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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 (FEE REQUIRED)
For the fiscal year ended July 31, 1998
Commission file number 0-15066
VERTEX INDUSTRIES, INC.
(Exact name of Company as specified in its charter)
New Jersey 22-2050350
(State of incorporation) (I.R.S. Employer Identification No.)
23 Carol Street 07014
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (973) 777-3500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.005 per share
Indicate by check mark whether the Company (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
Company 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 the Company'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.______
As of October 26, 1998 the aggregate market value of the voting stock held
by non-affiliates of the Company was $ 3,444,349 (based upon the closing
price of the common stock as reported on the over-the-counter market as of
October 23, 1998).
As of October 26, 1998 the Company had 5,146,979 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE:
Exhibits to Company's Registration Statement on Form S-18
(No. 33-897-NY) filed under the Securities Act of 1933, as
amended and effective June 2, 1986, its Registration Statement on
Form 8-A filed under the Securities Act of 1934 as amended, its
Annual Reports on Form 10-K filed on or about October 31, 1986
through October 29, 1997 and Current Reports filed on Form 8-K
dated January 14, 1987, July 22, 1987, April 11, 1996, and March
6, 1998, and Registration Statements on Form S-8 filed on
November 2, 1992, March 1, 1993, March 24, 1993, April 27, 1993,
October 2, 1993, October 22, 1993, February 25, 1994, September
23, 1994, January 23, 1997, July 8, 1997 and July 10, 1998. S-4
filed on July 20, 1994, and 10KA filed on June 14, 1996.
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PART I
Item 1. Business
General
Vertex Industries, Inc. ("Vertex" or "the Company")
produces and sells systems, having both software and hardware
components, that are utilized in the collection and processing of
data, the identification of goods, services and individuals,
solutions for the automation of warehouse operations and the
integration of disparate computing systems and applications. The
primary technologies related to these systems involve computers
as well as data collection devices and computer software
development involving various applications programs and computer
operating systems. The devices may be wired directly to the host
computer or transmit the data via Radio Frequency technology.
Such devices generally read pre-set encoded information and
transmit it to a computer for processing by existing or new
applications programs. The software packages, may be developed by
Vertex or purchased from a third party and resold by Vertex as
part of the solution. The Company also manufactures and markets
precision weighing equipment and weights.
The Company's systems and devices are used for the
automatic sorting and tracking of inventory, routing and
instructions for personnel as well as the collection of data in
factories, warehouses, hospitals and other commercial
establishments on a real time basis. Many of Vertex's solutions
for its current warehouse customers involve the picking and
packing of orders for customers with specific label compliance
and EDI requirements and the receiving, put-away of goods being
received from outside suppliers. The software products supplied
by The Company which allow dissimilar computers and application
programs to interact is generally referred to as middleware.
These products are generally sold in the banking, financial
services and manufacturing industries.
The Company's business focus has undergone a
transformation from primarily producing hardware devices to
developing sophisticated, software products and systems designed
for data collection and computer networking and communication
along with software resold from third parties. These systems may
also contain hardware devices manufactured by third parties which
Vertex resells as part of the solution for the customer. In the
software area, Vertex has developed and enhanced its BridgeNet
Data Collection Management System ("BridgeNet") and is developing
other related software. BridgeNet performs real time data
collection and transaction processing involving simple to complex
systems and interfaces with a wide variety of dissimilar
equipment. An application program development package for
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unskilled programmers is part of the system. BridgeNet can be
used with other manufacturer's hardware as well as with Vertex's
own devices. The Company continues to increase the different
types of computers on which BridgeNet can reside.
The Company has produced and sold a semi-automated coin
collection system for pay public telephones that utilizes
BridgeNet as its operating software. This system enables
automatic communication and processing of data concerning
collectors' routes, scheduling and individual telephones. It
usually makes the collection process more efficient and
productive and reduces manual record keeping and administration.
In prior periods, The Company has sold coin-collection systems to
Bell Atlantic for the states of New Jersey, Pennsylvania,
Delaware, Maryland and West Virginia and to Ameritech for the
states of Ohio, Illinois, Michigan, Wisconsin and Indiana. In
Fiscal Year 1998, Vertex competed with other vendors and received
a $4.1 Million contract from the new Bell Atlantic, which now
includes NYNEX, to supply an upgraded coin collection system for
the states from Maine to Virginia. The new system not only
handles the coin collection, but unlocks all phones with a single
electronic key.
Vertex has produced and marketed a student attendance
and access control system for urban public schools. This system
also employs BridgeNet and provides automatic identification of
students and minimizes the entry of unauthorized persons in
public schools for safety and other concerns. To date, the
Company has sold numerous attendance/access control systems to
the New York City and Chicago Public School Systems.
Vertex has enhanced its software product offering with
the addition of a product called NetWeave through a licensing
agreement with the NetWeave Corporation. NetWeave is a software
middleware product that allows disparate computing systems to
interoperate with each other. NetWeave allows programmers to
connect their applications which may be residing on separate
major host systems, including those from IBM, Digital, Unisys,
Tandem and large UNIX systems. Although there are competing
products, NetWeave has a unique advantage in that it runs on some
of the major legacy systems which are not covered by the
competition such as Unisys and Tandem. In addition to its own
marketplace, NetWeave brings added capability to BridgeNet. With
the addition of NetWeave to the Vertex product offering, the
customer now has the ability to bring data from the factory or
warehouse directly to their legacy database.
The Company's offices are located at 23 Carol Street,
Clifton, New Jersey 07014-0996 and its telephone number is (973)
777-3500. The Company was organized as a corporation in the
State of New Jersey in November 1974.
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History
When originally organized, the Company was designed to
be a holding company which would acquire, own and manage a series
of related businesses. In December 1975, Vertex acquired the
shares of the Torsion Balance Company, a manufacturer of
precision weighing instruments and weights and later merged that
company into it. In July 1976, the Company acquired the assets
relating to a magnetic card reader line from the Cramer Timer
Division of Conrac Corporation. This acquisition was the
beginning of its card reader and writer product line. In April
1983 the Company purchased the assets of Identicon Corp.
("Identicon") pertaining to its existing bar code scanners and
terminals. In June 1983, Vertex also acquired the existing
magnetic stripe, optical and static card product line of Amp
Incorporated.
On or about July 10, 1987, Vertex purchased
approximately 56.9% of all the issued and outstanding shares of
Common Stock of Computer Transceiver Systems, Inc. ("CTSI") in
consideration of a certain amount of cash, its guarantee of a
four-year bank loan in the principal amount of approximately
$490,000 made to CTSI, and other arrangements. The guarantee of
the remaining bank loan was later fully settled by the payment of
$100,000 in cash and the issuance of 100,000 shares of Vertex's
Common Stock on December 16, 1991 to such bank.
CTSI had been engaged in the business of developing,
manufacturing and marketing computer terminals and label
generating systems for use in the bar code industry. The Company
assisted CTSI with the promotion and marketing of its Execuport
2400 intelligent printing system. This was accomplished both in
conjunction with the sale of related Vertex products as well as
on a stand-alone basis. CTSI common stock is publicly held, and
it has been a reporting company under the Securities Exchange Act
of 1934, as amended. CTSI moved its total operations into
Vertex's facility at 23 Carol Street, Clifton, New Jersey and
became a subtenant of Vertex.
The Company subsequently purchased the assets of CTSI
and assumed its liabilities, under the terms of an asset purchase
agreement between the two companies. This transaction was
approved by the requisite number of CTSI shareholders at a
special shareholders meeting held on August 29, 1994. The
transaction was closed on August 31, 1994. The agreement
provided for (a) the purchase by Vertex of the primary assets of
CTSI, including inter alia, patent rights, machinery, equipment,
inventories, receivables, cash, bank deposits, books, records and
goodwill and, (b) the assumption of all its liabilities. The
base purchase price of $1,600,000 which, after adjustment for
CTSI's cash, receivables and payables became $1,699,580, was
offset against CTSI's indebtedness of $1,257,001 owed to Vertex,
based upon an effective date of June 30, 1994. The difference of
$442,579 was paid by the issuance of Vertex Common Stock. The
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value of the Vertex Common Stock as of June 30, 1994 (as
calculated pursuant to the Asset Purchase Agreement) was $1.875
per share. Therefore, the Company issued 236,042 shares of its
Common Stock to CTSI which were registered by an S-4 Registration
Statement filed with the Securities and Exchange Commission
effective July 28, 1994 (Registration No. 33-76378). The shares
were distributed in an exchange offer to minority shareholders of
CTSI with an expiration date of October 14, 1994 which was
subsequently extended to November 14, 1994.
On March 4, 1998 the Company entered into an agreement with
MPEL Holdings Corp., parent company of Mortgage Plus Equity and
Loan Corp., a mortgage banking company whereby MPEL Holdings
Corp. merged with Vertex's inactive subsidiary, Computer
Transceiver Systems Inc. (OTCBB:CPTT). The agreement provided
pre-merger CPTT shareholders with 4% of the merged company, of
which Vertex owns approximately 2.7%. The merged company is
traded Over the Counter Bulletin Board under the symbol MPEH.
The Company currently owns 226,251 shares of MPEH.
Industry Background
Automated Identification involves the utilization of
specialized machines that automatically read predetermined and
generally encoded information contained on various media and
transmits it to computers for processing and storage. The
Automated Identification industry encompasses a number of
technologies. These include, among others, magnetic stripe,
laser and smart cards, bar code, optical character and pattern
recognition, and radio frequency identification. Vertex's
operations cover only a portion of these technologies and relate
to pattern recognition, magnetic stripe cards and bar code
technologies.
As currently applied, the Company's technologies
function in several ways. They serve to identify an individual
for security access, financial transactions and time and
attendance employment records. In addition, they can provide
identification, sorting and tracking of inventory and products in
a variety of industrial and commercial settings. All of these
functions are performed automatically by special equipment,
devices and software. Each of such technologies usually perform
some, but not all, of these functions.
The primary equipment utilized in bar code technology
are printing devices, scanners, terminals and decoders. The
Company markets scanners, terminals, printers and decoders. The
scanner is a device that machine-reads the bar code. Printers
generally print bar codes. On the other hand, terminals and
decoders interpret the data received from the scanner, convert it
into standard computer language, store and then transmit it to a
computer.
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Bar coding has several significant advantages as a data
collection and entry system over visual observation and manual
recordation. Machine readability generally affords rapid and
accurate readings even in harsh industrial environments.
Moreover, data is transmitted quickly and directly to the user's
computer for storage or implementation, thus enhancing
management's control.
The Company does not manufacture or sell any devices
that interpret or encode laser cards or smart cards. Vertex has
manufactured and marketed card readers and encoders (writers)
pertaining only to magnetic stripe, which are based on older
technology, but the only sales which are currently being made are
for the repair of units and the supply of spare parts for
existing customers.
Products
Bar Code Products
Vertex distributes bar code scanners, printers and data
collection terminals, both portable and fixed. These devices are
manufactured by various companies with whom The Company has
distribution or VAR agreements. Offered in many different
models, these devices are used mainly in factories, warehouses
and hospitals.
The Company's bar code scanners fall into both contact
and non-contact categories. Vertex offers a bar code label
generating system. It is a microprocessor-based stand-alone
device that furnishes a variety of standard format labels.
In prior years, the Company has manufactured less and
less of the terminals that it sells. The nature of Vertex's
product offering is changing from that of selling hardware
devices to that of selling solutions to customer's needs which is
accomplished mainly through software offerings. The hardware
requirements of these solutions can be supplied by offering
products which best fill the need from a variety of manufacturers
under terms of resellers agreements. Vertex has such agreements
with manufacturers which allow the purchase of these devices at a
discount of 25-50% from the list price of the item.
The Company's Data Collection BridgeNet Transaction
Processor has the capability of accepting simultaneous input from
up to 32 terminals and allows such terminals to communicate with
the host computer bi-directionally through a single host port. In
systems applications, this device is used as a preprocessor to
handle a large number of terminals in order to off-load the host
in time critical applications.
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Software Products
The Company's software product, BridgeNet, performs
data collection and transactional processing functions. It is a
complete Data Collection Management System for real time data
collection providing connectivity of dissimilar equipment and
compatibility with most major networks. It includes a development
system which allows the creation of application programs by
persons not highly skilled as programmers.
While originally conceived and implemented for personal
computers running on DOS operating system, BridgeNet has been
expanded to run on UNIX-based machines such as Sun Sparc, Hewlett
Packard's HP/9000, AT&T 3B2, DEC VAX and IBM RS 6000 platforms
plus the IBM AS/400. BridgeNet also runs on most of the popular
portable data terminals on the market and has been recently
implemented on Windows 95 and Windows NT.
BridgeNet also has communication network support that
allows different types and brands of computers to communicate
with one another and to transfer information between them. It
connects different software operating systems as well as
different hardware platforms that were otherwise incompatible.
While other networking systems allow simple communication links
between different computer platforms, unlike BridgeNet, they
generally do not permit the development and writing of
application software on one operating system for use on other
operating systems. Once a BridgeNet application program has been
written, it can run on any computer hardware platform on which
BridgeNet is resident.
Due to its open architecture, corresponding flexibility
and scope, BridgeNet enlarges the number and type of individuals
who can write and implement applications software for specific
data collection and processing functions. This expansion of use
gives the user quicker and less expensive means of resolving
certain data collection and processing tasks along with ease of
software maintenance in the future.
Recent releases of BridgeNet have included direct
access to all major SQL databases and support for radio frequency
("RF") terminals. Remote terminals (direct connection or radio
frequency) running on a Vertex data collection system can have
direct access to host databases such as Oracle, Informix, Access,
Sybase and others. Powerful new RF terminals are being
manufactured by such companies as Symbol Technologies, Intermec,
Norand and Telxon. These terminals allow applications to be
developed where an operator can be in direct contact with a host
computer database from a remote location in a factory or
warehouse while he is picking and packing an order, checking
inventory status or a similar function. In these instances,
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BridgeNet would be resident on both the RF terminal and the host.
It would handle the application on the RF portable,
communications with the host and the access to the host database.
BridgeNet serves as the necessary software component in
several of Vertex's hardware systems, including its school
attendance/access control and its public telephone, coin-
collection systems.
On February 17, 1997, the Company entered into a
license agreement with Netweave Corporation to develop, market,
and support the NetWeave product worldwide. Vertex will pay
NetWeave Corporation a royalty on the initial licenses sold and
on the annual license fees paid by the customer for maintenance
and support of the NetWeave product. Vertex assumed the
responsibility of the existing customer base for ongoing support
and new license sales.
The NetWeave product lets companies integrate their
otherwise incompatible IBM, Digital, Unisys, Tandem, UNIX, and PC
systems into a seamless whole. The NetWeave product has been used
as a means of managing information by customers such as The New
York Stock Exchange, Amtrak, Credit Agricole(France), Generale
Bank(Belgium) and The Hungarian National Railway. Since the
signing of this license agreement, Vertex has added new customers
such as Rabo Bank(Belgium) and the U. S. Navy.
The synergy that exists between the NetWeave product and
BridgeNet, provides Vertex with access to new customers with
legacy systems and the need for direct data collection solutions
without having to change computer platforms or databases. The
NetWeave product has become the Company's primary offering in the
new Middleware Technologies group.
In December 1997, the Company entered into a Sales and
Marketing agreement with E.D.G. Enterprises, Inc., under the
terms of which Vertex will sell, install and maintain Trak-Star,
Part-Store and Acu-Lite software products. These products are
generally referred to as Warehouse Management Systems
Products(WMS).
Warehouse Management Systems fulfill the requirements of
material storage and retrieval operations in today's Supply Chain
management. The warehouse of today is the buffer between the
manufacturer and/or importer and the retail outlet. In some
cases, the operator of the warehouse is independent and operates
what is known as a third party facility. In that case, companies
contract out their warehouse operations to a single consolidation
facility. The operator performs the warehouse functions of
multiple companies on a contract basis under, all under one roof.
Received goods are verified against purchase orders, bar
coded put-away labels are printed, allocated to specific storage
locations and reported back to the host system. Items can be
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tracked by date, lot and serial number and selected for
inspection by many different criteria. Hand Held batch and Radio
Frequency are utilized to direct picking of customer orders,
replenishment of goods and cycle counting.
Customer orders to be shipped are picked by portable
terminal, printed or bar coded shipping documents are prepared,
routing determined by customer requirements, and packed to pre-
defined container sizes. The customer is then notified of the
shipment by electronic Advanced Shipping Notice(ASN).
Trak-Star provides several options for host computer
interfaces. Host interface transfers are available for most every
mainframe, mini and/or PC network.
Student Identification, Attendance/Access Control System
Vertex has designed a special student identification,
attendance and access control system (the "School System") for
urban public schools. The major purpose of such system is to
automate identification and record attendance of students on site
and, in so doing, restrict the access of unauthorized persons to
school facilities. The system is designed to promote a safer
environment for students and teachers.
To date, Vertex has sold and installed one School System in
each of 60 New York City public high schools. In addition, it
has sold and installed 6 School Systems to Chicago, Illinois.
The company has made no significant sales of these systems
in the past few years and does not foresee significant sales in
the future.
Telephone Coin Collection System
In conjunction with several other companies, Vertex has
developed a system to semi-automate the collection of coins from
public pay telephones (the "Telephone System"). The Telephone
System is designed to reduce manual record keeping, improve
efficiency of coin collections and telephone repairs, and enhance
data collection and processing. The Telephone System operates
with computer hardware and software components and bar code
technology.
In 1991, the Company sold the Telephone Systems to Bell
Atlantic for installation in the states of New Jersey,
Pennsylvania, Delaware, Maryland, West Virginia and Virginia and
to Ameritech for use in the states of Ohio, Michigan, Illinois,
Wisconsin and Indiana.
In Fiscal Year 1998, Vertex was successful in a
competitive bid to replace the hardware, upgrade the system
software and add new features to the system previously sold to
Bell Atlantic. The resulting contract is valued at $4.1M and will
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be taken to revenue in Fiscal year 1999. Bell Atlantic has
acquired NYNEX and now covers the states from Virginia to Maine.
Vertex is discussing the sale of its Telephone System to other
telephone companies.
Card Products
Vertex has manufactured and sold many different models
of magnetic stripe card readers, encoders (writers) and decoders.
Recently, the Company has de-emphasized sales of new card
devices. Presently, the only sales being made in this area is for
repair of previously sold units and for spare parts. There have
been no significant expenditures in either marketing or R&D for
the card products in the fiscal year ending July 31, 1998.
Precision Weighing Equipment and Weights
The Company manufactures and/or sells mechanical
precision weighing equipment, weight sets and accessories under
the trade name of "Torbal". Operating on the torsion principle,
these devices are utilized to weigh small amounts of materials
from a minute fraction of a gram to 4,500 grams. The items
weighed by this equipment include prescription drugs, medicine,
powders, grain, dairy products, inks, gemstones, ball bearings
and other materials.
The Company produces and sells mainly pharmaceutical
balances and weight sets. Vertex enjoys a good reputation in the
pharmacy market. There have been no significant R&D or marketing
expenditures for these products for the fiscal year ending July
31, 1998.
Label Generating Systems
The Model 2400 Label Generating System("2400") was
acquired as part of the asset purchase agreement with Computer
Transceiver Systems Inc.("CTSI") in August 1994. Prior to the
sale of its assets to Vertex, CTSI supplied and supported an
intelligent bar code system, the Execuport 2400, intended for
various applications within the automatic identification market.
Vertex has been manufacturing the 2400 for CTSI.
The 2400 is a computerized, thermal bar code printing
system intended for inventory and document control and for use in
connection with warehousing, distribution and processing in a
variety of markets.
During Fiscal Year 1996, the Company developed the
capability of printing thermal bar code labels in a similar
manner to the Model 2400 Label Generating Systems except that the
label stock used is 4 inches wide instead of 8 1/2 inches. As
with the Model 2400, the host computer need only transmit the
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variable data, while the label formats and character sets are
stored within the printed circuit board itself.
During Fiscal Year 1998, the Company has de-emphasized
the Label Generating product line. Competition in the bar code
printing market place is such that it would be necessary for
Vertex to make a significant investment in new product
development. As the Company is now focused on software and system
solutions, the only sales in the Label Generating System area
will be in support of existing customers.
Product Prices and Revenues
The prices of the Company's products range as follows:
(a) Bar code products from $110 to $5,000; (b) Card products from
$40 to $200(repairs and parts); (c) weighing equipment and
weights from $50 to $1,200; (d) Label Generating Systems from
$100 to $5600 and (e) Software Products pricing varies with the
individual application.
The following table sets forth the contribution to
revenues of each of the Company's principal product lines during
the periods indicated:
<TABLE>
<CAPTION>
Year Ended July 31,
Product Lines (1) 1998 1997 1996
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<S> <C> <C> <C>
Barcode Equipment $412,883 $488,827 $756,039
Card Devices $66,472 $49,806 $64,674
Weighing Equipment
and weights $1,231,481 $1,291,054 $1,100,382
Label Generating
Systems $130,004 $688,195 $1,015,295
Software $753,202 $606,183 $848,090
Middleware $972,901 $104,533 $0
<FN>
(1) All of the above product lines include revenues from
repair services.
</TABLE>
Manufacturing and Supply
Vertex's manufacturing operation runs on a batch basis
in which a group of products move from station to station for
processing and testing at irregular intervals. Manufacturing is
not accomplished on a continuous flow or conventional production
line basis. Generally, the Company manufactures its products
pursuant to specific customer orders. It usually purchases a
major portion of its related inventory upon receiving such
orders.
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The Company also designs and develops its own software
utilizing an in house development staff and outside contractors.
The outside software developers are utilized on an as needed
basis and are experts in their particular field.
As the nature of the Company's business continues to
change to that of a system solutions provider, the manufacturing
portion of the business continues to decrease in size. Presently,
the major item manufactured is the pharmaceutical balance. This
business has remained constant over the past ten years.
Maintenance and Service
Depending on the product concerned, the Company offers
a ninety day to one-year warranty which includes parts and labor
regarding hardware. To date, warranty costs have been
immaterial. All other repair work is performed at standard quoted
rates, which are adjusted from time to time, and which is
generally accomplished in the Company's factory. Products sold
by the Company but manufactured by others are covered by the
manufacturers' standard warranty and service agreements.
Vertex encourages its customers to purchase annual
maintenance contracts on software purchased from the Company. The
normal fee for the maintenance contract is 15-18% of the original
purchase price of the software package. For this fee, the
customer is entitled to "bug" fixes and updates to his software
which are released by the company during the period of the
contract. The contract does not include major revisions.
Marketing and Sales
The Company sells its BridgeNet and WMS products
through a direct sales force, distributors and value added
resellers in the United States. In recent years, the Company has
placed more emphasis on direct sales of systems utilizing its
software to end users.
The NetWeave product is sold through sales
representatives and through direct channels in the United States.
Vertex has a Master Distributor, SX Consultancy LTD., based in
the UK which is responsible for sales of NetWeave in Europe, the
Middle East and Asia. They in turn have distributors for the
product in most of the countries in Europe and Australia and New
Zealand.
The Model 2400 Label Generating System has been
marketed and sold directly to end users and through value added
reseller channels. In recent years MedPlus, Inc. a company in
Cincinnati, Ohio and Time-Med, a company in Burr Ridge, Illinois
have been the primary distributors. Most of Label Generating
System sales during the prior years were made to customers in the
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medical and healthcare fields, and over 50% were made to MedPlus.
On June 5, 1997 Time-Med terminated its contract with the Company
whereby the Company received $75,000 in cash and all of the label
generating systems which Time-Med purchased from the Company as
consideration for terminating the contract. The Company expects
no further major sales of the Label Generating Systems.
Sales of Vertex's weighing equipment and weights are
made through approximately 60 laboratory supply distributors and
wholesale drug suppliers in the United States and Canada. The
Company has no written contract other than purchase orders with
any of these distributors or suppliers of this line and thus such
distribution arrangements are non-exclusive and cancelable at
will. The Company usually grants discounts ranging from 10% to
35%, depending on the product and quantity sold to such
distributors and suppliers.
The Company promotes the sales of some or all of its
products through national advertising, direct mailings,
distributors' catalogs, trade shows and product literature. Its
marketing effort has been designed to support and promote the
sales of its bar code products, software and systems solutions.
Customers
The Company sells its products, directly or indirectly,
to numerous customers, ranging in size from small companies to
Fortune 100 corporations. Its customers are end users, original
equipment manufacturers as well as distributors. Many of its
customers are repeat purchasers. Vertex's business is generally
not seasonal.
Backlog
As of July 31, 1998 the Company's backlog, was
approximately $4,496,000 as compared with a backlog of
approximately $704,000 as of July 31, 1997. The Company
currently anticipates manufacturing and delivering substantially
all of such total backlog during the current fiscal year, which
ends July 31, 1999. Backlog figures generally include those
orders that are in writing and executed by the customer and are
for both products and services. On most orders, payment is due
Within 30 days of shipment.
Research and Development
The Company intends to continue its research and
development activities mainly in the area of its BridgeNet and
NetWeave software products and considers these efforts vital to
its future business and prospect. It anticipates the
continuation and expansion of such efforts primarily directed
toward the improvement of existing products and the development
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of new products and applications in the Automatic Identification
area and Electronic Commerce. For the fiscal years ended July
31, 1998 and 1997 the Company spent $460,781 and $496,862
respectively, for research and development.
Patents
The Company holds approximately 7 active patents all of
which relate to its card reader product line in the United States
and abroad. Approximately 3 products of Vertex are covered by
these patents. Vertex is currently de-emphasizing this product
line. The Company believes, however, that it is possible that a
number its competitors and potential competitors could develop,
produce and market products similar to the Company's if they so
chose.
Employees
As of July 31, 1998 the Company had 25 full time
employees, including its officers, of whom 7 were engaged in
manufacturing, 12 in administration, 5 in engineering and
research and development, and 1 in repair services. As of July
31, 1997, Vertex had a total of 32 full time employees.
All production and maintenance employees of the Company
are covered by a collective bargaining agreement between the
Company and Local 262 of the New Jersey AFLCIO which runs through
November 5, 1999. Other Company's employees, including clerical,
administration, sales and marketing and engineering, are not
covered by such an agreement. The Company considers its
relations with its employees to be satisfactory.
Designing and manufacturing the Company's equipment
requires substantial technical capabilities in many disparate
disciplines, from mechanics and computer science to electronics
and mathematics. While the Company believes that the capability
and experience of its technical employees compare favorably with
other similar manufacturers, there is no guarantee that it can
retain existing employees or attract and hire capable technical
employees it may need in the future, or, if it is successful,
that such personnel can be secured on terms deemed favorable to
the Company.
Competition
In all its products lines, Vertex faces competition
from numerous foreign and domestic manufacturers of various
sizes. In the Company's opinion, dominant companies with which
it competes are Manhattan Associates, Kronos and Epic Data in
data collection software, McHugh Freeman and Robocom Systems in
Warehouse Management Systems, and Microsoft and IBM in middleware
technologies. Many of its competitors have greater financial,
technical and marketing resources than the Company. Competition
-15-
<PAGE>
in these areas is further complicated by possible shifts in
market shares due to technological innovation, changes in product
emphasis and applications and new entrants with greater
capabilities or better prospects.
In the Company's opinion, its weighing equipment and
weights business is part of a maturing industry that offers
little or no prospects for long-term growth and no significant
competition. As a consequence, Vertex is placing greater
emphasis and more of its resources on the development of its bar
code and software products. For all its products, the Company
generally competes on the basis of price, product performance and
features.
Item 2. Properties
The Company leases from an unrelated third party a
40,000 square foot building in Clifton, New Jersey for its
manufacturing facilities and executive offices. This lease runs
from June 1, 1998 to May 31, 2003 at an annual rental of $164,340
for the first 3 years and $170,280 for the next two years.
On May 4, 1998 the Company entered into a five year
sublease with Thea and Shoen, Inc. Under the terms of the
sublease the tenant is required to pay annual rent of $53,010 for
the first three years and $54,720 for the last two year, plus a
proportionate share of utilities. The tenant occupies
approximately 17,000 square feet.
The Company's facilities are considered adequate for
present and expansion purposes.
Item 3: Legal Proceedings
On or about January 5, 1998, the Company was named as a
Respondent, along with Sombers Associates, Inc., The Somers
Group, Inc., NetWeave Corporation and Wilbur Highleyman, in a
monetary claim brought by Channel Group, Inc., a marketing and
sales company, commenced before the American Arbitration
Association, for services Channel allegedly provided to the
Sombers Group, Inc.
The Company challenged its having been named as a party
to the arbitration in the United States District Court.
On or about August 18, 1998 the Court dismissed
Channel's arbitration claim against Vertex. Channel has appealed
the Court's decision.
The Company is aware of the potential for claims
against it and other companies for damages arising from products
and services provided by the Company that were not Year 2000
ready. The Company continues to believe that any such claim
against it would be without merit. See Management Discussion and
Analysis, Year 2000.
