SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ________________
Commission file number 1-9341
HOWTEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0377419
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
21 Park Avenue, Hudson, New Hampshire 03051
( Address of principal executive offices) (Zip Code)
(603) 882-5200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES X NO .
---- ----
As of the close of business on April 14, 1998 there were 9,060,206 shares
outstanding of the issuer's Common Stock, $.01 par value.
<PAGE>
HOWTEK, INC.
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 3
Statements of Operations for the three
month periods ended March 31, 1998 and
1997 (unaudited) 4
Statement of Changes in Stockholders' Equity
for the three month period ended March 31, 1998
(unaudited) 5
Statements of Cash Flows for the three month periods
ended March 31, 1998 and 1997 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
2
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HOWTEK, INC.
Balance Sheets
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 228,043 $ 235,326
Accounts receivable:
Trade-net of allowance for doubtful accounts
of $79,272 in 1998 and $70,000 in 1997 963,769 1,475,952
Inventory 3,448,009 3,515,993
Prepaid and other 188,051 105,275
------------ ------------
Total current assets 4,827,872 5,332,546
------------ ------------
Property and equipment:
Equipment 2,297,519 2,288,687
Motor vehicles 6,050 6,050
------------ ------------
2,303,569 2,294,737
Less accumulated depreciation and amortization 1,361,521 1,255,317
------------ ------------
Net property and equipment 942,048 1,039,420
------------ ------------
Other assets:
Software development costs, net 590,394 593,879
Debt issuance costs, net 72,950 78,040
Patents, net 24,952 27,409
------------ ------------
Total other assets 688,296 699,328
------------ ------------
Total assets $ 6,458,216 $ 7,071,294
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,198,748 $ 1,200,871
Accrued interest 68,342 16,903
Accrued expenses 313,236 322,448
------------ ------------
Total current liabilities 1,580,326 1,540,222
Loan payable to principal stockholders 400,000 --
Convertible subordinated debentures 2,181,000 2,181,000
------------ ------------
Total liabilities 4,161,326 3,721,222
------------ ------------
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value: authorized
25,000,000 shares; issued 9,128,082 in 1998
and 9,128,082 shares in 1997; outstanding
9,060,206 shares in 1998 and 9,060,206 shares in 1997 91,281 91,281
Additional paid-in-capital 45,665,122 45,665,122
Accumulated deficit (42,509,249) (41,456,067)
Treasury stock at cost (67,876 shares) (950,264) (950,264)
------------ ------------
Stockholders' equity 2,296,890 3,350,072
------------ ------------
Total liabilities and stockholders' equity $ 6,458,216 $ 7,071,294
============ ============
</TABLE>
See accompanying notes to financial statements
3
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HOWTEK, INC.
Statements of Operations
Three Months Three Months
March 31, 1998 March 31, 1997
-------------- --------------
(unaudited) (unaudited)
Sales $ 954,257 $ 1,430,100
Cost of Sales 876,311 1,209,030
----------- -----------
Gross Margin 77,946 221,070
----------- -----------
Operating expenses:
Engineering and product development 255,179 343,699
General and administrative 362,420 494,756
Marketing and sales 464,193 344,935
----------- -----------
Total operating expenses 1,081,792 1,183,390
----------- -----------
Loss from operations (1,003,846) (962,320)
Interest expense - net 49,336 102,820
----------- -----------
Net loss $(1,053,182) $(1,065,140)
=========== ===========
Net loss per share
Basic $ (0.12) $ (0.12)
Weighted average number of shares used in
computing earnings per share
Basic 9,060,206 9,031,856
See accompanying notes to financial statements.
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HOWTEK, INC.
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
---------------------------------- Additional
Number of Paid-in Accumulated Treasury Stockholders'
Shares Issued Par Value Capital Deficit Stock Equity
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 9,128,082 $91,281 $45,665,122 $(41,456,067) $(950,264) $3,350,072
Net loss -- -- -- (1,053,182) -- (1,053,182)
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Balance at March 31, 1998 9,128,082 $91,281 $45,665,122 $(42,509,249) $(950,264) $2,296,890
================ ================ ================ ================ ================ ================
</TABLE>
See accompanying notes to financial statements.
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HOWTEK, INC.
Statements of Cash Flows
Three Months Three Months
March 31, 1998 March 31, 1997
-------------- --------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $(1,053,182) $(1,065,140)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 106,204 295,020
Amortization 55,291 141,736
(Increase) decrease:
Accounts receivable 512,183 1,540,105
Inventory 67,984 (946,430)
Other current assets (82,776) (97,446)
Increase (decrease):
Accounts payable (2,123) 227,762
Accrued expenses 42,227 131,257
----------- -----------
Total adjustments 698,990 1,292,004
----------- -----------
Net cash provided by (used for)
operating activities (354,192) 226,864
----------- -----------
Cash flows from investing activities:
Patents, software development and other (44,259) (107,501)
Additions to property and equipment (8,832) (103,380)
----------- -----------
Net cash used for investing activities (53,091) (210,881)
----------- -----------
Cash flows from financing activities:
Proceeds of loan payable to
principal stockholders 400,000 --
----------- -----------
Net cash provided by financing activities 400,000 --
----------- -----------
Increase (decrease) in cash and equivalents (7,283) 15,983
Cash and equivalents, beginning of period 235,326 235,143
----------- -----------
Cash and equivalents, end of period $ 228,043 $ 251,126
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ -- $ --
=========== ===========
See accompanying notes to financial statements.
6
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HOWTEK, INC.
Notes to Financial Statements
March 31, 1998
(1) Accounting Policies
In the opinion of management all adjustments and accruals (consisting
only of normal recurring adjustments) which are necessary for a fair
presentation of operating results are reflected in the accompanying
financial statements. Reference should be made to Howtek, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1997 for a summary of
significant accounting policies. Interim period amounts are not necessarily
indicative of the results of operations for the full fiscal year.
(2) Loan Payable to Related Party
The Company has a Convertible Revolving Credit Promissory Note ("the
Convertible Note") and Revolving Loan and Security Agreement (the "Loan
Agreement") with Mr. Robert Howard, Chairman of the Company, under which
Mr. Howard has agreed to advance funds, or to provide guarantees of
advances made by third parties in an amount up to $8,000,000. Such
outstanding advances are collateralized by substantially all of the assets
of the Company and bear interest at prime interest rate plus 2%. The
Convertible Note entitles Mr. Howard to convert outstanding advances into
shares of the Company's common stock at any time based on the outstanding
closing market price of the Company's common stock at the time each advance
is made.
As of March 31, 1998, the Company had $8,000,000 available for future
borrowings under the Loan Agreement.
During the first quarter of 1998, the Company borrowed, (i) $200,000
from Mr. Robert Howard, the Company's Chairman, and (ii) $200,000 from Dr.
