule 145 in form acceptable to Sentex
and Monitek.
(f) Loans by Clarion. Notwithstanding Sections 5.3 (c)(v) and
5.3(c)(xii), Monitek may borrow $150,000 from Clarion at 12% interest,
compounded annually, on any date following the date of the Original
Agreement. Monitek may also borrow such other amounts from Clarion at 12%
interest, compounded annually, to fund the working capital requirements of
Monitek during the pendency of this Agreement in amounts agreed to by
Clarion and Monitek but in no event shall such additional borrowings,
together with the permitted initial borrowing of $150,000 exceed $400,000
nor shall any additional borrowings exceed $50,000 in any one month
(collectively, the "Interim Borrowings"). All such borrowings shall be
evidenced by a promissory note in a form mutually agreeable to Monitek and
Clarion. Monitek covenants and agrees that the only currently existing
contracts or agreements between Monitek and Clarion which will remain in
force and effect from and after the Effective Time are those contracts and
agreements set forth in Section 5.3 (f) to the Monitek Disclosure Schedule.
ARTICLE VI
CONDITIONS
6.1 Mutual Conditions. The obligations of the parties hereto to consummate
the Merger and the other transactions contemplated hereby shall be subject to
fulfillment of the following conditions:
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(a) (i) The Sentex Shareholders shall have duly and validly approved
the Merger and the issuance of Sentex Common Shares in connection therewith
in accordance with New Jersey law; (ii) the Sentex Shareholders shall have
duly approved and adopted the Sentex 1996 Long-Term Incentive Plan; and
(iii) Sentex (as the sole stockholder of Subcorp) and the holders of a
majority of the outstanding shares of the Monitek Class A Common Stock and
the Monitek Common Stock, voting as separate classes shall have each
validly approved the Merger in accordance with the laws of the DGCL.
(b) No temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
Merger shall have been issued and remain in effect, and no statute, rule or
regulation shall have been enacted by any state, federal or foreign
government or governmental agency which would prevent the consummation of
the Merger.
(c) The Commission shall have declared the Sentex Registration
Statement effective. On the Closing Date and at the Effective Time, no stop
order or similar restraining order prohibiting the Merger shall have been
threatened or entered by the Commission or any state securities
administrator.
(d) Each of the (i) Amended and Restated Note Exchange Agreement by
and between Clarion and Sentex substantially in the form set forth as
Exhibit C hereto, (the "Note Exchange Agreement"), (ii) the Clarion Note
made by Sentex in favor of Clarion substantially in the form set forth as
Exhibit D hereto (the "Clarion Note"), (iii) the Board Representation
Agreement by and between Clarion and Sentex substantially in the form set
forth as Exhibit E hereto (the "Board Representation Agreement"), (iv) the
Participation Rights Agreement by and among Sentex, Clarion and the persons
who will become the original holders of the Class A Convertible Notes (the
"Class A Holders") substantially in the form set forth as Exhibit F hereto
(the "Participation Rights Agreement"), (v) the Shareholders Agreement by
and among CPS, Clarion and the Class A Holders substantially in the form
set forth as Exhibit G hereto (the "Shareholders Agreement"), (vi) the
Amended and Restated Voting Agreement by and between Clarion and CPS
substantially in the form set forth as Exhibit H hereto (the "Voting
Agreement"), (vii) the Clarion Management Agreement by and between Sentex
and Clarion Management Ltd., an Ohio limited liability company,
substantially in the form set forth as Exhibit I hereto (the "Clarion
Management Agreement"), and (viii) the Letter Agreement by and among
Sentex, Monitek and Clarion substantially in the form set forth as Exhibit
J hereto (the "Interim Letter Agreement") shall have been entered into and
duly executed and delivered by the appropriate parties thereto.
(e) Monitek shall have received from an investment banking firm a
favorable fairness opinion.
6.2 Conditions to Obligations of Monitek. The obligations of Monitek to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the fulfillment of the following conditions unless waived by Monitek:
(a) The representations and warranties of each of Sentex and Subcorp
set forth in Article III shall be true and correct on the date hereof and
on and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date,
which shall be true and correct as of the specified date), except for such
inaccuracies which have not had and would not reasonably be expected to
have in the reasonably foreseeable future a material adverse affect on
Sentex or Subcorp.
(b) Each of Sentex and Subcorp shall have performed in all material
respects each obligation and agreement and shall have complied in all
material respects with each covenant to be performed and complied with by
it hereunder at or prior to the Effective Time.
(c) Each of Sentex and Subcorp shall have furnished Monitek with a
certificate dated the Closing Date signed on behalf of it by the Chairman,
President or any Vice President to the effect that the conditions set forth
in Sections 6.2(a) and (b) have been satisfied.
(d) The Sentex Common Shares to be issued in the Merger and the Sentex
Common Shares issuable upon exercise of Sentex Exchange Options and
conversion of the Clarion Notes or the Class A Convertible Note shall have
been authorized for inclusion in the Nasdaq Small Cap Market, subject to
official notice of issuance.
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(e) The number of members of the Board of Director of Sentex shall
have been increased from five to six and Sentex shall have delivered
documentation approving the election, effective as of the Effective Time,
of the person designated by Clarion to the Board of Directors of Sentex.
(f) The Board of Directors of Sentex shall have adopted the
resolutions in substantially the form set forth as Exhibit K hereto
relating to the New Jersey Shareholder Protection Act on or prior to the
date of the date of the Original Agreement (the "Resolutions").
(g) Clarion shall have received a legal opinion, dated the Closing
Date, of Pitney, Hardin, Kipp & Szuch, special counsel to Sentex, in
substantially the form set forth as Exhibit L.
(h) Monitek shall have received a legal opinion, dated the Closing
Date, of Baker & Hostetler, counsel to each of Sentex and Subcorp,
substantially in the form set forth as Exhibit M hereto.
(i) The Board of Directors of Sentex shall have established a
compensation plan for its members permitting annual compensation in the
amount of $6,000 for each Director.
(j) The Management Agreement, dated March 1, 1996, by and between CPS
and Sentex shall have has been amended and restated in the form set forth
as Exhibit N.
(k) All Interim Borrowings, together with all interest accrued thereon
shall have been paid to Clarion by Monitek or Sentex at or prior to the
Closing.
6.3 Conditions to Obligations of Sentex and Subcorp. The obligations of
Sentex to consummate the Merger and the other transactions contemplated hereby
shall be subject to the fulfillment of the following conditions unless waived by
each of Sentex and Subcorp:
(a) The representations and warranties of Monitek set forth in Article
IV shall be true and correct on the date hereof and on and as of the
Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall be
true and correct as of the specified date), except for such inaccuracies
which have not had and would not reasonably be expected to have in the
reasonably foreseeable future a material adverse effect on Monitek.
(b) Monitek shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects
with each covenant to be performed and complied with by it hereunder at or
prior to the Effective Time.
(c) Monitek shall have furnished Sentex with a certificate dated the
Closing Date signed on its behalf by its Chairman, President or any Vice
President to the effect that the conditions set forth in Section 6.3(a) and
(b) have been satisfied.
(d) Sentex shall have received the legal opinion, dated the Closing
Date, of Benesch, Friedlander, Coplan & Aronoff, substantially in the form
set forth as Exhibit O hereto.
(e) Clarion shall have executed and delivered to Sentex UCC-3
termination statements covering all UCC filings that cover any and all
assets of Monitek.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by mutual written consent duly authorized by the Boards of
Directors of Sentex and Monitek;
(b) by either Sentex or Monitek (i) if, at the Sentex Meeting or the
Monitek Meeting (including any postponement or adjournment thereof), the
Merger and the other transactions contemplated hereby that require
stockholder approval shall fail to be approved by the affirmative vote
required, or (ii) so long as the terminating party is not then in breach of
any of its obligations hereunder, after December 15, 1996 (the "Termination
Date") if the Merger shall not have been consummated on or before such
date;
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(c) by Monitek, provided it is not then in material breach of any of
its material obligations hereunder, if either (i) Sentex or Subcorp fails
to perform any covenant in this Agreement when performance thereof is due
and does not cure the failure within twenty business days after Monitek
delivers written notice thereof or (ii) any other condition in Sections 6.1
or 6.2 hereof has not been satisfied and is not capable of being satisfied
prior to the Termination Date;
(d) by Monitek, whether or not the conditions set forth in Sections
6.1 and 6.2 hereof have been satisfied, if its Board of Directors, on the
advice of outside counsel, determines that Monitek may be required to do so
in the exercise of its Board's fiduciary duties; or
(e) by Sentex, provided it is not then in material breach of any of
its material obligations hereunder, if either (i) Monitek fails to perform
any covenant in this Agreement when performance thereof is due and does not
cure the failure within twenty business days after notice by Sentex thereof
or (ii) any condition in Sections 6.1 or 6.3 hereof has not been satisfied
and is not capable of being satisfied prior to the Termination Date.
7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1 hereof, this Agreement, except for the
provisions of Section 7.3 and Section 8.10, shall forthwith become null and void
and have no effect, without any liability on the part of any party or its
directors, officers or stockholders. Nothing in this Section 7.2 shall relieve
any party to this Agreement of liability for breach of this Agreement.
7.3 Fees and Expenses. In order to induce Sentex to, among other things,
enter into this Agreement, Monitek agrees as follows: If (1) this Agreement is
terminated by Monitek pursuant to Section 7.1 (d) hereof and (2) Monitek, within
one year following the date on which this Agreement is so terminated,
consummates a merger or other transaction similar to the Merger involving the
disposition of the business conducted by Monitek or any of its Subsidiaries,
then Monitek shall promptly pay to Sentex a fee equal to $75,000 upon the
consummation of such merger or other transaction. The payment described in the
first sentence of this Section 7.3 shall be made in same day funds no later than
five business days after the consummation of such merger or other transaction.
7.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after adoption of this Agreement by Sentex Shareholders or the Monitek
Stockholders, as the case may be, but after any such approval, no amendment
shall be made which by law requires further approval by such stockholders
without such further approval. Notwithstanding the foregoing, this Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time, Sentex
(with respect to Monitek) and Monitek (with respect to Sentex or Subcorp) by
action taken or authorized by their respective Boards of Directors, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of such party, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The representations and
warranties made herein by the parties hereto shall not survive the Effective
Time. This Section 8.1 shall not limit any covenant or agreement of the parties
hereto which by its terms contemplates performance after the Effective Time or
the termination of this Agreement.
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8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (and is
confirmed) or dispatched by a nationally recognized overnight courier service to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Sentex or Subcorp:
Sentex Sensing Technology
c/o CPS Capital, Ltd.
1801 East Ninth Street
Cleveland, OH 44114
Attention: Robert S. Kendall
Telecopy No: (216) 687-0298
with a copy to:
William Appleton, Esq.
Baker & Hostetler
3200 National City Center
Cleveland, Ohio 44114-3485
Telecopy No.: (216) 696-0740
(b) if to Monitek:
Monitek Technologies, Inc.
c/o Clarion Capital Corporation
1801 East Ninth Street
Cleveland, Ohio
Attention: Morris H. Wheeler
Telecopy No: (216) 694-3545
with a copy to:
Lawrence Bell, Esq.
Benesch, Friedlander, Coplan & Aronoff
200 Public Square
Cleveland, OH 44114
Telecopy No.: (216) 363-4588
8.3 Interpretation. When a reference is made in this Agreement to an
Article or Section, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an original.
8.5 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitute the entire agreement among the
parties and supersedes all prior agreements, written and oral, with respect to
the subject matter hereof.
8.6 Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to create any third party
beneficiaries.
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law.
8.8 Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled,
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each of the parties hereto is entitled to a decree of specific performance,
provided such party is not in material default hereunder.
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned or delegated by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
8.10 Expenses. Subject to the following sentence, Sentex and Monitek shall
each pay its own costs and expenses associated with the transactions
contemplated by this Agreement. If any party hereto institutes any action or
proceeding, whether before a court or arbitrator, to enforce any provision of
this Agreement, the prevailing party therein shall be entitled to receive from
the losing party reasonable attorneys' fees and costs incurred in such action or
proceeding, whether or not such action or proceeding is prosecuted to judgment.
8.11 Exhibits. All the exhibits attached hereto or referred to herein are
incorporated by this reference.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Sentex, Subcorp and Monitek have signed this Agreement
as of the date first written above.
<TABLE>
<S> <C>
SENTEX SENSING TECHNOLOGY, INC.
Attest: /s/ MARGARET A. NUTAITIS By: /s/ ROBERT S. KENDALL
-------------------------------------- ------------------------------------------
Margaret A. Nutaitis, Robert S. Kendall, Chairman and President
Assistant Secretary
(as to both signatures) By: /s/ JAMES G. FEW
------------------------------------------
James G. Few, Vice President
SENTEX MERGER CORP.
Attest: /s/ MARGARET A. NUTAITIS By: /s/ ROBERT S. KENDALL
-------------------------------------- ------------------------------------------
Margaret A. Nutaitis, Robert S. Kendall, Chairman and President
Assistant Secretary
(as to both signatures) By: /s/ JAMES G. FEW
------------------------------------------
James G. Few, Vice President
MONITEK TECHNOLOGIES, INC.
Attest: /s/ JAMES S. O'LEARY By: /s/ MORTON COHEN
-------------------------------------- ------------------------------------------
James S. O'Leary, Secretary Morton Cohen, Chairman
(as to both signatures)
By: /s/ FRANK J. VETROVEC
------------------------------------------
Frank J. Vetrovec, President
</TABLE>
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<PAGE> 134
EXHIBIT A TO ANNEX A
CLASS A CONVERTIBLE NOTE
$____________ ______________, ________
__________ ______ , 1996
FOR VALUE RECEIVED, the undersigned, SENTEX SENSING TECHNOLOGY, INC., a New
Jersey corporation ("Sentex"), promises to pay to the order of
(the "Payee"), at the address set forth on the books of
Sentex or such other address as the Payee provides in writing, the principal sum
of ($ ) in accordance with the terms of this
Class A Convertible Note (the "Note"), together with interest thereon in
accordance with Section 2 hereof.
SECTION 3.10 COLLATERAL AGREEMENTS. This Note is issued pursuant to the
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"),
dated July 30, 1996, among Sentex, Sentex Merger Corp., a Delaware corporation
and wholly owned subsidiary of Sentex and Monitek Technologies, Inc., a Delaware
corporation ("Monitek"), pursuant to which on the Effective Date (as defined in
the Merger Agreement) the Payee's shares of Class A Common Stock, $0.01 par
value, of Monitek have been converted into this Note. Capitalized terms used
herein but not otherwise defined shall have the meanings ascribed to them in the
Merger Agreement.
SECTION 3.11 INTEREST. This Note shall bear interest commencing on the date
hereof at an interest rate of five and 5/100th percent (5.05%) per annum in
accordance with and subject to this Section 2. Unless interest is otherwise
payable pursuant to Sections 3, 4, or 6, interest shall be payable on each
anniversary date hereof, but in all events shall be payable only in Sentex
Common Shares. All interest due and payable shall be based on a 365 or a 366 day
year, as the case may be, for the actual number of days elapsed and shall be
paid in Sentex Common Shares. The number of Sentex Common Shares issued in
payment for the interest due on this Note shall be computed by dividing the
amount of accrued interest due in U.S. dollars by the average of the bid and ask
prices of Sentex Common Shares on the last ten trading days prior to the date on
which that interest payment is due, as reflected on the exchange, quotation
system or other market on or in which the largest number of Sentex Common Shares
were traded during the preceding six month period. For interest payments due on
the anniversary date hereof, Sentex shall deliver to the holder of this Class A
Convertible Note (a "Holder"), a certificate, with all legends required pursuant
to the Shareholders Agreement affixed thereto, representing the appropriate
number of Sentex Common Shares determined in accordance with the preceding
sentence, within 5 business days of each anniversary date hereof. Interest
payments due under Sections 3, 4 and 6 hereof shall be computed in accordance
with the second preceding sentence but paid in accordance with the relevant
Section pursuant to which such interest is due.
SECTION 3.12 CONVERSION BY HOLDER. Upon surrendering this Note to Sentex,
together with a transmittal letter describing the action desired, the Holder may
convert the entire outstanding principal balance, but not less than the entire
outstanding principal balance, of this Note (the "Balance") into that number of
Sentex Common Shares as is computed by dividing the Balance by $0.0562 (subject
to the adjustments provided for in the anti-dilution provisions of Section 5
hereof) after any of the following occur (as to which, in the cases of (a)
through (d), Sentex will give adequate notice to the Holder):
(a) Sentex proposes to declare a dividend or other distribution to the
Sentex Shareholders other than a stock split or reverse stock split;
(b) Sentex proposes to offer the Sentex Shareholders the opportunity to
subscribe for additional equity securities of Sentex or Sentex issues
any equity securities pursuant to either a private or public sale
thereof;
(c) Sentex proposes to reclassify or change the outstanding Sentex Common
Shares (other than a change in par value or as a result of a stock
split) (a "Change");
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(d) Sentex proposes to consolidate with or merge with and into another
entity (other than a consolidation or merger in which Sentex will be
the surviving corporation and which does not result in any
reclassification or Change in the Sentex Common Shares or sells or
conveys substantially all its assets to another company;
(e) Robert S. Kendall dies or becomes permanently disabled;
(f) there is a change in control of Sentex; or
(g) the three hundredth (300th) day after the second anniversary hereof.
Interest shall cease accruing on the day Sentex receives this Note and the
transmittal letter requesting conversion in accordance with this Section 3.
Within 10 business days thereof, Sentex shall issue to the Holder a certificate,
with all legends required pursuant to the Shareholders Agreement affixed
thereto, representing the appropriate number of Sentex Common Shares issuable
hereunder, including the Sentex Common Shares issuable on account of accrued
interest.
SECTION 3.13 CONVERSION BY SENTEX.
(a) Upon written notice to the Holder, Sentex may, but is not obligated to,
require the Holder, at any time, to convert the Balance into that
number of Sentex Common Shares as is computed by dividing the Balance
by $0.0562 (subject to the adjustments provided for in the
anti-dilution provisions of Section 5 hereof) if (i) there is a proxy
contest for control of the Board of Directors of Sentex or (ii) Sentex
is unable, in the judgment of its Board of Directors, without
compelling such a conversion, to obtain the requisite shareholder vote
to approve a material transaction approved by the Board of Directors of
Sentex.
(b) On the three hundredth forty-fifth (345th) day after the second
anniversary date hereof (the "First Mark Date"), Sentex may, but is not
obligated to, require the Holder to convert the Balance (if such
Balance has not already been converted) into that number of Sentex
Common Shares as is computed by dividing the Balance by $0.0750
(subject to the adjustments provided for in the anti-dilution
provisions of Section 5 hereof) by giving Sentex written notice to such
effect within ten (10) business days of the First Mark Date (the date
the Holder receives or is deemed to receive such notice being the
"Second Mark Date"). If the Holder does not, within five (5) business
days of the Second Mark Date (the "Third Mark Date"), provide Sentex
written notice of the Holder's intention to convert the Balance of the
Note pursuant to Section 3(g) at $0.0562, then the Balance of the Note
shall be converted in accordance with this Section 4(b).
(c) In the event Sentex requires conversion pursuant to either Section 4(a)
or 4(b) hereof, interest shall cease accruing on the date the Holder
receives written notice by Sentex of its intention to compel conversion
(unless such conversion is ultimately effected by a Holder exercising
its rights pursuant to Section 3 hereof, in which case interest shall
cease accruing on the Third Mark Date). Within five (5) business days
of the receipt of this Note from the Holder, Sentex shall issue to the
Holder a certificate, with all the legends required pursuant to the
Shareholders Agreement affixed thereto, representing the appropriate
number of Sentex Common Shares issuable hereunder, including Sentex
Common Shares issuable on account of accrued interest.
SECTION 3.14 CERTAIN ADJUSTMENTS.
(a) The number of Sentex Common Shares into which the Balance may be
converted pursuant to Sections 3 and 4 hereof shall be subject to
adjustment from time to time in the event that Sentex shall (a) pay a
dividend in, or make a distribution of, Sentex Common Shares (or
securities convertible into, exchangeable for or otherwise entitling a
holder thereof to receive Sentex Common Shares) on its outstanding
Sentex Common Shares, (b) subdivide its outstanding Sentex Common
Shares into a greater number of shares, (c) combine its outstanding
Sentex Common Shares into a smaller number of shares, (d) otherwise
reclassify the Sentex Common Shares, or (e) distribute to any holders
of the capital stock of Sentex any securities, assets (other than cash
dividends payable out of earnings) or debt (each an "Adjustment"). In
cases (a) through (d), the amount to be divided into the Balance (the
"Conversion Price") shall be adjusted so that the Holder shall be
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entitled to receive the same number of Sentex Common Shares as the
Holder would have owned or would have been entitled to receive
immediately following the occurrence of any of the Adjustments
described above in (a) through (d) had a conversion pursuant to Section
3 or 4 occurred immediately prior to the occurrence (or applicable
record date) of such event. In case (e), the respective Conversion
Price in effect immediately prior to such Adjustment shall be adjusted
by multiplying the Conversion Price in effect immediately prior to such
Adjustment by a fraction, of which the numerator shall be the Current
Market Price (defined below) per share of Sentex Common Shares, less
the then fair market value (as determined by the Board of Directors of
Sentex, whose determination shall be conclusive) of the assets or
securities or debt so distributed on a per share basis and the
denominator of which shall be the Current Market Price per share of
Sentex Common Shares. An adjustment made pursuant to this Section 5
shall, in the case of a stock dividend or distribution, be made as of
the record date therefor and, in the case of a subdivision,
combination, or reclassification, be made as of the effective date
thereof.
(b) For purposes of this Section 5, the term "Current Market Price" shall
mean the average of the bid and ask prices of Sentex Common Shares on
the last ten trading days immediately prior to the earlier of (i) the
record date for such distribution or (ii) the date Sentex Common Shares
traded ex-dividend as reflected on the exchange, quotation system or
other market on or in which the largest number of Sentex Common Shares
were traded during the preceding six month period.
(c) Whenever an Adjustment occurs:
(i) Sentex will compute the adjusted Conversion Price based on the
Adjustment in accordance with this Section 5(a) and will prepare a
certificate signed by the President or Treasurer of the Company
setting forth the adjusted Conversion Price and the facts requiring
such Adjustment, and such certificate will forthwith be filed at the
office of the transfer agent or agents, if any, for the Class A
Convertible Notes and at the principal office of Sentex; and
(ii) A notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price and the facts requiring
such Adjustment will, as soon as practicable, be mailed to the
Holders hereof.
SECTION 3.15 PRINCIPAL. In the event that the Balance is not converted
pursuant to Sections 3 or 4 hereof by the Third Mark Date, then the Balance
shall be due and payable in U.S. dollars on the fifth business day thereafter,
together with any accrued interest thereon (which interest shall be paid in
Sentex Common Shares in accordance with Section 2). The liability of Sentex
under this Note is absolute and unconditional, without regard to the liability
of any other person or entity, and may be enforced against Sentex without
requiring Holder first to resort to any other right, remedy or security. This
Note is a general, unsecured obligation of Sentex and the performance of
Sentex's obligations hereunder are not guaranteed by any person or entity.
SECTION 3.16 SUBORDINATION. The obligations evidenced by this Note are, in
all respects, subordinated, junior and subject in right of payment to any
present or future indebtedness or monetary obligations of Sentex.
SECTION 3.17 GOVERNING LAW. This Note is subject to and shall be construed
according to the laws of the State of New Jersey, without regard to principles
of conflict of laws.
SECTION 3.18 NOTICE. Any notice required to be given with respect to this
Note shall only be effective if given in writing and if served either by
personal delivery (including without limitation, air courier service) to the
party for which it is intended, by telefax, by overnight courier or by being
deposited in the United States mail, postage prepaid, certified or registered
mail, return receipt requested. Notice shall be deemed received at the time
received when delivered in person, on the next business day after it was sent
when delivered by telefax or an overnight courier and on the third business day
after such notice was deposited in the United States mail if by the United
States mail.
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Sentex acknowledges that this note was signed in Cuyahoga County, in the
State of Ohio.
SENTEX SENSING TECHNOLOGY, INC.,
a New Jersey corporation
--------------------------------------
Robert S. Kendall, Chairman and
President
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<PAGE> 138
EXHIBIT B TO ANNEX A
SENTEX SENSING TECHNOLOGY, INC.
1996 LONG-TERM INCENTIVE PLAN
1. PURPOSE.
The plan shall be known as the Sentex Sensing Technology, Inc. 1996
Long-Term Incentive Plan (the "Plan"). The purpose of the Plan shall be to
promote the long-term growth and profitability of Sentex Sensing Technology,
Inc. (the "Company") and its subsidiaries by (i) providing certain officers and
other key employees of the Company and its subsidiaries with incentives to
improve stockholder values and contribute to the success of the Company and (ii)
enabling the Company to attract, retain and reward the best available persons
for positions of substantial responsibility. Grants of incentive or nonqualified
stock options, stock appreciation rights in tandem with or independent of
options ("SARs"), restricted or nonrestricted share awards, performance units,
or any combination of the foregoing may be made under the Plan.
2. DEFINITIONS.
(a) "Incentive Stock Option" means an option conforming to the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
(b) "Nonqualified Stock Option" means any stock option other than an
Incentive Stock Option.
(c) "Subsidiary" and "subsidiaries" mean a corporation or corporations of
which outstanding shares representing 50% or more of the combined
voting power of such corporation or corporations are owned directly or
indirectly by the Company.
(d) "Disability" means a permanent and total disability as defined in
Section 422(c)(6) of the Code.
(e) "Retirement" means the Norman Retirement Age as defined in the
Company's Employee Profit Sharing Plan or termination of one's
employment with the approval of the Committee.
(f) "Cause" means the occurrence of one of the following:
(i) Conviction for a felony or for any crime or offense lesser than a
felony involving the property of the Company or a subsidiary.
(ii) Conduct that has caused demonstrable and serious injury to the
Company or a subsidiary, monetary or otherwise, as evidenced by a
final determination of a court or governmental agency of competent
jurisdiction in effect after exhaustion or lapse of all rights of
appeal.
(iii) Continued gross dereliction of duty or other grave misconduct, as
determined by the Company after notice has been provided.
(g) "Competition" is deemed to occur if a participant who has terminated
employment subsequently obtains a position as a full-time or part-time
employee, as a member of the board of directors, or as a consultant or
advisor with or to, or acquires an ownership interest in excess of five
percent (5%) of, a corporation, partnership, firm or other entity that
engages in any of the businesses of the Company or any subsidiary with
which the participant was involved in a management role at any time
during the last five years of his employment with the Company or any
subsidiary.
(h) "Change in Control" shall mean an event that would be required to be
reported in response to Item 1 of Form 8-K or any successor form
thereto promulgated under the Securities Exchange Act of 1934
("Exchange Act").
(i) "Fair Market Value" of a share of common stock of the Company shall
mean, with respect to the date in question, the average of the closing
bid and asked prices as quoted by the National Association of
Securities Dealers through its automated quotation system ("NASDAQ");
or, if the Company's common stock is listed or admitted to unlisted
trading privileges on a national stock exchange (the National
Association of Securities Dealers National Market System shall be
deemed
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a national stock exchange), either (x) the average of the highest and
lowest officially-quoted selling prices on such exchange or (y) the
closing sale price of such stock, as selected by the Committee; or if
the Company's common stock is not quoted by NASDAQ, traded on such an
exchange, or otherwise traded publicly, the value determined, in good
faith, by the Committee.
3. ADMINISTRATION.
The Plan shall be administered by a committee (the "Committee") consisting
of at least two persons. Any option granted to "covered employees" as defined in
Section 162(m) of the Code shall be approved by a committee consisting solely of
"outside directors" within the meaning of Section 162(m) of the Code and
regulation 1.162-27 promulgated under the Code. Members of the Committee shall
be directors of the Company. Each member of the Committee shall be a person who
has not at any time within one year prior to his or her appointment to the
Committee been granted or awarded any stock of the Company or any of its
subsidiaries or any stock options, SARs, performance units or any other equity
securities of the Company or any of its subsidiaries pursuant to the Plan or any
other plan of the Company or any of its subsidiaries, except as otherwise
permitted by law. Subject to the provisions of the Plan, the Committee shall be
authorized to (i) select persons to participate in the Plan, (ii) determine the
form and substance of grants made under the Plan to each participant, and the
conditions and restrictions, if any, subject to which such grants will be made,
(iii) interpret the Plan and (iv) adopt, amend, or rescind such rules and
regulations for carrying out the Plan as it may deem appropriate. Decisions of
the Committee on all matters relating to the Plan shall be in the Committee's
sole discretion and shall be conclusive and binding on all parties, including
the Company, its stockholders, and the participants in the Plan. The validity,
construction, and effect of the Plan and any rules and regulations relating to
the Plan shall be determined in accordance with applicable federal and state
laws and rules and regulations promulgated pursuant thereto. At its discretion,
the Committee is authorized to appoint a subcommittee, the members of which it
will designate and which shall be composed solely of outside directors as
permitted by applicable laws and regulations. Such subcommittee shall possess
and may exercise all the powers of the Committee and shall keep full records and
accounts of its proceedings and transactions. All such transactions shall be
reported to the Committee and to the Board of Directors.
4. SHARES AVAILABLE FOR THE PLAN.
Subject to adjustments as provided in Section 15, an aggregate of 7,000,000
shares of common stock, $.01 par value of the Company (the "Common Stock") may
be issued pursuant to the Plan. Such shares may represent unissued or treasury
shares. If any grant under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited as to any shares, such unpurchased or forfeited
shares shall thereafter be available for further grants under the Plan unless,
in the case of options granted under the Plan, SARs in tandem therewith are
exercised.
5. PARTICIPATION.
Participation in the Plan shall be limited to those directors, officers or
employees of the Company and its subsidiaries selected by the Committee. Nothing
in the Plan or in any grant thereunder shall confer any right on an employee to
continue in the employ of the Company or shall interfere in any way with the
right of the Company to terminate an employee at any time. No member of the
Committee shall be eligible to participate in the Plan.
Incentive or nonqualified stock options, SARs, restricted or nonrestricted
stock awards, or any combination thereof, may be granted to such persons and for
such number of shares as the Committee shall determine (such individuals to whom
grants are made being herein called "optionees" or "grantees" as the case may
be). A grant of any type made hereunder in any one year to an eligible employee
shall neither guarantee nor preclude a further grant of that or any other type
to such employee in that year or subsequent years.
The maximum number of shares with respect to which incentive or
nonqualified options, SARs, restricted or nonrestricted stock, or any
combination of the foregoing may be granted to any single individual in any one
calendar year shall not exceed 200,000 shares.
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6. INCENTIVE AND NONQUALIFIED OPTIONS.
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination thereof.
The options granted shall take such form as the Committee shall determine,
subject to the following terms and conditions.
(a) Price. Unless otherwise determined by the Committee, the price per
share deliverable upon the exercise of each option ("exercise price")
shall not be less than 100% of the Fair Market Value of the shares on
the date the option is granted. In the case of the grant of any
Incentive Stock Option to an employee who, at the time of the grant,
owns more than 10% of the total combined voting power of all classes of
stock of the Company or any of its subsidiaries, such price per share,
if required by the Code at the time of grant, shall not be less than
110% of the Fair Market Value of the shares on the date the option is
granted.
(b) Cash Exercise. Options may be exercised in whole or in part upon
payment of the exercise price of the shares to be acquired. Payment
shall be made in cash or, in the discretion of the Committee, in shares
previously acquired by the participant or a combination of cash and
shares of Common Stock. The Fair Market Value of shares of Common Stock
tendered on exercise of options shall be determined on the date of
exercise.
(c) Cashless Exercise. Options may be exercised in whole or in part upon
delivery to the Secretary of the Company of an irrevocable written
notice of exercise. The date on which such notice is received by the
Secretary shall be the date of exercise of the option, provided that
within five business days of the delivery of such notice the funds to
pay for exercise of the option are delivered to the Company by a broker
acting on behalf of the optionee either in connection with the sale of
the shares underlying the option or in connection with the making of a
margin loan to the optionee to enable payment of the exercise price of
the option. In connection with the foregoing, the Company will provide
a copy of the notice of exercise of the option to the aforesaid broker
upon receipt by the Secretary of such notice and will deliver to such
broker, within five business days of the delivery of such notice to the
Company, a certificate or certificates (as requested by the broker)
representing the number of shares underlying the option that have been
sold by such broker for the optionee.
(d) Terms of Options. The term during which each option may be exercised
shall be determined by the Committee, but in no event shall an option
be exercisable in whole or in part, in the case of a Nonqualified Stock
Option, more than ten years and one day from the date it is granted or,
in the case of an Incentive Stock Option, more than ten years from the
date it is granted; and, in the case of the grant of an Incentive Stock
Option to an employee who at the time of the grant owns more than 10%
of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries, in no event shall such option be
exercisable, if required by the Code at the time of grant, more than
five years from the date of the grant. All rights to purchase shares
pursuant to an option shall, unless sooner terminated, expire at the
date designated by the Committee. The Committee shall determine the
date on which each option shall become exercisable and may provide that
an option shall become exercisable in installments. The shares
constituting each installment may be purchased in whole or in part at
any time after such installment becomes exercisable, subject to such
minimum exercise requirement as is designated by the Committee. The
Committee may accelerate the time at which any option may be exercised
in whole or in part. Unless otherwise provided herein, an optionee may
exercise an option only if he or she is, and has continuously been
since the date the option was granted, an employee of the Company or a
subsidiary. Prior to the exercise of the option and delivery of the
shares represented thereby, the optionee shall have no rights to any
dividends or be entitled to any voting rights on any shares represented
by outstanding options.
(e) Limitations on Grants. If required by the Code at the time of grant of
an Incentive Stock Option, the aggregate Fair Market Value (determined
as of the grant date) of shares for which such option is exercisable
for the first time during any calendar year (under all such plans of
the Company, its parent, if any, and its subsidiaries, if any) may not
exceed $100,000.
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(f) Termination of Employment; Change in Control. If a participant ceases
to be an employee of the Company or any subsidiary due to death or
Disability, each of the participant's options and SARs shall become
fully vested and exercisable and shall remain so for a period of one
year from the date of termination of employment, but in no event after
its expiration date.
If a participant ceases to be an employee of the Company or any
subsidiary upon the occurrence of his or her Retirement, each of his or
her options and SARs shall become fully vested and exercisable and
shall remain so for a period of five years from the date of Retirement,
but in no event after its expiration date, provided that the
participant does not engage in Competition during that five-year period
unless he receives written consent to do so from the Board.
Notwithstanding the foregoing, Incentive Stock Options not exercised by
such participant within 90 days after Retirement will cease to qualify
as Incentive Stock Options and will be treated as Nonqualified Stock
Options under the Plan if required to be so treated under the Code.
If a participant ceases to be an employee of the Company or any
subsidiary due to Cause, all of his or her options and SARs shall be
forfeited.
If a participant ceases to be an employee of the Company or any
subsidiary for any reason other than death, Disability, Retirement or
Cause, each of his or her options and SARs that was exercisable on the
date of termination shall remain exercisable for, and shall otherwise
terminate at the end of, a period of 90 days after the date of
termination of employment, but in no event after its expiration date;
provided that the participant does not engage in Competition during
such 90-day period unless he or she receives written consent to do so
from the Board. All of the participant's options and SARs that were not
exercisable on the date of such termination shall be forfeited.
Notwithstanding anything to the contrary herein, if a participant
ceases to be an employee of the Company or any subsidiary, for any
reason other than Cause, the Committee at its sole discretion may
accelerate the vesting of any option or SAR so that it will become
fully vested and exercisable as of the date of such participant's
termination of employment.
If there is a Change in Control of the Company, there will be an
automatic acceleration of the vesting of any outstanding option or SAR
so that it will become fully vested and exercisable as of the date of
the Change in Control.
