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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Quadlogic Controls Corporation
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(Name of Small Business Issuer in its charter)
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New York 13-3109443
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Eighth Avenue, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 930 - 9300
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.01 par value per share
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(Title of class)
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Item 1. Description of Business.
Quadlogic Controls Corporation ("Quadlogic" or the "Company") is engaged in the
design, manufacture and sale of the Transmeter'r' system, its proprietary
`smart' electricity metering system. The Transmeter system consists primarily of
the Transmeter itself and the Quadlogic Scan Transponder. The Transmeter is a
digital, microprocessor-controlled meter that measures and monitors, on a
real-time basis, the time and amount of electricity consumption and provides
other diagnostic information regarding the quality of electricity. The data is
communicated by the Transmeter to a central collection point over the same
electric power lines from which the electricity is delivered. The Quadlogic
Transponder is a master device which gathers the data from up to hundreds of
Transmeters and communicates the data to the utility or its billing service
generally via a modem. As a result of the Transmeter system's automated features
and ability to collect and communicate data, the system eliminates the need for
on-site meter reading and the use of individual telephone lines for each meter.
The Company believes that an important feature of the Transmeter System is its
ability, in both commercial and residential multi-tenant structures, to enable
automatic monitoring of electricity consumption in separate floors, apartments,
offices, stores or other units. This permits equitable distribution of energy
costs among multiple users within the same structure. Unlike most
electro-mechanical meters in use throughout the world, the Transmeter System can
be readily programmed to remotely effect electrical load control, detection of
electric line losses, remote reduction or turn-off of power and various other
functions important to power utilities, including implementation of complex rate
structures and the ability to remotely read the building's gas and water meters.
The Transmeter System offers the ability to implement advanced billing features
including variable rates to end users based on negotiated contracts, time of
day, power factor, and other variable criteria. The Transmeter System
communicates bi-directional over the power lines.
Historically, substantially all of Quadlogic's meter sales have been derived
from sales and installations of the Transmeter system for the submetering
market. This market typically consists of real estate developers, electrical
contractors and property management companies who wish to separately meter
different areas or units of multiple tenant buildings. Typical submetered
installations are in high-rise commercial, institutional and residential
buildings, shopping malls and industrial facilities. As an extension of its
business selling and installing the Transmeter system, Quadlogic offers to
customers that purchase its products a meter reading and billing service.
The Company believes that, as a result of the worldwide trend toward increased
deregulation and privatization of the electric utility industry, there is a
growing market for sales of meters with the automatic meter reading and other
advanced capabilities of the Transmeter directly to electric utility customers.
Electric utilities which were traditionally monopolistic and vertically
integrated are being divided into separate generation, distribution and meter
reading companies. In many markets customers can aggregate their demand for
electricity and contract to purchase bulk low cost electricity from generating
companies distant from their old monopolistic supplier. The Company believes
that the result is a transformed meter business with need for high technology,
flexible, remotely readable metering equipment.
The Company was incorporated in the State of New York in 1982 and its
manufacturing and corporate headquarters are located in New York City at 520
Eighth Avenue, New York, New York 10018. Its telephone number is 212-930-9300.
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Products
The Company's initial family of Transmeters and related products have been
commercially available since 1982. Since 1996, the Company has been working to
upgrade its metering technology and expand its product line. The Company has
completed or believes that it is close to completing most of its product line
upgrades.
The following is a description of the Company's current family of Transmeter
System products.
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Quadlogic Product Product Description
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Transmeter Model RSM- 4 Commercial metering device capable of collecting metering data
Minicloset Transmeter Model MC-4 Compact metering unit designed to accommodate up to eight
commercial or 12 residential apartment units
Transmeter Model RSM-12 Compact meter designed to be installed in individual apartments of
multifamily residential buildings (no longer in production, replaced by Series
10)
Scan Transponder ST-4 Metering device with ability to collect data from Transmeters
and communicate utility usage data to a central billing center
The Billing Center Central metered data collection point for the Company's meter
reading, billing and system maintenance services
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The Company is developing the following products to phase out its existing
products. All new products will feature the Quadlogic ASIC'TM' Chip, a
proprietary, custom-designed application specific integrated circuit.
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Quadlogic Product Product Description
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Transmeter Model Series 10 Designed to replace the RSM-12 for sale to electric supply houses and
residential multi-family apartment buildings. The unit is designed to be
smaller and less expensive than the RSM-12 and other competing products
Transmeter Model RSM-5 Designed to replace the RSM-4 for the commercial and industrial market.
It has increase memory and programmability at a lower cost than the RSM-4
Minicloset Transmeter Model Series 5 Designed to be a low-cost replacement for the MC-4,
with a more simple mechanical configuration that is housed in one unit
instead of two
Transmeter Model Series 20 A Transmeter designed to replace today's standard 4, 5, 7 and 13 jaw round
socket-type electro-mechanical meters, quickly without extensive
electrical installation work
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Transmeter Model Series 50 Designed to consist of two meters, a single phase and a three phase meter,
specifically to meet international regulatory specifications, required by
countries outside North and Central America
Scan Transponder ST-5 Metering device with ability to collect data from Transmeters
and communicate utility usage data to a central billing center. Designed to
replace the Scan Transponder ST-4
Billing Center Software Designed with an Oracle database to replace the current UNIX-based software,
the new software will be used in the billing center
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Quadlogic's new Series 5 family of meters will offer greater reliability,
principally due to a dramatic decrease in the number of components with the
meter and significantly more versatility of features, (i.e. expanded data
logging capabilities, more flexible memory choices and enhanced communication
capabilities), all at a lower price than the Series 4 family. The Company
expects that all of its new products will be available for sale in 2000.
The Transmeter System
In a typical submetering installation, Transmeters are installed in all tenant
spaces of a multi-unit building, and a Quadlogic Transponder is installed near
the point where the electric power enters the building. The Transponder
continuously reads data from the Transmeters via the building power lines, and
then stores the data in permanent memory along with diagnostic and other data
such as pulses from other energy meters. A central billing office retrieves the
data in the Transponder by telephone. Accordingly, the system automatically
reads electricity usage, and bills can be generated, without human intervention.
If there is a power outage, local flash memory in each Transmeter stores data
until power is restored.
With recent deregulation of the electric utility industry in North America and
privatization and deregulation of the electric utility industry worldwide,
Quadlogic believes that a large opportunity is developing to sell the Transmeter
system to electric utilities. Electric utilities could use the Transmeter system
to remotely read and accumulate, on a real-time basis, electricity consumption
information for each of its customers. The features of the Transmeter system
which are applicable to submetering would be applied by utilities on a larger
and more diverse scale than a typical submetering installation by the Company.
In a typical utility installation, Quadlogic Transponders could be installed by
the utility at substations located in their distribution grid. Electric usage
and other data is transmitted to the Transponder through the low and medium
tension power lines.
The Company believes that the Transmeter system has several advantages over
conventional electro-mechanical metering systems in use today, including:
Remote Communications over Power Lines and Telephone Lines
The Transmeter communicates electricity usage data to the Transponder over the
power wires to which it is connected. This technique eliminates on-site meter
readers as well as the need for dedicated cables required for standard hardwired
electro-mechanical meter systems. Transponders contain a modem which transmits
all collected data to a central billing system. The Company believes its power
line communications
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technology is unique in that information can be continually
updated (as frequently as every 5 minutes) and signals can be sent in both
directions.
Computerized Solid State Meter
Transmeters are electronic devices controlled by an embedded microprocessor and
employ non-volatile memory to retain data during power failures. Memory is
protected from surges and transients on the power wires and a long-life battery
maintains a real-time clock during a power outage. The programmability and
non-volatile memory allow the Transmeter to offer features not available from a
standard electro-mechanical meter such as customer-specific programming,
internal data log or audit trail of usage and time-of-use billing.
The Quadlogic ASIC Chip
Quadlogic's newest technology is based on the ASIC chip, a proprietary,
custom-designed application-specific integrated circuit. The Company believes
that the ASIC chip technology represents a significant advance in automatic
meter reading technology, adding functionality at a materially reduced cost. The
ASIC chip is designed to permit automated assembly techniques and to improve
reliability due to a two-thirds reduction in parts. Further, because the
technology is largely encapsulated in a single complex chip, Quadlogic may
benefit from better protection against piracy by copying or reverse engineering.
Ease of Initial Installation
Transmeters, except for the new Series 20 Transmeter, are housed in rugged metal
boxes suitable for installation in electric closets or in walls near breaker
panels within apartments or other metered units. All wiring terminates in a
protective device called the fuse block, which is installed in the walls. This
is the only part of the installation that requires a licensed electrician.
Technicians can plug in the meter later without interrupting power to the
customer or handling dangerous voltages.
Ease of Replacement Installation
The new Series 20 Transmeter is a round socket jaw meter housed in a durable
plastic casing. This meter comes in 4 standard jaw configurations (4, 5, 7 &
13). The installation of this meter, as a replacement meter to today's standard
electric utility meter, is simple in that the old meter is unplugged and the
Series 20 is plugged in its place. No additional wiring or hardware is needed.
Time-of-Use Metering
The Transmeter is capable of measuring both the amount and time of use of
electrical consumption. Time-of-use metering enables variable and negotiated
electric rates that can increase a provider's revenue and improve utility
efficiency. If a utility has difficulty supplying sufficient power during
certain times of day, charging higher tariffs at that time will either
discourage use at that time or provide additional revenue to increase capacity,
spreading the demand to other times of day.
Remote Monitoring and Reading of Other Devices
The Transmeter can be connected to other devices to perform functions useful to
a property owner or power utility. The Transmeter can be connected to gas, steam
and water meters so that, through the Transmeter,
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those meters can be remotely read. The Transmeter can also be connected to
security contacts, medical alerts or smoke alarms so that those devices could
be remotely monitored.
Programmable Outputs
The Transmeter has a programmable output relay which can be used to disconnect a
customer's electricity remotely eliminating the need for a service call in case
of nonpayment. The Transmeter's relay can also be connected to devices which
would sound an alarm or control equipment such as water heaters or air
conditioners in an energy management system. The Transmeter can also be remotely
programmed to respond to certain conditions based upon predetermined thresholds
(i.e. the meter can be told to limit the amount of electricity available to a
customer. This limit can be adjusted remotely on a regular basis).
Markets and Customers
Substantially all of Quadlogic's metering revenues to date have been derived
from sales and installation of the Transmeter system for the submetering market.
During the past year, the majority of the Company's metering sales were to
submetering customers located in and around New York City, Boston, Philadelphia,
Los Angeles and San Francisco. In addition, the Company sold meters
internationally in Canada, Israel, Costa Rica, Panama, Puerto Rico and Chile.
In the New York City metropolitan area, meters are marketed and sold by the
Company's internal sales force while outside of New York, Quadlogic, with the
exception of Israel, has arrangements with distributors and agents to market and
sell its product. In Israel, Quadlogic has a joint venture (Q.L.C. Israel
L.t.d.) with a local Israeli electrical supply company that markets and sells
Quadlogic meters on an exclusive basis. Quadlogic and the Israeli electrical
supply house each own 47.5% of QLC Israel and management of this joint venture
owns the remaining 5%.
Quadlogic's Transmeter Systems have been installed in numerous locations
throughout the United States in residential, commercial, industrial and
institutional buildings by such prominent builders and developers as Simon
Properties, the Trump Organization, Cushman and Wakefield, Tishman Speyer, La
Salle Partners and Helmsley Spear and in premier building complexes such as the
Mall of America in Minnesota, Trump Park, the Trump Plaza, the Trump
International Hotel and the Chrysler Building.
In addition to its submetering market, Quadlogic believes that worldwide
utility deregulation is creating an expanding market for sales of Transmeters
and Transponders directly to electric utilities. Utilities could utilize the
same features of the Transmeter System as the Company's submetering
installations, but on a larger scale. The Company believes that increasing
direct sales to utilities would enhance the Company's profitability because
while the technology for typical submetering installations and utility
installations is essentially the same, metering for utility customers typically
would involve a larger contract calling for more individual units and more
predictable revenue.
Quadlogic also provides third-party billing services to some of its submetering
customers. The Company's billing service customers pay recurring monthly fees
per metering point for various services that may include preparation of
electricity bills, analysis of energy usage, resolution of billing disputes,
tests of field accuracy, field service and maintenance of equipment. Quadlogic
is nearing completion of a new software system to read data and generate bills,
and provide remote diagnostics. This program is expected to improve the
productivity of Quadlogic's billing operations.
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Competition
The emerging market for utility metering systems and the deregulation of the
electric utility industry have led electronics, communications and utility
product companies to begin development of various systems, some of which
currently compete, and others of which may in the future compete, with the
Transmeter system. Deregulation will likely cause competition to increase.
In the submetering market, Quadlogic's Transmeter System competes in two main
categories: electronic metering, which is the development and sale of meters
with more advanced measurement and monitoring capabilities than standard
electro-mechanical meters, and meter communications, which is the development of
remote reading capability for new and existing meters.
In electronic metering, major competitors include Siemens Energy & Automation,
Schlumberger Technology Corporation, ABB Power T&D Company, Osaki and EMON. Due
to the growing market for solid state meters, new meter companies are entering
the market, and semiconductor companies such as Texas Instruments Corporation
and SAMEC are designing chips which add advanced metering functions to existing
electro-mechanical meters.
In meter communications, major competitors which market power line communication
systems for existing electro-mechanical meters that need to be retrofitted to
provide very limited data include Hunt Control Systems, Inc., Thorne EMI, Ikusi,
Adaptive Systems, Inc., Intellon Corporation, Ampy, DCSI, Metricom, Inc., ABB
Power T& D Company, and Echelon Corporation. Competing non-power line
communication systems employ fixed or mobile radio frequency transmitters and
receivers, inbound or outbound telephone using the customer's lines, cellular
telephone or satellite. Competitive electricity metering systems that use
non-power line communication systems are offered by Itron Inc., American Meter &
Applicance, Schlumberger, Nertec, Inc., American Innovations Ltd., Badger Meter,
Inc., General Electric, Metretek Technologies, Inc., Scientific Atlanta Inc. and
Telemonitoring Systems.
Many of Quadlogic's present and potential competitors have significantly greater
financial, marketing, technical and manufacturing resources, regulatory
approvals, name recognition and experience than Quadlogic. Quadlogic's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or devote greater resources to the
development, promotion and sale of their products and services than Quadlogic.
There can be no assurance that Quadlogic's competitors will not succeed in
developing products or technologies that are better or more cost effective. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
including utilities, thereby increasing their ability to address the needs of
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. There can be no assurance that Quadlogic will be able to compete
successfully against current and future competitors, and any failure to do so
would have a material adverse effect on Quadlogic's business, operating results,
financial condition and cash flows.
Quadlogic's challenge is to leverage its technology which both provides advanced
electronic features and remote communications to capture a large share of the
new deregulated market before competitors match the features of the Transmeter,
or another technology becomes the de facto standard precluding the Transmeter
from gaining wide acceptance. There can be no assurance that Quadlogic will be
successful in its efforts.
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Manufacturing
The Transmeter System is comprised of two main hardware components, the
Transponder and the Transmeter. Quadlogic assembles the Transponder and all of
its Transmeter models at its headquarters in New York. Population of the printed
circuit boards are currently being performed by outside vendors. The Company
intends to bring this function in-house when sufficient financing is available.
By populating the printed circuitry boards in-house, the Company expects to
realize substantial cost savings. Final testing and calibration of all models is
also performed at Quadlogic's facility.
With the exception of the ASIC chip, which is sole-sourced, Quadlogic believes
that all raw materials and production parts required in the manufacture of its
products are and will continue to be readily available from several sources of
supply. Quadlogic maintains an inventory of several production parts, as well as
some finished goods. If production requirements are great enough and internal
capacity proves inadequate, the Company believes that it can shift some assembly
to overseas manufacturers or contract with additional domestic subcontractors.
While the Company believes that there are available overseas contract
manufacturers and domestic contractors if the Company needs to utilize their
services, there may be delays in production in transitioning manufacturing
overseas which could materially adversely affect the Company.
Employees
The Company has 34 full-time employees, of whom four are executive personnel,
five are sales personnel, eight are billing and customer service personnel,
three are research and development personnel, nine are manufacturing operation
personnel and five are accounting and finance and general and administrative
personnel. The Company considers its relations with its employees to be good and
has experienced no labor problems. None of the Company's employees are
represented by unions. The Company's business is dependent on the services of
highly qualified technical personnel who are expert in computer hardware and
software design and engineering. There can be no assurance that the Company will
be able to continue to locate and hire qualified personnel.
Regulation
In the United States different approvals and testing processes can be required
in different states for meter accuracy and/or various states and local laws may
require an approval process prior to the installation of a submetering system.
In the states where Quadlogic meters are currently sold, the Company believes it
complies with all regulations. As the Company begins to penetrate the electric
utility market, it is likely that its meters will be required to be approved for
meter recording accuracy purposes by either individual electric utility or the
state public service commission of the state in which the metering site is
located. Although the Company believes its meters will pass any tests that might
be required of its new family of meters (Series 5), it has not yet submitted any
of these meters for testing. However, Con Edison has tested and approved for use
in a Con Edison energy rebate program the Company's current family of meters
(Series 4).
Internationally the Company must submit and pass the following two principal
regulatory approval processes:
Measurement Canada Approval
Prior to selling any meters in Canada, a Canadian Federal Agency called
Measurement Canada performs detailed tests to measure the accuracy and
performance of the meters. Quadlogic's RSM-4 and Minicloset-4
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product line have been approved for sale in Canada. The Company expects to
submit for approval its Series 10, Series 20 meters and its Series 5 Minicloset.
The Series 10 and Series 20 meters are expected to be submitted during March
2000 and the Series 5 Minicloset is expected to be submitted in April 2000. The
Company has no control over the timing of the approval process.
International Electrotechnical Commission (IEC) Approval
Electricity meters sold in substantially all countries outside of North America
and certain Central American and Carribbean countries, that are used for revenue
generating purposes, must meet IEC standards. Electricity meter sales to the
submetering market in these countries (e.g. Israel and Chile) are not
necessarily subject to these standards and therefore the Company is currently
able to sell a limited number of its meters internationally.
The Company believes that there will be a large demand for its new product line
in the international market and therefore intends to seek IEC approval.
Quadlogic believes its Series 50 international meters will conform to the
required standards and expects to submit the Series 50 meters for approval in
2000. Once submitted, it is expected that the approval process will take
approximately 12 to 16 weeks.
Risk Factors
There is no active market for Quadlogic Common Stock and the Company did not
file any periodic reports under the Securities Exchange Act of 1934, from 1991
to the present.
The Company had its initial public offering in 1987 and filed periodic reports
required by the Securities and Exchange Commission (the "SEC") for publicly
traded companies. However, by 1991 the number of shareholders of the Company
fell below the requirements for filing these periodic reports under the
Securities Exchange Act of 1934, as amended (the "34 Act"). In 1991 the Company
filed a Form 15 or "Deregistration" with the SEC notifying the SEC of its intent
to cease filing periodic reports under the 34 Act. Accordingly, Quadlogic has
not reported any financial or other data since 1991 until the date of this
report. Any trades in the Common Stock which have been made on the OTC Bulletin
Board or by any other means during this period were made without the benefit of
any public information such as financial statements.
The Company has a recent history of losses and may not achieve profitability.
Principally due to its recent development efforts and poor sales in the
submetering market, the Company has incurred substantial losses for the past
three years and has generated an accumulated deficit of approximately $7.2
million through November 30, 2000. The Company is just completing the
development of its new line of products and it is in the early stages of
marketing the new products, particularly to electric utilities and to
international customers. As a result, the Company will need to spend
considerable time and money on marketing and sales, including pilot projects and
beta testing, as well as on obtaining international regulatory approvals. The
Company's ability to achieve profitability depends on many factors, including
obtaining and maintaining regulatory approval to sell its meters in Canada, the
continuation of deregulation of the electric utility industries in North
America, acceptance of its new series of meters by the submetering and utility
marketplace and competitive pressures.
The Company may not be able to raise additional funds which will be needed to
successfully operate and grow the Company's business.
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The Company believes that its cash reserves, its cash flows from operations, its
current backlog of customer orders and historical level of monthly sales will be
adequate to fund operations through November 2000. The Company will need
substantial additional funds sooner in order to expand its marketing, sales and
regulatory activity and to expand production if it receives a significant order
from a customer. Consequently, the Company may require substantial additional
funds during or after this period. Additional financing may not be available on
favorable terms or at all. If the Company raises additional funds by selling
stock, the percentage ownership of the Company's shareholders will be reduced.
Funding, whether from a public or private offering of stock, a bank loan or a
collaborative agreement, may not be available when needed or on favorable terms.
If the Company cannot raise adequate funds to satisfy its capital requirements,
the Company may have to limit, delay, scale-back or eliminate its research and
development activities or future operations significantly. The Company might be
forced to license its technology or to commercialize its products with the help
of others when it would be more profitable or strategically important for the
Company to not take such actions. Any of these actions may materially and
adversely affect the Company.
The Company's sales and profitability will be dependent on the utility
industry's acceptance of its new products.
For Quadlogic's sales to grow significantly and for Quadlogic to achieve
profitability, Quadlogic's products and services must be accepted by utility
companies. Utility companies have historically been cautious in adopting new
technology. Although the Company believes that deregulation and competition
affecting utilities will drive them to cost saving technologies, Quadlogic has
no control over the adoption of technology upgrades and the timing and extent of
any technology upgrades cannot be predicted with any accuracy. If the utility
industry adopts a different technology as the "standard," the Company's products
could be incompatible with the standard and effectively precluded from the
market. Quadlogic's business, operating results, financial condition and cash
flows will be materially and adversely affected if the utility industry is slow
in adopting or does not adopt new technologies and services offered by Quadlogic
or if the Company is unable to accurately predict and react quickly to changes
in accepted metering and data collection standards.