-16-
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
The Company did submit matters involving the election
of directors, approval of an increase in the number of shares in
its qualified incentive stock option plan, and approval of its
selection of certified independent accountants to a vote of
security holders through the solicitation of proxies or otherwise
during the second quarter of the fiscal year covered by this
report.
-17-
<PAGE>
PART II
Item 5: Market for Company's Common Equity and Related
Stockholder Matters
The principal market for the Company's shares of Common
Stock, par value $.005 per share is the over-the-counter bulletin
board market under the symbol VETX.
The following table sets forth, for the periods shown,
the high and low sale prices concerning such shares of Common
Stock:
High Low
1997
First Quarter 1 3/4 1 1/16
Second Quarter 1 1/2 15/16
Third Quarter 1 1/4 1
Fourth Quarter 1 3/16 11/16
1998
First Quarter 1 1/16 11/16
Second Quarter 1 3/8
Third Quarter 15/16 1/2
Fourth Quarter 1 1/2 5/8
(1) The Company split its common stock on a 2 for 1 basis
on April 19, 1993.
The approximate number of holders of record of the
Company's shares of Common Stock, par value $.005 per share as of
September 30, 1998 was 252. This number includes numerous
brokerage firms that hold such shares in street name. The
Company estimates that there are more than 3,000 beneficial
shareholders as of October 23, 1998 There were no holders of
record of the Company's shares of Preferred Stock, par value $.01
per share.
The Company has not paid any cash dividends on its Common
Stock and does not intend to do so in the foreseeable future.
-18-
<PAGE>
<TABLE>
Item 6. Selected Financial Data
A SUMMARY OF SELECTED FINANCIAL DATA
For the Years Ended July 31, Are As Follows:
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenues $3,566,943 $3,228,598 $3,784,480 $ 3,147,409 $ 4,013,619
Net Income (Loss) $ 48,446 $ (473,060) $ 237,748 $(1,219,339) $ (607,840)
Average Number
of Shares
Outstanding
Basic 5,133,674 5,102,003 5,090,719 5,060,832 4,805,401
Diluted 5,239,920 5,102,003 5,360,763 5,060,832 4,805,401
Net Income or
(Loss)Per Share
Basic $.01 $(.09) $.04 $(.24) $ (.13)
Diluted $.01 $(.09) $.05 $(.24) $ (.13)
Working Capital $ 1,594,271 $ 1,184,762 $ 1,489,689 $ 1,077,890 $ 1,924,166
Current Ratio 2.81:1 3.03:1 4.81:1 2.93.1 6.17:1
Property,
Equipment and
Capital Leases $ 1,941,283 $ 1,895,152 $ 1,867,259 $ 1,725,122 $ 2,235,478
Less: Accumulated
Depreciation &
Amortization $ 1,653,962 $ 1,545,071 $1,393,102 $ 1,268,462 $ 1,730,566
Property,
Equipment
Capital Leases and
and Leased
Equipment - Net $ 287,321 $ 350,081 $ 474,157 $ 456,660 $ 504,912
Total Assets $3,228,066 $ 2,433,455 $2,715,856 $ 2,663,031 $ 3,304,595
Long-Term Debt $11,424 $ 17,065 $ 32,875 $ 38,926 $ 68,382
Stockholder's
Equity $ 2,336,569 $ 1,831,412 $2,285,377 $ 2,033,251 $ 2,815,546
</TABLE>
-19-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Year ended July 31, 1998 compared with Year Ended July 31, 1997
Operating Revenues
Operating revenues increased $338,345 or 10% to
$3,566,943 for the fiscal year ended July 31, 1998 as
compared to $3,228,598 for the same period in 1997. Revenue
for the weighing equipment product line decreased 5% or
$59,573 to $1,231,481 for the year ended July 31, 1998 as
compared to $1,291,054 in 1997. The decrease is due to a
decrease in product demand. Revenue for the bar code
product line decreased $75,945 or 16% to $412,883 for 1998
as compared to $488,827 for fiscal 1997. The decrease is
due to a lack of orders for bar code hardware products. For
fiscal 1999 the Company expects revenues of approximately
$3.3 million of bar code hardware primarily from the Bell
Atlantic contract for 1,000 data collection devices.
Revenue for the Card Reader product line increased to
$66,472 in 1998 from $49,806 for the same period in 1997.
Management does not expect revenue from this product line to
increase and currently the company is supporting its
existing customer base.
Revenue for the software product line which
includes the Company's BridgeNet software product and
warehouse management systems increased $147,019 or 24% to
$753,202 in fiscal 1998 as compared to $606,183 for the same
period in 1997. The increase is primarily due to the Bell
Atlantic software order which was previously announced by
the Company. The Company has added additional software
products in addition to BridgeNet to its current list of
products, such as warehouse management systems and it's new
e-commerce product, "evolve". Management expects revenue
from these products to increase in future years. Revenue
from the Label Generating Systems product line decreased
$558,191 or 81% to $130,004 for the year ended July 31, 1998
as compared to $688,195 for the same period in 1997. The
decrease is due to a decrease in demand for the Model 2400
Label Generating System. The Company is currently supporting
existing customers and does not expect any future revenue
from this product line. Revenue from the Netweave licensing
agreement increased to $972,901 for fiscal 1998 as compare
$104,533 for the same period in 1997. The Company entered
into the Netweave licensing agreement in February 1997
therefore only had five months of revenues in fiscal 1997.
-20-
<PAGE>
Operating Expenses
Cost of Sales decreased to 48% of revenues 1998
as compared to 55% in 1997. The decrease is partially
attributed to reduced costs in operating the Netweave
licensing agreement, in addition to a change in the sale mix
for fiscal 1998 as compared to 1997. As the Company moves
to a more service oriented company, the cost of sales should
continue to decrease.
Selling and administrative expenses increased
$37,777 or 3% to $1,549,726 as compared to $1,511,949. The
increase is partially due to having twelve months of
operating expenses for the Netweave licensing agreement in
fiscal 1998 as compared to only five months of operating
expenses in fiscal 1997.
Research and development expenses decreased 7%
or $36,081 to $460,781 for the year ended July 31, 1998 as
compared to $496,862 for the same period in 1997. The
decrease is due to a decrease in the staff of the R&D
department in addition to a decrease in R&D expenses for
the Netweave licensing agreement.
Operating Income (Loss)
The Company recorded an operating loss of
$176,716 for fiscal 1998 as compared to an operating loss of
$580,489 in fiscal 1997. The operating loss in 1998 is
primarily attributed to the Company's sales mix and
operating revenues not increasing sufficiently to cover the
operating expenses of the Company's operations. Management
expects to increase revenues and keep operating expenses
constant in 1999.
Other income
Interest income decreased $15,877 to $22,924 in
1998 as compared to $38,801 in 1997. The decrease is due to
funds not available to invest in the Company's money market
account and generate interest income. Interest expense
decreased $3,610 in fiscal 1998 to $2,762 as compared to
$6,372 in fiscal 1997. The decrease is due to the Company's
reduction in capital leases.
In 1997 the Company recorded $75,000 in other
income. The $75,000 pertains to the termination of Time-
Med's contract to purchase label generating systems from the
Company. The Company received $75,000 in cash and all of
the previously purchased LGS from Time-Med in settlement on
the contract. In 1998 the Company did not record any other
income.
-21-
<PAGE>
Income Tax Provision (Benefit)
The Company recorded an income tax benefit of
$205,000 for fiscal 1998 as compared to no income tax
provision or benefit for fiscal 1997. (See footnote 9 on
page F-15)
The income tax benefit for 1998 represents the
Company's ability to utilize the net operating loss
carryforwards which were generated in past years in fiscal
1999 and beyond.
Net Income (Loss)
The Company recorded net income of $48,446 in
1998 as compared to a net loss of $473,060 in 1997. The net
income in 1998 is primarily attributed to an income tax
benefit of $205,000 which was recorded in the fourth quarter
of fiscal 1998.
The Company has shifted its focus to warehouse
management systems and its e-commerce product, "evolve".
The Company continues its efforts on the BridgeNet Data
Collection management systems and the Netweave middleware
product.
Management expects to remain profitable for
fiscal 1999 partially due to the Bell Atlantic contract,
warehouse management systems, evolve, Netweave middleware
and BridgeNet systems.
The Company continues to expand its customer
base which includes: AT&T, Bell Atlantic, Credit Lyonnais,
Dell Computers, Tenneco Packaging, MCI, Lucent Technologies,
Gemini Industries, P.C. Richards and Tommy Hilfiger.
Year 2000
The Year 2000 issue arises because many computer
hardware and software systems use only two digits to
represent the year. As a result, these systems and programs
may not process dates beyond 1999, which may cause errors in
information or systems failures. Assessments of the
potential effects of the Year 2000 issues vary markedly
among different companies, governments, consultants,
economists and commentators, and it is not possible to
predict what the actual impact may be. Given this
uncertainty, the Company recognizes the need to remain
vigilant and is continuing its analysis, assessment and
planning for the various Year 2000 issues.
-22-
<PAGE>
In early 1998, the Company developed a program
to determine Year 2000 compliance of its computer systems,
products and services, as well as computer hardware which it
has sold but which it did not manufacture. The Company's
current product and service offerings have been designed to
be Year 2000 ready. A Year 2000 committee was formed and
several meetings have taken place to address the Company's
Year 2000 issues. The Company has identified three areas of
inquiry respecting Year 2000 compliance -- (1) the Company's
internal finance and informational systems, (2) software and
hardware sold or licensed to customers, and (3) third-party
relationships, including vendors, suppliers and customers.
The Company is in the process of conducting a
review of the above areas to determine exposure to Year 2000
issues. In the financial and information system areas, a
number of applications have been identified as being Year
2000 compliant due to their recent implementation. The
Company's core financial and reporting systems are Year 2000
compliant. Tests on the remaining systems are being
performed. The Company anticipates completing these tests
in early 1999.
In the software and hardware area, the Company
is in the process of identifying areas of exposure. The
original version of Netweave which is no longer sold has
been determined not to be Year 2000 compliant.
The Company is presently developing an upgrade
to the old version of Netweave which is Year 2000 compliant
which will be supplied to the customers currently using this
old version of Netweave.
The Company will supply all BridgeNet customers
with the processing code to insure Year 2000 compliance.
Both of the above upgrades will be available by early 1999.
In the third-party area, the Company is in the
process of assessing the Year 2000 readiness of its key
suppliers, subcontractors and business partners. This
project has been undertaken with a view toward assuring that
the Company has adequate resources for required supplies and
components, and to enable the Company to identify potential
Year 2000 non-compliance problems with hardware which it has
sold but did not manufacture. The Company plans to complete
this project in early 1999. Letters and questionnaires have
been sent out and the Company is waiting for responses.
-23-
<PAGE>
The Year 2000 readiness of the Company's
customers varies and the Company is actively encouraging its
customers to prepare their own systems for the Year 2000.
The Company's major customer, Bell Atlantic, has tested the
Company supplied software, BridgeNet, in conjunction with
their internal systems and found BridgeNet to be Year 2000
compliant. Efforts by customers to address Year 2000 issues
may absorb a substantial part of their information
technology budgets in the near term and customers may either
delay or accelerate the deployment and implementation of new
applications and systems. This could potentially decrease
demand for the Company's products and services and thereby
effect the Company's revenues.
Although the Company believes its costs in steps
addressing any Year 2000 issues (for testing, third party
inquiries, and remedies) shall be minimal and will not have
a material adverse impact on the Company's financial
position, any failure or delay in addressing the issues
could result in the disruption of business in the Year 2000.
In addition, the Company is aware of the potential for
claims against it and other companies for damages arising
from products and services provided by the Company that were
not Year 2000 ready. The Company continues to believe that
any such claims against it would be without merit.
The Company has reviewed all internal equipment
(excluding computer equipment) which may have embedded
systems which could be date sensitive and determined that
there would be no adverse affect on Company operations if
these systems were determined not to be Year 2000 compliant.
The Company has developed a contingency plan
appointing a trouble shooting team of employees to quickly
evaluate and remedy a Year 2000 problem when one may occur
upon reaching that year.
Finally, the Year 2000 presents a number of
other risks and uncertainties that could effect the Company,
including utilities failures, competition for its personnel
skilled in the resolution of Year 2000 issues, building
systems failures, environmental systems failures, office
equipment failures, and the nature of government responses
to Year 2000 issues, among others. While the Company
continues to believe that the Year 2000 matters discussed
above will not have a material impact on its business,
financial condition or results of operations, it remains
uncertain whether or to what extent the Company may be
effected.
-24-
<PAGE>
Year ended July 31, 1997 compared with Year Ended July 31, 1996
Operating Revenues
Operating revenues decreased $555,882 or 15% to
$3,228,598 for the fiscal year ended July 31, 1997 as
compared to $3,784,480 for the same period in 1996. Revenue
for the weighing equipment product line increased 17% or
$190,672 to $1,291,054 for the year ended July 31, 1997 as
compared to $1,100,382 in 1996. The increase is due to an
increase in product demand. Revenue for the bar code
product line decreased $267,212 or 35% to $488,827 for 1997
as compared to $756,039 for fiscal 1996. The decrease is
due to a lack of orders for bar code hardware products.
Revenue for the Card Reader product line decreased to
$49,806 in 1997 from $64,674 for the same period in 1996.
Management does not expect revenue from this product line to
increase and currently the company is supporting its
existing customer base.
Revenue for the software product line which
includes the Company's BridgeNet software product decreased
$137,374 or 16% to $710,716 in fiscal 1997 as compared to
$848,090 for the same period in 1996. BridgeNet continues
to be the Company's main focus and the product of the
future. The Company did not generate as many custom
application projects as it had forecasted for 1997.
Management expects revenue from the BridgeNet product line
coupled with the NetWeave product line to increase in future
years. Revenue from the Label Generating Systems ("LGS")
product line decreased $327,100 or 32% to $688,195 for the
year ended July 31, 1997 as compared to $1,015,295 for the
same period in 1996. The decrease is due to a decrease in
demand for the Model 2400 Label Generating System. The
decrease is also due to Time-Med terminating its contract to
purchase the Model 2400 LGS.
Operating Expenses
Cost of Sales increased to 55% of revenues 1997
as compared to 46% in 1996. The increase is attributed to a
reserve for obsolete inventory of $132,000 and in cost of
sales of $155,000 for the NetWeave Licensing agreement.
Selling and administrative expenses increased
$226,411 or 18% to $1,511,949 as compared to $1,285,538.
The increase is primarily due to the NetWeave Licensing
Agreement which generated $123,000 in selling and
administrative expenses for fiscal 1997. The increase is
also due to a $50,000 contingency reserve for the
restructuring of the NetWeave Licensing Agreement in
addition to a $80,000 reserve for the NetWeave note
receivable and factored receivables.
-25-
<PAGE>
Research and development expenses increased 32%
or $119,544 to $496,862 for the year ended July 31, 1997 as
compared to $377,318 for the same period in 1996. The
increase is due to $68,000 from the NetWeave Licensing
Agreement in addition to $51,000 from the Company's R&D
department. The Company did not generate sufficient custom
programming jobs so programmers spent more time on
enhancing the Company's software products.
Operating Income (Loss)
The Company recorded an operating loss of
$580,489 for fiscal 1997 as compared to operating income of
$392,566 in fiscal 1996. The operating loss in 1997 is due
to a number of factors such as a decrease in revenue of
$555,882 coupled with an increase in operating expenses of
$417,173. The operating loss is also due to $262,000 in non-
recurring changes for fiscal 1997. Management expects to
increase revenues and keep operating expenses constant in
1998.
Other income
Interest income increased from $21,961 to
$38,801 in 1997 as compared to $16,840 in 1996. The
increase is due to additional funds available which the
Company invested and generated interest income. Interest
expense decreased $4,462 in fiscal 1997 to $6,372 as
compared to $10,834 in fiscal 1996. The decrease is due to
the Company's reduction in capital leases.
In 1997 the Company recorded $75,000 in other
income. The $75,000 pertains to the termination of Time-
Med's contract to purchase label generating systems from the
Company. The Company received $75,000 in cash and all of
the previously purchased LGS from Time-Med in settlement on
the contract.
Net Income (Loss)
The Company recorded a net loss of $473,060 in
1997 as compared to net income of $237,748 in 1996. The net
loss in 1997 is attributed to a decrease in operating
revenues, and an increase in operating expenses. The
Company recorded $262,000 in non-recurring charges in fiscal
1997. The non-recurring charges relate to inventory
reserve, reserve for notes receivable and factored
receivables and the restructuring of the NetWeave Licensing
Agreement.
-26-
<PAGE>
The Company continues to focus on its BridgeNet
Data Collection Management System and the NetWeave
middleware product. The majority of the Company's R&D
expenditures are spent on BridgeNet and NetWeave. The
Company continued its R&D effort on porting BridgeNet to
Windows 95 and Windows NT and expects to generate future
revenue from this effort.
In addition the Company has hired a new Vice
President of Sales and Marketing in August, 1997 and has
hired an additional sales person in October 1997. The
Company anticipates increased revenues from the above two
hires.
The Company continues to expand its customer
base which includes: AMP, Inc., Bell Atlantic, Lucent
Technologies, Gemini Industries, P.C. Richards and Tommy
Hilfiger. The Company anticipates future custom application
projects with the above mentioned companies.
Capital Resources and Liquidity:
Working capital increased to $1,594,271 at July
31, 1998 from $1,184,762 on July 31, 1997. The increase is
primarily due to an increase in accounts receivable and
investment securities, a decrease in inventory, coupled with
an increase in accrued expenses and other liabilities and an
increase in deferred revenue in 1998 as compared to 1997.
The Company's cash position increased from $608,553 at July
31, 1997 to $631,362 at July 31, 1998 due to the above
factors. In September 1998 the Company secured a $600,000
working capital line of credit with a New Jersey lending
institution. The line of credit was specifically granted to
fund the Bell Atlantic project and expires on February 28,
1999.
Capital expenditures were approximately $46,000
and $28,000 for the fiscal years ended July 31, 1998 and
1997, respectively. Capital expenditures are primarily
computer equipment used for Research and Development and
internal office use.
Item 8. Financial Statements and Supplementary Data
The information called for by this "Item 8" is
included following the "Index to Financial Statements and
Schedules" appearing at the end of this Form 10-K.
-27-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On March 6, 1998 the Company filed an 8-K for the
change in independent public accountants from Arthur
Andersen, LLP to Sax, Macy, Fromm & Company for fiscal year
ended July 31, 1998.
-28-
<PAGE>
<TABLE>
PART III
Item 10. Directors and Executives Officers of the Company
Certain information about directors and
officers of the Company is contained in the following
table:
<CAPTION>
Name Age Position
<S> <C> <C>
James Q. Maloy(1) 66 Chairman
and Director
Ronald C. Byer(1) 65 President,
CEO and
Director
Robert T. McLaughlin 36 Chief Financial
Officer and
Treasurer
Barbara H. Martorano 41 Secretary
Wilbur Highleyman(2) 65 Director
George Powch(2) 50 Director
Irwin Dorros(2) 69 Director
<FN>
(1) Members of Stock Option Committee and Trustees under
the 401(K)Plan.
(2) Members of Audit Committee.
</TABLE>
All directors hold office until the next annual
meeting of shareholders of the Company or until their
successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors.
Directors who are not officers receive $1,000 annual
compensation, paid quarterly, for attending director's
meetings and are reimbursed for all related expenses.
Mr. Maloy, a co-founder of the Company, has been its
Chairman of the Board of Directors and a director on a
full-time basis since its inception in 1974. In 1983, he
became President and chief executive officer as well.
From 1962 to 1974, Mr. Maloy served as executive vice
president, as well as marketing and engineering managers
-29-
<PAGE>
for Datascan, Inc., a publicly-held company that was
acquired by Dymo Industries, Inc. in 1972. Datascan was
a designer and manufacturer of electro-mechanical
equipment. From 1955 to 1962 Mr. Maloy was employed by
Bendix Aviation Corp. rising to a project manager and
heading a major group. At Bendix he was involved in the
design and manufacture of electronic test equipment for
the military. Mr. Maloy is a graduate of City College of
New York with a bachelor's degree in electrical
engineering. On July 31, 1995 Mr. Maloy stepped down as
President of the Company and on January 17, 1996 he
stepped down as Chief Executive Officer, but remains
Chairman of the Board, and a Director.
Mr. Byer joined the Company in 1975 and has served
as Vice President of Marketing and Sales since 1979,
Treasurer since 1983, Executive Vice President since 1985
and a Director since 1976. From 1963 to 1975, Mr. Byer
held various positions at Datascan, Inc. After its
acquisition by Dymo Industries, Inc., he became manager
of its newspaper computer systems group. From 1958 to
1972 Mr. Byer was employed by Bendix Aviation Corp. Mr.
Byer has a bachelor's degree in electrical engineering
from Rensselaer Polytechnic Institute ("RPI"). Mr. Byer
was promoted to President of the Company on July 31, 1995
and to Chief Executive Officer on January 17, 1996.
Mr. McLaughlin joined the Company in November, 1995
and has served as Chief Financial Officer and Treasurer.
Mr. McLaughlin is a Certified Public Accountant and
started his career in public accounting with the firm of
Peat Marwick Mitchell & Co. From 1988 to 1992 he was
Vice President, Treasurer and Controller of Valley
Savings Bank (NASDAQ:VSB). From 1992 to 1994 he was
Assistant Controller of Hanover Direct, Inc. (AMEX:HDI).
From 1994 until he joined the Company Mr. McLaughlin
operated his own public accounting firm. Mr. McLaughlin
has a Bachelor of Science degree in accounting from
Manhattan College.
Mrs. Martorano joined the Company in June, 1990 and
has served in a variety of positions, including Sales
Coordinator, Office Administrator, Assistant to the
Secretary, President and Chairman of the Board, as well
as, Corporate Secretary as of January 17, 1996. Mrs.
Martorano is a graduate of Berkeley, Garret Mountain
Campus.
Dr. Highleyman was elected to the Company's Board of
Directors in 1985. He is currently chairman of NetWeave,
a network software vendor. From 1962 to date he founded
and has served as chairman of the board of directors of
-30-
<PAGE>
the Sombers Group, a supplier of turnkey software
packages. He founded Mini Data Services, Inc., a data
processing services supplier in 1969 and served as its
chairman of the board from that date until 1991. He was
also a director of Science Dynamics, Inc., a publicly-
held company. From 1962 to 1968 he was co-founder and
vice-president of Data-Trends, a publicly-held supplier
of turnkey realtime computer systems. He holds a
bachelor of electrical engineering from RPI, a masters of
electrical engineering from Massachusetts Institute of
Technology and a doctorate of electrical engineering from
Brooklyn Polytechnic Institute.
Mr. Powch has served as a Director of the Company
since 1987. He is President & CEO of Huber + Suhner
(North America) Inc., responsible for the North American
units of Huber + Suhner AG of Switzerland. These include
Champlain Cable Corporation, a manufacturer of specialty
wire and cable, Huber + Suhner, Inc. a manufacturer and
reseller of RF and microwave components for
telecommunications, and Huber + Suhner (Canada) Ltd. He
was previously Vice President & General Manager of Cinch
Connectors, a division of Labinal Components & Systems,
Inc. From 1987 to 1993, Mr. Powch was President of BFI-
IBEXSA International Inc., a distributor of electronic
components. Prior to that, he held a variety of
positions including President of Diffracto Ltd.(1984-
1986) and VP & General Manager of Bendix's Robotics
Division (1981-1983). Mr. Powch has an MBA degree from
Harvard Business School, an M.S. degree from Stanford
University and a B.S. from MIT, both in Electrical
Engineering.
Dr. Dorros was elected to Vertex's Board of
Directors in 1987. He is currently President of Dorros
Associates, consultants in telecommunications, and serves
as Chairman of the New Jersey Commission on Science and
Technology. From 1982 to July 1993 Dr. Dorros served as
Executive Vice President and Director of Bell
Communications Research ("Bellcore"). He was responsible
for all the Bellcore's technical programs including
research, development and engineering. From 1978 to
1982, he served as an Assistant Vice President of AT&T
for network planning. From 1956 to 1978, Dr. Dorros was
employed by Bell Telephone Laboratories in various
capacities, including Director of Systems Engineering
programs. His current consulting work pertains to
management and mergers and acquisitions in
telecommunications. Dr. Dorros holds Bachelor and Master
of Science degrees from the Massachusetts Institute of
Technology and a Doctorate in Electrical Engineering from
Columbia University. He is a member of the National
Academy of Engineering.
-31-
<PAGE>
Item 11. Executive Compensation
The following table sets forth information concerning
the annual and long-term compensation for services in all
capacities to the Company for the fiscal years ended July
31, 1998, 1997 and 1996 of those persons who were, at
July 31, 1998, executive officers of the Company earning
annually $100,000 or more:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Long-Term Compensation All Other
Compensation Compensation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted All
Name and Annual Stock LTIP Other
Principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald 1998 $115,000 - $5,553 - - - -
C.Byer
CEO 1997 $115,000 - $6,150 - - - -
President
1996 $106,480 - $6,055 - - - -
<FN>
(1) All Officers and non-union employees of Vertex are covered by
a pension plan that is financed by voluntary employee and Company
contributions. See "401(k) Savings and Retirement Plan" and Note 8
of Notes to Financial Statements.
(2) Messr. Byer is provided with an automobile by the
Company; a portion of which may represent the personal use thereof
estimated at $2,500 per year and is excluded.
</TABLE>
On November 13, 1995 Mr. McLaughlin was granted 50,000 stock
options at an exercise price of $.75 which vest over five
years and expire on November 13, 2005. On November 13, 1997
Mr. McLaughlin was granted 25,000 stock options at an
exercise price of $.81 which vest over five years and expire
on November 13, 2007. These shares were granted under the
Company's Incentive Stock Option Plan. Stock appreciation
rights are not granted under the Incentive Stock Option
Plan. The Company does not currently have in effect a Long-
Term Incentive Plan ("LTIP") and, consequently, no such
awards were granted to Vertex's executive officers in fiscal
years covered above.
There were no unexercised options, under the incentive
stock option plan to purchase the Company's common stock in
Fiscal 1998 by the above named officers. On March 31
1997 Mr. McLaughlin exercised an option for 10,000 shares
of common stock.
-32-
<PAGE>
The Company had no other executive officers other than
Mr. Maloy, Mr. Byer, Mr. McLaughlin and Mrs. Martorano.
The Company entered into a three (3) year employment
contract with Robert Morsch commencing on May 1, 1998 to
serve as its Vice President of Sales and Marketing. Under
this contract, Mr. Morsch is to receive as compensation: (a)
an annual salary of $95,000 per annum plus a cost of living
increase each year; (b) 1% commission on the company's
operating revenue; (c) grant of 70,000 stock options at an
exercise price of $.68 (35,000 options immediately vest,
with the remaining 35,000 options vesting on January 1,
1999); (d) use of a leased automobile costing up to $750 per
month and a right of first refusal to purchase such vehicle
at the end of the lease term;(e) reimbursement of business
expenses incurred and (f) the same group benefits received
by other Company executives. The above stock options are in
addition to the 200,000 options previously granted at an
exercise price of $.75 pursuant to the Company's Incentive
Stock Option Plan.
On September 10, 1998 the Company entered into a two
(2) year employment contract with Ronald Byer, Jr. to serve
as its Director of Middleware Technologies. Under this
contract, Mr. Byer, Jr. Is to receive as compensation: (a)
an annual salary of $104,500 per annum for the first year
and $109,725 per annum for the second year; (b) a grant of a
five year stock option to purchase up to 25,000 shares of
the Company's common stock under its Incentive Stock Option
Plan at an exercise price of $.94; (c) reimbursement of
business expenses and (d) the same group benefits received
by other company executives. The above stock options are in
addition to the 50,000 options previously granted at an
exercise price of $1.06 pursuant to the Company's Incentive
Stock Option Plan.
Under the Company's Incentive Stock Option Plan ("The
Plan"), options to purchase a maximum of 2,000,000 shares of
its Common Stock may be granted to officers and other key
employees of the Company. Options granted under the Plan
are intended to qualify as incentive stock options under the
Economic Recovery Tax Act of 1981 (the "1981" Act) as
amended.
The Plan is administered by the Board of Directors and
a committee presently consisting of two members of the Board
which determines which persons are to receive options, the
number of shares that may be purchased under each option and
the exercise prices. In the event an optionee voluntarily
terminates his employment with the Company, he has the right
to exercise his accrued options within 30 days of such
termination. However, the Company may redeem any accrued
options held by each optionee by paying him the difference
-33-
<PAGE>
between the option price and the then fair market value. If
an optionee's employment is involuntarily terminated, other
than because of death, he also has the right to exercise his
accrued options within 30 days of such termination. Upon
death, his estate or heirs have one year to exercise his
accrued options. The maximum term of any option is ten
years and the option price per share may not be less than
the fair market value of the Company's shares on the date
the option is granted. However, options granted to persons
owning more than 10% of the voting shares of the Company may
not have a term in excess of five years and the option price
per share may not be less than 110% of the fair market value
on the date the option is granted.