Lawrence Howard, the son of Mr. Robert Howard, pursuant to Secured Demand
Notes and Security Agreements (The "Notes"). Principal on these Notes are
due and payable in full, together with interest accrued and any penalties
provided for, on demand. Under the terms of the Notes the Company agreed to
pay interest at the lower rate of (a) 12% per annum, compounded monthly or
(b) the maximum rate permitted by applicable law. The Notes currently bear
interest at 12%. Payment of the Notes is secured by a security interest in
certain assets of the Company.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Certain information included in this Item 2. and elsewhere in this Form 10-Q
that are not historical facts contain forward looking statements that involve a
number of known and unknown risks, uncertainties and other factors that could
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward looking statements. These risks and
uncertainties include, but are not limited to, uncertainty of future sales
levels, protection of patents and other proprietary rights, the impact of supply
and manufacturing constraints or difficulties, possible technological
obsolescence of products, competition and other risks detailed in the Company's
Securities and Exchange Commission filings. The words "believe", "expect",
"anticipate" and "seek" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statement was
made.
Results of Operations
Current Events
During the first quarter of 1998, the Company began a series of actions
aimed at improved profitability and performance. On January 20, 1998, W. Scott
Parr was named President, Chief Executive Officer and Director of the Company.
He replaced David R. Bothwell who resigned as President, Chief Executive Officer
and a member of the Company's Board of Directors on the same date. On January
27, 1998, M. Russell Leonard resigned as Executive Vice President and Chief
Operating Officer of the Company.
On January 30, 1998, as part of the Company's plan to reduce break-even
levels and bring operating expenditures more in line with projected sales
levels, the Company significantly reduced the number of its employees.
Subsequent to these reductions, the Company had 54 employees, including
part-time and temporary workers. The Company also reduced certain operating
expenditures and instituted improved budgeting and cost controls. In the future,
the Company expects to better utilize its marketing expenses by an increased
reliance on direct mail and telemarketing to support its sales efforts, and
reduced trade show expenditures. The Company is also evaluating opportunities to
outsource appropriate portions of the assembly and manufacturing process,
focusing internal efforts on final assembly, testing and quality assurance.
As part of its efforts to address declining sales levels, the Company has
developed an operating plan which it believes will allow it to operate
profitably at lower revenue levels than previous recent operating plans. The
current operating plan includes identification of new scanner and related
products which the Company believes it can secure and offer to its traditional
graphic arts customer base. Management believes such products, which it
anticipates would be offered under the Company's brand, will complement the
results of the Company's own research and
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product development efforts and, therefore, should contribute to revenues. In
addition, on April 6, 1998, the Company reduced prices on its Scanmaster(TM)
2500 flatbed scanner with a view to improving the competitive position of this
product.
Moreover, during the first quarter the Company took steps aimed at
improving and broadening domestic sales channels which it believes establishes a
basis for possible improved sales in subsequent quarters. The Company introduced
an updated version of Trident, the graphic arts software used with Howtek
scanners to manage color image capture and color separation tasks. Together with
one of the Company's resellers, the Company introduced the Digital PhotoLab
version of its drum scanner product, tailored to the requirements of the digital
photographic and photo-finishing markets. The Company is currently seeking
additional products to offer into the graphic arts and photographic markets.
The Company also took action to improve performance in the market for its
X-ray film digitizers. Based on experience with its earlier medical digitizing
products, the Company replaced a batch-fed film digitizer with two new, lower
priced products. The new MultiRAD(TM) 850 offers superior 8K (or 584 dots per
inch) resolution and a 50 film batch feeder, and the new MultiRAD 450 offers a
lower 4K (or 292 dots per inch) resolution (competitive with current industry
standards), the same 50 film batch feeder and an introductory price which
management believes compares favorably with the price of alternative competitive
products. Initial response from the Company's resellers has been positive.
Quarter Ended March 31, 1998 compared to Quarter Ended March 31, 1997
Sales for the three months ended March 31, 1998 were $954,257, a decrease
of $475,843 or 33% from the comparable period in 1997. The Company attributes
the decrease in sales primarily to increased competition for drum scanners from
high-end flatbed scanners, the maturing of its Scanmaster 2500 product and the
economic crisis in Asia. During the quarter the Company had sales of its new
medical products. Also, in conjunction with one of its resellers, the first
sales were made of products distinguished for photographic applications, Digital
PhotoLab, a color management and separation application developed by a third
party.
Gross margin for the three month period ended March 31, 1998 decreased to
8% from 15% in the comparable period in 1997. Gross margins were adversely
effected by low sales and production levels. This obscures a trend toward
products, including the Company's medical film digitizers, which carry
comparatively higher gross profit margin than certain of the Company's graphic
arts products. Management believes margins should improve with increased sales
volume and as a result of its decision to seek to increase sales of higher
margin medical products.
Engineering and product development costs for the three month period ended
March 31, 1998 decreased 26% from $343,699 (or 24% of sales) in 1997 to $255,179
(or 27% of sales) in 1998. The decrease results primarily from planned
reductions in manpower and anticipated depreciation expense.
9
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General and administrative expenses in the three month period ended March
31, 1998 decreased 27% from $494,756 (or 35% of sales) in 1997 to $362,420 (or
38% of sales) in 1998. The decrease results primarily from the reduction in
legal fees in connection with a lawsuit against a former contract manufacturer.
Marketing and sales expenses in the three month period ended March 31, 1998
increased 35% from $344,935 (24% of sales) in 1997 to $464,193 (49% of sales) in
1998. This is attributable to increases in salaries, commissions, advertising
and travel expenses. In the first quarter of 1998, the Company invested more
heavily in marketing and sales efforts than in the same period in 1997. The
increase in marketing and sales expenses included the addition of both a Vice
President of Sales and a Vice President of Marketing, as well as an increase in
commissions to the Company's new manufacturers sales representatives, and costs
related to a more aggressive advertising program.
Net interest expense for the three month period ended March 31, 1998 was
$49,336 compared to $102,820 for the comparable period in 1997. The decrease
resulted from the repayment of the notes payable, including interest, of
$4,265,784 on April 25, 1997 to Mr. Robert Howard, its Chairman and principal
stockholder and Dr. Lawrence Howard, the Chairman's son.
As a result of the foregoing, the Company recorded a net loss of $1,053,182
for the three month period ended March 31, 1998, as compared to a net loss of
$1,065,140 from the same period in 1997.
Liquidity and Capital Resources
At March 31, 1998 the Company had current assets of $4,827,872, current
liabilities of $1,580,326 and working capital of $3,247,546. The ratio of
current assets to current liabilities was 3.1:1
Accounts receivable decreased by $512,183 during the first three months of
1998. This decrease is due primarily to the effect of aggressive collections and
reduced sales in the first three months of 1998.
During the first quarter of 1998, the Company borrowed, (i) $200,000 from
Mr. Robert Howard, the Company's Chairman, and (ii) $200,000 from Dr. Lawrence
Howard, the son of Mr. Robert Howard, pursuant to Secured Demand Notes and
Security Agreements (The "Notes"). Principal on these Notes are due and payable
in full, together with interest accrued and any penalties provided for, on
demand. Under the terms of the Notes the Company agreed to pay interest at the
lower rate of (a) 12% per annum, compounded monthly or (b) the maximum rate
permitted by applicable law. The Notes currently bear interest at 12%. Payment
of the Notes is secured by a security interest in certain assets of the Company.