Competition in the utility metering business is intense and increasing.
Currently, many companies, including major meter companies and meter
communication companies are engaged in the development of products and systems
which serve similar functions to our products and services. Many of Quadlogic's
present and potential competitors have significantly greater financial,
marketing, technical and manufacturing resources, regulatory approvals, name
recognition and experience than Quadlogic. Quadlogic's competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements, or devote greater resources to the development, promotion and sale
of their products and services than Quadlogic. There can be no assurance that
Quadlogic's competitors will not succeed in developing products or technologies
that are better or more cost effective. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, including utilities,
thereby increasing their ability to address the needs of customers. Accordingly,
it is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. There can be
no assurance that Quadlogic will be able to compete successfully against current
and future competitors, and any failure to do so would have a material adverse
effect on Quadlogic's business, operating results, financial condition and cash
flows.
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There are risks associated with the Company's international expansion efforts.
Quadlogic has dedicated, and expects to dedicate, substantial resources to the
development and maintenance of international customers. The international market
for the Company's products and services may not develop as quickly as the
Company anticipates or at all. The development and maintenance of international
markets pose particular operating difficulties due to:
- the degree of governmental regulation of utilities in other countries;
- changes in regulatory requirements;
- labor costs;
- potential problems in collecting accounts receivables in foreign
countries;
- fluctuations in currency exchange rates;
- local taxes and tariffs;
- local trade barriers;
- local intellectual property protections; and
- local and potentially unstable political and economic conditions.
Additionally, the Company may not be able to develop and implement versions of
its metering systems that are compatible with local systems at an efficient time
or cost, if at all.
Failure of the Company to obtain international regulatory approvals or for its
products and services to comply with government regulations would have a
material adverse effect on the Company.
A significant part of Quadlogic's business is the sale of the Transmeter system
for submetering installations. Submetering is subject to state, local and
administrative laws relating to the installation and operation by a building
owner of electric meters and submetering systems. Government regulations in the
U.S. regarding submetering vary from state to state, and in some states
submetering is prohibited entirely. For example, in New York, one of Quadlogic's
major markets, building owners must obtain regulatory approval before a metering
system can be installed in a residential project. Other states restrict the type
of buildings that may be subject to submetering. Additionally, submetering is
prohibited entirely in some foreign countries. Even in jurisdictions where
installation of Quadlogic's equipment has been approved for submetering, the
procedures required to obtain regulatory approval for a proposed installation
may discourage certain potential submetering customers from purchasing the
Company's products. These regulations could have a material adverse affect on
the Company's financial condition and results of operation.
Quadlogic expects to focus substantial efforts on sales of its products directly
to electric utilities. Quadlogic has been at a disadvantage in most countries
outside of the United States with respect to sales to utilities in part because
the Transmeter has not conformed to the IEC Standard which is widely adopted
outside of the U.S. The new generation of Transmeter is designed to conform to
this international standard, but the Company has no assurance that international
standards will remain as they are or that the Company can continue to conform to
international standards or adjust to any future changes in international
standards. Any such failure to conform to international regulatory standards
would have a material adverse effect on the Company.
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The Company relies on attracting and retaining key personnel.
Quadlogic is very dependent upon its key management and technical personnel. The
Company's future success could be materially and adversely affected if Sayre
Swarztrauber or Doron Shafrir were to leave the Company. There can be no
assurance that Quadlogic's key personnel will not leave the Company in the
future. At present the Company does not maintain key man life insurance policies
for any of its employees where benefits accrue to the Company. The future
success of the Company is also dependent upon its ability to identify, hire,
train and retain qualified technical, marketing and other personnel. Competition
for talented employees in the Company's industry is extremely high and the
Company may not be able to recruit or retain enough qualified employees in the
future. If Quadlogic is unable to recruit and retain enough qualified employees,
its business, operating results and financial condition could be materially and
adversely affected.
The Company relies on intellectual property protections.
Quadlogic relies on its patents, trade secrets, trademarks, confidentiality and
licensing agreements to establish and protect its intellectual property rights.
The Company's success is highly dependent upon maintaining those protections in
the United States and abroad. While the Company has obtained and applied for
patents, and intends to file other applications for patents covering its
products and processes, additional patents may not be issued or, if issued, may
not provide adequate protection for the Company's proprietary rights. In
addition, any patents issued to the Company or licensed by the Company may be
challenged, invalidated or circumvented, and the patent rights may not
adequately protect the Company's intellectual property rights.
Since United States patent applications are maintained in secrecy until patents
are issued, and since publication of inventions in the technical or patent
literature tend to lag behind such inventions by several months, the Company
cannot be certain that it was the first creator of inventions covered by its
issued patents or pending patent applications, that it was the first to file
patent applications for such inventions or that no patent conflict will exist
with other products or processes which could compete with the Company's products
or approach. Despite its efforts, the Company may not be able to safeguard and
maintain these proprietary rights, and the Company's competitors may
independently develop and patent technologies that are substantially equivalent
or superior to the Company's technologies. Participants in the wireless
industry, including competitors of the Company, typically seek to obtain patents
which will provide as broad a protection as possible for their products and
processes. There is a substantial backlog of patents pending at the United
States Patent and Trademark Office. The issuance of third-party patents could
require the Company to alter its products or processes, obtain licenses or cease
certain activities. An adverse outcome with regard to a third-party patent
infringement claim could subject the Company to significant liabilities, require
disputed rights to be licensed or restrict the Company's ability to use such
technology. The Company also relies to a substantial degree upon unpatented
trade secrets. Others, including the Company's competitors, may independently
develop or otherwise acquire substantially equivalent trade secrets. In
addition, whether or not additional patents are issued to the Company, others
may receive patents which contain claims applicable to products or processes
developed by the Company. If any such claims were to be upheld, the Company
would require licenses. Such licenses may not be available on acceptable terms,
if at all. In addition, the Company could incur substantial costs in defending
against suits brought against it by others for infringement of intellectual
property rights or in prosecuting suits which the Company might bring against
other parties to protect its intellectual property rights.
The Company relies on third party suppliers for component parts.
11
<PAGE>
Quadlogic's Transmeters and Transponders are controlled by an embedded
microprocessor and contain printed circuit boards. These printed circuit boards
and component parts, are manufactured by a limited number of outside vendors.
Vendors who currently supply the Company with the necessary printed circuit
boards and component parts may not be able to meet the Company's demand for
additional parts in a timely manner if at all. To date, Quadlogic has been able
to adequately source its printed circuit boards but there is no assurance it
will be able to do so in the future from its current vendors. Although there are
alternative suppliers for such parts these suppliers may not be able to deliver
sufficient quantities of parts at a cost that is reasonable if at all.
If the Company is unable to procure its printed circuit boards or component
parts from outside vendors in sufficient supply at a reasonable price or if
there is a significant price increase of in these parts or, an interruption in
supply or any quality problems related to component parts, Quadlogic's business,
operating results and financial condition would be materially and adversely
affected.
The Company may not be able to renew its current customer contracts.
Quadlogic's current business plan involves a substantial amount of service
contracts that provide billing data in addition to selling its metering systems
to utility companies and building contractors. Currently Quadlogic has
approximately 120 service contracts, representing 83% of its billing service
revenue. All of these contracts are subject to termination under a 30 day notice
provision. In addition, Quadlogic may not be able to contract with other
customers for its services due to greater competition or other market forces. If
the Company is unable to meet its contracted performance standards or is unable
to attract and retain new billing service clients, its business, operating
results and financial condition may be materially and adversely affected.
Quadlogic has never paid dividends.
The Company has never paid dividends to its stockholders. It intends to retain
earnings, if any, to support the Company's future business and development needs
and has no plans to pay dividends in the future.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking Statements--Cautionary Factors
Statements included in this Form 10-SB which are not historical in nature
are forward-looking statements made pursuant to the safe-harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
regarding our future business prospects, plans, objectives, expectations and
intentions are subject to certain risks, uncertainties and other factors that
could cause actual results to differ materially from those projected or
suggested in the forward-looking statements, including, but not limited to: the
inability to raise additional capital and the possibility that sales to electric
utilities do not materialize as quickly as expected or at all, as well as the
risks set forth in Item 1 of this Form 10-SB.
12
<PAGE>
Overview
Quadlogic designs, develops, manufactures and sells the Transmeter system, its
proprietary electricity metering system, to commercial and residential building
owners, shopping malls, industrial complexes and electric utilities. The
Transmeter system consists of the Transmeter, a digital
microprocessor-controlled meter that measures consumption of electricity and
other usage data, and the Transponder, a master device which gathers the
individual meter data and communicates data to the utility or billing service
generally via a modem.
Historically, substantially all of Quadlogic's metering sales have been derived
in the submetering market. However, with the recent advent of deregulation of
the electric utility industry in North America and privatization and
deregulation of the electric utility industry worldwide, Quadlogic believes that
a large opportunity is developing to sell its Transmeter system to electric
utilities worldwide. The Quadlogic Transmeter System would allow electric
utilities to remotely read and accumulate on a real time basis electric
consumption information for each of its customers.
As an extension of its metering business, Quadlogic offers to customers that
purchase its Transmeter system a reading and billing service. Many of
Quadlogic's customers take advantage of this service since it frees them of the
monthly responsibility to read and calculate their tenants electric bills. For a
customer who prefers to perform the reading and billing function themselves,
Quadlogic provides the required software for a nominal charge.
Results of Operations for the Years Ended February 28, 1999 Compared to February
28, 1998.
Revenues
Total revenues increased 30% to $3,423,261 for the year ended February
28, 1999 from $2,635,135 for the year ended February 28, 1998. The increase was
due to a 52% increase in sales of meter systems. The year to year increase in
absolute dollars is primarily attributable to an increase in commercial
projects. Billing service revenues increased 3% from the year ended February 28,
1998. This increase is attributable to new service contracts resulting from
meter sales in the New York area where the Company's billing service is the most
active.
Gross Profit
The total gross profit for the Company increased 6% to $1,453,229 for the year
ended February 28, 1999 from $1,365,365 for the year ended February 28, 1998.
Although meter sales increased 52% for the year ended February 28, 1999 from the
previous year-end, the gross profit improved only 2%. This is primarily
attributable to an increase in the general inventory reserve, an inventory
write-off of discontinued parts, material cost increases attributed to contract
assembly, depreciation for newly acquired assets, and higher costs of a new
leased facility that expanded our total facility square footage from 7,500 to
25,000. The gross profit on billing services increased 11%, which was primarily
attributable to a reduction in personnel and such related costs.
Operating expenses
Operating expenses, consisting of selling, research and development and general
and administration expenses, was $3,670,361 for the year ended February 28, 1999
compared to $1,713,892 for the year ended February 28, 1998.
13
<PAGE>
Selling
Selling expenses consist principally of personnel costs, including commissions
paid to sales personnel and manufacturers representatives, travel, telephone,
promotional literature, trade shows and other promotional costs. Selling
expenses increased by 105% to $1,374,984 for the year ended February 28, 1999
from $672,174 for the year ended February 28, 1998. The year to year increase in
absolute dollars in selling expenses were primarily attributable to an increase
in sales and marketing personnel and related expenses associated with increased
customer contact and a long sales cycle for large systems. In addition the
Company attended additional trade shows, and increased its expenditures for
promotional literature and technical manuals.
Research and Development
Research and development costs consist principally of next generation product
development, continuing software system development, personnel costs,
professional services, depreciation, and engineering design and testing.
Research and development costs are expensed as incurred. Research and
development expenses increased 132% to $1,283,981 for the year ended February
28, 1999 from $553,926 for the year ended February 28, 1998. The year to year
increase in absolute dollars in research and development expense is primarily
attributable to a write-off of deferred tooling costs due to product redesign
and costs incurred in new product development, continuing software development,
and an increase in hardware and software design personnel and related costs.
General and administrative
General and administrative expenses include compensation paid to general
management, administrative personnel costs, insurance, depreciation, and other
general administrative expenses, including fees for professional services.
General and administrative expenses increased 107% to $1,011,396 for the year
ended February 28, 1999 from $487,792 for the year ended February 28, 1998. The
year to year increase in absolute dollars in general and administrative expense
is attributable to an increase in personnel and related costs, higher costs of a
new leased facility that expanded our total square footage from 7,500 to 25,000,
an increase in insurance costs and professional fees, depreciation for newly
acquired assets, and an increase in the general reserve for bad debts.
Royalty Income, Related Party
Royalty income for the year ended February 28, 1999 was $29,167. The Company
will earn a minimum royalty of $50,000 from its Israeli affiliate for the twelve
month period ended August 1999.
Interest Expense
Interest expense for the year ended February 28, 1999 increased 76% to $281,615
from $160,117 for the year ended February 28, 1998. The year to year increase in
absolute dollars in interest expense is attributable to additional lease
obligations, amortization of loan discount, and a scheduled rate increase on a
long-term note.
Equity in Loss of affiliated company
14
<PAGE>
The equity in loss of affiliated company for the year ended February 28, 1999
was $28,018. The Company's 47 1/2% ownership of its Israeli affiliate was
effective August 1998.
Provision for income taxes
There was no provision for federal or state income taxes for the years ended
February 28, 1998 & 1999. At February 28, 1999 the Company had approximately
$6,700,000 of net operating loss carryforwards, expiring in the years 2001
through 2014, available to offset future federal and state income taxes.
Results of Operations for the Nine Months ended November 30, 1999 Compared to
November 30,1998.
Revenues
Total revenues were $2,678,795 for the period ended November 30, 1999 compared
to $2,522,525 for the period ended November 30, 1998. Sales of "smart" meter
systems increased 4% to $1,680,193 for the period ended November 30, 1999 from
$1,622,382 for the period ending November 30, 1998. Billing services increased
11% to $998,602 for the period ending November 30, 1999 from $900,143 for the
period ending November 30, 1998. The period to period increase in absolute
dollars for billing service revenues is attributable to several commercial and
residential metering projects that also contracted for our billing services. The
Company expects the fourth quarter to continue the same trend as the most recent
nine months ended November 30, 1999.
Gross Profit
The total gross profit for the Company increased 3% to $1,215,134 for the period
ending November 30, 1999 from $1,178,936 for the period ending November 30,
1998. "Smart" meter sales contributed $612, 703 for the current period compared
to $575,507 for the period ending November 30, 1998 or a 6% increase in line
with sales growth. Billing services contributed $602,431 for the current period
compared to $603,429 for the period ending November 30, 1998. Although billing
service revenues increased 11% the effect on gross profit was minimal. This is
attributable to an increase in depreciation on new software, a pro-rata share of
lease cost for new facility, and additional customer support and field service
personnel and related costs. The Company expects the fourth quarter to continue
the same trend as the most recent nine months ended November 30, 1999.
Operating expenses
Operating expenses, consisting of selling, research and development and general
and administration expenses, decreased 38% to $1,832,659 for the period ended
November 30, 1999 from $2,974,824 for the period ending November 30, 1998.
Selling
Selling expenses consist principally of personnel costs, including commissions
paid to sales personnel and manufacturers representatives, travel, telephone,
trade shows and other promotional costs. Selling expenses decreased by 32% to
$743,575 for the period ending November 30, 1999 from $1,087,589 for the period
ended November 30, 1998. The period to period decreases in absolute dollars in
selling expenses were primarily attributable to a decrease in expenditures for
promotional literature and technical manuals,
15
<PAGE>
reduction in travel and trade show expenses, reduction in personnel and its
related costs, and a reduction in marketing costs and placement fees.
The Company expects the fourth quarter to continue the same trend as the most
recent nine months ended November 30, 1999.
Research and Development
Research and development expenses consist principally of next generation product
and continuing software system development, personnel costs, supplies,
depreciation, engineering design and testing. Research and development costs are
expensed as incurred. Research and development expenses decreased 64% to
$399,771 for the period ended November 30, 1999 from $1,120,803 for the period
ended November 30, 1998. The period to period decrease in absolute dollars in
research and development expense is primarily attributable to a significant
reduction in next generation product and software development, including a
write-off of deferred tooling costs due to product redesign, reduction in
hardware and software development personnel and its related cost. The Company
expects the fourth quarter to continue the same trend as the most recent nine
months ended November 30, 1999.
General and administrative
General and administrative expenses include compensation paid to general
management, administrative personnel costs, insurance, depreciation, and other
general administrative expenses, including fees for professional services.
General and administrative expenses decreased 10% to $689,313 for the period
ended November 30, 1999 from $766,432 for the period ended November 30, 1998.
The period to period decrease in absolute dollars in general and administrative
expense is attributable to a reduction in consulting fees, a reduction in a
one-time charge for relocation expenses, and a decrease in overhead personnel
partially offset by the addition of a Chief Operating Officer. The Company
expects the fourth quarter to continue the same trend as the most recent nine
months ended November 30, 1999.
Royalty Income, Related Party
Royalty income from the Company's Israeli affiliate for the period ended
November 30, 1999 increased to $26,835 for the period ended November 30, 1999
compared to $16,667 for the period ended November 30, 1998. The period to period
increase in absolute dollars is attributable to a change in the royalty earned
from a specified minimum in period ending November 30, 1998 to 5% of sales, and
a full nine month period compared to four months for the period ended November
30, 1998. The Company expects the fourth quarter to continue the same trend as
the most recent nine months ended November 30, 1999.
Interest Expense
Interest expense increased 22% to $242,619 for the period ended November 30,
1999 from $199,418 for the period ended November 30, 1998. The period to period
increase in absolute dollars for interest expense is primarily attributable to
additional lease obligations, amortization of loan discount, and a scheduled
rate increase on a long-term note. The Company expects the fourth quarter to
continue the same trend as the most recent nine months ended November 30, 1999.
Equity in Profit (Loss) of affiliated company
The equity in profit of an affiliated company (47 1/2% owned) for the period
ended November 30, 1999 was
16
<PAGE>
$29,319 compared to a loss of $22,414 for the period ending November 30, 1998.
The period to period increase in absolute dollars is a
positive change of $51,733. This change is attributable to nine months of
operations compared to four months for the period ending November 30, 1998. The
Company expects the fourth quarter to continue the same trend as the most recent
nine months.
Provision for income taxes
There was no provision for federal or state income taxes for the periods ended
November 30, 1999 & 1998. At November 30, 1999 the Company has approximately
$7,500,000 of net operating loss carryforwards, expiring in the years 2001
through 2014, available to offset future federal and state income taxes.
Liquidity and Capital Resources
In anticipation of the need for sophisticated electronic metering devices, the
Company undertook a development effort in 1996 to significantly upgrade its
metering technology, expand its product line and prepare, by expanding the
Company infrastructure in terms of personnel and production capabilities, for
large scale manufacturing. The Company's cash flow from the submetering and
billing business has been, and continues to be, inadequate to fund the Company's
development efforts and operations.
As a result, over the past three years, it has been necessary for the Company to
raise a significant amount of outside capital to fund its development. The
Company raised net proceeds $921,544 in fiscal 1998 and $2,288,075 in fiscal
1999 for a total of approximately $3,209,619.
In May, 1998, the Company sold 270,000 shares of its $1.80 Convertible Preferred
Stock, Series A for gross proceeds of $486,000 before underwriting expenses.
In June 1998, the Company entered into an agreement with Noga Electrotechnica
Ltd. , an affiliate of Itzhak Goldenberg, a shareholder of the Company, pursuant
to which the Company obtained the right to sell to Noga, between June 1, 1998
and December 31, 1998, shares of Common Stock valued at between $1 million and
$2 million in the aggregate. In accordance with the agreement, the price per
share for all shares sold before August 31, 1998 was $1.35, and the price per
share for all shares sold after August 31, 1998 was $1.62. To the extent that
Quadlogic did not exercise its entire right to sell shares to Noga, Noga was to
receive a warrant to purchase shares with an aggregate value of $2 million, less
the value of the shares sold by Quadlogic, at an exercise price of $2.17 per
share. The warrant was to be exercisable at any time prior to December 31, 1999.
Pursuant to the agreement, Quadlogic sold an aggregate of 1,358,025 shares of
Common Stock under the Noga agreement for $2 million.
In April, 1997, the Company sold 329,000 shares of its Common Stock for proceeds
of $411,250; in October, 1997, the Company issued 212,500 shares of its Common
Stock through the exercise of warrants for proceeds of $35,295 and in February,
1998, the Company issued subscriptions for 351,852 shares of Common Stock in
exchange for notes receivable in the amount of $474,999 (these notes were paid
in full during the sixty-day period ending April 30, 1998).
In February 1996, the Company entered into a promissory note agreement with Marc
Howard Segan, a stockholder and director, in the amount of $660,000. The Company
was in default in the payment of principal and interest on the note. As a
result, the note was amended as of October 31, 1999 to provide (i) for the
Company to pay to the holder $42,735 of accrued and unpaid interest through
November 1, 1999,
17
<PAGE>
(ii) that beginning on December 1, 1999, and continuing on the first business
day of every month thereafter, through March 1, 2000, the Company pay to the
holder $7,122.50, which amount represents only interest at the rate of 12.950%
per annum and (iii) that beginning on April 1, 2000, and continuing on the
first business day of the following sixty (60) months thereafter, the Company
pay to the holder $15,000, representing the amortized principal amount due
under the note with interest at the rate of 12.950% per annum. In connection
with the extension and restructuring of the note and the waiver of existing
defaults under the note, the Company issued to Marc Howard Segan warrants to
purchase 75,000 shares of common stock. The warrants expire on
December 31, 2004 and are exercisable at the following prices: $1.75 per share
for warrants exercised on or before December 31, 2001; $2.25 per share for
warrants exercised on or before December 31, 2002; $2.75 per share for warrants
exercised on or before December 31, 2003; and $3.25 per share for warrants
exercised on or before December 31, 2004. The note is pre-payable by the Company
provided that it pays a prepayment premium decreasing from $100,000 to $4,700
depending on when the note is prepaid.