7. STOCK APPRECIATION RIGHTS.
(a) Tandem SARs. The Committee shall have the authority to grant SARs in
tandem with an option ("tandem SAR") under this Plan to any optionee,
either at the time of a grant of an option or thereafter by amendment
to an option. The exercise of an option shall result in an immediate
forfeiture of its corresponding tandem SAR, and the exercise of a
tandem SAR shall cause an immediate forfeiture of its corresponding
option. Tandem SARs shall be subject to such other terms and conditions
as the Committee may specify. A tandem SAR shall expire at the same
time as the related option expires and shall be transferable only when,
and under the same conditions as, the related option is transferable.
Tandem SARs shall be exercisable only when, to the extent and on
the conditions that the related option is exercisable. No tandem SAR
may be exercised unless the Fair Market Value of a share of Common
Stock of the Company on the date of exercise exceeds the exercise price
of the option to which the SAR corresponds.
Upon the exercise of a tandem SAR, the optionee shall be entitled
to a distribution in an amount equal to the difference between the Fair
Market Value of a share of Common Stock of the Company on the date of
exercise and the exercise price of the option to which the SAR
corresponds. The Committee shall decide whether such distribution shall
be in cash, in shares, or in a combination thereof.
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All tandem SARs will be exercised automatically on the last day
prior to the expiration date of the related option, so long as the Fair
Market Value of a share of the Company's Common Stock on that date
exceeds the exercise price of the related option.
(b) Independent SARs. SARs may be granted by the Committee independently of
options ("Independent SARs"). An Independent SAR will entitle a
participant to receive, with respect to each share of Common Stock as
to which the SAR is exercised, the excess of the Fair Market Value of
one share of such stock on the date of exercise over its Fair Market
Value on the date the Independent SAR was granted.
An Independent SAR will become exercisable at such time or times,
and on such conditions, as the Committee may specify.
Any exercise of an Independent SAR must be in writing, signed by
the proper person and delivered or mailed to the Company, accompanied
by any other documents required by the Committee.
Each Independent SAR will be exercised automatically on the last
day prior to the expiration date established by the Committee at the
time of the award of such SAR.
Payment of the amount to which a participant is entitled upon the
exercise of an Independent SAR shall be made in cash or shares of
Common Stock, or in a combination thereof, as the Committee shall
determine. To the extent that payment is made in such shares, the
shares shall be valued at their Fair Market Value on the date of
exercise of such SAR.
8. RESTRICTED AND NONRESTRICTED SHARE AWARDS.
The Committee may at any time and from time to time award shares under the
Plan to such participants and in such amounts as it determines. Each award of
shares shall specify the applicable restrictions, if any, on such shares, the
duration of such restrictions, and the time or times at which such restrictions
shall lapse with respect to all or a specified number of shares that are part of
the award. Notwithstanding the foregoing, the Committee may reduce or shorten
the duration of any restriction applicable to any shares awarded to any
participant under the Plan.
The participant will be required to deposit shares with the Company during
the period of any restriction thereon and to execute a blank stock power
therefor.
Except as otherwise provided by the Committee, on termination of a
grantee's employment due to death, Disability, retirement with the consent of
the Company, or a Change in Control during any period of restriction, all
restrictions on shares awarded to such grantee shall lapse. On termination of a
grantee's employment for any other reason, all restricted shares subject to
awards made to such grantee shall be forfeited to the Company.
9. WITHHOLDING OF TAXES.
The Company may require, as a condition to any grant under the Plan or to
the delivery of certificates for shares issued hereunder, that the grantee pay
to the Company, in cash, any federal, state or local taxes of any kind required
by law to be withheld with respect to any grant or any delivery of shares. The
Committee, in its sole discretion, may permit participants to pay such taxes
through the withholding of shares otherwise deliverable to such participant in
connection with such grant or the delivery to the Company of shares otherwise
acquired by the participant. The Fair Market Value of shares of Common Stock
withheld by the Company or tendered to the Company for the satisfaction of tax
withholding obligations under this section shall be determined on the date such
shares are withheld or tendered. The Company, to the extent permitted or
required by law, shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a grantee any federal, state or
local taxes of any kind required by law to be withheld with respect to any grant
or to the delivery of shares under the Plan, or to retain or sell without notice
a sufficient number of the shares to be issued to such grantee to cover any such
taxes, provided that the Company shall
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not sell any such shares if such sale would be considered a sale by such grantee
for purposes of Section 16 of the Exchange Act.
10. WRITTEN AGREEMENT.
Each employee to whom a grant is made under the Plan shall enter into a
written agreement with the Company that shall contain such provisions,
consistent with the provisions of the Plan, as may be established by the
Committee.
11. TRANSFERABILITY.
No option or SAR, granted under the Plan shall be transferable by an
employee otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act, or the rules thereunder. An
option or SAR may be exercised only by the optionee or grantee thereof or his
guardian or legal representative; provided that Incentive Stock Options may be
exercised by such guardian or legal representative only if permitted by the Code
and any regulations promulgated thereunder.
12. LISTING AND REGISTRATION.
If the Committee determines that the listing, registration, or
qualification upon any securities exchange or under any law of shares subject to
any option, SAR, or share award is necessary or desirable as a condition of, or
in connection with, the granting of same or the issue or purchase of shares
thereunder, no such option or SAR may be exercised in whole or in part, or no
shares issued unless such listing, registration or qualification is effected
free of any conditions not acceptable to the Committee. The Committee will use
its reasonable efforts to obtain such listing, registrations or qualifications
upon any securities exchange.
13. TRANSFER OF EMPLOYEE.
Transfer of an employee from the Company to a subsidiary, from a subsidiary
to the Company, and from one subsidiary to another shall not be considered a
termination of employment. Nor shall it be considered a termination of
employment if an employee is placed on military or sick leave or such other
leave of absence which is considered as continuing intact the employment
relationship; in such a case, the employment relationship shall be continued
until the date when an employee's right to reemployment shall no longer be
guaranteed either by law or by contract.
14. ADJUSTMENTS.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
extraordinary cash or non-cash dividend or any other change in the corporate
structure or shares of the Company, the Committee shall make such adjustments as
it deems appropriate in the number and kind of shares reserved for issuance
under the Plan, in the number and kind of shares covered by grants made under
the Plan, and in the exercise price of outstanding options. In the event the
Company shall be the surviving corporation in any merger or consolidation, each
outstanding option shall pertain and apply to the securities to which a holder
of the number of shares subject to the option would have been entitled. In the
event of any merger, consolidation or other reorganization in which the Company
is not the surviving or continuing corporation, all options, SARs, and stock
awards that were granted hereunder and that are outstanding on the date of such
event shall be assumed by the surviving or continuing corporation.
15. TERMINATION AND MODIFICATION OF THE PLAN.
The Board of Directors, without further approval of the shareholders, may
modify or terminate the Plan and from time to time may suspend, and if
suspended, may reinstate any or all of the provisions of the Plan, unless
otherwise required by Rule 16(b)-3 of the Securities Exchange Act of 1934 or
Section 422 or Section 162(m) of the Code.
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With the consent of the grantee affected thereby, the Committee may amend
or modify the grant of any outstanding option, SAR, or share award in any manner
to the extent that the Committee would have had the authority to make such grant
as so modified or amended, including without limitation to change the date or
dates as of which (i) an option becomes exercisable, or (ii) restrictions on
shares are to be removed. The Committee shall be authorized to make minor or
administrative modifications to the Plan as well as modifications to the Plan
that may be dictated by requirements of federal or state laws applicable to the
Company or that may be authorized or made desirable by such laws.
16. COMMENCEMENT DATE; TERMINATION DATE.
The date of commencement of the Plan shall be , 1996. Unless
previously terminated, the Plan shall terminate at the close of business on
, 2006.
17. CASH AWARDS.
The Committee may authorize cash awards to any participant receiving shares
under the Plan in order to assist such participant in meeting his or her tax
obligations with respect to such shares.
18. PROVISIONS APPLICABLE SOLELY TO INSIDERS.
The following provisions shall apply only to persons who are subject to
Section 16 of the Securities Exchange Act of 1934 with respect to securities of
the Company ("Insiders"):
(a) No Insider shall be permitted to transfer any securities of the Company
acquired by him, except to the extent permitted by 17 C.F.R.
sec.240.16a-2(d)(1), upon the exercise of any Incentive Stock Option,
Nonqualified Stock Option or SAR, until at least six months and one day
after the later of (i) the day on which such security is granted to the
participant or (ii) the day on which the exercise or conversion price
of such security is fixed.
(b) No Insider shall be permitted to exercise any SAR for cash until at
least six months and one day after the date on which such SAR was
granted, except to the extent permitted by 17 C.F.R.
sec.240.16a-2(d)(1).
(c) No Insider shall be permitted to sell any shares awarded under Section
9 hereof until at least six months and one day after the date on which
such shares were awarded, except to the extent permitted by 17 C.F.R.
sec.240.16a-2(d)(1).
(d) Notwithstanding Section 19 (b)(ii) hereof, an Insider may elect to have
shares withheld from a grant or an award made under the Plan in order
to satisfy tax withholding consequences thereof by providing the
Company with a written election to so withhold at least six months in
advance of the withholding of shares otherwise issuable upon exercise
of an option or pursuant to an award of stock.
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EXHIBIT C TO ANNEX A
AMENDED AND RESTATED
NOTE EXCHANGE AGREEMENT
This Amended and Restated Note Exchange Agreement (this "Agreement") is
entered this 30th day of July, 1996, by and between Sentex Sensing Technology,
Inc., a New Jersey corporation ("Sentex") and Clarion Capital Corporation, a
Delaware corporation ("Clarion").
W I T N E S S E T H :
WHEREAS, on the date hereof, Sentex, Sentex Merger Corp., a Delaware
corporation and a wholly owned direct subsidiary of Sentex ("Subcorp") and
Monitek Technologies, Inc., a Delaware corporation ("Monitek"), entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which it is contemplated that Subcorp will be merged with and into
Monitek (the "Merger"); and
WHEREAS, Clarion is the original payee and current holder of a promissory
note in the principal amount of $476,940 made by Monitek, a copy of which is
attached hereto as Exhibit A (the "Monitek Note"); and
WHEREAS, as a condition of the Merger, Sentex and Monitek have agreed that
the Monitek Note, together with all interest accrued thereon at the Effective
Time (as defined in the Merger Agreement) will be exchanged for a convertible
note of Sentex in the principal amount of $136,414 substantially in the form
attached hereto as Exhibit B (the "Clarion Note"); and
WHEREAS, in connection with the amendment and restatement of the Merger
Agreement, which was originally entered into on June 24, 1996, Clarion and
Sentex desire to amend and restate this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants set forth herein, the parties agree to the following:
1. Exchange of Notes. At the Closing (as defined in the Merger Agreement),
Clarion shall surrender to the custody of Sentex the Monitek Note, together with
all interest accrued due thereon in exchange for the Clarion Note.
2. Representations and Warranties of Clarion. Clarion represents and
warrants to Sentex that (i) Clarion is duly organized, validly existing, and in
good standing in the State of Delaware; (ii) Clarion has the full power and
authority to execute, deliver and perform its obligations under this Agreement;
(iii) Clarion has taken such action as is necessary to authorize the execution,
delivery and performance of this Agreement; (iv) neither the execution nor the
performance of this Agreement will conflict with, be a violation of, or cause a
breach of any agreement to which Clarion is a party; (v) as of the date hereof
Clarion has advanced funds or otherwise extended credit to Monitek equal to the
principal amount of the Monitek Note; (vi) Clarion has been paid interest and
principal by Monitek in an amount such that under the terms of the Monitek Note
the remaining outstanding principal balance due as of the date of the Monitek
Note was equal to $476,940; (vii) as of the date of the Monitek Note, there was
no accrued interest on the Monitek Note; (viii) as of the date of the Monitek
Note, there were no other advances or loans or extensions of any other credit to
Monitek by Clarion; (ix) from the date set forth on the Monitek Note through the
date hereof, Clarion has been the only holder of the Note; and (x) no third
party has any right or claim to payments or other performance due under the
Monitek Note. These representations and warranties shall survive the performance
of this Agreement and shall be deemed to have been made again upon the exchange
of the Monitek Note for the Clarion Note. Clarion shall indemnify and hold
Sentex and Monitek harmless from and against any and all losses, liabilities,
damages, costs and expense asserted against, imposed upon or incurred or
suffered by Sentex or Monitek as a result of any inaccuracy in these
representations or warranties.
3. Representations and Warranties of Sentex. Sentex represents and warrants
to Sentex that (i) Sentex is duly organized validly existing; (ii) Sentex has
the full power and authority to execute, deliver and perform its
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obligations under this Agreement; (iii) Sentex has taken such action as is
necessary to authorize the execution, delivery and performance of this
Agreement; (iv) neither the execution nor the performance of this Agreement will
conflict with, be a violation of, or cause a breach of any agreement to which
Sentex is a party; and (v) the Clarion Note, when issued, will be duly and
validly issued in accordance with its terms. These representations and
warranties shall survive the performance of this Agreement, and shall be deemed
to have been made again upon the exchange of the Monitek Note for the Clarion
Note, Sentex shall indemnify and hold Clarion harmless from and against any and
all losses, liabilities, damages, costs and expense asserted against, imposed
upon or incurred or suffered by Clarion as a result of any inaccuracy in these
representations or warranties.
4. Unpaid Interest and Future Advances. Clarion shall not accept or cause
Monitek to pay any accrued or unpaid interest due under the Monitek Note unless
the Merger Agreement has been terminated. Commencing on any date after the date
of this Agreement, Clarion may provide advances to Monitek in accordance with
the restriction relating to Monitek's ability to borrow funds in Section 5.3(f)
of the Merger Agreement. All such advances from Clarion to Monitek shall be in
compliance with the Small Business Investment Company Act of 1958, as amended,
and the rules and regulations promulgated thereunder.
5. Registration and Listing. Sentex shall use its best efforts to have the
Sentex Common Shares that will be issuable upon conversion of the Clarion Note
and issuable as interest on the Clarion Note included in the Registration
Statement (as defined in the Merger Agreement). If such shares cannot be so
included, then Sentex shall use its best efforts to register such shares as soon
as reasonably practicable and maintain such registration as current, on Form S-1
or any other appropriate form under the Securities Act of 1933, as amended (the
"Act"). If such shares cannot be so registered, then Sentex will use reasonable
efforts to so register such shares under the Act for resale after conversion of
the Clarion Note. Sentex shall cause its Board of Director to consider no less
than annually from the Effective Time whether it is in the best interest of
Sentex and its shareholders to obtain a listing on a National Market System.
6. Entire Agreement. This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
agreements with respect to such subject matter.
7. Binding Effect Assignment. The provisions of this Agreement are binding
upon and inure to the benefit of the parties hereto and their respective
successors. This Agreement may not be assigned by either party without the prior
written consent of the other party.
8. Applicable Law. This Agreement shall be governed and construed
exclusively in accordance with the laws of the State of New Jersey, without
regard to principles of conflicts of laws.
9. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original for all purposes, and all of which
together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands to this
Agreement on the date first written above.
SENTEX SENSING TECHNOLOGY, INC.
/s/ ROBERT S. KENDALL
--------------------------------------
Robert S. Kendall, Chairman and
President
CLARION CAPITAL CORPORATION
/s/ MORRIS H. WHEELER
--------------------------------------
Morris H. Wheeler, President
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EXHIBIT D TO ANNEX A
CLARION NOTE
$136,414.00 ______________, ________
__________ ______ , 1996
FOR VALUE RECEIVED, the undersigned, SENTEX SENSING TECHNOLOGY, INC., a New
Jersey corporation ("Sentex"), promises to pay to the order of CLARION CAPITAL
CORPORATION, a Delaware corporation (the "Payee"), at the address set forth on
the books of Sentex or such other address as the Payee provides in writing, the
principal sum of ONE HUNDRED THIRTY SIX THOUSAND FOUR HUNDRED AND FOURTEEN
DOLLARS ($136,414) in accordance with the terms of this Clarion Note (the
"Note"), together with interest thereon in accordance with Section 2 hereof.
SECTION 1. COLLATERAL AGREEMENTS. This Note is issued in connection with
the Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"),
dated July 30, 1996, among Sentex, Sentex Merger Corp., a Delaware corporation
and wholly owned subsidiary of Sentex and Monitek Technologies, Inc., a Delaware
corporation ("Monitek") and an Amended and Restated Note Exchange Agreement,
dated June 24, 1996, by and between the Payee and Sentex, pursuant to which on
the Effective Date (as defined in the Merger Agreement) a promissory note made
by Monitek in the original principal amount of $476,940 has been converted into
this Note. Capitalized terms used herein but not otherwise defined shall have
the meanings ascribed to them in the Merger Agreement.
SECTION 2. INTEREST. This Note shall bear interest commencing on the date
hereof at an interest rate of five and 5/100th percent (5.05%) per annum in
accordance with and subject to this Section 2. Unless interest is otherwise
payable pursuant to Sections 3, 4, or 6, interest shall be payable on each
anniversary date hereof, but in all events shall be payable only in Sentex
Common Shares. All interest due and payable shall be based on a 365 or a 366 day
year, as the case may be, for the actual number of days elapsed and shall be
paid in Sentex Common Shares. The number of Sentex Common Shares issued in
payment for the interest due on this Note shall be computed by dividing the
amount of accrued interest due in U.S. dollars by the average of the bid and ask
prices of Sentex Common Shares on the last ten trading days prior to the date on
which that interest payment is due, as reflected on the exchange, quotation
system or other market on or in which the largest number of Sentex Common Shares
were traded during the preceding six month period. For interest payments due on
the anniversary date hereof, Sentex shall deliver to the holder of this Class A
Convertible Note (a "Holder"), a certificate, with all legends required pursuant
to the Shareholders Agreement affixed thereto, representing the appropriate
number of Sentex Common Shares determined in accordance with the preceding
sentence, within 5 business days of each anniversary date hereof. Interest
payments due under Sections 3, 4 and 6 hereof shall be computed in accordance
with the second preceding sentence but paid in accordance with the relevant
Section pursuant to which such interest is due.
SECTION 3. CONVERSION BY HOLDER. Upon surrendering this Note to Sentex,
together with a transmittal letter describing the action desired, the Holder may
convert the entire outstanding principal balance, but not less than the entire
outstanding principal balance, of this Note (the "Balance") into that number of
Sentex Common Shares as is computed by dividing the Balance by $0.0194 (subject
to the adjustments provided for in the anti-dilution provisions of Section 5
hereof) after any of the following occur (as to which, in the cases of (a)
through (d), Sentex will give adequate notice to the Holder):
(a) Sentex proposes to declare a dividend or other distribution to the
Sentex Shareholders other than a stock split or reverse stock split;
(b) Sentex proposes to offer the Sentex Shareholders the opportunity to
subscribe for additional equity securities of Sentex or Sentex issues
any equity securities pursuant to either a private or public sale
thereof;
(c) Sentex proposes to reclassify or change the outstanding Sentex Common
Shares (other than a change in par value or as a result of a stock
split) (a "Change");
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(d) Sentex proposes to consolidate with or merge with and into another
entity (other than a consolidation or merger in which Sentex will be
the surviving corporation and which does not result in any
reclassification or Change in the Sentex Common Shares or sells or
conveys substantially all its assets to another company;
(e) Robert S. Kendall dies or becomes permanently disabled;
(f) there is change in control of Sentex;
(g) the three hundredth day after the second anniversary hereof.
Interest shall cease accruing on the day Sentex receives this Note and the
transmittal letter requesting conversion in accordance with this Section 3.
Within 10 business days thereof, Sentex shall issue to the Holder a certificate,
with all legends required pursuant to the Shareholders Agreement affixed
thereto, representing the appropriate number of Sentex Common Shares issuable
hereunder, including the Sentex Common Shares issuable on account of accrued
interest.
SECTION 4. CONVERSIONS BY SENTEX.
(a) Upon written notice to the Holder, Sentex may, but is not obligated to,
require the Holder, at any time, to convert the Balance into that
number of Sentex Common Shares as is computed by dividing the Balance
by $0.0194 (subject to the adjustments provided for in the
anti-dilution provisions of Section 5 hereof) if (i) there is a proxy
contest for control of the Board of Directors of Sentex or (ii) Sentex
is unable, in the judgment of its Board of Directors, without
compelling such a conversion, to obtain the requisite shareholder vote
to approve a material transaction approved by the Board of Directors of
Sentex.
(b) On the three hundredth forty-fifth (345th) day after the second
anniversary date hereof (the "First Mark Date"), Sentex may, but is not
obligated to, require the Holder to convert the Balance (if such
Balance has not already been converted) into that number of Sentex
Common Shares as is computed by dividing the Balance by $0.0750
(subject to the adjustments provided for in the anti-dilution
provisions of Section 5 hereof) by giving Sentex written notice to such
effect within ten (10) business days of the First Mark Date (the date
the Holder receives or is deemed to receive such notice being the
"Second Mark Date"). If the Holder does not, within five (5) business
days of the Second Mark Date (the "Third Mark Date"), provide Sentex
written notice of the Holder's intention to convert the Balance of the
Note pursuant to Section 3(g) at $0.0194, then the Balance of the Note
shall be converted in accordance with this Section 4(b).
(c) In the event Sentex compels conversion pursuant to either this Section
4(a) or 4(b) hereof, interest shall cease accruing on the date the
Holder receives written notice by Sentex of its intention to compel
conversion (unless such conversion is ultimately effected by a Holder
exercising its or his rights pursuant to Section 3 hereof, in which
case interest shall cease accruing on the Third Mark Date). Within five
(5) business days of the receipt of this Note from the Holder, Sentex
shall issue to the Holder a certificate, with all the legends required
pursuant to the Shareholders Agreement affixed thereto, representing
the appropriate number of Sentex Common Shares issuable hereunder,
including Sentex Common Shares issuable on account of accrued interest.
SECTION 5. CERTAIN ADJUSTMENTS.
(a) The number of Sentex Common Shares into which the Balance may be
converted pursuant to Sections 3 and 4 hereof shall be subject to
adjustment from time to time in the event that Sentex shall (a) pay a
dividend in, or make a distribution of, Sentex Common Shares (or
securities convertible into, exchangeable for or otherwise entitling a
holder thereof to receive Sentex Common Shares) on its outstanding
Sentex Common Shares, (b) subdivide its outstanding Sentex Common
Shares into a greater number of shares, (c) combine its outstanding
Sentex Common Shares into a smaller number of shares, (d) otherwise
reclassify the Sentex Common Shares, or (e) distribute to any holders
of the capital stock of Sentex any securities, assets (other than cash
dividends payable out of earnings) or debt (each an "Adjustment"). In
cases (a) through (d), the amount to be divided into the Balance (the
"Conversion Price") shall be adjusted so that the Holder shall be
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entitled to receive the same number of Sentex Common Shares as the
Holder would have owned or would have been entitled to receive
immediately following the occurrence of any of the Adjustments
described in (a) through (d) had a conversion pursuant to Section 3 or
4 occurred immediately prior to the occurrence (or applicable record
date) of such event. In case (e), the Conversion Price in effect
immediately prior to such Adjustment shall be adjusted by multiplying
the respective Conversion Price in effect immediately prior to such
Adjustment by a fraction, of which the numerator shall be the Current
Market Price (defined below) per share of Sentex Common Shares, less
the then fair market value (as determined by the Board of Directors of
Sentex, whose determination shall be conclusive) of the assets or
securities or debt so distributed on a per share basis and the
denominator of which shall be the Current Market Price per share of
Sentex Common Shares on the record date for such distribution. An
Adjustment made pursuant to this Section 5 shall, in the case of a
stock dividend or distribution, be made as of the record date therefor
and, in the case of a subdivision, combination, or reclassification, be
made as of the effective date thereof.
(b) For purposes of this Section 5, the term "Current Market Price" shall
mean the average of the bid and ask prices of Sentex Common Shares on
the last ten trading days immediately prior to the earlier of (i) the
record date for such distribution or (ii) the date Sentex Common Shares
traded ex-dividend as reflected on the exchange, quotation system or
other market on or in which the largest number of Sentex Common Shares
were traded during the preceding six month period.
(c) Whenever an Adjustment occurs:
(i) Sentex will compute the adjusted Conversion Price based on the
Adjustment in accordance with this Section 5(a) and will prepare a
certificate signed by the President or Treasurer of Sentex setting
for the adjusted Conversion Price and the facts requiring such
Adjustment, and such certificate will forthwith be filed at the
office of the transfer agent or agents, if any, for the Clarion Note
and at the principal office of Sentex; and
(ii) A notice stating that an Adjustment to the Conversion Price has
occurred and setting forth the adjusted Conversion Price and the
facts requiring such Adjustment will, as soon as practicable, be
mailed to the Clarion.
SECTION 6. PRINCIPAL. In the event that the Balance is not converted
pursuant to Sections 3 or 4 hereof by the Third Mark Date, then the Balance
shall be due and payable in U.S. dollars on the fifth business day thereafter,
together with any accrued interest thereon (which interest shall be paid in
Sentex Common Shares in accordance with Section 2). The liability of Sentex
under this Note is absolute and unconditional, without regard to the liability
of any other person or entity, and may be enforced against Sentex without
requiring Holder first to resort to any other right, remedy or security. This
Note is a general, unsecured obligation of Sentex and the performance of
Sentex's obligations hereunder are not guaranteed by any person or entity.
SECTION 7. SUBORDINATION. The obligations evidenced by this Note are, in
all respects, subordinated, junior and subject in right of payment to any
present or future indebtedness or monetary obligations of Sentex.
SECTION 8. GOVERNING LAW. This Note is subject to and shall be construed
according to the laws of the State of New Jersey, without regard to principles
of conflict of laws.
SECTION 9 NOTICE. Any notice required to be given with respect to this Note
shall only be effective if given in writing and if served either by personal
delivery (including without limitation, air courier service) to the party for
which it is intended, by telefax, by overnight courier or by being deposited in
the United States mail, postage prepaid, certified or registered mail, return
receipt requested. Notice shall be deemed received at the time received when
delivered in person, on the next business day after it was sent when delivered
by telefax or an overnight courier and on the third business day after such
notice was deposited in the United States mail if by the United States mail.
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Sentex acknowledges that this note was signed in Cuyahoga County, in the
State of Ohio.
SENTEX SENSING TECHNOLOGY, INC.,
a New Jersey corporation
--------------------------------------
Robert S. Kendall, Chairman and
President
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EXHIBIT E TO ANNEX A
BOARD REPRESENTATION AGREEMENT
This Board Representation Agreement (this "Agreement") is entered this
day of , 1996, by and between Sentex Sensing Technology, Inc.,
a New Jersey corporation ("Sentex") and Clarion Capital Corporation, a Delaware
corporation ("Clarion").
W I T N E S S E T H :
WHEREAS, on July 30, 1996, Sentex, Sentex Merger Corp., a Delaware
corporation and a wholly owned direct subsidiary of Sentex ("Subcorp") and
Monitek Technologies, Inc., a Delaware corporation ("Monitek"), entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which it is contemplated that Subcorp will be merged with and into
Monitek (the "Merger"); and
WHEREAS, as a condition of the Merger, Sentex has agreed to enter into this
Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants set forth herein, the parties agree to the following:
1. Initial Representation. Clarion acknowledges that the Board of Directors
of Sentex (the "Sentex Board") has created a vacancy on the Sentex Board by
creating a new directorship and has filled such vacancy by electing, in
accordance with Section 14A:6-5 of the New Jersey Business Corporation Act, the
person designated by Clarion (such person or any other person selected by
Clarion pursuant to this Section 1 the "Clarion Designee"). Sentex agrees that
from the date of this Agreement, in each instance in which individuals are
nominated for election to the Sentex Board, Sentex shall cause to be nominated
for election to the Sentex Board by the Sentex Shareholders the Clarion Designee
in the manner set forth and subject to the conditions in Section 3 hereof.
2. Subsequent Increases to Number of Directors. In the event the number of
directorships of the Sentex Board is increased to more than six (6), Sentex
shall cause to be nominated for election to the Sentex Board in the manner set
forth and subject to the conditions set forth in Section 3 that number of
additional individuals designated by Clarion ("Subsequent Designees") equal to
(i) the Appointment Number (as defined below) minus (ii) one (which is to
account for the Clarion Designee that Clarion will be able to select at all
times during the term of this Agreement without regard to the calculation of the
Appointment Number). For purposes of this Agreement, "Appointment Number" means
the following, rounded to the nearest whole number (with .50 being rounded up to
the nearest whole number): the product of (i) the number of total directorships
and (ii) the quotient equal to: (A) the sum of Sentex Common Shares owned by the
Clarion Group (as defined below) and the Sentex Common Shares thereafter at any
time issuable to the Clarion Group pursuant to the Clarion Note and any Class A
Convertible Notes held by any members of the Clarion Group at the most favorable
conversion rate provided for therein divided by (B) the aggregate number of
Sentex Common Shares outstanding and the Sentex Common Shares that would be
outstanding upon conversion or exercise of any security or other instrument of
Sentex, including, without limitation, the Clarion Note, the Class A Convertible
Note, options, and warrants, all at the most favorable conversion rate to the
holder thereof. For purposes of this Agreement, "Clarion Group" means Clarion,
and its then existing affiliates and associates, with the terms "affiliates" and
"associates" having the meanings set forth in Section 14A:10A-3 of the New
Jersey Shareholder Protection Act.
3. Covenant of Sentex. Sentex shall cause the Clarion Designee and the
Subsequent Designees, if any (the "Designee" or "Designees"), to be validly and
timely nominated for election to the Sentex Board at the time and in the same
manner as other proposed directors are nominated, shall recommend to the
shareholders of Sentex (the "Sentex Shareholders") the election to the Sentex
Board of the Designee(s) and shall not revoke or qualify such recommendation.
Sentex shall use its reasonable best efforts to solicit from the Sentex
Shareholders proxies in favor of the election of the Designee(s), and shall take
such other action as may be reasonably necessary to cause such Designee(s) to be
so elected. If any of the Designee(s) who serves on the
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Sentex Board ceases, for any reason, to serve on the Sentex Board (other than as
a result of the expiration of the specified term of such Designee(s)), Sentex
shall take all actions reasonably necessary to cause the vacancy to be filled,
as soon as practicable, by an individual designated by Clarion, but in any event
no later than the earlier of the first meeting of the Sentex Board or the taking
by the Sentex Board of any action by written consent following cessation of
service by such Designee(s).
4. Audit Committee. If and when Sentex obtains a listing on the NASDAQ
National Market System ("NASDAQ"), the Sentex Board shall, in accordance with
the listing requirements of NASDAQ (if any), form an audit committee composed of
members of the Sentex Board (the "Audit Committee"). Upon formation of the Audit
Committee and thereafter, Clarion shall have the right to have one of its
Designees who has been elected as a director to the Sentex Board be a member of
the Audit Committee.
5. Observer. In addition to the Designee(s), Clarion shall have the right
to have a representative attend and observe, but not participate in, Sentex
Board meetings.
6. Term and Termination. This Agreement shall terminate at any time the
Clarion Group is not the Beneficial Owner (as defined hereinafter) of at least
10,000,000 Sentex Common Shares (subject to adjustments for stock splits,
reverse stock splits and reclassifications of Sentex Common Shares). The term
"Beneficial Owner" as used herein shall mean (i) all Sentex Common Shares that
the Clarion Group would be deemed to own under Rule 13d-3 of the rules and
regulations promulgated under the Securities and Exchange Act of 1934 ("Rule
13d-3") and (ii) all Sentex Common Shares thereafter at any time issuable to the
Clarion Group pursuant to the Clarion Note and Class A Convertible Notes (at the
most favorable conversion rate) that Clarion is not otherwise deemed to own
under Rule 13d-3.
7. Representations and Warranties of Sentex. Sentex represents and warrants
to the Clarion that:
(a) Sentex has all necessary power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by Sentex and the performance of its obligations
hereunder have been duly and validly authorized by Sentex, and no other
proceedings on the part of Sentex are necessary to authorize the execution and
delivery of this Agreement or to perform such obligations. This Agreement has
been duly and validly executed and delivered by Sentex and, assuming the due
authorization, execution and delivery hereof by each other party hereto,
constitutes a legal, valid and binding obligation of Sentex enforceable against
Sentex in accordance with its terms, except (x) as the same may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights, including without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (y) for the limitations imposed by
general principles of equity.
(b) The execution and delivery of this Agreement by Sentex do not, and the
performance of this Agreement by Sentex will not, (i) conflict with or violate
the Certificate of Incorporation or By-laws of Sentex, as each may have been
amended or restated, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Sentex or by which any of Sentex's
property may be bound or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Sentex's properties pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Sentex is a party or by which Sentex or Sentex's properties
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which would
not prevent or delay the performance by Sentex of its obligations under this
Agreement.
(c) The execution and delivery of this Agreement by Sentex do not, and the
performance of this Agreement by Sentex will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any federal,
state, local or foreign regulatory body, except where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay the performance by Sentex of Sentex's
obligations under this Agreement.
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8. Representations and Warranties of Clarion. Clarion represents and
warrants to Sentex as follows:
(a) Clarion has all necessary power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by Clarion and the performance of its obligations
hereunder have been duly and validly authorized by Clarion, and no other
proceedings on the part of Clarion are necessary to authorize the execution and
delivery of this Agreement or to perform such obligations. This Agreement has
been duly and validly executed and delivered by Clarion and, assuming the due
authorization, execution and delivery hereof by each other party hereto,
constitutes a legal, valid and binding obligation of Clarion enforceable against
Clarion in accordance with its terms, except (x) as the same may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights, including without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (y) for the limitations imposed by
general principles of equity.
(b) The execution and delivery of this Agreement by Clarion do not, and the
performance of this Agreement by Clarion will not, (i) conflict with or violate
the Certificate of Incorporation or By-laws or of Clarion, as each may have been
amended or restated, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Clarion or by which any of Clarion's
property may be bound or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Clarion's properties pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Clarion is a party or by which Clarion or Clarion's
properties are bound or affected, except, in the case of clauses (ii) and (iii),
for any such conflicts, violations, breaches, defaults or other occurrences
which would not prevent or delay the performance by Clarion of its obligations
under this Agreement.
(c) The execution and delivery of this Agreement by Clarion do not, and the
performance of this Agreement by Clarion will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
federal, state, local or foreign regulatory body, except where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay the performance by Clarion
of Clarion's obligations under this Agreement.
(d) Upon the consummation of the Merger, Clarion will be the Beneficial
Owner of Sentex Common Shares, free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever (the "Encumbrances"), except for those Encumbrances set forth in the
Shareholders Agreement, dated the date hereof, by and among Clarion, CPS
Capital, Ltd, an Ohio limited liability company, and Robert S. Kendall (the
"Shareholders Agreement"). Except as limited by the Shareholders Agreement,
Clarion otherwise has the sole voting power with respect to its Sentex Common
Shares or has the power to direct the voting of such Sentex Common Shares.
Except pursuant to the Shareholders Agreement, Clarion has not appointed or
granted any proxy, which appointment or grant is still effective, with respect
to such Sentex Common Shares.
9. Entire Agreement. This Agreement constitutes the entire agreement among
the parties hereto and supersedes all prior agreements with respect to the
subject matter hereof.
10. Binding Effect; Assignment. Each provision of this Agreement is binding
upon and inure to the benefit the parties hereto and their respective,
successors and assigns. This Agreement may not be assigned by any party hereto
without the written consent of the other party hereto.
11. Applicable Law. This Agreement shall be governed and construed
exclusively in accordance with the laws of the State of New Jersey, without
regard to principles of conflicts of laws.
12. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original for all purposes, and all of which
together shall constitute one agreement.
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IN WITNESS WHEREOF, the parties hereto have set their hands to this
Agreement on the date first written above.
SENTEX SENSING TECHNOLOGY, INC.
--------------------------------------
Robert S. Kendall, Chairman and
President
CLARION CAPITAL CORPORATION
--------------------------------------
Morris H. Wheeler, President
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EXHIBIT F TO ANNEX A
PARTICIPATION RIGHTS AGREEMENT
This Participation Rights Agreement (this "Agreement") is entered this
day of , 1996, by and among Sentex Sensing Technology, Inc., a
New Jersey corporation ("Sentex"), Clarion Capital Corporation, a Delaware
corporation, ("Clarion") and each person or entity listed as a "Class A Holder"
on the signature pages hereof (each a "Class A Holder" and, together the "Class
A Holders").