The Company believes it can adequately fund its working capital and capital
equipment requirements based upon its anticipated level of sales for 1998 and
the line of credit available under the Revolving Loan Agreement with its
Chairman, of which $8,000,000 was available as of March 31, 1998.
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Effective February 23, 1998, the Nasdaq Stock Market adopted New Listing
and Continued Listing requirements for companies listed on the Nasdaq National
Market and Nasdaq SmallCap Market. As a result of these new requirements the
Company has applied for modification in its Nasdaq listing, to the Nasdaq
SmallCap Market. The Company believes that it qualifies for listing on the
SmallCap Market under the new standards. There cannot be assurance that the
Company will obtain listing on the Nasdaq SmallCap Market.
Impact of the Year 2000
Many currently installed computer systems and software programs were
designed to use only a two-digit date field. These date code fields will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. Until the date fields are updated, the systems and programs could fail or
give erroneous results when referencing dates following December 31, 1999. Such
failure or errors could occur prior to the actual change in century. The Company
relies on computer applications to manage and monitor its accounting and
administrative functions. Failure of the Company's software could have a
material adverse impact on the Company's business, financial condition and
results of operations and on its ability to achieve sufficient cash flow to
service its indebtedness. The Company is currently assessing alternative
manufacturing and financial control systems including an upgrade to its current
system.
11
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Secured Demand Note and Security Agreement between the Company and Mr.
Robert Howard dated March 5, 1998.
10.2 Secured Demand Note and Security Agreement between the Company and
Lawrence A. Howard dated March 5, 1998.
10.3 Secured Demand Note and Security Agreement between the Company and Mr.
Robert Howard dated March 14, 1998.
10.4 Secured Demand Note and Security Agreement between the Company and
Lawrence A. Howard dated March 27, 1998.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Howtek, Inc.
(Company)
Date: May 13, 1998 By: /s/ W. Scott Parr
----------------------------------
W. Scott Parr
President, Chief Executive Officer,
Director
Date: May 13, 1998 By: /s/ Robert J. Lungo
----------------------------------
Robert J. Lungo
Vice President Finance,
Chief Financial Officer
13
EXHIBIT 10.1
SECURED DEMAND NOTE
$100,000.00 March 5, 1998
For value received, Howtek, Inc., a Delaware corporation with a principal place
of business at 21 Park Avenue, Hudson, New Hampshire 03051 (the "Company"),
promises to pay, on demand, to the order of Robert Howard (the "Payee"), at 330
East 57th Street, New York, New York or at such other place in New York City as
the Payee shall direct, the principal amount of one hundred thousand dollars
($100,000.00) together with interest accrued thereon. Payments will be made by
certified check delivered to the Payee or the holder at the address furnished to
the Company for that purpose. This note shall bear interest (A) at the rate of
the lower of (i) 12% per annum or (ii) the maximum rate permitted by applicable
law, compounded monthly until payment is demanded by the holder hereof, and (B)
thereafter at the rate of the lower of (i) 15% per annum or (ii) the maximum
rate permitted by applicable law, until fully paid (whether before or after
judgment) both on principal and past due interest.
The Borrower may pay this Note in whole or in part, together with all accrued
and unpaid interest, without penalty or premium at any time prior to maturity.
Payment of this Note in accordance with its terms is secured by a security
interest in certain assets (the "Collateral") of the Company granted pursuant to
a certain Security Agreement between the Company and the Payee of even date
hereof. This Note is entitled to all of the benefits and obligations of said
Security Agreement. The Company hereby agrees to execute and make all
appropriate filings of any financing statements or other filings to perfect the
Payee's security interest
The Borrower and all endorsers and guarantors of the Note hereby waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note and agree to pay upon demand all costs, charges and expenses of
collecting amounts due under the Note and the Security Agreement, including
attorney's fees and expenses, court costs and other disbursements incurred or
paid by the Payee in connection therewith. This Note shall be binding upon and
inure to the benefit of the Company and the Payee and their respective
successors and assigns.
This Note shall be governed by and construed in accordance with the internal
laws of the State of New Hampshire.
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IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Note as an instrument under seal as of the date first written
above.
HOWTEK, INC.
/s/ W. Scott Parr
- -----------------------------------
By: W. Scott Parr, President & CEO
/s/ Connie Webster
- -----------------------------------
Witness
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SECURITY AGREEMENT
Howtek, Inc. a Delaware corporation with a principal place of business at 21
Park Ave. (hereinafter called the "Debtor"), subject to the terms and conditions
hereof, hereby assigns, mortgages, pledges, transfers and grants a continuing
security interest to Robert Howard (hereinafter called the "Secured Party"), in
all of the Debtor's right, title and interest in and to all personal property of
Debtor, including, without limitation, all accounts, contract rights, rights to
payment, inventory, equipment, general intangibles, documents, instruments,
deposit accounts (including patents and trademarks) and other property or rights
of any kind, all whether now or hereafter owned or acquired. The property
described above shall hereafter be collectively referred to as the "Collateral."
Such security interest secures the payment of all sums due hereunder and under a
certain Secured Demand Note (the "Note") of the Debtor in the principal amount
of $100,000 (hereinafter referred to as the "Obligations") issued by the Debtor
to Robert Howard, dated as of March 5, 1998.
1. Covenants Re Collateral.
(a) The Debtor will execute appropriate financing statements under the
Uniform Commercial Code (the "Code") and will at all times and from time to
time, at the request of the Secured Party, do, make, execute and deliver all
such additional and further acts, things, documents, assurances, instruments and
financing statements as the Secured Party may require, to vest more completely
and assure to the Secured Party its rights hereunder in or to the Collateral,
including without limitation, the preparation, execution and delivery of any
additional financing statements, continuation statements and security agreements
extending to any Collateral which is, or may subsequently become, located
outside the State of New Hampshire. The Debtor hereby appoints the Secured Party
as its authorized agent and attorney-in-fact, with full power of substitution,
to execute and file appropriate financing statements, continuation statements
and termination statements and other documents in each and every jurisdiction in
which the Collateral is or may be located, now or in the future.
(b) The Secured Party shall be under no obligation to take steps necessary
to preserve its rights in any Collateral against other parties but may do so at
its option and at the expense of the Debtor. At its option and upon prior
written notice to the Debtor, the Secured Party may discharge any taxes, liens,
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security interests or other encumbrances to which any Collateral is at any time
subject, and may, upon the failure of the Debtor so to do, purchase insurance on
any Collateral and pay for the preservation thereof, and the Debtor agrees to
reimburse the Secured Party on demand for any payments made or expenses incurred
by the Secured Party pursuant to the foregoing authorization. The Secured Party
may, at any time after default hereunder, take control of the Collateral to
which the Secured Party is entitled hereunder or under applicable law.