If the aggregate fair market value of the shares of
Common Stock (determined at the time the option is granted)
with respect to which incentive stock options are
exercisable for the first time by such optionee during any
calendar year (under all such plans) exceeds $100,000, then
only the first $100,000 of such shares so purchased will be
treated as exercised under the Plan and any excess over
$100,000 so purchased shall be treated as options which are
not incentive stock options. This rule shall be applied by
taking options into account in the order or sequence in
which they are granted. Options must be granted within ten
years from the effective date of the Plan.
Options granted under the Plan are not transferable
other than by will or by the laws of descent and
distribution. Options granted under the Plan are protected
by anti-dilution provisions increasing the numbers of shares
issuable thereunder and reducing the exercise price of such
options, under certain conditions. The Plan expires on
October 9, 2005. Any option outstanding at the termination
date will remain outstanding until it expires or is
exercised in full, whichever occurs first. At the Company's
annual meeting in the second quarter of fiscal 1998 the
Company's shareholders approved an additional 500,000 shares
of common stock to be issued under the incentive stock
option plan for a total of 2,000,000 shares of common stock
in the plan.
As of July 31, 1998 options to acquire 950,000 shares
of the Company's Common Stock at exercise prices of $.475 to
$8.12 per share have been granted under the Plan to 13
employees and three directors of the Company. As of July
31, 1998 298,400 options have been exercised and 827,600
options are outstanding, with 373,800 options presently
exercisable.
During fiscal 1998 the Company granted 20,000 options
at an exercise price of $.38 per share, to the Company's
legal counsel as partial payment for legal services. These
options are currently exercisable and expire on December 23,
-34-
<PAGE>
2000. The underlying shares have been Registered under the
Securities Act of 1933 on form S-8. During fiscal 1997 the
Company granted 20,000 and 120,000 options to two service
firms as partial payment for financial, legal and consulting
services. The 20,000 options are exercisable at $1.00 and
expire on January 9, 2000. The 120,000 options expired on
July 7, 1998. The underlying shares have been registered
under the Securities Act of 1933 on form S-8. During fiscal
1996 the Company granted 35,000 options to two service firms
as partial payment for financial, legal and consulting
services. The options are exercisable at 20,000 options at
$.91 and 15,000 options at $.75 and expire on February 14,
2001 and January 26, 1999.
Vertex maintains a 401(k) savings plan (the "401(k)
Plan") for the benefit of all employees age 18 or over who
have worked for at least six months and who are not covered
by a collective bargaining agreement. The 401(k) Plan is
qualified under Section 401(a) of the Code and is intended
to qualify under Section 401(k) of the Code.
Under the current terms of the 401(k) Plan, employees
may elect to defer from Federal income tax from 1% to 17% of
their annual compensation, not to exceed Internal Revenue
Code limits and have it contributed to the 401(k) Plan on
their behalf. In addition, Vertex makes a contribution of
up to 3% of a contributing employee's salary. The salary
deferrals are fully vested, while the Company's
contributions vest 20% upon the completion of the second
year of service with the Company or its subsidiaries, 20%
upon completion of the third year of service, 20% upon the
completion of the fourth year of service, 20% upon the
completion of the fifth year of service and the remaining
20% upon the completion of the sixth year of service or, if
earlier, upon the death, disability or retirement of the
participant. Benefits under the 401(k) Plan are generally
distributed in a lump sum following the participant's
retirement, death, disability or termination of employment,
or in a case of hardship, prior to the termination of the
participant's employment.
The assets accumulated by the 401(k) Plan are held in a
trust, the trustees of which are Messrs. Maloy and Byer, who
are officers and directors of the Company. Under the terms
of the 401(k) Plan, Vertex has agreed to indemnify the
trustees to the fullest extent permitted by law against any
liability whatsoever for any action taken or omitted by them
in good faith in connection with the 401(k) Plan unless it
results from their own willful misconduct.
-35-
<PAGE>
The charge against income for matching contributions
for fiscal 1998, 1997 and 1996 were $3,255, $5,787, and
$14,865, respectively.
The following directors of Vertex were granted
qualified stock options in the amounts specified opposite
their names, at the exercise prices so indicated and on the
dates specified:
<TABLE>
<CAPTION>
Name of Number of Exercise Price Date of
Director Option Shares (1) Per Option (1) Grant
<S> <C> <C> <C>
Wilbur Highleyman 32,000 $ 4.25 1/20/93
10,000 1.00 6/11/97
Irwin Dorros 32,000 $ 4.25 1/20/93
10,000 1.00 6/11/97
George Powch 24,000 $ 4.25 1/20/93
10,000 1.00 6/11/97
<FN>
(1) Adjusted for 2 for 1 stock split effective April 19, 1993.
(2) No options were granted to Directors in Fiscal 1998.
(3) The above options were granted under the incentive stock
option plan as discussed above.
</TABLE>
-36-
<PAGE>
Item 12: Security Ownership of Certain Beneficial Owners and
Management
The following information table sets forth certain
information regarding the Company's Common Stock owned on
September 30, 1998 by (i) each who is known by the Company to own
beneficially more than 5% of its outstanding Common Stock, (ii)
each director and officer, and (iii) all officers and directors as
a group:
Names and Address of
Directors, Officers and Shares Owned (1) (2)
5% Shareholders Number Percent
James Q. Maloy 1,202,208 23.4
23 Carol Street
Clifton, New Jersey
Ronald C. Byer 448,422 8.7
23 Carol Street
Clifton, New Jersey
All officers and director 1,702,630 33.1
as a group (4 persons)(3)
(1) Does not give effect to the issuance of up to 2,000,000
shares of Common Stock reserved for issuance under the
Company's incentive stock option plan, 445,000 shares
under non-qualified stock options.
(2) Gives effect to a 2 for 1 stock split effective April
19, 1993
(3) Includes 50,000 shares of common stock owned by Mr.
Powch and 2,000 shares of Common Stock owned by Dr.
Highleyman's pension plan.
Item 13. Certain Relationships and Related Transactions
On February 17, 1997 the Company entered into a
License Agreement with NetWeave Corporation to develop,
market, sell and support the NetWeave product worldwide.
The Company will pay NetWeave a royalty on the initial
licenses sold and on annual license fees paid by the
customer for maintenance and support of the NetWeave
product. Under terms of the License Agreement, NetWeave
Corporation assigns its existing customer base to The
Company along with the existing sales representative
agreements in the U.S. and the master distributor agreement
with SX Consultancy for Europe and Asia. SX Consultancy is
a European software distributor and developer of custom
software based in the UK with ties to distributors in Asia.
-37-
<PAGE>
Dr. Wilbur H. Highleyman, Chairman of Netweave Corp., has
been a director of Vertex since 1985 and presently owns
25.5% of Netweave Corp. Ronald C. Byer, Jr., the President
of Netweave Corp., is the son of Ronald C. Byer, the
President of the Company. Ronald C. Byer, Jr., presently
owns 2.1% of Netweave Corp.
-38-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K
(a) The following documents are filed as a part of this
report:
1. and 2. Financial Statements:
1. Financial Statements and Supplementary Data:
Index to Financial Statements
Reports of Independent Certified Public
Accountants
Balance Sheets as of July 31, 1998 and 1997
Statements of Operations for the Years Ended July
31, 1998, 1997 and 1996
Statements of Changes in Stockholders' Equity for
the Years Ended July 31, 1998, 1997 and 1996
Statements of Cash Flows for the Years Ended July
31, 1998, 1997 and 1996.
Notes to Financial Statements
2. Financial Statement Schedules:
Schedules for the Years Ended July 31, 1998, 1997
and 1996.
Schedule II - Valuation Qualifying Accounts
Schedules other than those listed above have been
omitted because they are not applicable or the
required information is shown in the financial
statements or notes thereto.
-39-
<PAGE>
3. Exhibits:
The following list of exhibits are incorporated by
reference from the Company's Registration Statement filed
under the Securities Act of 1933, as amended (File No. 33-
897-NY) and those filed pursuant to Registration Statement
on Form 8-A under the Securities Exchange Act of 1934.
1.1 Form of Underwriter's Warrant Agreement
and Warrant.
2.1 Form of Common Stock Certificate.
3.1 Articles of Incorporation and Amendment.
3.2 Amended By-laws (See also
Registration Statement on Form 8A referred to
above).
5.1 Opinion of Cascone & Rapaport,
including its consent.
10.1 Assets Purchase Agreement
between the Company and Identicon Corp. dated
April 25, 1983.
10.2 Assets Purchase Agreement
between the Company and Amp Incorporated
dated June 2, 1983.
10.3 License Agreement between the
Company and Speed Queen Company dated March
16, 1985 and amendment thereto.
10.4 Distributor Agreement between
the Company and Saab Automation AB dated
September 4, 1984 and amended June 17, 1986.
10.5 Incentive Stock Option Plan
dated October 10, 1985 and Form of Agreement.
10.6 Union Contract between the
Company and Local 2262 of New Jersey dated
November 6, 1984.
10.9 Lease between the Company and
Ninth Avenue Equities Co., dated May 9, 1983.
10.10 Agreements between the Company
and Robert L. Richardson dated August 1,
1981.
10.11 Agreement between the Company
and Calvin S. Wesley dated December 20, 1984.
-40-
<PAGE>
10.12 Promissory Notes of the
Company issued to Messrs. Maloy and Byer
dated December 15 and 16, 1975.
10.13 Forms of Agreement between the
Company and its Sales Representatives.
10.14 Purchase Agreement between
Vertex, VBM and Dicom, Amendment and certain
schedules thereto.
10.15 Purchase Agreement between
Vertex and CTSI and certain schedules
thereto.
10.16 401(k) Retirement and Savings Plan.
10.17 OEM Agreement between Vertex and Scientific
Games, Inc. dated November 2, 1987.
10.18 Employment Agreement between the Company and
Carlo Pastore dated May 14, 1993.
10.19 Employment Agreement between the Company and
Kevin R. Halloran dated May 19, 1993.
10.19 Lease Agreement between the Company and
KHIP Associates dated August 20, 1993.
10.20 Sublease Agreement between the Company and
Thea & Schoen, Inc. dated May 20, 1993.
10.21 Consulting Agreement between the Company and
Kearney Systems, Inc. dated September 24, 1993.
10.21 Royalty Agreement between the Company and
Kearney Systems, Inc. dated September 24, 1993.
10.22 Commission Agreement between the Company and
Tri-State Telecomputers, Inc. dated June 7, 1993.
10.23 Employment Termination Agreement between the
Company and Carlo Pastore dated September 26, 1995.
10.24 Sublease Agreement between the Company and
Thea & Schoen, Inc. dated October 12, 1995.
10.25 Retainer agreement between Company and
Jeffrey Marks, Esq. Dated January 26, 1996.
41
<PAGE>
10.26 Consulting and Stock Option agreement between
Company and Vamcom Corporation dated February 15, 1996.
10.27 Indemnity Agreement between Company and
Robert T. McLaughlin dated April 3, 1996.
10.28 Letter Agreement between
Company, Computer Transceiver Systems, Inc
and Seymour H. Bucholz and Rosner, Bresler,
Goodman & Bucholz dated May 1, 1996.
10.29 Memorandum of Agreement and
Amendment between Company and NetWeave
Corporation and Somber Group Inc. dated May
23, 1996.
10.30 Loan Agreement and Promissory
Note between Company and NetWeave Corporation
dated May 30, 1996.
10.31 Certificate of Merger of
Sentry One into Vertex Industries, Inc. dated
June 17, 1996.
10.32 Certificate of Merger of
Versci, Inc. into Vertex Industries, Inc.
dated June 17, 1996.
10.33 Master Distribution Agreement
between Company and NetWeave (Europe) dated
July 1, 1996.
10.34 Factoring Agreement between
Company and NetWeave Corporation dated July
18, 1996.
10.35 Assignment and Amendment to Factoring Agreement
Dated October 8, 1996.
10.36 Agreement with Davis Sauders Associates, LLC.
Dated November 1, 1996.
10.37 Amendment to Assignment and Amendment to
Factoring Agreement dated November 6, 1996.
10.38 Retainer Agreement between
Company and Law Offices of Jeffrey D. Marks,
Esq. P.C. dated January 9, 1997.
10.39 Pre-License Agreement between
Company and NetWeave Corporation dated
February 18, 1997.
-42-
<PAGE>
10.40 License Agreement between
NetWeave Corporation and Vertex Industries,
Inc. dated February 19, 1997.
10.41 Consulting Agreement between
Company and Summit Marketing & Public
Relations, Inc. dated July 7, 1997.
10.42 Real Estate Lease between the Company and Ninth
Avenue Equities; October 15, 1997 (filed herewith)
10.43 Legal Services Agreement between the Company and
Jeffrey D. Marks, Esq. P.C. dated December 24, 1997
(filed herewith)
10.44 Purchase Agreement between the Company and
Mortgage Plus; dated March 3, 1998 (filed herewith)
10.45 Employment Contract between the Company and
Robert Morsch; dated May 1, 1998 (filed herewith)
10.46 Sub-lease between the Company and Thea and
Schoen, Inc.; May 4, 1998 (filed herewith)
10.47 Agreement between the Company and Middleberg &
Associates; dated June 1, 1998 (filed herewith)
10.48 Employment Contract between the Company and
Ronald Byer, Jr.; dated September 10, 1998
(filed herewith)
(b) Reports on Form 8-K
The Company filed a report on form 8-K on March 6, 1998
reporting a change in independent public accountants from
Arthur Andersen LLP to Sax, Macy, Fromm & Company for fiscal
year ended July 31, 1998.
-43-
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
<S> <C>
FINANCIAL STATEMENTS:
Reports of Independent Certified Public Accountants F-2, F-3
Balance Sheets as of July 31, 1998 and 1997 F-4, F-5
Statements of Operations for the Years Ended
July 31, 1998, 1997 and 1996 F-6
Statements of Changes in Stockholders' Equity
for the Years Ended July 31, 1998, 1997 and 1996 F-7
Statements of Cash Flows for the Years Ended
July 31, 1998, 1997 and 1996 F-8
Notes to Financial Statements F-9 to F-18
SUPPLEMENTAL SCHEDULE:
Schedule II -- Valuation and Qualifying Accounts for
the Years Ended July 31, 1998, 1997 and 1996 F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Vertex Industries, Inc.
We have audited the accompanying balance sheet of Vertex
Industries as of July 31, 1998 and the related statements of
operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Vertex Industries, Inc. as of July 31, 1998 and the results of
its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles. Our
audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in
the index to financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken
as a whole.
s/Sax Macy Fromm & Co., PC
Sax Macy Fromm & Co., PC
Certified Public Accountants
Clifton, New Jersey
October 14, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vertex Industries, Inc. and subsidiary:
We have audited the accompanying consolidated balance sheets of
Vertex Industries, Inc. and subsidiary (a New Jersey Corporation)
as of July 31, 1997 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the
years ending July 31, 1997 and 1996. 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 audits 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 Vertex Industries, Inc. and subsidiary as of July 31,
1997, and the results of their operations and their cash
flows for the years ending July 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The
schedule listed in the index to consolidated financial statements
is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the
basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Roseland, New Jersey
October 7, 1997
F-3
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC.
BALANCE SHEETS
JULY 31, 1998 AND 1997
<CAPTION>
ASSETS 1998 1997
<S>
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $631,362 $608,553
Accounts receivable, less allowance for doubtful
accounts of $75,985
at July 31, 1998 and 1997 837,399 450,266
Note and other receivables, net 67,344 95,451
Inventories, net 464,389 582,609
Investment securities 452,502 0
Prepaid expenses and other current assets 21,348 32,861
-------- --------
Total current assets 2,474,344 1,769,740
--------- ---------
PROPERTY, EQUIPMENT AND CAPITAL LEASES
Property and equipment 1,799,526 1,753,395
Capital leases 141,757 141,757
--------- ---------
Total property, equipment and
capital leases 1,941,283 1,895,152
--------- ---------
Less- Accumulated depreciation and
amortization (1,653,962) (1,545,071)
----------- -----------
Net property, equipment and capital leases 287,321 350,081
----------- -----------
OTHER ASSETS:
Cost in excess of net assets of companies
acquired, net of amortization
(accumulated amortization of $383,315 and
$350,395 at July 31, 1998
and 1997, respectively) 0 63,492
Deferred tax asset 400,000 195,000
Other assets 66,401 55,142
---------- ----------
Total other assets 466,401 313,634
---------- ----------
Total assets $3,228,066 $2,433,455
========== ==========
<FN>
See notes to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC.
BALANCE SHEETS
<CAPTION>
JULY 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 0 $2,567
Current portion of obligations under capital
leases 5,641 14,516
Accounts payable 273,726 129,622
Accrued expenses and other liabilities 257,094 170,643
Deferred revenue 343,612 267,630
-------- -------
Total current liabilities 880,073 584,978
-------- -------
LONG-TERM LIABILITIES:
Obligations under capital leases, net of
current portion 11,424 17,065
-------- -------
Total long-term liabilities 11,424 17,065
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
2,000,000 shares authorized;
none issued and outstanding 0 0
Common stock, par value $.005 per share;
20,000,000 shares authorized;
5,156,979 and 5,137,979 shares issued at July
31, 1998 and 1997, respectively 25,785 25,690
Additional paid-in capital 5,223,293 5,201,138
Accumulated deficit (3,296,401) (3,344,847)
Unrealized gain on investment securities 429,061 0
----------- ----------
2,381,738 1,881,981
Less- Treasury stock, 10,000 and 12,872 shares
at cost at July 31, 1998 and 1997, respectively (45,169) (50,569)
----------- -----------
Total stockholders' equity 2,336,569 1,831,412
----------- -----------
Total liabilities and stockholders'
equity $3,228,066 $2,433,455
=========== ===========
<FN>
See notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended July 31
1998 1997 1996
<S> <C> <C> <C>
OPERATING REVENUES $3,566,943 $3,228,598 $3,784,480
---------- ---------- ----------
OPERATING EXPENSES:
Cost of sales 1,733,152 1,800,276 1,729,058
Selling and administrative 1,549,726 1,511,949 1,285,538
Research and development 460,781 496,862 377,318
---------- ---------- ----------
Total operating expenses 3,743,659 3,809,087 3,391,914
---------- ---------- ----------
Operating income (loss) (176,716) (580,489) 392,566
---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income 22,924 38,801 16,840
Interest expense (2,762) (6,372) (10,834)
Other 0 75,000 1,676
----------- ----------- ---------
20,162 107,429 7,682
----------- ----------- ---------
Income (loss) before
income taxes (156,554) (473,060) 400,248
----------- ----------- ---------
INCOME TAX PROVISION (BENEFIT):
Federal (174,455) 0 138,287
State (30,545) 0 24,213
----------- ----------- ---------
Income tax provision
(benefit) (205,000) 0 162,500
------------ ----------- ---------
Net income (loss) $48,446 ($473,060) $237,748
============ =========== =========
NET INCOME (LOSS) PER SHARE OF
COMMON STOCK:
Basic $.01 $(.09) $.05
Diluted $.01 $(.09) $.04
<FN>
See notes to financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
<CAPTION> Unrealized
Additional Gain On
Common Stock Paid-In Accumulated Investment Treasury
Shares Amount Capital Deficit Securities Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1995 5,080,879 $25,404 $5,167,951 $(3,109,535) 0 $(50,569) $2,033,251
Exercise of stock options 28,100 141 14,237 0 0 0 14,378
Net income 0 0 0 237,748 0 0 237,748
--------- ------- --------- ----------- --------- --------- ----------
BALANCE, July 31, 1996 5,108,979 25,545 5,182,188 (2,871,787) 0 (50,569) 2,285,377
Exercise of stock opitons 24,000 120 14,600 0 0 0 14,720
Issuance of stock in
consideration for services 5,000 25 4,350 0 0 0 4,375
Net loss 0 0 0 (473,060) 0 0 (473,060)
--------- -------- --------- ----------- --------- --------- ---------
BALANCE July 31, 1997 5,137,979 25,690 5,201,138 (3,344,847) 0 (50,569) 1,831,412
Issuance of stock
in consideration for services 19,000 95 22,155 0 0 0 22,250
Unrealized gain on
investment securities 0 0 0 0 429,061 0 429,061
Decrease in treasury stock 0 0 0 0 0 5,400 5,400
Net income 0 0 0 48,446 0 0 48,446
--------- ------- ---------- ------------ -------- --------- ----------
BALANCE July 31,1998 5,156,979 $25,785 $5,223,293 $(3,296,401) $429,061 $(45,169) $2,336,569
<FN>
See notes to financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
VERTEX INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended July 31
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $48,446 ($473,060) $237,748
------- ------------ ----------
Adjustments to reconcile net income
(loss) to net cash
Provided by operating activities-
Depreciation and amortization 141,811 194,382 147,347
Deferred taxes (205,000) 0 162,500
Gain on sale of fixed assets 0 0 2,000
Stock issued in consideration for services 22,250 4,375 0
(Increase) decrease in assets-
Accounts receivable, net (387,133) 157,898 (145,552)
Note and other receivables 28,107 75,304 (170,755)
Inventories 118,220 110,570 129,863
Prepaid expenses and other current assets 11,513 (18,976) 15,490
Increase (decrease) in liabilities-
Accounts payable 144,104 (40,010) (9,245)
Accrued expenses and other liabilities 86,451 71,406 (51,859)
Deferred revenue 75,982 181,510 (113,370)
-------- -------- ---------
Net adjustments 36,305 736,459 (33,581)
-------- -------- ---------
Net cash provided by
Operating activities 84,751 263,399 204,167
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (46,131) (27,892) (117,720)
Proceeds from sale of fixed assets 0 0 3,166
Other 1,272 (1,642) (3,791)
-------- -------- ---------
Net cash used for investing activities (44,859) (29,534) (118,345)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (2,567) (2,800) (2,800)
Repayment of obligations under capital lease (14,516) (31,576) (24,937)
Proceeds from exercises of stock options 0 14,720 14,378
-------- -------- ---------
Net cash used for financing activities (17,083) (19,656) (13,359)
--------- -------- ---------
Net increase in cash 22,809 214,209 72,463
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 608,553 394,344 321,881
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $631,362 $608,553 $394,344
======== ======== ========
<FN>
See notes to financial statements.
</TABLE>
F-8
<PAGE>
VERTEX INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
This summary of significant accounting policies of Vertex Industries,
Inc. (the Company) is presented to assist in understanding the
Company's financial statements.
Nature of Business-
The Company sells and distributes bar code scanners, printers, data
collection terminals, software, automated card devices and precision
weighing equipment to customers located primarily within the United
States. Sales of bar code printers are primarily to the health care
industry. Sales of precision weighing equipment are primarily to
retail pharmacies. The company also provides systems integration
for turnkey automated data collection solutions in real-time systems
and warehouse management systems. In addition through the Netweave
license agreement, the Company sells the Netweave middleware
product.
Use of Estimates in the
Preparation of Financial Statements-
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.
Revenue Recognition-
The Company recognizes revenues related to software sales in
compliance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position No. 91-1 "Software Revenue
Recognition." Product revenue is recorded at the time of shipment
provided that no significant vendor and post contract support
obligations remain outstanding and collection of the resulting
receivable is deemed probable of collection by management.
Maintenance and support service agreements are recognized on a
straight-line basis over the life of the service agreement,
generally twelve months, and is reflected in deferred revenue in the
accompanying balance sheets.
Inventories-
Inventories are valued at the lower of cost (first-in, first-out
basis) or market.
F-9
<PAGE>
Property and Equipment-
All items of property and equipment, including amounts recorded
under capital leases, are stated at cost. It is the general policy
of the Company to depreciate property and equipment under the
straight-line method over their estimated useful lives. Leasehold
improvements are amortized over the lesser of the useful life of the
improvements or the remaining term of the lease.
The estimated useful lives of depreciable assets are as follows-
Machinery and equipment 12 years
Tools, dies and patterns 12 years
Office furniture and equipment 5-10
years
Computer equipment 3 years
Exhibit equipment 3 years
Capital leases 5 years
Cost in Excess of Net Assets
of Companies Acquired-
The excess of cost of purchased businesses over the fair value of
their assets at the acquisition date is being amortized on the
straight-line method over 5 years.
Net Income (Loss) Per Share of Common Stock-
The Company adopted SFAS No. 128, "Earnings per Share," on July 31,
1998. SFAS No. 128 establishes the new standard for computation and
presentation of net income per common share. Under the new
requirements both basic and diluted net income per common share are
presented. All prior period net income (loss) per common share data
has been restated.
Basic net income (loss) per common share is calculated by dividing net
income, by the weighted average common shares outstanding during the
period.
Diluted net income per common share is computed similar to that of
basic net income per common share except that the denominator is
increased to include the number of additional common shares that would
have been outstanding if all potentially dilutive common shares,
principally stock options, were issued during the reporting period.
Cash Equivalents-
The Company considers all investments with an original maturity
period within three months to be cash equivalents.
F-10
<PAGE>
Long-Lived Assets-
During 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" (SFAS 121). SFAS 121 requires,
among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not
be fully recoverable. As a result of its review, the Company does not
believe that any impairment currently exists related to the long-
lived assets.
Stock Based Compensation-
The Financial Accounting Standards Board issued a standard,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123
requires that an entity account for employee stock compensation
under a fair value based method. However, SFAS 123 also allows an
entity to continue to measure compensation cost for employee stock-
based compensation arrangements using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees" (Opinion 25). Entities electing to
remain with the accounting under Opinion 25 are required to make pro
forma disclosures of net income and earnings per share as if the
fair value based method of accounting under SFAS 123 has been
applied. The Company has elected to continue to account for
employee stock-based compensation under Opinion 25 and has made the
required disclosures under SFAS 123 (see Note 11).
Investment Securities-
The Company has classified its investment securities as available for
sale. Such securities are measured at fair value in the financial
statements based on quoted market prices with unrealized gains and
losses included in stockholders' equity.
New Standards-
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130. "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those
resulting from investments by owners and distribution to owners.
Among other disclosures, SFAS No. 130 requires that all items that
are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
F-11
<PAGE>
In addition, in June 1997, the FASB issued SFAS No. 131, "
Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for reporting information
about operating segments. It also establishes standards for
disclosures regarding products and services, geographic areas and
major customers.
Both of these new standards are effective for periods beginning
after December 15, 1997 and require comparative information for
earlier years to be restated. The implementation of these new
standards will not affect the Company's results of operations and
financial position, but may have an impact on future financial
statement disclosures.
(2)SALE OF SUBSIDIARY AND INVESTMENT SECURITIES:
On March 4, 1998 the Company entered into an agreement with MPEL
Holdings Corp., parent company of Mortgage Plus Equity and Loan Corp.,
a mortgage banking company whereby MPEL Holdings Corp. merged with
Vertex's inactive subsidiary, Computer Transceiver Systems, Inc.
(OTCBB:CPTT). The agreement provided pre-merger CPTT shareholders with
4% of the merged company, of which Vertex owns approximately 2.7%.
The merged company is traded Over the Counter Bulletin Board under the
symbol MPEH. The Company currently owns 226,251 shares of MPEH. The
Company has recognized an unrealized gain of $429,061 as of July 31,
1998 based on the then current stock price of $2 per share. The stock
price of MPEH on October 14, 1998 was $.8125 per share.
(3) INVENTORIES:
Inventories consist of the following-
<TABLE>
July 31
1998 1997
<CAPTION>
<S> <C> <C>
Raw materials $7,815 $7,071
Work in process 64,980 40,605
Finished goods and parts, net of
obsolescence reserves of
$235,419 and $139,419 in 1998 and
1997, respectively 391,594 534,933
------- -------
$464,389 $582,609
======== ========
</TABLE>
F-12
<PAGE>
(4) PROPERTY, EQUIPMENT AND CAPITAL LEASES:
Details of property, equipment and capital leases are as follows-
<TABLE>
<CAPTION>
July 31
1998 1997
<S> <C> <C>
Property and equipment-
Leasehold improvements $283,926 $283,926
Machinery and equipment 223,911 223,911
Tools, dies and patterns 451,682 451,682
Office furniture and equipment 561,898 561,898
Computer equipment 157,933 111,802
Exhibit equipment 120,176 120,176
-------- --------
Total 1,799,526 1,753,395
Less- Accumulated depreciation and
amortization (1,527,482) (1,427,119)
---------- ----------
Net property and equipment 272,044 326,276
---------- ----------
Capital leases-
Office equipment 86,448 86,448
Automobiles 55,309 55,309
---------- ----------
Total 141,757 141,757
Less- Accumulated amortization (126,480) (117,952)
---------- -----------
Net capital leases 15,277 23,805
---------- -----------
Net property, equipment and
capital leases $287,321 $350,081
=========== ===========
</TABLE>
Depreciation and amortization of property, equipment and capital leases
for the fiscal years ended July 31, 1998, 1997 and 1996 was $108,891,
$151,969, and $122,835, respectively.