W I T N E S S E T H :
WHEREAS, on July 30, 1996, Sentex, Sentex Merger Corp., a Delaware
corporation and a wholly owned direct subsidiary of Sentex ("Subcorp"), and
Monitek Technologies, Inc., a Delaware corporation ("Monitek"), entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which it is contemplated that Subcorp will be merged with and into
Monitek (the "Merger"); and
WHEREAS, pursuant to the Amended and Restated Note Exchange Agreement,
dated July , 1996 by and between Clarion and Sentex, which is being entered
into in connection with the Merger, Clarion will become the holder of a
convertible note in the original principal amount of $136,414 (the "Clarion
Note"), pursuant to which, under certain conditions, Clarion will be entitled to
convert the Convertible Note into Sentex Common Shares (as defined in the Merger
Agreement); and
WHEREAS, pursuant to the Merger, the Class A Holders will become the
holders of Class A Convertible Notes (as defined in the Merger Agreement),
pursuant to which, under certain conditions, they will be entitled to convert
the Class A Convertible Notes into Sentex Common Shares; and
WHEREAS, as a condition of the Merger, Sentex has agreed to provide Clarion
and the Class A Holders certain participation rights in connection with certain
sales by Sentex of its capital stock; and
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants set forth herein, the parties agree to the following:
1. Participation Rights. Each time Sentex decides to sell any equity
securities of Sentex in a private transaction or pursuant to a public offering
(other than shares registered on Form S-4 or Form S-8 or successor forms
promulgated under the Securities Act of 1933, as amended) (an "Offer") Sentex
shall provide, as soon as practicable, Clarion and the Class A Holders written
notice that describes in reasonable detail the nature of such transaction or
offering, including, without limitation, the sale or offer price (if applicable)
and the number of shares of the equity securities which Sentex has decided to
sell in such transaction or offering (the "Notice of Sale"). By such notice
Sentex shall be deemed to offer Clarion and the Class A Holders (which offer
shall remain open for 10 business days following the receipt of such notice
("Option Period")) the opportunity to agree to purchase a portion of such
securities (an "Option") on a pro rata basis according to the following
calculation. The number of shares that each of Clarion and each Class A Holder
will be entitled to purchase in such Offer shall be equal to the product of: (a)
the total number of Sentex Common Shares or other securities Sentex intends to
sell in such Offer and (b) the quotient equal to: (i) the total number of Sentex
Common Shares theretofore issued and outstanding and thereafter at any time
issuable (at the most favorable conversion rate) upon conversion of the Clarion
Note or the Class A Note to Clarion or the Class A Holder, as the case may be,
divided by (ii) the sum of the issued and outstanding Sentex Common Shares and
the Sentex Common Shares thereafter at any time issuable upon conversion of the
Clarion Note and the Class A Convertible Notes. Sentex Common Shares held by
Clarion or the Class A Holders, as the case may be, that were not issued
pursuant to the Clarion Note or the Class A Convertible Note shall not be
included in the aforesaid numerator, and the aforesaid denominator shall not
include Sentex Common Shares that are issuable upon conversion of other
securities or instruments of Sentex.
2. Election Not to Exercise Option. If Clarion or any Class A Holder does
not exercise its Option within the Option Period by giving Sentex written notice
of its or his agreement to purchase such securities, then
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Sentex shall be permitted to sell such shares for a period of 60 days after the
Option Period; provided, however, that if such shares are to be sold privately,
Sentex shall not sell the such shares at a lower price or on terms more
favorable than those specified, or to any person(s) not named as purchaser(s),
in the Notice of Sale.
3. Failure to Complete Sale. If Clarion or any Class A Holder does not
exercise its Option, and Sentex does not consummate the Offer in the 60 day
period provided for herein, no sale of such shares shall be made thereafter
except in compliance again with the procedures provided for in this Agreement.
4. Delivery and Payment. Delivery of and payment for any shares purchased
on exercise of an Option shall be made at the closing of the private transaction
or public offering that Sentex gave notice of pursuant to this Agreement.
5. Representations and Warranties of Clarion and Each Class A Holder.
Clarion and each Class A Holder represents and warrants to Sentex for himself,
herself or itself only (the "Representor") that (i) the Representor, if an
entity, is duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, (ii) the Representor, if an entity, has the
full power and authority and, if a natural person, the power, right and capacity
to execute, deliver and perform the Representor's obligations under this
Agreement, (iii) the Representor, if an entity, has taken such action as is
necessary to authorize the execution, delivery and performance of this
Agreement, and (iv) neither the execution nor the performance of this Agreement
will conflict with, be a violation of, or cause a breach of any agreement to
which the Representor is a party. These representations and warranties shall
survive the performance of this Agreement and shall be deemed to have been made
each time a Representor participates in an Offering. The Representor shall
indemnify and hold Sentex harmless from and against any and all losses,
liabilities, damages, costs and expense (including, without limitation,
reasonable attorneys fees and the cost of investigation), asserted against,
imposed upon or incurred or suffered by Sentex as a result of any inaccuracy in
these representations or warranties.
6. Representations and Warranties of Sentex. Sentex represents and warrants
to Clarion and each Class A Holder, that (i) Sentex is duly organized, validly
existing and in good standing as a New Jersey corporation, (ii) Sentex has the
full power and authority to execute, deliver and perform its obligations under
this Agreement, (iii) Sentex has taken such action as is necessary to authorize
the execution, delivery and performance of this Agreement, (iv) neither the
execution nor the performance of this Agreement will conflict with, be a
violation of, or cause a breach of any agreement to which Sentex is a party and
(v) any Sentex Common Shares when issued to any Representor pursuant to this
Agreement will be duly authorized, validly issued, fully paid and nonassessable.
These representations and warranties shall survive the performance of this
Agreement and shall be deemed to have been made each time Clarion or a Class A
Holder participates in an Offering. Sentex shall indemnify and hold Clarion and
the Class A Holders or any of them harmless from and against any and all losses,
liabilities, damages, costs and expense (including, without limitation,
reasonable attorneys fees and the cost of investigation), asserted against,
imposed upon or incurred or suffered by Clarion and the Class A Holders as a
result of any inaccuracy in these representations or warranties.
7. Term and Termination. This Agreement shall terminate if the CPS Group
(as defined hereinafter) no longer has effective control of Sentex. For purposes
of this Agreement, "CPS Group" means CPS Capital, Ltd, an Ohio limited liability
company, and its then existing affiliates and associates, with the terms
"affiliates" and "associates" having the meanings set forth in Section 14A:10A-3
of the New Jersey Shareholders Protection Act.
8. Entire Agreement. This Agreement constitutes the entire agreement among
the parties and supersedes all prior agreements with respect to the subject
matter hereof.
9. Binding Effect; Assignment. Each provision of this Agreement is binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns. This Agreement
may not be assigned by any party hereto without the written consent of the other
party hereto.
10. Applicable Law. This Agreement shall be governed and construed
exclusively in accordance with the laws of the State of New Jersey, without
regard to principles of conflicts of law.
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11. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original for all purposes, and all of which
together shall constitute one agreement.
12. Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, overnight courier service,
or certified mail, returned receipt requested, to the following addresses of the
parties or at such other address as any party shall designate by such written
notice:
(a) if to Sentex:
Robert S. Kendall
Sentex Sensing Technology, Inc.
c/o CPS Capital, Ltd.
1801 East Ninth Street
Cleveland, Ohio 44114
With a copy to:
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-4585
Attention: William M. Toomajian, Esq.
(b) if to Clarion:
Morris H. Wheeler
Clarion Capital Corporation
1801 East Ninth Street
Cleveland, Ohio 44114
With a copy to:
Lawrence Bell
Benesch, Friedlander, Coplan
& Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
If to a Class A Holder:
At the address set forth below
such Class A Holder's Signature
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IN WITNESS WHEREOF, the parties hereto have set their hands to this
Agreement on the date first written above.
SENTEX SENSING TECHNOLOGY, INC.
--------------------------------------
Robert S. Kendall, Chairman and
President
CLARION CAPITAL CORPORATION
--------------------------------------
Morris H. Wheeler, President
CLASS A HOLDERS:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
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EXHIBIT G TO ANNEX A
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (this "Agreement") is entered this day of
, 1996, by and among CPS Capital, Ltd., an Ohio limited liability
company ("CPS"), Clarion Capital Corporation, a Delaware corporation
("Clarion"), and each holder of the Class A Notes issued by Sentex Sensing
Technology, Inc., a New Jersey corporation ("Sentex") (each a Class A Holder and
together the "Class A Holders").
W I T N E S S E T H :
WHEREAS, on July 30, 1996, Sentex, Sentex Merger Corp., a Delaware
corporation and a wholly owned direct subsidiary of Sentex ("Subcorp") and
Monitek Technologies, Inc., a Delaware corporation ("Monitek"), entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which Subcorp shall be merged with and into Monitek (the "Merger");
and
WHEREAS, CPS is the Beneficial Owner (as such term is defined in Rule 13d-3
under the rules and regulations promulgated pursuant to the Securities and
Exchange Act of 1934) of 27,095,665 common shares, $0.01 par value, of Sentex
(the "Sentex Common Shares"); and
WHEREAS, upon consummation of the Merger, Clarion received: (i) the Clarion
Note (as defined in the Merger Agreement), which, subject to certain conditions,
is convertible into Sentex Common Shares; (ii) a Class A Convertible Note (as
defined in the Merger Agreement), which, subject to certain conditions, is
convertible to Sentex Common Shares; (iii) and Sentex Common Shares;
and
WHEREAS, upon consummation of the Merger, the Class A Holders received
Class A Convertible Notes, which, subject to certain conditions, are convertible
into Sentex Common Shares; and
WHEREAS, as a condition of the Merger, CPS, Clarion and the Class A Holders
agreed to enter into this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants set forth herein, the parties agree to the following:
ARTICLE I
Section 1.01 Representations and Warranties of CPS. CPS represents and
warrants to Cohen, Clarion and the Class A Holders that (i) CPS is duly
organized, validly existing and in good standing in the State of Ohio, (ii) CPS
has the full power and authority to execute, deliver and perform its obligations
under this Agreement, (iii) CPS has taken such action as is necessary to
authorize the execution, delivery and performance of this Agreement, (iv)
neither the execution nor the performance of this Agreement will conflict with,
be a violation of, or cause a breach of any agreement to which CPS is a party,
(v) except for the Sentex Common Shares that Robert S. Kendall beneficially owns
through his ownership of CPS, Robert S. Kendall owns no Sentex Common Shares
beneficially or of record, (vi) CPS has delivered to Clarion true and correct
copies of the Linenberg Shareholder Agreement and the Bianco Shareholder
Agreement (each as defined in Section 5.01), (vii) except for any Encumbrances
(defined hereinafter) created (x) herein, (y) by the Linenberg Shareholder
Agreement or (z) by the Bianco Shareholder Agreement, CPS owns its Sentex Common
Shares free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever (the "Encumbrances"),
and (viii) as of the date hereof no member of the CPS Group (as defined in
Section 2.01) other than CPS owns any Sentex Common Shares or has the right to
own any Sentex Common Shares pursuant to an option or other agreement. These
representations and warranties shall survive the performance of this Agreement
and shall be deemed to have been made each time CPS exercises its rights hereto.
CPS shall indemnify and hold Cohen, Clarion and the Class A Holders harmless
from and against any and all losses, liabilities, damages, costs and expense
(including, without limitation, reasonable attorneys fees and the
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cost of investigation) asserted against, imposed upon or incurred or suffered by
Cohen, Clarion or the Class A Holders as a result of any material inaccuracy in
these representations or warranties.
Section 1.02 Representations and Warranties of Clarion and Each Class A
Holder. Clarion and each Class A Holder each represents and warrants to CPS for
himself, herself or itself only (the "Representor") that (i) the Representor, if
an entity, is duly organized, validly existing and in good standing in the
jurisdiction of its incorporation or organization, (ii) the Representor has the
full power and authority and, if a natural person, the right and capacity, to
execute, deliver and perform the Representor's obligations under this Agreement,
(iii) the Representor, if an entity, has taken such action as is necessary to
authorize the execution, delivery and performance of this Agreement, (iv)
neither the execution nor the performance of this Agreement will conflict with,
be a violation of, or cause a breach of any agreement to which the Representor
is a party, (v) except for any Encumbrances created herein, the Representor owns
the Representor's Sentex Common Shares free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever, and (vi) except for the voting rights established in Section 5.01
herein, the Representor has the sole voting power with respect to its Sentex
Common Shares and has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to such Sentex Common Shares. Clarion
additionally represents and warrants, for itself only, to CPS that as of the
date hereof no member of the Clarion Group other than Clarion owns any Sentex
Common Shares, is a holder of a Class A Convertible Note or has any right to own
any Sentex Common Shares pursuant to any options or other agreements. These
representations and warranties shall survive the performance of this Agreement
and shall be deemed to have been made each time a Representor exercises such
Representor's rights under this Agreement. Each Representor shall indemnify and
hold CPS harmless from and against any and all losses, liabilities, damages,
costs and expense (including, without limitation, reasonable attorneys fees and
the cost of investigation) asserted against, imposed upon or incurred or
suffered by CPS as a result of any material inaccuracy in these representations
or warranties.
ARTICLE II
Section 2.01 Agreement to Standstill. Subject to certain allowances in this
Section 2.01, each of CPS and Clarion agrees that during the term of this
Agreement no member of the CPS Group or member of the Clarion Group shall
acquire, directly or indirectly, any Sentex Common Shares on any public market
regulated by the Securities and Exchange Commission on which the Sentex Common
Shares are traded unless: (i) CPS or Clarion, as the case may be, fully
discloses such proposed acquisition to the other and (ii) the other agrees in
writing to such proposed acquisition, only after having been fully informed as
to all the material terms and conditions of such proposed acquisition. As used
herein the following terms shall have the following meanings: "CPS Group" means
CPS, its Affiliates and its Associates. The "Clarion Group" means Clarion, its
Affiliates and its Associates. The terms "Affiliates" and "Associates" shall
have the meanings set forth in Section 14A:10A-3 of the New Jersey Shareholder
Protection Act without regard to whether such a person was an Affiliate or
Associate at the time of this Agreement. Notwithstanding the provision of this
Section 2.01, neither CPS nor Clarion shall have any liability for any
acquisition of Sentex Common Shares by any of their respective Associates, if,
and to the extent, such acquisition was effected without the knowledge of CPS or
Clarion, as the case may be.
Section 2.02 Specific Performance. CPS and Clarion each acknowledge to the
other that CPS or Clarion, as the case may be, would not have an adequate remedy
at law for money damages in the event that the obligations under this Article II
are not performed in accordance with its terms and therefore agree that the CPS
or Clarion, as the case may be, shall be entitled to any other remedy to which
it may be entitled at law or equity.
ARTICLE III
Section 3.01 Rights of First Refusal. Neither CPS, nor Clarion (the
"Offeror"), shall transfer, sell, assign, convey, encumber, pledge or otherwise
dispose of, voluntarily, involuntarily, by operation of law, or with or without
consideration any Sentex Common Shares, of which it is the Beneficial Owner
unless it shall have first given to the other (the "Offeree") written notice of
the proposed transfer (the "Notice of Transfer")
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and the other shall not have exercised its option under Section 3.02 hereof to
purchase such Sentex Common Shares designated in the Notice of Transfer. The
Notice of Transfer shall contain the following information:
(a) The number of Sentex Common Shares to be transferred (the
"Committed Shares"), the terms upon which such party intends to make such a
transfer, and whether such a transfer is to be a public or private sale,
pledge, gift or other disposition.
(b) The name or names of any person or persons, if the transfer is to
be a private sale, pledge, gift, or other disposition to whom such party
intends to transfer the Committed Shares.
(c) If a private sale, the price at which such party intends to sell
the Committed Shares and any other terms and conditions of purchase.
Section 3.02 Option. The Offeree shall have the option to purchase all or a
portion of the Committed Shares, exercisable for a period of 10 business days
after receipt of the Notice of Transfer (the "Option Period") (i) if such shares
are to be sold privately, at a price equal to the price at which the Offeror
intends to sell the Committed Shares as specified in the Notice of Transfer or
(ii) if such shares are to be sold in the public market or transferred pursuant
to a gift, pledge or other disposition, then at the Market Price (as defined
hereinafter) on the first business day immediately preceding the date of receipt
of the Notice of Transfer. This option will be exercisable by delivery to the
Offeror within the Option Period of written notice (an "Exercise Notice") of the
Offeree's intention to exercise the option. If the Offeree delivers an Exercise
Notice, then the Offeror shall be obligated to sell the Committed Shares to the
Offeree and the Offeree shall be obligated to purchase the Committed Shares from
Offeror at the price, terms and conditions determined as set forth above. As
used herein, the term "Market Price" means, with respect to any date, the
closing sale price of Sentex Common Shares on such date on the principal
domestic exchange on which the Sentex Common Shares may be listed at the time,
or, if there shall have been no sales on any such exchange on any such day, the
average of the closing bid and asked prices on such exchange on such day, or, if
the Sentex Common Shares shall not be so listed, the average of the closing bid
and asked prices on such day in the domestic over-the-counter market, or, if the
bid and asked price for the Sentex Common Shares are not quoted in the domestic
over-the-counter market on such day, the average bid and asked prices for the
Sentex Common Shares as quoted on the domestic over-the-counter market on the
most recent date prior to such day, or if the Sentex Common Shares are not being
traded on an exchange or in the domestic over-the-counter market, the price
determined in good faith by the Board of Directors of Sentex.
Section 3.03 Election Not to Exercise Option. If the Offeree does not
exercise its option in accordance with this Article III, then the Offeror,
except in respect of the rights of Clarion and the Class A Holders pursuant to
Section 5.01 hereof, shall be permitted to transfer the Committed Shares for a
period of 90 days after the Option Period; provided, however, that if such
shares are to be sold privately, the Offeror shall not sell the Committed Shares
at a lower price or on terms or conditions more favorable to the purchaser(s)
than those specified, or to any person(s) not named as purchaser(s), in the
Notice of Transfer.
Section 3.04 Failure to Sell Committed Shares. If the Offeree does not
exercise its option to purchase the Committed Shares, and the Offeror does not
sell the Committed Shares in the 90 day period provided for herein, no sale of
such shares shall be made thereafter except in compliance again with the
procedures provided for in this Article III.
Section 3.05 Delivery and Payment. Delivery of and payment for any Sentex
Common Shares purchased by the Offeree pursuant to Section 3.02 shall be made
within seven (7) business days following delivery of the Exercise Notice
relating thereto or if different terms were provided for in the case of a
private sale as described in the Notice of Transfer, then delivery and payment
will be made on such terms. The purchase price shall be paid by certified or
bank check or wire transfer of immediately available funds. All transfer taxes,
documentary stamp taxes, and the like, if any, payable in respect of the sale of
Sentex Common Shares pursuant hereto shall be borne by the Offeree. The
obligation of the Offeree to purchase and pay for any Sentex Common Shares shall
be subject, in the discretion of the Offeree, to the condition that good and
valid title to such Sentex Common Shares shall be passed by the Offeror to the
Offeree free and clear of any liens, security interests, encumbrances, pledges,
charges, claims, voting trusts and restrictions on transfer of any nature
(except restrictions relating to federal and applicable state securities laws).
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Section 3.06 Legends. All the certificates representing Sentex Common
Shares now or hereinafter owned by either CPS or Clarion shall bear
substantially the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER
CONTAINED IN THAT CERTAIN SHAREHOLDER AGREEMENT DATED AS OF , 1996,
AS AMENDED FROM TIME TO TIME, TO WHICH CPS CAPITAL, LTD, AN OHIO LIMITED
LIABILITY COMPANY, CLARION CAPITAL CORPORATION, A DELAWARE CORPORATION, AND
OTHERS ARE PARTIES. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER OF
THIS CERTIFICATE UPON WRITTEN REQUEST DELIVERED TO THE CORPORATION.
For shares owned now, the legend shall be placed on such certificates
within 5 business days of the execution of this Agreement or as soon as
practical thereafter. For shares owned hereafter, the party shall deliver the
certificate evidencing such shares to Sentex within 5 business days of
purchasing such shares or as soon as practical thereafter for the purpose of
having such legend placed on such certificate.
ARTICLE IV
Section 4.01 Voting Rights. Clarion agrees that so long as it is the
Beneficial Owner of any Sentex Common Shares, that were issued upon conversion
of the Clarion Note or Class A Convertible Note (including Sentex Common Shares
issued as an interest payment pursuant to either such note), or upon the
issuance of Sentex Common Shares under the Participation Rights Agreement it
will vote such shares (to the extent it has voting power with respect thereto)
during the term hereof in accordance with instructions received from CPS or its
nominee on each matter submitted to the shareholders of Sentex and will execute
an irrevocable proxy in favor of CPS, or if directed by CPS, in favor of Robert
S. Kendall or any of CPS's Affiliates or any member of the Board of Directors of
Sentex substantially in the form set forth hereto as Exhibit A for such Sentex
Common Shares so owned by Clarion from time to time after the date hereof if CPS
so requests in writing.
ARTICLE V
Section 5.01 Tag Along Rights of Clarion and the Class A Holders. CPS shall
not sell any or all of its Sentex Common Shares (the "CPS Shares") in a private
transaction or pursuant to a public offering registered pursuant to the
Securities Act of 1933, unless (a) Clarion has not exercised its option under
Section 3.02 hereof and (b) Clarion and the Class A Holders (each a "Monitek
Holder" and, together the "Monitek Holders") are each offered, in writing, the
opportunity (which offer shall remain open for 10 days following the receipt of
notice of such private transaction or public offering) to sell or include in
such transaction or offering (as the case may be) a number of Sentex Common
Shares held by each such Monitek Holder for the same price and upon the same
terms and conditions as offered to CPS that is no greater than the product of
(i) the number of CPS Shares that CPS has the opportunity to sell in such
transaction or offering (as described in such notice to the Monitek Holders) and
(ii) the quotient equal to (A) the sum of the Sentex Common Shares owned of
record (or in street name) by the Monitek Holder divided by (B) the sum of
Sentex Common Shares owned of record (or in street name) by the Participating
Group (defined hereinafter). For purposes of this Agreement the term
"Participating Group" means CPS, any Monitek Holder that elects to participate
in any such sale or offering, as the case may be, Joanne Bianco ("Bianco") if
she elects to participate in such sale or offering, as the case may be, pursuant
to the Shareholder Agreement, dated March 1, 1996, by and between CPS and Bianco
(the "Bianco Shareholder Agreement") and Amos Linenberg ("Linenberg"), if he
elects to participate in such sale or offering, as the case may be, pursuant to
the Shareholder Agreement, dated March 1, 1996, by and between CPS and Linenberg
(the "Linenberg Shareholder Agreement").
Section 5.02 Exercising Tag Along Rights. For any transaction contemplated
in Section 5.01, CPS shall provide the Monitek Holder with written notice that
describes in reasonable detail the nature of the
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transaction, including, without limitation, the price and number of shares that
CPS has the opportunity to sell in a private transaction or that are to be
offered for sale through a registered public offering, as the case may be. The
Monitek Holder shall then have 10 business days to accept or reject such offer
and state the maximum number of Sentex Common Shares such Monitek Holder would
like to include in such transaction or offering. In the event any Monitek Holder
desires to sell less than such Monitek Holder is entitled or the Monitek Holder,
after having accepted such an offer, decides not to participate in such sale or
offering, then CPS may sell that number of Sentex Common Shares not sold by such
Monitek Holder.
ARTICLE VI
Section 6.01 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, overnight courier
service, or certified mail, returned receipt requested, to the following
addresses of the parties or at such other address as any party shall designate
by such written notice:
(a) if to CPS:
Robert S. Kendall
CPS Capital, Ltd.
1801 East Ninth Street
Cleveland, Ohio 44114
With a copy to:
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-4585
Attention: William Appleton, Esq.
(b) if to Clarion:
Morris H. Wheeler
Clarion Capital Corporation
1801 East Ninth Street
Cleveland, Ohio 44114
With a copy to:
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Lawrence Bell, Esq.
If to a Class A Holder:
At the address set forth below
such Class A Holder's Signature
All such notices and communications shall be deemed to have been duly given
when delivered by hand or overnight courier; or, if mailed, five days after
being deposited in the United States mail, postage prepaid.
Section 6.02 Binding Effect and Term.
(a) This Agreement shall be binding upon CPS and its successors, upon
Clarion and its successors and each Class A Holder and its successor or heirs
and legal representatives, as the case may be. This Agreement may not be
assigned by any party hereto without the prior written consent of Clarion or CPS
as the case may be.
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(b) Articles II and IV of this Agreement shall terminate on the earlier of
(i) CPS's ceasing to have effective control of Sentex or (ii) the third
anniversary date hereof. The remaining Articles of this Agreement shall
terminate when CPS ceases to have effective control of Sentex.
Section 6.03 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior written agreements with respect to the subject matter.
Section 6.04 Applicable Law. This Agreement shall be governed and construed
exclusively in accordance with the laws of the State of New Jersey, without
regard to principles of conflicts of laws.
Section 6.05 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes, and
all of which together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands to this
Agreement on the date first written above.
CPS CAPITAL, LTD.
--------------------------------------
Robert S. Kendall, President
CLARION CAPITAL CORPORATION
--------------------------------------
Morris H. Wheeler, President
CLASS A HOLDERS:
--------------------------------------
[Name and Address]
--------------------------------------
[Name and Address]
--------------------------------------
[Name and Address]
--------------------------------------
[Name and Address]
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EXHIBIT H TO ANNEX A
VOTING AGREEMENT
This Voting Agreement (this "Agreement") is entered this 30th day of July,
1996, by and between Sentex Sensing Technology, Inc., a New Jersey corporation
("Sentex") and Clarion Capital Corporation, a Delaware corporation ("Clarion").
W I T N E S S E T H :
WHEREAS, on the date hereof, Sentex, Sentex Merger Corp., a Delaware
corporation and a wholly owned direct subsidiary of Sentex ("Subcorp") and
Monitek Technologies, Inc., a Delaware corporation ("Monitek"), entered into an
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"),
pursuant to which it is contemplated that Subcorp will be merged with and into
Monitek (the "Merger"); and
WHEREAS, Clarion is the original payee and current holder of a promissory
note in the principal amount of $476,940 made by Monitek, a copy of which is
attached hereto as Exhibit A (the "Monitek Note"); and
WHEREAS, as a condition of the Merger, Sentex and Monitek have agreed that
the Monitek Note, together with all interest accrued thereon at the Effective
Time (as defined in the Merger Agreement) will be exchanged for a convertible
note of Sentex in the principal amount of $136,414 substantially in the form
attached hereto as Exhibit B (the "Clarion Note"); and
WHEREAS, in connection with the amendment and restatement of the Merger
Agreement, which was originally entered into on June 24, 1996, Clarion and
Sentex desire to amend and restate this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants set forth herein, the parties agree to the following:
1. Exchange of Notes. At the Closing (as defined in the Merger Agreement),
Clarion shall surrender to the custody of Sentex the Monitek Note, together with
all interest accrued due thereon in exchange for the Clarion Note.
2. Representations and Warranties of Clarion. Clarion represents and
warrants to Sentex that (i) Clarion is duly organized, validly existing, and in
good standing in the State of Delaware; (ii) Clarion has the full power and
authority to execute, deliver and perform its obligations under this Agreement;
(iii) Clarion has taken such action as is necessary to authorize the execution,
delivery and performance of this Agreement; (iv) neither the execution nor the
performance of this Agreement will conflict with, be a violation of, or cause a
breach of any agreement to which Clarion is a party; (v) as of the date hereof
Clarion has advanced funds or otherwise extended credit to Monitek equal to the
principal amount of the Monitek Note; (vi) Clarion has been paid interest and
principal by Monitek in an amount such that under the terms of the Monitek Note
the remaining outstanding principal balance due as of the date of the Monitek
Note was equal to $476,940; (vii) as of the date of the Monitek Note, there was
no accrued interest on the Monitek Note; (viii) as of the date of the Monitek
Note, there were no other advances or loans or extensions of any other credit to
Monitek by Clarion; (ix) from the date set forth on the Monitek Note through the
date hereof, Clarion has been the only holder of the Note; and (x) no third
party has any right or claim to payments or other performance due under the
Monitek Note. These representations and warranties shall survive the performance
of this Agreement and shall be deemed to have been made again upon the exchange
of the Monitek Note for the Clarion Note. Clarion shall indemnify and hold
Sentex and Monitek harmless from and against any and all losses, liabilities,
damages, costs and expense asserted against, imposed upon or incurred or
suffered by Sentex or Monitek as a result of any inaccuracy in these
representations or warranties.
3. Representations and Warranties of Sentex. Sentex represents and warrants
to Sentex that (i) Sentex is duly organized validly existing; (ii) Sentex has
the full power and authority to execute, deliver and perform its obligations
under this Agreement; (iii) Sentex has taken such action as is necessary to
authorize the
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execution, delivery and performance of this Agreement; (iv) neither the
execution nor the performance of this Agreement will conflict with, be a
violation of, or cause a breach of any agreement to which Sentex is a party; and
(v) the Clarion Note, when issued, will be duly and validly issued in accordance
with its terms. These representations and warranties shall survive the
performance of this Agreement, and shall be deemed to have been made again upon
the exchange of the Monitek Note for the Clarion Note, Sentex shall indemnify
and hold Clarion harmless from and against any and all losses, liabilities,
damages, costs and expense asserted against, imposed upon or incurred or
suffered by Clarion as a result of any inaccuracy in these representations or
warranties.
4. Unpaid Interest and Future Advances. Clarion shall not accept or cause
Monitek to pay any accrued or unpaid interest due under the Monitek Note unless
the Merger Agreement has been terminated. Commencing on any date after the date
of this Agreement, Clarion may provide advances to Monitek in accordance with
the restriction relating to Monitek's ability to borrow funds in Section 5.3(f)
of the Merger Agreement. All such advances from Clarion to Monitek shall be in
compliance with the Small Business Investment Company Act of 1958, as amended,
and the rules and regulations promulgated thereunder.
5. Registration and Listing. Sentex shall use its best efforts to have the
Sentex Common Shares that will be issuable upon conversion of the Clarion Note
and issuable as interest on the Clarion Note included in the Registration
Statement (as defined in the Merger Agreement). If such shares cannot be so
included, then Sentex shall use its best efforts to register such shares as soon
as reasonably practicable and maintain such registration as current, on Form S-1
or any other appropriate form under the Securities Act of 1933, as amended (the
"Act"). If such shares cannot be so registered, then Sentex will use reasonable
efforts to so register such shares under the Act for resale after conversion of
the Clarion Note. Sentex shall cause its Board of Director to consider no less
than annually from the Effective Time whether it is in the best interest of
Sentex and its shareholders to obtain a listing on a National Market System.
6. Entire Agreement. This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
agreements with respect to such subject matter.
7. Binding Effect Assignment. The provisions of this Agreement are binding
upon and inure to the benefit of the parties hereto and their respective
successors. This Agreement may not be assigned by either party without the prior
written consent of the other party.
8. Applicable Law. This Agreement shall be governed and construed
exclusively in accordance with the laws of the State of New Jersey, without
regard to principles of conflicts of laws.
9. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original for all purposes, and all of which
together shall constitute one agreement.
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<PAGE> 167
IN WITNESS WHEREOF, the parties hereto have set their hands to this
Agreement on the date first written above.
SENTEX SENSING TECHNOLOGY, INC.
/s/ ROBERT S. KENDALL
--------------------------------------
Robert S. Kendall, Chairman and
President
CLARION CAPITAL CORPORATION
/s/ MORRIS H. WHEELER
--------------------------------------
Morris H. Wheeler, President
A-59
<PAGE> 168
EXHIBIT I TO ANNEX A
MANAGEMENT SERVICES AGREEMENT
(CLARION)
This Agreement dated , 1996, by and between CLARION MANAGEMENT LTD.,
a Delaware corporation, whose principal offices are located at 1801 East Ninth
Street, Suite 510, Cleveland, Ohio 44114 ("Clarion Management"), and SENTEX
SENSING TECHNOLOGY, INC., a New Jersey corporation, whose principal offices are
located at 553 Broad Avenue, Ridgefield, New Jersey 07657 ("Sentex").
PRELIMINARY STATEMENTS:
A. On July 30, 1996, Sentex, Sentex Merger Corp., a Delaware corporation
and a wholly owned direct subsidiary of Sentex ("Subcorp"), and
Monitek Technologies, Inc., a Delaware corporation ("Monitek"),
entered into an Amended and Restated Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which it is contemplated that
Subcorp will be merged with and into Monitek (the "Merger").
B. Prior to the Merger, Clarion Management, an affiliate of Clarion
Capital Corporation, a Delaware corporation and principal stockholder
of Monitek, provided certain management services to Monitek.
C. Sentex anticipates that from time to time it may need the expertise,
advice and skills of Clarion Management in operating the business of
Monitek for a period of time after the date hereof.
D. It is a condition of the Merger that the parties enter into this
Agreement.
Therefore, in consideration of the mutual covenants set forth herein, the
parties hereto agree as follows:
1. MANAGEMENT SERVICES. If Sentex retains Clarion Management, as an
independent contractor, to provide limited management services to
Sentex and its subsidiaries (collectively the "Sentex Companies") then
the terms and conditions for such service shall be as set forth in this
Agreement. The nature and extent of the services (the "Services") to be
provided shall be determined by Sentex and described in a writing and
may vary from time to time in separate writings as agreed by the
parties (the "Description of Services"). Each Description of Services
shall include a description of the following:
(a) the scope and nature of the project;
(b) the anticipated results;
(c) any written or oral work product that is to be delivered to Sentex;
and
(d) the time frame within which the project is to be completed.
Clarion Management shall notify Sentex within five business days of
receipt of the Description of Services if Clarion Management desires to
accept the engagement for Services. The Services may be performed by
Morton Cohen, Morris Wheeler and any other Clarion Management employees
whom Sentex consents to in writing (the "Authorized Personnel"). The
parties may add, remove or substitute personnel from time to time as
they may agree in writing.
2. PERFORMANCE OF SERVICES. Notwithstanding that the nature and extent of
the services will be determined in all respects by Sentex, the manner
in which the Services are to be performed and the specific hours to be
worked by the Authorized Personnel shall be determined in all respects
by Clarion Management.
3. COMPENSATION. Sentex will pay Clarion Management $31.25 for each
quarter of one hour a person who is a member of the Authorized
Personnel performs Services under a Description of Services (the
"Compensation"). The Compensation shall be payable to Clarion
Management
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<PAGE> 169
30 days after Clarion Management submits an invoice (which may be sent no more
often than monthly) to Sentex that sets forth in sufficient detail each member
of the Authorized Personnel who performed Services, the amount of time each
person incurred on the performance of such Services on a given day and a
reasonable description of the Services performed on such day.
4. EXPENSE REIMBURSEMENT. Clarion Management shall be entitled to
reimbursement from Sentex for all reasonable "out-of-pocket" expenses
incurred in the performance of the Services hereunder in accordance
with and subject to Sentex's regular policies in effect regarding
reimbursement of expenses and the documentation required in connection
therewith.
5. TERM/TERMINATION. Except with respect to any Services that have been
set forth in a Description of Services that have not been performed,
this Agreement can be terminated by either party at any time upon
delivering written notice to the other. If Sentex has delivered to
Clarion Management a Description of Services, and Clarion Management
has agreed to perform the Service thereunder this Agreement may not be
terminated with respect to such Services contemplated under the
Description of Services until such Services have been performed and
Compensation therefor has been paid.
6. INDEPENDENT CONTRACTOR. It is understood by the parties to this
Agreement that Clarion Management is an independent contractor to
Sentex and nothing in this Agreement shall be construed to create an
employer/employee relationship between any of the Sentex Companies and
any of the personnel of Clarion Management. Sentex shall incur no
additional expense for the benefits of any Clarion Management
personnel.