2. Rights and Remedies on Default.
Upon the occurrence of any default under the Note, and at any time thereafter,
the Secured Party shall have the rights and remedies of a secured party after
default under the Code in addition to the rights and remedies provided herein or
in any other instrument or agreement executed by Debtor. Wherever notification
with respect to the sale or other disposition of Collateral is required by law,
such notification of the time and place of public sale, or of the date after
which a private sale or other intended disposition is to be made, shall be
deemed reasonable if given to the Debtor at least five (5) business days before
the time of such public sale, or the date after which any such private sale or
other intended disposition is to be made, as the case may be. Expenses of
retaking, holding, preparing for sale, selling or the like with respect to the
Collateral, shall include the Secured Party's reasonable attorneys' fees and
legal expenses.
3. Further Assurances.
Upon the occurrence of any default under the Note or at any time thereafter, on
request of the Secured Party, the Debtor shall execute and deliver to such
Secured Party any and all instruments as may be required to further vest in the
Secured Party the right to the Collateral.
4. Waiver of Demand.
DEBTOR WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO NOTICE OF JUDICIAL HEARING
IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY'S RIGHTS HEREUNDER,
INCLUDING, WITHOUT LIMITATION, THE SECURED PARTY'S RIGHTS FOLLOWING THE
OCCURRENCE OF A DEFAULT TO TAKE IMMEDIATE POSSESSION OF THE COLLATERAL AND
EXERCISE ITS RIGHTS WITH RESPECT THERETO. With respect both to the Obligations
and the Collateral, the Debtor assents to any extension or postponement of the
time of payment of any other indulgence, to any substitution, exchange or
release of any collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payment thereon
and the settlement,
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compromising, adjusting or discharge of any thereof, all in such manner and at
such time or times as the Secured Party may deem advisable.
5. General.
Any condition or restriction hereinabove imposed with respect to the Debtor may
be waived, modified or suspended by the Secured Party but only on the Secured
Party's consent in writing and only as so expressed in such writing and not
otherwise. The Secured Party shall not be deemed to have waived any of its other
rights hereunder or under any other agreement, instrument or paper signed by
Debtor unless such waiver be in writing and signed by the Secured Party. No
delay or omission on the part of the Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or remedy
on any other occasion. The Secured Party's rights and remedies, whether
evidenced hereby or by any other agreement, instrument or paper, shall be
cumulative and may be exercised separately or concurrently. Any demand upon, or
notice to, Debtor that the Secured Party may elect to give shall be effective
when deposited in the mails by first class mail, postage prepaid; when delivered
personally; or when telecopied (with receipt of telecopy acknowledged), in each
case addressed to Debtor at the address shown at the beginning of this Security
Agreement or as modified by any notice given after the date hereof. If any term
or condition hereof shall be invalid or unenforceable to any extent or in any
application, then the remainder hereof shall not be affected thereby, and each
and every term and condition hereof shall be valid and enforced to the fullest
extent and in the broadest application permitted by law. Whenever there are no
Obligations outstanding hereunder and no commitment on the part of any Secured
Party under any agreement which might give rise to any Obligation, the Debtor
may then terminate this Agreement upon written notice to the Secured Party. This
Agreement and all rights and obligation hereunder, including matters of
construction, validity and performance, shall be governed by the internal laws
of the State of New Hampshire.
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IN WITNESS WHEREOF, this Security Agreement is executed as an instrument under
seal by each of the undersigned Debtor and Secured Party as of this 5th day of
March, 1998.
HOWTEK, INC.
/s/ W. Scott Parr
- ----------------------------------
By: W. Scott Parr, President & CEO Witness: /s/ Connie Webster
-------------------------
/s/ Robert Howard Witness: /s/ Connie Webster
- ---------------------------------- -------------------------
Robert Howard
19
EXHIBIT 10.2
SECURED DEMAND NOTE
$100,000.00 March 5, 1998
For value received, Howtek, Inc., a Delaware corporation with a principal place
of business at 21 Park Avenue, Hudson, New Hampshire 03051 (the "Company"),
promises to pay, on demand, to the order of Lawrence A. Howard (the "Payee"), at
660 Madison Ave., 14th Floor, New York, NY 10021 or at such other place in New
York City as the Payee shall direct, the principal amount of one hundred
thousand dollars ($100,000.00) together with interest accrued thereon. Payments
will be made by certified check delivered to the Payee or the holder at the
address furnished to the Company for that purpose. This note shall bear interest
(A) at the rate of the lower of (i) 12% per annum or (ii) the maximum rate
permitted by applicable law, compounded monthly until payment is demanded by the
holder hereof, and (B) thereafter at the rate of the lower of (i) 15% per annum
or (ii) the maximum rate permitted by applicable law, until fully paid (whether
before or after judgment) both on principal and past due interest.
The Borrower may pay this Note in whole or in part, together with all accrued
and unpaid interest, without penalty or premium at any time prior to maturity.
Payment of this Note in accordance with its terms is secured by a security
interest in certain assets (the "Collateral") of the Company granted pursuant to
a certain Security Agreement between the Company and the Payee of even date
hereof. This Note is entitled to all of the benefits and obligations of said
Security Agreement. The Company hereby agrees to execute and make all
appropriate filings of any financing statements or other filings to perfect the
Payee's security interest
The Borrower and all endorsers and guarantors of the Note hereby waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note and agree to pay upon demand all costs, charges and expenses of
collecting amounts due under the Note and the Security Agreement, including
attorney's fees and expenses, court costs and other disbursements incurred or
paid by the Payee in connection therewith. This Note shall be binding upon and
inure to the benefit of the Company and the Payee and their respective
successors and assigns.
This Note shall be governed by and construed in accordance with the internal
laws of the State of New Hampshire.
20
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Note as an instrument under seal as of the date first written
above.
HOWTEK, INC.
/s/ W. Scott Parr
- -----------------------------------
By: W. Scott Parr, President & CEO
/s/ Connie Webster
- -----------------------------------
Witness
21
<PAGE>
SECURITY AGREEMENT
Howtek, Inc. a Delaware corporation with a principal place of business at 21
Park Ave. (hereinafter called the "Debtor"), subject to the terms and conditions
hereof, hereby assigns, mortgages, pledges, transfers and grants a continuing
security interest to Lawrence A. Howard (hereinafter called the "Secured
Party"), in all of the Debtor's right, title and interest in and to all personal
property of Debtor, including, without limitation, all accounts, contract
rights, rights to payment, inventory, equipment, general intangibles, documents,
instruments, deposit accounts (including patents and trademarks) and other
property or rights of any kind, all whether now or hereafter owned or acquired.
The property described above shall hereafter be collectively referred to as the
"Collateral."
Such security interest secures the payment of all sums due hereunder and under a
certain Secured Demand Note (the "Note") of the Debtor in the principal amount
of $100,000 (hereinafter referred to as the "Obligations") issued by the Debtor
to Lawrence A. Howard, dated as of March 5, 1998.