In September, 1999, the Company obtained a $1 million line of credit from Bank
Hapoalim. The Company has drawn down substantially all of the $1 million in
three increments; $400,000 on September 24, 1999, $200,000 on November 24, 1999
and $390,000 on February 2, 2000. The three increments are due and payable on
September 22, 2000, November 22, 2000 and November 1, 2000, respectively. The
Company has used the proceeds for working capital and general corporate
purposes, including product development, regulatory activities and technical
support for pilot projects. The line of credit bears interest at a floating
rate based on LIBOR and is secured by guarantees of Noga Electro-Mechanical
Industries (1986) LTD, an affiliate of Itzhak Goldenberg, a shareholder of the
Company, and affiliates of Noga. In return for the guarantee, affiliates of
Noga, including Mr. Goldenberg, will receive warrants from the Company to
purchase an aggregate of 1,410,000 shares of common stock. The exercise price
of the warrants is $1.75 per share; provided that, to the extent that the
Company needs proceeds to pay any amount of the line of credit when due, the
Company can force the exercise, at an exercise price of $1.25 per share, of
that number of warrants as is necessary to generate proceeds to pay the line
of credit.
Over the next 12 months, the Company expects to need approximately $300,000 to
complete the development of its electricity meter that will be sold in markets
outside of North America, Central America and certain Caribbean countries. All
of the new family of meters being developed for the North America, Central
America and certain Caribbean countries' markets are complete or substantially
complete and require minimal amounts of additional funding. The Company believes
that worldwide there are many large opportunities for utility sales and
submetering installations. Should the Company be successful in obtaining large
utility orders, it will need substantial additional funds to provide working
capital for increased inventory and accounts receivable levels and to provide
funding for additional investments in production, calibration and testing
equipment. In addition the Company needs to increase its sales and technical
support staff, which presently consists of 9 employees. The Company currently
has cash and cash equivalents of approximately $275,000. Consequently, the
Company will need substantial additional funds to fill any substantial orders
for products. Funding, whether from a public or private offering of stock, a
bank loan or a collaborative agreement, may not be available when needed or on
favorable terms. If the Company raises additional funds by selling stock, the
percentage ownership of our then current shareholders will be reduced. If the
Company cannot raise adequate funds to satisfy its capital requirements, the
Company may have to limit, delay, scale-back or eliminate our product
development, sales and marketing activities and future operations significantly.
The Company might be forced to license or sell its technology or to
commercialize our products with the help of others when it would be more
profitable or strategically important for us to not take such precipitous
actions. Any of these actions may materially and adversely affect the Company.
Item 3. Description of Property.
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<PAGE>
The Company's offices are located at 520 Eighth Avenue, New York, New York
10019. The Company occupies one floor of this building totaling approximately
25,000 square feet under a 10-year lease agreement extending through March 31,
2008 at an annual rental rate of approximately $338,000 payable in monthly
installments. The Company's facilities at this location include manufacturing,
administrative offices, a laboratory and technical work space. The Company
believes that its present facilities are adequate for its current business
needs.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of December 20, 1999, (i) by each
director, (ii) by each person known by the Company to own beneficially more than
5% of the Company's common stock, (iii) by the executive officers named in the
Summary Compensation Table set forth in "Executive Compensation," and (iv) by
all directors, and officers of QLC as a group.
Beneficial Ownership(1)
<TABLE>
<CAPTION>
Percent of
Directors, Officers and Series A Aggregate
5% Stockholders Common Stock Preferred Stock Voting Power
--------------- ------------ --------------- ------------
Number of Number of
Shares Percent Shares Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Sayre Swarztrauber (2)...... 1,738,290 21.20% __ __ 29.87%(3)
Doron Shafrir (4)........... 1,051,000 12.80% __ __ 12.80%
Israel Averbach (5)......... 690,061 8.43% __ __ 8.43%
Robert Wright............... 7,500 * __ __ *
Marc Segan.................. 344,000 4.20% __ __ 4.20%
Noga Electrotechnica........ 709,876 8.67% __ __ 0%(3)
Peter Fagan................. 10,000 * __ __ *
All officers and directors
as a Group.................. 3,840,851 46.94% 55.62%
</TABLE>
* less than 1 percent
(1) Beneficially owned shares include shares over which the named person
exercises either sole or shared voting power or sole or shared investment
power. It also includes shares owned (i) by a spouse, minor children or
relatives sharing the same home, (ii) by entities owned or controlled by
the named person, and (iii) by other persons if the named person has the
right to acquire such shares within sixty (60) days by the exercise of any
right or option. Unless otherwise noted, all shares are owned of record and
beneficially by the named person.
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<PAGE>
(2) Includes 100,002 shares held by Mr. Swarztrauber's parents in their joint
names. The balance of 1,638,288 shares held are by Mr. Swarztrauber
directly.
(3) Includes 709,876 shares held by Noga Electrotechnica under a voting
agreement providing Mr. Swarztrauber with the power to vote said shares.
(4) Includes 51,000 shares held by Mr. Shafrir's father, and 1,000,000 shares
held by Mr. Shafrir directly.
(5) Does not include 30,000 currently exercisable warrants at $2.00 per share
held by Mr. Averbach. These warrants expire on April 26, 2000.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Management
The following table sets forth certain information with respect to the directors
and executive officers of Quadlogic:
<TABLE>
<CAPTION>
Name Age Position(s)
------- ----- -------------
<S> <C> <C>
Sayre Swarztrauber 43 Director, Chairman, CEO
Doron Shafrir 52 President and Director
Peter Fagan 46 Director and Chief Operating Officer
Robert Wright 74 Director
Marc Segan 43 Director
Israel Averbach 45 Director
Yona Yehudai 44 Executive Vice President, Sales and
Marketing
Michael Wirth 53 Controller
</TABLE>
Sayre Swarztrauber, Chairman and Chief Executive Officer. Sayre Swarztrauber is
a co-founder of Quadlogic. He is responsible for the design of the Transmeter
System, including the automatic test and calibration features now in use. Prior
to founding Quadlogic, he was President of Swarztrauber-Segan Inc. which
designed components used in the manufacturing of automotive accessories, toys,
and other consumer products. Mr. Swarztrauber received his B.A. in Physics in
1977 from Princeton University.
Doron Shafrir, Director and President. Doron Shafrir is a co-founder of the
Company. From 1974 to 1978, Mr. Shafrir was a manager and chief engineer of
Codata Corporation, a manufacturer of energy conservation, fire alarm and
security systems for hi-rise buildings. Prior to this, Mr. Shafrir was
President of Electro-Fun Inc., a manufacturer's representative for National
Semiconductor Corporation Mr. Shafrir received both his B.S.E.E. and M.S.E.E.
degrees in Electrical Engineering from Fairleigh Dickinson University.
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<PAGE>
Peter J. Fagan, Director and Chief Operating Officer. Peter Fagan has been
the Company's Chief Operating Officer since April, 1999 and a director of the
Company since September, 1999. From January 1993 to March 1999, Mr. Fagan was
a Managing Director at Liberty Power; an independent power development firm
devoted to the financing, ownership and operation of electric generating,
transmission and distribution assets in the Americas and Eastern Europe.
Between 1987 and 1993, Mr. Fagan was employed by United Thermal Corporation
initially as its Chief Financial Officer and later as its President and a
member of the Board of Directors. Prior to United Thermal, Mr. Fagan worked for
the audit staff of Coopers and Lybrand. Mr. Fagan is a Certified Public
Accountant and received his B.S. in Accounting and Finance from C.W. Post
College.
Robert F. Wright, Director. Mr. Wright has been a director of the Company since
March 1999. Mr. Wright has been president of Robert F. Wright Associates since
1988, when he retired as a Senior Partner of Arthur Andersen LLP where he
worked since 1948. Mr. Wright serves on the board of directors of several
companies, including Deotexis, Inc., GVA Williams, Hanover Direct, The
Navigators Group, Inc., Reliance Standard Life Insurance Co. and Affiliates,
Rose Technology Group Limited, Universal American Financial Corp., and U.S.
Timberlands Company, LP. Mr. Wright is a member of the New York State Society
of CPA's where he chairs or has chaired numerous senior committees. He received
his BA from Michigan State University and his MBA from New York University.
Marc H. Segan, Director. Mr. Segan is one of the Company's founders and has
been a director of the Company since March 1999. He is the president of M. H.
Segan & Company Inc., an invention and product development firm which he
founded 20 years ago. Mr. Segan is a graduate of Princeton University with a
degree in Philosophy.
Israel Averbach, Director. Mr. Averbach has been a director of the Company
since March 1999. He is the General Manager (the equivalent of CEO) of the Lev
Ofir Group of Kadima, Israel, a major distributor of electrical equipment
to the electric utility and the electrical contracting industries.
Yona Yehudai, Executive Vice President, Sales & Marketing. Ms. Yehudai recently
joined the Company from Sefen Company, where she served as Chief Executive
Officer. While at Sefen Company, Ms. Yehudai managed 350 employees and
$60 million in annual revenues. Ms. Yehudai received her Masters degree in
business, specializing in international trade and marketing and in Talmum, the
study of religion and Jewish law from Tel Aviv University, Talmund University
and Bar-Ilan University.
Michael Wirth, Controller. Mr. Wirth has been Controller of Quadlogic since
September 1995. From 1993 to 1995, Mr. Wirth was Controller for J.N.
Enterprises, a real estate and property management Company. Prior to that, Mr.
Wirth was Controller for Orange Products, a manufacturer of plastic balls for
cosmetic and industrial use, Chief Financial Officer for Certified Metals, Inc.
a manufacturer of fine jewelry, and Controller for Hazel Bishop Industries, a
manufacturer of cosmetics. Mr. Wirth is a Certified Public Accountant licensed
in New Jersey and received his B.S. degree in Accounting from St. Peters
College, Jersey City, New Jersey.
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<PAGE>
Item 6. Executive Compensation.
Executive Compensation
The following table presents the annual compensation, including benefits
packages, of the executive officers of the Company for each of the last three
years.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------------------------------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation Options
--------------------------- ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Sayre Swarztrauber, FY 1999 $195,000 $ 0 $ 0 $ 0
Chairman and FY 1998 195,000 0 0 0
Chief Executive Officer FY 1997 116,000 0 0 0
Doron Shafrir, FY 1999 $150,000 $ 0 $45,616 $ 0
President FY 1998 150,000 0 22,000 0
FY 1997 116,000 0 0 0
</TABLE>
Employment Agreements
The Company may enter into employment agreements with Sayre Swarztrauber,
its chief executive officer, Doron Shafrir, its president and Peter Fagan, its
chief operating officer in 2000. Negotiations have begun, but no final
agreements have been reached.
By oral agreement acknowledged by a board resolution dated May 30, 1997, Mr.
Shafrir receives, in addition to his salary, bonuses based on "Annual Meter
Sales." Such bonuses are based on sliding scale percentages, from 4% to 1%,
on net sales receipts scaling from $1 million to $5 million and above,
respectively.
Director Compensation
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
Quadlogic receives $1,000 per fiscal quarter and $500 for attendance at each
committee meeting of any committee of the board of directors to which such
director has been elected. On September 1, 1999, the board of directors approved
a grant of an option to purchase up to 90,000 shares of the Company's common
stock at fair market value on the date of grant. The date of grant will be the
date that the shareholders approve the grants. These options vest one-third
annually over three years and expire 10 years from the date of grant.
Stock Option Grants
The Company has agreed to grant options to six employees to purchase an
aggregate of up to 720,000 shares including 200,000 options to Peter Fagan, the
Company's Chief Operating Officer and 375,000 options to Sayre Swarztrauber, the
Company's Chairman and Chief Executive Officer. The grant ofthe options will be
subject to shareholder approval of the Company's 1999 Stock Option Plan,
as described below.
22
<PAGE>
Stock Option Plan
Quadlogic's 1999 Stock Option Plan (the "Plan") was approved by the Board of
Directors on September 1, 1999 and is subject to a pending shareholder vote
under New York law. Under the Plan, the Company may award incentive and
non-statutory stock options to purchase up to 2,000,000 shares of common stock.
The Company's 1986 stock option plan expired in July 1996. There are 100,000
options outstanding under the old plan at an exercise price of $0.20 per
share.
Officers, employees, non-employee directors and consultants to the Company
will be eligible to participate in the Plan if it receives shareholder
approval. The board or a committee of the Board administers the Plan and
determines, subject to the provisions of the Plan, who shall receive awards, the
types of awards to be made, and the terms and conditions of each award. Options
that are intended to qualify as incentive stock options under the Plan
may not be exercisable for more than 10 years after the date the option is
awarded and may not be granted at an exercise price less than the fair market
value of the shares of common stock at the time the option is granted. In the
case of incentive stock options granted to holders of more than 10% of the
common stock, the options may not be granted at an exercise price less than
110% of the fair market value of the shares of common stock at the time the
options are granted.
Option holders will not have any rights as stockholders until and to the
extent that they have exercised their options. Payment for shares acquired
upon exercise of an option may be made in cash, and/or such other form of
payment as may be permitted under the option agreement, or any other
arrangement acceptable to the Company, including, without limitation, shares of
the Company's common stock owned for at least six months or pursuant to a
cashless exercise procedure approved by the Committee, provided, however that
the exercise price for incentive stock options may not be less than 100% of the
fair market value of the common stock on the date of grant (or 110% in the
case of a grant to an employee who owns 10% or more of the Company's
outstanding common stock).
Upon approval, the Plan provides that, unless otherwise provided in an option
agreement, in the event of a merger, consolidation, mandatory share exchange or
other similar business combination of the Company with or into any other entity
("Successor Entity") or any transaction in which another person or entity
acquires all or substantially all of the issued and outstanding Common Stock or
assets of the Company, outstanding options may be assumed or equivalent options
may be substituted by the Successor Entity or a parent or subsidiary of the
Successor Entity. If outstanding options are not assumed or replaced with
substantially equivalent options, then the optionees shall be permitted to
exercise their outstanding options in whole or in part (whether or not vested or
exercisable) prior to such transaction, and any outstanding options which are
not exercised before such transaction shall terminate. The number of shares
subject to each award shall be adjusted upon the occurrence of a stock split
or recapitalization of Quadlogic's common stock.
The board may amend, modify or terminate any outstanding award under the Plan
with the participant's consent, except consent shall not be required if the
board determines that such action will not materially and adversely affect the
participant. The board may amend, suspend or terminate the Plan at any time.
23
<PAGE>
Compensation Committee
On September 1, 1999, the Company's board of directors created a compensation
committee consisting of two directors to review the Company's compensation
practices and administer its stock option plan. Marc Segan and Robert Wright,
both non-employee directors currently serve on the committee.
Item 7. Certain Relationships and Related Transactions.
Issuance of Warrants
Director. The Company issued to Marc Segan, a director of the Company a
promissory note in the amount of $660,000 in February1996 (the "Note").
In October of 1999, the parties restructured the Note to be an interest bearing
note through March 31, 2000, after which the Note will require the principal of
$660,000 to be fully amortized on a monthly basis over a five year period and
maturing March 1, 2005. As consideration for the Note restructuring, the
Company granted to Mr. Segan warrants to purchase an aggregate of 75,000
shares of the Company's Common Stock. These warrants are exercisable for
amounts from $1.75 per share to $3.25 per share, and expire on December 31,
2004.
Major Shareholder. In June 1998, the Company entered into an agreement with
Noga Electrotechnica Ltd., an affiliate of Itzhak Goldenberg, a shareholder of
the Company, pursuant to which the Company obtained the right to sell to Noga,
between June 1, 1998 and December 31, 1998, shares of Common Stock valued at
between $1 million and $2 million in the aggregate. In accordance with the
agreement, the price per share for all shares sold before August 31, 1998 was
$1.35, and the price per share for all shares sold after August 31, 1998 was
$1.62. To the extent that Quadlogic did not exercise its entire right to sell
shares to Noga, Noga was to receive a warrant to purchase shares with an
aggregate value of $2 million, less the value of the shares sold by Quadlogic,
at an exercise price of $2.17 per share. The warrant was to be exercisable at
any time prior to December 31, 1999. Pursuant to the agreement, Quadlogic sold
an aggregate of 1,358,025 shares of Common Stock under the Noga agreement for $2
million. No warrant was issued.
In September, 1999, the Company obtained a $1 million line of credit from Bank
Hapoalim secured by a guarantee by Noga Electro-Mechanical Industries (1986)
LTD, another affiliate of Itzhak Goldenberg. The Company has drawn down
substantially all $1 million in three increments; $400,000 on September 24,
1999, $200,000 on November 24, 1999 and $390,000 on February 2, 2000. The
Company has used the proceeds for working capital and general corporate
purposes, including product development, regulatory activities and technical
support for pilot projects. Each increment is due, with interest at LIBOR,
established on the date the funds are transferred plus 125 basic points per
annum. The principal on the September 24 and November 24 increments is due
approximately one year after each increment is drawn down while the principal on
the February 2nd increment is due November 1, 2000. Interest is due every six
months. In return for the guarantee, affiliates of Noga, including Mr.
Goldenberg, will receive warrants from the Company to purchase an aggregate of
1,410,000 shares of common stock. The exercise price of the warrants is $1.75
per share; provided that, to the extent that the Company needs proceeds to pay
any amount of the line of credit when due, the Company can force the exercise,
at an exercise price of $1.25 per share, of that number of warrants as is
necessary to generate proceeds to pay the line of credit. If the Company
subsequently pays down the line of credit, the amount of warrants issued to the
guarantor remains.
In addition, under agreement upon the closing of the line of credit, with the
guarantor, Itzhak Goldenberg was given the right to nominate one person to serve
as a member of the Board of Directors.
24
<PAGE>
Loan from Officer
Peter Fagan, the Company's chief operating officer loaned the Company $50,000
in 1999. The Company has not paid any amount due under the loan and has agreed
with Mr. Fagan to convert this loan into 38,656 shares of the Company's common
stock at an average price of $1.29 per share. This represents the closing price
of the stock on the date the loan was made.
Item 8. Description of Securities.
Quadlogic's certificate of incorporation authorizes the issuance of up to
20,000,000 shares, par value $0.001 per share, of the Company's common stock,
and up to 5,000,000 shares of Preferred Stock, with a par value of $0.001 per
share (the "Preferred Stock"). Of the Preferred Stock, 4,000,000 shares have
been designated Convertible Preferred Stock, Series A.
Common Stock
As of February 23, 2000, 8,182,146 shares of the Company's Common Stock were
outstanding and held of record by 90 shareholders. As of February 23, 2000,
options to purchase 100,000 shares of the Company's Common Stock at an exercise
price of $0.20 per share were outstanding. All of the outstanding options are
currently exercisable.
All of the outstanding shares of Common Stock are fully paid and nonassessable.
Each holder of Common Stock is entitled to one vote for each share held of
record on all matters presented to a vote of stockholders. Holders of Common
Stock do not have cumulative voting rights in the election of directors.
Stockholders casting a plurality of the votes of stockholders entitled to vote
in an election of directors may elect all of the directors. Holders of Common
Stock have no preemptive rights to purchase or subscribe for any stock or other
securities and there are no conversion rights or redemption or sinking fund
provisions with respect to such stock. Subject to the rules and regulations of
the Nasdaq National Market, additional shares of authorized Common Stock may be
issued without stockholder approval.
Upon a liquidation, dissolution or winding-up, holders of our Common Stock will
each receive their pro rata share of our remaining assets, after payment of
liquidation preferences, if any, on any outstanding shares of preferred stock
and payments of claims of creditors.
Preferred Stock
As of February 23, 2000, 270,000 shares of the Company's convertible Preferred
Stock, series A, were outstanding and held of record by 12 shareholders.
The Preferred Stock is senior to the Common Stock as to dividend and redemption
payments and as to the distribution of assets upon the liquidation of the
Company. The Articles of Incorporation do not permit the issuance of any
preferred securities of the Company ranking, as to participation in profits or
the assets of the Company, senior to or pari passu with the Preferred Stock
(except additional authorized and unissued Preferred Stock) without the consent
of shareholders holding 66% of the Preferred Stock held by shareholders voting
together with any shareholders holding other securities of the Company with the
right to such vote.
25
<PAGE>
Dividends on the Preferred Stock are cumulative, accrue from the date of
initial issuance and are payable annually in arrears on each February 28th,
commencing February 28, 1999 (on a pro-rated basis), when, as and if declared
by the Company, except as otherwise described below.
Dividends on the Preferred Stock are payable at a rate of 9% of par value,
which equates to a fixed amount per annum of $0.162 per share. Payment of
dividends in cash is limited in relation to the amount of funds held by
Quadlogic and legally available therefor. At the sole option of the Company, the
Preferred Stock dividend may be payable in additional Preferred Stock when, as
and if declared by the Company's board of directors.
Under the terms of an agreement with a senior lender to the Company, it is
prohibited from paying dividends on any of its capital stock, with the exception
of payment of dividends on Preferred Stock in additional shares of Preferred
Stock, until the funds lent to the Company by such lender are repaid, and, under
certain circumstances, beyond repayment. Thus it is unlikely that the Company
will pay dividends on the Preferred Stock other than in the form of additional
shares of Preferred Stock.