7. ASSIGNMENT. Clarion Management's obligations under this Agreement may
not be assigned or transferred to any other person, firm, or
corporation without the prior written consent of Sentex.
8. CONFIDENTIALITY. Clarion Management acknowledges and agrees that the
Sentex Companies maintain confidential and proprietary information and
trade secrets, including, without limitation, discoveries, ideas,
inventions, drawings, blueprints, manuals, customer and supplier lists
and other material of a technical, business or fiscal nature
(collectively "Confidential Information"). CPS agrees not to disclose
any Confidential Information to third parties unless authorized to do
so by Sentex in writing, except, however, that Clarion Management may
disclose or use such Confidential Information in the performance of the
Services hereunder. The foregoing restriction shall not apply to any
information that is in the public domain or becomes available to
Clarion Management, after the Termination of the Agreement, from
sources other than Sentex. Clarion Management acknowledges and agrees
that disclosures of Confidential Information would cause irreparable
damage to Sentex and, in the event of breach of this provision, Sentex
would be entitled to any and all remedies at law and equity including
temporary and permanent injunctive relief.
9. RETURN OF RECORDS. Upon termination of this Agreement, Clarion
Management shall deliver all records, notes, data, memorandums, models,
and equipment of any nature that are in Clarion Management's possession
or under Clarion Management's control and that are the property or
relate to the business of any of the Sentex Companies.
10. NOTICES. All notices required or permitted under this Agreement shall
be in writing and shall be deemed delivered when delivered in person or
deposited in the United States mail, postage prepaid, addressed as
follows:
<TABLE>
<S> <C>
CONSULTANT COMPANY
Clarion Management Ltd. Sentex Sensing Technology, Inc.
Morris H. Wheeler Robert Kendall
President President
1801 East Ninth Street 553 Broad Avenue
Cleveland, Ohio 44114 Ridgefield, New Jersey 07657
</TABLE>
Such address may be changed from time to time by either party by
providing written notice to the other in the manner set forth above.
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<PAGE> 170
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other
agreement whether oral or written. This Agreement supersedes any prior
written or oral agreements between the parties.
12. AMENDMENT. This Agreement may be modified or amended if the amendment
is made in writing and is signed by both parties.
13. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any
provision of this agreement is invalid or unenforceable, but that by
limiting such provision it would become valid and enforceable, then
such provision shall be deemed to be written, constructed, and enforced
as so limited.
14. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or
limitation of that party's right to subsequently enforce and compel
strict compliance with every provision of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by the laws of the
State of New Jersey without regard to principles of conflict of laws.
<TABLE>
<S> <C>
CLARION MANAGEMENT LTD. SENTEX SENSING TECHNOLOGY, INC.
By: _________________________________ By: ___________________________
Morris H. Wheeler, President Robert S. Kendall, Chairman and
President
</TABLE>
A-62
<PAGE> 171
EXHIBIT J TO ANNEX A
S E N T E X Sensing Technology, Inc.
June 4, 1996
Mr. Frank J. Vetrovic
President
Monitek Technologies, Inc.
1495 Zephyr Avenue
Hayward, CA 94544
Mr. Morris H. Wheeler
President
Clarion Capital Corporation
1801 East Ninth Street
Suite 510
Cleveland, OH 44114
Dear Frank and Morris:
This letter will confirm our understanding that in order to induce Sentex
Sensing Technology, Inc., a New Jersey corporation ("Sentex") and Monitek
Technologies, Inc., a Delaware corporation ("Monitek"), to enter into an
Agreement and Plan of Merger by and among Sentex, Sentex Merger Corp., a
Delaware corporation and wholly owned direct subsidiary of Sentex ("Subcorp"),
and Monitek on or about the date of this letter (the "Merger Agreement"), that
Sentex, Monitek, and Clarion Capital Corporation, a Delaware corporation and
principal stockholder of Monitek ("Clarion"), have agreed in principle as
follows:
As of this date and until final closing of the Merger Agreement, Sentex shall
provide Monitek certain strategic, operational and financial consulting services
for a fee equal to $16,667 per month. In no event is this period of time to
exceed six months. These fees will accrue to Sentex and shall be paid only after
the Interim Borrowings (as defined in the Merger Agreement) have been paid in
full, including accrued interest at 12% per annum. In the event the Merger does
not close, Sentex will forgive all accrued fees on the date of termination of
the Merger Agreement and Monitek will have no obligation to Sentex or any other
party for repayment of the accrued consulting fees.
Sentex shall provide advisory services to Monitek management regarding all
aspects of Monitek's day-to-day operations. Monitek's management shall give due
consideration to the advice of Sentex and shall make no management decisions
inconsistent with that advice without adequate explanation to Sentex.
To assist Clarion in determining appropriate funding for working capital
requirements pursuant to the Merger Agreement, Monitek's management, under the
supervision of Sentex, shall develop and provide to Clarion a report, twice a
month, that includes a detailed three-month running analysis of expected working
capital requirements and other pertinent business information. Based on the
report, Sentex shall make a recommendation to Clarion on the appropriate funding
level pursuant to the Merger Agreement.
It is Clarion's current belief that establishing a new factoring relationship in
the event the Merger does not close would be costly and difficult. Accordingly,
in the event Monitek does not terminate the factoring relationship within 14
days of this letter, Clarion agrees to reduce its repayment at closing by an
amount equal to the difference to Monitek between the cost of factoring during
the pendency of the Merger Agreement and the cost of financing an equal amount
with Clarion during the pendency of the Merger Agreement.
All Interim Borrowings to Monitek may be secured by a first priority security
interest in all assets of Monitek until such time as the notes, including
accrued interest, are paid in full, at closing. Simultaneously with the payment
of the Clarion notes, Clarion will relinquish all priority security interest in
Monitek's assets.
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<PAGE> 172
We look forward to working with you.
Sincerely,
/s/ ROBERT S. KENDALL
- ---------------------------------------------------------
Chairman and President
Sentex Sensing Technology, Inc.
Accepted by:
MONITEK TECHNOLOGIES, INC.
/s/ FRANK J. VETROVIC
- ---------------------------------------------------------
Frank J. Vetrovic
President
CLARION CAPITAL CORPORATION
/s/ MORRIS H. WHEELER
- ---------------------------------------------------------
Morris H. Wheeler
President
A-64
<PAGE> 173
MONITEK'S FORM 10-K--ANNEX B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-16544
FOR THE FISCAL YEAR ENDING MARCH 31, 1996
MONITEK TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
---------
(State or other jurisdiction of
incorporation or organization)
94-1689129
------------
(I.R.S. Employer
Identification No.)
1495 Zephyr Avenue
Hayward, California 94544
-----------------------------------------
(Address of principal executive offices) (Zip Code)
94544
---------------
(Zip Code)
(510) 471-8300
---------------------------------------------
(Registrant's telephone number including area code)
-------------------------
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
Indicate by check whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Monitek Technologies Common Stock, $.01 par
value, held by non-affiliates, computed by reference to the average of the
closing bid and asked prices as reported by NASDAQ on June 17, 1996: $827,747.
Number of shares of Common Stock and Class A Common Stock, respectively, of
MONITEK TECHNOLOGIES, INC., $.01 par value, issued and outstanding as of June
21, 1996: 1,690,424 and 1,252,676.
<PAGE> 174
DOCUMENTS INCORPORATED BY REFERENCE
Part IV - Item 14 -- Exhibits, Financial Statement
Schedules, and Reports on Form 8-K See Page B-15
<PAGE> 175
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Monitek Technologies, Inc. (the "Company") designs, develops, assembles and
markets instruments for the measurement of clarity (turbidity), suspended solids
content, color, purity, flow, level and volume of liquids in industrial and
waste water environments. The Company's products are typically used in-line
(i.e. inserted directly into the monitored liquid), thereby facilitating
automation and control of various industrial processes by providing on-line
(i.e. continuous) measurement of the characteristic being monitored. The
Company's current line of products, which are based on optical, ultrasonic,
acoustic and magnetic technologies, have been specially adapted for various
applications in the chemical and petrochemical, water treatment, food and
beverage, pulp and paper, and biotechnology and pharmaceutical industries, where
their abilities to withstand high temperature, extremes in pressure and
corrosive environments are important factors. The Company believes its
instruments are capable of adaptation and enhancement for use in other
industries, as well as for additional applications in those industries which the
Company currently serves. The Company's products are currently sold worldwide.
The Company has experienced continued losses from operations during the
last several years, which has resulted in the reduction of unused sources of
liquidity to a very low level. As set forth in Note 17 of the accompanying
independent auditors' report and notes to consolidated financial statements and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 10 hereof, these losses and the resulting effect on cash flow
raise significant doubt about the Company's ability to continue as a going
concern without additional sources of external financing.
(b) Financial Information about Industry Segments
During the three years ended March 31, 1996, the Company operated in one
business segment.
(c) Narrative Description of Business
GENERAL
The Company was organized in Delaware in April 1987 as a wholly-owned
subsidiary of Monitek, Inc., a California corporation doing business since 1969,
for the purpose of acquiring the latter pursuant to an agreement and plan of
merger. The merger was consummated on July 10, 1987. Prior to the merger, the
Company conducted no operations and had neither assets nor liabilities.
PRODUCTS
The Company is engaged in the design, development, assembly and marketing
of a line of instruments for the in-line measurement of clarity (turbidity),
suspended solids content, color, purity, flow, level and volume of liquids in
industrial and waste water environments. The Company's products, which are based
on optical, magnetic, acoustic and ultrasonic technologies, facilitate
automation and control of various processes by providing on-line measurement of
the characteristic being monitored. The Company's products have been specially
adapted for use in the chemical and petrochemical, water treatment, food and
beverage, pulp and paper, and biotechnology and pharmaceutical industries to aid
in quality control procedures, process control, process monitoring, chemical
addition control procedures, contamination measurement, contamination alarm and
other aspects of industrial processes.
Optical Based Products
The heart of the Company's product line are suspended solids analyzers,
which are in-line monitors that measure clarity, suspended solids content and
purity of liquids. The Company's two major types of suspended solids analyzers,
which operate on the same basic principle, are turbidimeters and concentration /
content monitors. The suspended solids analyzers work on the principle of light
scatter and/or absorption. Light is
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<PAGE> 176
emitted by the instrument and photosensors detect the amount of light that is
either scattered or absorbed by the solids in the liquid. This information is
transmitted to a remote electronic indicating transmitter device, which displays
the data on a scale of the characteristic being monitored and retransmits the
information to a control computer or data logger. Many of the Company's
transmitters offer alarm features while others eliminate false readings caused
by bubbles or signal an abnormal sample. The sales prices of suspended solids
analyzers range from $4,000 to $10,000 per system.
The Company's suspended solids analyzers are available in a wide range of
sizes and configurations to meet customer requirements. The Company's basic
instruments can also be specially adapted for particular applications with the
addition of available options. Certain instruments are designed to be "explosion
proof", i.e. the instrument is enclosed in such a way as to prevent internal
electrical or chemical reactions from igniting explosive mixtures existing in
the atmosphere surrounding the encased instrument, and have been approved for
the use in explosive environments by Underwriters' Laboratories (U.L.). This
characteristic is of a particular importance in the petrochemical industry.
Other instruments are adapted to be watertight and dust-tight to protect the
equipment against splashing, seeping or falling water and severe external
condensation, while others are adapted to withstand high temperatures, extremes
in pressure and corrosion for applications in such industries as the chemical
and pulp and paper industries. An example of an adaptation for a particular
application is a line of the Company's suspended solids analyzers -Cleansimatic
Liquid Analysis Meters (CLAM)- which employ a mechanical self-cleaning apparatus
designed to eliminate the problem of fouling inherent in wastewater treatment
applications.
The Company has developed two insertable in-line sensors, one for
measurement of consistency, for use in various industries and the other (Cell
Density Analyzer) for measurement of cell growth rate and concentration in
fermentation processes. Fermentation is a major process used in the
pharmaceutical and biotechnology industries and the instrument provides a
continuous measurement relative to cell growth. Unlike the Company's original
line of suspended solids analyzers, which require accessories fitted to the
actual pipe size to which the instrument is attached, the insertable fiber optic
sensors are capable of being inserted into any size pipe through special
fittings. The advantage of such devices over conventional suspended solids
analyzers is their ability to provide the customer with an easier, more
cost-effective means of installation and servicing, in that it does not require
shutting down the process flow of the liquid or extensive structural work often
necessary with the non-insertable products.
A second optical-based product line is color monitors, which are used to
measure the difference in the absorption of light through a liquid at two
wavelengths. This measurement is indicative of color or concentration. To date,
these instruments have been sold primarily to petrochemical refineries where the
avoidance of color in the final product is essential. The Company's color
monitors also have application in the processes of color addition and color
removal in such industrial liquids as printing inks, sugar, vegetable oil,
beverages and solvents. Color monitors use photosensors and optical filters that
detect the amount of light absorbed by the pertinent wavelength or color. Sales
prices of color monitors range from $5,000 to $12,000 per system.
Non-Optical-Based Products
The Company currently markets three non-optical-based products. The first
is an insertable magnetic flowmeter, a device which measures flow of liquids in
closed pipes. The flow of the measured liquid through the sensor's magnetic
field creates a voltage proportional to the flow. This voltage is sensed,
amplified and combined with the cross-sectional area of the pipe to produce a
flow measurement. The Company's magnetic flowmeters, which range in price from
$3,000 to $5,000, have applications in water distribution, water treatment and
pulp and paper plants.
The ultrasonic level and flow meter is the Company's second significant
non-optical-based product line. These instruments were designed to measure the
level of any liquid, solid or granular material in any vessel or open area using
non-contact, ultrasonic techniques and to calculate electronically the height or
volume of the monitored material based on the size of the vessel. When used in a
flume or weir, level is electronically interpreted as flow. Ultrasonic level and
flow meters have traditionally ranged in price from $1,000 to $2,500.
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<PAGE> 177
The Micro Pure ultrasonic suspended solids meter, the third significant
non-optical based product line, has allowed the Company to expand into new
markets and improve its effectiveness in existing markets. The acoustic
technique allows the low range measurement of suspended solids and emulsions
independent of color and coating. Significant opportunities exist for measuring
oil in water, inks, dyes and photographic liquids, all of which have been
difficult measurements for the Company's optical products because of the lack of
light and/or existence of substances (i.e., oil) which coat the optical parts.
Micro Pure products range in price from $10,000 to $16,000 per system.
Spare Parts
Sales of spare parts is an important part of the Company's business,
accounting for 15% to 18% of sales volume for the past three years.
Warranty and Service
The Company typically warrants its products for a period of one year after
shipment and passes along any warranties from original manufacturers of
components used in its products. To date, the Company has not had any
significant claims pursuant to warranties. The Company provides for its own
equipment servicing for certain products with in-house field service personnel.
AREAS OF PRODUCT RESEARCH
The Company's research and development activities are primarily devoted to
the development of new measurement products and the adaptation and enhancement
of existing products for new applications. The Company expended approximately
$399,000, $332,000 and $273,000 for research and development during the fiscal
years ended March 31, 1996 ("Fiscal 1996"), March 31, 1995 ("Fiscal 1995") and
March 31, 1994 ("Fiscal 1994), respectively.
Spending for research and development, which had been dramatically reduced
in Fiscal 1994, remained at a relatively low level well into Fiscal 1995, at
which time the management made the decision to fund certain projects that had
been placed on hold, resulting in increased expenditures during the second half
of Fiscal 1995 and all of Fiscal 1996. The Company introduced a number of new
and enhanced products during Fiscal 1996, including a low cost transmitter for
its cell density probe , several transmitters that were redesigned to meet new
European electrical standards and a line of low cost ultrasonic level meters.
The Company currently has a number of other products and technology
advances under development, but it is the policy of the current management to
withhold announcement or publication of specific new products until they are
ready to be released for production and sale.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations primarily involve the assembly,
testing, quality control and packaging of materials and components, which are
generally available in the market place from numerous suppliers and sources.
Material and components necessary for the Company's manufacturing activities
have always been available, and the Company does not anticipate any future
shortages or unavailability of such materials and components.
The Company's inventory is comprised primarily of parts to make
sub-assemblies, fully assembled instruments and materials required to adapt
instruments for particular applications and customer specifications. The Company
attempts to maintain a sufficient inventory of materials and components so as to
be able to fill orders for its products within four to eight weeks after receipt
of an order.
SALES AND MARKETING
The Company markets its products on a world-wide basis, with particular
emphasis on the United States and Continental Europe. Revenues and operating
income for each of the three years ended March 31, 1996, and identifiable assets
at the end of each period are set forth in Note 13 of the consolidated financial
statements included elsewhere in this document.
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<PAGE> 178
COMPETITION
The Company sells products which have use in a wide variety of applications
in many industrial and municipal markets. The Company faces competition in each
market to which it sells products from companies which sell products that are
substantially similar to, or which perform comparable functions as, those sold
by the Company. BTG, Hach, Sigrist and General Signal are the Company's
principle competitors which sell products using the same or similar technologies
as those of the Company. Valmet Automation Inc., Royce Instruments and Kay-Ray
Inc. sell devices based on mechanical, ultrasound and nuclear technologies which
compete with certain of the products sold by the Company. Certain of the
Company's competitors have production facilities in Europe and consequently may
not be subject to the same fluctuations in the value of the United States dollar
as the Company is with respect to its German subsidiary. All of such companies,
and many smaller entities that specialize in a limited number of products
competitive with those of the Company, have financial, marketing and other
resources substantially greater than those of the Company.
The Company believes that the most significant competitive factors with
respect to the industrial market are technical performance and adaptability,
quality, maintenance and service, while price is a the major competitive factor
for the municipal market. The Company believes it also has a competitive
advantage in its ability to service numerous market segments while other
companies, other than BTG, service only a limited market. Accordingly, a
salesperson or distributor calling on an industrial company which has a
liquid-based product or uses water in its manufacturing process will generally
have a number of the Company's products in its line which it could sell.
PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS
The Company has obtained 11 United States patents and a number of foreign
patents, covering fundamental technology and applications of use of the Micro
Pure product line and some other potential products. The Company has also
obtained a United States patent and several foreign patents for its Cell Density
Analyzer.
The Company believes that trade secrets and unpatented proprietary
knowledge used to adapt its products for specific industries and applications is
of greater importance to the development of its competitive position than
patents. All of the Company's employees have entered into confidentiality
agreements and have agreed to assign to the Company any inventions relating to
the Company's business made by them while in the Company's employ. However,
there can be no assurance that others may not acquire or independently develop
similar technologies which will enable them to more effectively compete with the
Company.
While the Company believes that none of its instruments infringes upon
patents or other proprietary rights of others, there is a possibility that other
parties may claim that parts of the Company's instruments do infringe upon their
patents or other proprietary rights. There can be no assurance that the Company
will be successful in defending against such claims of infringement, and the
expenses of defending such claims could be substantial.
The Company has obtained registered trademarks for the names "Monitek",
"CLAM" and "Micro Pure" and the Monitek and Micro Pure logos.
EMPLOYEES
As of March 31, 1996, the Company had 34 full-time employees, 3 of whom
were engaged in product design and engineering, 13 were engaged in manufacturing
and production, 12 were engaged in marketing and sales, and 6 were in general
corporate and administrative positions. The Company also had 7 part-time
employees and 2 temporary employees. The Company's ability to develop,
manufacture, market and sell products and to establish and maintain its
competitive position will depend, in large part, on its ability to attract and
retain qualified personnel. None of the Company's employees is represented by a
union. The Company believes that its relations with its employees are
satisfactory.
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ITEM 2. PROPERTIES
The Company's headquarters and manufacturing operations occupy
approximately 23,500 square feet of leased space in Hayward, California. The
lease provides for a base annual rental of approximately $132,000 and expires in
November 1997.
The Company also leases approximately 3,000 square feet of office and
warehouse space in Dusseldorf, Germany pursuant to a lease which expires in
March 2003, and provides for a base annual rental of $95,000, based on the rate
of exchange in effect at March 31, 1996.
Management believes that these facilities are more than adequate to provide
for the Company's business needs during the remaining terms of the respective
leases.
ITEM 3. LEGAL PROCEEDINGS
The Company was a defendant in a patent dispute in Germany involving its
subsidiary, Monitek GmbH. The complaint sought up to 300,000 Deutsche Marks
(approximately $203,000 at the current rate of exchange) from the Company. A
trial was held in the District Court, Munich, Germany and in May 1991 the Court
ruled that the claim filed against Monitek GmbH was dismissed, at which time the
other party in the action appealed the decision. In June 1995, a hearing was
held before the Supreme Court (Bundesgerichtshof) in Germany and, again, the
outcome was very favorable to the Company, resulting in the revocation of the
other party's patent. The Company's German patent attorney has rendered an
opinion that Monitek GmbH should be able to recover, from the other party,
certain legal and other costs incurred in connection with this case.
The Company is not a party to any other material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of Stockholders, through the solicitation
of proxies or otherwise.
B-6
<PAGE> 180
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Through December 3, 1993, the Company's Common Stock was traded in the
over-the-counter, national quotation system under the NASDAQ symbol MTEK. On
December 6, 1993, the stock was delisted from the NASDAQ SmallCap Market and was
subsequently listed on the OTC Bulletin Board. The following sets forth the high
and low closing bid prices for the Common Stock for the periods indicated, as
reported by the National Association of Securities Dealers Automated Quotation
System and the National Quotation Bureau. Such prices represent prices between
dealers without adjustment for retail mark-ups, mark-downs, or commissions and
may not necessarily represent actual transactions.
The Company had, through July 29, 1994, outstanding Redeemable Common Stock
Purchase Warrants and Units (consisting of two shares of Common Stock and one
Warrant). The Warrants and Units were traded under the NASDAQ symbols MTEKW and
MTEKU, respectively. There has been no significant trading of the Warrants and
Units during the last three years and the Warrants expired on July 29, 1994.
<TABLE>
<CAPTION>
COMMON STOCK HIGH LOW
- ------------ ------- -------
<S> <C> <C> <C>
1994 First Quarter 0.0625 0.0625
Second Quarter 0.125 0.0625
Third Quarter 0.1875 0.125
Fourth Quarter 0.20 0.15
1995 First Quarter 0.20 0.15
Second Quarter 0.15 0.125
Third Quarter 0.125 0.0625
Fourth Quarter 0.25 0.125
1996 First Quarter 0.1875 0.0625
Second Quarter (Through June 17) 0.125 0.125
</TABLE>
On June 17, 1996, the Closing bid price of the Company's Common Stock, as
reported by the National Quotation Bureau, was $0.125.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The following data for the five years ended March 31, 1996, have been taken
from the consolidated financial statements of the Company, which have been
audited by the Company's independent public accountants. The data for the three
years ended March 31, 1996, should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this document and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.................... $6,695,396 $6,089,400 $5,680,288 $7,239,869 $7,642,612
Gross profit................. 3,640,497 3,301,352 2,970,985 3,933,176 4,383,587
Selling, general and
administrative expenses.... 3,740,091 3,383,701 3,481,502 4,091,425 4,035,130
Operating loss............... (498,433) (414,339) (783,613) (712,821) (222,089)
Interest expense............. 101,211 46,055 42,446 55,310 50,649
Loss before income tax
expense.................... (558,163) (269,142) (770,601) (727,528) (165,736)
Income tax expense........... 3,884 3,858 3,026 3,426 12,087
---------- ---------- ---------- ---------- ----------
Net loss..................... ($ 562,047) ($ 273,000) ($ 773,627) ($ 730,954) ($ 177,823)
========= ========= ========= ========= =========
Net loss per share........... ($.19) ($.09) ($.26) ($.24) ($.06)
===== ===== ===== ===== =====
Weighted average shares
outstanding................ 2,943,100 2,950,100 2,985,100 2,988,213 3,026,750
</TABLE>
B-7
<PAGE> 181
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 877,060 $1,381,074 $1,552,547 $2,226,742 $2,915,733
Total assets................. 2,608,200 2,771,755 2,832,294 3,866,041 4,576,167
Long-term debt and capital
lease obligations.......... -- -- 5,005 6,481 12,232
Stockholders' equity......... 1,024,186 1,594,502 1,839,917 2,623,533 3,349,830
- ------------------
<FN>
Note: No cash dividends have been declared during these periods.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital decreased from $1,381,000 on March 31, 1995, to
$877,000 on March 31, 1996, as a result of the net loss for Fiscal 1996,
partially offset by various changes in non-current assets.
While the net working capital may appear to be at a fairly safe level, it
should be noted that a major portion of the Company's assets are in the form of
inventories and accounts receivable. The Company's unused sources of liquidity,
consisting of unrestricted cash and shortterm interest bearing securities,
decreased from $60,000 on March 31, 1995, to $51,000 on March 31, 1996. As set
forth in the accompanying independent auditors' report and notes to consolidated
financial statements (Note 17) the Company's recurring losses from operations
and the resulting effect on cash flow raise substantial doubt about its ability
to continue as a going concern without additional sources of external financing.
On June 24, 1996, the Company's Board of Directors approved an Agreement and
Plan of Merger (the "Merger Agreement") with Sentex Sensing Technology, Inc.
("Sentex") and a Sentex subsidiary. On the same date, the Merger Agreement was
approved by the Boards of Directors of Sentex and its subsidiary. Sentex
develops and manufactures automated devices designed to identify and measure the
concentrations of certain chemicals and its stock is traded on the NASDAQ Small
Cap stock market. The Merger Agreement will be submitted for approval by the
Company's shareholders and the Sentex shareholders at special meetings expected
to be held later in the year. The Merger Agreement provides for the merger (the
"Merger") of the Sentex subsidiary into the Company. Consummation of the Merger
is subject to a variety of customary conditions and, accordingly, there can be
no assurance that the Merger will take place. The Company believes Sentex has a
sufficiently strong cash position to satisfy the intermediate term needs of the
Company for working capital. In addition, the Company intends to seek a working
capital loan or loans from its major shareholder, Clarion Capital Corporation
("Clarion"), pending completion of the Merger. However, there can be no
assurance that Clarion will loan additional funds to the Company. It is a
condition to the consummation of the Merger that any such new loans by Clarion
be repaid by the time of the closing of the Merger.
In the event that the Merger does not take place, the Company's management
will continue to seek other sources of financing including, but not limited to,
loans collateralized by assets of the Company and a sale of equity securities,
to fund its operating and working capital requirements. There is no assurance
that such financing, if available, can be obtained on terms satisfactory to the
Company.
At March 31, 1996, the Company had available net operating loss
carryforwards of approximately $5,405,000 and $1,700,000 to offset future
Federal and California taxable income, respectively. The Tax Reform Act of 1986
imposes certain restrictions on the amount of net operating loss carryforwards
which can be used in any one year by the Company for losses prior to July 31,
1987, the date of the Company's initial public offering, which is deemed to be a
change of ownership for Federal tax purposes. The Company's utilization of the
Federal net operating loss carryforwards from years prior to Fiscal 1988,
totaling $1,640,000, is limited to approximately $620,000 per year. Deductions
available for net operating losses generated in years subsequent to the change
in ownership are unlimited. If the Company's income were to exceed the
permissible net operating loss carryforward deduction, as to which there can be
no assurance, the Company would incur a liability for Federal income taxes on
the excess earnings, even though net operating loss carryforwards would be
available for future years.
B-8
<PAGE> 182
As of April 1, 1991, the Company's IC-DISC, Monitek International, Inc.,
was effectively terminated and accordingly, the March 31, 1995 and March 31,
1996, consolidated financial statements and related notes do not include any
activity related to such entity. As a result, the Company has begun repatriation
of the undistributed earnings of the IC-DISC as of April 1, 1991. The
undistributed earnings of approximately $780,000 will be recognized as income,
for tax return purposes, by the Company over the 10-year period ending March 31,
2001.
The Company has no current plans to repatriate the undistributed earnings
of its foreign subsidiary. Therefore, no tax provision has been made to cover
the repatriation of such undistributed earnings at March 31, 1996, 1995 or 1994.
The cumulative amounts of undistributed earnings for which the Company has not
provided for United States income taxes amounted to approximately $73,000 at
March 31, 1996.
RESULTS OF OPERATIONS
Fiscal 1996 Compared with Fiscal 1995
Total net sales increased by 10% from $6,089,000 for Fiscal 1995 to
$6,695,000 for Fiscal 1996. Domestic sales and sales to continental Europe by
the Company's wholly owned subsidiary, Monitek GmbH, increased by 12% and 14%,
respectively, while export sales from the United States decreased by 14%.
Management believes that the sales increases in the United States and Europe can
be attributed primarily to improved economic conditions in those areas. The
decrease in export sales is not easily explained, but it is not a source of
major concern inasmuch as it traditionally represents less than 15% of the
Company's total sales.
Cost of sales, as a percentage of net sales, remained constant at 46% for
both Fiscal 1995 and Fiscal 1996. Material costs increased from 35% of net sales
for Fiscal 1995 to 36% for Fiscal 1996, primarily as a result of a change in
product mix. Direct labor and factory overhead, as a percentage of net sales,
decreased from 11% for Fiscal 1995 to 10% for Fiscal 1996 as a result of the
increase in sales with very little change in cost.
Selling, general and administrative expenses increased from $3,384,000 for
Fiscal 1995 to $3,740,000 for Fiscal 1996 but, as a percentage of net sales, the
expenses remained constant at 56% for both years. Sales commissions paid to
independent representatives increased by $138,000 as a result of the increase in
sales. Salaries and related expenses increased by $185,000, primarily as a
result of a reduction of expense in the amount of $107,000 in Fiscal 1995,
related to the bonus payable to the Managing Director of Monitek GmbH.
Research, development and product engineering expenses increased from
$332,000, or 5.5% of net sales, for Fiscal 1995, to $399,000, or 6.0% of net
sales, for Fiscal 1996. Spending during the first half of Fiscal 1995 had been
severely curtailed in order to conserve working capital and reduce operating
losses. Management subsequently made the decision to fund certain projects that
had been placed on hold, resulting in the increased expenditures for the second
half of Fiscal 1995 and all of Fiscal 1996.
Operating losses increased from $414,000 for Fiscal 1995 to $498,000 for
Fiscal 1996 as a result of the increase in cost of sales, selling, general and
administrative expense and research, development and product engineering
expense, partially offset by the increase in sales.
Interest expense increased from $46,000 for Fiscal 1995 to $101,000 for
Fiscal 1996 as a result of increased borrowings from Clarion Capital Corporation
and the factoring of certain trade accounts receivable, as set forth in the
accompanying consolidated financial statements (Note 3).
Foreign currency transactions resulted in a loss of $30,000 for Fiscal 1996
compared with a gain of $125,000 for Fiscal 1995 as a result of fluctuations in
the value of the U.S. Dollar relative to the German Deutsche Mark.
Fiscal 1995 Compared with Fiscal 1994
Total net sales increased by 7% from $5,680,000 for Fiscal 1994 to
$6,089,000 for Fiscal 1995. Domestic sales, export sales from the United States
and sales to continental Europe by the Company's wholly owned subsidiary,
Monitek GmbH, increased by 3%, 7% and 9%, respectively. While these increases
may seem quite modest, they represent a marked improvement when compared with
the severe decline in sales over the past few years. Although net sales for the
second half of Fiscal 1995 were approximately 10% lower than for the
B-9
<PAGE> 183
first half, as a result of several large European orders during the first half,
which normally would have been expected to be spread throughout the year,
management remains cautiously optimistic concerning future sales trends.
Incoming customer orders and quotation activity for the two months ended May 31,
1995 have been quite strong, and Fiscal 1996 sales forecasts generated by the
Company's sales force, primarily independent representatives and agents, are
more optimistic than for Fiscal 1995.
Cost of sales, as a percentage of net sales, decreased from 48% for Fiscal
1994 to 46% for Fiscal 1995. Material costs decreased from 36% of net sales for
Fiscal 1994 to 35% for Fiscal 1995, primarily as a result of a change in product
mix. Direct labor and factory overhead decreased from 12% for Fiscal 1994 to 11%
for Fiscal 1995 as a result of decreased staffing in certain manufacturing
support functions coupled with the increase in sales.
Selling, general and administrative expenses decreased from $3,482,000, or
61% of net sales, for Fiscal 1994, to $3,384,000, or 56% of net sales, for
Fiscal 1995, primarily as a result of decreased staffing in sales and marketing
and reduced expenditures for certain other selling and administrative expenses.
In addition, during Fiscal 1995, the accrued bonus payable to the Managing
Director of Monitek GmbH was finalized as a deferred compensation agreement,
resulting in a reduction of expense in the amount of $107,000.
Research, development and product engineering expenses increased from
$273,000, or 4.8% of net sales, for Fiscal 1994, to $332,000, or 5.5% of net
sales, for Fiscal 1995. Spending during Fiscal 1994 had been severely curtailed
in order to conserve working capital and reduce operating losses. Management
recently made the decision to fund certain projects that had been placed on
hold, resulting in the increased expenditures for Fiscal 1995.
Operating losses decreased from $784,000 for Fiscal 1994 to $414,000 for
Fiscal 1995 as a result of the increased sales volume coupled with the decrease
in cost of sales and selling, general and administrative expense as a percentage
of net sales, partially offset by the increase in research, development and
product engineering expense as a percentage of net sales
Foreign currency transactions resulted in a gain of $125,000 for Fiscal
1995 compared with a loss of $19,000 for Fiscal 1994 as a result of fluctuations
in the value of the U.S. Dollar relative to the German Deutsche Mark.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules of the Company are annexed to this
Report as pages F-2 to F-19 and S-2. Indexes to such material appears on pages
F-1 and S-1, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
B-10
<PAGE> 184
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------- --- ---------------------------------------------------
<S> <C> <C>
Morton A. Cohen 61 Chairman of the Board of Directors and
Chief Executive Officer
Frank J. Vetrovec 55 President, Chief Operating Officer and Director
James S. O'Leary 58 Executive Vice President, Treasurer, Secretary and
Chief Financial Officer
Helmut H. Zoellmer 50 Managing Director of Monitek GmbH and Director
Erwin S. Weiss 65 Director
</TABLE>
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers serve
at the discretion of the Board of Directors, subject to any contracts of
employment. See "Executive Compensation."
Morton A. Cohen has been Chairman of the Board of the Company since
November 1983. Mr. Cohen has been the Chairman of the Board of Clarion Capital
Corporation ("Clarion"), a small business investment company and the Company's
principal stockholder, since July 1981 and, since April 1982, has been Clarion's
President and Chief Executive Officer. Mr. Cohen is on the Board of Directors of
the following public companies: Zemex Corporation (industrial minerals and
materials) since May 1991; Small's Oilfield Services (specialized rental
equipment) since March 1993 and Cohesant Technologies, Inc. (chemicals and
coatings) since December 1994.
Frank J. Vetrovec has been President and Chief Operating Officer of the
Company and Co-Managing Director of Monitek GmbH since May 1992. As President,
Mr. Vetrovec's primary responsibilities are the overall direction of the
Company's marketing and technical efforts. From 1979 to 1992, Mr. Vetrovec was
with Great Lakes Instruments, Inc., a company engaged in the manufacture and
sale of instrumentation to monitor and control water quality, serving as Vice
President of Marketing for the last two years.
James S. O'Leary has been associated with the Company since August 1982,
becoming Vice President and Chief Financial Officer of the Company in November
1983, Co-Managing Director of Monitek GmbH in May 1984 and Executive Vice
President, Secretary and Treasurer of the Company in April 1987.
Helmut H. Zoellmer has held various positions with Monitek GmbH since 1980,
becoming General Manager and Co-Managing Director in May 1984 and a Director of
the Company in April 1990.
Erwin S. Weiss has been a Director of the Company since October 1992. Since
1985, Mr. Weiss has owned and operated his own management consulting company,
specializing in organization design, manager evaluation and development, and
strategic business planning. He has been a director of Clarion since 1991.