1. Covenants Re Collateral.
(a) The Debtor will execute appropriate financing statements under the
Uniform Commercial Code (the "Code") and will at all times and from time to
time, at the request of the Secured Party, do, make, execute and deliver all
such additional and further acts, things, documents, assurances, instruments and
financing statements as the Secured Party may require, to vest more completely
and assure to the Secured Party its rights hereunder in or to the Collateral,
including without limitation, the preparation, execution and delivery of any
additional financing statements, continuation statements and security agreements
extending to any Collateral which is, or may subsequently become, located
outside the State of New Hampshire. The Debtor hereby appoints the Secured Party
as its authorized agent and attorney-in-fact, with full power of substitution,
to execute and file appropriate financing statements, continuation statements
and termination statements and other documents in each and every jurisdiction in
which the Collateral is or may be located, now or in the future.
(b) The Secured Party shall be under no obligation to take steps necessary
to preserve its rights in any Collateral against other parties but may do so at
its option and at the expense of the Debtor. At its option and upon prior
written notice to the Debtor, the Secured Party may discharge any taxes, liens,
22
<PAGE>
security interests or other encumbrances to which any Collateral is at any time
subject, and may, upon the failure of the Debtor so to do, purchase insurance on
any Collateral and pay for the preservation thereof, and the Debtor agrees to
reimburse the Secured Party on demand for any payments made or expenses incurred
by the Secured Party pursuant to the foregoing authorization. The Secured Party
may, at any time after default hereunder, take control of the Collateral to
which the Secured Party is entitled hereunder or under applicable law.
2. Rights and Remedies on Default.
Upon the occurrence of any default under the Note, and at any time thereafter,
the Secured Party shall have the rights and remedies of a secured party after
default under the Code in addition to the rights and remedies provided herein or
in any other instrument or agreement executed by Debtor. Wherever notification
with respect to the sale or other disposition of Collateral is required by law,
such notification of the time and place of public sale, or of the date after
which a private sale or other intended disposition is to be made, shall be
deemed reasonable if given to the Debtor at least five (5) business days before
the time of such public sale, or the date after which any such private sale or
other intended disposition is to be made, as the case may be. Expenses of
retaking, holding, preparing for sale, selling or the like with respect to the
Collateral, shall include the Secured Party's reasonable attorneys' fees and
legal expenses.
3. Further Assurances.
Upon the occurrence of any default under the Note or at any time thereafter, on
request of the Secured Party, the Debtor shall execute and deliver to such
Secured Party any and all instruments as may be required to further vest in the
Secured Party the right to the Collateral.
4. Waiver of Demand.
DEBTOR WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO NOTICE OF JUDICIAL HEARING
IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY'S RIGHTS HEREUNDER,
INCLUDING, WITHOUT LIMITATION, THE SECURED PARTY'S RIGHTS FOLLOWING THE
OCCURRENCE OF A DEFAULT TO TAKE IMMEDIATE POSSESSION OF THE COLLATERAL AND
EXERCISE ITS RIGHTS WITH RESPECT THERETO. With respect both to the Obligations
and the Collateral, the Debtor assents to any extension or postponement of the
time of payment of any other indulgence, to any substitution, exchange or
release of any collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial payment thereon
and the settlement,
23
<PAGE>
compromising, adjusting or discharge of any thereof, all in such manner and at
such time or times as the Secured Party may deem advisable.
5. General.
Any condition or restriction hereinabove imposed with respect to the Debtor may
be waived, modified or suspended by the Secured Party but only on the Secured
Party's consent in writing and only as so expressed in such writing and not
otherwise. The Secured Party shall not be deemed to have waived any of its other
rights hereunder or under any other agreement, instrument or paper signed by
Debtor unless such waiver be in writing and signed by the Secured Party. No
delay or omission on the part of the Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or remedy
on any other occasion. The Secured Party's rights and remedies, whether
evidenced hereby or by any other agreement, instrument or paper, shall be
cumulative and may be exercised separately or concurrently. Any demand upon, or
notice to, Debtor that the Secured Party may elect to give shall be effective
when deposited in the mails by first class mail, postage prepaid; when delivered
personally; or when telecopied (with receipt of telecopy acknowledged), in each
case addressed to Debtor at the address shown at the beginning of this Security
Agreement or as modified by any notice given after the date hereof. If any term
or condition hereof shall be invalid or unenforceable to any extent or in any
application, then the remainder hereof shall not be affected thereby, and each
and every term and condition hereof shall be valid and enforced to the fullest
extent and in the broadest application permitted by law. Whenever there are no
Obligations outstanding hereunder and no commitment on the part of any Secured
Party under any agreement which might give rise to any Obligation, the Debtor
may then terminate this Agreement upon written notice to the Secured Party. This
Agreement and all rights and obligation hereunder, including matters of
construction, validity and performance, shall be governed by the internal laws
of the State of New Hampshire.
24
<PAGE>
IN WITNESS WHEREOF, this Security Agreement is executed as an instrument under
seal by each of the undersigned Debtor and Secured Party as of this 5th day of
March, 1998.
HOWTEK, INC.
/s/ W. Scott Parr
- ----------------------------------
By: W. Scott Parr, President & CEO Witness: /s/ Connie Webster
-------------------------
/s/ Lawrence A. Howard Witness: /s/ Jessy Fazekas
- ---------------------------------- -------------------------
Lawrence A. Howard
25
EXHIBIT 10.3
SECURED DEMAND NOTE
$100,000.00 March 14, 1998
For value received, Howtek, Inc., a Delaware company with a principal place of
business at 21 Park Avenue, Hudson, New Hampshire 03051 (the "Company") promises
to pay to the order of Robert Howard, at 303 East 57th Street, New York, NY (the
"Payee"), the principal amount of one hundred thousand dollars ($100,000).
Principal on this Note shall be due and payable in full, together with interest
accrued and any penalties provided for herein, on five (5) day's written notice.
Payments will be made by certified check delivered to the Payee or the holder at
the address furnished to the Borrower for that purpose. Principal on this note
shall bear interest at the rate of 12% per annum, compounded monthly.
The Borrower may pay this Note in whole or in part without penalty or premium at
anytime prior to maturity.
The principal on this Note is secured by a security interest in certain assets
of the Company granted pursuant to a certain Security Agreement between the
Borrower and the Payee of even date hereof. This Note is entitled to all of the
benefits and obligations of said Security Agreement. Upon any Event of Default,
as defined in the Security Agreement, this Note shall be forthwith accelerated
and due and payable for an amount equal to the principal then outstanding. The
Borrower hereby agrees to execute and make all appropriate filings of any
financing statements or other filings which shall evidence the Borrower's grant
of a security interest to the Payee in order to secure the performance of the
obligations of the Borrower pursuant to this Note.
The Borrower and all endorsers and guarantors of the Note hereby waive
presentment (other than on maturity), demand, notice of nonpayment, protest and
all other demands and notices in connection with the delivery acceptance,
performance or enforcement of this Note and agree to pay upon demand all costs,
charges and expenses of collecting amounts due under the Note or the Agreements,
including attorney's fees and expenses, court costs and other disbursements
incurred or paid by the Payee in connection therewith. This Note shall be
binding upon and inure to the benefit of the Borrower and the Payee and their
respective successors and assigns.