The Company is required to redeem any unconverted shares of the Preferred Stock
at par, plus accrued dividends, on the tenth anniversary of its issuance. On
and after the redemption date, dividends cease to accumulate on the
Preferred Stock called for redemption.
At any time, the Preferred Stock will be convertible, in whole but not in
part, at the option of the holder, into shares of the Company's Common Stock at
an initial conversion price of $1.35 per share of Common Stock (i.e., 1.25
shares of Common Stock for each share of Preferred Stock).
The Company may also redeem the Preferred Stock, in whole but not in part,
upon the occurrence of certain events.
26
<PAGE>
PART II
Item 1. Market Price of and Dividends on Quadlogic's Common Equity and Related
Stockholder Matters.
Quadlogic's common stock is traded on Over-the-Counter Bulletin Board under the
symbol "QDLC." The following table sets forth the range of high and low sales
prices for our common stock on Over-the-Counter Bulletin Board for the periods
indicated since August 1, 1997.
<TABLE>
<CAPTION>
Fiscal 1998 High Low
----------- ---- ---
<S> <C> <C>
First Quarter
(March 1, 1997 to May 31, 1997) $0.625 $0.250
Second Quarter
(June 1, 1997 to August 31, 1997) 0.500 1.187
Third Quarter
(September 1, 1997 to November 30, 1997) 0.625 0.312
Fourth Quarter
(December 1, 1997 to February 28, 1998) 1.625 0.375
<CAPTION>
Fiscal 1999 High Low
----------- ---- ---
<S> <C> <C>
First Quarter
(March 1, 1998 to May 31, 1998) $1.625 $1.000
Second Quarter
(June 1, 1998 to August 31, 1998) 2.531 1.375
Third Quarter
(September 1, 1998 to November 30, 1998) 1.625 1.187
Fourth Quarter
(December 1, 1998 to February 28, 1999) 1.875 1.312
<CAPTION>
Fiscal 2000 High Low
----------- ---- ---
<S> <C> <C>
First Quarter
(March 1, 1999 to May 31, 1999) $1.688 $0.500
Second Quarter
(June 1, 1999 to August 30, 1999) 1.375 0.813
Third Quarter
(September 1, 1999 to November 30, 1999) 1.344 0.813
Fourth Quarter
(December 1, 1999 to February 29, 2000) 2.875 1.250
<CAPTION>
Fiscal 2001 High Low
----------- ---- ---
<S> <C> <C>
First Quarter
(March 1, 2000 to March 10, 2000) $ 2.000 $ 1.750
</TABLE>
These quotations, as reported by Tradeline from IDD Information Services, Inc.,
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
II-1
<PAGE>
As of February 23, 2000, we had 90 stockholders of record of our common stock
and an estimated 90 beneficial owners. The closing sale price of our common
stock on March 13, 2000 was $1.75 per share.
DIVIDEND POLICY
The Company has never paid cash dividends. We do not expect to declare or pay
any dividends on our common stock in the foreseeable future, but instead intends
to retain all earnings, if any, to invest in our operations. The payment of
future dividends is within the discretion of our board of directors and will
depend upon our future earnings, if any, our capital requirements, financial
condition and other relevant factors.
Item 2. Legal Proceedings.
The Company is not a party to any pending litigation, nor are there any lawsuits
threatened against the Company.
Item 3. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
Item 4. Recent Sales of Unregistered Securities.
Under an agreement to restructure a promissory note issued by the Company to
Marc Segan, a stockholder and director, for a loan of $660,000 from Mr. Segan to
the Company, the Company issued warrants to Mr. Segan in February, 1999 for the
purchase of up to 75,000 shares of common stock. The warrants are exercisable at
$1.75 per share before December 31, 2001 and at $2.25 per share for warrants
exercised on or before December 31, 2002, $2.75 per share for warrants exercised
on or before December 31, 2003 and $3.25 per share for warrants exercised on or
before December 31, 2004.
Beginning in October, 1999, the Company issued to affiliates of Noga
Electro-Mechanical Industries (1986) Ltd warrants to purchase an aggregate of
1,410,000 shares of common stock at an exercise price of $1.75 per share in
exchange for Noga Electro-Mechanical Industries' guarantee under a loan
agreement for a $1 million line of credit from Bank Hapoalim or $1.25 per share
to the extent needed to pay off the line of credit.
In June, 1998 pursuant to an agreement with Noga Electrotechnica Ltd., the
Company sold Noga an aggregate of 1,358,025 shares of its common stock for $2
million.
In May, 1998, the Company sold 270,000 shares of its $1.80 Convertible Preferred
Stock, Series A for gross proceeds of $486,000 (before underwriting expenses) in
a private placement offering under Regulation D of the Securities Act of 1933.
In February, 1998, the Company issued subscriptions for 351,852 shares of Common
Stock in exchange for notes receivable in the amount of $474,999. These notes
were paid in full during the sixty-day period ending April 30, 1998
In October, 1997, the Company issued 212,500 shares of its Common Stock through
the exercise of warrants for proceeds of $35,295.
II-2
<PAGE>
In April, 1997, the Company sold 329,000 shares of its Common Stock for proceeds
of $411,250.
Item 5. Indemnification of Directors and Officers.
Quadlogic's certificate of incorporation and bylaws contain provisions permitted
under New York law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in circumstances involving any of the following
wrongful acts:
any breach of the director's duty of loyalty to the Company or
its stockholders
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
any transaction from which the director derives an improper
personal benefit
The indemnity provisions do not limit or eliminate the Company's or any
stockholder's rights to seek non-monetary relief, such as an injunction or
recission, in the event of a breach of a director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
In addition, the Company plans to enter into separate agreements with each of
its directors that will provide them with indemnification to the maximum extent
permitted under New York law for liabilities they may incur serving as directors
or officers of the Company. Quadlogic believes that these indemnification
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
II-3
<PAGE>
QUADLOGIC CONTROLS CORPORATION
Index to Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Public Accountants....................................................................... F-2
Balance Sheets................................................................................................. F-3
Statements of Operations....................................................................................... F-5
Statements of Changes in Stockholders' Equity (Deficiency)..................................................... F-6
Statements of Cash Flows....................................................................................... F-7
Notes to Financial Statements.................................................................................. F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Quadlogic Controls Corporation
We have audited the accompanying balance sheet of Quadlogic Controls Corporation
(the "Company") as of February 28, 1999 and the related statements of
operations, changes in stockholders' equity (deficiency), and cash flows for the
years ended February 28, 1998 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Quadlogic Controls Corporation
as of February 28, 1999, and the results of its operations and its cash flows
for the years ended February 28, 1998 and 1999 in conformity with generally
accepted accounting principles.
/s/ M.R. Weiser & Co. LLP
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, N.Y.
November 23, 1999
F-2
<PAGE>
QUADLOGIC CONTROLS CORPORATION
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 150,708 $162,434
Accounts receivable, less allowance of
$40,000 and $46,750 (unaudited), respectively 688,687 673,082
Inventories 497,464 358,199
Prepaid expenses 126,612 121,286
Deposits 41,158 41,896
---------- -----------
Total current assets 1,504,629 1,356,897
Property and equipment, at cost, net of
accumulated depreciation 1,742,099 1,608,870
Investment in affiliate 4,301
Note receivable, related party 24,982 50,000
Other assets 105,399 91,604
----------- -----------
$3,377,109 $3,111,672
=========== ===========
</TABLE>
F-3
<PAGE>
QUADLOGIC CONTROLS CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 757,470 $ 498,265
Accrued expenses and current liabilities 506,552 692,807
Current maturities of debt obligations, stockholder - 65,452
Current maturities of other debt obligations 57,945 663,641
Current maturities of obligation under capital leases 190,025 224,400
Deferred income 44,833 19,498
----------- -----------
Total current liabilities 1,556,825 2,164,063
----------- -----------
Long-term debt:
Debt obligations, stockholder, net of current maturities 660,000 594,548
Other debt obligations, net of current maturities 707,953 748,586
Obligation under capital leases, net of current maturities 384,305 296,303
----------- -----------
Total long-term debt 1,752,258 1,639,437
----------- -----------
Commitments and contingencies
Stockholders' equity (deficiency):
Convertible preferred stock, $0.001 par value,
5,000,000 shares authorized: Series A, authorized
4,000,000; issued and outstanding 270,000 shares at
February 28, 1999 and November 30, 1999 (unaudited),
(Aggregate liquidation preference $486,000 plus
cumulative unpaid dividends.) 270 270
Common stock, $0.001 par value, 20,000,000 shares authorized;
issued and outstanding 8,182,146 shares at February 28, 1999
and November 30, 1999 (unaudited) 8,182 8,182
Additional paid-in capital 6,424,276 6,463,276
Accumulated deficit (6,364,702) (7,163,556)
----------- -----------
Total stockholders' equity (deficiency) 68,026 (691,828)
----------- -----------
$ 3,377,109 $ 3,111,672
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
QUADLOGIC CONTROLS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
February 28, November 30,
------------------------ -------------------------
1998 1999 1998 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales $1,457,585 $ 2,213,518 $ 1,622,382 $1,680,193
Billing services 1,177,550 1,209,743 900,143 998,602
---------- ---------- --------- ----------
2,635,135 3,423,261 2,522,525 2,678,795
---------- ---------- --------- ----------
Cost of goods sold 739,372 1,478,875 1,046,875 1,067,490
Cost of billing services 530,398 491,157 296,714 396,171
---------- ---------- --------- ----------
1,269,770 1,970,032 1,343,589 1,463,661
--------- --------- --------- ---------
Gross profit 1,365,365 1,453,229 1,178,936 1,215,134
--------- --------- --------- ---------
Operating expenses:
Selling 672,174 1,374,984 1,087,589 743,575
Research and development 553,926 1,283,981 1,120,803 399,771
General and administrative 487,792 1,011,396 766,432 689,313
---------- ---------- --------- ----------
Total operating expenses 1,713,892 3,670,361 2,974,824 1,832,659
---------- ---------- --------- ----------
Loss from operations (348,527) (2,217,132) (1,795,888) (617,525)
Royalty income, related party - 29,167 16,667 26,835
Interest expense (160,117) (281,615) (199,418) (242,619)
Other (losses) income (21,900) (5,780) (890) 5,136
---------- ---------- --------- ----------
(Loss) before equity in (loss) income
of affiliated company (530,544) (2,475,360) (1,979,529) (828,173)
Equity in (loss) income of affiliated company - (28,018) (22,414) 29,319
---------- ---------- --------- ----------
Net loss $ (530,544) $(2,503,378) $(2,001,943) $ (798,854)
========== =========== ============ =========
Basic and diluted net (loss) per share $(.08) $(.34) $(.28) $(.10)
===== ===== ===== =====
Weighted average common shares outstanding
- basic and diluted 6,331,696 7,437,294 7,206,155 8,182,151
=========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
QUADLOGIC CONTROLS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------ --------------- Additional Stockholders
Number of Number of Paid-In Accumulated Equity
Shares Par Value Shares Par Value Capital Deficit (Deficiency)
------ --------- --------- --------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1997 5,912,250 $ 5,912 - - $ 3,089,197 $(3,330,780) $(235,671)
Stock issued for cash, April 1997 329,000 329 - - 410,921 - 411,250
Stock issued via exercise of
warrants, October 1997 212,500 213 - - 35,082 - 35,295
Allocated fair value of
detachable warrants issued
with note payable, January 1998 - - - - 128,000 - 128,000
Stock issued for stock subscription
receivable, February 1998 351,852 352 - - 474,647 - 474,999
Net loss for the year ended
February 28, 1998 - - - - - (530,544) (530,544)
--------- ----- --------- ---------- ---------
Balance, February 28, 1998 6,805,602 6,806 - - 4,137,847 (3,861,324) 283,329
Stock issued for cash,
June - December 1998 1,376,544 1,376 - - 2,022,924 - 2,024,300
Convertible preferred stock issued
for cash, June 1998 - - 270,000 $270 485,730 - 486,000
Costs principally in connection
with the sale of convertible
preferred stock, 1998 - - - - (222,225) - (222,225)
Net loss for the year ended
February 28, 1999 - - - - - (2,503,378) (2,503,378)
--------- ----- ------- --- ----------- ----------- -----------
Balance, February 28, 1999 8,182,146 8,182 270,000 270 6,424,276 (6,364,702) 68,026
Fair value of warrants issued in
connection with a loan guarantee
(unaudited) - - - - 39,000 - 39,000
Net loss for the nine months ended
November 30, 1999 (unaudited) - - - - - (798,854) (798,854)
---------- ------ ------- ----- ----------- ---------- ---------
Balance, November 30, 1999
(unaudited) 8,182,146 $8,182 270,000 $270 $6,463,276 $(7,163,556) $(691,828)
========== ====== ======= ==== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
QUADLOGIC CONTROLS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
February 28, November 30,
---------------------- ---------------------
1998 1999 1998 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (530,544) $(2,503,378) $(2,001,943) $(798,854)
Adjustments to reconcile net loss to net
cash provided by operating activities: - - - -
Provision for doubtful accounts
receivable - 15,000 18,750 6,750
Depreciation of property and
equipment 80,058 213,065 147,868 269,411
Amortization of loan discount
and financing costs 1,699 48,534 19,900 28,163
Loss on disposal or abandonment
of assets - 430,578 430,578 -
Equity in loss (income) of affiliated
company - 28,018 22,414 (29,319)
Changes in operating assets and
liabilities:
Decrease (increase) in
accounts receivable 7,770 (249,003) (292,137) 8,855
(Increase) decrease in inventories (129,478) (133,306) (200,002) 139,265
(Increase) decrease in prepaid
expenses (49,729) (59,911) (3,045) 5,326
Increase in deposits (42,450) (31,459) (12,050) (738)
(Decrease) increase in
accounts payable (147,974) 566,927 353,618 (259,205)
Increase (decrease) in accrued
expenses and other current
liabilities 248,200 92,379 (36,976) 186,255
Increase (decrease) in deferred
income - 44,833 33,333 (25,335)
------- ------- ------- -------
Net cash (used in) operating activities (562,448) (1,537,723) (1,519,692) (469,426)
-------- ---------- ---------- --------
Cash flows from investing activities:
Note from related party - (50,000) (50,000) -
Capital expenditures (250,575) (1,571,216) (1,257,911) (136,182)
-------- ---------- ---------- --------
Net cash used in investing activities (250,575) (1,621,216) (1,307,911) (136,182)
-------- ---------- ---------- --------
Cash flows from financing activities:
(Decrease) from bank loan (3,603) (1,985) - -
Repayment of other debt obligations (3,626) (4,050) (2,926) (3,350)
Increase (decrease) on capital lease
obligations 24,683 424,748 430,612 (53,627)
Payment of working capital loans (288,800) - - -
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
February 28, November 30,
---------------------- ---------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Proceeds from other debt obligations - - 124,968 660,516
Proceeds of note payable 800,000 - - -
Issuance of in common stock 921,544 2,024,300 1,347,731 -
Issuance of preferred stock - 486,000 486,000 -
Private placement costs (50,372) (171,853) (165,612) -
(Increase) decrease in stock
subscription receivable (475,000) 475,000 475,000 -
(Increase) decrease in other assets (35,618) (13,623) 56,767 13,795
--------- ---------- ----------- --------
Net cash provided by financing activities 889,208 3,218,537 2,752,540 617,334
--------- --------- ----------- --------
Net increase (decrease) in cash 76,185 59,598 (75,063) 11,726
Cash, beginning of period 14,925 91,110 91,110 150,708
--------- --------- ----------- --------
Cash, end of period $ 91,110 $ 150,708 $ 16,047 $162,434
========= ========= =========== =========
Supplemental cash flow data:
Cash paid during the period for:
Interest $142,462 $ 243,308 $169,518 $196,997
======== ========== ======== ========
Income taxes $ 7,191 $ 894 - -
======== ==========
Supplemental disclosures of noncash
investing activities:
Equipment acquired under capital lease
obligations $ 76,551 $ 546,199 $489,281 $90,315
======== ========== ======== =======
Discount arising from issuance of note
payable with warrants and increase
in additional paid-in capital from
issuance of note payable with
warrants $128,000 - - -
========
Prepaid private placement costs charged
against additional paid-in capital - $ 50,372 $ 50,372 $ 0
========== ======== =======
Discount of note payable arising from
issuance of warrants in connection
with loan guarantee - - - $39,000
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
QUADLOGIC CONTROLS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business:
The Company is engaged in the design, manufacture and sale of the Transmeter
'r' system, its proprietary "smart" electricity metering system. The
Transmeter system consists primarily of the Transmeter itself and the
Quadlogic Transponder. The Transmeter is a digital, microprocessor-controlled
meter that measures and monitors, on a real-time basis, the time and amount
of electricity consumption and provides other diagnostic information
regarding the provision of electricity. In addition, the Company provides
meter reading billing services. The Company realizes most of its revenue
primarily from sales in the United States.
Basis of Presentation:
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Company as a going concern. However, the Company has sustained
substantial operating and net losses and has had to use substantial amounts
of working capital to fund its operations in recent years which conditions
continue through the nine months ended November 30, 1999 and subsequent
thereto. These losses were due primarily to the costs associated with the
development of the Company's new family of meters, which development is
substantially complete, and due to a higher level of fixed overhead the
Company incurred to expand production and support services in anticipation of
a higher level of sales of its new meters. In addition, at February 28, 1999
and November 30, 1999, current liabilities exceeded current assets by $52,196
(February 28, 1999) and $807,166 (November 30, 1999), at February 28, 1999
and November 30, 1999 the balance sheet reflects accumulated deficits, and at
November 30, 1999 the balance sheet reflects a deficiency in stockholders'
equity in the amount of $691,828. Included in current liabilities is a
$600,000 promissory note to a bank which is due within one year. This note
was guaranteed by a shareholder in exchange for warrants in the Company. At
the Company's option, it can require conversion of these warrants to pay down
the promissory note. (See Note 11b.) Also, reference is made to certain "Risk
Factors" delineated elsewhere herein.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to revise the Company's financial
requirements, and the prospect of the electric utility industry's acceptance
of its new products, provide the opportunity for the Company to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
F-9
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
Advertising:
The Company expenses all advertising costs as incurred. The Company expensed
$28,534 and $129,113 in 1998 and 1999, respectively, and $147,307 and $14,054
for the nine month periods ending November 30, 1998 and 1999, respectively.
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments:
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
that fair values be disclosed for the Company's financial instruments. The
carrying amounts of cash, accounts receivable, accounts payable and accrued
expenses approximate fair value due to the short-term nature of these
instruments. The carrying amount reported for the Company's notes payable
approximates fair value because the underlying instrument earns interest at a
rate comparable to current terms offered to the Company for instruments of
similar risk. The fair values of the note receivable and stockholder note
payable are not estimable due to their related party nature.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue Recognition:
The Company recognizes revenue from the sale of electricity metering
equipment at the time of shipment to the customer.
Revenue from billing services is recognized at the time the service is
rendered.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows (undiscounted and without interest) expected
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the
F-10
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Inventories:
Inventories are stated at the lower of cost or market, with cost being
determined on the FIFO basis.
Equity Method of Accounting for Investments:
Investments in companies in which the company has a 20% to 50% interest are
carried at cost, adjusted for the Company's proportionate share of their
undistributed earnings or losses.
Depreciation and Amortization:
Depreciation and amortization is provided principally on the straight-line
method over the estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Machinery and equipment 3-5 years
Office furniture and equipment 3-7 years
Computer equipment and software costs 3-5 years
Tools, dies and molds 3-5 years
</TABLE>
Leasehold improvements and equipment held under capital leases are amortized
over the lesser of the estimated useful life of the asset or the term of the
lease.
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized.
F-11
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
Unaudited Financial Statements:
The unaudited financial information included herein as of November 30, 1999
and for the nine months ended November 30, 1998 and 1999 have been prepared
in accordance with generally accepted accounting principles for interim
financial statements. In the opinion of the Company, these unaudited
financial statements reflect all adjustments necessary, consisting of normal
recurring adjustments, for a fair presentation of such data on a basis
consistent with that of the audited data presented herein. The results for
interim periods are not necessarily indicative of the results expected for a
full year.
Concentrations of Credit Risk:
The Company maintains its cash balances in financial institutions in New
York. Balances are insured up to FDIC limits of $100,000. From time to time,
the Company had cash balances in excess of such insurance.
The Company's trade receivables are potentially subject to credit risk. The
Company extends credit to its customers based upon an evaluation of the
customers' financial condition and credit history. The Company generally does
not require collateral.
Reclassifications:
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Net Loss Per Share:
Loss per common share is computed using Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share." SFAS No. 128 establishes
standards for the computation, presentation, and disclosure of earnings per
share. Basic per share amounts are computed by dividing the net loss by the
weighted average number of common shares outstanding during the periods.
Diluted loss per share amounts are the same as the basic amounts since the
assumed exercise of the Company's stock options and warrants and assumed
conversion of convertible preferred stock would reduce the loss per share.
Such stock options, warrants and conversions could potentially dilute
earnings per share in the future.
Stock-Based Compensation:
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with disclosure provisions of SFAS No. 123,
"Accounting for Stock Based Compensation."
Accounting Standards Changes:
In fiscal 1999, the Company adopted SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information," which requires disclosures of certain
information about the Company's operating segments on a basis consistent with
the way in which the Company is managed and operated.