(5) LONG-TERM DEBT:
Long-term debt consists of the following-
<TABLE>
<CAPTION>
July 31
1998 1997
<S> <C> <C>
Note payable to bank, due in monthly principal
installments of $233 plus interest at 1.25%
above the prime rate $ 0 $2,567
Less- Current portion of long-term debt 0 2,567
---------- ---------
Long-term debt 0 $0
=========== =========
</TABLE>
The long-term debt matured in June 1998 and was collateralized by
telephone equipment of the Company.
F-13
<PAGE>
(6) NOTE AND OTHER RECEIVABLES:
In 1996 the Company advanced NetWeave Corp., a related party, $100,000
for working capital purposes and received a promissory note. The note
bears interest at 6%. NetWeave Corp. has defaulted on the note and no
interest has been paid. The Company has restructured repayment of the
note and has recorded a reserve of $50,000 against the note.
In 1996, the Company entered into a factoring agreement with NetWeave
Corp. whereby certain accounts receivable were to be factored by the
Company. As of July 31, 1998 the Company had a gross factored
receivable balance of $58,581 and an allowance for doubtful accounts
reserve of $35,918 related to the factored receivables. As of July
31, 1997 the Company had a gross factored receivable balance of $81,369
and allowance for doubtful accounts reserve of $35,918 related to the
factored receivables. The Company has restructured the repayment of
the factored receivables.
(7) ACCRUED EXPENSES AND OTHER LIABILITIES:
<TABLE>
Accrued expenses and other liabilities consist of the following-
<CAPTION>
July 31
1998 1997
<S> <C> <C>
Professional fees $36,033 $37,384
Vacation salaries 6,627 1,366
Sales tax 22,623 20,979
Commissions 22,971 10,194
Payroll and deductions 47,740 48,910
Income taxes payable 0 1,810
Royalty Expense 62,649 0
Pension Expense 3,255 0
Miscellaneous 5,196 0
Accrued contingency reserve 50,000 50,000
$257,094 $170,643
</TABLE>
The accrued contingency reserve relates to the estimated costs
associated with the restructuring of the NetWeave licensing agreement.
8) PENSION PLANS:
The Company maintains a 401(k) plan, which is a defined contribution
plan covering substantially all of the nonunion employees. Eligible
employees can contribute up to 17% of their compensation not to exceed
Internal Revenue Code limits. The Company will match 50% of the amount
contributed by employees, up to 3% of compensation as defined. Company
contributions for the years ended July 31, 1998, 1997 and 1996 were
$3,255, $5,787, and $14,865, respectively.
F-14
<PAGE>
(9)INCOME TAXES:
Deferred income taxes are recognized for tax consequences of temporary
differences by applying enacted statutory tax rates to differences
between the financial reporting and the tax basis of existing assets
and liabilities.
The net deferred tax assets in the accompanying balance
sheets consist of the following-
<TABLE>
1998 1997
<S> <C> <C>
Deferred tax assets-
Allowance for accounts, note and other receivables $48,000 $62,000
Deductible goodwill amortization 0 206,000
Inventory 73,000 55,000
Deferred revenue 106,000 107,000
Net operating loss carryforwards 1,433,000 1,759,000
--------- ----------
Total deferred tax assets 1,660,000 2,189,000
Deferred tax liabilities - Depreciation (12,000) (97,000)
Valuation allowance (1,248,000) (1,897,000)
---------- -----------
Net deferred tax asset $400,000 $195,000
========== ============
</TABLE>
Deferred tax assets arise from the tax benefit of net operating loss
carryforwards which are expected to be utilized to offset taxable
income and from timing differences between the recognition in financial
statement and tax returns of certain inventory costs, bad debt reserve
allowances on receivables, depreciation on fixed assets and
amortization of certain intangible assets.
A valuation allowance on the deferred tax assets has been provided
based on the Company's assessment of ability to realize such assets in
the future. The valuation allowance for net deferred tax assets
decreased by $649,000 in 1998. The reduction was the result of net
changes in temporary differences and the reversal of $340,000 of
valuation allowance based on projected operating results for 1999.
The components of the income tax provision (benefit) included in the
statements of operations for the fiscal years ended July
31, 1998, 1997 and 1996 consist of the following-
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current-
Federal $ 0 $ 0 $ 0
State 0 0 0
Deferred (205,000) 0 162,500
--------- ------- --------
Total income tax provision (benefit) ($205,000) $ 0 $162,500
F-15
<PAGE>
At July 31, 1998, the net operating loss carryforwards available to
offset future taxable income consist of approximately $4,357,000 in
Federal net operating losses which will expire in various amounts
through 2013, and state net operating losses of approximately
$3,528,000 which will expire in various amounts through 2005.
A reconciliation of income tax at the statutory rate to the Company's
effective rate is as follows-
</TABLE>
<TABLE>
1998 1997 1996
<S> <C> <C>
Statutory rate (34.0%) (34.0%) 34.0%
Effect of-
Valuation allowance (96.9) 34.0 0.0
Permanent differences 0.0 0.0 0.6
State income taxes, net of Federal tax effect 0.0 0.0 6.0
-------- --------- ------
Effective income tax rate (130.9%) 0.0% 40.6%
======== ========= ======
</TABLE>
(10) COMMITMENTS AND CONTINGENT LIABILITIES:
Leases-
The Company leases phone equipment under a capital lease with an
expiration date of April 2001.
The Company leases its plant and office facilities located in
Clifton, New Jersey. The lease expires on May 31, 2003. Annual
rental is $164,340 for the first three years of the lease. For the
last two years of the lease the annual rent is $170,280. In
addition, the Company is obligated to pay applicable real estate
taxes, repairs and insurance.
The Company subleases under a 60-month lease a portion of its plant
in Clifton, New Jersey, which expires on May 31, 2003. Under the
terms of the sublease, the tenant is required to pay annual rent of
$53,010 for the first three years of the sublease and annual rent of
$54, 720 for the last two years of the sublease, plus a
proportionate share of utilities.
Rent expense for the years ended July 31, 1998, 1997 and 1996 was
$158,920, $154,660 and $121,032, respectively.
F-16
<PAGE>
Minimum lease payments and sublease rental income are as follows-
<TABLE>
<CAPTION>
Equipment Sublease
Capital Operating Rental
Year Ended July 31 Leases Leases Income
<S> <C> <C> <C>
1999 $7,180 $205,476 $53,010
2000 7,180 203,676 53,010
2001 5,385 192,434 53,295
2002 0 196,805 54,720
-------- --------- --------
Total 19,745 $798,391 $214,035
========== ========
Less- Amount representing interest (2,680)
---------
Present value of net
minimum lease payments 17,065
Less- Current portion of obligations
under capital leases 5,641
--------
Long-term portion of obligations
under capital leases $11,424
========
</TABLE>
Employment Agreements-
On May 1, 1998 the Company entered into a three year employment
contract with its Vice President of Sales and Marketing. The
contract provides for an annual salary of $95,000 per year, a
Company paid automobile, 1 % commission on operating revenues and
stock options. On September 10, 1998 the Company entered into a two
year employment contract with its Director of Middleware
Technologies. The Contract provides for an annual salary of
$104,500 for the first year and $109,725 in the second year. The
contract also provides for stock options.
Other-
In June 1997, a customer terminated an agreement to purchase certain
product from the Company. The agreement was originally for a two-
year period. The customer paid $75,000 to terminate the agreement.
This amount is reflected as other income in the accompanying
statements of operations.
F-17
<PAGE>
(11) STOCKHOLDERS' EQUITY:
Incentive Stock Options-
The Company has an Incentive Stock Option Plan which provides for
the granting of options to officers and other key employees to
purchase shares of the Company's common stock. The maximum number
of shares to be issued as part of the plan is 2,000,000. The
maximum term of any option is ten years and the option price per
share may not be less than the fair market value of the stock on the
date the option is granted. Options granted to persons owning more
than 10% of the voting shares of the Company may not have a term of
more than five years and may not be less than 110% of fair market value.
<TABLE>
<CAPTION>
July 31
1998 1997 1996
<S> <C> <C> <C>
Options outstanding, beginning of
year 667,600 341,600 338,200
Granted 170,000 450,000 159,000
Exercised 0 (24,000) (28,100)
Canceled (10,000) (100,000) (127,500)
-------- --------- ---------
Options outstanding, end of year 827,600 667,600 341,600
========= ========= =========
Options price range $.475-$8.12 $.475-$8.12 $.475-$8.12
Options exercisable 373,800 144,600 99,400
Options available for grant 1,050,000 534,000 384,000
</TABLE>
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation. In accordance with the provisions the Company
accounts for its stock option plans under Opinion 25 and,
accordingly, does not recognize compensation cost. If the Company
had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS 123, net
income (loss) and earnings (loss) per share would have been reduced
to the pro forma amounts indicated in the table below-
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) - as reported $48,446 ($473,060) $237,748
Net income (loss) - pro forma $(95,244) ($499,529) $229,479
Earnings (loss) per share - as reported $.01 ($.09) $.04
Earnings (loss) per share - pro forma $(.02) ($.10) $.04
</TABLE>
F-18
<PAGE>
The weighted average fair value at date of grant for options granted
in 1998, 1997 and 1996 was $.50, $.46 and $.50, respectively. The
fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model based on the weighted
average market price of $0.81 in 1998, $0.85 in 1997 and 1996 using
the following assumptions-
Expected stock price volatility 92%
Risk-free interest rate 6.67%
Weighted average expected life of options 3 years
The effects of applying SFAS 123 and the results obtained through
the use of the Black-Scholes option pricing model are not
necessarily indicative of future values.
Other Stock Options-
In connection with an employment agreement, the Company granted an
employee an option to purchase up to 300,000 shares of common stock,
at an option price of $7.875 per share, expiring the earlier of June
29, 2003, one year after death, or 30 days after termination. The
agreement allowed the employee to retire these options at their
original grant price, should the market price of the Company's
common stock drop below the exercise price of the options, and have
the options granted again at the then market price. During 1996,
the employee retired all 300,000 options exercisable at $7.875 and
was subsequently granted 300,000 at an exercise price of $.50 per
option the then market value of the common stock. During 1997, the
employee left the Company and the Company agreed to waive the
termination clause in the agreement. In 1998, in connection with an
employment agreement, the Company granted an employee an option to
purchase 70,000 shares of common stock, at an option price of $.68.
Of the 70,000 options, 35,000 are currently exercisable with the
additional 35,000 becoming exercisable on January 1, 1999.
During 1998, the Company granted 20,000 options to the Company's
legal counsel for legal services. The options are exercisable at
$.38 and expire on December 23, 2000. These options are currently
exercisable. During 1997, the Company granted 20,000 and 120,000
options to two service firms as partial payment for legal, financial
and consulting services. The 20,000 options are exercisable at
$1.00; are currently exercisable and expire on January 9, 2000. The
120,000 options expired on July 7, 1998. During 1996, the Company
granted 35,000 options to two services firms as partial payment for
financial and consulting services. The options are exercisable at
prices between $.75 and $.91 and expire at various dates through
February 2001. These options are currently exercisable.
F-19
<PAGE>
(12) NET INCOME (LOSS) PER COMMON SHARE:
The following table summarizes the computation of basic and diluted net
income per common share for each of the three years ended July 31:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) available
to common shareholders $48,446 $(473,060) $237,748
========= ========== ========
Weighted-average common
shares outstanding 5,133,674 5,102,033 5,090,719
Plus: Common stock equivalents 106,246 0 270,044
--------- --------- ---------
Diluted weighted-average
common shares outstanding 5,239,920 5,102,033 5,360,763
========== ========= =========
Net income (loss) per common
share:
Basic $.01 $(.09) $.05
Diluted .01 (.09) .04
</TABLE>
The Company did not pay dividends for each of the three years ending July
31, 1998, 1997 and 1996.
(13) MAJOR CUSTOMERS:
The Company had one customer which accounted for approximately 17% of
revenue for the fiscal year ended July 31, 1998. At July 31, 1998,
approximately $245,994 of accounts receivable were due from this
customer. The Company had no customer which accounted for more than
10% of revenue for the fiscal year ended July 31, 1997.
During July 31, 1996, the Company had two customers which accounted for
13.5% and 12.5% of revenue. At July 31, 1996, approximately $229,000
and $101,000, respectively, of accounts receivable were from those
customers.
(14) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
July 31
1998 1997 1996
<S> <C> <C> <C>
Interest paid $2,762 $6,372 $10,834
Stock issued in consideration for 22,050 4,735 0
services
Noncash investment and financing
activities-
Capitalized lease and note payable
transactions related to purchases of
property and equipment 0 0 27,778
========= ======= ========
</TABLE>
F-20
<PAGE>
(15) LICENSE AGREEMENT WITH NETWEAVE CORPORATION:
On February 17, 1997 the Company entered into a license agreement (the
"Agreement") with NetWeave Corporation (NetWeave) to develop, market,
sell and support the NetWeave product worldwide. The Company will pay
NetWeave a royalty on the initial licenses sold and on annual license
fees paid by the customer for maintenance and support of the NetWeave
product. Under terms of the Agreement, the NetWeave Corporation
assigns its existing customer base to the Company along with the
existing sales representative agreements in the U. S. and the master
distributor with SX Consultancy for Europe and Asia. SX Consultancy is
a European software distributor and developer of custom software based
in the UK. For the year ended July 31, 1998, the NetWeave Licensing
agreement generated revenues of approximately $973,000. During 1998,
the Company paid approximately $74,000 of royalties to NetWeave
Corporation. For the year ended July 31, 1997, the NetWeave Licensing
agreement generated revenues of $105,000. During 1997, the Company
paid $20,000 of royalties to NetWeave Corporation.
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's financial instruments approximates the
carrying amounts.
F-21
<PAGE>
<TABLE>
SCHEDULE II
VERTEX INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996
<CAPTION>
Balance at Additions Deductions Balance at
Beginning Charged to From End of
of Period Expense Allowances Period
<S> <C> <C> <C> <C>
Year Ended July 31, 1998-
Deducted from accounts receivable for
doubtful accounts $75,985 $0 $0 $75,985
Deducted from inventory as valuation
allowance $139,419 $96,000 $0 $235,419
Year Ended Ended July 31, 1997-
Deducted from accounts receivable for
doubtful accounts $75,985 $0 $0 $75,985
Deducted from inventory as
valuation allowance $34,619 $204,000 $99,200 $139,419
Year Ended July 31, 1996-
Deducted from accounts
receivable for doubtful accounts $75,985 $0 $0 $75,985
Deducted from inventory as valuation
allowance $59,444 $48,000 $72,825 $34,619
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15
(d) 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.
Date: October 28, 1998 VERTEX INDUSTRIES, INC.
s/Ronald C. Byer
Chief Executive Officer,
President
Pursuant to the requirements by the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of the Company and in the
capacities and on the dates indicated:
October 28, 1998 s/James Q. Maloy
Chairman of the Board,
and Director
October 28, 1998 s/Ronald C. Byer
Chief Executive Officer,
President and Director
October 28, 1998 s/Robert T.McLaughlin
Chief Financial
Officer and
Treasurer
October 28, 1998 s/Irwin Dorros
Director
October 28, 1998 s/Wilbur Highleyman
Director
October 28, 1998 s/George Powch
Director
</TABLE>
<PAGE>
LEASE AGREEMENT BETWEEN
Ninth Avenue Equities
AND
Vertex Industries, Inc.
DATED: October 15, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEMISE AND PREMISES..................... 1
ARTICLE 2. TERM.................................... 1
ARTICLE 3. RENT AND PAYMENT. ...................... 1
ARTICLE 4. TAXES ANDIMPOSITIONS.................... 2
ARTICLE 5. INSURANCE............................... 3
ARTICLE 6. LIEN OF LANDLORD........................ 5
ARTICLE 7. MECHANIC'S LIEN......................... 6
ARTICLE 8. ALTERATIONS............................. 6
ARTICLE 9. REPAIRS................................. 7
ARTICLE 10. DEMISE TO PREMISES...................... 8
ARTICLE 11. EMINENT DOMAIN.......................... 9
ARTICLE 12. NOTICES................................. 10
ARTICLE 13. MEMORANDUM OF LEASE..................... 10
ARTICLE 14. USE..................................... 11
ARTICLE 15. ASSIGNMENT, SUBLETTING,ETC.............. 11
ARTICLE 16. LANDLORD'S WARRANTY..................... 13
ARTICLE 17. SUBORDINATION........................... 13
ARTICLE 18. NON-LIABILITY OF LANDLORD............... 14
ARTICLE 19. INDEMNIFICATION OF LANDLORD............. 14
ARTICLE 20. DEFAULTS AND REMEDIES................... 14
ARTICLE 21. BANKRUPTCY.............................. 16
ARTICLE 22. UTILITIES AND SERVICES.................. 17
- a -
<PAGE>
ARTICLE 23. ACCESS TO PREMISES...................... 18
ARTICLE 24. SIGNS................................... 18
ARTICLE 25. SECURITY DEPOSIT........................ 18
ARTICLE 26. PREMISES "AS-IS"........................ 19
ARTICLE 27. FINANCIAL STATEMENTS....................
ARTICLE 28. ATTORNMENT.............................. 20
ARTICLE 29. GUARD SERVICE...........................
ARTICLE 30. ELEVATOR................................
ARTICLE 31. END OF TERM............................. 20
ARTICLE 32. GENERAL PROVISIONS...................... 20
ARTICLE 33. DEFINITIONS............................. 24
ARTICLE 34. PARKING................................. 24
ARTICLE 35. SUBMISSION NOT BINDING.................. 25
ARTICLE 36. EDA, HUD, ETC..........................
ARTICLE 37. COMPLIANCE WITH LAWS GENERALLY......... 25
ARTICLE 38. LANDSCAPING............................ 25
ARTICLE 39. ENVIRONMENTAL COMPLIANCE............... 25
ARTICLE 40. LANDLORDS ENVIRONMENTAL REPRESENTATION AND
INDEMNITY................................ 28
- b -
<PAGE>
THIS LEASE dated the 15th of October, 1997, between NINTH
AVENUE EQUITIES CO., INC., with offices at 72 Madison Avenue,
New York, New York 10016 (hereinafter designated as "Landlord")
and
VERTEX INDUSTRIES, INC., with offices at 23 Carol Street,
Clifton, New Jersey 07014 (hereinafter designated "Tenant")
W I T N E S S T H
ARTICLE I
DEMISE AND PREMISES
Section 1.01. Demise and Premises. Landlord
does hereby demise and lease to Tenant, and does hereby take and hire from
Landlord, those premise described as follows: an approximate 39,600
square foot building located at 23 Carol Street, Clifton, New Jersey,
more accurately described in Schedule A attached (the "Premises").
TO HAVE AND TO HOLD for the term, as defined herein, and
subject to the terms, covenants and conditions herein contained which each
of the parties hereto expressly covenants and agrees to keep, perform
and observe.
ARTICLE II
TERM
Section 2.01. Term. The initial term of this
Lease (herein the Initial Term) shall be for a period of five (5) years
commencing on June 1, 1998 and expiring on May 31, 2003.
Section 2.02. At the end of the Initial Term, Tenant
shall have an option to renew this Lease for an additional five (5) year Term
(First Renewal Term) provided that the following conditions are satisfied:
(I) Tenant shall notify Landlord if its intentions to exercise its option to
renew no later than twelve (12) months prior to expiration of the initial
Term; and (ii) Tenant shall not be in default hereunder.
Section 2.03. Hereinafter the Initial Term, First
Renewal Term and all other renewals and extensions of this Lease are sometimes
referred to as the Term.
ARTICLE III
RENT AND PAYMENT
Section 3.01. Basic Rent During Initial Term (Basic
Rent). Landlord reserves and Tenant covenants to pay to Landlord, without
demand or notice, and without any set-off or deduction, a net basic rental
(herein the Basic Rent of:
(a) For the period June 1, 1998 - May 31, 2001 Basic Rent
shall be ONE HUNDRED SIXTY-FOUR THOUSAND, THREE HUNDRED AND FORTY
($164,340.00) DOLLARS payable in equal monthly installments of THIRTEEN
THOUSAND, SIX HUNDRED AND NINETY FIVE ($13,695.00) DOLLARS.
<PAGE>
(B) For the period of June 1, 2001 - May 31, 2003 annual
Basic Rent shall be ONE HUNDRED SEVENTY THOUSAND, TWO HUNDRED AND EIGHTY
($170,280.00) DOLLARS payable in equal monthly installments of FOURTEEN
THOUSAND, ONE HUNDRED AND NINETY ($14,190.00) DOLLARS.
Section 3.02. Basic Rent During the Renewal Term.
Commencing on the first day of the month of the first year of the
First Renewal Term, June 1, 2003, and for the balance of the
First Renewal Term, through May 31, 2008, all terms and
conditions of this Lease shall remain in full force
and effect, except that the annual Basic Rent shall be ONE
HUNDRED NINETY THOUSAND AND EIGHTY ($190,080.00) DOLLARS payable in
equal monthly installments of FIFTEEN THOUSAND, EIGHT HUNDRED AND FORTY
($15,840.00) DOLLARS.
Section 3.03. Payment of Rent. The Basic Rent and
all additional rents and monies payable to Landlord under this Lease shall
be paid at the above address of Landlord or at such other address as may
be specified by Landlord from time to time by notice given to Tenant.
Said rent shall be due and payable on or before the first (1st) of each
and every month during the entire Term of this Lease Agreement.
Additional rentals required by the Lease shall be paid by
Tenant, at the Landlord's option, in monthly installments in such amounts
as are estimated and billed by Landlord at the beginning of a twelve
(12) month period commencing and ending on dates designated by
Landlord, each such installment being due on the first (1st) day of each
month. Once the actual bills are determined, any overcharge or
undercharge shall be adjusted between Landlord and Tenant.
Tenant shall be entitled to copies of all actual
bills utilized by Landlord for such adjustment.
ARTICLE IV
TAXES AND IMPOSITIONS
Section 4.01. Real Estate Taxes and Impositions. (a)
As additional rent hereunder, Tenant shall reimburse Landlord upon demand or
in accordance with Section 4.03 hereinbelow, at the Landlords option, one
hundred (100%) percent of the Real Property Taxes (as defined hereinbelow)
and assessments (whether special, for improvements or otherwise) levied and
assessed against the land and building owned by the Landlord of which the
Premises form a part, subject to below.
Section 4.02. Definition. The term Real Property
Taxes means all real property taxes currently in existence on the land and
buildings of which the Premise are part, together with
any and all taxes or imposts which may at some future time be
levied by any governmental entity in total or
partial substitution for current real property taxes, including,
without limiting the generality thereof, personal property taxes, rental
gross receipt taxes, leasehold improvement taxes, use and occupancy taxes
and excise taxes.
- 2 -
<PAGE>
Section 4.03. Apportionment During First and Last Year
Term. The amount of Real Property Taxes and assessments payable by Tenant
during any partial calendar year during the Term shall be apportioned between
Landlord and Tenant in accordance with the portion of the calendar year
within the Term.
Section 4.04. Tax Appeals. Either party shall have the right to
initiate a appeal of the Real Property Taxes during the term of this Lease.
The party who initiates the appeal of the Real Property Taxes shall be solely
responsible for all costs, expenses and legal fees unless Landlord and
Tenant agree otherwise with respect to a particular tax appeal.
During the pendency of any tax appeal, Tenant shall continue to pay Real
Property Taxes at the existing rate in accordance with this Lease. Any
subsequent tax reduction shall be credited by Landlord against the Real
Property Taxes owed by Tenant during the year in which the refund or credit
is received by Landlord from the municipality.
ARTICLE V
INSURANCE
Section 5.01 (a) Fire Insurance The Landlord will
procure and maintain and pay the premiums for fire insurance, including
complete extended coverage, vandalism, malicious mischief and rent insurance
(at least equal to one year's Basic Rent and additional rent) insuring the
entire building of which the Premises form a part. Said insurance shall
insure for full replacement value without allowance for depreciation.
Tenant shall for the period of the Term of this Lease, repay to the
Landlord as additional rent, the premiums as they become due and payable for
said insurance.
Landlord shall have the right to obtain this fire insurance
with a deductible amount not to exceed Five Thousand ($5,000.00) Dollars.
The Tenant hereby agrees to pay the Landlord this deductible
amount as additional rent for any fire or other occurrence covered by this
fire insurance which occurs within Tenants Premises.
If, prior to the end of any policy period, Tenant submits to
Landlord a quote from an insurance company with the same or better rating
and the same coverage as Landlords company and at a lower cost
than Landlords insurance, for all of the insurance provided for
in this 5.01 (a), Landlord agrees to either procure the insurance from
the insurance company proposed by Tenant or pay the extra cost of insurance
through Landlord's insurance company, provided that such
insurance shall conform to all other applicable
provisions of this Article V.
(b) Other Insurance Tenant shall at Tenant's sole cost
and expense but for the mutual benefit and protection of Landlord and
Tenant, with Landlord named a Named Insured or Additional Insured as
applicable, maintain:
(1) General Public Liability Insurance against claims
for bodily injury or death or property damage occurring upon, in or about
the Premises or the elevators or any escalator therein and on, in or about
the adjoining streets, sidewalks and passageways, such insurance to afford
protection to the combined single limit of not less than Two Million Five
Hundred Thousand ($2,500,000.00) Dollars per occurrence. Tenant is to
provide an Occurrence Policy. A Clams Made form is not acceptable.
- 3 -
<PAGE>
(2) Such other insurance against loss or damage to
Landlord's property as is usual and customary for the protection of lease
premises of this character, or as Landlord may deem from time to time
prudent and reasonable in view of new risks or changed conditions.
(3) In the event, at any future time, policies with
higher limitations shall be reasonably necessary to protect Landlord and/or
Landlords mortgagee, Tenant shall, at the request of Landlord, provide
insurance as above with such higher limitations.
All insurance procured by the Tenant shall be effected under valid and
enforceable policies issued by insurers of recognized
responsibility, admitted to write policies of the type
required in the State in which the Premises is located and
acceptable to the Landlord.
Upon the execution of this Lease, and, thereafter
not less than fifteen (15) days prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article,
originals of the policies (or duplicates thereof issued by the
respective insurers) shall be delivered promptly by Tenant to Landlord,
and if Landlord so requires to the holder of any mortgage. The policies
shall provide for thirty (30) days notice of cancellation to Landlord.
Tenant shall not have a Self-Insured Retention (S.I.R.) or deductible
amount on any insurance policy, nor shall Tenant be self-insured unless
approved in writing by the Landlord prior to the effective date
of this Lease or the effective date of said policy, whichever is later.
This approval, if granted, shall not be automatically extended to renewal
or later policies. Tenant shall request approval for each renewal or new
policy.
All policies of insurance provided for herein and
any policies procured by Landlord shall name Landlord and Tenant as the
Insured as their respective interests may appear. Subject to the limitations
hereinafter in this paragraph set forth, such policies excepting the policies
provided for in subparagraph (1) of paragraph (b) of this Article, shall be
adjusted and paid to Landlord.
All such policies therefore issued by the Tenants
insurers shall cover any increased risks as a result of construction, repairs,
alterations and additions to the Premises and shall contain an agreement by
such insurers that such policies shall not be canceled without at least thirty
(30) days prior to written notice to Landlord and to any holder of a
mortgage to whom loss thereunder may be payable. All such policies of
insurance shall provide that any loss shall be payable to Landlord or the
holder of any mortgage notwithstanding any act of negligence of
Tenant which might otherwise result in forfeiture of said insurance.
Nothing in this Article shall prevent Tenant from
taking out insurance of the kind provided for hereunder under a blanket
insurance policy or policies which cover other personal and real property
owned or operated by Tenant as well as the buildings on the Premises, the
building equipment and appurtenances, nor from including any insurance
provided in paragraph (b) hereof under a blanket policy or policies
maintained by Tenant with respect to other properties owned or operated
by it, provided, however, that (1) any policy of blanket insurance
hereunder shall be no less than that which would have been afforded
under a separate policy or that which would have been afforded under a
<PAGE>
separate policy or policies relating only to the demised premises.
In the event that insurance is in blanket form, Tenant shall
promptly provide Landlord suitable policies or, if Landlord finds
acceptable, certificates from the insurer to evidence coverage of the
Landlord. Any such certificates shall clearly show any underlying
Self-Insured Retention (S.I.R.) or deductible amount applicable to the
policy, which shall not exceed the amount to which prior approval of the
Landlord has been given.
Section 5.02. Right of Termination. If Landlord shall be unable
to procure fire and extended coverage insurance because of Tenant's use of
the Premises, Landlord shall have the right to terminate this Lease upon
written notice to Tenant specifying the reason for such termination, and
the rent shall be adjusted between the parties hereto as of the date of
termination specified in such notice.
Section 5.03. Waiver of Subrogation. Landlord hereby release Tenant
from liability for damage or destruction to the land and buildings of
which the Premises are part, and Tenant hereby releases Landlord for
liability for damage or destruction to any of its personal property or
leasehold improvements, provided, however, that such releases shall be in
force and effect only in respect of damage or destruction covered by
standard policies of fire insurance with extended coverage (as maintained
by the Tenant or Landlord pursuant to this Lease), and such waivers
shall be in effect solely to the extent of proceeds under any said policy.