This Note shall be governed by and construed in accordance with the internal
laws of the State of New Hampshire.
IN WITNESS WHEREOF, Borrower has caused its duly authorized officer to execute
this Note as an instrument under seal as of the date first written above.
HOWTEK, INC.
/s/ W. Scott Parr
- -----------------------------------
By: W. Scott Parr, President & CEO
Witness /s/ Connie Webster
----------------------------
26
<PAGE>
SECURITY AGREEMENT
Howtek, Inc. a Delaware corporation with a principal place of business at 21
Park Ave. (hereinafter called the "debtor"), subject to the terms and conditions
hereof, hereby assigns, mortgages, pledges, transfers and grants a continuing
security interest to Robert Howard (hereinafter called the "Secured Party"), in
all of the Debtor's right and interest in and to all accounts, contract rights,
rights to payment, inventory, equipment, intangible property, patents and other
property or rights of any kind. The property described above shall hereafter be
collectively referred to as the "Collateral."
The Collateral is pledged and mortgaged and a security interest therein is
granted to the Secured Party, as security for payment of all sums due under
certain Secured Term Note (the "Note") of the Debtor in the original aggregate
principal amount of $100,000. (hereinafter referred to as the "obligations")
issued by the Debtor to Robert Howard, dated as of March 14, 1998.
1. Covenants Re Collateral.
(a) The Debtor will join with the Secured Party in executing appropriate
financing statements under the Uniform Commercial Code (the "Code") and will at
all times and from time to time, at the request of the Secured Party, do, make,
execute and deliver all such additional and further acts, things, deeds,
assurances, instruments and financing statements as the Secured Party may
require, to vest more completely and assure to the Secured Party its rights
hereunder in or to the Collateral, including without limitation, the
preparation, execution and delivery of any additional financing statements and
security agreements extending to any Collateral which is, or may subsequently
become located outside the State of New Hampshire. The Debtor hereby appoints
the Secured Party as its authorized agent and attorney-in-fact to execute and
file appropriate financing statements, continuation statements and termination
statements in each and every jurisdiction in which the Collateral is or may be
located, now or in the future.
(b) The Secured Party shall be under no obligation to take steps necessary
to preserve its rights in any Collateral against other parties but may do so at
its option and at the expense of the Debtor. At its option and upon prior
written notice to the Debtor, the Secured Party may discharge any taxes, liens,
security interests or other encumbrances to which any Collateral is at any time
subject, and may, upon the failure of the Debtor so to do, purchase insurance on
any Collateral and pay for the preservation thereof, and the Debtor agrees to
reimburse the Secured Party on demand for any payments made or expenses incurred
by the Secured Party pursuant to the foregoing authorization. The Secured Party
may, at any time after default hereunder, take control of the Collateral to
which the Secured Party is entitled hereunder or under applicable law.
2. Events of Default.
If any of the following circumstances or events shall occur and be continuing
(individually, an "Event of Default"):
(a) failure by the Debtor to pay the principal on the Note when due by its
terms, or any installment thereof, for ten (10) after notice of any
default in payment has
27
<PAGE>
been made in writing to the Debtor by the Secured Party; or
(b) the cessation of the business of the Debtor as a going concern; or
(c) the failure of the Debtor to perform or observe any other term,
covenant or agreement contained in this Agreement, or the Note on its
part to be performed or observed and any such failure remains
unremedied for thirty (30) days after notice of such breach has been
provided to the Debtor; or
(d) the Debtor's ability to pay the Obligations shall be impaired because
the Debtor shall be involved in financial difficulties as evidenced
(i) by its admitting in writing its inability to pay its debts
generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Code, the Federal Bankruptcy
Code, as from time to time in effect, or by its authorizing, by
appropriate proceedings of its Board of Directors or other government
body, the commencement of such voluntary case; (iii) by its filing an
answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing provided, or by
its failing to controvert timely the material allegations of any such
petition; (iv) by the entry of an order of relief in any involuntary
case commenced under such laws, except that the Debtor shall have a
reasonable period, not to exceed ninety (90) days, to have such order
revoked; (v) by its otherwise seeking relief as a debtor under any
applicable law, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or by its consenting to or acquiescing in such
relief; (vi) by the entry of an order by a court of competent
jurisdiction (a) finding it to be bankrupt or insolvent; (b) ordering
or approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (c) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
part of its property or assets; or (vii) by its making an assignment
for the benefit of, or entering into a composition with, its
creditors, or appointing or consenting to the appointment of a
receiver or other custodian for all or a substantial part of its
property;
then, and in any such event, the Secured Party may, by notice to the Debtor,
declare the entire unpaid principal amount of the Note, all interest accrued and
unpaid thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Note, all such accrued interest shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Debtor.
3. Annulment of Defaults.
Section 2 above is subject to the condition that, if at any time after the
principal of any of the Note or the Obligations shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due,
or any thereof, shall have been entered, all arrears of interest upon all the
Note and all other sums payable under the Note or this Agreement (except the
principal of the Note which by such declaration shall have become payable) shall
have been duly paid, and every other default shall have been made good or cured,
then and in every such case the Secured Party shall, by written instrument filed
with the Debtor, rescind and annul such declaration and its consequences; but no
such rescission or
28
<PAGE>
annulment shall extend to or affect any subsequent default or Event of Default
or impair any right consequent thereon.
4. Rights and Remedies on Default.
Upon the occurrence of any event of Default, and at any time thereafter, the
Secured Party shall have the rights and remedies of a secured party under the
Code in addition to the rights and remedies provided herein or in any other
instrument or agreement executed by Debtor. Wherever notification with respect
to the sale or other disposition of Collateral is required by law, such
notification of the time and place of public sale, or of the date after which a
private sale or other intended disposition is to be made, shall be deemed
reasonable if given to the Debtor at least twenty (20) days before the time of
such public sale, or the date after which any such private sale or other
intended disposition is to be made, as the case may be. Expenses of retaking,
holding, preparing for sale, selling or the like with respect to the Collateral,
shall include the Secured Party's reasonable attorneys' fees and the legal
expenses.
5. General Intangibles and Names.
Upon the occurrence of any Event of Default or at any time thereafter, on
request of the Secured Party, the Debtor shall execute and deliver to such
Secured Party any and all instruments as may be required to further vest in the
Secured Party the right to the Collateral.
6. Waiver of Demand.
DEBTOR WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO NOTICE OF JUDICIAL HEARING
IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY'S RIGHTS HEREUNDER,
INCLUDING, WITHOUT LIMITATION THE SECURED PARTY'S RIGHTS FOLLOWING AN EVENT OF
DEFAULT TO TAKE IMMEDIATE POSSESSION OF THE COLLATERAL AND EXERCISE ITS RIGHTS
WITH RESPECT THERETO. With respect both to the Obligations and the Collateral,
the Debtor assents to any extension or postponement of the time of payment of
any other indulgence, to any substitution, exchange or release of any
collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising, adjusting or discharge of any thereof, all in such
manner and at such time or times as the Secured Party may deem advisable.