F-12
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
------- -------
(Unaudited)
<S> <C> <C>
Raw material $333,973 $247,001
Work-in-process 135,362 111,198
Finished goods 28,129
-------- --------
$497,464 $358,199
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
------- -------
(Unaudited)
<S> <C> <C>
Transportation equipment $ 20,063 $ 20,063
Machinery and equipment 758,183 816,924
Office furniture and equipment 355,554 355,554
Leasehold improvements 443,297 444,081
Computer equipment and software costs 668,927 681,333
Tools, dies and molds 90,994 155,244
---------- ----------
2,337,018 2,473,199
Less accumulated depreciation, including
approximately $145,000 and $180,000 applicable
to property held under capital leases
594,919 864,329
---------- ----------
$1,742,099 $1,608,870
========== ==========
</TABLE>
As of February 28, 1999 and November 30, 1999 (unaudited), approximately
$774,000 and $860,000 of the Company's property and equipment were under
capital lease obligations.
Depreciation expense for the years ended February 28, 1998 and 1999 amounted
to approximately $80,000 and $213,000, respectively, and for the nine month
periods ending November 30, 1998 and 1999 (unaudited) amounted to $146,044
and $269,411, respectively.
F-13
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
4. NOTE PAYABLE, STOCKHOLDER:
In February 1996, the Company entered into a promissory note agreement with a
stockholder in the amount of $660,000. Under an amended agreement dated
October 31, 1999, the Company is required to make monthly payments of
interest only through March 2000. Interest expense was approximately $55,000
and $71,000 for the years ended February 28, 1998 and 1999, respectively. The
interest rate at February 28, 1999 and November 30, 1999 was 10.909% and
12.95% (unaudited), respectively. Commencing April 2000, the Company is
required to make monthly payments of $15,000, which includes principal and
interest, until February 2005. The interest rate during this period is 12.95%
per annum. On March 1, 2005, the note becomes due and payable.
Beginning in June 1999, the Company failed to make timely payments under the
original terms of the Agreement. The stockholder agreed to the amended terms
as disclosed above in exchange for 75,000 warrants issued in December 1999
(see Note 14).
Principal payments are due as follows:
<TABLE>
<CAPTION>
As of As of
----- -----
February 28, November 30,
Year 1999 1999
---- ---- ----
(Unaudited)
<S> <C> <C>
2000 $ -0- $ 65,452
2001 91,483 109,345
2002 112,924 124,376
2003 128,447 141,475
2004 146,105 160,924
2005 and thereafter 181,041 58,428
--------- ---------
$660,000 $660,000
======== ========
</TABLE>
F-14
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
<PAGE>
5. OTHER DEBT OBLIGATIONS:
Other debt obligations consist of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
---- ----
(Unaudited)
<S> <C> <C>
Note payable to Norwood Venture Corp.(Norwood), Net of $94,505
and $70,342 unamortized discount, bearing a stated
rate of interest at 12% per annum. (Effective rate of 16 1/2%).
(See Note 11.) Monthly principal repayments of $16,666 shall
commence January 2001, and shall continue until full satisfaction
of the note in December 2004. The note is collateralized by
certain assets of the Company. In addition, Norwood is the
beneficiary of a term insurance policy on the life of the
Company's Chairman. The note contains various covenants,
including prohibitions on assuming or guaranteeing new debt
unless subordinated to the note and payment of cash dividends,
and requirements to maintain agreed upon levels of current assets
and net worth. $705,495 $729,658
Revolving demand line of credit with a credit
line of up to $90,000 bearing interest at 15.0%. 53,412 63,928
Auto loan payable in monthly installments of $424 including
interest at 11.2%. This loan is collateralized by certain
transportation equipment, and is due August 2000. 6,991 3,641
</TABLE>
F-15
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
-------------- ------------
(Unaudited)
<S> <C> <C>
The Company has entered into lines of credit agreements with Bank Hapoalim
totaling $600,000, all of which is drawn down at November 30, 1999. The
lines of credit are collateralized by promissory notes which bear interest
at rates ranging from 7.31% to 7.345% per annum and are due September 22 and
November 22, 2000. Interest is payable semi-annually and principal is due
upon the maturity of the notes. A shareholder of the Company has guaranteed
the loans in exchange for 730,000 warrants. The loan balance is reduced by
an unamortized discount of $35,000 to reflect an effective interest rate of
14% (see Note 11).
565,000
Noninterest bearing demand advance from an
officer of the Company 50,000
---------- ----------
765,898 1,412,227
Less current maturities 57,945 663,641
---------- ----------
$707,953 $748,586
========== ==========
</TABLE>
F-16
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
Aggregate maturities of other debt obligations are as follows:
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
---- ----
(Unaudited)
<S> <C> <C>
2000 $ 57,945 $ 663,641
2001 35,790 193,326
2002 199,992 209,992
2003 199,992 209,992
2004 199,992 209,992
2005 166,692 26,698
2006 - 3,928
---------- ----------
Subtotal 860,403 1,517,569
Less unamortized discount on promissory notes:
Norwood 94,505 70,342
Bank Hapoalim - 35,000
---------- ----------
$ 765,898 $1,412,227
========== ==========
</TABLE>
6. OBLIGATION UNDER CAPITAL LEASES:
Obligation under capital leases consists of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
---- ----
(Unaudited)
<S> <C> <C>
Capital leases are collateralized by equipment and provide for monthly
installments ranging from approximately $70 to $2,600 which includes
interest ranging from 9.41% to 21.93% per annum. The lease periods vary
from year 1999 to 2005. $574,330 $520,703
Less current maturities 190,025 224,400
-------- --------
$384,305 $296,303
======== ========
</TABLE>
F-17
<PAGE>
(Amounts and disclosures as of November 30, 1999 and
subsequent thereto and for the nine months ended
November 30, 1998 and 1999 are unaudited)
Future annual minimum lease payments under capital leases are:
<TABLE>
<CAPTION>
February 28, November 30,
1999 1999
----------- -----------
(Unaudited)
<S> <C> <C>
2000 $250,960 $250,751
2001 213,861 174,790
2002 126,375 117,014
2003 77,664 63,459
2004 29,195 23,109
2005 3,369
-------- --------
698,055 632,492
Less: Amount representing interest 123,725 111,789
-------- --------
Present value of net minimum lease payment $574,330 $520,703
======== ========
</TABLE>
7. CONVERTIBLE PREFERRED STOCK:
The Company is authorized to issue 5,000,000 shares of $.001 par value
preferred stock, including 4,000,000 shares of convertible preferred series A
stock. The shares may be designated and issued by the Board of Directors at
anytime in one or more series which will have voting rights, mandatory
dividends, convertible features and/or preferences which have not been given
to shares of any other series of the Company's preferred stock or shares of
the Company's common stock.
During the year ended February 28, 1999, the Company issued 270,000 shares of
convertible preferred Series A stock which is cumulative, pays dividends at
the rate of 9% per annum, and is convertible into 1.25 shares of common stock
at the option of the holder at any time. The Company is required to redeem
any unconverted shares at the original purchase price, plus accrued
dividends, upon a sale or public offering but in no event later than February
28, 2008. The preferred stockholders possess limited voting privileges.
Dividends in arrears for periods ending at February 28, 1999 and November 30,
1999 (unaudited) were $32,357.
F-18
<PAGE>
(Amounts and disclosures as of November 30, 1999 and subsequent thereto and
for the nine months ended November 30, 1998 and 1999 are unaudited)
8. COMMITMENTS AND CONTINGENCIES:
Leases:
The Company previously occupied its administrative offices and manufacturing
facilities under an operating lease which terminated in June 1998. Rent
expense charged to operations for this lease amounted to approximately
$106,000 and $27,000 for the years ended February 28, 1998 and 1999 and $-0-
for the nine months period ended November 30, 1999. The Company entered into
a new lease commencing March 1, 1998 for administrative offices and
manufacturing facilities which expires on January 31, 2008. Rent expense
charged to operations for this lease amounted to approximately $182,000 for
the year ended February 28, 1999 and $187,000 for the period ended November
30, 1999. The lease provides for minimum annual rentals plus escalation
charges.
Future minimum annual rental payments under noncancelable operating leases at
February 28, 1999 (substantially the same at November 30, 1999) are as
follows:
<TABLE>
<S> <C>
2000 $ 237,500
2001 237,500
2002 237,500
2003 237,500
2004 262,500
2005 to 2008 1,028,125
-----------
$2,240,625
===========
</TABLE>
Purchase Commitment:
At November 30, 1999, the Company was committed to purchase 15,000
proprietary data processing chips from a vendor at a fixed price of $18.50
per chip.
Unauthorized Shares Outstanding:
In December 1998, the Company issued 370,371 common shares to a shareholder
in error. The shareholder has agreed to return the shares to the Company for
cancellation.
Concentration of Vendors:
The Company relies on a limited number of outside vendors who currently
supply necessary components for the manufacture of meters. The Company is
subject to the risk that it may not be able to obtain sufficient quantities
or reasonable prices.
F-19
<PAGE>
(Amounts and disclosures as of November 30, 1999 and subsequent thereto and
for the nine months ended November 30, 1998 and 1999 are unaudited)
9. INCOME TAXES:
There was no provision for federal or state income taxes for the years
ended February 28, 1998 and 1999 or the nine month periods ended
November 30, 1998 and 1999. At February 28, 1999 and November 30, 1999,
the Company has approximately $6,700,000 and $7,500,000, respectively, of
net operating loss carryforwards, expiring in the years 2001 through 2014.
The Company has recorded a full valuation allowance against the deferred
tax asset of approximately $2,570,000 at February 28, 1999 and $2,900,000
at November 30, 1999, as its realization is uncertain.
10. EMPLOYEE BENEFIT PLAN:
Effective July 15, 1994, the Company has established a 401(k) plan. The
plan covers all employees with a minimum of one year of service. The
Company will match 100% of employee contributions up to a maximum of 6% of
their salary. Employer contributions amounted to $57,000 and $142,800 for
the years ended February 28, 1998 and 1999, respectively, and $65,408 and
$54,970 for the nine month periods ending November 30, 1998 and 1999.
11. EMPLOYEE STOCK OPTION PLAN AND WARRANTS:
a. Stock Options:
On July 17, 1986, the directors and shareholders of the Company approved
an employee stock option plan (the "Original Plan") which provides for
the issuance of options to purchase a maximum of 700,000 shares of common
stock. On October 16, 1989, the Company revised the Plan to increase the
maximum number of shares for which options may be granted under the Plan
to 2,000,000 shares. The Plan expired in July 1996 and was replaced by
a new plan (the "1999 Stock Option Plan") which will be effective
pending shareholder approval (see below).
The Original Plan provides that options granted thereunder may, at the
election of the Stock Option Plan Committee, be either incentive stock
options meeting the requirements set forth in Section 422A of the
Internal Revenue Code or options which do not qualify as incentive
stock options. The Original Plan permits options to be granted for a
period of up to ten years, at prices not less than fair market value at
the date of grant and in amounts which may not exceed $100,000 per
employee in any calendar year, plus carryover allowances. The Original
Plan also provides that the Committee may allow the exercise price to
be paid in installments, with interest payable on the unpaid balance.
F-20
<PAGE>
(Amounts and disclosures as of November 30, 1999 and subsequent thereto and
for the nine months ended November 30, 1998 and 1999 are unaudited)
On September 1, 1999, the Board of Directors adopted the 1999 Stock Option Plan,
subject to shareholder approval. The 1999 Plan provides for the granting of
options to purchase up to 2,000,000 shares of the Company's common stock.
As of November 30, 1999, the Company has agreed to grant options under the 1999
Plan to six employees (including officers and shareholders) to purchase an
aggregate of up to 720,000 shares of which 375,000 options are exercisable at
$1.25 per share, 115,000 options are exercisable at $1.35 per share and 230,000
options are exercisable at $1.62 per share. As of November 30, 1999, options
to purchase 480,000 shares of common stock are exercisable (assuming the 1999
Plan is approved by the shareholders).
As permitted by FASB Statement No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its
stock options issued as compensation.
A summary of stock option activity related to the Company's original stock
option plan, not including the 720,000 options referred to above, under the 1999
Plan which is subject to shareholder approval, for the two years ended February
28, 1999 and the nine months ended November 30, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Option Price Expiration
of Shares Per Share Date of Option
--------- ------------ ---------------
<S> <C> <C> <C>
Outstanding, February 29, 1997 425,000 $.378 5/20/97-5/19/02
Granted -0-
Expired 250,000 .413
-------- -----
Outstanding, February 28, 1998 175,000 $.329 5/20/98-5/19/02
Granted -0-
Expired 75,000 $.50
-------- -----
Outstanding, February 28, 1999 100,000 $.20 9/15/01
======== =====
Outstanding November 30, 1999 100,000 $.20 9/15/01
======== =====
</TABLE>
The number of shares exercisable at February 28, 1999 and November
30, 1999 (unaudited) are 100,000 shares, respectively.
F-21
<PAGE>
(Amounts and disclosures as of November 30, 1999 and subsequent thereto and
for the nine months ended November 30, 1998 and 1999 are unaudited)
No compensation cost was charged to operations for the year ended February 28,
1999 in connection with the issuance of stock options. Had compensation cost
been determined on the basis of fair value pursuant to FASB Statement No. 123
using the Black-Scholes option-pricing model, the net loss would have been
substantially the same for the years ended February 28, 1998 and 1999.
b. Warrants:
During the year ended February 28, 1998, the Company granted warrants to
purchase 397,250 shares of stock at a weighted average warrant price of $1.40
per share. 82,250 of these warrants expire April 22, 2000, while the remaining
315,000 warrants expire December 31, 2004. The warrants were granted as follows:
(a) warrants to purchase 300,000 shares at $l.25 per share were granted to
Norwood Venture Corp. ("Norwood") simultaneous with the issuance of the note
payable to Norwood during the year ended February 28, 1998. (See Note 5).
An additional 100,000 warrants will be issued to Norwood upon Norwood's
subordination of its lien on the Company's assets and an additional 100,000
warrants will be issued to Norwood in the event of a sale of all the Company's
assets prior to January 1, 2003 at a contractually determinable price. The
$128,000 estimated fair value of the warrants issued to Norwood was accounted
for as an increase in additional paid-in-capital and as a discount to the note
payable pursuant to the provisions of APB 14. During 2004, Norwood has the right
to sell these warrants plus any warrant shares back to the Company at a
contractually determinable price; (b) warrants to purchase 82,250 shares at
$2.00 per share were issued in connection with common stock issuances, and
(c) warrants to purchase 15,000 shares at $1.25 per share were issued as
compensation for services.
During the period ended November 30, 1999 (unaudited), the Company issued
730,000 warrants to Noga Electro-Mechanical Industries, (1986), Ltd., an
affiliate of shareholders of the Company, in exchange for its guarantee of
loans made by Bank Haopoalim (see Note 5). The value of the warrants was
determined by estimating the reduction in debt service cost resulting from the
guarantee. The value of $39,000 is reflected in the financial statements as
an increase in additional paid-in capital and a bank loan discount. The Company,
at its option, may force the exercise of a sufficient number of warrants, at
$1.25 per share, to repay the lines of credit as they come due.
F-22
<PAGE>
(Amounts and disclosures as of November 30, 1999 and subsequent thereto and
for the nine months ended November 30, 1998 and 1999 are unaudited)
A summary of stock warrant activity is as follows:
<TABLE>
<CAPTION>
Weighted Average
Number Warrant Price Expiration
of Shares Per Share Date of Warrant
--------- ------------ ---------------
<S> <C> <C> <C>
Outstanding February 28, 1997 312,500 $0.21 10/31/97
Granted 397,250 $1.40 4/22/00-12/31/04
Expired 100,000 $0.21
Exercised 212,500 $0.21
----------
Outstanding, February 28, 1998 397,250 $1.40 4/22/00-12/31/04
Granted -0- $ --
Expired -0- $ --
Exercised -0- $ --
----------
Outstanding February 28, 1999 397,250 $1.40 4/22/00-12/31/04
=====
Granted 730,000 $1.25 12/31/01
Expired -0-
Exercised -0- -0-
---------- -----
Outstanding, November 30, 1999
(unaudited) 1,127,250 $1.30 4/22/00-12/31/04
=========== =====
</TABLE>
397,250 shares are exercisable at February 28, 1998 and 1999 and 1,127,250 are
exercisable at November 30, 1999.
F-23
<PAGE>
(Amounts and disclosures as of November 30, 1999 and subsequent thereto and
for the nine months ended November 30, 1998 and 1999 are unaudited)
12. RELATED PARTY TRANSACTIONS:
The Company owns 47 1/2% of the outstanding common stock of QLC Israel
Ltd. ("QLC"), an Israeli corporation formed in August 1998. The following
is a summary of transactions and balances with QLC and other related
parties:
<TABLE>
<CAPTION>
February 28, November 30,
--------------------- --------------------
1998 1999 1998 1999
-------- --------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
QLC:
Sales to -0- $175,708 $109,383 $150,898
======== ======== ========
Royalty income from -0- $ 29,167 $ 16,667 $ 26,835
======== ======== ========
Accounts receivable from -0- $ 64,759 $201,742 $155,886
======== ======== ========
Note receivable from -0- $ 24,982 $ 50,000 $ 50,000
======== ======== ========
Deferred income from -0- $ 20,833 $ 33,333 $-0-
======== ======== ========
Investment in $ 3,000 $ 4,301
======== ========
Accrued interest from $ 3,500 $ 8,000
======== ========
Royalty receivable from $ 6,000
========
Note payable stockholder
(See Note 4) $660,000 $660,000 $660,000 $660,000
======== ======== ======== ========
Non interest bearing
advance from
officer (see Note 5) $ 50,000
========
</TABLE>
The note receivable is due in full on July 31, 2000 and bears interest at 12%
per annum. Interest earned was $3,500 for the year ended February 28, 1999
and $ -0- and $4,500 for the nine month periods ended November 30, 1998 and
November 30, 1999, respectively (unaudited). The face amount of the note,
$50,000, has been reduced for the Company's share of the investee's loss at
February 28, 1999. At November 30, 1999, the original amount of the note has
been restored by the Company's share of the investee's income.
The Company's equity in the loss of QLC was $28,018 for the year ended
February 28, 1999. The loss was recorded by a reduction of the Company's
investment of $3,000 and the balance of $25,018 was applied against the note
receivable.
The Company's equity in the income (loss) of QLC was $(22,414) and $29,319 for
the nine month periods ended November 30, 1998 and 1999. The income was
recorded by first restoring the carrying amount of the note receivable and the
balance added to the investment in QLC.
In addition, the Company has licensed the use of its developed technology to
QLC. Under the terms of the agreement, QLC will pay royalties of $50,000 for
the first year and 5% of sales thereafter. The Company recognized royalty
income of $ -0- and $29,167 for the years ended February 28, 1998 and 1999 and
$16,667 and $26,835 for periods ending November 30, 1998 and 1999, respectively.
F-24
<PAGE>
(Amounts and disclosures as of November 30, 1999 and subsequent thereto and
for the nine months ended November 30, 1998 and 1999 are unaudited)
13. SEGMENT INFORMATION:
The Company regards its business as operating within a single segment.
Revenues by geographic location are as follows:
<TABLE>
<CAPTION>
For the Years Ended Nine Months Ended
February 28, November 30,
------------------------ --------------------------
1998 1999 1998 1999
---------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
United States $2,227,237 $2,880,361 $2,080,748 $2,244,345
Israel 126,928 289,719 223,394 150,898
Canada 157,927 206,602 171,804 36,228
Dominican Republic 19,711 26,252 26,252 12,448
Costa Rica 218,683
Various 103,332 20,327 20,327 16,193
---------- ---------- ---------- ----------
$2,635,135 $3,423,261 $2,522,525 $2,678,795
========== ========== ========== ==========
</TABLE>
There were no major customers (exceeding 10% of total revenues) for any of
the periods presented.
14. SUBSEQUENT EVENTS:
In December 1999, the Company issued 75,000 warrants to a shareholder in
connection with his agreement to amend a loan agreement (see Note 4). The
warrants are exercisable at prices ranging from $1.75 to $3.25 per share
and expire on December 31, 2004.
In February 2000, the Company borrowed an additional $390,000 from Bank
Hapoalim under a letter of credit agreement; the loan is due and payable
on November 1, 2000. 680,000 warrants will be issued to an affiliate of
shareholders of the Company in exchange for its loan guarantee. The
warrants are exercisable at $1.25 if called by the Company and $1.75 if
exercised at the shareholder's option. The warrants expire December 31,
2001.
F-25
<PAGE>
PART III
Item 1. Index to Exhibits.
<TABLE>
<CAPTION>
Exhibit No Description
<S> <C>
3.1 Certificate of Incorporation of Quadlogic Controls Corporation,
dated March 11, 1982, as amended.
3.2 By-Laws of Quadlogic Controls Corporation, as amended
10.1 Memorandum of Understanding with Itzhak Goldenberg regarding Bank
Hapoalim guarantee
10.2 Term Sheet for Agreement between Noga Electrotechnica Ltd. and
Quadlogic Controls Group dated June 10, 1998
10.3 Agreement with Marc Segan dated May 10, 1999 re: Promissory Note
dated as of February 20, 1996.
</TABLE>
III-1
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Quadlogic Controls Corporation
----------------------------------
(Registrant)
Date 3/14/00 By /s/ Peter Fagan
-------------- -------------------------------
Chief Operating Officer
(Signature)*
* Print the name and title of each signing officer under his or her signature.
III-2
<PAGE>
ITem 2. Description of Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Certificate of Incorporation of Quadlogic Controls Corporation,
dated March 11, 1982, as amended.
3.2 By-Laws of Quadlogic Controls Corporation, as amended
10.1 Memorandum of Understanding with Itzhak Goldenberg regarding
Bank Hapoalim guarantee
10.2 Term Sheet for Agreement between Noga Electrotechnica Ltd. and
Quadlogic Controls Group dated June 10, 1998
10.3 Agreement with Marc Segan dated May 10, 1999 re: Promissory Note
dated as of February 20, 1996.