Tenant and Landlord shall each cause any policies of insurance maintained
by it with respect to the Premises and the personal property contained
therein or appurtenant thereto and with respect to the building of which
the Premises form a part. To contain a waiver by the insurers of any rights
of subrogation.
ARTICLE VI
LIEN OF LANDLORD
Section 6.01. Lien of Landlord. Landlord is hereby granted a lien,
in addition to any statutory lien or right to distrain that may exist, on
all property of Tenant in or upon the Premises, except for property owned by
others which may be held by the Tenant of located upon the Premises, to secure
payment of the rent and performance of the covenants and conditions of this
Lease. Such lien is agreed to constitute a security interest and this lease
a security agreement within the meaning of Article 9 of the Uniform Commercial
Code of New Jersey (N.J.S.A. 12A: 9-101 et seq.) (the USS),
filed with appropriate governmental agencies as evidence thereof,
together with continuation thereto.
Section 6.02. Enforcement of Lien Rights. Upon
default by Tenant
beyond any grace period to cure same, Landlord shall have all
rights of a secured party under the USS, to
take possession of any furniture, fixtures or other personal
property of Tenant found in or about the
Premises, and sell the same at public or private sale and to
apply the proceeds thereof to the payment of
any monies becoming due under the Lease. Tenant agrees to pay,
as additional rent, all reasonable
attorneys' fees and other expenses incurred by Landlord in
enforcing its lien given above.
<PAGE>
Section 6.03. Exceptions to Contractual Lien:
Subordination. Notwithstanding
anything in Section 6 to the contrary, Landlord recognizes that
Tenant's business involves use of the
Premises for warehouse and distribution of property of others.
In no event shall Landlord enforce its lien
in the manner that would result in the impound, delay, hindrance
or stoppage of the removal of such goods
and materials of others from the Premises after termination of
the Lease and entry of judgement for
possession. In addition, Landlord agrees to enter into a
conditional lien
- - 5 -
waiver agreement with Tenant's lender (provided that Landlord has
been given written notice from Tenant
and a request for such an agreement) which shall provide in
substance that Landlord shall not exercise its
lien against Tenant's equipment or inventory in the Premise
provided that upon fifteen (15) days notice
from Landlord to such lender of a lease default by Tenant such
lender shall pay all base and additional rent
due under the Lease from the end of such fifteen (15) day period
until the end of the calendar month after
such time as all such Tenant property has been removed from the
Premises and all damage from such
removal has been repaired.
ARTICLE VII
MECHANIC'S LIEN
Section 7.01. Mechanic's Lien Prohibited.
Tenant shall not suffer any
mechanic's notice of intention or lien claim to be filed against
the Premises by reason of work, labor,
services or materials performed for or furnished to Tenant or to
anyone holding the Premises, or any part
thereof, through or under Tenant.
Section 7.02. Landlord's Remedy for Tenant's Breach.
If Tenant shall fail to
remove or discharge any aforesaid mechanic's notice of intention
or lien claim within fourteen (14) days
after notice of knowledge of the filing of same, then in addition
to all other rights of Landlord hereunder or
by law upon a default by Tenant, Landlord may, at its option,
procure the removal or discharge of same.
Any amount paid by Landlord for such purpose, including all
reasonable attorneys' fees and other
expenses therefore, together with interest thereon at the Lease
Interest Rate (as hereinafter defined), shall
become due and payable by Tenant to Landlord as additional rent,
and in the event of Tenant's failure to
pay therefore within fifteen (15) days after demand, the same
shall be added to and be due and payable
with the next months rent.
<PAGE>
ARTICLE VIII
ALTERATIONS
Section 8.01. Alterations. Tenant shall make no
changes in or to the
Premises without Landlord's prior written consent, which, as to
non-structural changes only, shall not be
unreasonably withheld. Subject to the prior written consent of
Landlord, and to the provisions of this
Article, Tenant may make alterations, installations, additions or
improvements which are non-structural
and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the Premises
by using contractors or mechanics first approved in writing by
Landlord. All fixtures, all electrical items
and all panelling, partitions, railings and like installations
installed in the Premises at any time, either by
Tenant or Landlord on Tenant's behalf, shall; become the property
of Landlord and shall remain upon and
be surrendered with the Premises unless Landlord, by notice to
Tenant no later than thirty (30) days prior
to the date fixed as the termination of this Lease or before
sixty (60) days after the expiration of this Lease,
elects to have them removed by Tenant, in which event the same
shall be removed from the Premises by
Tenant forthwith. Nothing in this Article shall be construed to
prevent Tenant's removal of trade fixtures,
but upon removal of any such trade fixtures from the Premises or
upon removal of other installations as
may be required by Landlord, Tenant shall immediately and at its
expense repair and restore the Premises
to the condition existing prior to installation, and shall repair
any damage to the Premises or the building
due to such removal. All property permitted or required to be
- - 6 -
removed by Tenant at the end of the Term remaining in the
Premises after Tenant's removal shall be
deemed abandoned and may, at the election of Landlord, either be
retained as Landlord's property or may
be removed from the Premises by Landlord at Tenant's expense,
which right of Landlord shall survive
expiration of this Lease. Tenant shall, before making any
alterations, additions, installations or
improvements, obtain all permits, approvals, and certificates
required by any governmental or quasi-
governmental bodies and (upon completion) certificates of final
approval thereof and shall promptly
deliver duplicates of all such permits, approvals and
certificates to Landlord; and Tenant agrees to carry
such Workmen's Compensation, General Liability, Personal and
Property Damage Insurance as Landlord
may reasonably require. Tenant agrees to obtain and deliver to
Landlord, written and unconditional
waivers of mechanic's lien upon the real property in which the
Premises are located, for all work, labor
<PAGE>
and services to be performed and materials to be furnished in
connection with such work, signed by all
contractors, sub-contractors, materially and laborers to become
involved in such work. The work shall be
done in a good and workman-like manner and in compliance with all
applicable laws, ordinances, codes,
governmental rules, regulations and requirements, and in
accordance with the standards, if any, of the
Board of Fire Underwriters, or other organizations exercising the
functions of a board of fire underwriters
the jurisdiction of which includes the Premises.
ARTICLE IX
REPAIRS
Section 9.01. Repairs. Landlord shall at its sole cost,
upon reasonable written notice
from Tenant, make the necessary structural repairs and
replacements to the exterior walls, and any load
bearing interior walls and shall keep in good order, condition,
and repair the exterior foundations, and roof
and roof membrane of the building containing the Premises (such
obligation not to include all windows,
and all operating parts such as overhead ducts or fans or
skylights). Except for the above and for what may
otherwise be specifically provided for in this Lease, Tenant
shall be responsible for all maintenance, repairs
and replacements of and to the Premises, including but not
limited to the following responsibilities: Tenant
shall take good care of and maintain on a regular basis the
Premises and the fixtures, appurtenances and
systems in or affecting the Premises (including but not limited
to plumbing, sewers, roof, gutters,
downspout, doors, painting, windows, electrical, heating,
sprinkler and air conditioning, if any) and shall
make all repairs thereto or replace as and when needed to
preserve them in good working order and
condition, and shall maintain the Premises in a clean, neat
condition. Tenant shall not permit or suffer the
Premises to fall to such low temperature as would cause freezing
of the water lines or sprinkler servicing
the Premises; and, in default hereof, Tenant shall promptly
effect and pay for all repairs the need for which
shall arise from such freezing, and shall hold Landlord harmless
from any loss, damage or liability caused
by or arising out of such freezing. Notwithstanding anything
above to the contrary, all damage or injury to
the Premises or to any other part of said building, or to its
fixtures, equipment and appurtenances, whether
requiring structural or non-structural repairs caused by or
resulting from carelessness, omission, neglect or
improper conduct of Tenant, its servants, employees, invitee or
licensees, shall be repaired promptly by
Tenant at its sole cost and expense, to the reasonable
satisfaction of Landlord and in accordance with
Section 8.01 hereinabove. Tenant shall also repair all damage to
the Premises and to the building of which
the Premises are part, caused by the moving of Tenant's fixtures,
<PAGE>
furniture or equipment. All the
aforesaid repairs shall be of quality or class at least equal to
the original work or construction. Any repair
which Tenant is obligated to make hereunder may be made by
Landlord, at Landlord's sole
- - 7 -
option, subject to reasonable prior notice to Tenant in any non-
emergency situation (in which event
Landlord shall not be liable for any injury to persons, damage to
property or loss of business arising out of
the make of such repairs) but at the sole expense of Tenant, and
the expenses thereof incurred by Landlord
(together with interest at the Lease Interest Rate, as
hereinafter defined) shall be collectible as additional
rent with ten (10) days of demand therefore. There shall be no
allowance to Tenant for a diminution of
rental value and no liability on the part of Landlord by reason
of inconvenience, annoyance or injury to
business arising from the making or failing to make by Landlord,
Tenant or others, of any repairs,
alterations, additions, or improvements in or to the fixtures,
appurtenances or equipment thereof.
If any unauthorized roof openings or penetrations are made
by Tenant without the knowledge and
prior consent of the Landlord and such action by the Tenant voids
any existing roof guarantee, warranty or
bond, the Tenant shall be responsible for assuming the cost of
work which would have been covered by the
voided guarantee, warranty or bond, as additional rent. If the
length of the voided guarantee, warranty or
bond period exceeds the remaining Term of the Lease, the Tenant
shall pay to Landlord as additional rent
an amount Landlord estimates will be required for the portion of
the period which is subsequent to the
scheduled date of termination of this Lease.
Section 9.02. Emergency Repairs. If in an
emergency it shall become
necessary to make immediate repairs or replacements required to
be made by Tenant and the Tenant shall
not have commenced with reasonable diligence to make such repairs
or replacements, the Landlord, subject
to notice, if any, as may be reasonable under the circumstances
may re-enter the Premises and proceed
forthwith to have such repairs or replacements made. The Tenant
agrees to pay to the Landlord the cost of
such repairs upon demand, plus a five (5%) percent management
fee.
Landlord shall not unreasonably interfere with Tenants
business in the event Landlord re-enters
the Premises.
<PAGE>
ARTICLE X
DAMAGE TO PREMISES
Section 10.01. Notice. If the Premises or any
part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate notice
thereof to Landlord, and this Lease shall
continue in full force and effect except as hereinafter set
forth.
Section 10.02. Partial Damage. Subject to Section
10.03, hereinbelow if the
Premises are partially damaged or rendered partially unusable by
fire or other casualty, the damages thereto
shall be repaired by Landlord with all reasonable expedition,
subject to delays due to adjustment of
insurance.
Section 10.03. Substantial Damage. If the Premises
are substantially
damaged (being defined as more that 30% damage) or rendered
wholly unusable or (whether or not the
Premises are damaged in whole or in part) if the building of
which the Premises are part shall be so
damaged as, in Landlord's reasonable judgement, practically to
require demolition or rebuilding thereof,
then, in any of such events, either party may elect to terminate
this Lease by written notice to the other
party given within sixty (60) days after such fire or casualty
specifying a
- - 8 -
date of the expiration of this Lease, which date shall not be
more than thirty (30) days after the giving of
such notice, and upon the date specified in such notice the Term
shall expire as fully and completely as if
such date were the date set forth above for the expiration of
this Lease, and Tenant shall forthwith quit,
surrender and vacate the Premises, without prejudice, however, to
Landlord's rights and remedies against
Tenant under provisions of this Lease in effect prior to such
termination, and any rent owing shall be paid
up to such date, and any payments of rent made by Tenant which
were on account of any period
subsequent to such date shall be returned to Tenant. Unless
Landlord or Tenant shall serve a termination
notice as provided for herein, Landlord shall make the repairs
and restorations with all reasonable
expedition subject to delays due to adjustment of insurance
claims, labor troubles and causes beyond
Landlord's control, and this Lease shall continue in full force
and effect. It is understood that there shall
be a pro rata abatement for rent for any period of time during
which the Premises shall be in a damaged
condition, whether or not the Premises shall be partially or
wholly unusable.
<PAGE>
Section 10.04 Tenant Property. Tenant
acknowledges that Landlord
will not carry insurance on Tenant's furniture and/or furnishings
or any fixtures or equipment,
improvements or appurtenances removable by Tenant and agrees that
Landlord will not be obligated to
repair any damage thereto or replace same.
Section 10.05. Mortgages. It is understood and
agreed that the
provisions of this Article X are subject to the rights of
mortgagees of Landlords interest in the land and
buildings of which the Premises are part.
ARTICLE XI
EMINENT DOMAIN
Section 11.01 Total Taking. In the event that
any public authority or
agency holding the power of eminent domain under applicable law
shall at any time during the Term
condemn, or acquire title in lieu of condemnation to, all or
substantially all of the Premises, this Lease shall
terminate and expire as of the date upon which title shall vest
in such authority, and Tenant shall pay rent
only to the time of such vesting of title.
Section 11.02. Partial Taking. If there shall
be only a partial taking or
condemnation as aforesaid totalling one-third (1/3) or less of
the building of which the Premises are part
and which shall not substantially prevent Tenant's use of the
Premises for purposes of its business, this
lease shall thereafter continue as to untaken part and Tenant
shall be entitled to a reduction in the Basic
Rent and additional rental in such proportion as Landlord shall
reasonably deem fair and equitable.
Section 11.03. Restoration by Landlord. If there shall
be partial taking and
this Lease shall continue as to the remaining part of the
Premises, Landlord, at its own expense and as
promptly as practicable, shall restore such remaining part as
nearly as may be practicable to its former
condition, but only upon receipt of and to the extent of, the
condemnation award made on account of such
partial taking.
Section 11.04. Award to Landlord. Landlord
reserves the exclusive right
to negotiate with the condemning authority with respect to any
proposed condemnation award, and
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<PAGE>
all damages and compensation paid for the taking under the power
of eminent domain, whether for the
whole or a part of the Premises and whether by agreement or
award, shall belong to and be the property of
Landlord. Tenant hereby releases and disclaims any interest or
right whatsoever in the award or
compensation offered or paid by the condemning authority to the
Landlord for the loss of the fee. There is
expressly excluded from any right of compensation to the Tenant,
and the Tenant expressly waives, any
claims against the condemning authority for diminution in the
value of the leasehold.
Section 11.05. Awards Pursuant to Relocation Assistance
Act.
Notwithstanding the provisions of Section 11.04, there is
expressly reserved to Tenant the right to recover
against the condemning authority for its actual reasonable
expenses in moving its business from the
Premises and its actual direct losses in tangible personal
property by virtue of the taking, all as
contemplated in the Relocation Assistance Act (R.S. 20:4-1 et
seq.), and the rules and regulations adopted
thereunder.
Section 11.06 Notice to Tenant. Landlord shall give
prompt notice to Tenant
of any eminent domain proceedings with respect to the Premises.
ARTICLE XII
NOTICES
Section 12.01 Notices. No notice, request,
consent, approval,
waiver or other communication under this Lease shall be effective
unless the same is in writing, and
delivered by hand or mailed by certified mail, postage prepaid,
or mailed by recognized overnight courier
service, addressed:
(a) If to the Landlord, to the address designated as
the Landlord's address, or such
other as Landlord may from time to time designate:
(b) If to the Tenant, to its address as stated in
Article First of this Agreement, or to
such other person or address as Tenant may from time to time
designate.
Section 12.02. Delivery.
All notices hereunder shall be effective upon
receipt or refusal.
<PAGE>
ARTICLE XIII
MEMORANDUM OF LEASE
Section 13.01. Memorandum of Lease. Tenant
shall not record this
Lease, but if either party should desire to record a short form
of Memorandum of Lease setting forth only
the parties, the Premises and the Term, such Memorandum of Lease
shall be executed, acknowledged and
delivered by both parties upon notice from either party.
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ARTICLE XIV
USE
Section 14.01. Use.
The Premises shall be used and occupied by Tenant
for manufacturing and warehousing of scales, balances and
electronic devices, distribution and finishing of
packaging products including the storage of raw materials and
finished products and outdoor truck parking
in connection therewith, and for no other purpose. Tenant's use
of the Premises shall be in compliance
with all applicable governmental laws, rules and regulations and
ordinances, and other applicable codes
including but not limited to the requirements of the Occupational
Safety and Health Administration and of
any board of fire underwriters or like organization having
jurisdiction over Premises. Tenant shall obtain
its own certificate of occupancy other certificates or permits
required for the lawful occupancy of the
Premises. If the Premises are in violation of any building, fire
or similar code, regulation or requirement
arising out of Tenant's particular use of the Premises or
Tenant's failure to comply with any duty or
obligation under this Lease, Tenant shall be responsible for
compliance therewith, at its sole cost and
expense. If the Premises are in violation of any building, fire
or similar code, regulation or requirement
pertaining to buildings generally of the type and size of the
Premises, Landlord shall be responsible for
compliance therewith at its sole cost and expense. However,
Landlord's responsibility shall be limited to
any such violation existing on the Commencement Date of this
Lease. Any future violation shall be
Tenant's sole responsibility. Tenant shall not store, warehouse,
handle or in any other way use highly
flammable material, red label items, toxic items, corrosives,
poisons and oxidizers or other hazardous
substances anywhere on the Premises. The standard Industrial
Classification Code for Tenant's primary
use of the Premises is SIC# 3998.
<PAGE>
Neither Tenant's use of the Premises nor Tenant's SIC# shall
be changed without Landlord's
prior consent which shall not be unreasonably withheld. Landlord
may reasonably withhold such consent
for good cause, including, without limitation, any of the
following reasons, in Landlord's judgement:
(a) increased likelihood of environmental regulation
or contamination, including
applicability of the New Jersey Industrial Site Recovery Act, or
(b) increased likelihood of additional wear and tear
or damage to the Premises, or increased risk of fire or explosion, or
(d) increased governmental requirements or regulations
(other than environmental).
ARTICLE XV
ASSIGNMENT, SUBLETTING, ETC.
Section 15.01. Assignment, Subletting, etc. (a)
Tenant shall not sell,
assign, mortgage, pledge, or, in any manner, transfer or encumber
this Lease or any estate or
- - 11 -
interest hereunder, or sublet the Premises or any part thereof,
without the previous written consent of
Landlord, which consent shall not be unreasonably withheld,
provided, however the consent of Landlord
shall not be required in connection with sublet of a portion of
the Premises to corporate affiliates of Tenant
(being defined as an entity which is at least fifty (50%) percent
owned by or under common ownership
with Tenant) having substantially the same use and the same SIC
Code as Tenant (or such other SIC Code
as shall not, in Landlord's reasonable opinion, subject the
Premises to ISRA or increase the likelihood of
other environmental regulation or contamination, increased fire
insurance rates, or increased wear, tear or
damage to the Premises). In any of the event aforesaid, Tenant
nevertheless shall remain primarily liable
for the payment of the Basic Rent and all additional rents, and
for the performance of Tenant's other
covenants and obligations hereunder. No consent to any
assignment of this Lease or subletting of any or
all of the Premises shall be deemed or be construed as a consent
by Landlord to any further or additional
assignment or subletting.
<PAGE>
(b) In the event of any assignment of this Lease, the
assignee shall assume, by
written recordable instrument reasonably satisfactory to
Landlord, the due performance of all of Tenant's
obligations under this Lease. No assignment shall be valid or
effective in the absence of such assumption.
A true copy of such assignment and the original assumption
agreement shall be delivered to Landlord
within thirty (30) days of the effective date of such assignment.
If Tenant request Landlord's consent to
an assignment or subletting, Tenant shall pay to or on behalf of
Landlord any expense, including
Landlord's attorneys' fees, incurred by Landlord in connection
with said request.
Section 15.02. Transfer of Controlling Interest.
Any transfer of a controlling
interest of the assets or capital stock of the Tenant shall be
deemed an assignment requiring Landlord's
prior approval, which shall not be unreasonably withheld, so long
as (a) the use and SIC Code of the
Premises by the successor is substantially the same as Tenant's
use, (b) the successor is at least as
financially sound as Tenant in Landlord's reasonable discretion,
and the successor complies with the requirements of Section 15.01 (b) above.
Section 15.03 Recapture of Premises.
If at any time during the
Term, Tenant shall have received a bona fide offer from a
prospective sub-tenant of the Premises with
respect to proposed occupancy as sub-tenant of all or a portion
of the Premises, Tenant shall furnish a copy
of such offer to Landlord. In addition to the right to exercise
reasonable consent with respect to the
proposed sub-tenancy, Landlord shall have the right, by written
notice given to Tenant within ten (10) days
of Landlord's receipt of the copy of such offer, to agree to
accept the proposed sub-tenant as a direct
tenant of Landlord. In the event that (I) Landlord shall have
given timely notice as aforesaid to Tenant, (ii)
Landlord and the prospective sub-tenant shall have entered into a
written agreement for direct tenancy by
such sub-tenant and (iii) such sub-tenant shall have entered into
occupancy of the Premises and
commenced direct payment of rent to Landlord, then automatically
upon the occurrence of all three such
events, Landlord and Tenant hereunder shall be and become
released from any further obligation under the
Lease as to the portion of the Premises subject to the sublet (if
the sublet is for less than the entire
Premises), and the Lease between Landlord and Tenant hereunder
shall be deemed terminated and of no
further force and effect (rental to be adjusted a of the date of
termination) as to space. If Landlord shall not
have given notice to Tenant within the said ten (10) day period,
Landlord shall be deemed to have waived
is right to effect a direct tenancy with the proposed sub-tenant.
<PAGE>
It is understood and agreed that neither
party hereto shall be released from its obligations to the other
party unless and until
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Landlord shall have been released from their obligations under
the Lease, the Lease shall remain in full
force and effect and shall continue to be binding upon Landlord
and Tenant. This section 15.03 shall not
apply to sublets to corporate affiliates of Tenant, as defined in
Section 15.01 (a) above.
ARTICLE XVI
LANDLORD'S WARRANTY
Section 16.01. Warranty.
Landlord warrants that it has the right to
execute this Lease, and covenants that there are no covenants,
easements, restrictions or liens which would
adversely affect Tenant's use of the Premises for the purposes
permitted hereunder. Notwithstanding the
above, if Landlord shall be unable to give possession of the
Premises on the date of commencement of the
Term, because of the holding-over or retention of possession of
any tenant, undertenant or occupants, or
for any other reason not within Landlord's control, then., and in
any of such events, Landlord shall not be
subject to any liability for failure to give possession on said
date, and the validity of this Lease shall not be
impaired under such circumstances, nor shall the same be
construed in any way to extend the Term, but the
rent payable hereunder shall be abated (provided Tenant is not
responsible for the inability to obtain
possession) until after Landlord shall have given Tenant written
notice that the Premises are substantially
ready for Tenant's occupancy.
ARTICLE XVII
SUBORDINATION
Section 17.01. Subordination to Mortgages.
This Lease is hereby made
and shall be subject and subordinate to all mortgages which may
now or hereafter affect the Premises, and
to all renewals, modifications, consolidations, replacement or
extensions there. Landlord will obtain a non-
disturbance/attornment agreement from its current and any future
mortgage of the Premises, if any, on such
mortgagee's usual form.
<PAGE>
Section 17.02. Tenants Certificate.
Notwithstanding the automatic
applicability, as to all current and future mortgages, of the
subordination of this Lease, Tenant shall, upon
request of Landlord, execute any instrument which may be deemed
necessary or desirable by Landlord to
confirm such subordination or as otherwise required for mortgage
financing or sale of the Premises
including but not limited to, estoppel certificates executed and
acknowledged to any mortgages or
purchaser, or any proposed mortgage lender or purchaser,
including but not limited to certifications that
this Lease is in full force and effect or, if not, in what
respect it is not; that this Lease has not been
modified, or the extent to which it has been modified; and that
there are not existing defaults hereunder to
the best of Tenant's knowledge, or specifying the defaults, if
any. If Tenant fails to respond after due
notice within seven (7) days, it shall automatically constitute
affirmation of the items contained in the
estoppel statement.
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ARTICLE XVIII
NON-LIABILITY OF LANDLORD
Section 18.01. Non-Liability of Landlord.
Landlord shall not be
responsible or liable to Tenant for any loss, damage or injury to
person or property that may be occasioned by the acts or omissions
of Landlord or of persons occupying any space adjacent to or adjoining the
Premises, or any part thereof, including, not in limitation of
the foregoing, loss, damage or injury resulting
to Tenant or to any other person, from water, gas, steam, fire or
the bursting, stoppage, or leakage of sewer
pipes, except for acts resulting from the gross negligence or
willful misconduct of Landlord. The
provisions hereof are not intended to abrogate the provisions of
Section 5.05 hereinabove (Waiver of
Subrogation).
ARTICLE XIX
INDEMNIFICATION OF LANDLORD
Section 19.01. Indemnification of Landlord.
Tenant agrees to indemnify
and save Landlord harmless from and against all liability and all
loss, cost and expense, including
reasonable attorneys' fees and costs, arising out of the
operation, maintenance, management and control of
the Premises or in connection with (a) any injury or damage
whatsoever caused it or by any person,
including Tenant, its employees, contractors or agents, or to
<PAGE>
property, including Tenant's property, arising
out of any occurrence on the Premises; (b) any breach of this
Lease by Tenant; any act or omission of
Tenant or of any person on the Premises, occurring in, on or
about the Premises; (d) any contest or
proceeding brought by Tenant as may be provided for herein,
except with respect to liability resulting from
the gross negligence or willful misconduct of Landlord. The
provisions hereof are not intended to abrogate
the provisions of Section 5.05 hereinabove (Waiver of
Subrogation). In the event that either party
breaches the Lease, in addition to its rights under this Lease,
either party shall have the right to recover
reasonable attorneys fees.
ARTICLE XX
DEFAULTS AND REMEDIES
Section 20.01. Tenants Default.
If Tenant (a) fails to make any
payment of Basic Rent of any additional rent or sum herein
reserved, within three (3) days following the
due date thereof (provided, however, that Tenant shall be
entitled to an additional two (2) day grace period
for any such payment of rent, not more frequently then twice in
any calendar year), and tenant fails to cure
such non-payment within five (5) days of receipt of notice from
the landlord of tenant's failure to pay, or
(b) if Tenant defaults in compliance with any of the other
covenants or conditions of this Lease and fails to
cure such default, other than the payment of Basic Rent or any
additional rent or sum herein reserved,
within ten (10) days after the receipt of notice specifying the
default, then at the expiration of said ten (10)
days (provided, however, that if such breach of other covenant or
condition cannot reasonably be cured
within such ten (10) day period, Tenant shall be afforded a
reasonable time thereafter to complete such
cure, in no event exceeding sixty (60) days, provided that Tenant
commence the cure within such ten 10 days and
- - 14 -
diligently and continuously proceeds to complete such cure),
Landlord may (a) cancel and terminate this
Lease upon written notice to Tenant (whereupon the Term shall
terminate and expire, and Tenant shall then
quit and surrender the Premises to Landlord, but Tenant shall
remain liable as hereinafter provided); and/or
(b) at any time thereafter re-enter and resume possession of the
Premises as if this Lease had not been
made, Tenant hereby waiving the service of any notice of
intention to re-enter or to institute legal
proceedings to that end.
<PAGE>
Section 20.02. Re-Entry by Landlord. If this Lease
shall be terminated or if Landlord shall be entitled to re-enter the
Premises and dispossess or remove Tenant under the provisions of
Section 20.01 (either or both of which events are hereinafter
referred to as a Termination), Landlord
and Landlord's agents or servants may immediately or at any time
thereafter re-enter the Premises and
remove therefrom Tenant, its agents, employees, servants,
licensees and any sub-tenants and other persons,
firms or corporations, and all or any of its or their property
therefrom, either by summary dispossess
proceedings or damages therefore, and may repossess and enjoy the
Premises, including all additions, alterations and improvements thereto.
Section 20.03. Effect of Termination.
In case of Termination, the Basic Rent and all other charges
required to be paid by Tenant hereunder shall thereupon become due
and shall be paid by Tenant up to the time of the Termination, and
Tenant shall also pay to Landlord all reasonable expenses which Landlord
may then or thereafter incur as a result of or arising out of a Termination,
including but not limited to court costs, reasonable attorneys'
fees, brokerage commissions and cost of
terminating the tenancy of Tenant, re-entering, dispossessing or
otherwise removing Tenant, and restoring
the Premises to good order and condition, and from time to time
altering the otherwise preparing the same
for reletting. Upon a Termination, Landlord may, at any time and
from time to time, re-let the Premises, in
whole or in part, either in its own name or as Tenant's agent,
for a term or terms which, at Landlord's
option, may be for the remainder of the then current Term, or for
any longer or shorter period.