The Delaware General Corporation Law permits a corporation through its
Certificate of Incorporation to exonerate its directors from personal liability
to the corporation or its stockholders for monetary damages for breach of duty
as a director, with certain exceptions. The exceptions include a breach of the
director's duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, improper declarations of
dividends, and transactions from which the director derives an improper personal
benefit. This provision of the law is intended, according to its sponsors, to
assist corporations in retaining qualified directors. The Company's Certificate
of Incorporation exonerates its directors from liability to the full extent
permitted by this statutory provision.
The Company believes that it is the position of the Securities and Exchange
Commission that insofar as the foregoing provisions may be invoked to disclaim
liability for damages arising under Securities Act of 1933, it is against public
policy as expressed in the Act and is therefore unenforceable.
B-11
<PAGE> 185
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the cash compensation
paid and accrued by the Company for services rendered during the fiscal year
ended March 31, 1996, to the Chairman of the Board and to the executive officers
of the Company whose aggregate compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- -----------------
FISCAL OTHER STOCK ALL
NAME AND YR. ENDED SALARY BONUS ANNUAL OPTIONS OTHER
PRINCIPAL POSITION MARCH 31 $ $ COMP. (1) (2) COMP.
- ------------------------------------ --------- ------- ------ --------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Morton A. Cohen 1996 -- -- -- -- --
Chairman of the Board and 1995 -- -- -- -- --
Chief Executive Officer 1994 -- -- -- 89,500 --
Frank J. Vetrovec 1996 113,173 -- -- -- --
President and Chief 1995 117,550 -- -- -- --
Operating Officer 1994 92,956 -- -- -- --
Helmut H. Zoellmer 1996 130,801 -- -- -- --
Managing Director, 1995 129,825 34,965 -- -- --
Monitek GmbH 1994 109,545 54,426 -- 70,000 --
- ---------------
<FN>
(1) Excludes perquisites and other benefits, unless the aggregate amount of such
compensation exceeds the lesser of $50,000 or 10 percent of the total salary
and bonus reported for the named executive officer.
(2) Stock options granted were determined by the Board of Directors.
(3) Payments and accruals to Mr. Zoellmer were made in Deutsche Marks. Dollar
amounts have been calculated using average exchange rates for each of the
fiscal years reported.
</TABLE>
STOCK OPTION PLAN
In May 1987, the Company adopted a stock option plan (the "Plan"), which
was approved by the Company's stockholders, covering up to 200,000 shares of the
Company's Common Stock, pursuant to which officers, directors and key employees
of the Company are eligible to receive incentive and/or non-qualified stock
options. In November 1988, the Company's Board of Directors voted to increase
the number of options to 300,000 shares, which action was approved by the
Company's shareholders in November 1988. In May 1991, the Board of Directors
voted to increase the number of options to 450,000 shares, which action was
approved by the Company's shareholders in October 1991. The Plan, which expires
in May 1997, is administered by the Board of Directors or a committee designated
by the Board of Directors, which will be responsible for determining the
individuals to whom options will be granted, the number of options each
individual will receive, the option price per share and the exercise period of
each option. Incentive stock options granted under the Plan are exercisable for
a period of up to 10 years from the date of grant and at an exercise price which
is not less than the fair market value of the Common Stock on the date of the
grant, except that the exercise period of an incentive stock option granted
under the Plan to a stockholder owning more than 10% of the outstanding Common
Stock must not exceed five years and the exercise price of an incentive stock
option granted to such a stockholder must not be less than 110% of the fair
market value of the Common Stock on the date of the grant.
In April 1995, the Board of Directors granted incentive stock options to 11
employees to purchase an aggregate of 65,000 shares at $.50 per share for a
period of five years, of which options to purchase 25,000 shares were granted to
James S. O'Leary, an officer of the Company. Of the options granted to Mr.
O'Leary, options to purchase 10,000 shares were replacements for options that
expired in April 1995.
In April 1995, the Board of Directors also granted non-qualified stock
options to Erwin S. Weiss, a Director of the Company, to purchase 5,000 shares
at $.50 per share for a period of five years.
B-12
<PAGE> 186
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
The following table shows as to the Chief Executive Officer and the two
other Executive officers listed in the Compensation Table, information about
options granted in the last fiscal year:
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE
- --------------------------------------------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Morton A. Cohen -- -- -- --
Frank J. Vetrovec -- -- -- --
Helmut H. Zoellmer -- -- -- --
</TABLE>
WARRANTS
No warrants were granted or exercised during Fiscal 1996 and all previously
granted warrants expired during Fiscal 1995.
RETIREMENT PLAN -- 401(K)
In September 1989, the Company established a 401(k) Retirement Plan for its
eligible officers and employees. All full-time employees over 21 years of age
and with at least six months of service with the Company are eligible to
participate in the plan. Participation is strictly voluntary. The plan allows
for, but does not require, Company contributions. To-date, the Company has made
no contributions to the plan but has paid all of the costs of administration.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 14, 1996,
concerning ownership of Class A Common Stock and Common Stock by all persons
known by the Company to own beneficially 5% or more of the outstanding shares of
the Company's Class A Common Stock or Common Stock, each Director, and all
officers and Directors of the Company as a group and their percentage ownership
of Class A Common Stock and Common Stock and the percentage voting power:
<TABLE>
<CAPTION>
AMOUNT AND PERCENT PERCENT
NATURE OF OF OUT- OF
NAME OF BENEFICIAL HOLDER OR BENEFICIAL STANDING VOTING
IDENTITY OF GROUP OWNERSHIP (1) STOCK POWER
- ------------------------------------------------------------ ------------- --------- -------
<S> <C> <C> <C>
Clarion Capital Corporation
1801 East Ninth St.
Suite 1520
Cleveland, OH 44114....................................... 1,220,631(2) 41.5% 58.2%
Tahoe Partners I
Peter O. Shea
Managing Partner
P.O. Box 489
Walnut, CA 91788.......................................... 225,600(3) 7.7 5.4
R & W Ventures II
Roy L. Rogers,
General Partner
3000 Sand Hill Rd,
Bldg. 2-175
Menlo Park, CA 94025...................................... 235,600(4) 8.0 5.6
Robertson Stephens Orphan Fund
Paul H. Stephens
One Embarcadero Plaza
Suite 3100
San Francisco, CA 94111................................... 160,745(5) 5.5 3.8
</TABLE>
B-13
<PAGE> 187
<TABLE>
<CAPTION>
AMOUNT AND PERCENT PERCENT
NATURE OF OF OUT- OF
NAME OF BENEFICIAL HOLDER OR BENEFICIAL STANDING VOTING
IDENTITY OF GROUP OWNERSHIP (1) STOCK POWER
- ------------------------------------------------------------ ------------- --------- -------
<S> <C> <C> <C>
Morton A. Cohen............................................. 113,000(6) 3.7 2.6
James S. O'Leary............................................ 50,800(7) 1.7 1.2
Helmut H. Zoellmer.......................................... 45,000(8) 1.5 1.1
Frank J. Vetrovec........................................... 116,200(9) 3.8 2.7
Erwin J. Weiss.............................................. 20,000(10) 0.7 0.5
All Officers and Directors
as a group (6 persons).................................... 1,565,631(11) 48.1 61.8
- ---------------
<FN>
(1) Each person listed has sole voting and sole investment power over the
shares owned, except where otherwise indicated below. All shares are Class
A Common Stock unless otherwise indicated.
(2) Morton A. Cohen, Chairman of the Board and Chief Executive Officer of the
Company, is Chairman of the Board, President and Chief Executive Officer
and the principal stockholder of Clarion. Mr. Cohen owns 75.7% of Maycap
Holding Company, which owns 94.9% of Clarion.
(3) Based on information reported by Mr. Shea on Schedule 13D filed with the
SEC in December 1994 and confirmed in June 1996. Consists of 225,600 shares
of Common Stock.
(4) Based on information provided by Mr. Rogers on Schedule 13D filed with the
SEC in July 1991 and updated in a communication to the Company in June
1996. No subsequent filing of Schedule 13D has been made, inasmuch as the
increase in holdings since the filing represents less than 1% of the
Company's outstanding shares. Consists of 235,600 shares of Common Stock.
(5) Based on information provided by Robertson Stephens & Company on Schedule
13D filed with the SEC in January 1992 and confirmed in June 1996. Consists
of 160,745 shares of Common Stock.
(6) Includes 18,500 shares of Common Stock and 94,500 shares of Common Stock
issuable upon exercise of options. Does not include 1,220,631 shares held
by Clarion Capital Corporation.
(7) Includes 50,000 shares of Common Stock issuable on exercise of options and
800 shares of Common Stock held for the benefit of his children, as to
which Mr. O'Leary disclaims beneficial interest.
(8) Shares of Common Stock issuable on exercise of options. Does not include
25,000 shares of Common Stock covered by options not exercisable within 60
days.
(9) Includes 16,200 shares of Common Stock and 100,000 shares of Common Stock
issuable upon exercise of options.
(10) Shares of Common Stock issuable on exercise of options.
(11) Includes 1,220,631 shares held by Clarion and an aggregate of 309,500
shares of Common Stock issuable upon exercise of options and does not
include 25,000 shares of Common Stock covered by options which are not
exercisable within 60 days, as described in the notes above.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Item 11, "Executive Compensation--Stock Option Plan",
with regard to certain options granted to officers and directors.
In December, 1993, the Company entered into a security agreement with
Clarion to secure repayment of loans from Clarion on a demand basis at an
interest rate of 10% per annum. The principal balance of the Company's
indebtedness to Clarion, including previously accrued interest at June 24, 1996,
was $476,940 and now carries an interest rate of 12% per annum.
In October 1990, the Company advanced $30,000 to James S. O'Leary, which
advance was evidenced by a noninterest-bearing note and was secured by the
pledge of 42,000 shares of the Company's Class A Common Stock. The note has been
treated as a contra to Stockholders' Equity on the consolidated financial
statements. The note was issued to enable the officer to pay off bank loans. In
June 1994, Mr. O'Leary exercised a put provision in the loan agreement,
surrendering the pledged shares of Common Stock in exchange for the cancellation
of the note.
B-14
<PAGE> 188
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENT SCHEDULE
An index to the consolidated financial statement schedule included herein
appears on Page S-1. All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission have
been omitted because they are not applicable, not required or the information to
be presented therein has been furnished elsewhere.
EXHIBITS
<TABLE>
<S> <C> <C>
(a) 3.1 -- Certificate of Incorporation*
3.2 -- Form of Agreement and Plan of Merger*
3.3 -- By-Laws*
4.1 -- Form of Unit Purchase Option*
4.2 -- Form of Warrant Agreement*
10.1 -- Lease for 1495 Zephyr Avenue*
10.2 -- Lease for German facility*
10.3 -- Form of Indemnification Agreement*
10.4 -- Tax Sharing Agreement between Registrant and Clarion Capital Corp.*
10.5 -- Employment Agreement with Frank J. Vetrovec
10.6 -- Employment Agreement with James O'Leary*
10.7 -- Employment Agreement with Helmut Zoellmer*
10.8 -- Stock Option Plan*
10.9 -- Form of United States Sales Representative Agreement*
10.10 -- Form of Foreign Sales Agent Agreement*
10.11 -- License Agreement between Registrant and Vincent S. Cushing*
22.1 -- List of Subsidiaries
<FN>
*Incorporation by reference to Registrant's Registration Statement on Form S-1
(File No. 33-14201)
</TABLE>
REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the three months ended March 31,
1996.
B-15
<PAGE> 189
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MONITEK TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Date: June 27, 1996 By: /s/Frank J. Vetrovec
-------------------------
Frank J. Vetrovec,
President
</TABLE>
Pursuant to the requirements of 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------------------------------
<S> <C> <C>
/s/ MORTON A. COHEN Chairman of the Board of Directors June 27, 1996
- ---------------------------------------- and Chief Executive Officer
Morton A. Cohen (Principal Executive Officer)
/s/ FRANK J. VETROVEC President, Chief Operating Officer, June 27, 1996
- ---------------------------------------- Director
Frank J. Vetrovec
/s/ JAMES S. O'LEARY Executive Vice President, Chief June 27, 1996
- ---------------------------------------- Financial Officer (Principal
James S. O'Leary Financial and Accounting Officer)
/s/ HELMUT H. ZOELLMER Managing Director of Monitek GmbH, June 27, 1996
- ---------------------------------------- Director
Helmut H. Zoellmer
/s/ ERWIN S. WEISS Director June 27, 1996
- ----------------------------------------
Erwin S. Weiss
</TABLE>
B-16
<PAGE> 190
EXHIBIT 22.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
------------------------------------------------- ---------------------------------------------
<S> <C>
Monitek GmbH Germany
</TABLE>
B-17
<PAGE> 191
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
March 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE> 192
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of March 31, 1996 and 1995............................. F-3
Consolidated Statements of Operations for the years ended March 31, 1996, 1995 and
1994................................................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1996,
1995 and 1994....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1995 and
1994................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 193
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholders
Monitek Technologies, Inc.:
We have audited the consolidated financial statements of Monitek
Technologies, Inc. and subsidiary (the Company) as listed in the accompanying
index to consolidated financial statements. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index to consolidated financial statement
schedule. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Monitek
Technologies, Inc. and subsidiary as of March 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended March 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that the Company will continue as a going
concern. As discussed in note 17 to the financial statements, the Company's
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in note 17.
KPMG Peat Marwick LLP
Oakland, California
May 31, 1996, except as to note 17, which is
as of June 24, 1996
F-2
<PAGE> 194
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 51,235 $ 59,908
Trade receivables -- less allowance for doubtful accounts of
$35,111
and $35,465 in 1996 and 1995, respectively (note 3)........... 859,810 896,004
Inventories (note 4)............................................. 1,382,433 1,488,502
Other current assets............................................. 167,596 113,913
----------- ----------
Total current assets........................................ 2,461,074 2,558,327
Property and equipment, less accumulated depreciation and
amortization of $976,151 and $910,614 in 1996 and 1995,
respectively (note 5)............................................ 103,171 158,708
Product line acquisition costs, less accumulated amortization of
$86,158
and $75,715 in 1996 and 1995, respectively....................... 42,469 52,912
Other assets....................................................... 1,486 1,808
----------- ----------
$ 2,608,200 $2,771,755
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Liability for factored receivables (note 3)...................... $ 157,219 $ --
Notes payable to related party (note 7).......................... 300,000 200,000
Trade accounts payable........................................... 504,886 350,578
Accrued liabilities (note 6)..................................... 621,909 626,675
----------- ----------
Total current liabilities................................... 1,584,014 1,177,253
----------- ----------
Commitments (note 12)
Stockholders' equity (notes 8 and 10):
Common stock -- par value $.01 per share; authorized 10,000,000
shares; 1,690,424 shares issued and outstanding............... 16,904 16,904
Class A common stock -- par value $.01 per share; authorized
2,000,000 shares; 1,252,676 shares issued and outstanding..... 12,527 12,527
Paid-in capital.................................................. 6,117,176 6,117,176
Accumulated deficit.............................................. (5,164,429) (4,602,382)
Cumulative translation adjustment................................ 42,008 50,277
----------- ----------
Total stockholders' equity.................................. 1,024,186 1,594,502
----------- ----------
$ 2,608,200 $2,771,755
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 195
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. $6,695,396 $6,089,400 $5,680,288
Cost of sales.......................................... 3,054,899 2,788,048 2,709,303
---------- ---------- ----------
Gross profit.................................... 3,640,497.. 3,301,352 2,970,985
---------- ---------- ----------
Selling, general and administrative expenses........... 3,740,091 3,383,701 3,481,502
Research, development and product engineering
expenses............................................. 398,840 331,990 273,096
---------- ---------- ----------
4,138,930 3,715,691 3,754,598
---------- ---------- ----------
Operating loss.................................. (498,433) (414,339) (783,613)
---------- ---------- ----------
Other income (expense):
Interest income...................................... 38,415 32,560 27,415
Interest expense..................................... (101,211) (46,055) (42,446)
Foreign currency transaction (loss) gain............. (30,217) 124,989 (18,839)
Other income, net.................................... 33,283 33,703 46,882
---------- ---------- ----------
(59,730) 145,197 13,012
---------- ---------- ----------
Loss before income tax expense.................. (558,163) (269,142) (770,601)
Income tax expense (note 11)........................... 3,884 3,858 3,026
---------- ---------- ----------
Net loss........................................ $ (562,047) $ (273,000) $ (773,627)
========== ========== ==========
Net loss per share..................................... $ (.19) $ (.09) $ (.26)
========== ========== ==========
Weighted average shares outstanding.................... 2,943,100 2,950,100 2,985,100
========== ========== ==========
</TABLE>
F-4
<PAGE> 196
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK
-------------------- -------------------- CUMULATIVE
NUMBER NUMBER PAID-IN ACCUMULATED TRANSLATION
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
--------- ------- --------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1993............... 1,690,424 $16,904 1,294,676 $12,947 6,146,756 (3,555,755) 32,681
Translation of foreign currency
financial statements................. -- -- -- -- -- -- (9,989)
Net loss............................... -- -- -- -- -- (773,627) --
--------- ------- --------- ------- --------- ----------- ----------
Balances, March 31, 1994............... 1,690,424 16,904 1,294,676 12,947 6,146,756 (4,329,382) 22,692
Retirement of stock (note 9)........... -- -- (42,000) (420) (29,580) -- --
Translation of foreign currency
financial statements................. -- -- -- -- -- -- 27,585
Net loss............................... -- -- -- -- -- (273,000) --
--------- ------- --------- ------- --------- ----------- ----------
Balances, March 31 1995................ 1,690,424 16,904 1,252,676 12,527 6,117,176 (4,602,382) 50,277
Translation of foreign currency
financial statements................. -- -- -- -- -- -- (8,269)
Net loss............................... -- -- -- -- -- (562,047) --
--------- ------- --------- ------- --------- ----------- ----------
Balances, March 31 1996................ 1,690,424 $16,904 1,252,676 $12,527 6,117,176 (5,164,429) 42,008
========= ======== ========= ======== ========= =========== ==========
<CAPTION>
NOTES TOTAL
RECEIVABLE STOCKHOLDERS'
FOR STOCK EQUITY
---------- -----------
<S> <<C> <C>
Balances, March 31, 1993............... (30,000) 2,623,533
Translation of foreign currency
financial statements................. -- (9,989)
Net loss............................... -- (773,627)
---------- -----------
Balances, March 31, 1994............... (30,000) 1,839,917
Retirement of stock (note 9)........... 30,000 --
Translation of foreign currency
financial statements................. -- 27,585
Net loss............................... -- (273,000)
---------- -----------
Balances, March 31 1995................ -- 1,594,502
Translation of foreign currency
financial statements................. -- (8,269)
Net loss............................... -- (562,047)
---------- -----------
Balances, March 31 1996................ -- 1,024,186
========= ============
</TABLE>
F-5
<PAGE> 197
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.......................... $ 6,731,590 $5,911,083 $5,958,714
Cash paid to suppliers and employees.................. (6,862,238) (6,338,448) (6,235,525)
Interest received..................................... 38,415 32,560 30,170
Interest paid......................................... (73,172) (46,055) (39,912)
Income taxes paid..................................... (3,884) (3,856) (3,026)
Other miscellaneous cash (disbursements) receipts..... (86,603) 216,814 124,225
----------- ---------- ----------
Net cash used in operating activities......... (255,892) (227,902) (165,354)
----------- ---------- ----------
Cash flows from investing activities
Capital expenditures.................................. (10,000) (55,936) (15,311)
Net decrease in short-term investments................ -- -- 429,769
----------- ---------- ----------
Net cash (used in) provided by investing
activities.................................. (10,000) (55,936) 414,458
----------- ---------- ----------
Cash flows from financing activities:
Borrowings against trade receivables.................. 157,219 -- --
Payments under line of credit......................... -- -- (341,110)
Borrowings under notes payable to related party....... 100,000 100,000 100,000
Payments under capital lease obligations.............. -- (10,727) (9,355)
----------- ---------- ----------
Net cash provided by (used in) financing
activities.................................. 257,219 89,273 (250,465)
----------- ---------- ----------
Net decrease in cash and cash equivalents............... (8,673) (194,565) (1,361)
Cash at beginning of year............................... 59,908 254,473 255,834
----------- ---------- ----------
Cash at end of year..................................... $ 51,235 $ 59,908 $ 254,473
=========== ========== ==========
Reconciliation of net loss to net cash used in
operating activities:
Net loss.............................................. $ (562,047) $ (273,000) $ (773,627)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization:
Property and equipment........................... 65,537 124,514 127,549
Product line acquisition costs................... 10,443 10,444 10,443
(Decrease) increase in allowance for doubtful
accounts......................................... (354) (28,698) 23,000
Increase in reserve for inventory obsolescence..... 6,225 22,248 15,199
Decrease in deferred income taxes.................. -- -- 6,535
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables......... 36,548 (149,619) 255,426
Decrease in inventories.......................... 99,844 12,143 87,707
(Increase) decrease in other current assets...... (53,683) (69,047) 16,852
(Increase) decrease in other assets.............. (7,947) 27,510 78,083
Increase (decrease) in trade accounts payable.... 154,308 29,989 (21,220)
(Decrease) increase in accrued liabilities....... (4,766) 65,614 8,699
----------- ---------- ----------
Net cash used in operating activities......... $ (255,892) $ (227,902) $ (165,354)
=========== ========== ==========
</TABLE>
F-6
<PAGE> 198
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
(1) NATURE OF BUSINESS
Monitek Technologies, Inc. (the "Company") and its wholly owned subsidiary,
Monitek GmbH, design, develop, assemble and market instruments utilized for
analytical measurement of liquids in industrial and wastewater environments.
Monitek GmbH was formed in Germany to concentrate on the sale and service
of the Company's products throughout continental Europe.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Monitek GmbH. All significant intercompany
balances and transactions have been eliminated.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
(d) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years. Amortization of leasehold improvements is computed using
the straight-line method over the shorter of the useful life or the remaining
term of the lease. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income or loss for the period. The cost
of maintenance and repairs is included in the statements of operations as
incurred; significant renewals and betterments are capitalized.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company has no current plans to repatriate undistributed earnings of
its foreign subsidiary. Therefore, no tax has been provided to cover the
repatriation of such undistributed earnings at March 31, 1996, 1995 or 1994. The
cumulative amount of undistributed earnings for which the Company has not
provided United States income taxes was approximately $73,000 at March 31, 1996.
F-7
<PAGE> 199
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has terminated its IC-DISC and, therefore, has begun
repatriation of the undistributed earnings of the IC-DISC. The undistributed
earnings of approximately $780,000 will be recognized as income by the Company
over a 10-year period ending March 31, 2001.
(f) Product Line Acquisition Costs
Product line acquisition costs, including patents, are capitalized and
allocated to the components of the product line. These costs are amortized over
the estimated useful life of the products or patents, ranging from 8 to 14
years. The Company annually evaluates the recoverability of its product line
acquisition costs based on projected, undiscounted, net cash flows related to
such product lines. Impairment would be recognized in operating results if a
permanent diminution in value were to occur.
(g) Revenue Recognition
Revenues from the sale of the Company's product line of instruments are
recognized at the time the product is shipped. The Company's products are
shipped FOB shipping point.
(h) Foreign Currency Translation
The Company accounts for foreign currency translation in accordance with
Statement of Financial Accounting Standards No. 52, Foreign Currency
Translation. The functional currency of the Company's German subsidiary is the
deutsche mark. All transactions of that subsidiary denominated in currency other
than the functional currency are remeasured into the functional currency with
the resulting gain or loss included as foreign currency transaction gains or
losses as incurred in the accompanying consolidated statements of operations.
Assets and liabilities denominated in currencies other than U.S. dollars are
translated at year end exchange rates, and all statement of operations items are
translated at the weighted average exchange rate for the year. The resulting
translation adjustment is reported as a separate component in the equity section
of the accompanying consolidated balance sheets.
(i) Loss Per Share
Loss per share is calculated using the weighted average number of shares
outstanding during the year and additional shares assumed to be outstanding to
reflect the dilutive effect of common stock equivalents. All common stock
equivalents were anti-dilutive for the years ended March 31, 1996, 1995 and
1994.
(j) Reclassification
Certain 1995 amounts have been reclassified to conform with the 1996
consolidated financial statement presentation.
(3) FACTORING OF RECEIVABLES
The Company entered into an agreement, in May 1995, pursuant to which it
sold certain trade accounts receivable, subject to recourse provisions. Under
the terms of the agreement, the Company has retained substantially the same risk
of credit loss as if the receivables had not been sold. The proceeds are less
than the face amount of accounts receivable sold by a 20% reserve amount and a
1% administrative fee on the gross amount of each purchased receivable.
At March 31, 1996, the balance of sold accounts receivable that had not
been collected was approximately $157,000 which has been included in trade
receivables in the accompanying consolidated balance sheet. As the sold
receivables are subject to recourse provisions, a liability is reflected for the
face amount of the receivables sold.
F-8
<PAGE> 200
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon collection of these accounts, the 20% withheld by the purchaser, less
a .1% discount per day based on the average daily balance of outstanding
transferred receivables, is forwarded to the seller. As collections reduce
accounts included in the pool, the Company sells its interest in new
receivables.
The discount from the face amount totaled $23,856 for the year ended March
31, 1996 and has been included in interest expense in the accompanying
consolidated statement of operations.
(4) INVENTORIES
Inventories consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials............................................... $ 174,160 $ 181,593
Component parts and work in progress........................ 521,716 555,170
Finished goods.............................................. 817,589 876,546
---------- ----------
1,513,465 1,613,309
Less reserve for inventory obsolescence..................... 131,032 124,807
---------- ----------
$1,382,433 $1,488,502
========== ==========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment..................................... $ 684,581 $ 678,132
Furniture and fixtures...................................... 288,606 285,055
Leasehold improvements...................................... 106,135 106,135
---------- ----------
1,079,322 1,069,322
Less accumulated depreciation and amortization.............. 976,151 910,614
---------- ----------
$ 103,171 $ 158,708
========== ==========
</TABLE>
(6) ACCRUED LIABILITIES
Accrued liabilities consists of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued bonuses and other compensation......................... $311,484 $352,312
Accrued commissions............................................ 52,982 53,932
Accrued payroll and related taxes.............................. 96,683 83,180
Accrued professional fees...................................... 33,090 34,573
Other accrued liabilities...................................... 127,670 102,678
-------- --------
$621,909 $626,675
======== ========
</TABLE>
(7) NOTES PAYABLE TO RELATED PARTY
The Company's major stockholder has made available $300,000 in notes
payable of which $300,000 and $200,000 were outstanding at March 31, 1996 and
1995, respectively. These notes accrue interest at 10% per annum and are payable
on demand. The notes are secured by all non-leased assets of the Company.
F-9
<PAGE> 201
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) COMMON STOCK
The Class A common stock has two votes per share and is automatically
converted to an equal number of shares of common stock upon sale or transfer to
any person who is not a holder of Class A common stock or at any time at the
option of the holder. The common stock has one vote per share.
(9) LOAN TO OFFICER
In October 1990, the Company advanced funds to an officer in the amount of
$30,000. During the year ended March 31, 1995, the note was forgiven when the
officer exercised a put provision surrendering 42,000 shares of his Class A
common stock in exchange for forgiveness of his advance.
The advance was issued to enable the officer to retire indebtedness
incurred to purchase the Company's common stock. The transaction involves the
Company's stock and as such, the advance was shown as a reduction of
stockholders' equity in the accompanying consolidated financial statements.
(10) EMPLOYEE STOCK OPTION PLAN
In May 1987, the Company's Board of Directors adopted a stock option plan
(the Plan) under which officers, directors and key employees of the Company are
eligible to receive incentive and/or non-qualified options. Under the Plan,
450,000 shares of common stock are reserved for issuance. The Plan is
administered by the Board of Directors and expires in May 1997. Options granted
under the Plan may be exercised for a period of up to ten years at an exercise
price which is not less than the fair market value of the common stock at date
of grant. At March 31, 1996, outstanding options were exercisable at prices
which ranged from $.50 to $1.25. Generally, options vest over a four-year
period, and the options granted have had an exercise period of five years.
Changes in stock options for the years ended March 31 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of year.............. 352,000 382,000 237,500
Granted............................................... 70,000 -- 224,500
Canceled.............................................. (40,000) (30,000) (80,000)
------- ------- -------
Outstanding at end of year............................ 382,000 352,000 382,000
======= ======= =======
Currently exercisable................................. 327,000 265,542 220,958
======= ======= =======
Available for grant................................... 68,000 98,000 68,000
======= ======= =======
</TABLE>
F-10
<PAGE> 202
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES
The components of domestic and foreign losses and income taxes are as
follows for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Loss before income tax expense:
Domestic...................................... $(525,794) $(238,881) $(659,767)
Foreign....................................... (32,369) (30,261) (110,834)
--------- --------- ---------
$(558,163) $(269,142) $(770,601)
========= ========= =========
Income tax expense:
Domestic:
Current -- State........................... 1,600 2,400 800
Foreign:
Current.................................... 2,284 1,458 2,226
--------- --------- ---------
$ 3,884 $ 3,858 $ 3,026
========= ========= =========
</TABLE>
A reconciliation between the Company's effective income tax rate and the
statutory federal income tax rate is as follows for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Expected federal income tax benefit at the statutory rate.... (34.0)% (34.0)% (34.0)%
Increase (decrease) in taxes resulting from:
Repatriation of DISC and foreign subsidiary earnings....... 4.8 8.5 10.1
State benefit net of federal benefit....................... 0.3 0.5 (6.6)
Effect of operating loss for which no tax carrybacks are
available............................................... 26.6 26.5 32.2
Other...................................................... 3.0 (0.1) (1.3)
----- ----- -----
0.7% 1.4% 0.4%
===== ===== =====
</TABLE>
The tax effects of significant temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities are
presented below for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.......................... $ 12,550 $ 9,850
Inventories, principally due to reserve for obsolescence
and
tax capitalization.................................... 107,355 109,722
Property and equipment, principally due to
depreciation.......................................... 21,056 32,610
Other accruals........................................... 10,946 10,850
Net operating loss carryforward.......................... 1,941,995 1,757,279
----------- ----------
Total gross deferred tax assets..................... 2,093,902 1,920,311
Less valuation allowance................................. (1,934,888) (1,734,471)
----------- ----------
Net deferred tax assets............................. 159,014 185,840
Deferred tax liabilities:
DISC accumulated earnings................................ (159,014) (185,840)
----------- ----------
Net deferred taxes.................................. $ -- $ --
=========== ==========
</TABLE>
The Company established a valuation allowance against tax benefits that are
potentially available to the Company but have not yet been recognized. This
valuation allowance relates to the amount of net operating loss carryforwards in
excess of existing net taxable temporary differences and to certain deductible
temporary
F-11
<PAGE> 203
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
differences that may not reverse during periods in which the Company may
generate net taxable income. During the years ended March 31, 1996 and 1995, the
Company recorded increases of $200,417 and $114,877, respectively, in the
valuation allowance primarily as a result of the net operating loss generated
during the year.
At March 31, 1996, the Company had approximately $5,404,845 of net
operating loss carryforwards available to offset future federal taxable income
and approximately $1,700,023 of net operating loss carryforwards available to
offset future California taxable income. The federal and state net operating
loss carryforwards expire at various dates through 2011.
Federal tax law imposes restrictions on the utilization of net operating
loss carryforwards in the event of a change in ownership. The Company's net
operating loss may be subject to potential limitations as a result of these
provisions.
(12) LEASES
The Company leases its offices and production facilities under operating
leases and has commitments under certain other operating leases. Rental expense
under operating leases was $328,452, $334,382 and $236,308 for the years ended
March 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments for operating leases with initial or
remaining terms in excess of one year are as follows at March 31, 1996:
<TABLE>
<S> <C>
1997...................................................... $261,514
1998...................................................... 200,931
1999...................................................... 114,284
2000...................................................... 103,621
2001...................................................... 101,665
Thereafter................................................ 194,975
--------
$976,990
========
</TABLE>
F-12
<PAGE> 204
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment as described in note 1, Nature
of Business. Sales and operating losses for each of the years in the three-year
period ended March 31, 1996 and identifiable assets classified by the major
geographic areas in which the Company operates, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States
Domestic................................... $1,869,720 $ 1,676,731 $1,622,725
Export sales............................... 590,676 683,382 638,861
Continental Europe............................ 4,235,000 3,729,287 3,418,702
Intercompany transfers.......................... 993,654 1,086,456 880,724
Eliminations.................................... (993,654) (1,086,456) (880,724)
---------- ----------- ----------
Net sales....................................... $6,695,396 $ 6,089,400 $5,680,288
========== =========== ==========
Operating loss:
United States................................. (475,630) (372,082) (703,221)
Continental Europe............................ (22,803) (42,257) (80,392)
---------- ----------- ----------
Operating loss.................................. (498,433) (414,339) (783,613)
Interest expense................................ (101,211) (46,055) (42,446)
Other income, net............................... 41,481 191,252 55,458
---------- ----------- ----------
Loss before income tax expense.................. $ (558,163) $ (269,142) $ (770,601)
========== =========== ==========
Identifiable assets:
United States................................. 1,263,117 1,191,471
Continental Europe............................ 1,345,083 1,580,284
---------- -----------
Total assets.................................... $2,608,200 $ 2,771,755
========== ===========
</TABLE>
(14) EMPLOYEE BENEFIT PLAN
In September 1989, the Company adopted the Monitek Technologies, Inc.
401(k) Retirement Plan (the Benefit Plan). The Benefit Plan covers substantially
all full time employees of the Company. Under the terms of the Benefit Plan, the
Company may make discretionary contributions to the Benefit Plan. No such
contributions were made during the years ended March 31, 1996, 1995 or 1994.
F-13
<PAGE> 205
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) SELECTED QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
1996............................ $ 1,763,795 $ 1,897,662 $ 1,794,329 $ 1,239,610
1995............................ 1,684,140 1,531,145 1,515,346 1,358,769
Gross profit:
1996............................ 958,544 1,011,591 979,495 690,867
1995............................ 951,146 816,649 837,677 695,880
Net (loss) income:
1996............................ (147,254) (200,564) (100,724) (113,505)
1995............................ 71,158 18,564 (103,350) (259,372)
Net (loss) income per share:
1996............................ (.05) (.07) (.03) (.04)
1995............................ .02 .01 (.04) (.08)
</TABLE>
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash
and other financial instruments approximate fair value due to the short maturity
of these instruments.
(17) RESULTS OF OPERATIONS, PROPOSED MERGER AND MANAGEMENT'S PLANS
As shown in the accompanying consolidated financial statements, the Company
has incurred recurring losses from operations which have reduced the Company's
unused sources of liquidity to a very low level. These factors raise substantial
doubt about the Company's ability to continue as a going concern without
additional sources of external financing.
On June 24, 1996, the Company's Board of Directors approved an Agreement
and Plan of Merger (the Merger Agreement) with Sentex Sensing Technology, Inc.
(Sentex) and a Sentex subsidiary. On the same date, the Merger Agreement was
approved by the Board of Directors of Sentex and its subsidiary. Sentex develops
and manufactures automated devices designed to identify and measure the
concentrations of certain chemicals and its stock is traded on the NASDAQ Small
Cap stock market. The Merger Agreement will be submitted for approval by the
Company's shareholders and the Sentex shareholders and provides for the merger
of the Sentex subsidiary into the Company. Consummation of the merger is subject
to a variety of customary conditions and, accordingly, there can be no assurance
that the merger will take place. The Company believes Sentex has a sufficiently
strong cash position to satisfy the intermediate term needs of the Company for
working capital. In addition, the Company intends to seek a working capital loan
or loans from its major shareholder, Clarion Capital Corporation, pending
completion of the merger.
Operating losses for fiscal years 1996 and 1995 were approximately $498,000
and $414,000, respectively. Fiscal year 1996 sales and gross profit were
approximately 10% higher than the prior year but the increase in gross profit
was offset by increases in operating expenses. Selling, general and
administrative expenses increased by approximately $356,000, or 11%, primarily
as a result of higher sales commissions and payroll related expenses. Research,
development and product engineering expenses increased by approximately $67,000,
or 20%. Spending during the first half of fiscal year 1995 had been severely
curtailed in order to conserve working capital and reduce operating losses.