</TABLE>
III-3
STATEMENT OF DIFFERENCES
-------------------------
The trademark symbol shall be expressed as ........................... 'TM'
The registered trademark symbol shall be expressed as ................ 'r'
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
QUADLOGIC CONTROLS CORPORATION
-------------------------
Under Section 807 of the Business Corporation Law
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
1
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
QUADLOGIC CONTROLS CORPORATION
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW.
---------------------------
We the undersigned, the Chairman of Quadlogic Controls
Corporation and the Secretary thereof, hereby certify:
FIRST: The name of the Corporation is Quadlogic Controls
Corporation.
SECOND: The Certificate of Incorporation of the Corporation
was filed by the Department of State on March 11, 1982 under the name Quadlogic
Controls Corporation.
THIRD: The Certificate of Incorporation, as heretofore
amended, is further amended to effect certain amendments authorized by the
Business Corporation Law, namely, (a) to authorize 2,200,000 shares of Common
Stock of a par value of $.001 each, thereby increasing the total number of
shares which the Corporation is authorized to issue to 6,000,000 shares of
Common Stock of a par value of $.001 each; and (b) to provide for
indemnification by the Corporation of officers, directors and employees.
FOURTH: The Certificate of Incorporation, as heretofore
amended, is hereby restated as further amended herein to read in full as
follows:
1. Name. The name of the Corporation is Quadlogic Controls
Corporation.
2. Purposes. The Corporation is formed for the following
purpose or purposes:
2.1. To acquire, develop, produce, hold, deal in and dispose
of all types of goods, wares and related merchandise and services of any kind.
2.2. To acquire, develop, produce, hold, deal in and dispose
of, in any manner whatsoever, all kinds of systems, machinery, equipment and
goods, merchandise, commodities,
1
<PAGE>
patents, know-how and similar intellectual properties, improvements and other
personal property, tangible or intangible, of every class and description.
2.3. In furtherance of its corporate purposes, to acquire,
develop, hold and dispose of, in any manner whatsoever, both improved and
unimproved real property and any interest therein wherever situated.
2.4. In furtherance of its corporate purposes, to subscribe
for, acquire, hold, deal in and dispose of, in any manner whatsoever, securities
created or issued by any person.
2.5. To engage in any lawful activity which may promote the
interests of the corporation, or enhance the value of its property, to the
fullest extent permitted by law.
2.6. To have and exercise all powers conferred upon it by
Section 202 of the Business Corporation Law of the State of New York.
2.7. As used herein:
"Acquire" means acquire, purchase, receive in trade,
take, receive, lease as tenant, register, obtain the right to
use or possession of, possess, take over or acquire a mortgage
or other security interest in the object referred to.
"Develop" means develop, create, devise, plan, formulate,
assemble, carry on research with respect to, investigate,
study or improve in any manner the object referred to.
"Produce" means produce, process, reproduce, convert,
transcribe, manufacture, make, mine, create, construct,
devise, equip, treat, alter, repair, renovate, assemble,
package, or otherwise prepare for use or shipment the object
referred to.
"Hold" means hold, own, possess, operate, work, use,
control, utilize, maintain, manage, warehouse, store, or
exercise any powers, privileges or rights incident to
ownership or possession of the object referred to.
"Deal in" means deal in, import, export, franchise or, in
any lawful manner, act as principal, factor, agent, broker or
commission-merchant in connection with the purchase or other
acquisition or the sale or other disposition of any property
interest in the object referred to.
"Dispose of" means sell, assign, issue, transfer, give,
supply, render, furnish, install, distribute, franchise,
exchange, lease, license, grant, mortgage, encumber, pledge or
convey in any lawful manner any property interest in the
object referred to.
"Person" means an individual, a corporation, a
partnership, a joint venture, an association, a joint stock
company, a business trust, an unincorporated association, a
government or a governmental agency or instrumentality.
2
<PAGE>
3. Office. The ______________ County within the State of New
York in which the office of the Corporation is to be located in The
_____________ County of New York.
4. Shares. The aggregate number of shares which the
Corporation shall have the authority to issue is 6,000,000 shares, all of which
shall be shares of Common Stock of a par value of $.001 each.
5. Preemptive Rights. No holder of any shares of any class of
the Corporation shall, as such holder, have any right to subscribe for or
purchase any shares of any class of the Corporation which it may issue or sell,
whether out of the number of unissued shares authorized by the certificate of
incorporation of the Corporation or by any amendment thereof or out of shares of
any class of the Corporation acquired by it after the issue thereof; nor shall
any such holder of any such shares of any class, as such holder, have any right
to subscribe for or purchase any obligation which the Corporation may issue or
sell that shall be convertible into, or exchangeable for, any shares of any
class of the Corporation, or to subscribe for or purchase any warrant or
warrants or any instrument or instruments which the corporation may issue or
sell (whether or not attached or appertaining to any such obligation) that shall
confer upon the owner thereof the right to subscribe for or to purchase from the
Corporation any shares of any class.
6. Indemnification.
6.1. The Corporation shall indemnify any person made or
threatened to be made a party to any action or proceeding, whether civil or
criminal, and whether or not by or in the right of the Corporation or of any
other corporation of any type or kind, domestic or foreign, or any partnership,
joint venture, trust, employee benefit plan or other enterprise, by reason of
the fact that such person, his testator or intestate, is or was a director or
officer of the Corporation or served any other corporation of any type or kind,
domestic or foreign, or any partnership, joint venture, trust, employee benefit
plan or other enterprise in any capacity at the request of the Corporation,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, provided that (i) no
indemnification may be made to or on behalf of any person if a judgment or other
final adjudication adverse to such person establishes that his acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled, (ii) no indemnification shall be required in connection with the
settlement of any pending or threatened action or proceeding, or any other
disposition thereof except a final adjudication, unless the Corporation has
consented to such settlement or other disposition and (iii) the Corporation
shall not be obligated to indemnify any person by reason of the adoption of this
Article 6 if and to the extent such person is entitled to be indemnified under a
policy of insurance as such policy would apply in the absence of the adoption of
this Article 6.
6.2. Reasonable expenses, including attorneys' fees, incurred
in defending any action or proceeding, whether threatened or pending, shall be
paid or reimbursed by the Corporation in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of the person seeking
indemnification to repay such amount to the Corporation to the extent, if any,
such person is ultimately found not to be entitled to indemnification.
3
<PAGE>
6.3. Notwithstanding any other provision hereof, no repeal of
this Article 6, or amendment hereof or any other corporate action or agreement
which prohibits or otherwise limits the right of any person to indemnification
or advancement or reimbursement of expenses hereunder, shall be effective as to
any person until the 60th day following notice to such person of such action,
and no such repeal or amendment or other corporate action or agreement shall
deprive any person of any right hereunder arising out of any alleged or actual
act or omission occurring prior to such 60th day.
6.4. The Corporation is hereby authorized, but shall not be
required, to enter into agreements with any of its directors, officers or
employees providing for rights to indemnification and advancement and
reimbursement or reasonable expenses, including attorneys' fees, to the extent
permitted by law, but the Corporation's failure to do so shall not in any manner
affect or limit the rights provided for by this Article 6 or otherwise.
6.5. For purposes of this Article 6, the term "Corporation"
shall include any legal successor to the Corporation, including any corporation
which acquires all or substantially all of the assets of the Corporation in one
or more transactions. For purposes of this Article 6, the Corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the Corporation or any subsidiary
thereof also imposes duties on, or otherwise involves services by, such person
to the plan or participants or beneficiaries of the plan, and excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
applicable law shall be considered fines.
6.6. The rights granted pursuant to or provided by the
foregoing provisions of this Article 6 shall be in addition to and shall not be
exclusive of any other rights to indemnification and expenses to which any
person may otherwise be entitled.
7. Service of Process. The Secretary of State is designated as
the agent of the Corporation upon whom process against it may be served. The
post office address to which the Secretary of State shall mail a copy of any
process against the Corporation served upon him is Carter, Ledyard & Milburn,
Two Wall Street, New York, New York 10005.
FIFTH: This Restated Certificate of Incorporation and the
amendments effected hereby were authorized by unanimous written consent, without
a meeting, of the board of directors of the Corporation, followed by unanimous
written consent, without a meeting, of the holders of all of the outstanding
shares of the Corporation entitled to vote thereon.
4
<PAGE>
IN WITNESS WHEREOF, we have executed this certificate this
25th day of March, 1987 and affirmed that the statements made herein are true
under the penalties of perjury.
/s/ Sayre Swartzrauber
Sayre Swarztrauber
Chairman
/s/ Michael Newsome
Michael Newsome
Secretary
5
<PAGE>
CERTIFICATE OF CHANGE OF THE
CERTIFICATE OF INCORPORATION
OF
QUADLOGIC CONTROLS CORPORATION
Under Section 805 A of the Business Corporation Law
Doron Shafrir, the President, and Sayre Swarztrauber, the
Secretary, of Quadlogic Controls Corporation certify:
1. The name of the corporation is Quadlogic Controls
Corporation.
2. The Certificate of Incorporation was filed by the
Department of State on March 11, 1982.
3. The Certificate of Incorporation is amended to change the
address to which the Secretary of State shall mail a copy of process in any
action or proceeding against the corporation which is served upon the Secretary
of State.
4. Paragraph 7 of the Certificate of Incorporation which
refers to the address for mailing process is amended to read as follows:
The Secretary of State is designated as the agent of
the corporation upon whom process against it may be served.
The address to which the Secretary of State shall mail copies
of process served upon the Secretary of State as agent for the
corporation shall be Quadlogic Controls Corporation, 520
Broadway, New York, New York 10012.
5. The above Amendment to the Certificate of Incorporation was
authorized by vote of the Board of Directors of the corporation.
<PAGE>
WHEREFORE, we have executed this Certificate this 30th day of
September, 1991.
QUADLOGIC CONTROLS CORPORATION
By: /s/ Doron Shafrir
Doron Shafrir, President
By: /s/ Sayre Swartzrauber
Sayre Swarztrauber, Secretary
2
<PAGE>
STATE OF NEW YORK }
} ss.:
COUNTY OF NEW YORK }
Doron Shafrir, being duly sworn, deposes and states that he is
the President of Quadlogic Controls Corporation and one of the persons who
signed the above Certificate of Change, that he has read the Certificate of
Change and knows the contents thereof and that the same is true to his
knowledge.
/s/ Doron Shafrir
Doron Shafrir
Sworn to before me this
30th day of September, 1991
/s/ Alan Shapiro
Notary Public
3
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AMENDMENT
OF
QUADLOGIC CONTROLS CORPORATION
Under Section 805 of the Business Corporation Law
- --------------------------------------------------------------------------------
McCarter & English
4 Gateway Center
100 Mulberry Street
Newark, NJ 07102
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
QUADLOGIC CONTROLS CORPORATION
Under Section 805 of the Business Corporation Law
FIRST: The name of the corporation is Quadlogic Controls Corporation.
SECOND: The certificate of incorporation of the Corporation was filed
with the Department of State on March 11, 1982 and was
restated on March 30, 1987.
THIRD: The certificate of incorporation is amended so as to increase
the aggregate number of shares of common stock which the
Corporation is authorized to issue from 6,000,000 shares of
common stock, $.001 par value, all of which are issued, to
20,000,000 shares of common stock, $.001 par value.
FOURTH: The certificate of incorporation is further amended so as to
authorize the issuance of 5,000,000 shares of preferred stock,
$.001 par value, the designation, relative rights,
preferences, and limitations of which shall be determined from
time to time by the Board of Directors of the Corporation
pursuant to the authorization contained in this amendment to
the certificate of incorporation.
FIFTH: The certificate of incorporation is further amended to add a
provision limiting the liability of directors as permitted
under the laws of the State of New York.
SIXTH: To accomplish the foregoing amendments relating to the
authorization of additional shares of common stock and the
shares of preferred stock, Article 4 of the certificate of
incorporation relating to the number and class of authorized
shares the corporation may issue is hereby stricken out in its
entirety, and the following new Article 4 is substituted in
lieu thereof:
"4. Shares
(a) The aggregate number of shares which the
Corporation shall have the authority to issue is Twenty-five
Million (25,000,000) shares, of which Twenty Million
(20,000,000) shares shall be shares of Common Stock of a par
value of $.001 each, and Five Million (5,000,000) shares shall
be shares of Preferred Stock of a par value of $.001 each.
(b) Subject to the limitations which may be
prescribed in or pursuant to this Article 4, the holders of
Common Stock shall be entitled to receive, as and when
declared by the Board of Directors, out of the assets of the
Corporation that are by law available thereof, dividends
payable either in cash or in property, including securities of
the Corporation.
<PAGE>
Except as may be otherwise required by law or as
prescribed in or pursuant to this Article 4, each holder of
Common Stock shall have one vote in respect of each share of
Common Stock held by him on all matters submitted for a vote
by the Shareholders.
(c) Shares of Preferred Stock may be issued from time
to time in one or more series. The Board of Directors of the
Corporation shall designate the shares of each series of
Preferred Stock to distinguish them from the shares of any
other series and is authorized to fix by resolution or
resolutions adopted prior to the issuance of any shares of
Preferred Stock the number of shares included in each series
and the designations, relative rights, preferences and
limitation of each series, all as permitted by law. Such
authority shall include, but shall not be limited to, fixing
the following:
(i) The number of shares initially
constituting the series, which, from time to time,
may be increased, or decreased to a number not less
than the then outstanding shares of the series.
(ii) The rate of dividends to be paid on the
shares of the series, the conditions on which and the
times when such dividends are payable, the preference
to or the relation to the payment of the dividends
payable on any other class of capital stock of the
Corporation, or any series thereof, whether
cumulative, and, if so, the date or dates from which
the dividends shall cumulate.
(iii) The voting rights, if any, in addition
to those provided by law and, if so, the terms and
conditions thereof.
(iv) The conversion or exchange privileges,
if any, of shares of the series, and, if so, the
terms and conditions of the conversion or exchange,
including provision for adjustment of the conversion
and exchange rates.
(v) Whether shares of the series shall be
redeemable and, if so, the terms and conditions of
the redemption, including the date or dates upon or
after which they shall be redeemed and the amount
payable in case of redemption, which may vary under
different conditions and at different dates.
(vi) The terms of a sinking fund, retirement
fund or purchase fund, if any, to be provided with
respect to the shares of the series and, if so, the
terms and conditions thereof.
(vii) The rights of the shares of the series
in the event of voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation.
2
<PAGE>
(viii) Any other designations, relative
rights, preferences and limitation of the series not
consistent with law or other provisions of this
Article 4.
No shares of Preferred Stock of any series established by the
Board of Directors shall be issued until there has been
compliance with the provisions of law applicable thereto."
SEVENTH: To accomplish the foregoing amendment relating to the
limitation on liability of directors, a new Article 8 of the
certificate of incorporation is hereby added to read as
follows:
"8. Limitation of Liability of Directors. No Director of the
Corporation shall be personally liable to the Corporation or
its shareholders for damages for any breach of duty in such
capacity except as provided by or limited by the laws of the
State of New York."
EIGHTH: The above amendments to the Certificate of Incorporation were
authorized as of June 15, 1988 at a meeting of the Board of
Directors and as of October 16, 1989 by a majority of the
holders of the outstanding shares of common stock of the
Corporation entitled to vote thereon.
IN WITNESS WHEREOF, we have subscribed this document on
December 9, 1996 and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
/s/ Sayre Swartzrauber
Sayre Swarztrauber, Chairman and
Chief Executive Officer
/s/ Michael Wirth
Michael Wirth, Assistant Secretary
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
QUADLOGIC CONTROLS CORPORATION
Under Section 805 of the Business Corporation Law
STAIRS DILLENBECK FINLEY & MERLE
330 MADISON AVENUE
NY NY 10017
<PAGE>
CERTIFICATE OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION OF QUADLOGIC CONTROLS
CORPORATION
Under Section 805 of the Business Corporation Law
WE, THE UNDERSIGNED, Sayre Swarztrauber and Michael Wirth,
being respectively the chairman of the board of directors, and
the assistant secretary of Quadlogic Controls Corporation (the
"Corporation") hereby certify:
FIRST: The name of the corporation is Quadlogic Controls Corporation.
SECOND: The Certificate of Incorporation of the Corporation was filed
with the Department of State on March 11, 1982 and was
restated on December 12, 1996.
THIRD: The Certificate of Incorporation is amended so as to create
and designate the rights, preferences and limitations of, a
series of 4,000,000 shares of preferred stock of the
Corporation, designated herein as the Convertible Preferred
Stock, Series A, which is hereby created from the 5,000,000
shares of preferred, $.001 par value authorized for issuance
by the Corporation by virtue of Article 4 of its Amended
Certificate of Incorporation.
SIXTH: To accomplish the foregoing amendment relating to the
designation of the Convertible Preferred Stock, Series A,
Article 4 of the Certificate of Incorporation relating to the
number and class of authorized shares the corporation may
issue is hereby stricken out in its entirety, and the
following new Article 4 is substituted in lieu thereof:
"4. Shares
(a) The aggregate number of shares which the Corporation shall
have the authority to issue is Twenty-five Million
(25,000,000) shares, of which Twenty Million (20,000,000)
shares shall be shares of Common Stock of a par value of $.001
each, and Five Million (5,000,000) shares shall be shares of
Preferred Stock of a par value of $0.001 per share.
(b) Subject to the limitations which may be prescribed in or
pursuant to this Article 4, the holders of Common Stock shall
be entitled to receive, as and when declared by the Board of
Directors, out of the assets of the Corporation that are by
law available thereof, dividends payable either in cash or in
property, including securities of the Corporation.
<PAGE>
Except as may be otherwise required by law or as prescribed in
or pursuant to this Article 4, each holder of Common Stock
shall have one vote in respect of each share of Common Stock
held by him on all matters submitted for a vote by the
Shareholders.
(c) Shares of Preferred Stock may be issued from time to time
in one or more series. The Board of Directors of the
Corporation shall designate the shares of each series of
Preferred Stock to distinguish them from the shares of any
other series and is authorized to fix by resolution or
resolutions adopted prior to the issuance of any shares of
Preferred Stock the number of shares included in each series
and the designations, relative rights, preferences and
limitation of each series, all as permitted by law. Such
authority shall include, but shall not be limited to, fixing
the following:
(i) The number of shares initially constituting the
series, which, from time to time, may be increased,
or decreased to a number not less than the then
outstanding shares of the series.
(ii) The rate of dividends to be paid on the shares
of the series, the conditions on which and the times
when such dividends are payable, the preference to or
the relation to, the payment of the dividends payable
on any other class of capital stock of the
Corporation, or any series thereof, whether
cumulative, and, if so, the date or dates from which
the dividends shall cumulate.
(iii) The voting rights, if any, in addition to those
provided by law and, if so, the terms and conditions
thereof.
(iv) The conversion or exchange privileges, if any,
of shares of the series, and, if so, the terms and
conditions of the conversion or exchange, including
provision for adjustment of the conversion and
exchange rates.
(v) Whether shares of the series shall be redeemable
and, if so, the terms and conditions of the
redemption, including the date or dates upon or after
which they shall be redeemed and the amount payable
in case of redemption, which may vary under different
conditions and at different dates.
(vi) The terms of a sinking fund, retirement fund or
purchase fund, if any, to be provided with respect to
the shares of the series and, if so, the terms and
conditions thereof.
(vii) The rights of the shares of the series in the
event of voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation.
(viii) Any other designations, relative rights,
preferences and limitation of the series not
inconsistent with law or other provisions of this
Article 4.
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No shares of Preferred Stock of any series established by the
Board of Directors shall be issued until there has been
compliance with the provisions of law applicable thereto.
(d) Pursuant to Subparagraph (c) of this Article 4., the Board
of Directors has authorized the issuance of Convertible
Preferred Stock, Series A, the relative rights, preferences
and limitations of which are as follows:
(i) Number of Shares of Series Authorized - The
number of shares of the Convertible Preferred Stock,
Series A, authorized for issuance shall be
4,000,000,which, from time to time, may be increased,
or decreased to a number not less than the then
outstanding shares of the series;
(ii) Par Value - the Convertible Preferred Stock,
Series A shall have a par value of $0.001 per share;
(iii) Dividend Provisions -
(1) dividends on the Convertible
Preferred Stock, Series A will be payable at
an annual rate of 9% of the Original Series
A Purchase Price (as defined in Article
4(d)(iv) hereof). Payment of dividends in
cash is limited in relation to the amount of
funds held by the Corporation and legally
available therefor. At the sole option of
the Corporation, the Convertible Preferred
Stock, Series A dividend may be payable in
additional shares of the Convertible
Preferred Stock, Series A when, as and if
declared by the Corporation's Board of
Directors;
(2) dividends on the Convertible
Preferred Stock, Series A shall be
cumulative, shall accrue from the date of
initial issuance and shall be payable
annually in arrears on each February 28th,
commencing February 28, 1999 (on a prorated
basis), when, as if declared by the Board of
Directors;
(3) Unless all dividends with
respect to the Convertible Preferred Stock,
Series A have been paid in full to the most
recent dividend payment date, the
Corporation shall not:
(A) pay or set aside for payment,
any dividends on any other preferred
securities ranking pari passu with the
Convertible Preferred Stock, Series A
("Dividend Parity Securities"), unless the
amount of any dividends declared on any
Dividend Parity Securities is paid, or set
aside for payment, on the Dividend Parity
Securities and the Convertible Preferred
Stock, Series A on a pro rata basis on the
date such dividends are paid on such the
Corporation Dividend Parity Securities, so
that
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<PAGE>
(x) (a) the aggregate amount of
dividends paid on the Convertible Preferred
Stock, Series A bears to (b) the aggregate
of dividends paid on such Dividend Parity
Securities the same ratio as
(y) (a) the aggregate of all
accumulated arrears of unpaid dividends in
respect of the Convertible Preferred Stock,
Series A bears to (b) the aggregate of all
accumulated arrears of unpaid dividends in
respect of such Dividend Parity Securities;
(B) pay or set aside for payment,
any dividends or distribution on the common
stock or any other securities of the
Corporation ranking junior to the
Convertible Preferred Stock, Series A as to
dividends; or
(C) redeem, purchase or otherwise
acquire any Dividend Parity Securities or
any junior (with respect to dividends)
securities;
until, in each case, such time as all accumulated and
unpaid Convertible Preferred Stock, Series A
dividends shall have been paid in full for all
dividend periods terminating on or prior to, in the
case of clause (A) and (B), such payment and, in the
cast of clause (C), the date of such redemption,
purchase or acquisition.