Section 20.04. Damages. In addition to the
payments required by Section 20.03 hereinabove, Tenant shall be obligated to,
and shall, pay to Landlord upon demand and at Landlords option:
(a) Liquidated damages in an amount which, at the time of
the Termination, is equal to
the excess, if any, of the then present amount of the
installments of Basic Rent reserved hereunder, for the
period which would otherwise have constituted the unexpired
portion of the then current Term, over the
then present rental value of the Premises for such unexpired
portion of the then current Term; or
(b) Damages (payable in monthly installments), in advance,
on the first day of each calendar
month following the Termination, and continuing until the date
originally fixed herein for the expiration of
the then current Term in amounts equal to the excess, if any, of
the sums of the aggregate expenses paid by
Landlord during the month immediately preceding such calendar
month for all such items as, by the terms
of this Lease, are required to be paid by Tenant, plus an amount
<PAGE>
equal to the installment of Basic Rent
which would have been payable by Tenant hereunder in respect to
such calendar month, had this Lease not
been terminated, over the sum of rents, if any, collected by or
accruing to Landlord in respect to such
calendar month pursuant to a re-letting or to any holding over by
any sub-tenants of Tenant.
- - 15 -
Section 20.05. No Obligation to Re-Let. Landlord
shall in no event be liable for failure to re-let the Premises, or in the
event that the Premises are re-let, for failure to collect rent
due under such re-letting; and in no event shall Tenant be
entitled to receive any excess of the Basic Rent
over the sums payable by Tenant to Landlord hereunder but such
excess shall be credited to the unpaid
rental due hereunder, and to the expenses of re-letting and
preparing for re-letting as provided herein.
Landlord shall use commercially reasonable efforts to re-let the
Premises.
Section 20.06. Successive Suits. Suit or suits
for the recovery ofdamages hereunder, or for any installments of rent, may be
brought by Landlord from time to time at its
election, and nothing herein contained shall be deemed to require
Landlord to postpone suit until the date
when the Term would have expired if it had not been terminated
under the provisions of this Lease, or
under any provision of law, or had landlord not re-entered into
or upon the Premises.
Section 20.07. Acceleration. Anything to the
contrary hereinbefore
notwithstanding, Landlord shall have the option to accelerate all
future rentals due and hold Tenant
responsible, in advance, for the aggregate damages (as
described in this Article XX) to be suffered by
Landlord during the remainder of then current Term or renewal
term as well as damages covering any
renewal term, the option for which shall have been exercised by
the Tenant.
Section 20.08. Late Fee.
Landlord, at its option, in addition to any and
all remedies available to it, shall have the right to charge
legal fees and court costs necessary to collect late
rental; as well as a late fee which shall become due and payable
when any rental remains unpaid after the
third (3) day of the month in which said rent was, due which fee
shall be eight (8%) percent per month in
the amount of such overdue rent; or in the event that rent is
received after the 15th, said fee shall be twelve
(12%) percent per month in the amount of such over due rent.
<PAGE>
Section 20.09. Waiver of Redemption. Tenant
hereby waives all rights of redemption to which Tenant or any person
claiming under Tenant might be entitled, after an
abandonment of the Premises, or after a surrender and acceptance
of the Premises and the Tenant's
leasehold estate, or after a dispossession of Tenant from the
Premises, or after a termination of this Lease,
or after a judgement against Tenant in an action in ejectment, or
after this issuance of a final order or
warrant of dispossess in a summary proceeding, or in any other
proceeding or action authorized by any rule
of law or statute now or hereafter in force or effect.
ARTICLE XXI
BANKRUPTCY
Section 21.01. Bankruptcy, Insolvency, etc.
If at any time after the date of
this Lease (whether prior to the commencement of or during the
Term) (a) any proceedings in bankruptcy,
insolvency or reorganization shall be instituted against Tenant
pursuant to any Federal or State Law now or
hereafter enacted, or any receiver or trustee shall be appointed
of all or any portion of Tenant's business
or property, or any execution or attachment shall issue against
Tenant or any of Tenant's business or
property or against the leasehold estate created hereby and any
- - 16 -
of such proceedings process or appointment be not discharged and
dismissed within thirty (30) days from the
date of such filing, appointment or issuance; or (b) Tenant shall
be adjudged a bankrupt or insolvent, or
Tenant shall file a voluntary petition in bankruptcy or petitions
for (or enters into) an arrangement or for
reorganization, composition or any other arrangement with
Tenant's creditors under any Federal or State
Law now or hereafter enacted, or this Lease or the estate of
Tenant herein shall pass to or dissolve upon, by
operation of law or otherwise, anyone other than Tenant (except
as herein provided), the occurrence of any
one of such contingencies shall be deemed to constitute and shall
be construed as a repudiation by Tenant
of Tenant's obligations hereunder and shall cause this Lease ipso
facto to be canceled and terminated,
without thereby releasing Tenant; and upon such termination
Landlord shall have the immediate right to re-
enter the Premises and to remove all persons and property
therefrom and this Lease shall not be treated as
an asset of Tenant's estate and neither Tenant nor anyone
claiming by, through or under Tenant by virtue
of any law or any order of any Court shall be entitled to the
possession of the Premises or to remain in the
possession thereof. Upon the termination of this Lease, as fore
<PAGE>
said, Landlord shall have the right to retain
as partial damages, and not as a penalty, any prepaid rents as
partial damages, and not as a penalty, any
prepaid rents deposited by Tenant hereunder, and Landlord shall
also be entitled to exercise such rights and
remedies to recover from Tenant as damages such amounts as are
specified in Article XX hereof. As used
in this Article XXI, the term "Tenant" shall be deemed to include
Tenant and its successors and assigns
and the guarantor(s), if any, of Tenant's obligations under this
Lease.
ARTICLE XXIII
UTILITIES AND SERVICES
Section 22.01. Utilities and Services. Except as
may other wise be provided
in this Lease, Tenant shall undertake and be responsible to place
in its name all utilities for the Premises
and agrees to place in its name all utilities for the Premises
and agrees to pay, on or before the due date, all
charges for same directly to the respective utility companies.
Such utilities include water, sewer,
electricity, heat, power, telephone, A.D.T. Protective Services
(or similar service by another company) or
other communication service or other utility or service issued
by, or rendered or supplied to Tenant at the
Premises (or at the building of which the Premises forms a part)
throughout the Term. Landlord may, at its
option, furnish to Tenant or to any other portion of the building
of which the Premises are a part of any one
or more utilities, services (including elevator), or repairs
(which services, or repairs shall be chosen at the
sole discretion of Landlord) and Tenant shall pay the cost of
said utilities, services, or repairs within ten
(10) days after Landlord's demand therefore. Failure to make
said payment within said ten-day period is
defined as a material default on the part of the Tenant. In no
event shall Landlord incur any liability to
Tenant or any other person by reason of any interruption of or
delay in furnishing any utility service to the
Premises. If Tenant fails to make any payment as herein
provided, Landlord may, without further notice,
terminate such utility service. Tenant will thereafter be liable
for all costs in connection with the
termination and reinstallation or reestablishment of services.
Section 22.02. Electric Current. Tenants use of
electric current shall not exceed the capacity of existing feeders
to the building or the risers or wiring installation, and Tenant
may not use any electrical equipment which, in the Landlord's
reasonable judgment, will overload such
installations.
- - 17 -
<PAGE>
ARTICLE XXIII
ACCESS TO PREMISES
Section 23.01. Landlords Right of Access.
Tenant shall permit Landlord
or its agents to enter the Premises at any time for the purpose
of inspecting or showing the Premises, on
reasonable notice. Tenant may in no way interfere with the
Landlord's right to inspect. Tenant shall,
upon its being given notice of Landlord's desire or intent to see
the Premises and/or within one year prior
to the expiration of the Term or any renewal term, permit the
usual; notice of "To Let", "For Rent" and
"For Sale" to be placed at reasonable locations on the Premises
and to remain thereon, without hindrance
or molestation. Landlord shall also have the right, but not the
obligation, to enter the Premises at
reasonable times to run utility, plumbing or sewer lines,
conduits, ducts and the like, over, under or through
the Premises, and to make repairs. Landlord shall at all times
have a right to maintain keys to the Premises,
and Tenant shall provide to Landlord copies of keys to all
outside door locks at the Premises.
ARTICLE XXIV
SIGNS
Section 24.01. Erection of Signs. Tenant shall
have the right, with
the prior written consent of Landlord, to erect signs for advertising
purposes in connection with its business at the Premises. All signs shall
comply with applicable governmental rules and regulations, and Tenant shall
remove such signs at the expiration of the Term or sooner
termination of this: ease, as the case may be, and
restore the area to original condition.
Section 24.02. Repair of Damage. Tenant shall be
reasonable for any damage caused to the Premises by the erection or maintenance
on the Premises of said signs, and any damage so caused shall be repaired
forthwith at Tenant's sole cost and expense. In the event any sign
erected by Tenant is removed during the Term or st the expiration
or earlier termination thereof, Tenant shall, at its sole cost and expense,
repair any damage whatsoever caused by the removal.
<PAGE>
ARTICLE XXV
SECURITY DEPOSIT
Section 25.01. Security Deposit. Prior to or
concurrent with the signing of this lease Tenant shall present an Irrevocable
Letter of Credit in a for acceptable to Landlord in
the amount of Thirty Three Thousand ($33,000.00) Dollars to
Landlord as security for the faithful performance of all of the covenants,
conditions and agreements of this Lease. All charges for the issuance
and collection of the Letter of Credit shall be to the account of
the Applicant. Said Letter of Credit shall be
payable to Landlord on presentation at the New York City Office
of the issuing bank. Should the L:Letter
of Credit be for a period of less than the full term of this
lease plus 60 days, it shall be renewed or replaced
by presentation of the renewal or replacement document to
Landlord at his address in accordance with
paragraph 2 of this lease not less than thirty (30) days prior to
its expiration. The renewal or replacement
document shall also be in a form acceptable to Landlord and
should it terminate at a date earlier than 60
days after
- - 18 -
expiration of this lease, including any renewal period at which
Tenant exercises an option, it shall likewise
be renewed or replaced.
Should Landlord present the Letter of Credit because of
failure of Tenant to timely renew or
replace in a form acceptable to Landlord, or because of Tenant's
failure to faithfully perform all of the
covenants, conditions and agreements of this Lease, such monies
received shall be placed by Landlord in
an interest earning account or fund with interest to be retained
by Landlord as additional security.
In no event shall the Landlord be obligated to apply the
same on rents, additional rents, or other
charges in arrears or on damages for Tenant's failure to perform
the said covenants, conditions and
agreements; the Landlord may so apply the security at its option;
and the Landlord's right to the
possession of the premises for non-payment of rent or for any
other reason shall not in any event be
affected by reason of the fact that the Landlord holds security.
The said sum including any earned interest
if not applied toward the payment of rent in arrears or toward
the payment of damages suffered by the
Landlord by reason of the Tenant's breach of the covenants,
conditions and agreements of this Lease is to
be returned to the Tenant when this Lease is terminated,
according to these terms, and in no event is the
said security to be returned until the Tenant has vacated the
premises and delivered possession to the
Landlord.
<PAGE>
In no event that the Landlord repossesses itself of the said
premises because of the Tenant's default or because of the Tenant's
failure to carry out the covenants , conditions and agreements of this
Lease, the Landlord may apply the said security on all damages
suffered to the date of said repossession
and may retain the said security to apply on such damages as may
be suffered or shall accrue thereafter by
reason of the Tenant's default or breach. The Landlord shall not
be obligated to keep the said security as a
separate fund, but may mix the said security with its own funds.
The security deposited under this Lease shall not be
mortgaged, assigned or encumbered by Tenant without the written
consent of Landlord, nor shall any security ever by used by Tenant to
pay rent, additional rent or other charges.
ARTICLE XXVI
PREMISES AS-IS
Section 26.01. As-Is.
Neither Landlord nor Landlord's agents have
made any representations or promises with respect to the physical
condition of the Premises or the building
of which the Premises are part, the land upon which such building
is erected or the Premises, the rents,
leases, expenses of operation or any other matter or thing
affecting or related to the Premises except as
herein expressly set forth, sand no rights, easements or licenses
are acquired by Tenant by implication or
otherwise except as expressly set forth in this Lease. Tenant
has inspected the building and the Premises
and is thoroughly acquainted with their condition, and agrees to
take the same "as is" and acknowledges
that the taking of possession of the Premises by Tenant shall be
conclusive evidence that the Premises and
the building of which the same form a part were in good and
satisfactory condition at the time such
possession was so taken.
- - 19 -
ARTICLE XXVIII
ATTORNMENT
Section 28.01. Attornment.
Tenant agrees that in the event of a sale,
transfer or assignment, or sale and leaseback, or Landlord's
interest in the real property of which the
premises are part, or any part thereof, including the Premises,
or in the event any proceedings are brought
for the foreclosure of or for the exercise of any power of sale
under any mortgage constituting a lien upon
such real property or any part thereof, including the Premises,
to attorn to and to recognize such transferee,
<PAGE>
purchaser, or mortgagee, as Landlord under this Lease or, in the
case of a sale-leaseback, to continue to
recognize Landlord as its lessor under this Lease. The foregoing
provision of this Section shall be self-operative and no further instrument
shall be required to give effect to said provisions. Tenant, however,
agrees, at the request of the party to which it has attorned, to
execute, acknowledge and deliver without
charge, from time to time, instruments acknowledging such
attornment, and to execute such other
documents, including estoppel certificates and certified
financial statements, as may reasonably be
requested by such party.
ARTICLE XXXI
END OF TERM
Section 31.01. Conditions of Premises.
Tenant shall, on the last day
of the term or renewal, as the case may be, or upon the earlier
termination of the Lease, peaceably and
quietly surrender and deliver up to Landlord the Premises broom-
clean (including but not being limited to
the floor, walls, ducts, exposed piping, and ceiling), with the
Premises and all equipment in or appurtenant
thereto, in as good condition and repair as when delivered to
Tenant, reasonable wear and tear expected.
ARTICLE XXXII
GENERAL PROVISIONS
Section 32.01. Notices of Sale, etc.
(a) The Tenant agrees that on and after twelve (12) months
nest preceding the expiration of the Term hereby granted the Landlord
and/or its agents shall have the right to place notices on the front of the
Premises or any part thereof, offering the demised premises "To Let" or
"For Sale", which signs shall not be unsightly, and the Tenant hereby
agrees to permit the same to remain thereof without hindrance or
molestation. It is understood and agreed
that on or after twelve (12) months next preceding the expiration
of the term hereby granted, the Landlord
and/or its agents shall have the right to show or examine the
Premises during normal business hours upon
reasonable notice.
(b) At any time during the Term of this Lease Landlord
and/or its agents shall
have the right to show or examine the Premises for purposes of
sale or mortgage. Said right shall be
exercised during normal business hours upon reasonable notice.
The Landlord's rights to show or
examine the Premises shall be exercised without unreasonably
interfering with or interrupting Tenant's
business.
<PAGE>
- 20 -
Section 32.02. No Waste. Tenant covenants not
to do or suffer any waste or damage, or injury to the Premises or to the
fixtures and equipment therein.
Section 32.03. Landlord's Liability.
If Landlord shall breach any of the provisions hereof, Landlord's liability
shall in no event exceed Landlord's interest in the Premises as of
the date of Landlord's breach; and Tenant expressly agrees that
any judgement or award which it may
obtain against Landlord shall be recoverable and satisfied solely
out of the right, title and interest of
Landlord in and to the Premises and that Tenant shall have not
rights against the partners, general and
limited, of Landlord or rights of lien or levy against any other
property of Landlord (or of any person or
entity comprising Landlord), nor shall any other property or
assets of Landlord be subject to levy,
execution or other enforcement proceedings for the collection of
any such sums or satisfaction of any such
judgement or award.
Section 32.04. Partial Invalidity.
If any term or provisions of this Lease or the application thereof
to any party or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Lease or the application of
such term or provision to parties or
circumstances other than those to which it is held invalid or
unenforceable, shall not be affected thereby,
and each term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law.
Section 32.05. No Waiver. One or more waivers
by either party of the obligation of the other to perform any covenant or
condition shall not be construed as a waiver of a subsequent breach of the
same or any other covenant or condition. The failure of the Landlord to bill
(either in a timely manner or at all) for any rental or additional rental
item cal;ed for under this Lease Agreement shall not constitute, or be
interpreted as, a waiver of Landlord's right to collect same. The
receipt of rent by the Landlord's, with knowledge of any breach
of this Lease by Tenant of any default by
Tenant in the observance or performance of any of the conditions
for covenants of this Lease, shall not be
deemed to be a waiver of any provision of this Lease. Neither
the acceptance of the keys nor any other act or thing done by Landlord
or any agent or employee during the Term shall be deemed to be an acceptance
of an surrender of the Premises, excepting only an agreement, in
writing, signed by the Landlord accepting or agreeing to accept
such a surrender.
Section 32.06. Number and Gender. Wherever herein
the singular number is used, the same shall include the plural, and
the masculine gender shall include the feminine and neuter
genders.
<PAGE>
Section 32.07. Successors and Assigns. The terms,
covenants and conditions herein contained shall be binding upon and inure to
the benefit of the respective parties and their successors and assigns.
Section 32.08. Article and Marginal Headings. The
article and marginal headings herein are intended for convenience
in finding the subject matters, and are not to be used in
determining the intent of the parties of this Lease.
Section 32.09. Entire Agreement. This instrument
contains the entire and only agreement between the parties, and no oral
statements or representations or prior written
matter not contained or referred to in this instrument shall have
any force or effect. This Lease
- - 21 -
shall not be modified in any way or terminated by mutual
agreement except by a writing executed by both
parties.
Section 32.10. Obligations also Covenants.
Whenever in this Lease any words of obligation or duty are used,
such words or expressions shall have the same force and effect as
though made in the form of covenants.
Section 32.11. Cost of Performing Obligations.
Unless otherwise specified, the respective obligations of the
parties to keep, perform and observe any terms, covenants or conditions of
this Lease shall be at the sole cost and expense of the party so
obligated. If Tenant request Landlord to
perform any act for the sole business purposes of Tenant, and if
Landlord agrees to perform said act,
Tenant agrees to pay to or on behalf of Landlord any expense,
including attorney's fees, associates with
said act on the part of Landlord.
Section 32.12. Remedies Cumulative. The
specified remedies to which the Landlord or Tenant may resort under the
terms of this Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which the
Landlord or Tenant may be lawfully entitled in case of any breach or
threatened breach of any provision of this Lease.
Section 32.13. Holding Over. If Tenant holds over
after the expiration or earlier termination of this Lease, and if Tenant
is not otherwise in default hereunder, such holding over
shall not be deemed to create an extension of the Term, but such
occupancy shall be deemed to create a
<PAGE>
month-to-month tenancy at twice the rental rate, and on the same
terms and conditions (except as the same
may be then inapplicable) as are in effect on the date of said
expiration or earlier termination.
Section 32.14. Force Majeure. The period of time during
which either party hereto is prevented from performing any act required to be
performed under this Lease by reason of fire,
catastrophe, labor difficulties, strikes, lock-outs, civil
commotion, acts of God or of the public enemy,
governmental prohibitions or preemptions, embargoes, inability to
obtain materials or labor by reason of
governmental regulations or prohibitions, or other events beyond
the reasonable control of Landlord or
Tenant, as the case may be, shall be added to the time for fault
under this Lease as the result thereof. The
provisions of this Section shall not apply to or in any manner
extend or defer the time for any obligations to
make payment of monies required of either party hereunder.
Section 32.15. Vacancy or Abandonment. In the
event that the Premises shall become vacant as the result of being vacated
or abandoned by Tenant during the term, Landlord may
re-enter the same, either by peaceable reentry or otherwise,
without being liable to prosection therefor, and
re-let the Premises as agent to Tenant and receive the rent
therefor and apply the same first to payment of
such expenses as Landlord may be put to in re-entering, and then
to payment of rent due under this Lease.
In addition, such vacancy or abandonment shall constitute a
default under Section 20.01 entitling Landlord
to the exercise of all remedies specified in such Section or
otherwise allowed by law. The foregoing rights
shall not be available to Landlord in the event of vacancy or
abandonment by Tenant provided that Tenant
is not otherwise in default hereunder and maintains an on-site
security guard at the Premises during all
normal business hours. In the event that Landlord shall have
obtained a judgment for possession rendered
by a court of competent jurisdiction, Landlord may re-enter the
premises without the necessity of obtaining
a Warrant for Removal.
- - 22 -
Section 32.16. Governing Law. The interpretation and validity
of this Lease shall be governed by the substantive law of New Jersey.
Section 32.17. Brokerage. Landlord and Tenant
represent they have dealt with no real estate broker in connection with
this Lease.
<PAGE>
Section 32.18. Floor Loads. Tenant shall not
place a load upon any floor of the Premises exceeding the floor load per
square foot area which it was designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the
weight and position of all safes, business
machines and mechanical equipment. Such installations shall be
placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Landlord's judgment,
to absorb and prevent vibration, noise
and annoyance.
Section 32.19. Waiver of Jury Trial. It is
mutually agreed by and between Landlord and Tenant that the respective
parties hereto shall and they hereby do waive trail by jury in any
action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for
personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Premises, and any
emergency statutory or any other statutory remedy.
Section 32.20. No Option. For the convenience
of Tenant, this Lease may be submitted to Tenant prior to its execution by
or on behalf of Landlord, but such submission shall
not constitute an offer or an option and this Lease shall have
been signed and delivered on behalf of Landlord.
Section 32.21. Modification of Lease Term.
Tenant shall enter into any reasonable modification of the term of
this Lease requested by any bona fide institutional lender of
Landlord to facilitate mortgaging, provided that such
modification shall not alter Basic Rent, additional
rent or Term hereof, nor shall it materially increase Tenant's
duties or materially decrease Tenant rights
hereunder. Not in limitation of the foregoing, it is agreed that
if requested by an mortgagee, Tenant shall
enter into an agreement with Landlord or such mortgagee, as
requested to the effect that this Lease shall
not be modified or surrendered, nor rent prepaid, without the
consent of such mortgagee.
Section 32.22. Rules and Regulations. Landlord may,
from time to time, promulgate reasonable rules and regulations for
the health and safety and welfare of all the tenants of the
lands and premises of which the Premises are part, including but
not limited to use of any common areas
and facilities, and Tenant agrees that such rules and regulations
shall, upon notice to Tenant, automatically
be incorporated herein as if fully set forth.
<PAGE>
Section 32.23. Restrictions on Tenant.
a. Trash. Tenant shall store and dispose of all
trash and garbage in suitable
containers and locate same as Landlord designates from time to
time. Tenant shall not burn any paper.
Trash or garbage in or about the Premises.
b. Tenant to Perform it Obligations Under this Lease.
The Tenant shall keep
the Premises in a clean and sanitary condition free from vermin
and escaping offensive odors.
- - 23 -
c. Plumbing Facilities. Tenant shall not use or
permit others to use any plumbing facilities in the Premises for any purpose
other than that for which they were constructed or to
dispose of any damaging or injurious substance or any grease or
garbage therein.
d. Obstruction. Tenant shall not obstruct, or
permit others to obstruct, any entrances to the building for the halls
and stairs or loading facilities thereof. Landlord may prohibit
congregation by employees in hallways and other common areas.
e. Storage. Tenant is prohibited from storing any
materials, equipment, parts, pallets or nay other items used in its business
outside the Premises.
Section 32.24. Quiet Enjoyment. Upon the payment of
the Basic Rent and all additional rents and sums herein reserved and due and
upon the due performance of all the terms,
covenants and conditions herein contained on Tenant's part to be
kept and performed, Tenant shall and
may at all times during the Term peaceably and quietly enjoy the
Premises, subject to the Terms of this
Lease.
ARTICLE XXXIII
DEFINITIONS
Section 33.01. Re-Enter and Re-Entry. The term
re-enter and re-entry as issued in this Lease are not restricted to their
technical, legal meaning.
Section 33.02. "Landlord". The term "Landlord"
as used in this Lease
means only the holder, for the time being, of Landlord's interest
under this Lease so that in the event of
any transfer of title to the Premises, Landlord shall be and
hereby is entirely freed and relieved of all
obligations of Landlord hereunder accruing after such transfer,
and it shall be deemed without further
agreement between the parties that such grantee, transferee or
<PAGE>
assignee has assumed and agreed to observe
and perform all obligations of Landlord hereunder arising during
the period it is the holder of landlord's
interest hereunder.
Section 33.03. "Lease Interest Rate". The term
"Lease Interest Rate", as
used in this Lease, shall mean interest at the then current
"prime" plus four (4%) percent rate of interest
published by the Wall Street Journal.
Section 33.04. "Additional Rent". All costs and
charges of whatever
nature to be paid by Tenant under this Lease, whether to be made
to Landlord or to any other party, shall
be deemed additional rent, whether or not expressly so stated
elsewhere in the Lease.
ARTICLE XXXIV
PARKING
Section 34.01. Parking. Tenant shall have the
exclusive privilege to
use all parking areas of the property for the parking of Tenant's
motor vehicles as may be made available
from time to time by Landlord.
- - 24 -
ARTICLE XXXV
SUBMISSION NOT BINDING
Section 35.01. Submission Not Binding. Submission
by the Landlord
of the within Lease for execution by the Tenant shall confer no
rights nor impose any obligations on either
party, unless and until both the Landlord and Tenant shall have
executed this Lease and duplicated
originals thereof shall have been delivered to the respective
parties.
ARTICLE XXXVII
COMPLIANCE WITH LAWS GENERALLY
Section 37.01. Compliance With Laws. Tenant
shall, at Tenant's sole
expenses, promptly execute and comply with all requirements of
all laws, orders, Federal, State, county
and municipal authorities and any board of fire underwriters or
similar organization having jurisdiction
over the Premises, (now or hereinafter enacted) concerning the
Premises and/or the use and occupancy
thereof, including but not limited to all requirements of the
Occupational Safety and Health Administration
and Tenant shall not make any claim against Landlord for any
expense or damages resulting from such
<PAGE>
execution and compliance (subject to the obligations of Landlord
set forth in Section 14.01 above and
provided further Landlord, and not Tenant, shall be responsible
to install or pay for any capital
improvements to the Premises required to be installed in
connection with any change in law or regulation,
unless arising out of Tenant's particular use of the Premises,
and Tenant shall reimburse Landlord, as
Additional Rent, for Tenant's percentage share of the cost of
such capital improvement, based upon a
fraction the numerator of which is the remaining years of the
Term of this Lease and the denominator of
which is the useful life of such capital improvement). Tenant
shall also comply with the Environmental
Cleanup Responsibility Act, P.L. 1983, Chapter 330, and the
Industrial Site Recovery Act, P.L. 1993,
C.139 (collectively "ISRA" ) and shall do all things and execute
all documents necessary for said
compliance including, but not limited to, the submission to the
New Jersey Department of environmental
Protection of all necessary documentation upon the termination of
this Lease, the termination of the use set
forth in Section 14.01 hereof or the conveyance of title to the
Premises.
ARTICLE XXXVIII
LANDSCAPING
Section 38.01. Landscaping.
Tenant agrees that it shall coordinate and
maintain the outside landscaping for the entire building.
ARTICLE XXXIX
ENVIRONMENTAL COMPLIANCE
Section 39.01. Environmental Compliance.
If Tenant receives any notice
of the happening of any event involving the use, spill, discharge
or cleanup of any hazardous or toxic
substances or waste, or any oil or pesticide on or about the
Premises or into the sewer, septic system or
waste treatment system servicing the Premises (any such event is
hereinafter referred to
- - 25 -
as a Hazardous Substance) or of any complaint, order, citation,
or notice with regard to air emissions,
water discharges, noise emissions or any other environmental,
health or safety matter affecting the Tenant
(an Environmental Complaint) from any person, entity, including
the DEP and the U.S. EPA, then the
Tenant shall give immediate written notice of same to the
Landlord, detailing all relevant fact and
circumstances.
<PAGE>
Section 39.02. Without limitation of the foregoing,
Landlord shall have the right,
but not the obligation, to exercise any of its rights as provided
in Article XX of this Lease or to enter onto
the Premises or to take such actions as it deems necessary or
advisable to cleanup, remove, resolve or
minimize the impact or otherwise deal with any Hazardous
Discharge or Environmental Complaint upon its
receipt of any notice from any person or entity, including
without limitation of a Hazardous Discharge or
an Environmental Complaint on or pertaining to the demised
premises. All cost and expenses incurred by
Landlord in the exercise of any such rights shall be deemed to be
additional rent hereunder and shall be
payable by the Tenant to the Landlord upon demand.