Subsequently, management, with approval from the Board of Directors, made the
decision to fund certain engineering projects that had been placed on hold,
resulting in increased expenditures in subsequent periods.
F-14
<PAGE> 206
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II Valuation and Qualifying Accounts........................................ S-2
</TABLE>
S-1
<PAGE> 207
MONITEK TECHNOLOGIES, INC.
AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS OF YEAR
---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996 Allowance for doubtful accounts......... $ 35,465 10,477 10,831 35,111
1995 Allowance for doubtful accounts......... 64,163 12,000 40,698 35,465
1994 Allowance for doubtful accounts......... 41,163 27,474 4,474 64,163
1996 Reserve for inventory obsolescence...... 124,807 32,491 26,266 131,032
1995 Reserve for inventory obsolescence...... 102,559 36,000 13,752 124,807
1994 Reserve for inventory obsolescence...... 87,360 111,251 96,052 102,559
</TABLE>
S-2
<PAGE> 208
MONITEK'S FORM 10-Q--ANNEX C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 33-14201
MONITEK TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-1689129
- --------------------------------------------- ---------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1495 ZEPHYR AVENUE, HAYWARD, CA 94544
- --------------------------------------------- ---------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (510) 471-8300
NONE
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the last 90 days.
YES X NO
----- -----
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS JUNE 30, 1996
- ------------------------------------------------------------------------------- --------------
<S> <C>
COMMON STOCK -- $.01 PAR VALUE................................................. 1,690,424
CLASS A COMMON STOCK -- $.01 PAR VALUE......................................... 1,252,676
</TABLE>
<PAGE> 209
MONITEK TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
- ---- --------------------------------------------------------------------------------------
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
1. Financial Statements
Consolidated Balance Sheets as of March 31,1996 (audited) and June 30, 1996
(unaudited)....................................................................... C-3
Consolidated Statements of Operations (unaudited) for the Three Months Ended
June 30, 1995 and June 30, 1996................................................... C-5
Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended
June 30, 1995 and June 30, 1996................................................... C-6
Notes to Consolidated Financial Statements........................................ C-7
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ C-8
PART II -- OTHER INFORMATION
6. Exhibits and Reports on Form 8-K.................................................. C-10
SIGNATURE......................................................................... C-10
</TABLE>
C-2
<PAGE> 210
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1996
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
(AUDITED) (UNAUDITED)
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash........................................................... $ 51,235 $ 45,166
Accounts receivable, less allowance for doubtful accounts of
$35,111 and $34,988......................................... 859,810 862,414
Inventories.................................................... 1,382,433 1,437,363
Other current assets........................................... 167,596 183,361
---------- -----------
Total Current Assets...................................... 2,461,074 2,528,304
Property and equipment, less accumulated depreciation and
amortization of $976,151 and $980,872.......................... 103,171 107,472
Product line acquisition costs, less accumulated amortization of
$86,158 and $88,769............................................ 42,469 39,858
Other assets..................................................... 1,486 1,486
---------- -----------
Total Assets.............................................. $2,608,200 $ 2,677,120
========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
C-3
<PAGE> 211
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1996
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
(AUDITED) (UNAUDITED)
-------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Liability for factored receivables............................. $ 157,219 $ 144,622
Notes payable to related party................................. 300,000 476,940
Trade accounts payable......................................... 504,886 683,617
Accrued liabilities............................................ 621,909 577,502
---------- -----------
Total Current Liabilities................................. 1,584,014 1,882,681
---------- -----------
Stockholders' Equity:
Common stock -- $.01 par value, authorized 10,000,000 shares
and 1,690,424 shares issued and outstanding................. 16,904 16,904
Class A common stock -- $.01 par value, authorized 2,000,000
shares and 1,252,676 shares issued and outstanding,
convertible into common stock............................... 12,527 12,527
Paid-in capital................................................ 6,117,176 6,117,176
Accumulated deficit............................................ (5,164,429) (5,391,157)
Cumulative translation adjustment.............................. 42,008 38,989
---------- -----------
Total Stockholders' Equity................................ 1,024,186 794,439
---------- -----------
Total Liabilities and Stockholders' Equity................ $2,608,200 $ 2,677,120
========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
C-4
<PAGE> 212
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Net sales..................................................... $ 1,763,795 $ 1,543,784
Cost of sales................................................. 805,251 729,030
----------- -----------
Gross profit........................................... 958,544 814,754
Selling, general and administrative expenses.................. 955,660 903,156
Research, development and product engineering expenses........ 141,296 99,113
----------- -----------
Operating loss......................................... (138,412) (187,515)
Other income (expense):
Interest expense............................................ (7,016) (21,414)
Foreign currency transaction loss........................... (3,499) (19,813)
Other income................................................ 1,673 2,014
----------- -----------
Loss before income tax expense......................... (147,254) (226,728)
Income tax expense............................................ -- --
----------- -----------
Net loss............................................... $ (147,254) $ (226,728)
=========== ===========
Net loss per share............................................ $(.05) $(.08)
=========== ===========
Weighted average number of common shares outstanding.......... 2,943,100 2,943,100
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
C-5
<PAGE> 213
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
JUNE 30, 1995 AND JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Cash flows used in operating activities:
Cash received from customers................................ $ 1,598,740 $ 1,541,670
Cash paid to suppliers and employees........................ (1,614,732) (1,674,544)
Interest paid............................................... (7,016) (21,414)
Other misc. payments........................................ (20,920) (7,103)
----------- ------------
Net cash used in operating activities.................. (43,928) (161,391)
Cash flows from investing activities:
Capital expenditures........................................ (5,178) (9,021)
Cash flows provided by financing activities:
Borrowings (repayments) against trade receivables........... -- (12,597)
Borrowings under notes to related party..................... 50,000 176,940
Payments under capital lease obligations.................... (1,175) --
----------- -----------
Net cash provided by financing activities.............. 48,825 164,343
----------- -----------
Net decrease in cash.......................................... (281) (6,069)
Cash at beginning of period................................... 59,908 51,235
----------- -----------
Cash at end of period......................................... $ 59,627 $ 45,166
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
C-6
<PAGE> 214
MONITEK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements include the accounts of
Monitek Technologies, Inc. and its wholly owned subsidiary (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
The consolidated financial statements reflect all adjustments (which include
only normal, recurring adjustments) which, in the opinion of management, are
necessary for the fair presentation of the results of the Company for the
periods covered.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
These interim statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996 (Commission File No.
0-16544).
Results of operations for the three months ended June 30, 1996 are not
necessarily indicative of the results to be achieved for the full fiscal year.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
Raw Materials......................................... $ 174,160 $ 164,778
Component parts and work in progress.................. 521,716 560,821
Finished goods........................................ 817,589 847,796
Less: Reserve for obsolescence........................ (131,032) (140,032)
---------- -----------
$1,382,433 $ 1,433,363
========== ===========
</TABLE>
3. Net Income (Loss) Per Share
The computation of net income (loss) per share is based on the weighted
average number of shares outstanding. No effect is given to outstanding stock
options or warrants in the computation of net income (loss) per share since
they are deemed to be anti-dilutive.
C-7
<PAGE> 215
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net working capital decreased from $877,000 on March 31, 1996 to $646,000
on June 30, 1996. This decrease was the result of the loss for the period and
various minor changes in non-current assets.
The Company's unused sources of liquidity, consisting of unrestricted cash,
decreased from $51,000 on March 31, 1996 to $45,000 on June 30, 1996. As set
forth in the notes to audited financial statements (Note 17) included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996,
the Company's recurring losses from operations and the resulting effect on cash
flow raise substantial doubt about its ability to continue as a going concern
without additional sources of external financing. On June 24, 1996, the
Company's Board of Directors approved an Agreement and Plan of Merger (the
"Merger Agreement") with Sentex Sensing Technology, Inc. ("Sentex") and a Sentex
subsidiary. On the same date, the Merger Agreement was approved by the Boards of
Directors of Sentex and its subsidiary. Sentex develops and manufactures
automated devices designed to identify and measure the concentrations of certain
chemicals and its stock is traded on the NASDAQ Small Cap stock market. The
Merger Agreement will be submitted to the Company's shareholders and the Sentex
share-holders at special meetings expected to be held later in the year. The
Merger Agreement provides for the merger (the "Merger") of the Sentex subsidiary
into the Company. Consummation of the Merger is subject to a variety of
customary conditions and, accordingly, there can be no assurance that the Merger
will take place. The Company believes that Sentex has a sufficiently strong cash
position to satisfy the intermediate term needs of the Company for working
capital. During the months of July and August 1996, the Company obtained working
capital loans in the aggregate amount of $125,000 from its major share-holder,
Clarion Capital Corporation ("Clarion"). The Company expects to seek an
additional working capital loan or loans from Clarion pending completion of the
Merger. However, there can be no assurance that Clarion will loan additional
funds to the Company. It is a condition of the consummation of the Merger that
any such loans by Clarion be repaid by the time of the closing of the Merger.
In the event that the Merger does not take place, the Company's management
will continue to seek other sources of financing including, but not limited to,
loans collateralized by assets of the Company and a sale of equity securities,
to fund its operating and working capital requirements. There is no assurance
that such financing, if available, can be obtained on terms satisfactory to the
Company.
At June 30, 1996, the Company had available net operating loss
carryforwards of approximately $5,405,000 and $1,700,000 to offset future
Federal and California taxable income, respectively. The Tax Reform Act of 1986
imposes certain restrictions on the amount of net operating loss carryforwards
which can be used in any one year by the Company for losses prior to July 31,
1987, the date of the Company's initial public offering, which is deemed to be a
change in ownership for Federal tax purposes. The Company's utilization of
Federal net operating loss carryforwards from years prior to Fiscal 1988,
totaling $1,640,000, is limited to approximately $620,000 per year. Deductions
available for net operating losses generated in years subsequent to the change
in ownership are unlimited. If the Company's income were to exceed the
permissible net operating loss carryforward deduction, as to which there can be
no assurance, the Company would incur liability for Federal income taxes on the
excess earnings, even though net operating loss carryforwards would be available
for future years.
RESULTS OF OPERATIONS
Total net sales decreased by 12%, from $1,764,000 for the three months
ended June 30, 1995 ("Fiscal 1996 Three Months") to $1,544,000 for the three
months ended June 30, 1996 ("Fiscal 1997 Three Months"). Domestic sales
decreased by 23%, export sales from the United States decreased by 6% and sales
to continental Europe by the Company's wholly owned subsidiary, Monitek GmbH,
decreased by 3%. The decline in domestic sales has been a subject of much
concern to management and every effort is being made to increase market
penetration. A poll of the Company's independent representatives indicates that
their sales into the process control market, as a whole, have been lower than
anticipated for the past several months. The
C-8
<PAGE> 216
general consensus is that there are a significant number of pending projects
that should result in orders for the Company's products, but that the timing of
the orders has yet to be determined.
Cost of sales, as a percentage of net sales, increased from 46% for the
Fiscal 1996 Three Months to 47% for the Fiscal 1997 Three Months. Material costs
increased from 36% to 37% of net sales, primarily as a result of a change in
product mix. Direct labor and factory overhead remained constant, at 10% of net
sales, for both the Fiscal 1996 Three Months and the Fiscal 1997 Three Months.
Selling, general and administrative expenses, as a percentage of net sales,
increased from 54% for the Fiscal 1996 Three Months to 58% for the Fiscal 1997
Three Months. Actual expenses decreased from $956,000 to $903,000 but the
percentage of decline was not as great as the decrease in sales.
Research, development and product engineering expenses decreased from
$141,000, or 8% of net sales, for the Fiscal 1996 Three Months to $99,000, or 6%
of net sales, for the Fiscal 1997 Three Months. Spending during the Fiscal 1996
Three Months increased sharply as a result of product redesigns to meet new
European electrical specifications that went into effect on January 1, 1996.
Operating losses went from $138,000 for the Fiscal 1996 Three Months to
$188,000 for the Fiscal 1997 Three Months as a result of the increase in cost of
sales and selling, general and administrative expenses, as a percentage of
sales, partially offset by the decrease in research, development and product
engineering expenses.
Interest expense increased from $7,000 for the Fiscal 1996 Three Months to
$21,000 for the Fiscal 1997 Three Months as a result of increased borrowings
from Clarion Capital Corporation and the factoring of certain accounts
receivable.
Foreign currency transactions resulted in a losses of $3,000 for the Fiscal
1996 Three Months and $20,000 for the Fiscal 1997 Three Months as a result of
fluctuations in the value of the U.S. Dollar relative to the German Deutsche
Mark.
C-9
<PAGE> 217
OTHER INFORMATION
Exhibits and Reports on Form 8-K.
(a) No exhibits are filed herewith.
(b) No reports on Form 8-K were filed for the three months ended June 30,
1996, but a report on Form 8-K was filed on July 1, 1996 to disclose the
Agreement and Plan of Merger that was entered into by the Company and Sentex
Sensing Technology, Inc. on June 24, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
MONITEK TECHNOLOGIES, INC.
-----------------------------------------------
(Registrant)
DATED: AUGUST 13, 1996 /s/ Frank J. Vetrovec
-----------------------------------------------
Frank J. Vetrovec
President and Chief Operating Officer
/s/ James S. O'Leary
-----------------------------------------------
James S. O'Leary
Executive Vice President and Chief Financial
Officer
</TABLE>
C-10
<PAGE> 218
FAIRNESS OPINION--ANNEX D
September 24, 1996
CONFIDENTIAL
Board of Directors
Monitek Technologies, Inc.
1495 Zephyr Avenue
Hayward, California 94544
Members of the Board:
We understand that Monitek Technologies, Inc. ("Monitek" or the "Company"),
Sentex Merger Corp., a wholly owned subsidiary of Sentex Sensing Technologies,
Inc. and Sentex Sensing Technologies, Inc. ("Sentex") have entered into an
Amended and Restated Agreement and Plan of Merger dated as of July 30, 1996 (the
"Agreement") which provides, among other things, for the merger (the "Merger")
of Sentex Merger Corp. with and into Monitek. Pursuant to the Merger, (i) all of
the issued and outstanding shares of Monitek Class A Common Stock, $0.01 par
value per share, shall be converted into Sentex Class A Convertible Notes (the
"Notes") in an original aggregate principal amount of $485,586 (the "Note
Exchange Ratio"). The Notes are convertible, in certain circumstances more fully
described therein, into shares of Sentex common stock, no par value (the "Sentex
Common Shares"), based on a conversion rate of $0.0562 which enables the holders
of the Sentex Class A Convertible Notes to receive 6.8974890 Sentex Common
Shares for each share of Monitek Class A Common Stock owned by such holder
immediately prior to the consummation of the Merger; and (ii) each issued and
outstanding share of Monitek Common Stock, $0.01 par value per share, shall be
converted into 6.8974890 shares (the "Stock Exchange Ratio") of Sentex Common
Shares.
You have requested our opinion as to the fairness, from a financial point
of view, of the Note Exchange Ratio and the Stock Exchange Ratio, to the holders
of Monitek Class A Common Stock and Monitek Common Stock, respectively, other
than Clarion Corporation (as to which no opinion has been requested).
In connection with our review of the Merger and in preparation of our
opinion herein, we have examined (a) the financial terms and conditions of the
Agreement; (b) the preliminary Joint Proxy Statement/ Prospectus relating to the
Merger prepared for filing with the Securities and Exchange Commission; (c)
certain recent audited financial statements of the Company and Sentex; (d)
certain unaudited financial statements and internal operating reports of the
Company; (e) certain internal financial analyses and forecasts for the Company
prepared by the management of the Company; and (f) certain other publicly
available information on the Company. We have also held discussions with members
of the senior management of the Company to discuss the foregoing and have
considered other matters which we have deemed relevant to our review.
We have assumed and relied upon the accuracy and completeness of all such
information and have not attempted to verify independently any such information,
nor have we conducted a physical inspection of all the properties and facilities
of the Company or made or obtained an independent appraisal of the assets of the
Company. With respect to financial forecasts, we have assumed, with your
consent, that they have been reasonably prepared on the bases reflecting the
best currently available estimates and judgments of the Company's management.
Our opinion herein necessarily is based upon economic, market and other
conditions as in effect on, and circumstances existing and disclosed to us as of
the date hereof, and further assumes that no material change has occurred, or
will occur, to the Company subsequent to such date.
In arriving at our opinion expressed herein, we have considered and
reviewed: (a) the current and projected financial position, operating results
and net assets of the Company; (b) historical and projected revenues, operating
earnings, net income and capitalization of the Company in comparison to other
publicly held companies in businesses we believe to be comparable to the
Company; (c) financial information concerning selected completed and pending
business combinations which we deemed comparable in whole or in part; (d) the
historical market prices and trading activity of the Common Stock of the
Company; (e) the
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historical relationship between the Common Stock of Monitek and the Common
Shares of Sentex; and (f) the general conditions of the securities market.
NatCity Investments, Inc. is actively engaged in the investment banking
business and regularly undertakes the valuation of investment securities in
connection with public offerings, private placements, business combinations and
other similar transactions.
It is understood that this letter is for the information of the Board of
Directors of the Company only and is not to be quoted or referred to, in whole
or in part, without our written consent; provided, however, that we hereby
consent to the inclusion of this opinion in the Company's Joint Proxy
Statement/Prospectus used in connection with the Merger, so long as the opinion
is reproduced in full in such Joint Proxy Statement/ Prospectus.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, the Note Exchange Ratio and the Stock Exchange Ratio are fair, from a
financial point of view, to the holders of Monitek Class A Common Stock and
Monitek Common Stock, respectively, other than Clarion Capital Corporation.
Very Truly Yours,
NATCITY INVESTMENTS, INC.
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<PAGE> 220
DISSENTERS RIGHTS--ANNEX E
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS.
Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec.228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation.
Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.sec.251, 252, 254, 257, 258, 263 or 264 of this title:
(i) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock which,
at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act
upon the agreement of merger or consolidation, were either (i)
listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 stockholders; and further provided, that
no appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of sec.251 of
this title.
(ii) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to sec.sec.251, 252, 254, 257, 258, 263 and
264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation;
b. Shares of stock of any other corporation which at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
stockholders;
c. Cash in lieu of fractional shares of the corporations
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing paragraphs a., b. and c. of
this paragraph.
(iii) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not
owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
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provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
Appraisal rights shall be perfected as follows:
(i) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand
the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written
demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand
as herein provided. Within ten days after the effective date of such
merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(ii) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or
within ten days thereafter, shall notify each of the stockholders
entitled to appraisal rights of the effective date of the merger or
consolidation and that appraisal rights are available for any or
all of the shares of the constituent corporation, and shall include
in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed
to the stockholder at his address as it appears on the records of
the corporation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of the notice, demand in
writing from the surviving or resulting corporation the appraisal
of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his
shares.
Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within ten days after his written request for such
a statement is received by the surviving or resulting corporation or within ten
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their
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<PAGE> 222
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware, or such publication
as the Court deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs thereof shall be borne
by the surviving or resulting corporation.
At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as
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to any stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Statutory authority for indemnification of the Registrant's directors
and officers is contained in the New Jersey Business Corporation Act (the
"NJBCA"), in particular Section 14A:3-5 of the NJBCA, the material provisions of
which may be summarized as follows:
Derivative and Nonderivative Proceedings. Section 14A:3-5 of the NJBCA
provides that in nonderivative proceedings (proceedings other than those brought
by or in the right of the corporation), a corporation may indemnify "corporate
agents" (defined to include directors, officers, employees and persons serving
in other capacities at the corporation's request) against both "expenses"
(defined as reasonable costs, disbursements and counsel fees) and "liabilities"
(defined to include judgments, fines, settlements and penalties) if the
corporate agent acted in good faith and in a manner such corporate agent
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal proceeding, such corporate agent
had no reasonable cause to believe the conduct was unlawful. The NJBCA also
provides that in derivative proceedings (proceedings brought by or in the right
of the corporation), a corporation may indemnify corporate agents against
expenses if the corporate agent acted in good faith and in a manner such
corporate agent reasonably believed to be in or not opposed to the best
interests of the corporation. In all cases the NJBCA requires the corporation to
indemnify against expenses, including counsel fees, to the extent that a
corporate agent has been successful in a derivative or nonderivative proceeding
on the merits or otherwise, or in defense of any claim, issue or matter therein,
and permits a corporation to advance expenses upon an undertaking for repayment
if it shall ultimately be determined that the corporate agent is not entitled to
indemnification. The NJBCA states that the indemnification it provides "shall
not exclude any other rights, including the right to be indemnified against
liabilities and expenses incurred in proceedings by or in the right of the
corporation," to which a corporate agent may be entitled "under a certificate of
incorporation, by-law, agreement, vote of shareholders or otherwise," unless the
agent has been adjudged guilty of a breach of loyalty, a failure to act in good
faith, a knowing violation of law, or the receipt of an improper personal
benefit.
Determinations Regarding Indemnification. Indemnification of a party
(unless ordered by a court) is dependent upon a determination that such
indemnification is proper because the party has met the applicable standards set
forth above. Such a determination must be made (a) by the Board of Directors or
a committee thereof acting by a majority vote of a quorum consisting of
directors who were not parties to or otherwise involved in the proceedings, or
(b) under certain circumstances, by independent legal counsel in a written
opinion, or (c) by the shareholders.
Other Material Provisions. The indemnification provided by statute is
not exclusive of other rights of indemnification, and inures to the benefit of
an officer's or director's legal representative, provided that a corporation may
not indemnify an officer or director that has been adjudged guilty of a breach
of loyalty, a failure to act in good faith, a knowing violation of law or the
receipt of any improper personal benefit. A corporation may purchase and
maintain insurance against expenses incurred by, and liabilities asserted
against, directors, officers, employees or agents, whether or not the
corporation would be empowered to provide such indemnity, and such insurance may
be purchased from an insurer affiliated with such corporation, whether or not
such insurer does business with any other insured.
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<PAGE> 225
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
2 Amended and Restated Agreement and Plan of Merger dated as of
July 30, 1996(1)
3.1 Certificate of Incorporation, as amended(2)
3.2 Bylaws of Sentex(2) and an amendment thereto*
3.3 Certificate of Incorporation of Sentex Acquisition Corp.(3)
3.5 Certificate of Merger (Sentex Systems, Inc. into Sentex)(3)
3.6 Certificate of Incorporation of Sentex Systems, Inc.(4)
4.1 Specimen Certificate of Common Stock(2)
4.2 Specimen of Class A Convertible Note(1)
4.3 Participation Rights Agreements(1)
5.1** Opinion of Baker & Hostetler
9.1* Shareholders Agreement between CPS Capital, Ltd and Amos Linenberg,
dated March 1, 1996
9.2* Shareholders Agreement between CPS Capital, Ltd and Joanne Bianco,
dated March 1, 1996
9.3 Form of Shareholders Agreement between CPS Capital, Ltd and Clarion
Capital Corporation(1)
10.1* Employment Agreement with Dr. Amos Linenberg, dated March 1, 1996
10.2* Consulting Agreement with Ms. Joanne Bianco, dated March 1, 1996
10.3 Sentex 1996 Long-Term Incentive Stock Option Plan(1)
21.1* List of Subsidiaries
23.1* Consent of Moore Stephens, P.C.
23.2* Consent of KPMG Peat Marwick LLP
23.3 Consent of Baker & Hostetler (filed with Exhibit 5.1)
23.4* Consent of Amos Linenberg
23.5* Consent of Morton Cohen
23.6* Consent of NatCity Investments, Inc.
99.1* Form of Sentex Proxy
99.2* Form of Monitek Proxy
(1) Included as an Annex or a part thereof to the Joint Proxy
Statement/Prospectus included as part of this Registration Statement.
(2) Incorporated by reference to exhibits bearing same exhibit numbers,
filed with Sentex's Registration Statement on Form S-1, File No.
2-86860.
(3) Incorporated by reference to exhibits bearing the same exhibit
numbers, filed with Sentex's Form 10-KSB for the fiscal year ended
November 30, 1992.
(4) Incorporated by reference to exhibits bearing same exhibit numbers,
filed with Sentex's Form 10-KSB for the fiscal year ended November 30,
1984.
<FN>
* Filed herewith.
** To be filed by an amendment.
</TABLE>
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<PAGE> 226
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the securities registered hereby, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in this Registration Statement or any material change to such
information in this Registration Statement; provided, however,
that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this Registration
Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b)(1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the
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<PAGE> 227
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person of the
Registrant in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against the public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and Sentex
being acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
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<PAGE> 228
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND,
STATE OF OHIO, ON SEPTEMBER 27, 1996.
SENTEX SENSING TECHNOLOGY, INC.
By /s/ Robert S. Kendall
----------------------------------
Robert S. Kendall,
Chairman and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON SEPTEMBER 27, 1996.
SIGNATURE TITLE
--------- -----
/s/ Robert S. Kendall
- -------------------------
Robert S. Kendall Chairman and President (principal
executive officer)
/s/ James G. Few
- -------------------------
James G. Few Director and Chief Financial Officer
(principal financial officer and
principal accounting officer)
/s/ Julius Hess
- -------------------------
Julius Hess Director
/s/ Ronald Lipson
- -------------------------
Ronald Lipson Director
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<PAGE> 229
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.2 Amendment to Sentex's Bylaws
5.1* Opinion of Baker & Hostetler
9.1 Shareholders Agreement between CPS Capital, Ltd and Amos Linenberg,
dated March 1, 1996
9.2 Shareholders Agreement between CPS Capital, Ltd and Joanne Bianco,
dated March 1, 1996
10.1 Employment Agreement with Dr. Amos Linenberg, dated March 1, 1996
10.2 Consulting Agreement with Ms. Joanne Bianco, dated March 1, 1996
21.1 List of Subsidiaries
23.1 Consent of Moore Stephens, P.C.
23.2 Consent of KPMG Peat Marwick LLP
23.4 Consent of Amos Linenberg
23.5 Consent of Morton Cohen
23.6 Consent of NatCity Investments, Inc.
99.1 Form of Sentex Proxy
99.2 Form of Monitek Proxy
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDMENT NUMBER I TO SENTEX
SENSING TECHNOLOGY, INC.'S BYLAWS
Section 8 of the Sentex Bylaws is hereby amended in its entirety to read as
follows:
"The number of directors shall not be less than one nor more than ten as may be
determined from time to time by resolution of the board. Unless otherwise
provided in the Certificate of Incorporation, any vacancy in the board,
including a vacancy caused by an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors, even
though by less than a quorum of the board, or by a sole remaining director."
<PAGE> 1
EXHIBIT 9.1
THE LINENBERG SHAREHOLDER AGREEMENT
-----------------------------------
This Agreement is made on March 1st, 1996 by and between Amos
Linenberg ("AL"), an individual, and CPS Capital, Ltd. ("CPS"), an Ohio limited
liability company.
WHEREAS, AL has sold to CPS 3,000,000 shares of common stock
of Sentex Sensing Technology, Inc., a New Jersey corporation ("Sentex") pursuant
to a Stock Purchase Agreement dated October 18, 1995 (the "Stock Purchase
Agreement");
WHEREAS, AL has entered into an Employment and Noncompete
Agreement dated the date hereof (the "Employment Agreement") with Sentex, as a
condition to consummation of the transactions contemplated by the Stock Purchase
Agreement;
WHEREAS, AL continues to own beneficially 8,389,204 shares of
common stock of Sentex and AL and CPS desire to establish certain rights and
obligations as between them with respect to all shares of common stock of Sentex
owned of record or beneficially as of the date hereof or acquired hereafter by
AL (such owned or acquired shares being hereinafter referred to as the
"Shares");
NOW, THEREFORE, in consideration of the premises and
agreements herein contained, AL and CPS hereby agree as follows:
1. Restrictions on Sales (Tag Along,
---------------------------------
Registration, Lock-up and First
-------------------------------
Refusal Rights) .
-----------------
(a) The CPS Group (defined hereinafter) shall not sell any or
all of its shares of Sentex stock in a private transaction, unless AL
is offered, in writing, the opportunity (which offer shall remain open
for 15 days following the receipt of notice of such private
transaction) to sell a number of his Shares for the same price and upon
the same terms and conditions as offered to the CPS Group that is equal
to the product of the number of shares that the CPS Group has the
opportunity to sell in such private transaction (as described in such
notice to AL) multiplied by the percentage that is calculated by
dividing the total number of Shares owned by AL by the aggregate total
of all the shares owned by the CPS Group, AL and, if Joanne Bianco
("JB") is eligible and elects to participate in such private
transaction, the total number of shares of common stock of Sentex owned
by JB. For example, if CPS is provided the opportunity to sell
1,000,000 of its shares in a private transaction and the CPS Group owns
11,000,000 shares, AL owns 8,000,000 shares and JB owns 1,000,000
shares then, if JB were eligible and elected to participate, CPS would
be permitted to sell 550,000 shares, AL would be permitted to sell
400,000 shares and JB would be permitted to sell 50,000 shares in such
private transaction. If, however, JB were not eligible or elected not
to participate in such private transaction, then the CPS Group and AL
could sell 578,947 and 421,053 shares, respectively.
(b) The CPS Group shall not sell any or all of its shares of
Sentex stock pursuant to a public offering registered under the
Securities Act of 1933 unless AL is offered the opportunity (which
offer shall remain open for 15 days following the receipt of notice of
such offering) to include in any such offering a number of his Shares
for the same price and upon the same terms and conditions that the CPS
Group has the opportunity to offer its shares in such offering that is
equal to the product of the number of shares that the CPS Group has the
opportunity to offer in such offering (as described in such notice to
AL) multiplied
<PAGE> 2
by the percentage that is calculated by dividing the total number of
Shares owned by AL by the aggregate total of all the shares owned by
the CPS Group, AL and, if Joanne Bianco ("JB") is eligible and elects
to participate in such offering, the total number of shares of common
stock of Sentex owned by JB. For example, if CPS is provided the
opportunity to include 1,000,000 of its shares in a public offering, as
described above and the CPS Group owns 11,000,000 shares, AL owns
8,000,000 shares and JB owns 1,000,000 shares then, if JB were eligible
and elected to participate, CPS would be permitted to include 550,000
shares, AL would be permitted to include 400,000 shares and JB would be
permitted to include 50,000 shares in such public offering. If,
however, JB were not eligible or elected not to participate in such
public offering, then the CPS Group and AL could include 578,947 and
421,053 shares, respectively, in such public offering.
(c) For any transaction contemplated in subsections (a) or (b)
of this Section 1, CPS shall provide AL with written notice that
describes in reasonable detail the nature of the transaction,
including, without limitation, the price and number of shares the CPS
Group has the opportunity to sell in a private transaction or offer for
sale through a registered public offering, as the case may be.
(d) Until the second anniversary of the date hereof, AL shall
not sell any Shares without the written consent of CPS, except pursuant
to Section 1(a), 1(b) or 6 hereof.
(e) From the second anniversary through the fifth anniversary
of the date hereof, except pursuant to Section 1(a) or 1(b) hereof, AL
shall not sell any of the Shares unless he shall have first given to
CPS written notice of the proposed sale (the "Notice of Sale") and CPS
shall not have exercised its option under Section 4 hereof to purchase
the Shares designated in the Notice of Sale.
(f) For purposes of this Section 1 the following definitions
shall apply: (i) the term "CPS Group" shall mean CPS, Robert S. Kendall
or any Related Party or Affiliate of the foregoing; (ii) the term
"Related Party" shall mean, with respect to any Person, any of such
Person's issue, spouse, parents, parent-in-law, any trust settled or
established principally for the benefit of the foregoing or any of
their respective issue, the executor, administrator or other legal
representative of the estate of any of the foregoing individuals and
any of the legatees and heirs who are issue of the foregoing
individuals or are trusts established principally for the benefits of
any or all of such issue, or any corporation or other business entity
wholly owned by such Person or any Related Party of such Person; (iii)
the term "Person" shall mean any individual, corporation, partnership,
trust, unincorporated association, business or other legal entity; and
(iv) the term "Affiliate" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls, is under
common control with or is controlled by CPS, Robert S. Kendall or any
Related Party.
(g) All the certificates representing shares now or herein
after owned by either CPS or AL shall bear substantially the following
legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN THAT CERTAIN SHAREHOLDER
AGREEMENT DATED AS OF MARCH 1, 1996, AS AMENDED FROM TIME TO
TIME, TO WHICH CPS CAPITAL LTD, AN OHIO LIMITED LIABILITY
COMPANY, AND AMOS LINENBERG ARE PARTIES. A COPY OF SUCH
AGREEMENT WILL BE PROVIDED TO THE HOLDER OF THIS CERTIFICATE
UPON WRITTEN REQUEST DELIVERED TO THE CORPORATION.
For shares owned now, the legend shall be placed on such certificates
within 5 days of the execution of this Agreement. For shares owned
hereafter, the party shall deliver the certificate evidencing such
shares to Sentex within 5 days of purchasing such shares for the
purpose of having such legend placed on such certificate.
<PAGE> 3
2. NOTICE OF SALE. The Notice of Sale shall contain the following
information:
(a) The number of Shares to be sold (the "Committed Shares"), the
terms upon which AL intends to make such sale, and whether such sale is to
be public or private;
(b) The name or names of any person or persons, if the sale is to be a
private sale, to whom AL intends to sell the Committed Shares; and
(c) The price at which AL intends to sell the Committed Shares.
3. OPTION.
(a) CPS shall have the option to purchase all, but not less than all,
of the Committed Shares, exercisable for a period of 15 days after receipt
of the Notice of Sale (the "Option Period") (i) if such shares are to be
sold privately, at a price equal to the price at which AL intends to sell
the Committed Shares as specified in the Notice of Sale (provided that if
all or part of the proposed consideration is other than cash, the value of
the consideration other than cash will be determined as provided in Section
3(c) hereof); or (ii) if such shares are to be sold in the public market,
at the Market Price on the first business day immediately preceding the
date of receipt of the Notice of Sale by CPS (the "Notice Day"). This
option will be exercisable by delivery to AL within the Option Period of
written notice (an "Exercise Notice") of CPS's intention to exercise the
option. If CPS delivers an Exercise Notice, then AL shall be obligated to
sell the Committed Shares to CPS and CPS shall be obligated to purchase the
Committed Shares from AL at the price determined as set forth above. The
closing of any such sale and purchase shall occur within the later of seven
(7) business days following delivery of the Exercise Notice relating
thereto or seven (7) business days after the value of the consideration
determined pursuant to Section 3(c) has been reported to CPS and AL by the
Appraiser (defined hereinafter).
(b) "Market Price" with respect to any date shall mean the closing
sale price of the common shares of Sentex stock (the "Common Shares") on
such date on the principal domestic exchange on which the Common Shares may
be listed at the time, or, if there shall have been no sales on any such
exchange on any such day, the average of the bid and asked prices at the
end of such day, or, if the Common Shares shall not be so listed, the
average of the bid and asked prices at the end of such day in the domestic
over-the-counter market or if the bid and asked price for the Common Shares
are not quoted in the domestic over-the-counter market on such day, the
average bid and asked prices for the Common Shares as quoted on the
domestic over-the-counter market on the most recent date prior to such day.
(c) In the event that it is necessary to determine the value of
consideration other than cash pursuant to Section 3(a) hereof, the parties
shall negotiate in good faith to reach agreement upon such value. Unless
otherwise agreed, in the event that the parties are unable to agree upon
such value within three (3) business days following receipt of the Exercise
Notice the parties shall jointly select and appoint a firm of experts of
recognized standing (the "Appraiser") that is independent of all parties to
this Agreement, to determine such value; PROVIDED HOWEVER, that, if the
parties do not agree on the selection of such firm within five (5) business
days following receipt of the Exercise Notice, such firm shall be selected
by an arbitrator in accordance with Section 14 of the Employment Agreement.
Such value shall then be determined by the Appraiser and set forth in a
written report to CPS and AL within 10 business days after the Appraiser's
appointment.