(iv) Liquidation Preference - In the event of any
voluntary or involuntary dissolution, winding up or
termination of the Corporation, the holders of the
Convertible Preferred Stock, Series A at the time
outstanding will be entitled to receive out of the
assets of the Corporation available for distribution
to shareholders after satisfaction of liabilities to
creditors as required by law, before any distribution
of assets is made to holders of Common Stock or any
other class of securities of the Corporation ranking
junior to the Convertible Preferred Stock, Series A
as regards participation in the assets of the
Corporation upon liquidation, but together with the
holders of every other series of Preferred Securities
then outstanding, if any, ranking pari passu with the
Convertible Preferred Stock, Series A as regards to
participation in the assets of the Corporation upon
liquidation ("the Liquidation Parity Securities"), an
amount equal to, in the case of holders of
Convertible Preferred Stock, Series A, the aggregate
of the stated liquidation preference of $1.80 per
share of Series A Preferred Stock (the "Original
Series A Purchase Price") and all accumulated and
unpaid dividends on the Convertible Preferred Stock,
Series A, to the date of payment (the "Liquidation
Distribution").
If, upon any such liquidation, the Liquidation
Distribution can be paid only in part because the
Corporation has insufficient assets available to pay
in full the aggregate Liquidation Distribution and
the aggregate maximum liquidation distributions on
the Liquidation Parity Securities,
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then the amounts payable directly by the Corporation
on the Convertible Preferred Stock, Series A and on
such the Liquidation Parity Securities shall be paid
on a pro rata basis, so that
(1) (x) the aggregate amount paid in
respect of the Liquidation Distribution
bears to (y) the aggregate amount paid as
liquidation distributions on the Liquidation
Parity Securities the same ratio as
(2) (x) the aggregate Liquidation
Distribution bears to (y) the aggregate
maximum liquidation distributions on the
Liquidation Parity Securities.
(v) Conversion
(1) Conversion Rights - shares of
the Convertible Preferred Stock, Series A
are convertible, at the option of the holder
thereof or as otherwise required hereby,
convertible, in whole but not in part, into
fully paid and nonassessable shares of the
Corporation's, common stock at the ratio of
1.25 shares of common stock for each share
of Convertible Preferred Stock, Series A
(the "Conversion Ratio");
(2) Adjustments - The Conversion
Ratio shall be subject to adjustment from
time to time, as follows:
(A) in the event the Corporation
should, at any time or from time to
time, after the date of issuance of
any shares of the Convertible
Preferred Stock, Series A, fix a
record date for the effectuation of
a split or subdivision of the
outstanding shares of the
Corporation's common stock or the
determination of the holders of the
common stock to be entitled to
receive a dividend or other
securities or rights convertible
into, or entitling the holder
thereof to receive directly or
indirectly, additional shares of
common stock (hereinafter, referred
to as "Common Stock Equivalents")
without payment of any consideration
by such holder for the additional
shares of common stock or the Common
Stock Equivalent (including the
additional shares of common stock
issuable upon the conversion or
exercise thereof) then, as of such
record date (or the date of such
dividend distribution, split or
subdivision if no record date is
fixed), the Conversion Ratio shall
be appropriately adjusted so that
the number of shares of common stock
issuable on conversion of the
Convertible Preferred Stock, Series
A shall be increased in proportion
to the increase in
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<PAGE>
the number of outstanding shares of
common stock as a result of such
dividend distribution, split or
subdivision.
(B) if the number of shares of the
Corporation's common stock is
decreased by a combination of the
outstanding shares of common stock,
then, following the record date of
such combination, the Conversion
Ratio shall be appropriately
adjusted so that the number of
shares of common stock issuable on
conversion of each share of
Convertible Preferred Stock, Series
A shall be decreased in proportion
to such decrease in the number of
shares of common stock outstanding.
(C) If at any time or from time to
time there shall be a
recapitalization of the
Corporation's common stock (other
than a subdivision, combination or
merger or sale of assets
transaction,), appropriate
adjustment shall be made in the
application of the provisions of
this Article 4(d)(v) with respect to
the rights of the holders of the of
Convertible Preferred Stock, Series
A after such recapitalization to the
end that the provisions of this
Article 4(d)(v) (including the
adjustment of the Conversion Ratio
then in effect and the number of
shares of common stock issuable upon
conversion of the Convertible
Preferred Stock, Series A) shall be
applicable after that event as
nearly equivalent as may be
practicable.
(D) The Corporation will not, by
amendment of its Certificate of
Incorporation or through any
reorganization, recapitalization,
transfer of assets, consolidation,
merger, dissolution issue or sale of
securities or any other voluntary
action, avoid or seek to avoid the
observance or performance of any of
the terms to be observed or
performed hereunder by the
Corporation, but will at all times
in good faith assist in the carrying
out of all the provisions of this
Article 4(d) and in the taking of
all such action as may be necessary
or appropriate in order to protect
the conversion rights of the holder
of the Convertible Preferred Stock,
Series A against impairment.
(3) Mechanics of Conversion - Any
holder of the Convertible Preferred Stock,
Series A may convert the same into shares of
the Corporation's common stock in accordance
with the provisions of this Article 4(d)(v)
by surrendering the certificate or
certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer
agent for the Convertible Preferred Stock,
Series A, and giving written notice by mail
postage prepaid, to the
6
<PAGE>
Corporation at its principal office, of the
election to convert the same, stating
therein the name or names in which the
certificates for shares of common stock are
to be issued. The Corporation shall, as soon
as practicable thereafter, issue and deliver
at such office to the nominee or nominees of
such holder of the Convertible Preferred
Stock, Series A, a certificate or
certificates for the number of shares of
common stock to which such holder shall be
entitled as aforesaid. Such conversion shall
be deemed to have been made immediately
prior to the close of business on the date
of such surrender of the shares of the
Convertible Preferred Stock, Series A to be
converted, and the person or persons
entitled to receive the shares of common
stock issuable upon such conversion shall be
treated for all purposes as the record
holder or holders of such shares of common
stock as of such date. If the conversion is
in connection with an underwritten public
offering of securities registered pursuant
to the Securities Act of 1933, the
conversion may, at the option of any holder
tendering the Convertible Preferred Stock,
Series A for conversion, be conditioned upon
the closing with the underwriter of the sale
of securities pursuant to such offering, in
which event the person(s) entitled to
receive the common stock issuable upon such
conversion shall not be deemed to have
converted such shares of the Convertible
Preferred Stock, Series A until immediately
prior to the closing of such sale of
securities.
(4) No Fractional Shares and
Certificates as to Adjustments
(A) No fractional shares
shall be issued upon conversion of
the Convertible Preferred Stock,
Series A, and the number of shares
of the Corporation's common stock to
be issued thereupon shall be rounded
to the nearest whole share
(B) Upon the occurrence of
each adjustment or readjustment of
the Conversion Ratio, of the
Convertible Preferred Stock, Series
A pursuant to this Article 4(d)(v),
the Corporation, at its expense,
shall promptly compute such
adjustment or readjustment in
accordance with the terms hereof and
prepare and furnish to each holder
of the Convertible Preferred Stock,
Series A a certificate setting forth
such adjustment or readjustment and
showing in detail the facts upon
which such adjustment is based. The
Corporation shall, upon the written
request at any time of any holder of
the Convertible Preferred Stock,
Series A, furnish or cause to be
furnished to such holder a
certificate setting forth such
adjustment or readjustment, the
Conversion Ratio at the time in
effect, and the number of
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<PAGE>
shares of common stock, and the
amount, if any, of other property
which at the time would be received
upon the conversion of a share of
the Convertible Preferred Stock,
Series A
(5) Notices of Record Date - In the
event of any taking by the Corporation of a
record of the holders of any class of
securities for the purposes of determining
the holders thereof who are entitled to
receive any dividend (other than a cash
dividend) or other distribution, any right
to subscribe for, purchase or otherwise
acquire any shares of stock of any class or
any other securities or property, or to
receive any other right, the Corporation
shall mail to each holder of the Convertible
Preferred Stock, Series A, at least 20 days
prior to the date specified therein, a
notice specifying the date on which any such
record is to be taken for the purpose of
such dividend, distribution or right, and
the amount and character of such dividend,
distribution or right.
(6) Reservation of Stock Issuable
Upon Conversion - The Corporation shall at
all times reserve and keep available out of
its authorized but unissued shares of common
stock solely for the purposes of effecting
the conversion of the Convertible Preferred
Stock, Series A, such number of shares of
its common stock as shall be, from time to
time, sufficient to effect the conversion of
all of the outstanding shares of the
Convertible Preferred Stock, Series A; and
if at any time the number of authorized but
unissued shares of its common stock shall
not be sufficient to effect conversion of
all of the then outstanding shares of the
Convertible Preferred Stock, Series A, in
addition to such other remedies as shall be
available to holders of the Convertible
Preferred Stock, Series A, the Corporation
shall take such action as may be, in the
opinion of its counsel, necessary to
increase its authorized but unissued shares
of common stock to such number of shares as
shall be sufficient for such purpose.
(7) Notice - Any notice required by
the provisions of this Article 4(d) to be
given to holders of the Convertible
Preferred Stock, Series A shall be deemed
given if deposited in the United States
mail, postage prepaid; and addressed to each
holder of record at his address as appearing
on the books and records of the Corporation.
(vi) Mandatory Redemption - The Corporation shall be
required to redeem any unconverted shares of the
Convertible Preferred Stock, Series A at the Original
Series A Purchase Price, plus accrued dividends, on
February 28, 2008. Notice of redemption shall be sent
to each holder of Convertible Preferred Stock, Series
A being redeemed at the address
8
<PAGE>
shown on the books of the Corporation not less than
30 days not more than 60 days prior to the redemption
date. On and after the redemption date, dividends
cease to accumulate on the Convertible Preferred
Stock, Series A called for redemption.
(vii) Optional Redemption -the Corporation may redeem
the Convertible Preferred Stock, Series A, in whole,
but not in part, upon the occurrence of any of the
following events (if the Convertible Preferred Stock,
Series A is called for such redemption, the holders
shall have the option to avoid redemption by
converting the Convertible Preferred Stock, Series A,
in whole, but not in part, within the time periods
described and specified upon the occurrence of a
Public Offering or a Sale Event, as defined below):
(1) Public Offering - A "Public
Offering" is defined as the receipt by the
Corporation of (i) a bona fide offer from an
investment bank or banks who are members in
good standing of the National Association of
Securities Dealers ("NASD") and at least one
national stock exchange (including the NASD
Automated Quotation system ("NASDAQ") to
underwrite or place, or (ii) receipt by the
Corporation of subscriptions or commitments
by third party investors to purchase, in a
public offering, Common Stock, to be listed
on a national stock exchange (including
NASDAQ), for an aggregate purchase price not
less than $4 million.
(2) Sale Event - A "Sale Event" is
defined as the receipt by the Corporation of
a bona fide offer from a third-party to
purchase more than 51% of the Company's
Common Stock.
(3) Redemption or Conversion -
Thirty days following notice of a Public
Offering, or a Sale Event, the Corporation
may redeem the Convertible Preferred Stock,
Series A, if unconverted, at the Original
Series A Purchase Price, plus accrued
dividends; the holders shall have the option
to convert the Convertible Preferred Stock,
Series A within the period from such notice.
Notice of any of these Optional Redemption
events shall be sent to each holder of
Convertible Preferred Stock, Series A,
Series A being redeemed at the address shown
on the books of the Corporation not less
than 30 days nor more than 60 days prior to
the redemption date. On and after the
redemption date, dividends cease to
accumulate on the Convertible Preferred
Stock, Series A, Series A called for
redemption.
(4) Limited Voting Rights - A holder
will have the right to vote any unconverted
Convertible Preferred Stock, Series A to
approve or disapprove the Public Offering or
Sale Events (if
9
<PAGE>
shareholder approval is required for such
events) on the terms offered. If the Holder
elects to convert the Convertible Preferred
Stock, Series A, it will have the right to
vote such shares on such subject alone, if
shareholder approval is required, and shall
not be required to convert its Convertible
Preferred Stock, Series A until the results
of the vote are known.
(5) Rights on Disapproval - If the
Public Offering or Sale Event terms are not
approved by the Board of Directors or
shareholders so voting, the holder shall
have the option to retain its Convertible
Preferred Stock, Series A or convert it
according to its terms.
(6) Rights on Approval - If the
Public Offering or Sale Event terms are
approved by the Board of Directors or
shareholders so voting, the Corporation may
redeem the Convertible Preferred Stock,
Series A, in which case the holder shall
have the option to convert all of its
Convertible Preferred Stock, Series A in
accordance with its terms.
(7) Interim Capital Event - If, at
any time, the Corporation receives a bona
fide offer, not involving a Public Offering,
from any third party to invest no less than
$2 million in Common Stock or any Common
Stock equivalents (an "Interim Capital
Event"), the Corporation may redeem the
Convertible Preferred Stock, Series A; the
holders shall have the option to convert the
Convertible Preferred Stock, Series A within
30 days of notice of such Interim Capital
Event.
(viii) Voting Rights - The holders of the Convertible
Preferred Stock, Series A shall receive notices of
and proxy and other materials pertaining to any
meeting of the shareholders of the Corporation to the
same extent as holders of the Company's common stock.
Except as provided in this Article 4(d)(viii) or
elsewhere in this Article 4(d) or as required by
applicable law, the holders of the Convertible
Preferred Stock, Series A will have no voting rights.
(1) Upon the occurrence of a Public
Offering or a Sale Event, as defined in
Article 4(d)(vii) hereof, holders shall have
the limited voting rights described therein.
(2) If and whenever 6 quarterly
dividends (whether or not consecutive)
payable on Convertible Preferred Stock,
Series A shall be in arrears in whole or in
part, then the holders of the Convertible
Preferred Stock, Series A shall be entitled
to vote for the appointment of two
representatives of such class of securities
to serve as Directors on the Company's Board
of Directors, and
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<PAGE>
such rights shall continue until all
dividend arrearage is paid in full.
(A) For Purposes of
determining whether the Company has
failed to pay dividends on the
Convertible Preferred Stock, Series
A in full for 6 quarterly dividend
periods, dividends shall be deemed
to remain in arrears,
notwithstanding any payments in
respect thereof, until full
cumulative dividends payable with
respect to the Convertible Preferred
Stock, Series A have been or
contemporaneously are paid with
respect to all dividend periods
terminating on or prior to the date
of payment of such full cumulative
dividends.
(B) Upon the occurrence of
events giving rise to the right of
the holders of the Convertible
Preferred Stock, Series A to elect
two Directors such representatives
of the class of securities shall be
elected at a meeting of the holders
of the Convertible Preferred Stock,
Series A called for such purpose. If
not otherwise called, the meeting
shall be called by the secretary of
the Corporation or by the holders of
at least 10% of the outstanding
Convertible Preferred Stock, Series
A.
(C) If at the of time such
meeting, insufficient vacancies
exist in the offices of the
Directors to permit the holders of
the Convertible Preferred Stock,
Series A to elect two Directors of
the Corporation, the holders of the
Convertible Preferred Stock, Series
A, voting separately as a class,
shall have the exclusive right to
increase the total number of
Directors to the number that will
allow the holders of the Convertible
Preferred Stock, Series A to elect
two Directors of the Corporation.
(D) In the case of any
vacancy in the office of Director
elected by the holders of the
Convertible Preferred Stock, Series
A, the remaining director elected by
such class of securities may fill
the vacancy by appointing a
successor to hold office for the
unexpired term. If no Director
representing such class remains, the
holders of the Convertible Preferred
Stock, Series A shall fill the
vacancy at a meeting called for such
purpose by the secretary of the
Corporation or by the holders of at
least 10% of the outstanding
Convertible Preferred Stock, Series
A.
(E) Directors elected by
the holders of the secretary of the
Corporation or by the holders of at
least 10% of the
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Convertible Preferred Stock, Series
A shall serve until the next annual
meeting of the shareholders of the
Corporation and, unless the right of
the holders of the secretary of the
Corporation or by the holders of at
least 10% of the outstanding
Convertible Preferred Stock, Series
A to elect two Directors has ceased,
until their successors are elected
and qualified to serve.
(3) If any proposed amendment to
this Certificate of Incorporation provides
for, or the Company otherwise proposes to
effect, (x) any action which would adversely
affect the powers, preferences or special
rights of the Convertible Preferred Stock,
Series A, whether by way of amendment to
this Certificate of Incorporation or
otherwise (including, without limitation,
the authorization or issuance of any
securities of the Company ranking, as to
dividends or preference in the distribution
of assets of the Company, pari passu with or
senior to the Convertible Preferred Stock,
Series A), or (y) the dissolution, winding
up or termination of the Company, then the
holders of the Convertible Preferred Stock,
Series A shall be entitled to vote on such
amendment or action of the Company (but not
on any other amendment or action), and such
amendment or action shall not be effective
except with the written approval of the
holders of at least 66% of the outstanding
Convertible Preferred Stock, Series A then
issued and outstanding; provided, however,
that no such approval shall be required if
the dissolution, winding up or termination
of the Company is proposed or initiated upon
the initiation of proceedings, or after
proceedings have been initiated, for the
bankruptcy or dissolution of the Company.
(4) Any required approval of holders
of the Convertible Preferred Stock, Series A
may be given at a separate meeting of such
holders convened for such purpose, at a
general meeting of the shareholders of the
Company or pursuant to written consent. The
Company shall cause a notice of any meeting
at which holders of the Convertible
Preferred Stock, Series A are entitled to
vote, or of any matter upon which action by
written consent of such holders is to be
taken, to be mailed to each such holder.
Each such notice will include a statement
setting forth (i) the date of such meeting
or the date by which such action is to be
taken, (ii) a description of any matter upon
which holders of the Convertible Preferred
Stock, Series A are entitled to vote or upon
which written consent is sought and (iii)
instructions for the delivery of proxies or
consents.
(5) On each matter on which the
holders of the Convertible Preferred Stock,
Series A are entitled to vote by operation
of law or this Article 4(d)(viii), each
holder thereof, shall be entitled to
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the number of votes which is equal to the
number of shares of the Company's common
stock into which the shares Convertible
Preferred Stock, Series A held by such
person is convertible on the date of such
vote.
(6) Notwithstanding that holders of
the Convertible Preferred Stock, Series A
are entitled to vote or consent under any of
the circumstances described above, any
shares of the Convertible Preferred Stock,
Series A that are owned by the Company or
any entity owned more than 50% by the
Company, either directly or indirectly,
shall not be entitled to vote or consent and
shall, for the purposes of such vote or
consent, be treated as if they were not
outstanding.
(ix) The rights attached to the Convertible Preferred
Stock, Series A shall be deemed not to be adversely
affected by the creation or issue of, and no vote
will be required for the creation of, any further
securities of the Company ranking junior to the
Convertible Preferred Stock, Series A with regard to
dividends or preference in the distribution of assets
of the company.
(x) Status of Redeemed or Converted Stock - In the
event any shares of the Convertible Preferred Stock,
Series A shall be redeemed or converted hereunder,
the shares so converted or redeemed shall be canceled
and shall not be issuable the Corporation, and this
Certificate of Incorporation shall be amended to
reflect the corresponding reduction in the
Corporation's authorized capital stock."
FIFTH: This amendment was authorized in the following manner:
By unanimous written consent of the Directors of the
Corporation, acting pursuant to the authority expressly vested
in them by Article 4 of the Certificate of Incorporation of
the Company prior to this Amendment, and dated February 24,
1998.
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IN WITNESS WHEREOF, we have signed this certificate on the 24th day of
February, 1998 and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
/s/ Sayre Swartzrauber
Sayre Swarztrauber
Chairman of the Board of Directors
/s/ Michael Wirth
Michael Wirth
Assistant Secretary
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Exhibit 3.2
BY-LAWS
OF
QUADLOGIC CONTROLS CORPORATION
(the "Company")
(As adopted by the Board of Directors on August 11, 1986.)
Article I. Shareholders.
Section 1. Annual Meeting. The annual meeting of the shareholders of
the Company for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held not less than 90
nor more than 120 days after the close of the Company's preceding fiscal year,
and at such place within or without the State of New York as may be fixed by the
Board of Directors.
Section 2. Special Meetings. Except as otherwise provided by law, a
special meeting of the shareholders may be called by the Board of Directors or
by the Chairman, and shall be called by the Chairman, the President or a Vice
President or the Secretary at the written request of a majority of the Board of
Directors or at the written request of the holders of at least ten percent of
all outstanding shares entitled to vote on the action proposed to be taken at
such meeting. Any such call or request shall state the purpose or purposes of
the proposed meeting and the business transacted at such meeting shall be
confined to the purpose or purposes stated in the call. On failure of any
officer above specified to call such special meeting when duly requested, any
signer of such request may call such special meeting. Special meetings shall be
held at such place within or without the State of New York as may be specified
in the call thereof.