7. General.
Any condition or restriction hereinabove imposed with respect to the Debtor may
be waived, modified or suspended by the Secured Party but only on the Secured
Party's consent in writing and only as so expressed in such writing and not
otherwise. The Secured Party shall not be deemed to have waived any of its other
rights hereunder or under any other agreement, instrument or paper signed by
Debtor unless such waiver be in writing and signed by the Secured Party. No
delay or omission on the part of the Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or remedy
on any future occasion. The Secured Party's rights and remedies, whether
evidenced hereby or by any other agreement, instrument or paper, shall be
cumulative and may be exercised separately or concurrently. Any demand upon, or
notice to, Debtor that the Secured Party may elect to give shall be effective
when deposited in the mails by first class mail, postage prepaid, addressed to
Debtor
29
<PAGE>
at the address shown at the beginning of this Security Agreement or as modified
by any notice given after the date hereof. If any term or condition hereof shall
be invalid or unenforceable to any extent or in any application, then the
remainder hereof shall not be affected thereby, and each and every term and
condition hereof shall be void and enforced to the fullest extent and in the
broadest application permitted by law. Whenever there are no Obligations
outstanding hereunder and no commitment on the part of any Secured Party under
any agreement which might give rise to any Obligation, the Debtor may then
terminate this Agreement upon written notice to the Secured Party. This
Agreement and all rights and obligation hereunder, including matters of
construction, validity and performance, shall be governed by the internal laws
of the State of New Hampshire.
IN WITNESS WHEREOF, this Security Agreement is executed as an instrument under
seal by each of the undersigned Debtor and Secured Party as of this 14th day of
March, 1998.
Howtek, Inc.
/s/ W. Scott Parr
- ----------------------------------
By: W. Scott Parr, President & CEO Witness: /s/ Connie Webster
-------------------------
/s/ Robert Howard Witness: /s/
- ---------------------------------- -------------------------
Robert Howard
30
EXHIBIT 10.4
SECURED DEMAND NOTE
$100,000.00 March 27, 1998
For value received, Howtek, Inc., a Delaware company with a principal place of
business at 21 Park Avenue, Hudson, New Hampshire 03051 (the "Company") promises
to pay to the order of Lawrence A. Howard, at 660 Madison Ave., 14th Floor, New
York, NH 10021 (the "Payee"), the principal amount of one hundred thousand
dollars ($100,000). Principal on this Note shall be due and payable in full,
together with interest accrued and any penalties provided for herein, on five
(5) day's written notice. Payments will be made by certified check delivered to
the Payee or the holder at the address furnished to the Borrower for that
purpose. Principal on this note shall bear interest at the rate of 12% per
annum, compounded monthly.
The Borrower may pay this Note in whole or in part without penalty or premium at
anytime prior to maturity.
The principal on this Note is secured by a security interest in certain assets
of the Company granted pursuant to a certain Security Agreement between the
Borrower and the Payee of even date hereof. This Note is entitled to all of the
benefits and obligations of said Security Agreement. Upon any Event of Default,
as defined in the Security Agreement, this Note shall be forthwith accelerated
and due and payable for an amount equal to the principal then outstanding. The
Borrower hereby agrees to execute and make all appropriate filings of any
financing statements or other filings which shall evidence the Borrower's grant
of a security interest to the Payee in order to secure the performance of the
obligations of the Borrower pursuant to this Note.
The Borrower and all endorsers and guarantors of the Note hereby waive
presentment (other than on maturity), demand, notice of nonpayment, protest and
all other demands and notices in connection with the delivery acceptance,
performance or enforcement of this Note and agree to pay upon demand all costs,
charges and expenses of collecting amounts due under the Note or the Agreements,
including attorney's fees and expenses, court costs and other disbursements
incurred or paid by the Payee in connection therewith. This Note shall be
binding upon and inure to the benefit of the Borrower and the Payee and their
respective successors and assigns.
This Note shall be governed by and construed in accordance with the internal
laws of the State of New Hampshire.
IN WITNESS WHEREOF, Borrower has caused its duly authorized officer to execute
this Note as an instrument under seal as of the date first written above.
HOWTEK, INC.
/s/ W. Scott Parr
- -----------------------------------
By: W. Scott Parr, President & CEO
Witness /s/ Connie Webster
----------------------------
31
<PAGE>
SECURITY AGREEMENT
Howtek, Inc. a Delaware corporation with a principal place of business at 21
Park Ave. (hereinafter called the "debtor"), subject to the terms and conditions
hereof, hereby assigns, mortgages, pledges, transfers and grants a continuing
security interest to Lawrence A. Howard (hereinafter called the "Secured
Party"), in all of the Debtor's right and interest in and to all accounts,
contract rights, rights to payment, inventory, equipment, intangible property,
patents and other property or rights of any kind. The property described above
shall hereafter be collectively referred to as the "Collateral."
The Collateral is pledged and mortgaged and a security interest therein is
granted to the Secured Party, as security for payment of all sums due under
certain Secured Term Note (the "Note") of the Debtor in the original aggregate
principal amount of $100,000. (hereinafter referred to as the "obligations")
issued by the Debtor to Lawrence A. Howard, dated as of March 27, 1998.
1. Covenants Re Collateral.
(a) The Debtor will join with the Secured Party in executing appropriate
financing statements under the Uniform Commercial Code (the "Code") and will at
all times and from time to time, at the request of the Secured Party, do, make,
execute and deliver all such additional and further acts, things, deeds,
assurances, instruments and financing statements as the Secured Party may
require, to vest more completely and assure to the Secured Party its rights
hereunder in or to the Collateral, including without limitation, the
preparation, execution and delivery of any additional financing statements and
security agreements extending to any Collateral which is, or may subsequently
become located outside the State of New Hampshire. The Debtor hereby appoints
the Secured Party as its authorized agent and attorney-in-fact to execute and
file appropriate financing statements, continuation statements and termination
statements in each and every jurisdiction in which the Collateral is or may be
located, now or in the future.
(b) The Secured Party shall be under no obligation to take steps necessary
to preserve its rights in any Collateral against other parties but may do so at
its option and at the expense of the Debtor. At its option and upon prior
written notice to the Debtor, the Secured Party may discharge any taxes, liens,
security interests or other encumbrances to which any Collateral is at any time
subject, and may, upon the failure of the Debtor so to do, purchase insurance on
any Collateral and pay for the preservation thereof, and the Debtor agrees to
reimburse the Secured Party on demand for any payments made or expenses incurred
by the Secured Party pursuant to the foregoing authorization. The Secured Party
may, at any time after default hereunder, take control of the Collateral to
which the Secured Party is entitled hereunder or under applicable law.