Section 39.03. The occurrence of any of the following
events shall constitute an event of default under this Lease (in addition
to, and not in limitation of, the events of default set forth in
Article XX herein):
a) If Landlord receives it first notice of a Hazardous
Discharge or an Environmental
Complaint, of which Tenant had knowledge, or should reasonably
have knowledge, on or pertaining to the
demised premises other than from Tenant, and Landlord does not
receive a notice (which may be given in
any oral or written from. Provided same is followed with all due
dispatch by written notice given by
certified mail, return receipt requested) of such Hazardous
Discharge or Environmental Complaint form
Tenant within twenty four (24) hours of the time Landlord first
receives said notice other than from the
Tenant; or
b) If the DEP, EPA or any other state or federal agency
asserts a claim against Tenant,
the Premises or Landlord for damages or cleanup costs related to
a Hazardous Discharge or an
Environment Complaint on or pertaining to the demised Premises
provided, however, such claim shall not
constitute a default if, within thirty (30) days of notice to
Tenant (or such shorter period for response
required by law or regulation) of the occurrence giving rise to
the claim:
(i) Tenant can prove to Landlord's reasonable
satisfaction that Tenant has
commenced and is diligently pursuing either (x) cure or
correction of the event which constitutes the basis
for the claim, and continues diligently to pursue such cure of
correction to completion, or (y) proceedings
for an injunction, a restraining order or other appropriate
emergent relief preventing such agency or
agencies from asserting such claim, which relief is granted
within ten (10) days of the occurrence giving
rise to the claim and the emergent relief is not thereafter
dissolved or reserved on appeal; and
<PAGE>
(ii) In either of the foregoing events, Tenant has
posted a bond, letter of credit
or other security satisfaction in form, substance and amount to
the agency or entity asserting the claim to
secure the proper and complete cure or correction of the event
which constitutes the basis for the claim.
- - 26 -
Section 39.04. In the event that evidence of Tenants
ISRA compliance (limited
solely to Tenant's business operation at the Premises) is not
delivered to Landlord prior to surrender of the
leased Premises by Tenant to Landlord, it is understood and
agreed that Tenant shall be liable to pay basic
rent and additional rent to the Landlord from the date of such
surrender until such time as evidence of such
compliance with ISRA has been delivered to Landlord unless the
delay results solely from Hazardous
Substances whose existence predates the Commencement Date
thereof; together with any costs and
expenses incurred by Landlord in enforcing Tenant's obligation
under this Article, if Landlord is not able
to rent the leased premises based on the failure to Tenant to
complete ISRA compliance prior to this
surrender of the Lease, unless the DEP provides its approval for
the Landlord to rent the Premises.
Landlord shall use his best efforts to rent the Premises upon the
surrender of the Lease by Tenant. The
within covenant shall survive the expiration or earlier
termination of this Lease.
Section 39.05. a) If Tenant's operations on the
Premises now or hereafter
constitute an "Industrial Establishment" subject to the
requirements of ISRA, then prior to the expiration
or sooner termination of this Lease and upon any and every
condemnation, casualty, assignment or
sublease (if permitted), change in ownership or control of Tenant
or any other closure or transfer by
Landlord or Tenant covered by ISRA pertaining to an Industrial
Establishment closing or transferring
operations, at its sole cost and expense, to the satisfaction of
the DEP and Landlord. Without limitations of
the foregoing, Tenant's obligation shall include (I) the proper
filing of the initial notice to the DEP
required by N.J.A. C. 7:1-3,7, (ii) the performance to DEP's and
Landlord satisfaction of all air, soil ,
ground water and surface water sampling and testing required by
N.J.A.C. 7:1-3.9 and (iii) either (x) the
filing of a negative declaration with DEP under N.J.A.C. 7:1-
3.11 which has been approved by DEP or
(y) the performance of a proper and approved cleanup plan to the
full satisfaction of DEP and Landlord in
accordance with N.J.A.C. 7:1-3.12 (the foregoing shall include
any other or subsequent regulations under
ISRA covering the foregoing request). Tenant shall immediately
provide Landlord with copies of all
<PAGE>
correspondence, reports, notices, order, findings, declarations
and other materials pertinent to Tenant's
compliance and DEP's requirements under ISRA, as any of same are
issued or received by Tenant from
time to time. Tenant shall not be responsible for any cost of
compliance with ISRA or any other
Environmental conditions that pre-exist Tenant's occupancy or
which entirely migrate from off-site
during Tenant's occupancy.
b) In the event that ISRA does not apply to Tenant's
operations on the Premises,
at Landlord's option, request and expense, Tenant shall cooperate
with Landlord's compliance with ISRA,
and, in the event that said compliance discloses the occurrence
of a Hazardous Discharge by Tenant,
Tenant shall promptly cleanup and remove said Hazardous Discharge
at Tenant's sole cost and expense.
Section 39.06. In the event of Tenant's failure to
comply in full with this Article, Landlord may, at its option,
perform any or all of Tenant's obligations as aforesaid and all costs and
expenses incurred by Landlord I exercise of this right shall be
deemed to be additional rent payable on
demand.
- - 27 -
ARTICLE XXXX
LANDLORD'S ENVIRONMENTAL REPRESENTATION AND INDEMNITY
Section 40.01. Landlord's Environmental Representation
and Indemnity.
Landlord does hereby indemnify Tenant and hold Tenant harmless
from and against any and all expense,
loss and liability suffered by Tenant by reason of the pre-
existing storage, generation, handling, treatment,
transportation, disposal or arrangement for transportation or
disposal of any Hazardous Substances
occurring on or before the Commencement Date under this Lease.
Provided such condition does not pose
an eminent threat to persons or property or materially interfere
with Tenant's use and enjoyment of the
Premises, Landlord shall have exclusive control over the
inspection and remediation of such condition to
the Premises to the extent it is the subject of the indemnity
hereinabove set forth. So long as Landlord
promptly commences and diligently pursues such investigation and
remediation, Tenant shall refrain from
incurring any costs or taking any action relative thereto. The
Landlord's obligations under this Section
40.01 are expressly limited by the provisions of Section 32.03 of
this Lease.
- - 28 -
<PAGE>
In WITNESS WHEREOF, the parties heretofore set their hands
and seals on the date first above
written.
LANDLORD:
WITNESS NINTH AVENUE EQUITIES CO.,INC
s/Theresa Brown BY: s/ Peter Wunsch
Name:
Title: Treas
TENANT:
WITNESS VERTEX INDUSTRIES, INC.
s/Thomas J. Tully BY:s/Ronald C. Byer
Name:
Title: Pres.
- - 29 -
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MERGER AND REORGANIZATION AGREEMENT
MERGER AND REORGANIZATION AGREEMENT, dated as of the 3rd day
of March, 1998, by and among:
(i) Mortgage Plus Equity and Loan Corporation
(Mortgage Plus), a corporation organized and existing under the
laws of the State of New York and having its principal office at
6851 Jericho Turnpike, Syosset New York 11791 (Mortgage Plus);
VERTEX INDUSTRIES, INC. ("Vertex"), a corporation organized and
existing under the laws of the State of New Jersey and having its
principal office at 23 Carol Street, Clifton, New Jersey 07014,
which owns 75,417 shares of the issued and outstanding common
stock, $.01 par value per share (the Common Stock) of Computer
Transceiver Systems, Inc. (the Company), a corporation organized
and existing under the laws of the State of New York and having
its principal office at 23 Carol Street, Clifton, New Jersey
07014; the Company and CTS-Subsidiary, Inc. (the Subsidiary), a
corporation which is a wholly-owned subsidiary of the Company,
organized and existing under the laws of the State of New York.
RECITALS
Mortgage Plus and the Company intend to effect a Plan of
Reorganization within the meaning of Sections [368(a)(1)(A) and
368(a)(2)(E)] of the Internal Revenue Code of 1986, as amended by
the merger of the Subsidiary with and into Mortgage Plus (the
Merger).
In consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, it is hereby
agreed as follows:
ARTICLE
ARTICLE 1
TRANSFER OF CTSI-SUBSIDIARY SHARES
1.1 Execution, Filing, Effective Time. On the date of
the Closing, and subject to the terms and conditions hereinafter
set forth, Mortgage Plus and Subsidiary agree to cause the Merger
to be consummated by executing, delivering and filing with the
office of the New York Secretary of State a Certificate of Merger
(the Certificate of Merger) substantially in the form attached
hereto as Exhibit A, and such other documents as may be required
by the provisions of New York Law and as are necessary to cause
the Merger to become effective. The time at which the Merger
becomes effective is herein referred to as the Effective Time.
1.2 Constituent and Surviving Corporations. Mortgage
Plus and the Subsidiary shall be the constituent corporations in
the Merger (collectively, the Constituent Corporations). At the
Effective Time, the Subsidiary shall be merged into Mortgage Plus
in accordance with New York Law and Mortgage Plus shall be the
surviving corporation in the Merger (in such capacity, Mortgage
Plus is sometimes hereinafter referred to as the Surviving
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Corporation). At the Effective Time, the identity and separate
existence of Subsidiary shall cease. Upon the effectiveness of
the Merger, the Surviving Corporation shall possess all of the
rights, privileges, immunities, powers, franchises and authority,
whether of a public or private nature, and be subject to all
restrictions, disabilities and duties, of each of the Constituent
Corporations, and all the rights, privileges, immunities, powers,
franchises and authority of each of the Constituent Corporations,
and all assets and properties of every description, real, personal
and mixed, and every interest therein, wherever located, and all
debts and other obligations belonging or due to either of the
Constituent Corporations on whatever account, as well as stock
subscriptions and all other things in action belonging or due to
each of the Constituent Corporations, shall be vested in the
Surviving Corporation, and all property rights, privileges,
immunities, powers, franchises and authority, and all and every
other interest, shall be thereafter as effectually the property of
the Surviving Corporation as they were of the Constituent
Corporations, and the title to any real estate or interest therein
vested in either Constituent Corporation shall not revert or be in
any way impaired by reason of the Merger but all rights of
creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired, and the
Surviving Corporation shall be liable for the debts and other
obligations of each of the Constituent Corporations, and any
claims existing or action or proceeding pending, by or against
either the Constituent Corporations may be prosecuted or judgment
with right of appeal, as if the Merger had not taken place.
1.3 Articles of Incorporation and By-Laws. At the
Effective Time: (i) the Articles of Incorporation of the Surviving
Corporation shall be substantially in the form of the Articles of
Incorporation which are appended to the Articles of Merger as
Annex I thereto; and (ii) the Bylaws of the Surviving Corporation
shall be the Bylaws.
1.4 Board of Directors. Effective immediately after
the Effective Time, and without any further action on the part of
any party, each of the members of the Board of Directors of the
Company shall submit their resignation subject to the simultaneous
appointment of the current directors of Mortgage Plus as the
directors of the Company, and from such time such persons shall
remain the directors of the Company and the Surviving Corporation,
in each case to serve in accordance with the By-Laws of the
Company and the Surviving Corporation until his successor is duly
elected and qualified.
1.5 Officers. Effective immediately after the
Effective Time, and without any further action on the part of any
party, each of the officers of the Company shall submit their
resignation, subject to the simultaneous appointment of the
current officers of Mortgage Plus as officers of the Company, and
such persons shall remain the officers of the Company and the
Surviving Corporation, in each case in accordance with the By-Laws
of the Company and the Surviving Corporation until his successor
is duly appointed.
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1.6 Conversion of the Company Common Stock.
(a) Conversion of Common Stock. At the Effective
Time, each share of Mortgage Plus Common Stock issued and
outstanding immediately prior to the Effective Time (treasury
shares of Mortgage Plus Common Stock then owned by Mortgage Plus
and by any Dissenting Stockholder, as hereinafter defined), shall,
by virtue of the Merger and without any action on the part of
Mortgage Plus, the Company or the Subsidiary or the holder
thereof, be cancelled and converted into one (1) fully paid and
nonassessable share of Company Common Stock (the Per Share
Company Stock Consideration). No fractional shares of Company
Common Stock will be issued, but in lieu thereof, any holder of
the Mortgage Plus Common Stock entitled to receive a fractional
share of Company Common Stock shall be paid cash equal to the
value of such fractional share. All shares of Mortgage Plus
Common Stock held by Mortgage Plus at the Effective Time as
treasury shares or held by any of the Company's Subsidiaries
(collectively, Treasury Shares) shall cease to exist and the
certificates for such shares shall, as promptly as practicable
thereafter, be cancelled and no shares of capital stock of the
Company shall be issued in exchange therefor.
(b) Delivery of New Certificates. Promptly after
the Effective Time, the Company shall mail to each holder of
record of a certificate or certificates representing shares of
Mortgage Plus Common Stock (a Certificate and collectively the
Certificates) (i) a letter of transmittal and (ii) instructions
for effecting the surrender of the Certificates in exchange for
certificates representing shares of Company Common Stock and cash
in lieu of fractional shares. Upon surrender of a Certificate for
cancellation to the Company together with such letter of
transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Company Common Stock
representing the amount of Per Share Company Stock Consideration,
and cash in lieu of fractional shares, if any, and unpaid
dividends and distributions, if any, which such holder has the
right to receive in respect of the Certificate surrendered
pursuant to the provisions of this Section, after giving effect to
any required withholding tax, and the Certificate so surrendered
shall forthwith be cancelled. If any certificate for shares of
Company Common Stock is to be issued in a name other than that in
which a certificate for shares of Mortgage Plus Common Stock so
surrendered is then registered, such surrender shall be
accompanied by payment of any applicable transfer taxes and
documents required for a valid transfer. From and after the
Effective Time, until so surrendered, each Certificate theretofore
representing shares of issued and outstanding Mortgage Plus Common
Stock shall be deemed for all corporate purposes (except as
provided herein with respect to fractional shares and with respect
to shares held by Dissenting Stockholders, and except as set forth
below), to evidence the number of whole shares of Company Common
Stock into which such shares of Mortgage Plus Common Stock shall
have been converted. Upon surrender of a Certificate representing
Mortgage Plus Common Stock, the holder of record thereof shall
receive certificates representing the whole shares of Company
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Common Stock, and cash in lieu of fractional shares to which he
shall be entitled, and all dividends and other distributions which
shall have been paid or made to holders of record of Mortgage Plus
Common Stock after the Effective Time with respect to such shares
of Company Common Stock, without interest thereon.
(c) No Liability. None of Mortgage Plus, the
Company, the Subsidiary or any other person shall be liable to any
former holder of shares of Mortgage Plus Common Stock for any
amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
1.7 Conversion of Subsidiary Common Stock. At the
Effective Time, each outstanding share of Common Stock, par value
$.001 per share of Subsidiary (the Subsidiary Common Stock)
issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into and become one fully paid
and nonassessable share of Common Stock of the Surviving
Corporation. At the Effective Time, the Company, as the sole
holder of the Subsidiary Common Stock, shall surrender any and all
certificates representing such Subsidiary Common Stock to the
Surviving Corporation and shall be entitled to receive in exchange
therefor a certificate representing the number of shares of Common
Stock of the Surviving Corporation into which the Subsidiary
Common Stock theretofore represented by the certificates so
surrendered shall have been converted as provided in this Section.
From and after the Effective Time, until so surrendered, each
certificate theretofore representing shares of issues and
outstanding Subsidiary Common Stock shall be deemed for all
corporate purposes to evidence the number of shares of Common
Stock of the Surviving Corporation into which such shares of
Subsidiary Common Stock shall have been converted.
1.8 Dissenting Stockholders. All issued and
outstanding shares of Mortgage Plus Common Stock held by holders
of record who shall have neither voted in favor of the Merger nor
consented thereto in writing and shall have delivered (and then
been entitled to deliver) to the Company a written demand for
appraisal of their shares of Mortgage Plus Common Stock within the
time and in the manner provided under the New York Law
(collectively, the Dissenting Stockholders and, individually, a
Dissenting Stockholder) shall not be converted into Company
Common Stock, but shall be entitled to receive such consideration
as shall be provided in New York Law, except that each share of
Mortgage Plus Common Stock issued and outstanding immediately
prior to the Effective Time and held by a Dissenting Stockholder
who shall thereafter withdraw his demand for appraisal of his
shares of Mortgage Plus Common Stock with the Surviving
Corporation's consent or lose his right to such payment as
provided in New York Law shall be deemed converted, as of the
Effective Time, into (x) one (1) fully paid and nonassessable
share of Company Common Stock, in which event such stockholder
shall no longer be a Dissenting Stockholder. A list of all
holders of Mortgage Plus Common Stock who have filed written
demands for payment of their shares of Mortgage Plus Common Stock
by the date hereof in accordance with New York Law is attached
hereto.
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1.9 Dissenting Stockholder Payment. Each Dissenting
Stockholder who becomes entitled, pursuant to New York Law, to
payment for the shares of Mortgage Plus Common Stock held by such
Dissenting Stockholder shall receive the payment therefor from the
Surviving Corporation, but only up to the amount of such payment
as shall have been agreed upon or finally determined pursuant to
New York Law, and such shares shall thereupon be cancelled.
1.10 All of the Company's Shares issued pursuant to this
Agreement shall be of the same class as pre-merger Company Shares.
ARTICLE 2
2.1 Assumption of Obligations and Liabilities by
Vertex. Vertex acknowledges and agrees that, except as set forth
on Exhibit __ hereto, (a) all "Liabilities" of the Company in
existence immediately prior to the Closing, shall be assumed,
satisfied and discharged by Vertex immediately prior to the
Closing, and (b) any Liabilities of the Company which accrue or
arise after the Closing relating to any act or omission occurring
prior to the Closing shall be promptly assumed, satisfied and
discharged as promptly thereafter as possible by Vertex, and (ii)
that neither the Company nor any Mortgage Plus Shareholder shall
have any liability or obligation with respect to the payment of
any such Liability by virtue of Vertex's obligation herein, or any
obligation to Vertex as a result of such payment. "Liabilities"
shall mean payments, claims, penalties, expenses, obligations (for
the payment of money or the performance of services), indebtedness
or damages, whether known or unknown, contingent or determinable,
accrued or unaccrued, asserted or unasserted or based in law or
equity in existence immediately prior to Closing.
2.2 Appointment as Attorney-In-Fact. Mortgage Plus
acknowledges and agrees that the Company has appointed Vertex, and
each officer of Vertex acting singly, as the true and lawful agent
and attorney-in-fact of the Company for purposes of paying,
settling, compromising, defending and discharging any and all of
the Liabilities, and that such appointment shall survive the
Closing until the final and irrevocable settlement and discharge
in full of the Liabilities, provided that such appointment shall
not confer any authority (a) to agree to any restriction or
limitation upon the conduct of the Company after the Closing, (b)
which imposes any lien, encumbrance, restriction or limitation on
any asset or right owned or used by the Company and provided,
further, such authority shall not be used in a situation where a
party may assert any claim against the Company which limits or
restricts the activities of the Company in any respect.
ARTICLE 3
CLOSING
3.1 Closing. The closing of the transactions
hereunder (the "Closing") will take place on March 4, 1998, or
such other date and place as the parties may agree at the offices
of Ruskin, Moscou, Evans & Faltischek, P.C., 170 Old Country Road,
Mineola, New York 11501, upon the execution of this Agreement and
shall be effective upon the filing of the Certificate of Merger
with the Secretary of State of New York. The day on which the
Closing actually takes place is herein sometimes referred to as
the "Closing Date."
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ARTICLE 4
OBLIGATIONS AT CLOSING
4.1 Obligations of Vertex at Closing. At Closing,
Vertex shall deliver, or cause the Company to deliver to Mortgage
Plus, the following:
(a) a true and complete copy of the Company's and
the Subsidiary's Articles of Incorporation (and any amendments
thereto), certified as of a recent date by the Secretary of State
of New York; a true and complete copy of the Company's and the
Subsidiary's By-Laws in effect on the Closing Date; director and
[shareholder] resolutions/consents of Vertex, the Company and the
Subsidiary authorizing and approving the transactions contemplated
hereby;
(b) the Company's and the Subsidiary's books,
records, correspondence, accounting books, ledgers, financial
information and documentation, all tax returns (and correspondence
with appropriate taxing authorities); governmental and regulatory
filings, applications, licenses, permits and official and other
records and authorizations; [bank accounts (and all cash and
securities in such accounts as of__, 1998)], investment
accounts, securities, trust funds, escrow funds (with appropriate
documentation terminating Vertex's right to access or direct
payment to or from such accounts); post office account/boxes; and
powers of attorney in effect;
(c) a certificate(s) that the representations and
warranties of Vertex and the Company contained in this Agreement
and in any statement (including financial statements),
certificates, schedules or other documents delivered pursuant
hereto or in connection with the transactions contemplated hereby
shall be true and accurate as of the date when made and shall be
deemed to be made again (and be true and accurate) at and as of
the time of the Closing;
(d) the resignations of all of the Company's and
Subsidiary's officers and directors and the appointment of the
Mortgage Plus directors and officers, as contemplated in Article
__ hereof;
(e) any and all such other documents, agreements,
certificates and instruments required to be executed and/or
delivered by Vertex, the Company and the Subsidiary to Mortgage
Plus or to the Mortgage Plus Shareholders, including all
assignment of claims and warranties.
4.2 Further Assurances. At any time and from time to
time after the Closing, at the request of any person identified
herein as a Mortgage Plus Shareholder or the Company and without
further consideration, Vertex will execute and deliver such other
instruments of sale, transfer, assignment and delivery and take
such action as any person identified herein as a Mortgage Plus
Shareholder may reasonably deem necessary or desirable in order to
more effectively transfer, assign and deliver to the it (or them)
and to confirm each Mortgage Plus Shareholder's title to the
Shares to be transferred and/or issued as contemplated herein.
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF VERTEX
5.1 Representations and Warranties of Vertex. Vertex
represents and warrants to Mortgage Plus that the following
matters are true on the date hereof and will be true and correct
on the Closing Date, as if set forth independently on such date:
(a) Organization, subsistence and Qualification
of the Company and the Subsidiary. The Company and the Subsidiary
are each corporations duly organized and validly subsisting under
the laws of the State of New York and each has all requisite
corporate power and authority to own, lease and operate properties
and assets and to carry on business as it is presently
contemplated by the transactions set forth in this Agreement.
(b) Capitalization of the Company and the
Subsidiary. Subject to Article 8, the Company's and the
Subsidiary's capitalization is as set forth on Exhibit A. Vertex
is the record, legal and beneficial owner of 75,417 shares of
issued and outstanding shares of capital stock of the Company and
the other shareholders listed on Exhibit B are the record owners
of 37,047 issued and outstanding shares of capital stock of the
Company. The Company is the record, legal and beneficial owner of
all of the issued and outstanding capital stock of the Subsidiary.
Neither Vertex, the Company nor the Subsidiary has any agreement,
commitment, obligations, absolute or contingent, to any other
person to sell, transfer, assign, encumber, restrict or pledge any
capital stock of the Company or the Subsidiary, or to sell,
transfer, encumber, restrict or pledge any assets, income,
revenues, rights, claims or authorizations of the Company or the
Subsidiary, or to sell, assign, transfer or restrict any capital
stock of the Company or the Subsidiary or to effect any merger,
consolidation or other reorganization of the Company or the
Subsidiary or to enter into any agreement with respect thereto,
except as contemplated by this Agreement.
(c) Execution, Delivery and Performance of
Agreement; Authority. The execution and delivery of this
Agreement by Vertex, the Company and the Subsidiary and of each of
the other Transaction Documents to which Vertex, the Company and
the Subsidiary is a party and the consummation of the transactions
contemplated hereby and thereby by Vertex, the Company and the
Subsidiary have been duly authorized by all requisite corporate
and shareholder action of Vertex, the Company and the Subsidiary,
as the case may be. This Agreement constitutes the legal, valid
and binding obligations of Vertex, the Company, or the Subsidiary,
enforceable against it in accordance with their respective terms
(except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
which from time to time may affect creditors' rights generally and
by legal and equitable limitations as a remedy against Vertex).
Upon the Effective Time of the Merger, Mortgage Plus shareholders
will acquire good and marketable title to the Company's securities
free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any
kind whatsoever, subject to applicable Federal and State
Securities Laws restrictions.
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(d) No Conflict. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby will not (i) violate or conflict with any
provision of the Certificate of Incorporation or By-Laws (or other
governing instrument) of Vertex, the Company or the Subsidiary;
(ii) will not violate, or be in conflict with, or constitute a
default (or an event which, with notice or lapse of time or both,
would constitute a default) under, any agreement, arrangement or
other obligations of Vertex , the Company or the Subsidiary or any
statute, law, judgment, decree, order, regulation or rule of any
court or governmental body applicable to Vertex, the Company or
the Subsidiary; (iii) result in the creation of any lien, claim,
charge, encumbrance or exception upon any of the property, assets
or rights of the Company, or the Subsidiary; or (iv) give rise to
any right of forfeiture, termination, cancellation or acceleration
with respect to any license or contract to which the Company or
the Subsidiary is a party, or any statute, law, judgment, decree,
order, regulation or rule of any court of governmental body
applicable to the Company or the Subsidiary; it being specifically
agreed that at the Closing neither the Company nor the Subsidiary
will be a party to, or have an obligation with regard to, any
bond, mortgage note or other evidence of indebtedness for borrowed
money (or any guaranty thereof).
(e) Consents and Approvals. No consent, approval
or authorization of, or declaration, filing or registration with,
any governmental body or any other person is required on behalf of
Vertex, the Company or the Subsidiary in connection with the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby other than
for such consents, approvals, authorizations, declarations,
filings or registrations that have been or shall be disclosed
and/or delivered to Mortgage Plus prior to the Closing as set
forth on Exhibit_ hereof.
(f) Litigation. There is no action, suit,
inquiry, proceeding or investigation by or before any court,
arbitrator or governmental body (i) pending or threatened against
or relating to the Company or the Subsidiary with respect to any
matter, or (ii) with respect to Vertex that involves the Company
or the Subsidiary. No action, suit, proceeding or arbitration is
pending, threatened or contemplated in which the Company or the
Subsidiary is a plaintiff or in which the Company or the
Subsidiary is a witness or interested party. There is no action,
suit, proceeding or arbitration in the case of Vertex, the Company
or the Subsidiary which may exist or be pending in connection with
or relating to the transactions contemplated by this Agreement.
There is no injunction, order or decree of a court of competent
jurisdiction against Vertex, the Company or the Subsidiary that
would prohibit or delay the consummation of the transactions
contemplated by this Agreement.
(g) No Brokers or Finders. Neither Vertex, the
Company or the Subsidiary (and no affiliate thereof) nor any of
its or their shareholders, officers, directors, employees or
agents, has employed any broker or finder or incurred any
Liability as to which the Company or the Subsidiary or any
Mortgage Plus shareholder may be liable for any brokerage or
<PAGE>
finder's fees or commissions or similar payments in connection
with the transactions contemplated by this Agreement and the other
Transaction Documents.
(h) SEC Reports. The Company has heretofore
furnished Mortgage Plus with true and complete copies of its (i)
Annual Reports on Form 10-K for the years ended July 31, 1997 as
filed with the SEC, (ii) Quarterly Reports on Form 10-Q for each
fiscal quarter ended after October 31, 1997; (iii) Proxy
Statements relating to all meetings of its shareholders (whether
annual or special) during 1997, and (iv) all other reports filed
by the Company with the SEC during 1997. As of their respective
dates, such reports and statements complied as to form in all
material respects with the requirements applicable thereto and did
not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements, in light of the circumstances under which
they were made, not misleading. The audited financial statements
and unaudited interim financial statements of the Company included
or incorporated by reference in such reports have been prepared in
accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto) and fairly present
the assets, liabilities and financial position of the Company as
of and at the dates thereof and the results of operations and
changes in financial position for the periods then ended, subject
in the case of the unaudited interim financial statements, to
normal, recurring year-end adjustments and any other adjustments
described therein.
(i) Financial Information of the Entities; No
Material Change.
(i) Vertex has delivered to Mortgage Plus the
Companys "Financial Information" listed on Exhibit __ hereof.
The Financial Information fairly presents, in all material
respects, the assets, liabilities, financial condition and results
of operations of the Company, as at the respective dates thereof
and for the periods referred to therein. Except as shown on
Exhibit __ and other than the Liabilities, the Company and the
Subsidiary each has no obligation or liability of any nature.
(ii) Except as set fort on Exhibit __, since the
date of the Financial Information, neither the Company or the
Subsidiary has (A) incurred (and will not incur) any Liability;
(B) sold or transferred any of the assets used in connection with
its business, cancelled any debts or claims or waived any rights
[except for amounts, which in the aggregate are less than
$__], or except for this Agreement, entered into any
transaction; or (C) experienced any other material adverse change
in its assets, properties, business or prospects.
(j) Taxes. All taxes (which are deemed
"Liabilities") including, without limitation, income, property,
sales, use, franchise, value added, employees' income withholding
and social security taxes, imposed by the United States or by any
state, municipality, subdivision or instrumentality of the United
States or of any foreign country, or by any other taxing
authority, which are due or payable by the Company or the
Subsidiary as of the Effective Time, and all interest and
<PAGE>
penalties thereon, whether disputed or not, have been paid in
full, all tax returns required to be filed in connection therewith
have been accurately prepared and duly filed or applicable
extensions therefor have been obtained and all deposits required
by law to be made by the Company with respect to employees'
withholding taxes have been duly made. The Company (and the
Subsidiary) is not delinquent in the payment of any tax,
assessment or governmental charge or deposit and has no tax
deficiency or claim outstanding, proposed or assessed against it,
and there is no basis for any such deficiency or claim. Mortgage
Plus shall be responsible for the cost and filing of all tax
returns for fiscal 1998..
(k) No Subsidiaries or Investments. Other than
the Subsidiary, the Company does not own any capital shares or
other equity or ownership or proprietary interest in any
corporation, limited liability company, partnership, association,
trust, joint venture or other entity.
(l) Listing. ["Bulletin Board" symbol ____.]