4. ELECTION NOT TO EXERCISE OPTION. If CPS does not exercise its option in
accordance herewith, then AL shall be permitted to sell the Committed Shares for
a period of 180 days after the Option Period; provided, however, that if such
Shares are to be sold privately, AL shall not sell the Committed Shares at a
lower price or on terms more favorable than those specified, or to any person(s)
not named as purchaser(s), in the Notice of Sale.
<PAGE> 4
5. FAILURE TO SELL COMMITTED SHARES. If CPS does not exercise its option to
purchase the Committed Shares, and AL does not sell the Committed Shares in the
180 day period provided for herein, no sale of such shares shall be made
thereafter except in compliance again with the procedures provided for in this
Agreement.
6. PUT RIGHTS.
(a) Upon written notice delivered to CPS at least 120 days prior to
the first anniversary of the date hereof, AL may require CPS to purchase,
and CPS shall purchase from AL, up to 2,000,000 of the Shares at $.076 per
share on the 120th day following receipt of such notice.
(b) Upon written notice delivered to CPS after commencement of the
Specified Period (defined hereinafter) and at least 120 days prior to the
end of the Specified Period, AL may require CPS to purchase, and CPS shall
purchase from AL on the 120th day following receipt of such notice, up to
8,389,204 of the Shares at $.05 per share, provided that AL has not had the
opportunity after the date hereof and prior to the date on which the
Specified Period commences to sell at least 5,000,000 of such Shares in an
underwritten public offering registered under the Securities Act of 1933 at
a gross price equal to or greater than $.05 per share. The "Specified
Period" means the period commencing on the same calendar date that is 19
months after the date hereof and ending on the fifth anniversary of the
date hereof.
7. VOTING RIGHTS. AL agrees that so long as he owns any Shares he will vote
such shares during the term hereof in accordance with instructions received from
CPS on each matter submitted to the shareholders of Sentex, and will execute a
form of proxy (including an irrevocable proxy to CPS, or if directed by CPS, to
Robert S. Kendall or any of his Affiliates) for such Shares naming CPS, Robert
S. Kendall or his Affiliates as his proxy to vote such shares if CPS so requests
in writing from time to time on or after the date hereof. CPS shall indemnify AL
from and against any liability of AL which arises from the voting of such Shares
in accordance with this Section 7.
8. NOTICES. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, overnight courier service,
or certified mail, returned receipt requested, to the following addresses of the
parties or at such other address as any party shall designate by such written
notice:
(a) if to CPS:
Robert S. Kendall
CPS Capital, Ltd.
1801 East Ninth Street
Cleveland, Ohio 44114
With a copy to:
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-4585
Attention: William M. Toomajian, Esq.
<PAGE> 5
(b) if to AL:
Amos Linenberg
Sentex Sensing Technology, Inc.
553 Broad Road Avenue
Ridgefield, NJ 07657
With a copy to:
Joseph Ehrenreich, Esq.
Ehrenreich & Krause
1140 Sixth Avenue
New York, NY 10036
All such notices and communications shall be deemed to have been duly given
when delivered by hand or overnight courier; or, if mailed, five days after
being deposited in the mail, postage prepaid.
9. DELIVERY AND PAYMENT. Delivery of and payment for any Shares purchased
by CPS pursuant to this Agreement shall be made on the date specified in Section
3 or 6 hereof, as the case may be. The purchase price shall be paid by certified
or bank check or wire transfer of immediately available funds. All transfer
taxes, documentary stamp taxes, and the like, if any, payable in respect of the
sale of Shares pursuant hereto shall be borne by AL. The obligation of CPS to
purchase and pay for any Shares shall be subject, in the discretion of CPS, to
the condition that good and valid title to such Shares shall be passed by AL to
CPS free and clear of any liens, security interests, encumbrances, pledges,
charges, claims, voting trusts and restrictions on transfer of any nature
(except restrictions relating to federal and applicable state securities laws).
Notwithstanding anything in this Agreement to the contrary, in the event that
either CPS has provided an Exercise Notice to AL pursuant to Section 3 or AL has
provided notice to CPS pursuant to Section 6 prior to termination of this
Agreement, this Section 9 shall survive any such termination until all the
parties have performed under this Section 9.
10. BINDING EFFECT AND TERM.
(a) This Agreement shall be binding upon CPS and its successors and
upon AL and his successors, heirs and personal representatives. This
Agreement may not be assigned by either party hereto without the prior
written consent of the other. AL agrees that he shall not transfer
ownership of any of the Shares (other than as permitted by this Agreement,
including, without limitation, Sections 1 and 4 hereof) unless the
transferee agrees in writing to be bound by the terms and conditions of
this Agreement.
(b) Sections 1-5, and 7 shall terminate if Robert S. Kendall ceases to
have effective control of Sentex; provided, however, that Section 1 shall
apply to any sale of shares by the CPS Group that results in Robert S.
Kendall ceasing to have such control.
(c) This entire Agreement shall terminate on the fifth anniversary
date hereof.
11. AMENDMENT. This Agreement may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given,
provided that the same are in writing and signed by the parties hereto. The
waiver by any party hereto of a breach of any of the provisions of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
12. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE> 6
13. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
14. GOVERNING LAW. The validity and interpretation of this agreement shall
be governed by the laws of the State of New Jersey. The federal and state courts
in Bergen County, New Jersey, will have exclusive jurisdiction with respect to
any dispute relating to this Agreement.
15. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, between the parties hereto
with respect to the subject matter hereof.
16. UNENCUMBERED SHARES. AL represents and warrants with respect to the
Shares currently held by him (as indicated in the Premise hereto) that he is the
owner of such Shares and, except as provided for herein, such Shares are free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal agreements limitations on voting rights, charges and other
encumbrances of any nature whatsoever. Except as provided herein, AL has the
sole voting power with respect to such Shares.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
CPS CAPITAL, LTD.
By: /s/ Robert S. Kendall
----------------------------
Robert S. Kendall
Chairman and President
AMOS LINENBERG
/s/ Amos Linenberg
--------------------------------
<PAGE> 1
EXHIBIT 9.2
THE BIANCO SHAREHOLDER AGREEMENT
This Agreement is made on March 1st, 1996 by and between
Joanne Bianco ("JB"), and CPS Capital, Ltd. ("CPS"), an Ohio limited liability
company.
WHEREAS, JB has sold to CPS 8,509,917 shares of common stock
of Sentex Sensing Technology, Inc., a New Jersey corporation ("Sentex") pursuant
to a Stock Purchase Agreement dated October 18, 1995 (the "Stock Purchase
Agreement");
WHEREAS, JB has entered into a Consulting and Noncompete
Agreement dated the date hereof (the "Consulting Agreement") with Sentex as a
condition to consummation of the transactions contemplated by the Stock Purchase
Agreement;
WHEREAS, JB and CPS desire to establish certain rights and
obligations as between them with respect to all shares of common stock of Sentex
owned of record or beneficially as of the date hereof or acquired hereafter by
JB (such owned or acquired shares being hereinafter referred to as the
"Shares");
NOW, THEREFORE, in consideration of the premises and
agreements herein contained, JB and CPS hereby agree as follows:
1. Restrictions on Sales (Tag Along,
---------------------------------
Registration and Lock-up).
--------------------------
(a) The CPS Group (defined hereinafter) shall not sell any or
all of its shares of Sentex stock in a private transaction, unless JB
is offered, in writing, the opportunity (which offer shall remain open
for 15 days following the receipt of notice of such private
transaction) to sell a number of her Shares for the same price and upon
the same terms and conditions as offered to the CPS Group that is equal
to the product of the number of shares that the CPS Group has the
opportunity to sell in such private transaction (as described in such
notice to JB) multiplied by the percentage that is calculated by
dividing the total number of Shares owned by JB by the aggregate total
of all the shares owned by the CPS Group, JB and, if Amos Linenberg
("AL") is eligible and elects to participate in such private
transaction, the total number of shares of common stock of Sentex owned
by AL. For example, if CPS is provided the opportunity to sell
1,000,000 of its shares in a private transaction and the CPS Group owns
11,000,000 shares, JB owns 1,000,000 and AL owns 8,000,000 shares then,
if AL were eligible and elected to participate, CPS would be permitted
to sell 550,000 shares, JB would be permitted to sell 50,000 shares and
AL would be permitted to sell 400,000 shares in such private
transaction. If, however, AL were not eligible or elected not to
participate in such private transaction, then the CPS Group and JB
could sell 916,667 and 83,333 shares, respectively.
(b) The CPS Group shall not sell any or all of its shares of
Sentex stock pursuant to a public offering registered under the
Securities Act of 1933 unless JB is offered the opportunity (which
offer shall remain open for 15 days following the receipt of notice of
such offering) to include in any such offering a number of her Shares
for the same price and upon the same terms and conditions that the CPS
Group has the opportunity to offer its shares in such offering that is
equal to the product of the number of shares that the CPS Group has the
opportunity to offer in such offering (as described in such notice to
JB) multiplied by the percentage that is calculated by dividing the
total number of Shares owned by JB by the aggregate total of all the
shares owned by the CPS Group, JB and, if AL is eligible and elects to
participate in such offering, the total number of shares of common
stock of Sentex owned by AL. For example, if CPS is provided the
opportunity to include 1,000,000 of its shares in a public offering, as
described above, and the CPS Group owns 11,000,000 shares, JB owns
1,000,000 and AL owns 8,000,000 shares then, if AL were
<PAGE> 2
eligible and elected to participate, CPS would be permitted to include
550,000 shares, JB would be permitted to include 50,000 shares and AL
would be permitted to include 400,000 shares in such public offering.
If, however, AL were not eligible or elected not to participate in such
public offering, then the CPS Group and JB could include 916,667 and
83,333 shares, respectively, in such public offering.
(c) For any transaction contemplated in subsections (a) or (b)
of this Section 1, CPS shall provide JB with written notice that
describes in reasonable detail the nature of the transaction,
including, without limitation, the price and number of shares the CPS
Group has the opportunity to sell in a private transaction or offer for
sale through a registered public offering, as the case may be.
(d) Until the second anniversary of the date hereof, JB shall
not sell any Shares without the written consent of CPS, except pursuant
to Section 1(a) and 1(b).
(e) For purposes of this Section 1 the following definitions
shall apply: (i) the term "CPS Group" shall mean CPS, Robert S. Kendall
or any Related Party or Affiliate of the foregoing; (ii) the term
"Related Party" shall mean, with respect to any Person, any of such
Person's issue, spouse, parents, parent-in-law, any trust settled or
established principally for the benefit of the foregoing or any of
their respective issue, the executor, administrator or other legal
representative of the estate of any of the foregoing individuals and
any of the legatees and heirs who are issue of the foregoing
individuals or are trusts established principally for the benefits of
any or all of such issue, or any corporation or other business entity
wholly owned by such Person or any Related Party of such Person; (iii)
the term "Person" shall mean any individual, corporation, partnership,
trust, unincorporated association, business or other legal entity; and
(iv) the term "Affiliate" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls, is under
common control with or is controlled by CPS, Robert S. Kendall or any
Related Party.
(f) All the certificates representing shares now or herein
after owned by either CPS or JB shall bear substantially the following
legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN THAT CERTAIN
SHAREHOLDERS AGREEMENT DATED AS OF MARCH 1, 1996, AS AMENDED
FROM TIME TO TIME, TO WHICH CPS CAPITAL LTD, AN OHIO LIMITED
LIABILITY COMPANY, AND JOANNE BIANCO ARE PARTIES. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER OF THIS
CERTIFICATE UPON WRITTEN REQUEST DELIVERED TO EITHER THE
CORPORATION.
For shares owned now, the legend shall be placed on such certificates
within 5 days of the execution of this Agreement. For shares owned
hereafter, the party shall deliver the certificate evidencing such
shares to Sentex within 5 days of purchasing such shares for the
purpose of having such legend placed on such certificate.
2. VOTING RIGHTS. JB agrees that, until the second
anniversary of the date hereof, so long as she owns any Shares, she will vote
such Shares in accordance with instructions received from CPS on each matter
submitted to the shareholders of Sentex, and will execute a form of proxy
(including an irrevocable proxy to CPS, or if directed by CPS, to Robert S.
Kendall or any of his Affiliates) for such Shares naming CPS, Robert S. Kendall
or his Affiliates as its proxy to vote such shares if CPS so requests in writing
from time to time on or after the date hereof. CPS shall indemnify JB from and
against any liability of JB which arises from the voting of such Shares in
accordance with this Section 2.
<PAGE> 3
3. NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, overnight
courier service, or certified mail, returned receipt requested, to the following
addresses of the parties or at such other address as any party shall designate
by such written notice:
(a) if to CPS:
Robert S. Kendall
CPS Capital, Ltd.
1801 East Ninth Street
Cleveland, Ohio 44114
With a copy to:
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-4585
Attention: William M. Toomajian, Esq.
(b) if to JB:
Joanne Bianco
1 Deer Hill
Alpine, NJ 07620
With a copy to:
Joseph Ehrenreich, Esq.
Ehrenreich & Krause
1140 Sixth Avenue
New York, NY 10036
All such notices and communications shall be deemed to have
been duly given when delivered by hand or overnight courier; or, if mailed, five
days after being deposited in the mail, postage prepaid.
4. BINDING EFFECT AND TERM.
This Agreement shall be binding upon CPS and its successors
and upon JB and her successors, heirs and personal representatives. This
Agreement may not be assigned by any party hereto without the prior written
consent of the other parties. JB agrees that she shall not transfer ownership of
any of the Shares (other than as permitted by this Agreement, including, without
limitation, Section 1 hereof) unless the transferee agrees in writing to be
bound by the terms and conditions of this Agreement.
This Agreement shall terminate on the earlier of (i) the
second anniversary date hereof, or (ii) Robert S. Kendall's ceasing to have
effective control of Sentex; provided, however, that Section 1 shall apply to
any sale of shares by the CPS Group that results in Robert S. Kendall ceasing to
have such control.
5. AMENDMENT. This Agreement may be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may be given, provided that the same are in writing and signed by the parties
hereto. The waiver by any party hereto of a breach of any of the provisions of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
<PAGE> 4
6. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
7. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
8. GOVERNING LAW. The validity and interpretation of this agreement shall
be governed by the laws of the State of New Jersey. The federal and state courts
in Bergen County, New Jersey, will have exclusive jurisdiction with respect to
any dispute relating to this Agreement.
9. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, between the parties hereto
with respect to the subject matter hereof.
10. UNENCUMBERED SHARES. JB represents and warrants with respect to the
Shares currently owned by her (as indicated in the Premises hereto) that she is
the owner of such Shares and, except as provided for herein, such Shares are
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal agreements limitations on voting rights, charges and
other encumbrances of any nature whatsoever. Except as provided herein, JB has
the sole voting power with respect to such Shares.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
CPS CAPITAL, LTD.
By: /s/ Robert S. Kendall
-----------------------------
Robert S. Kendall
Chairman and President
JOANNE BIANCO
/s/ Joanne Bianco
---------------------------------
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AND NONCOMPETE AGREEMENT
THIS AGREEMENT is made as of this 1st day of March, 1996, by and between
Sentex Sensing Technology, Inc., a New Jersey corporation (the "Employer") and
Amos Linenberg (the "Employee").
RECITALS
The parties hereto desire to enter into this Agreement in order to set
forth the terms pursuant to which the Employer will employ the Employee and the
Employee will serve as an employee of the Employer.
Accordingly, in consideration of the mutual agreements set forth herein,
the parties hereto agree as follows:
1. EMPLOYMENT. Subject to the provisions of this Agreement, the Employer
agrees to employ the Employee and the Employee agrees to be employed
as the Executive Vice-President of the Employer, beginning as of the
date above (the "Commencement Date") and continuing, unless terminated
earlier pursuant to the provisions of this Agreement, for a four (4)
year period (the "Employment Period"). The Employer also agrees that
it will take all necessary action to cause the Employee to serve
during the Employment Period as President and Technical Director of
Sentex Systems, Inc., a Delaware corporation and wholly owned
subsidiary of the Employer ("Sentex").
2. COMPENSATION.
(a) Subject to the provisions hereof, during the Employment Period,
the Employer shall pay the Employee a salary (subject to
adjustment as provided in Section 2(b) hereof) of $132,176 per
annum ("Compensation"), payable weekly.
(b) Effective as of each anniversary date of the Commencement Date,
Employee's Compensation then in effect shall be increased by such
percentage as corresponds to the percentage (if any) by which the
CPI for the month that immediately proceeded the month in which
such anniversary date occurred increased when compared with the
CPI for the corresponding month in the prior year (E.G., if the
Commencement Date occurs on October 15, 1995, then on October 15,
1996, the CPI for September 1996 will be compared with the CPI
for September 1995, and on October 15, 1997, the CPI for
September 1997 will be compared with the CPI for September 1996);
PROVIDED, HOWEVER, that no increase shall be required as of a
particular anniversary date if either (i) the increase as of such
anniversary date would be less than 4% or (ii) pursuant to
Section 3(a) hereof, Goals were mutually agreed to for the year
ending on such anniversary date and the Employee (as a result of
having achieved 90% or more such Goals) is paid Incentive
Compensation in respect of such year equal to at least 22.5% of
Compensation for such year. As used herein, "CPI" means the
Consumer Price Index for All Urban Consumers, for the New
York-Northeastern New Jersey region (1967=100) published by the
Bureau of Labor Statistics, of the United States Department of
Labor or, if such index is not then being published, the most
nearly comparable index that the parties may agree upon or, if
they fail to agree, an index designated by arbitration pursuant
to Section 14 hereof.
<PAGE> 2
3. BONUS.
(a) The Employer will pay the Employee a yearly incentive
compensation ("Incentive Compensation") in the form of cash (or,
to the extent mutually agreed to by the parties, stock options)
equal to twenty-five percent (25%) of Compensation based upon
achievement of agreed-upon goals (the "Goals"), provided that at
(or prior to) the end of the sixth month of the Employment
Period, the Employee may elect by written notice (which will be
effective 30 days after delivery) to forego the Incentive
Compensation in return for a permanent increase of $15,000 per
year in the Employee's Compensation (i.e. Compensation will
increase from $132,176 to $147,176 per annum). The Goals for each
year of the Employment Period shall be mutually agreed upon by
the parties prior to the commencement of such year (except with
respect to the first year the Goals shall be agreed upon within
20 days after the date hereof), it being agreed by each party
that it will in good faith attempt to mutually agree upon
appropriate Goals. In the event that the parties fail to mutually
agree upon the Goals for a particular year, then Employee shall
be paid $15,000 of Incentive Compensation for such year.
Incentive Compensation payable with respect to a year shall be
paid within 60 days following the end of such year.
(b) If Employee's employment hereunder terminates for any reason
(except for Cause, as hereinafter defined) other than at the end
of a year of the Employment Period, Employee's Incentive
Compensation for that year shall be prorated, based upon the
number of days in the year that elapsed prior to such
termination. For purposes of such proration it shall be assumed
that the Incentive Compensation for the entire year would have
been equal to $15,000.
The Employee shall also be eligible for additional future
increases in compensation based upon performance as determined in
the sole discretion of the Board of Directors of the Employer.
4. RESPONSIBILITIES. During the Employment Period, subject to the
provisions of this Agreement, the Employee shall perform such Employee
Functions (as defined on Schedule 1 hereto) as directed from time to
time by the Chief Executive Officer ("CEO") of the Employer. The
Employee agrees during the Employment Period to devote all his
business time, attention, efforts and skills to the business and
affairs of the Employer and Sentex and to faithfully and diligently
promote the interests of the Employer and Sentex. Notwithstanding the
foregoing, the Employee may make personal investments and engage in
personal ventures that require minimal portions of his time, provided
that such activities do not interfere with and are not inconsistent
with his duties and covenants hereunder.
During his employment hereunder, Employee's principal place of
employment shall be located in its present location (or within 50
miles thereof); PROVIDED, HOWEVER, that Employee may be required to
travel for business purposes for reasonable lengths of time.
The Employee will report directly to the CEO of the Employer.
5. BENEFITS.
(a) The Employer shall provide the Employee with a furnished office,
secretarial assistance and such other facilities, services and
indicia of his position as shall be commensurate with those
furnished to him on the date hereof.
(b) In addition to the rights specifically granted to the Employee
herein, during the Employment Period, the Employee shall be
entitled to health insurance for himself and
<PAGE> 3
his family, and life and disability insurance for himself, in
each case comparable to the insurance presently carried for him
or him and his family.
If the Employee elects to terminate such insurance, or pay for it
himself, the Employer will add the amount of the annual premium
of such insurance to the Employee's Compensation hereunder.
(c) The Employer shall reimburse the Employee for all reasonable and
necessary expenses incurred by the Employee in connection with
the business of the Employer, upon presentation by the Employee,
from time to time, of itemized accounts of such expenses, in
accordance with and subject to the practices and policies of the
Employer, as in effect from time to time.
(d) The Employee shall be entitled to at least four (4) weeks of paid
vacation during each year, to be taken at his discretion, but at
a time or times consistent with the Employer's best interests. If
the Employee elects not to take his full vacation in any year,
such unused vacation may be used in future periods during the
Employment Period at Employee's discretion but at a time or times
consistent with the Employee's best interests.
(e) During the Employment Period, the Employer shall provide a
late-model (not more than three years old) American-made luxury
automobile (Lincoln Continental or similar) to be used by the
Employee. Employer shall pay or reimburse Employee for all
reasonable expenses incurred in connection with such car for
repairs, maintenance and insurance.
6. RESTRICTIVE COVENANTS. I. DEFINITION. As used in this Agreement the
term "Affiliate" shall mean any corporation, partnership, limited
liability company or other entity that owns or controls the Employer,
or is owned or controlled by or is under common ownership or control
with the Employer or its principals. Without limiting the definition
of the term, Affiliate shall expressly include Sentex and Sentex
Acquisition Corp., a Delaware corporation.
II. CONFIDENTIALITY AND NON-DISCLOSURE.
(a) The Employee agrees not to disclose or use, either during the
Employee's employment or at any time thereafter, any unpublished
information, whether of a technical or non-technical nature,
relative to the business of the Employer or any of its Affiliates
unless authorized to do so by the Employer or its Affiliates in
writing, except that the Employee may disclose and use such
information when necessary in the performance of his duties for
the Employer or its Affiliates; PROVIDED, HOWEVER, that the
foregoing restrictions shall not apply to any information that
becomes available to the Employee, after termination of the
Employee's employment, on a nonconfidential basis from a source,
other than the Employer, its Affiliates or any of their
respective representatives, which source was not itself bound by
a confidentiality agreement with the Employer, its Affiliates or
any of their respective representatives.
(b) On termination of the Employee's employment with the Employer for
any reason and at any time, the Employee will promptly deliver to
the Employer all of the following items that are in his
possession or under his control and relate in any manner to the
business of the Employer or its Affiliates: apparatus, drawings,
blueprints, manuals, letters, notes, notebooks, reports, customer
and supplier lists, cost and profit data and any other material,
all files or any copies of such materials, whether of a
technical, business or fiscal nature. This obligation shall
continue beyond the term of Employee's employment.
<PAGE> 4
III. OWNERSHIP OF COPYRIGHT AND OTHER INTANGIBLES.
(a) Subject to Section III(h) hereof, the Employee will promptly
disclose to the Employer and the Employee acknowledges that the
Employer owns any invention, discovery or improvement relating to
its business or to the duties of the Employee's employment,
conceived or made by him alone or with others at any time during
any time the Employee is employed by the Employer or its
Affiliates, whether or not during working hours, and the Employee
agrees, at Employer's cost, to execute any and all applications,
assignments or other instruments relating thereto which the
Employer shall deem necessary. These obligations shall continue
beyond the termination of the Employee's employment with respect
to inventions, discoveries and improvements conceived or made
during the Employee's employment with the Employer and shall be
binding upon the Employee's assigns, executors, administrators
and other legal representatives.
(b) The Employee also understands and agrees that any invention,
discovery, or improvement relating to the business of the
Employer or to the duties of the Employee's employment with the
Employer or any of its Affiliates disclosed to third parties
within one (1) year after leaving the employ of the Employer
shall be presumed to have been conceived or made during the term
of employment with the Employer and shall belong to the Employer,
and, if such is not the case, the Employee shall have the burden
of proving to the contrary; and any such invention, discovery or
improvement so disclosed after such year shall be presumed not to
have been conceived or made during such term of employment and,
if such is not the case, the Employer shall have the burden of
proving to the contrary.
(c) The Employee further agrees that the Employer or its assignee is
the owner of the copyright in any work that the Employee produces
during his employment with the Employer that was produced as one
of the duties of his employment or otherwise for or on behalf of
the Employer during the period of his employment.
(d) Inventions conceived or made and patents obtained or applied for
prior to the Employee's employment will be excluded from this
Agreement only if they are disclosed to the Employer, described
in writing and made a part of this Agreement.
(e) At the Employer's request and expense, the Employee agrees to
assist in protecting the Employer's or its Affiliates' rights in
any such invention, improvement, or copyright including execution
of assignments, patent applications, and other documents
reasonably required for its protection.
(f) If the Employer does not wish to retain ownership of any such
invention, improvement, or copyright that it owns pursuant to the
preceding provisions of this Section 6(III), and the Employee
wishes to use or develop same for his own benefit, the Employee
will first obtain the Employer's written permission before the
Employee does so.
(g) It is acknowledged that the foregoing provisions of this Section
6(III) are not intended to restrict the Employee, following the
termination of his employment hereunder, from using general
ideas, concepts, know how, methods, techniques, skills, knowledge
and experience possessed by Employee (whether acquired by
Employee during the performance of his duties hereunder or
otherwise) as long as such use would not violate Section 6(II) or
Section 6(IV) hereof.
(h) If Employee discloses any invention, discovery or improvement
(collectively, a "New Product") to the Employer pursuant to
Section 6(III)(a) hereof, the Employer shall notify
<PAGE> 5
the Employee (within 180 days of such disclosure) whether the
Employer desires to commercialize such New Product. If the
Employer does not wish to commercialize such New Product, then
the Employee shall own such New Product, provided that the
following conditions are satisfied: (i) sale of the Product by or
to a third party or by or on behalf of Employee would not be
competitive with any business of the Employer or its Affiliates,
would not conflict with the interests of the Employer or its
Affiliates and would not result in the disclosure of confidential
information relating to any other products of the Employer or its
Affiliates and (ii) Employee does not devote any time or efforts
to the New Product in violation of Section 4 hereof.
IV. NONCOMPETE.
(a) During the term of Employee's employment hereunder and (subject
to Section 7(II) hereof) for one (1) year thereafter, the
Employee shall not engage in any business on behalf of any other
company or the Employee and shall not directly or indirectly own
or own an interest in (except for the ownership of less than five
percent (5%) of the issued and outstanding stock of a publicly
traded corporation), manage, operate, join, control, be employed
by or participate either directly or indirectly in the ownership,
management, operation or control of, or be connected in any
manner with, any business which is competitive with the business
that is being conducted by the Employer, Sentex or any other
Affiliate of the Employer for which the Employee performed
employment duties hereunder.
(b) For purposes of this Section 6(IV)(b), the term "Affiliate" shall
be limited to Sentex and any other Affiliate of Employer for
which the Employee performed employment duties hereunder. During
the term of Employee's employment hereunder and (subject to
Section 7(II) hereof) for one (1) year thereafter, the Employee
shall not solicit any business (excluding any business that is
not competitive with any business of the Employer or any of its
Affiliates) from any person, firm or entity that was or is a
customer of the Employer or its Affiliates, induce or attempt to
induce any such customer of the Employer to reduce its business
with the Employer or its Affiliates or solicit or attempt to
solicit any employees of the Employer or its Affiliates to leave
the employ of the Employer or its Affiliates. During the term of
Employee's employment hereunder and (subject to Section 7(II)
hereof) for one (1) year thereafter, the Employee shall also not
solicit business (excluding any business that is not competitive
with any business of the Employer or any of its Affiliates) from
any prospective customer of the Employer or its Affiliates. For
purposes of this paragraph (b), "prospective customer" shall mean
a potential customer which the Employer has solicited or with
which Employer or its Affiliates has had active discussions
concerning potential business at any time during the two (2)
years preceding the end of the Term of Employment.
7. TERMINATION. I. The Employer may at any time during the Employment
Period terminate the employment of the Employee for Cause, as defined
herein, by providing the Employee thirty (30) days' prior written
notice.
For purposes of this Agreement, "Cause" to terminate the Employee's
employment will be deemed to exist only if:
(i) The Employee materially breaches his material obligations
hereunder and such breach is not cured within 30 days after Employee
receives a notice from the Board of Directors of the Employer that
specifically identifies, in reasonable detail, the manner in which the
Board of Directors believes that Employee is in breach of his
obligations hereunder; or
<PAGE> 6
(ii) The Employee willfully and intentionally engages in gross
misconduct that materially and demonstrably injures the Employer.
If there is a dispute between the parties as to whether a termination
was for "Cause," such dispute shall be resolved in accordance with the
arbitration provisions of Section 14 hereof.
II. Upon notice to the Employer, the Employee shall have the right to
terminate his employment hereunder for Good Reason, as hereinafter
defined. For purposes of this Agreement, the Employee will be deemed
to have "Good Reason" to terminate his employment hereunder only if:
(i) The Employer materially breaches its material obligations
hereunder the and such breach is not cured within 30 days after the
Employer receives a notice from the Employee which specifically
identifies, in reasonable detail, the manner in which the Employee
believes that the Employer is in breach of its obligations hereunder;
(ii) The Employer shall substantially diminish the Employee's
authority and responsibility contemplated by Section 4 hereof and
Schedule I hereto; or
(iii) The location or locations at which any of the functions
that the Employee is responsible for performing or supervising (as
described in Schedule I hereto) is relocated more than 50 miles away
from its current location; provided, however, that Employee may be
required to travel for business purposes for reasonable lengths of
time.
If the Employee terminates his employment hereunder for Good Reason
pursuant to this Section 7(II) or the Employer terminates Employee's
employment in violation of this Agreement:
(i) The Employer shall be obligated to pay to the Employee at the
end of each month the Compensation and Incentive Compensation that
would have been payable to Employee had he continued to be employed
hereunder for the balance of the Employment Period (assuming for
purposes of this calculation that the Incentive Compensation on a
yearly basis would have been equal to $15,000); provided, however,
that the Employer will be entitled to reduce, in inverse order of the
due dates of payment hereunder, Compensation and Incentive
Compensation by all amounts, if any, received by the Employee as a
result of his being employed during the balance of the Employment
Period, but the Employee will not be required to obtain or make any
effort to obtain any such employment;
(ii) The Employer shall continue to provide to the Employee for
the balance of the Employment Period (assuming that the Employee's
employment had not been terminated) the benefits provided for in
Section 5(b) hereof; and
(iii) The Employee shall be released from his obligations under
Section 6(IV) hereof.
As used in the preceding three clauses, the "Employment Period" means
the four year period commencing on the Commencement Date.
If there is a dispute between the parties as to whether a termination
was for "Good Reason," such dispute shall be resolved in accordance
with the arbitration provisions of Section 14 hereof.
III. In the event that Robert S. Kendall ceases to have effective
control of the Employer, the Employee will have the right to terminate
his employment hereunder by delivering written notice of termination
to the Employer within 90 days of such event. If the Employee
terminates this Agreement as aforesaid, the Employer shall pay to the
Employee (within five days of such termination) a severance payment of
$150,000.
<PAGE> 7
IV. (a) In the event that the Employee becomes physically or mentally
disabled such that he is unable to perform substantially eighty
percent (80%) of his services hereunder for a period of one hundred
eighty (180) consecutive days in any twelve (12) month period (the
"Disability Period") (certified to by a mutually acceptable medical
doctor), then the Employer may at any time after the last day of the
Disability Period, by notice to the Employee, terminate the Employee's
employment hereunder; provided, however, that the Employer may not
terminate Employee's employment as aforesaid, unless at the time the
Employer delivers the notice of termination Employee continues to have
a physical or mental disability that may be expected to prevent
Employee for any period of time thereafter from performing any of his
duties hereunder (as determined by such mutually acceptable medical
doctor).
(b) The failure of the Employee to perform any of his duties
hereunder as a result of any illness or any physical or mental
disability shall not be considered a breach of this Agreement by the
Employee and he shall continue to have the right to receive the
Compensation (as defined hereinabove) and the benefits described in
Section 5 hereof so long as he continues to be employed hereunder (but
the Employer may terminate Employee's employment to the extent
provided in the preceding paragraph).
V. Employee's employment hereunder shall automatically terminate upon
his death.
VI. Upon expiration or termination of Employee's employment hereunder,
this Agreement, and all rights and obligations of the parties
hereunder, shall terminate, subject only to the following
qualifications and limitations:
(1) such termination shall not release any party hereto from
liability for any breach by it of its obligations under this
Agreement prior to or by reason of or in connection with such
termination (except that termination for Good Reason by Employee
or termination in violation of this Agreement by Employer shall
release Employer and its Affiliates from liability for any such
breach but shall not release Employer from its obligations under
paragraphs (2), (3) and (4) of this Section 7(VI));
(2) the Employer shall continue to be obligated to pay to Employee
(a) any unpaid Compensation that accrued prior to such
termination, (b) any unpaid Incentive Compensation that relates
to any fiscal year that commenced prior to such termination
(subject to the proration requirements set forth in Section 3(b)
hereof) and (iii) any payment that Employer is required to pay as
a result of such termination pursuant to this Section 7
(including, without limitation, Sections 7(II) and 7(III));
(3) the Employer shall continue to have the obligations set forth in
Section 5 (b), (c) and (e) hereof with respect to expenses
incurred by the Employee prior to such termination and with
respect to all benefits provided for in such Section accrued
through the date of termination; and
(4) The Employer shall pay Employee for any unused vacation accrued
for the year in which this Agreement was terminated.
VI. The Employee shall be entitled to reimbursement by the Employer of
any fees or expenses (including reasonable attorneys' fees and
expenses) incurred by Employee in connection with contesting or
disputing any termination of this Agreement by the Company in
violation hereof or in seeking to obtain or enforce any of his rights
or benefits hereunder and as to which a judgment or award has been
rendered in favor of Employee.
<PAGE> 8
VII. Anything in this Agreement contained to the contrary
notwithstanding, all rights that the Employee may have upon the
termination of this employment hereunder pursuant to the provisions of
any employee benefit plans which may be provided by the Employer shall
be determined in accordance with the provisions of said plans.
8. ENFORCEABILITY; INJUNCTION.
(a) With respect to any provision of this Agreement finally
determined by a court of competent jurisdiction to be
unenforceable, the Employee and the Employer hereby agree that
such court shall have jurisdiction to reform this Agreement so
that it is enforceable to the maximum extent permitted by law,
and the parties agree to abide by such court's determination. If
such unenforceable provision cannot be reformed, such provision
shall be deemed to be severed from this Agreement, but every
other provision of this Agreement shall remain in full force and
effect.
(b) The Employee acknowledges and agrees that the Employer's remedy
at law for any breach of any of his obligations under this
Agreement, including, without limitation, those obligations set
forth in Section 6 hereof, would be inadequate, and agrees and
consents that temporary and permanent injunctive relief may be
granted in any proceeding which may be brought to enforce any
provision of this Agreement, without the necessity of proof of
actual damages.
9. NO ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto, their respective successors and
permitted assigns. Neither the Employer nor the Employee may assign
any interest in this Agreement without obtaining the prior written
consent of the other party; provided, however, that the Employer may
assign such rights or privileges without such prior written consent,
to any corporation or partnership into or with which it may be merged
or consolidated or to any corporation to whom such party may sell
substantially all of its assets, provided that (i) Robert S. Kendall
remains in control of the surviving entity after the consummation of
the particular transaction and (ii) the surviving entity assumes (by
instrument reasonably satisfactory to the Employee) all Employer's
obligations hereunder. Nothing in this Agreement, express or implied,
is intended to confer upon any other person any rights or remedies
under or by reason of this Agreement.
10. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement constitutes the entire
agreement, and supersedes all prior agreements and understandings,
both written and oral, between the parties with respect to the subject
matter hereof. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
11. GOVERNING LAW; VENUE. This Agreement shall be interpreted under the
laws of the State of New Jersey without regard to principles of
conflict of laws. Subject to Section 14 hereof, each party hereto
agrees that all actions or proceedings relating to this Agreement
shall be tried and litigated only in the New Jersey State or Federal
courts located in the County of Bergen, State of New Jersey. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction
of such courts for the purpose of any such action or proceeding.
12. WAIVER OF BREACH. The waiver of any breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any other
term or condition of this Agreement.
13. NOTICES. All notices pursuant to this Agreement shall be given in
writing and delivered personally or sent by certified mail, postage
prepaid (and deemed delivered five days after being so mailed), to the
following:
<PAGE> 9
If to Employer: Sentex Sensing Technology, Inc.
553 Broad Avenue
Ridgefield, N.J. 07657
with a copy to: Robert S. Kendall
CPS Capital Ltd.
1801 East Ninth Street
Cleveland, Ohio 44114
If to Employee: Amos Linenberg
Sentex Sensing Technology, Inc.
553 Broad Avenue
Ridgefield, N.J. 07657
with a copy to Joseph Ehrenreich, Esq.
Ehrenreich & Krause
1140 Sixth Avenue
New York, NY 10036
Or to such other address as the parties shall provide by notice as
herein provided.
14. RESOLUTION OF DISPUTES: ARBITRATION.
(a) Each party to this Agreement agrees to use best efforts to
resolve in an amicable fashion any disputes concerning the
subject matter of this Agreement or any question arising
hereunder and shall deal in good faith in seeking the resolution
thereof.
(b) Subject to the preceding clause (a), any dispute, controversy or
claim arising out of or in connection with or relating to this
Agreement or any breach or alleged breach hereof shall be
submitted to and determined and settled by arbitration in Bergen
County, NJ, or in such other location as the parties may agree,
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA"). The Board of
Arbitration shall be composed of one arbitrator, to be mutually
agreed upon by the parties in good faith, or, if the parties
cannot agree, the arbitrator shall be selected by the AAA in
accordance with its standard procedures in such cases. The
arbitration award shall be final and binding on the parties to
the arbitration and judgment thereon may be entered in any court
having jurisdiction, or application may be made to any such court
for confirmation of such award or a judicial acceptance of such
award or other legal remedy, as the case may be. If, under
applicable federal or state law, a claim or dispute shall not be
subject to arbitration, then either party may reject arbitration
so that all claims and disputes shall be subject to resolution in
a single proceeding and a single forum. The Employer shall pay
all fees and expenses of the AAA and the arbitrator with respect
to any arbitration hereunder.
15. LATE PAYMENTS. Any sums due to Employee under this Agreement
which are not paid when due or within three business days thereof
shall, without limiting any other right or remedy of Employee,
bear interest from the date thereof to the date of payment at the
Prime Rate plus 2%. "Prime Rate" shall mean the rate per annum
publicly announced from time to time by The Chase Manhattan Bank,
NA, New York, New York (or any successor bank), as its prime
rate. For purposes of this Agreement any change in the Prime Rate
shall be effective as of the opening of business on the date such
change is announced.
<PAGE> 10
16. GENDER AND NUMBER. Whenever required by the context hereof, each
term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in either the
masculine, the feminine or the neuter gender shall include the
masculine, feminine and neuter genders.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day first above written.
EMPLOYER: Sentex Sensing Technology, Inc.
By: /s/ Robert S. Kendall
-----------------------------------
Robert S. Kendall, President
/s/ Amos Linenberg
-------------------------------------
EMPLOYEE: Amos Linenberg
<PAGE> 11
Schedule I
Set forth below are the functions that the Employee may be
requested to perform (the "Employee Functions"). With respect to certain of the
functions listed below it is indicated that the Employee will "supervise" such
function (such functions being referred to as the "Supervisory Functions"). The
meaning of this is that there will be one or more other employees (a "Primary
Person") who will have the primary responsibility for such function and that the
Employee's role with respect to such function will be limited to high level
supervision. It is understood and agreed that:
(i) in the event that the Employer fails to make
available the Primary Person with respect to a Supervisory Function,
then (as long as such situation continues) the Employee will not be
required to perform such Supervisory Function and such failure to
perform such Supervisory Function shall not in itself constitute a
breach of this Agreement by Employee or constitute "Cause" for
terminating Employee's employment; and
(ii) the failure by the Employer to make available any
Primary Person shall not in itself constitute a breach of this
agreement by Employer or constitute "Good Reason" for the Employee to
terminate his employment.
With respect to the Employee Functions listed below, other
than Supervisory Functions, the Employee will have the primary responsibility.
However, it is acknowledged that the Employee will require appropriate resources
(including personnel assigned to work for him) in order for him to successfully
perform such functions. It is understood and agreed that the failure by the
Employer to make available such appropriate resources shall not in itself
constitute a breach of this Agreement by Employer or constitute "Good Reason"
for the Employee to terminate his employment. However, it is further understood
and agreed that the failure of the Employer to make available such appropriate
resources may adversely affect the Employee's ability to perform the Employee
Functions and that any failure of the Employee to perform the Employee Functions
as a result thereof shall not constitute "Cause" for terminating Employee's
employment.
It is understood and agreed that the Employee will not have
any responsibilities relating to any functions that are not identified below
(except to the extent mutually agreed to in writing). Without limiting the
foregoing, the Employee will not have any responsibilities relating to the
following functions: (i) finance, (ii) accounting, (iii) shareholder relations,
(iv) compliance with securities laws by Employer, (v) marketing (except to the
extent specifically provided in paragraph 10 below), and (vi) acquisitions.
EMPLOYEE FUNCTIONS
1. Developing and engineering improvements and updates for existing products.
2. Developing additional applications for existing products.
3. Developing and engineering new products.
4. Performing engineering functions relating to production procedures.
5. Supervising the production function (i.e., product assembly, purchase of
components, and inventory maintenance).
6. Supervising quality control procedures and related documentation and record
keeping.
7. Supervising the preparation and updating of documentation and parts lists
relating to products.
8. Providing customer service relating to technical application of products.
<PAGE> 12
9. Supervising other customer service and support (e.g., maintenance, repairs,
warranty service, and training).
10. Provide technical support (and other support as mutually agreed) for the
marketing function such as by (i) attending trade shows to explain
technical aspects of products, (ii) making high level technical
presentations and (iii) assisting in the preparation of promotional
literature by providing input with respect to technical matters.
11. Act as "Radiation Safety Officer" in charge of seeking to comply with USNRC
regulations.
12. Manage laboratory activities.
13. Publish technical articles relating to products.
14. Supervise general administrative functions relating to the business of
Sentex (e.g., payroll, benefits and employee relations).
15. Submit plans and budgets for new product development.
16. Submit quarterly reports with respect to status of R&D projects,
production, service and quality control.
<PAGE> 1
EXHIBIT 10.2
CONSULTING AND NONCOMPETE AGREEMENT dated as of March 1, 1996, between
JOANNE BIANCO ("JB"), and SENTEX SENSING TECHNOLOGY, INC., a New Jersey
corporation (the "Company").
Preamble
--------
The parties hereto desire to enter into this Agreement in order to set
forth the terms pursuant to which the Company will retain JB as an independent
consultant, and JB will provide consulting services to the Company.
Accordingly, in consideration of the mutual agreements set forth herein,
the parties hereto agree as follows:
ARTICLE I
Consulting Arrangement and Duties
---------------------------------
SECTION 1.1. CONSULTING, ARRANGEMENT. Subject to the terms and conditions
of this Agreement, the Company agrees to retain JB as an independent consultant,
and JB agrees to act as an independent consultant to the Company, during the
Term (as defined in Section 3.1 hereof).
SECTION 1.2. DUTIES. (a) During the Term, JB shall render such consulting
services (the "Services") to the Company as may from time to time be requested
by the Chief Executive Officer of the Company, subject to the following
qualifications and limitations:
(i) unless otherwise mutually agreed, the Services that JB may be
requested to perform hereunder shall be limited to the rendering of
business and legal advice related to those functions that JB has heretofore
been performing as an employee of the Company;
(ii) unless otherwise mutually agreed, (a) in any four-week period, JB
shall not be required to devote more than an average of 25 hours per week
to the performance of the Services and (b) in any week, JB shall not be
required to devote more than an aggregate of 35 hours to the performance of
the Services;
(iii) JB will have the freedom to establish her own work schedule for
performing the Services (subject, however, to the requirement that she
generally be reasonably available, upon reasonable advance notice, for
meetings and consultations during normal business hours); and
(iv) unless otherwise mutually agreed, except on a very exceptional
and limited basis, JB shall not be required to render any Services that
would require her to work outside the hours of 9:00 a.m. through 5:00 p.m.
(such hours being referred to as "normal business hours") or that cannot be
rendered from her Home Office (as defined in Section 1.3 hereof).
If the number of hours of Services that the Company requests JB to perform in
any week is less than 25, JB shall nevertheless be deemed to have performed 25
hours of Services during such week for purposes of the limitation set forth in
clause (ii) above (i.e., such deemed hours of Services will be included for
purposes of calculating the average hours devoted to Services per week).
<PAGE> 2
(b) Subject to the last sentence of this paragraph, JB may designate up to
10 business days a year as "vacation days" (the selection of such days to be at
her choosing). Although JB does not render any Services on a day designated as a
vacation day, she shall be deemed to have rendered 7.5 hours of Services on such
day for purposes of each of the limitations set forth in clause (ii) of Section
1.2(a) hereof The parties acknowledges that it is contemplated that JB will take
vacation in addition to the vacation specified above, upon mutual agreement of
the parties from time to time.
SECTION 1.3. PLACE WHERE CONSULTANT WILL PERFORM DUTIES. JB may, at her
option, render the Services from (i) her home or such other location off the
Company's premises as she may select (a "Home Office") and/or (ii) from the
Company's premises. In the event that JB elects to perform a material amount of
the Services from the Company's premises, the Company shall provide JB with a
furnished office, secretarial assistance and such other facilities and services
as she shall reasonably require to perform the Services.
ARTICLE II
Compensation for Consulting Services
------------------------------------
SECTION 2.1. COMPENSATION. (a) Subject to Section 2.1(c) hereof, as
compensation for JB for committing to render the Services, the Company shall pay
to JB compensation (the "Minimum Compensation") at the rate of $75,000 per annum
(such compensation to be paid quarterly in advance as provided in Section 2.1(b)
hereof). It is understood and agreed that JB shall be entitled to the full
amount of the Minimum Compensation whether or not the Company elects to request
her to perform any Services (or if the hours of Services that the Company
requests are less than the maximum number of hours that may be requested).
(b) On each Payment Date, the Company shall pay to JB $18,750,
representing advance payment of the Minimum Compensation payable in respect of
the following quarter. For purposes of this Agreement, "Payment Date" shall mean
each of (i) the date hereof, (ii) the 91st, 182nd and 273rd day following the
date hereof, (iii) the first anniversary of the date hereof and (iv) the 91st,
182nd and 273rd day following the first anniversary of the date hereof.
(c) If in any six-month period the average hours per week that JB (at the
Company's request) devotes to the performance of Services is in excess of 25
hours, it is contemplated that JB will be paid additional compensation in
respect of such excess hours. The amount of such additional compensation shall
be negotiated in good faith by JB and the Company.
(d) On each Payment date, the Company shall pay to JB $1,000 (in addition
to the amounts provided for above), representing reimbursement for premiums
payable by JB for health insurance for herself.
(e) The Company currently has a three-year paid up lease for a Cadillac
Seville car. During the Term, The Company at its cost shall maintain in effect
such lease and all insurance coverage currently in effect with respect to such
car and provide JB with the exclusive full-time use of such car. The Company
shall pay or reimburse JB for all reasonable expenses incurred in connection
with such car for repairs and maintenance.
SECTION 2.2. REIMBURSEMENT OF EXPENSES. (a) The Company shall pay or
reimburse JB for all reasonable expenses incurred by her in connection with the
performance of her duties hereunder, in accordance with, and subject to, the
Company's regular policies from time to time in effect regarding reimbursement
of expenses and the documentation required in connection therewith.
(b) The Company shall pay, or reimburse JB for all reasonable expenses
associated with operating her Home Office (excluding rent and compensation of
any employees retained by her), including, without limitation, (i) telephone and
fax charges related to performance of the Services (including maintaining a
separate fax and telephone line to be used for performance of the Services) and
(ii) the cost of acquiring any supplies and equipment
<PAGE> 3
(e.g., computer and related software, fax machine, telephone) that are
reasonably required for the performance of the Services from the Home Office and
the cost of maintaining such equipment (except to the extent such items are
provided and/or maintained by the Company). It is agreed that JB may remove to
her Home Office the computer, related peripherals and software, and office
equipment that she has heretofore used as an employee of the Company.
(c) The Company shall reimburse JB for all reasonable child care expenses
(i.e., the cost of paying someone to care for her daughter) that relate to any
time period during which JB, at the request of the Company, is traveling in the
course of performing Services. (For example, if JB leaves on a business trip at
9:00 a.m. in the morning and returns home at 9:00 a.m. the following morning,
the Company would reimburse her for any child care expenses relating to such
24-hour period.) In addition (and without limiting the foregoing), if in any
month JB, at the request of the Company, performs Services that cannot be
performed from the Home Office, then the Company shall reimburse JB for all
reasonable child care expenses that relate to the time that she is away from the
Home Office performing such Services; PROVIDED, HOWEVER, that the foregoing
shall not apply to the first 10 hours each month that she is away from the Home
Office performing such Services.
ARTICLE III
Term and Early Termination
--------------------------
SECTION 3.1. TERM. The term during which JB shall provide consulting
services hereunder (the "Term") shall commence on the date hereof and end on the
second anniversary of such date (subject to earlier termination as provided in
Sections 3.2, 3.3 and 3.4 hereof).
SECTION 3.2. TERMINATION BY COMPANY FOR CAUSE OR BY JB FOR GOOD REASON. (a)
The Company may at any time terminate JB's consulting arrangement hereunder for
Cause by delivering notice of termination to JB (such termination to be
effective 30 days after delivery of such notice). For purposes of this
Agreement, "Cause" to terminate JB's consulting arrangement hereunder will be
deemed to exist only if:
(i) JB materially breaches her material obligations hereunder and such
breach is not cured within 30 days after JB receives a notice from the
Board of Directors of the Company that specifically identifies, in
reasonable detail, the manner in which the Board of Directors believes that
JB is in breach of her obligations hereunder, or
(ii) JB willfully and intentionally engages in a pattern of gross
misconduct that materially and demonstrably injures the Company; provided,
however that such conduct shall be deemed "Cause" only if JB, in engaging
in such conduct, did not act in good faith and did not believe such conduct
to be in or not opposed to the best interests of the Company.
(b) Upon notice to the Company, JB shall have the right to terminate her
consulting arrangement hereunder for Good Reason. For purposes of this
Agreement, JB will be deemed to have "Good Reason" to terminate such arrangement
only if the Company materially breaches its material obligations hereunder and
such breach is not cured within 30 days after the Company receives a notice from
JB which specifically identifies, in reasonable detail, the manner in which JB
believes that the Company is in breach of its obligations hereunder.
(c) If JB terminates her consulting arrangement hereunder for Good Reason
pursuant to Section 3.2(b) hereof or the Company terminates such arrangement in
violation of this Agreement:
(i) the Company shall continue to be obligated to pay to JB on each
Payment Date the payments provided for in Section 2.1 hereof as if the
consulting arrangement hereunder had not been terminated; PROVIDED,
HOWEVER, that the Company will be entitled to reduce such payments, in
inverse order of the due dates thereof by all amounts, if any, received by
JB after termination of the consulting arrangement hereunder from providing
consulting services to others or obtaining employment after such
termination (but
<PAGE> 4
JB will not be required to provide, or make any effort to provide, any
consulting services to others or to obtain, or make any effort to obtain,
any employment after such terminations); and
(ii) until the second anniversary of the date hereof, the Company
shall continue to provide to JB the benefits provided for in Section 2.1(e)
hereof.
(d) If there is a dispute between the parties as to whether a termination
was for "Cause" or "Good Reason," such dispute shall be resolved in accordance
with the arbitration provisions of Section 5.7 hereof.
SECTION 3.3. TERMINATION UPON DISABILITY OR DEATH. (a) In the event that
the JB becomes physically or mentally disabled such that she is unable to
perform substantially 80% of her Services hereunder for a period of 180
consecutive days in any 12 month period (the "Disability Period") (certified to
by a mutually acceptable medical doctor), then the Company may at any time after
the last day of the Disability Period, by notice to JB, terminate the consulting
arrangement hereunder; PROVIDED, HOWEVER that the Company may not terminate such
arrangement as aforesaid, unless at the time the Company delivers the notice of
termination JB continues to have a physical or mental disability that may be
expected to prevent JB for any period of time thereafter from performing any of
her duties hereunder (as determined by such mutually acceptable medical doctor).
The failure of JB to perform any of her duties hereunder as a result of any
illness or any physical or mental disability shall not be considered a breach of
this Agreement by JB (but the Company may terminate the consulting arrangement
hereunder to the extent provided in the preceding sentence). The consulting
arrangement hereunder shall automatically terminate upon the death of JB.
(b) If the consulting arrangement hereunder terminates pursuant to Section
3.3(a) hereof due to the Disability of JB:
(i) the Company shall continue to be obligated to pay to JB (or her
estate or legal representative) on each Payment Date the payments provided
for in Section 2.1 hereof as if the consulting arrangement hereunder had
not been terminated; PROVIDED, HOWEVER, that if JB dies prior to the final
Payment Date, then thereafter the amount that the Company shall be required
to pay on each Payment Date after her death shall be reduced to 50% of the
payments provided for in Section 2.1 hereof as if the consulting
arrangement hereunder had not been terminated; and
(ii) until the second anniversary of the date hereof the Company shall
continue to provide to JB the benefits provided for in Section 2.1 (e)
hereof.
(c) If the consulting arrangement hereunder terminates pursuant to Section
3.3(a) hereof due to the death of JB, the Company shall continue to be obligated
to pay to JB (or her estate or legal representative) on each Payment Date 50% of
the payments provided for in Section 2.1 hereof as if the consulting arrangement
hereunder had not been terminated.
SECTION 3.4. CHANGE OF CONTROL. In the event that Robert S. Kendall ceases
to have effective control of the Company, JB will have the right to terminate
the consulting arrangement hereunder by delivering written notice of termination
to the Company within 90 days of such event. If JB terminates such arrangement
as aforesaid, the Company shall continue to be obligated to pay to JB (or her
estate or legal representative) on each Payment Date 50% of the payments
provided for in Section 2.1 hereof as if the consulting arrangement hereunder
had not been terminated.
SECTION 3.5. EFFECT OF TERMINATION. (a) Upon termination of the consulting
arrangement hereunder, this Agreement, and all rights and obligations of the
parties hereunder, shall terminate, subject only to the following qualifications
and limitations:
(i) such termination shall not release any party hereto from liability
for any breach by it of its obligations under this Agreement prior to or by
reason of or in connection with such termination (except
<PAGE> 5
that termination for Good Reason by JB or termination in violation of this
Agreement by the Company shall release the Company and its Affiliates from
liability for any such breach but shall not release the Company from its
obligations under Section 3.2(c) hereof);
(ii) the Company shall continue to be obligated to pay to JB (a) any
unpaid payments provided for by Section 2.1 hereof that accrued prior to
such termination, and (b) any payments that the Company is required to pay
pursuant to Section 3.2(c), 3.3(b), 3.3(c) or 3.4 hereof;
(iii) the Company shall continue to have the obligations set forth in
Section 2.2 hereof with respect to expenses incurred by JB prior to such
termination;
(iv) JB shall be entitled to reimbursement by the Company of any fees
or expenses (including reasonable attorneys' fees and expenses) incurred by
JB in connection with contesting or disputing any termination of the
consulting arrangement hereunder by the Company in violation hereof or in
seeking to obtain or enforce any of her rights or benefits hereunder and as
to which a judgment or award has been rendered in favor of JB; and
(v) the following provisions of this Agreement shall survive
termination of the consulting arrangement hereunder: Sections 3.2(c),
3.3(b), 3.3(c), 3.4 and 3.6, Article IV and Article V.
(b) Subject to the proviso to clause (i) of Section 3.2(c) hereof, It is
understood and agreed that any income received by JB after termination of the
consulting arrangement hereunder (including, without limitation, from providing
consulting services to others or obtaining employment after such termination)
shall not reduce the Company's obligation to make the payments provided for in
Sections 3.2, 3.3 or 3.4 hereof.
(c) Anything in this Agreement contained to the contrary notwithstanding,
all rights that JB may have upon the termination of the consulting arrangement
hereunder pursuant to the provisions of any employee benefit plans which may be
provided by the Company shall be determined in accordance with the provisions of
said plans.
ARTICLE IV
Additional Agreements
---------------------
SECTION 4.1. NONCOMPETE. (a) The following terms have the following
meanings:
"Affiliate" shall mean any corporation, partnership, limited liability
company or other entity that owns or controls the Company, or is owned or
controlled by or is under common ownership or control with the Company.
"Relevant Affiliate" shall mean (i) Sentex Systems, Inc., a Delaware
corporation and wholly owned subsidiary of the Company, and (ii) any other
Affiliate of the Company for which JB performed material Services hereunder.
(b) Until the third anniversary of the date hereof, JB shall not engage in
any business on behalf of any other company or herself and shall not directly or
indirectly own or own an interest in (except for the ownership of less than 5%
of the issued and outstanding stock of a publicly traded corporation), manage,
operate, join, control, be employed by or participate either directly or
indirectly in the ownership, management, operation or control of, or be
connected in any manner with, any business which is competitive with the
business that is being conducted by the Company or any Relevant Affiliate of the
Company.
<PAGE> 6
(c) Until the third anniversary of the date hereof, JB shall not solicit
any business (excluding any business that is not competitive with any business
of the Company or any of its Relevant Affiliates) from any person, firm or
entity that was or is a customer of the Company or its Relevant Affiliates,
induce or attempt to induce any such customer to reduce its business with the
Company or its Relevant Affiliates or solicit or attempt to solicit any
employees of the Company or its Relevant Affiliates to leave the employ of the
Company or its Relevant Affiliates. Until the third anniversary of the date
hereof, JB shall also not solicit business (excluding any business that is not
competitive with any business of the Company or any of its Relevant Affiliates)
from any prospective customer of the Company or its Relevant Affiliates. For
purposes of this Section 4.1(c), "prospective customer" shall mean a potential
customer which the Company has solicited or with which the Company or its
Relevant Affiliates has had active discussions concerning potential business at
any time during the two years preceding the end of the consulting arrangement
hereunder.
(d) In consideration of JB's agreeing to the restrictions set forth in this
Section 4.1, the Company shall pay to JB $100,000, payable in three equal
installments on the following dates: March 1, 1996; March 1, 1997 and March 1,
1998.
SECTION 4.2. CONFIDENTIALITY. (a) JB agrees not to disclose or use, either
during the Term or at any time thereafter, any unpublished information, whether
of a technical or non-technical nature, relative to the business of the Company
or any of its Affiliates unless authorized to do so by the Company or its
Affiliates in writing, except that JB may disclose and use such information when
necessary in the performance of her duties for the Company or its Affiliates;
PROVIDED, HOWEVER, that the foregoing restrictions shall not apply to any
information that becomes available to JB, after termination of the consulting
arrangement hereunder, on a nonconfidential basis form a source, other than the
Company, its Affiliates or any of its respective representatives, which source
was not itself bound by a confidentiality agreement with the Company, its
Affiliates or any of their respective representatives.
(b) Upon termination of JB's consulting arrangement hereunder with the
Company for any reason and at any time, JB will promptly deliver to the Company
all of the following items that are in her possession or under her control and
relate in any manner to the business of the Company or its Affiliates:
apparatus, drawings, blueprints, manuals, letters, notes, notebooks, reports,
customer and supplier lists, cost and profit data and any other material, all
files or any copies of such materials, whether of a technical, business or
fiscal nature.
ARTICLE V
Miscellaneous
-------------
SECTION 5.1. ENFORCEABILITY, INJUNCTION. (a) With respect to any provision
of this Agreement finally determined by a court of competent jurisdiction to be
unenforceable, JB and the Company hereby agree that such court shall have
jurisdiction to reform this Agreement so that it is enforceable to the maximum
extent permitted by law, and the parties agree to abide by such court's
determination. If such unenforceable provision cannot be reformed, such
provision shall be deemed to be severed from this Agreement, but every other
provision of this Agreement shall remain in full force and effect.
(b) JB acknowledges and agrees that the Company's remedy at law for any
breach of any of her obligations under Article IV hereof would be inadequate,
and agrees and consents that temporary and permanent injunctive relief may be
granted in any proceeding which may be brought to enforce any provision of
Article IV hereof, without the necessity of proof of actual damages.
SECTION 5.2. NO ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of each of the parties hereto, their respective successors and
permitted assigns, Neither the Company nor JB may assign any interest in this
Agreement without obtaining the prior written consent of the other party;
PROVIDED, HOWEVER, that the Company may assign such rights or privileges without
such prior written consent, to any corporation or partnership into or with which
it may be merged or consolidated or to any corporation to whom such
<PAGE> 7
party may sell substantially all of its assets, provided that (i) Robert S.
Kendall remains in control of the surviving entity after the consummation of the
particular transaction and (ii) the surviving entity assumes (by instrument
reasonably satisfactory to JB) all of the Company's obligations hereunder.
SECTION 5.3. ENTIRE AGREEMENT, COUNTERPARTS. This Agreement constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
This Agreement may be executed simultaneously in several counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 5.4. GOVERNING LAW; VENUE. This Agreement shall be interpreted
under the laws of the State of New Jersey without regard to principles of
conflict of laws. Subject to Section 5.7 hereof, each party hereto agrees that
all actions or proceedings relating to this Agreement shall be tried and
litigated only in the New Jersey State or Federal courts located in the County
of Bergen, State of New Jersey. Each party hereto hereby irrevocably submits to
the exclusive jurisdiction of such courts for the purpose of any such action or
proceeding.
SECTION 5.5. WAIVER OF BREACH. The waiver of any breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
other term or condition of this Agreement.
SECTION 5.6. NOTICES. All notices pursuant to this Agreement shall be given
in writing and delivered personally or sent by certified mail, postage prepaid
(and deemed delivered five days after being so mailed), to the following:
If to the Company: Sentex Sensing Technology, Inc.
553 Broad Avenue
Ridgefield, NJ 07657
with a copy to: Robert S. Kendall
CPS Capital Ltd.
1801 East Ninth Street
Cleveland, OH 44114
If to JB: Joanne Bianco
1 Deer Hill
Alpine, NJ 07620
with a copy to: Joseph Ehrenreich, Esq.
Ehrenreich & Krause
1140 Sixth Avenue
New York, NY 10036
Or to such other address as the parties shall provide by notice as herein
provided.
SECTION 5.7. RESOLUTION OF DISPUTES: ARBITRATION. (a) Each party to this
Agreement agrees to use best efforts to resolve in an amicable fashion any
disputes concerning the subject matter of this Agreement or any question arising
hereunder and shall deal in good faith in seeking the resolution thereof.
(b) Subject to Section 5.7(a), any dispute, controversy or claim arising
out of or in connection with or relating to this Agreement or any breach or
alleged breach hereof shall be submitted to and determined and settled by
arbitration in Bergen County, NJ, or in such other location as the parties may
agree, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). The Board of Arbitration shall be composed
of one arbitrator, to be mutually agreed upon by the parties in good faith, or
if the parties cannot agree, the arbitrator shall be selected by the AAA in
accordance with its standard procedures in such cases. The arbitration award
shall be final and binding on the parties to the arbitration and judgment
thereon may be entered in any court
<PAGE> 8
having jurisdiction, or application may be made to any such court for
confirmation of such award or a judicial acceptance of such award or other legal
remedy, as the case may be. If, under applicable federal or state law, a claim
or dispute shall not be subject to arbitration, then either party may reject
arbitration so that all claims and disputes shall be subject to resolution in a
single proceeding and a single forum. The Company shall pay all fees and
expenses of the AAA and the arbitrator with respect to any arbitration
hereunder.
SECTION 5.8. GENDER AND NUMBER. Whenever required by the context hereof,
each term stated in either the singular or the plural, and pronouns stated in
either the masculine, the feminine or the neuter gender shall include the
masculine, feminine and neuter genders.
SECTION 5.9. LETTER OF CREDIT;/NO SETOFF, ETC. The Company's payment
obligations hereunder are secured by a certain letter of credit delivered to JB.
The Company's obligations to make the payments provided for in this Agreement
and otherwise to perform its obligations hereunder shall not be affected by any
setoff, counterclaim, recoupment, defense or other claim, right or action which
the Company may have against JB.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date and year first above written.
SENTEX SENSING TECHNOLOGY, INC
By: /s/ Robert S. Kendall
-------------------------------
Name: Robert S. Kendall
Title: President
/s/ Joanne Bianco
---------------------------------
Joanne Bianco
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
--------------------
STATE OF PERCENTAGE
NAME INCORPORATION OWNERSHIP
---- ------------- ---------
1. Sentex Systems, Inc. Delaware 100%
2. Sentex Acquisition Corporation Delaware 100%
3. Sentex Merger Corp. Delaware 100%
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in this Joint Proxy
Statement/Prospectus and Registration Statement, pursuant to Schedule 14A, of
our report dated January 26, 1996 [Except for Note 13 as to which the date is
September 9, 1996], on our audits of the financial statements of Sentex Sensing
Technology, Inc.
We also consent to the references to us under the captions
"Selected Financial Information" and "Experts".
/s/ MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
September 27, 1996
<PAGE> 1
EXHIBIT 23.2
The Board of Directors and Stockholders
Monitek Technologies, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of Sentex Sensing Technology, Inc. and joint proxy statement pursuant
to Schedule 14A of Sentex Sensing Technology, Inc. and Monitek Technologies,
Inc. of our report dated May 31, 1996, except as to Note 17, which is as of June
24, 1996, with respect to the consolidated balance sheets of Monitek
Technologies, Inc. and subsidiary as of March 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, cash flows and
financial statement schedule for each of the years in the three-year period
ended March 31, 1996, and to the reference to our firm under the headings
"Experts" and "Risk Factors."
Our report dated May 31, 1996, except as to Note 17, which is as of June 24,
1996, contains an explanatory paragraph that states that Monitek Technologies,
Inc. and subsidiary's recurring losses from operations raise substantial doubt
about its ability to continue as a going concern. The consolidated financial
statements and financial statement schedule do not include any adjustments that
might result from the outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
Oakland, California
September 25, 1996
<PAGE> 1
Exhibit 23.4
CONSENT OF AMOS LINENBERG
I hereby consent to being named in the Joint Proxy Statement/Prospectus
which is a part of this Registration Statement as a nominee to the Board of
Directors of Sentex Sensing Technology, Inc.
/s/ Amos Linenberg
September 27, 1996
<PAGE> 1
EXHIBIT 5.1
<PAGE> 1
EXHIBIT 23.6
CONSENT OF NATCITY INVESTMENTS, INC.
We hereby consent to the use of our opinion letter dated September 24,
1996 to the Board of Directors of Monitek Technologies, Inc. included as Annex
D in the Joint Proxy Statement/Prospectus, which is a part of this Registration
Statement. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "Securities Act"), and we do not thereby admit that we are experts with
respect to any part of this Registration Statement within the meaning of the
term "expert" as used in the Securities Act.
/s/ NATCITY INVESTMENTS, INC.
September 27, 1996
<PAGE> 1
~ EXHIBIT 99.1
[FORM OF SENTEX PROXY]
SENTEX SENSING TECHNOLOGY, INC.
553 Broad Avenue
Ridgefield, NJ 07657 PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert S. Kendall and James G. Few, and
each of them, the attorneys and proxies of the undersigned with full power of
substitution to vote as indicated herein, all common shares, $0.01 par value
("Sentex Common Shares"), of Sentex Sensing Technology, Inc. ("Sentex") held of
record by the undersigned on __________________, at the special meeting of
shareholders to be held on _________________ ___, 1996, or any postponements or
adjournments thereof, with all the powers the undersigned would possess if then
and there personally present.
1. Proposal to approve the Amended and Restated Agreement and Plan of Merger
dated as of July 30, 1996, by and among Sentex, Sentex Merger Corp.
("Subcorp"), Monitek Technologies, Inc. ("Monitek") providing for, among
other things, the merger (the "Merger") of Subcorp with and into Monitek
and the issuance of Class A Convertible Notes in connection therewith.
FOR ____, AGAINST ____, or ABSTAIN ____
2. Proposal to approve and adopt the Sentex Sensing Technology, Inc. 1996
Long-Term Incentive Plan.
FOR ____, AGAINST ____, or ABSTAIN ____
(NOTE THAT THE MERGER IS CONDITIONED UPON APPROVAL OF THIS PROPOSAL.)
3. Proposal to approved and adopt the Amended Bylaw.
FOR ____, AGAINST ____, or ABSTAIN ____
(NOTE THAT THE MERGER IS CONDITIONED UPON APPROVAL OF THIS PROPOSAL.)
4. WITH OR WITHOUT authority to vote (except as marked to the contrary below)
for the election of each of the nominees named below:
Robert S. Kendall, James G. Few, Julius L. Hess, Ronald M. Lipson, Amos
Linenberg
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
<PAGE> 2
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE SHAREHOLDER.
IF NO SPECIFICATIONS ARE MADE AND EXCEPT AS OTHERWISE PROVIDED IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS, THE PROXY WILL BE VOTED FOR ITEMS
1 THROUGH 3, TO ELECT THE NOMINEES NAMED IN ITEM 4 ABOVE, AND WITH DISCRETIONARY
AUTHORITY ON ALL MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR
ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF. SENTEX'S BOARD OF DIRECTORS
RECOMMENDS THAT SENTEX SHAREHOLDERS VOTE FOR THE NOMINEES NAMED IN ITEM 4 AND
FOR EACH OF THE OTHER ITEMS.
Receipt of the Notice of Special Meeting of Shareholders to be held on
__________ ___, 1996 and the related Joint Proxy Statement/Prospectus is hereby
acknowledged.
Dated _________________________ ______, 1996
Signature(s) of Shareholders
(Please sign exactly as your name appears hereon. If shares
are held jointly, all holders must sign. When signing as
attorney, executor, administrator, trustee or guardian,
please give your full title. If a corporation, please sign
in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name
by authorized person indicating, where proper, official
position or representative capacity.)
<PAGE> 1
EXHIBIT 99.2
[FORM OF MONITEK PROXY]
MONITEK TECHNOLOGIES, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting to be held on ____________ , 1996 and the accompanying Joint Proxy
Statement/Prospectus, and (2) appoints ________________ and _____________, and
each of them, proxies of the undersigned with full power of substitution to vote
as indicated herein all shares of Class A Common Stock or Common Stock of
Monitek Technologies, Inc. ("Monitek") held of record by the undersigned on
_______________, 1996, at the special meeting of stockholders to be held on
________________, 1996 or any postponements or adjournments thereof, with all
the powers the undersigned would possess if then and there personally present.
1. Proposal to approve and adopt the Amended and Restated Agreement and Plan
of Merger, dated as of July 30,1996, by and among Sentex Sensing
Technology, Inc., Sentex Merger Corp. and Monitek.
FOR_________ AGAINST________ ABSTAIN_________
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the special meeting or any
adjournments or postponements thereof.
(Continued, and to be dated and signed, on the other side)
<PAGE> 2
(Continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ABOVE.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEM 1 AND WITH
DISCRETIONARY AUTHORITY ON ALL MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL
MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
MONITEK'S BOARD OF DIRECTORS RECOMMENDS THAT MONITEK STOCKHOLDERS VOTE FOR
ITEM 1.
Dated , 1996
Signature(s) of Stockholders
(Please sign exactly as your name
appears hereon. If shares are held
jointly, all holders must sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person, indicating where proper,
official position or representative
capacity.)
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
[ ] If you plan to attend the Special Meeting of Stockholders, please check this
box.