2. Events of Default.
If any of the following circumstances or events shall occur and be continuing
(individually, an "Event of Default"):
(e) failure by the Debtor to pay the principal on the Note when due by its
terms, or any installment thereof, for ten (10) after notice of any
default in payment has
32
<PAGE>
been made in writing to the Debtor by the Secured Party; or
(f) the cessation of the business of the Debtor as a going concern; or
(g) the failure of the Debtor to perform or observe any other term,
covenant or agreement contained in this Agreement, or the Note on its
part to be performed or observed and any such failure remains
unremedied for thirty (30) days after notice of such breach has been
provided to the Debtor; or
(h) the Debtor's ability to pay the Obligations shall be impaired because
the Debtor shall be involved in financial difficulties as evidenced
(i) by its admitting in writing its inability to pay its debts
generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Code, the Federal Bankruptcy
Code, as from time to time in effect, or by its authorizing, by
appropriate proceedings of its Board of Directors or other government
body, the commencement of such voluntary case; (iii) by its filing an
answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing provided, or by
its failing to controvert timely the material allegations of any such
petition; (iv) by the entry of an order of relief in any involuntary
case commenced under such laws, except that the Debtor shall have a
reasonable period, not to exceed ninety (90) days, to have such order
revoked; (v) by its otherwise seeking relief as a debtor under any
applicable law, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or by its consenting to or acquiescing in such
relief; (vi) by the entry of an order by a court of competent
jurisdiction (a) finding it to be bankrupt or insolvent; (b) ordering
or approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (c) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
part of its property or assets; or (vii) by its making an assignment
for the benefit of, or entering into a composition with, its
creditors, or appointing or consenting to the appointment of a
receiver or other custodian for all or a substantial part of its
property;
then, and in any such event, the Secured Party may, by notice to the Debtor,
declare the entire unpaid principal amount of the Note, all interest accrued and
unpaid thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Note, all such accrued interest shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Debtor.
3. Annulment of Defaults.
Section 2 above is subject to the condition that, if at any time after the
principal of any of the Note or the Obligations shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due,
or any thereof, shall have been entered, all arrears of interest upon all the
Note and all other sums payable under the Note or this Agreement (except the
principal of the Note which by such declaration shall have become payable) shall
have been duly paid, and every other default shall have been made good or cured,
then and in every such case the Secured Party shall, by written instrument filed
with the Debtor, rescind and annul such declaration and its consequences; but no
such rescission or
33
<PAGE>
annulment shall extend to or affect any subsequent default or Event of Default
or impair any right consequent thereon.
4. Rights and Remedies on Default.
Upon the occurrence of any event of Default, and at any time thereafter, the
Secured Party shall have the rights and remedies of a secured party under the
Code in addition to the rights and remedies provided herein or in any other
instrument or agreement executed by Debtor. Wherever notification with respect
to the sale or other disposition of Collateral is required by law, such
notification of the time and place of public sale, or of the date after which a
private sale or other intended disposition is to be made, shall be deemed
reasonable if given to the Debtor at least twenty (20) days before the time of
such public sale, or the date after which any such private sale or other
intended disposition is to be made, as the case may be. Expenses of retaking,
holding, preparing for sale, selling or the like with respect to the Collateral,
shall include the Secured Party's reasonable attorneys' fees and the legal
expenses.
5. General Intangibles and Names.
Upon the occurrence of any Event of Default or at any time thereafter, on
request of the Secured Party, the Debtor shall execute and deliver to such
Secured Party any and all instruments as may be required to further vest in the
Secured Party the right to the Collateral.
6. Waiver of Demand.
DEBTOR WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO NOTICE OF JUDICIAL HEARING
IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY'S RIGHTS HEREUNDER,
INCLUDING, WITHOUT LIMITATION THE SECURED PARTY'S RIGHTS FOLLOWING AN EVENT OF
DEFAULT TO TAKE IMMEDIATE POSSESSION OF THE COLLATERAL AND EXERCISE ITS RIGHTS
WITH RESPECT THERETO. With respect both to the Obligations and the Collateral,
the Debtor assents to any extension or postponement of the time of payment of
any other indulgence, to any substitution, exchange or release of any
collateral, to the addition or release of any party or person primarily or
secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising, adjusting or discharge of any thereof, all in such
manner and at such time or times as the Secured Party may deem advisable.
7. General.
Any condition or restriction hereinabove imposed with respect to the Debtor may
be waived, modified or suspended by the Secured Party but only on the Secured
Party's consent in writing and only as so expressed in such writing and not
otherwise. The Secured Party shall not be deemed to have waived any of its other
rights hereunder or under any other agreement, instrument or paper signed by
Debtor unless such waiver be in writing and signed by the Secured Party. No
delay or omission on the part of the Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or remedy
on any future occasion. The Secured Party's rights and remedies, whether
evidenced hereby or by any other agreement, instrument or paper, shall be
cumulative and may be exercised separately or concurrently. Any demand upon, or
notice to, Debtor that the Secured Party may elect to give shall be effective
when deposited in the mails by first class mail, postage prepaid, addressed to
Debtor
34
<PAGE>
at the address shown at the beginning of this Security Agreement or as modified
by any notice given after the date hereof. If any term or condition hereof shall
be invalid or unenforceable to any extent or in any application, then the
remainder hereof shall not be affected thereby, and each and every term and
condition hereof shall be void and enforced to the fullest extent and in the
broadest application permitted by law. Whenever there are no Obligations
outstanding hereunder and no commitment on the part of any Secured Party under
any agreement which might give rise to any Obligation, the Debtor may then
terminate this Agreement upon written notice to the Secured Party. This
Agreement and all rights and obligation hereunder, including matters of
construction, validity and performance, shall be governed by the internal laws
of the State of New Hampshire.
IN WITNESS WHEREOF, this Security Agreement is executed as an instrument under
seal by each of the undersigned Debtor and Secured Party as of this 27th day of
March, 1998.
Howtek, Inc.
/s/ W. Scott Parr
- ----------------------------------
By: W. Scott Parr, President & CEO Witness: /s/ Connie Webster
-------------------------
/s/ Lawrence A. Howard Witness: /s/ Jessy Fazekas
- ---------------------------------- -------------------------
Lawrence A. Howard
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10Q at
March 31, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 228,043
<SECURITIES> 0
<RECEIVABLES> 1,043,041
<ALLOWANCES> 79,272
<INVENTORY> 3,448,009
<CURRENT-ASSETS> 4,827,872
<PP&E> 2,303,569
<DEPRECIATION> 1,361,521
<TOTAL-ASSETS> 6,458,216
<CURRENT-LIABILITIES> 1,580,326
<BONDS> 2,181,000
0
0
<COMMON> 91,281
<OTHER-SE> 2,205,609
<TOTAL-LIABILITY-AND-EQUITY> 6,458,216
<SALES> 954,257
<TOTAL-REVENUES> 954,257
<CGS> 876,311
<TOTAL-COSTS> 876,311
<OTHER-EXPENSES> 255,179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,336
<INCOME-PRETAX> (1,053,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,053,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,053,182)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