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
OF MORTGAGE PLUS SHAREHOLDERS
6.1 On November 12, 1997, Mortgage Plus prepared and
filed with the Securities and Exchange Commission (the
"Commission"), a registration statement (the "Registration
Statement") on Form SB-2 (No. 333-____) under the Securities Act
of 1933, as amended (the Act"), which Registration Statement was
prepared by the Company in substantial conformity with the
requirements of the Act. The amended Registration Statement to be
filed to reflect the transactions contemplated by this Agreement
at the time of filing thereof will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein and necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
6.2 Mortgage Plus has been duly organized and is a
validly existing corporation in good standing under the laws of
the State of New York. Mortgage Plus does not own or control,
directly or indirectly, any corporation, partnership, trust, joint
venture or other business entity other than the subsidiaries
listed in Exhibit 21 of the Registration Statement. Mortgage Plus
is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations require such
qualification or licensing (except those jurisdictions in which
the failure to not qualify will not, in the aggregate, have a
material adverse effect on Mortgage Plus). Mortgage Plus has all
requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including,
without limitations, those having jurisdiction over environmental
or similar matters), to own or lease its properties and conduct
its business as described in the Registration Statement; Mortgage
<PAGE>
Plus has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign
laws, rules and regulations; and Mortgage Plus has not received
any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license,
certificate, franchise or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the properties, or
results of operations Mortgage Plus taken as a whole.
6.3 Mortgage Plus has a duly authorized, issued and
outstanding capitalization as set forth in Exhibit ___. Mortgage
Plus is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except as described
in the Registration Statement. Except as set forth in the
Registration Statement and on Exhibit __ hereto, the Company has
no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations.
6.4 The 1997 audited financial statements of Mortgage
Plus, together with the related notes and schedules thereto,
fairly present the financial position, changes in stockholders
equity and the results of operations of Mortgage Plus at the
respective dates and for the respective periods to which they
apply and such financial statements have been prepared in
conformity with generally accepted accounting principles
consistently applied through the periods involved. There has been
no material adverse change or development involving a material
prospective change in the condition, financial or otherwise, or in
the business, affairs, operations, properties, or results of
operations of Mortgage Plus and its subsidiaries taken as a whole
whether or not arising in the ordinary course of business since
the date of said financial statements.
6.5 Mortgage Plus (a) has paid all federal, state,
local, franchise and foreign taxes for which it is liable
including, but not limited to, withholding taxes and amounts
payable under Chapters 21 through 24 of the Internal Revenue Code
of 1986, as amended (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the
Code, (b) has established adequate reserves for such taxes which
are not due and payable, and (c) does not have any tax deficiency
or claims outstanding, proposed or assessed against it.
6.6 No transfer tax, stamp duty or other similar tax
is payable by or on behalf of the Company in connection with the
consummation by Mortgage Plus of any of their obligations under
this Agreement.
6.7 There is no action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation or governmental
proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
<PAGE>
foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or businesses
of, Mortgage Plus which (a) questions the validity of the capital
stock of Mortgage Plus, this Agreement, or of any action taken or
to be taken by the Mortgage Plus Shareholders to authorize this
Agreement or the transactions contemplated hereby, (b) is required
to be disclosed in the Registration Statement which will not be so
disclosed, or (c) might materially and adversely affect the
condition, financial or otherwise, or the business, affairs,
position, stockholders' equity, operation, properties, or results
of operations of Mortgage Plus.
6.8 Mortgage Plus has the power and authority to enter
into this Agreement and to consummate the transactions provided
for in this Agreement; and this Agreement has been duly and
property authorized, executed and delivered by the Mortgage Plus
shareholders. This Agreement constitutes a legal, valid and
binding obligation of Mortgage Plus enforceable against Mortgage
Plus in accordance with its respective terms (except as the
enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law), The consummation
by Mortgage Plus of the transactions contemplated herein does not
conflict with or will not conflict with or result or will result
in, any breach or violation of any of the terms or provisions of,
or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of Mortgage Plus pursuant to the
terms of (a) the articles of incorporation or by-laws of Mortgage
Plus, as amended and restated, (b) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any
other agreement or instrument to which Mortgage Plus is a party or
by which it is or may be bound or to which its properties or
assets (tangible or intangible) is or may be subject, or any
indebtedness, or (c) any statute, judgment, decree, order, rule or
regulation applicable to Mortgage Plus of any arbitrator, court,
regulatory body or administrative agency or other governmental
agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over Mortgage Plus or any of their
activities or profits.
6.9 No consent, approval, authorization or order of,
and no filing with, any court, regulatory body, government agency
or other body, domestic or foreign, is required for Mortgage Plus
to consummate the transactions contemplated by this Agreement,
including, without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the
issue and/or sale of any Mortgage Plus Shares.
<PAGE>
6.10 All executed agreements, contracts, or other documents
or copies of executed agreements, contracts or other documents
filed as exhibits to the Registration Statement to which Mortgage
Plus is a party or by which it may be bound or to which its
assets, properties or businesses may be subject have been duly and
validly authorized, executed and delivered by Mortgage Plus and
constitute the legal, valid and binding agreements of Mortgage
Plus enforceable against Mortgage Plus in accordance with their
respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting
enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights
to indemnity or contribution may be limited by applicable law).
6.11 Mortgage Plus has sufficient trademarks, trade names,
patent rights, copyrights, licenses, approvals and governmental
authorizations to conduct its business as now conducted; the
expiration of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations
would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or
prospects of Mortgage Plus; Mortgage Plus has no knowledge of any
infringement by it or its subsidiaries of trademark, trade name
rights, patent rights, copyrights, licenses, trade secret or other
similar rights of others; and there is no claim being made against
Mortgage Plus regarding trademark, trade name, patent, copyright,
license, trade secret or other infringement which could have a
material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of Mortgage Plus.
6.12 No default exists in the due performance and observance
of any term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, or any other material agreement or instrument
evidencing an obligation for borrowed money, or any other material
agreement or instrument to which Mortgage Plus is a party or by
which Mortgage Plus may be bound or to which the property or
assets (tangible or intangible ) of Mortgage Plus is subject or
affected.
6.13 To Mortgage Plus's knowledge, there are no pending
investigations involving Mortgage Plus by the U.S. Department of
Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and
regulations. There is no unfair labor practice charge or
complaint against Mortgage Plus pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to its knowledge threatened
against or involving Mortgage Plus. No representation question
exists respecting the employees of Mortgage Plus. No collective
bargaining agreement or modification thereof is currently being
negotiated by Mortgage Plus. No grievance or arbitration
proceeding is pending under any expired or existing collective
bargaining agreements of Mortgage Plus. No labor dispute with the
employees of Mortgage Plus exists or to its knowledge is imminent.
<PAGE>
6.14 Except as described in the Registration Statement,
Mortgage Plus does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan,"
an "employee welfare benefit plan," or a "multiemployer plan" as
such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") ("ERISA Plans"). Mortgage Plus does
not maintain or contribute to a defined benefit plan, as defined
in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code, which
could subject Mortgage Plus to any tax penalty or prohibited
transactions and which has not adequately been corrected. Each
ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been
received form the Internal Revenue Service with respect to each
ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified
thereunder. Mortgage Plus has never completely or partially
withdrawn forma "multiemployer plan."
6.15 Mortgage Plus has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and
personal property stated in the Registration Statement to be owned
or leased by it, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, or other restrictions
or equities of any kind whatsoever other than those referred to in
the Registration Statement and liens for taxes not yet due and
payable.
6.16 Except as set forth in the Registration Statement, no
officer, director or stockholder of Mortgage Plus, or any
"affiliate" or "associate" (as those terms are defined in Rule 405
promulgated under the Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (a) an
interest in any person or entity which (1) furnishes or sells
services or products which are furnished or sold or are proposed
to be furnished or sold by Mortgage Plus, or (2) purchases from or
sells or furnishes to Mortgage Plus any goods or services, or (b)
a beneficiary interest in any contract or agreement to which
Mortgage Plus is a party or by which it may be bound or affected.
Except as set forth in the Registration Statement, there are no
existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or
transactions, between or among Mortgage Plus, and any officer,
director, principal shareholder (as such term is under in the
Registration Statement) of Mortgage Plus, or any affiliate or
associate of any of the foregoing persons or entities.
6.17 Mortgage Plus is not, and does not intend to conduct
its business in a manner in which it would become an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended.
<PAGE>
6.18 Each of Mortgage Plus and its subsidiaries maintains
insurance by insurers of recognized financial responsibility of
the types and in the amounts as are prudent, customary and
adequate for the business in which it is engaged, including, but
not limited to, insurance covering real and personal property
owned or leased by Mortgage Plus and its subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full
force and effect. Mortgage Plus has no reason to believe that it
will not be able to renew existing insurance coverage with respect
to Mortgage Plus as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to
continue its business, in either cast, at a cost that would not
have a material adverse effect on the financial condition,
operations, business, assets or properties of Mortgage Plus.
Mortgage Plus has not failed to file any claims, has no material
disputes with its insurance company regarding any claims submitted
under its insurance policies, and has complied with all material
provisions contained in its insurance policies.
ARTICLE 7
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements contained in
this Agreement, or in any written statement, including, without
limitation, any certificate, exhibit, schedule or other document
delivered pursuant hereto or thereto and made a part hereof or
thereof, shall survive the execution and delivery of this
Agreement and the Closing hereunder for a period of two (2) years
from the Closing Date; provided, that all representations,
warranties, covenants and agreements with respect to (a) any
liability for any foreign, federal, state, county or local taxes
and any interest and penalties thereon, and (b) any allegation of
fraud, shall survive the execution and delivery of this Agreement
and the Closing hereunder for the full period of any applicable
statute of limitations.
7.2 Indemnification.
Vertex agrees to indemnify and hold harmless from, and
shall reimburse each Mortgage Plus Shareholder and the Company
(and any officer, employee, shareholder, board member, advisor or
attorney thereof) for any and all damages (which includes any
Liability) arising from, in connection with or relating to any
inaccuracy in any of the representations and warranties of Vertex
or failure by Vertex to perform or comply with any of their
respective covenants and agreements contained in this Agreement,
the other Transaction Documents or in any certificate, exhibit,
schedule or other document delivered pursuant hereto or thereto
and made a part hereof or thereof.
7.3 Indemnification by the Company. The Company
agrees to indemnify and hold harmless from, and shall reimburse
Vertex (and any officer, employee, shareholder, board member or
attorney thereof) for, any and all damages arising from, in
connection with or relating to any inaccuracy in any of the
representations and warranties of Mortgage Plus (and any officer,
<PAGE>
employee, shareholder, board member, advisor or attorney thereof)
or failure by Mortgage Plus to perform or comply with any of their
respective covenants and agreements contained in this Agreement or
in any certificate, exhibit, schedule or other document delivered
pursuant hereto or thereto and made a part hereof or thereof.
7.4 Direct Claims. If any indemnitee suffers a loss
or incurs an expense, loss or damage with respect to which it
intends to seek indemnification hereunder, it shall give written
notice thereof to the indemnitor describing the amount and nature
of such loss or expense. If within thirty (30) days from such
notice the indemnitor has not delivered a written objection to
such claim to such indemnitee, the indemnitor shall be deemed to
have agreed to the amount of such claim and its liability
therefor. In the event that the indemnitor objects to such claim
within such period, such indemnitee's rights to indemnification
from the indemnitor for such claim under this Article 7 shall be
determined by (i) subsequent written agreement of the indemnitor
and such indemnitee; or (ii) a final decree or judgment of a court
of competent jurisdiction.
ARTICLE 8
COVENANTS OF VERTEX
8.1 Covenants of the Company (Pre-Merger).
Immediately prior to the Effective Time, the Company shall declare
and distribute a 3 for 1 stock split consisting of one (1)
registered shares and two (2) unregistered shares of the Company's
Common Stock to pre-merger Company shareholders. The unregistered
Stock shall bear such legends (and related stop transfer
instructions) as Company's pre-merger counsel shall approve.
8.2 Vertex agrees not to, directly or indirectly,
offer, offer to sell, sell, grant any option for the sale of,
transfer, assign, pledge, hypothecate or otherwise encumber or
dispose of any shares of the Company (including any shares of
Additional Stock) (either pursuant to Rule 144 of the Regulations
or otherwise) or dispose of any interest therein for a period from
the date hereof until six (6) months following the date hereof,
after which the pre-merger registered shares of the Company's
Common Stock held by Vertex shall be free of all restrictions on
their resale.
ARTICLE 9
COVENANTS OF THE COMPANY (POST-MERGER)
9.1 The Company will use its best efforts, in a
commercially reasonable manner, to promptly file an amended
Registration Statement with the Commission to effect the sale, for
the Company's account, on a self-underwritten best efforts
underwriting, of between 1,000,000 and 1,200,000 shares of the
Company's Common Stock at an anticipated purchase price between
$4.50 and $5.00 per share, but not less than $4.50 per share, and
shall use its best efforts to cause such Registration Statement to
be declared effective by the Commission.
9.2 For a period of at least twelve (12) months
following the Effective Time, the Company will not authorize or
approve any reverse stock split and prior to the release of Rule
144 restrictions for all shares issued to the Companys pre-merger
shareholders.
<PAGE>
ARTICLE 10
NOTICES
10.1 Notices. Any and all notices and other communications
required or permitted to be given under any of the provisions of
this Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand or mailed by first class
certified or registered mail, return receipt requested, or when
sent by a nationally recognized overnight courier, addressed to
the Parties at the following addresses (or at such other address
as a Party may designate by notice to the other Parties given as
aforesaid):
If to the Mortgage Plus Shareholders:
6851 Jericho Turnpike
Syosset, New York 11791
With copies to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Norman M. Friedland, Esq.
If to Vertex:
Ronald C. Byer, President
Vertex Industries, Inc.
23 Carol Street
Clifton, New Jersey 07014
With copies to:
Law Office of Jeffrey D. Marks, Esq., P.C.
415 Clifton Avenue
Clifton, New Jersey 07015
If to the Company:
Computer Transceiver Systems, Inc.
23 Carol Street
Clifton, New Jersey 07014
Attention: Tom Tully
ARTICLE 11
MISCELLANEOUS
11.1 Publicity. Public announcements relating to the
transactions contemplated by this Agreement and the other
Transaction Documents shall be jointly planned, coordinated and
agreed to by the parties prior to Closing.
11.2 Expenses. The Parties to this Agreement shall each
bear their own expenses incurred in connection with the
preparation, execution and performance of this Agreement and the
other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby including, without
limitation, all fees and expenses of agents, representatives,
counsel and accountants. The post-merger Company shall bear the
costs and expenses in connection with the issuance of all new
stock certificates contemplated by this Agreement.
<PAGE>
11.3 Further Assurances. Each of the Parties hereto agrees
to execute, acknowledge, deliver, file, record and publish such
further certificates, instruments, agreements and other documents,
and to take all such further actions, as may be required in
connection with the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents.
11.4 Entire Agreement. This Agreement and the other
Transaction Documents and all written statements including without
limitation, all certificates, exhibits, schedules and other
documents delivered pursuant hereto or thereto and made a part
hereof or thereof, constitute the entire agreement among the
Parties with respect to the subject matter hereof and thereof,
supersede all prior written agreements (whether written or oral)
among the Parties.
11.5 Amendments; Waivers. This Agreement may not be
modified, supplemented or amended except by a written agreement
executed by all of the Parties hereto. No waiver of any breach or
default under this Agreement shall be considered valid unless in
writing and signed by the Party or Parties giving such waiver, and
no such waiver shall be deemed to be a waiver of any subsequent
breach or default of the same or similar nature.
11.6 Gender and Number. Unless the context otherwise
requires, when used herein, the singular includes the plural and
vice versa, and the masculine includes the feminine and neuter and
vice versa.
11.7 Assignment, Binding Effect. No Party to this Agreement
may assign its rights and obligations hereunder, without the prior
written consent of the other Parties hereto. This Agreement shall
be binding upon and inure to the benefit of the Parties hereto and
their respective successors.
11.8 Headings. The article and section headings contained
in this Agreement are for the purpose of convenience only and are
not intended to define or limit the contents of said articles and
sections.
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to the conflicts of law provisions thereof. Each
of the Parties to this Agreement hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts of the
State of New York.
11.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute one and the same
instrument.
11.11 Escrow. All parties to this Agreement agree that all
documents related to this transaction shall be held in escrow by
the parties's attorneys and shall have no force or effect prior to
the consent of Norman M. Friedland, Esq. and Jeffrey D. Marks,
Esq. to the release and effectiveness of said documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MORTGAGE PLUS EQUITY AND LOAN
CORPORATION
By: S/Steven M. Latessa,
STEVEN M. LATESSA, President and
Chief Executive Officer
VERTEX INDUSTRIES, INC.
By: S/Ronald C. Byer
Ronald C. Byer, President
COMPUTER TRANSCEIVER SYSTEMS, INC.
By: S/Thomas J. Tully
Thomas J. Tully, President
CTS-Subsidiary
By: S/Thomas J. Tully
Thomas J. Tully, President
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE dated as of this 4th day of May, 1998, is
made by and between VERTEX INDUSTRIES, INC., a New Jersey
corporation ("Sublandlord") and THEA & SCHOEN, INC. ("Subtenant").
RECITALS:
A. WHEREAS, pursuant to a Lease dated October 15, 1997
(hereinafter referred to as the "Base Lease"), Ninth Avenue
Equities Co., Inc. ("Base Landlord"), demised and leased to Vertex
Industries, Inc., as Tenant, the premises at 23 Carol Street, City
of Clifton, County of Passaic, State of New Jersey (the "Warehouse
Space");
B. WHEREAS, Sublandlord desires to lease a portion of the
Warehouse Space to Subtenant and Subtenant desires to lease from
Sublandlord the Warehouse Space, subject to all of the terms,
covenants and conditions in this Sublease;
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, the parties agree as follows:
1. Summary of Basic Terms:
(a) Premises: Approximately 17,100 square feet of the
office building, commonly known as 23 Carol Street, Clifton, New
Jersey, 07014-0996, substantially as shown on the floor plan
attached hereto as Exhibit "A".
(b) Permitted Use: The Subtenant shall use the
Premises only for storage of electrical conduit, cable and
assorted electrical supplies, or for such other purpose with the
prior written permission of Sublandlord, which permission shall
not be unreasonably withheld.
(c) Initial Sublease Term: Commencing June 1, 1998,
and ending on May 31, 2003, unless sooner terminated as elsewhere
provided herein.
(d) Annual Net Rent Per Square Foot: $3.10 per square
foot on an annual basis from June 1, 1998 through May 31, 2001;
$3.20 per square foot on an annual basis from June 1, 2001 through
May 31, 2003.
(e) Security: 2 months rent to be handled in
accordance with the provisions of Section 4.
2. Demise and Term:
Sublandlord hereby leases the Premises to Subtenant and
Subtenant hereby leases the Premises from Sublandlord, subject to
all of the terms, covenants and conditions in this Sublease.
<PAGE>
3. Rent:
Subtenant shall pay to Sublandlord as rent for the
Premises a monthly rent (the "Monthly Rent") equal to the Annual
Net Rent Per Square Foot divided by 12. The Monthly Rent shall be
payable in advance on or before the first day of the first full
calendar month of the Lease Term (the "First Month") and on or
before the first day of each successive calendar month thereafter
during the Lease Term. The Monthly Rent for any period during the
Lease Term which is for less than a full one month period shall be
prorated based on a thirty (30) day month. The Monthly Rent and
all other rent hereunder shall be paid without prior notice or
demand, without deduction or offset, in lawful money of the United
States of America which shall be legal tender at the time of
payment, at the office of the Sublandlord.
June 1, 1998 through May 31, 2001, Annual Net Rent
shall be $53,010; Monthly Net Rent shall be $4,417.50. June 1,
2001 through May 31, 2003, Annual Net Rent shall be $54,720;
Monthly Net Rent shall be $4,560.00.
In addition to the Monthly Rent, the Subtenant agrees
to pay the Sublandlord the following shares of the
Sublandlord's expenses under the Base Lease: (i) thirty three
and one half percent (33 1/2%) of Sublandlord's expenses for
gas; (ii) forty one percent (41%) of Sublandlord's expenses for
taxes; (iii) fifty percent (50%) of Sublandlord's expenses for
dumpsters; and (iv) ten percent (10%) of Sublandlord's expenses
for electricity.
4. Security:
Sublandlord hereby acknowledges receipt from
Subtenant of a Security Deposit in the amount stated in Article
1(f) hereof to be held by Sublandlord as security for the
performance by Subtenant of Subtenant's covenants and
obligations under this Agreement, it being expressly understood
that such deposit shall not be considered an advance payment of
rental or a measure of Sublandlord's damages in case of Default
by Subtenant. The Security Deposit shall be held by
Sublandlord in a separate interest bearing account on behalf of
Subtenant and the Security Deposit shall not be commingled with
any other funds held by Sublandlord. Upon the occurrence of
any event of default beyond the expiration of any applicable
grace period. Sublandlord may, from time to time, without
prejudice to any other remedy, use such fund to the extent
necessary to make good any arrears of rental and any other
damage, injury, expense or liability caused to Sublandlord by
such event of default beyond the expiration of any applicable
grace period. Following any such application of the Security
Deposit, Subtenant shall pay to Sublandlord on demand the
amount so applied in order to restore the Security Deposit to
eh amount thereof immediately prior to such application. If
Subtenant is not then in default hereunder beyond the
expiration of any applicable grace period, any remaining
balance of such Deposit shall be returned to Subtenant upon the
termination of this Agreement; provided, however, Sublandlord
shall have the right to retain and expend such remaining
<PAGE>
balance for cleaning and repairing the Premises if Subtenant
shall fail to deliver up the same at the expiration or earlier
termination of this Agreement in the condition required by the
provisions of this Agreement.
5. Incorporation by Reference:
This Sublease shall be expressly subject and
subordinate to all of the terms, covenants and conditions
contained in the Base Lease, except such terms, covenants and
conditions as are specifically inconsistent with the terms
hereof or as set forth in Paragraph 8 below (the "Excluded
Provisions"). With the exception of the Excluded Provisions or
inconsistent terms, Subtenant acknowledges that any obligations
of the Sublandlord under the Base Lease, but not with respect
to Rent and Additional Rent, and only with respect to the
Sublease Premises shall be the responsibility and obligation
also of the Subtenant.
6. Excluded Provisions:
The following provisions of the Base Lease,
identified by Article, are specifically excluded from the
provisions of this Sublease, paragraphs 3, 5.01(a) and 25.
7. Indemnification:
Sublandlord hereby indemnifies and holds Subtenant
harmless from any and all liability (including, but not limited
to, legal fees and disbursements) in connection with any and
all hazardous materials located on the Premises.
8. Representations of Sublandlord:
(a) Sublandlord hereby warrants and represents that
(i) it is leasing certain premises pursuant to the Base Lease,
which includes the demised premises; (ii) the Base Lease is in
full force and effect; (iii) it has a valid leasehold interest
in the demised premises under the Base Lease; (iv) the Sublease
sets forth the entire agreement of the parties with respect to
Subtenant's leasing of the demised premises; (v) as of the date
hereof, there exists, to the best of Sublandlord's knowledge,
no circumstances, condition or act of default beyond any
applicable grace and cure periods which would entitle or permit
the Base Landlord to terminate the Base Lease; and (vi) it will
not modify or surrender the Base Lease so as to deprive
Subtenant of its rights or remedies under this Sublease without
the prior written consent of Subtenant.
(b) Sublandlord shall send a copy of any notice of
default or notice of termination of the Base Lease received
from the Base Landlord to Subtenant.
<PAGE>
(c) Sublandlord covenants that it will (i) pay all
rent and additional rent when due pursuant to, and (ii) observe
all the other terms and conditions of, the Base Lease provided
that (a) it is not prevented from doing so by Subtenant and (b)
Subtenant is not in default hereunder. If Sublandlord shall
fail to observe any of the terms and/or fail to pay any such
amounts to the Base Landlord as and when such amounts shall be
due and payable, and provided further that (i) Sublandlord has
not made such payments and/or observed such terms within a
period equal to one-half of the applicable grace period, if
any, under the Base Lease and (ii) Sublandlord has not notified
Subtenant that Sublandlord has obtained an injunction against
the Base Landlord with respect to the enforcement of any
default notice sent by the Base Landlord to Sublandlord as a
result of Sublandlord's failure to make such payments and/or
observe the terms of the Base Lease, then in such event,
Subtenant may, but shall not be obligated to, expend such sums
as may be necessary to observe or perform such terms,
provisions and conditions and/or pay such rent, additional rent
and other charges to the Base Landlord for the account of
Sublandlord, and any amount so paid shall become immediately
due and payable to Subtenant from Sublandlord upon demand, and
if not so paid by Sublandlord. Subtenant shall have the right
to offset such amounts against future fixed and additional
rental payments hereunder, notwithstanding anything to the
contrary contained herein.
(d) If, at any time during the term of this
Sublease, (i) Sublandlord is in default of its obligations
under the Base Lease beyond any applicable grace and cure
periods and (ii) Sublandlord receives a notice of termination
of the Base Lease from the Base Landlord pursuant to the
provisions of the Base Lease which Sublandlord is not
contesting or defending against, then, only in such event,
shall Subtenant have the right, in addition to and without
prejudice to those rights of recovery which may be available
through other actions or procedures at law or in equity, to
terminate this Sublease upon written notice to Sublandlord.
9. Representations of Subtenant:
Subtenant represents that it maintains general
liability insurance sufficient to cover the potential
liabilities as set forth in Article 5.01(b) of the Base Lease.
It is understood that Subtenant will not be responsible for
insurance coverage, pursuant to any of the other provisions of
Article 5 of the Base Lease, such responsibility being that of
the Sublandlord. Subtenant shall provide Sublandlord with
suitable certificates from the insurer evidencing such
coverage.
10. Miscellaneous:
(a) Assignability: Unless otherwise agreed to in
writing by both parties hereto, the rights, obligations and
benefits established by this Sublease shall be nonassignable by
either of the parties hereto and any such attempt of assignment
shall be null and void and of no effect whatsoever.
<PAGE>
(b) Entire Agreement: This Sublease contains the
entire agreement of the parties with respect to the subject
matter hereof, and may not be changed except by a writing
signed by the party against whom enforcement or discharge is
sought.
(c) Waiver of Breach: The waiver by either party of
a breach of any provision of this Sublease by the other party
shall not operate or be construed as a waiver of any subsequent
breach of any other party.
(d) Captions and Headings: The paragraph headings
throughout this Agreement are for convenience and reference
only, and shall in no way be deemed to define, limit or add to
the meaning of any provision of this Sublease.
(e) State Law: This Sublease, its interpretation
and its application shall be governed by the laws of the State
of New Jersey.
(f) Costs: In the event of any legal proceeding
between any of the parties to enforce or defend the terms and
rights set forth in this Sublease, the prevailing party or
parties shall be paid all costs of such legal proceeding,
including, but not limited to, attorneys' fees by the other
party or parties.
(g) Notices and Waivers: Any notice or waiver
required or permitted to be given by the parties hereto shall
be in writing and shall be deemed to have been given, when
personally delivered, or three (3) business days after being
mailed by certified or registered mail, or faxed during regular
business hours of the recipient and there is confirmation of
receipt, or sent by prepaid full rate telegram to the following
addresses:
If to Sublandlord:
VERTEX INDUSTRIES, INC.
23 Carol Street
Clifton, New Jersey 07014-0996
Attn: Mr. Ronald C. Byer
If to Subtenant:
THEA & SCHOEN, INC.
232 Entin Road
Clifton, New Jersey 07014
Attn: Messrs. Michael & Joel Thea
(h) The parties acknowledge and agree that no real
estate broker has any interest in this transaction or has
participated in any way in the culmination of this Sublease.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Sublease on the date specified below next to their respective
signatures.
SUBLANDLORD: SUBTENANT:
VERTEX INDUSTRIES, INC. THEA & SCHOEN, INC.
BY:s/Ronald C. Byer, Pres. BY:s/Joes Thea
DATE: 4 May, 1998 DATE: 5 May, 1998
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<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 631,362
<SECURITIES> 452,502
<RECEIVABLES> 1,111,986
<ALLOWANCES> 207,243
<INVENTORY> 464,389
<CURRENT-ASSETS> 2,474,344
<PP&E> 1,941,283
<DEPRECIATION> 1,653,962
<TOTAL-ASSETS> 3,228,066
<CURRENT-LIABILITIES> 880,073
<BONDS> 11,424
0
0
<COMMON> 25,785
<OTHER-SE> 2,310,784
<TOTAL-LIABILITY-AND-EQUITY> 3,228,066
<SALES> 3,566,943
<TOTAL-REVENUES> 3,566,943
<CGS> 1,733,152
<TOTAL-COSTS> 3,743,659
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<INTEREST-EXPENSE> 2,762
<INCOME-PRETAX> (156,554)
<INCOME-TAX> (205,000)
<INCOME-CONTINUING> 48,446
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