Section 3. Record Date for Meetings and Other Purposes. For the purpose
of determining the shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or to express consent to or dissent
from any proposal without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any dividend or the allotment of any
rights, or for the purpose of any other action, the Board of Directors may fix,
in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than 50 nor less than ten days before
the date of such meeting, nor more than 50 days prior to any other action.
If no record date is so fixed by the Board of Directors, (i) the record
date for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is not given by reason
of due waiver thereof, the day on which the meeting is held, and (ii) the record
date for determining shareholders for any other purpose shall be at the close of
business on the day on which the resolution of the Board of Directors relating
thereto is adopted.
A determination of shareholders of record entitled to notice of or to
vote at any meeting of shareholders, made in accordance with this Section 3,
shall apply to any adjournment
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thereof, unless the Board of Directors fixes a new record date under this
Section for the adjourned meeting.
Section 4. Notice of Meetings. Whenever shareholders are required or
permitted to take any action at a meeting, written notice shall state the place,
date and hour of the meeting and, unless it is the annual meeting, indicate that
it is being issued by or at the direction of the person or persons calling the
meeting. Notice of a special meeting shall also state the purpose or purposes
for which the meeting is called. If, at any meeting, action is proposed to be
taken which would, if taken, entitle shareholders fulfilling the requirements of
Section 623 of the Business Corporation Law to receive payment for their shares,
the notice of such meeting shall include a statement of that purpose and to that
effect. A copy of the notice of any meeting shall be given, personally or by
mail, not less than ten nor more than 50 days before the date of the meeting, to
each shareholder entitled to vote at such meeting. If mailed, such notice shall
be given by depositing it in the United States mail, with postage thereon
prepaid, directed to the shareholder at such shareholder's address as it appears
on the record of shareholders, or, if such shareholder shall have filed with the
Secretary of the Company a written request that notices to such shareholder be
mailed to some other address, then directed to such shareholder at such other
address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting, if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment, the Board of Directors fixes a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be given
to each shareholder of record on the new record date entitled to notice under
this Section 4.
Section 5. Waivers of Notice. Notice of any meeting of shareholders
need not be given to any shareholder who submits a signed waiver of notice, in
person or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting, shall constitute a
waiver of notice by him.
Section 6. List of Shareholders at Meetings. A list of shareholders as
of the record date, certified by the Secretary, shall be produced at any meeting
of shareholders upon the request thereat or prior thereto of any shareholder. If
the right to vote at any meeting is challenged, the inspectors of election, or
person presiding thereat, shall require such list of shareholders to be produced
as evidence of the right of the persons challenged to vote at such meeting, and
all persons who appear from such list to be shareholders entitled to vote
thereat may vote at such meeting.
Section 7. Quorum at Meeting. Except as otherwise provided by law, the
holders of a majority of the shares entitled to vote thereat shall constitute a
quorum at any meeting of shareholders for the transaction of any business, but
the shareholders present may adjourn any meeting to another time or place
despite the absence of a quorum. When a quorum
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is once present to organize a meeting, it shall not be broken by the subsequent
withdrawal of any shareholders.
Section 8. Presiding Officer and Secretary. At any meeting of the
shareholders, if neither the Chairman nor the President nor a Vice President nor
a person designated by the Board of Directors to preside at the meeting shall be
present, the shareholders shall appoint a presiding officer for the meeting. If
neither the Secretary nor an Assistant Secretary be present, the appointee of
the person presiding at the meeting shall act as secretary of the meeting.
Section 9. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for such shareholder by proxy. Every proxy
shall be signed by the shareholder or such shareholder's attorney-in-fact. No
proxy shall be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
Proxies shall be delivered to the Secretary of the Company or, if inspectors are
appointed to act at a meeting, to the inspectors.
Section 10. Inspectors of Election. The Board of Directors, in advance
of any meeting of shareholders, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at the meeting may, and on the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, before entering upon the discharge of
the duties of inspector, shall take and sign an oath faithfully to execute such
duties at such meeting with strict impartiality and according to the best of
such person's ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and execute a certificate of any fact found by them.
Section 11. Voting. Whenever directors are to be elected by the
shareholders, they shall be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election. Whenever any corporate action, other than the election of directors,
is to be taken by vote of the shareholders, it shall, except as otherwise
required by law, be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
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Except as otherwise provided by law, every holder of record of shares
of the Company entitled to vote on any matter at any meeting of shareholders
shall be entitled to one vote for every such share standing in such holder's
name on the record of shareholders of the Company on the record date for the
determination of the shareholders entitled to notice of or to vote at the
meeting. Upon the demand of any shareholder, the vote at any election of
directors, or the vote upon any question before a meeting, shall be by ballot;
but otherwise the method of voting shall be discretionary with the person
presiding at the meeting.
Section 12. Written Consent of Shareholders Without a Meeting. Whenever
under any provision of law or of these By-Laws shareholders are required or
permitted to take any action by vote, such action may be taken without a meeting
on written consent, setting forth the action so taken, signed by the holders of
all outstanding shares entitled to vote thereon. The provisions of this Section
12 shall not be construed to alter or modify any provision of law under which
the written consent of the holders of less than all outstanding shares is
sufficient for any corporate action.
Article II. Board of Directors.
Section 1. Number of Directors. The number of directors constituting
the entire Board shall be not less than three, except that whenever all the
shares of the Company are owned beneficially and of record by less than three
shareholders, the number of directors may be less than three but not less than
the number of shareholders. The initial Board shall consist of one director. The
number of directors may be changed at any time and from time to time at any
meeting of the Board by the vote of a majority of the entire Board or at any
annual or special meeting of the shareholders entitled to vote for the election
of directors, except that no decrease shall shorten the term of any incumbent
director. Unless and until changed in accordance with this Section 1 the number
of directors constituting the entire Board shall continue in effect and no
further action shall be required to fix such number at any meeting of the
shareholders for the election of directors.
Section 2. Election and Term of Directors. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting. The term of office of each director shall be from the time of such
director's election and qualification until the annual meeting of shareholders
next succeeding such director's election and until such director's successor
shall have been elected and shall have qualified.
Section 3. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason, including the removal of
directors by the shareholders without cause, may be filled either by vote of the
shareholders at any annual or special meeting of the shareholders or by vote of
a majority of the directors then in office, although less than a quorum exists.
Section 4. Resignations. Any director may resign from office at any
time by delivering a resignation in writing to the Company, and the acceptance
of such resignation, unless required by the terms thereof, shall not be
necessary to make such resignation effective.
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Section 5. Removal of Directors. Any or all of the directors may be
removed, for cause or without cause, by vote of the shareholders. Any director
may be removed for cause by action of the Board.
Section 6. Meetings. Meetings of the Board, regular or special, may be
held at any place within or without the State of New York as the Board from time
to time may fix or as shall be specified in the respective notice or waivers of
notice thereof. An annual meeting of the Board for the appointment of officers
shall be held on the day on which the annual meeting of the shareholders shall
have been held, at the same place and as soon after the holding of such meeting
of shareholders as is practicable, and no notice thereof need be given. The
Board may fix times and places for regular meetings of the Board and no notice
of such meetings need be given. Special meetings of the Board shall be held
whenever called by the Chairman or by at least two of the directors at the time
in office. Notice of each such meeting shall be given by the Secretary or by a
person calling the meeting to each director by mailing the same not later than
the second day before the meeting, or personally by telegraphing, cabling or
telephoning the same not later than the day before the meeting. Notice of a
meeting need not be given to any director who submits a signed waiver of notice
whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
Section 7. Quorum and Voting. A majority of the entire Board shall
constitute a quorum for the transaction of any business. Except as otherwise
provided by law or by these By-Laws, the vote of a majority of the directors
present at a meeting at the time of the vote, if a quorum is present at such
time, shall be the act of the Board, but a majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. No notice of any such adjournment need be given.
Section 8. Written Consents and Meetings by Telephone. Any action
required or permitted to be taken by the Board or any committee thereof may be
taken without a meeting if all members of the Board or the committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents thereto by the members of the Board or committee shall
be filed with the minutes of the proceedings of the Board or committee. Any one
or more members of the Board or any committee thereof may participate in a
meeting of such board or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 9. Appointment of Executive Committee or Other Committees. The
Board of Directors may appoint an Executive Committee or other committees, each
consisting of three or more directors designated by resolution adopted by a
majority of the entire Board, and each of which, to the extent provided in the
resolution or in these By-Laws, shall have such authority and powers as shall be
specified by the Board. The Board may appoint the chairman of each committee who
shall preside at the meetings of such committee and perform such other duties as
may be prescribed by the Board from time to time. Except as otherwise provided
by
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<PAGE>
law or by resolution of the Board of Directors, the Executive Committee shall
have and may exercise all the authority and powers of the Board.
Section 10. Meetings of Committees. Meetings of each committee may be
held upon call of the chairman of the committee or the Chairman of the Company
or any two members of the committee. A record of the proceedings of each meeting
of a committee shall be kept and shall be submitted at the next regular meeting
of the Board of Directors. A majority of the members of a committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of the members present at the time of the vote, if a quorum is present at such
time, shall be the act of the committee. Notice of the time and place of each
meeting of a committee shall be given to each member thereof in the same manner
as in the case of special meetings of the Board of Directors, and meetings may
be held at any time without notice if all members of the committee are present
or if notice is waived in writing by those not present.
Section 11. Compensation of Directors. Directors may receive
compensation for services to the Company in their capacities as directors or
otherwise in such amounts as may be fixed from time to time by the Board.
Section 12. Loans to Directors. A loan shall not be made by the Company
to any director unless it is authorized by vote of the shareholders. For this
purpose, the shares of the director who would be the borrower shall not be
shares entitled to vote.
Section 13. The "Entire Board". As used in these By-Laws the term "the
entire Board" or "the entire Board of Directors" means the total number of
directors which the Company would have if there were no vacancies.
Article III. Officers, Agents and Employees.
Section 1. General Provisions. The officers of the Company shall be a
Chairman, a Vice Chairman, a President, a Secretary and a Treasurer, and may
include one or more Executive Vice Presidents, one or more Vice Presidents, one
or more Assistant Secretaries and one or more Assistant Treasurers. The officers
shall be appointed by the Board of Directors at the first meeting of the Board
after the annual meeting of the shareholders in each year. The Board from time
to time may appoint such other officers, agents and employees as it may deem
necessary or proper, who shall respectively have such authority and perform such
duties as may from time to time be prescribed by the Board. All officers shall
hold office until the meeting of the Board following the next annual meeting of
the shareholders after their appointment and until their successors shall have
been appointed and shall have qualified. Any two or more offices, other than the
offices of President or Secretary, may be held by the same person, except that
when all of the issued and outstanding stock of the Company is owned by one
person, such person may hold all or any combination of offices. Any officer,
agent or employee of the Company may he removed by the Board with or without
cause. Such removal without cause shall be without prejudice to such person's
contract rights, if any, but the appointment of any person as an officer, agent
or employee of the Company shall not of itself create contract rights. The
compensation of officers, agents and employees appointed by the Board shall be
fixed by the
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Board, but this power may be delegated to any officer, agent or employee as to
persons under such person's direction or control. The Board may require any
officer, agent or employee to give security for the faithful performance of such
person's duties.
Section 2. Powers and Duties of the Chairman. The Chairman shall be the
Chief Executive Officer of the Company. The Chairman shall preside at all
meetings of' the shareholders and of the Board at which he is present. Subject
to the control of the Board, he shall have general charge of the business and
affairs of the Company and shall keep the Board fully advised. He shall employ
and discharge employees and agents of the Company, except such as shall be
appointed by the Board, and he may delegate these powers. The Chairman shall
have such powers and perform such duties as generally pertain to the Chief
Executive Officer, as well as such further powers and duties as may be
prescribed by the Board. The Chairman may vote the shares or other securities of
any other domestic or foreign company of any type or kind which may at any time
be owned by the Company, may execute any shareholder or other consent in respect
thereof and may in his discretion delegate such powers by executing proxies, or
otherwise, on behalf of the Company. The Board, by resolution from time to time,
may confer like powers upon any other person or persons.
Section 3. Powers and Duties of Vice Chairman. The Vice Chairman shall
have such powers and duties as the Board of Directors or the Chairman may from
time to time prescribe.
Section 4. Powers and Duties of the President. The President shall have
such powers and duties as the Board of Directors or the Chairman may from time
to time prescribe.
Section 5. Powers and Duties of the Executive Vice Presidents. Each
Executive Vice President shall have such powers and supplementary titles, shall
perform such duties as the Board of Directors or the Chairman may from time to
time prescribe, and shall perform such other duties as may be prescribed in
these By-Laws. The performance of any such duty by an Executive Vice President
shall be conclusive evidence of his power to act.
Section 6. Powers and Duties of Vice Presidents. Each Vice President
shall have such powers and supplementary titles, shall perform such duties as
the Board of Directors or the Chairman may from time to time prescribe in these
By-Laws. The performance of any such duty by a Vice President shall be
conclusive evidence of his power to act. An Assistant Secretary shall also
perform his duties as the Secretary or the Board of Directors may from time to
time assign to such person.
Section 7. Powers and Duties of the Secretary. The Secretary shall have
charge of the minutes of all proceedings of the shareholders and of the Board of
Directors and shall keep the minutes of all of their meetings at which the
Secretary is present. Except as otherwise provided by these By-Laws, he shall
attend to the giving of all notices to shareholders and directors. The Secretary
shall have charge of the seal of the Company and shall attend to its use on all
documents the execution of which on behalf of the Company under its seal is duly
authorized. When the seal is used, he shall attest the same by the Secretary's
signature whenever required. The Secretary shall have charge of the record of
shareholders of the Company, of all
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written requests by shareholders that notices be mailed to them at an address
other than their addresses on the record of shareholders, and of such other
books and papers as the Board of Directors may direct. Subject to the control of
the Board of Directors the Secretary shall have all such powers and duties as
generally are incident to the position of Secretary or as may be assigned to the
Secretary from time to time by the Chairman or the Board.
Section 8. Powers and Duties of the Treasurer. The Treasurer shall have
the care and custody of all funds and securities of the Company which may come
into the Treasurer's hands, and as such Treasurer shall endorse the same for
deposit or collection when necessary or proper and deposit the same to the
credit of the Company in such banks or depositaries as the Board of Directors
may authorize. The Treasurer may endorse all commercial documents requiring
endorsements for or on behalf of the Company and may sign all receipts and
vouchers for payments made to the Company. Subject to the control of the Board
of Directors, the Treasurer shall have all such powers and duties as generally
are incident to the Position of Treasurer or as may be assigned to the Treasurer
from time to time by the Chairman or by the Board.
Section 9. Powers and Duties of Assistant Secretaries. In the absence
or inability of the Secretary to act, any Assistant Secretary may perform all
the duties and exercise all the powers of the Secretary, subject to the control
of the Board of Directors. The performance of any such duty shall be conclusive
evidence of such person's power to act. An Assistant Secretary shall also
perform such other duties as the Secretary or the Board of Directors may from
time to time assign to such person.
Section 10. Powers and Duties of Assistant Treasurers. In the absence
or inability of the Treasurer to act, an Assistant Treasurer may perform all the
duties and exercise all the powers of the Treasurer, subject to the Control of
the Board of Directors. The performance of any such duty shall be conclusive
evidence of such person's power to act. An Assistant Treasurer shall also
perform such other duties as the Treasurer or the Board of Directors may from
time to time assign to such person.
Section 11. Other Officers. Other officers shall perform such duties
and have such powers as may from time to time be assigned to them by the Board
of Directors.
Section 12. Delegation of Duties. In case of the absence of any officer
of the Company, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers and duties, or
any of them, of such officer upon any other officer or upon any director.
Article IV. Indemnification of Directors and Officers.
Section 1. Indemnification. The Company shall indemnify each director,
officer, employee and agent (in the cases of employees and agents, those
employees and agents, and only those employees and agents, to whom the Board of
Directors shall determine, before or after their engagement, shall be afforded
the protection of these indemnification provisions) of
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the Company who is a natural person, such person's heirs, executors and
administrators (whether or not natural persons) and all other natural persons
whom the Company is authorized to indemnify under the provisions of the Business
Corporation Law of the State of New York (including but not limited to a person
who is or was serving at the written request of the Company as a director,
officer, partner, trustee, employee or agent (or in a like capacity) of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise), to the fullest extent that such indemnification may be lawful under
the Business Corporation Law, (i) against all expenses (including but not
limited to attorneys' and other experts' fees and disbursements), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with any actual or threatened action, suit or other
proceeding, whether civil, criminal, administrative, investigative or an
arbitration, or in connection with any appeal therein, or otherwise, and (ii)
against all expenses (including but not limited to attorneys' and other experts'
fees and disbursements) actually and reasonably incurred by such person in
connection with the defense or settlement of any action, suit or other
proceeding by or in the right of the Company, or in connection with any appeal
therein, or otherwise; and no provision of these By-Laws is intended to be
construed as limiting, prohibiting, denying or abrogating any of the general or
specific powers or rights conferred under the Business Corporation Law upon the
Company to furnish, or upon any court to award, such indemnification, or such
other indemnification as may otherwise be authorized pursuant to the Business
Corporation Law or any other law now or hereafter in effect, including but not
limited to indemnification of any employees or agents of the Company or of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. Expenses so incurred by any such person in defending a civil
or criminal action or proceeding shall likewise at such person's request be paid
by the Company in advance of the final disposition of such action or proceeding
to the full extent that such advancement of expenses may be lawful under the
Business Corporation Law. The term "proceeding" shall be understood to include
any inquiry or investigation that could lead to a proceeding. The
indemnification provided for herein shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
such person's heirs, executors and administrators.
Section 2. Determinations. If and to the extent such indemnification
shall require a determination whether or not the relevant person met the
applicable standard of conduct set forth in the Business Corporation Law, such
determination shall be made expeditiously at the cost of the Company after a
request for the same from the person seeking indemnification. If indemnification
is to be given or an advance of expenses is to be made upon a determination by
independent legal counsel, such counsel may be the regular counsel to the
Company. In rendering such opinion, such counsel shall be entitled to rely upon
statements of fact furnished to them by persons reasonably believed by them to
be credible, and such counsel shall have no liability or responsibility for the
accuracy of the facts so relied upon, nor shall such counsel have any liability
for the exercise of their own judgment as to matters of fact or law forming a
part of the process of providing such opinion. The fees and disbursements of
counsel engaged to render such opinion shall be paid by the Company whether or
not such counsel ultimately are able to render the opinion that is the subject
of their engagement.
Section 3. Business Combinations. Unless the Board of Directors shall
determine otherwise with reference to a particular merger or consolidation or
other business
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combination, for purposes of this Article IV references to "the Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a merger or
consolidation or other business combination which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the written request of such constituent corporation as a director, officer,
partner, trustee, employee, agent (or in a like capacity) of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article IV with respect to the resulting or surviving corporation as such person
would have with respect to such constituent corporation if its separate
existence had continued.
Section 4. Advances of Expenses. If a person who may be entitled to
indemnification hereunder shall request that such person's expenses actually and
reasonably incurred in connection with any actual or threatened action, suit,
proceeding, arbitration or investigation or appeal therein be paid by the
Company in advance of the final disposition thereof, such request shall not be
unreasonably refused, and a response to such request shall not be unreasonably
delayed, by the Company.
Section 5. Employee Benefit Plans. References herein to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a corporate agent which imposes duties on, or involves
services by, the corporate agent with respect to an employee benefit plan, its
participants, or beneficiaries. A person who acted in good faith and in a manner
such person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of the Company.
Article V. Shares of the Company.
Section 1. Certificates for Shares. The shares of the Company shall be
represented by certificates in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Company, shall be sealed with the seal of the Company
or a facsimile thereof, and shall contain such information as is required by law
to be stated thereon. The signatures upon certificates for shares may be the
facsimile signatures of the officers so authorized to execute certificates. All
certificates for shares shall be consecutively numbered or otherwise identified.
All certificates exchanged or surrendered to the Company for transfer shall be
cancelled.
Section 2. Record of Shareholders. The Company shall keep at the office
of the Company in the State of New York a record containing the names and
addresses of all shareholders, the number and class of shares held by each and
the dates when they respectively became the owners thereof. The Company shall be
entitled to treat the persons in whose names shares stand on the record of
shareholders as the owners thereof for all purposes.
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Section 3. Transfers of Shares. Transfers of shares on the record of
shareholders of the Company shall be made only upon surrender to the Company of
the certificate or certificates for such shares, duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Directors, in its discretion, may require the owner (or such owner's legal
representatives) of any certificate representing shares of the Company alleged
to have been lost, stolen or destroyed to give the Company a bond in such sum as
the Board may direct, to indemnify the Company against any liability or expense
which it may incur by reason of the original certificate remaining outstanding,
as a condition of the issuance of a new certificate for shares in the place of
any certificate theretofore issued alleged to have been lost, stolen or
destroyed. Proper and legal evidence of such loss, theft or destruction shall be
procured for the Board if required. The Board in its discretion may refuse to
issue such new certificate, save upon the order of a court having jurisdiction
in such matters,
Article VI. Seal.
The seal of the Company shall be circular in form and contain the name
of the Company, the words "Corporate Seal" and "New York" and the year the
Company was formed in the center. The Company may use the seal by causing it or
a facsimile to be affixed or impressed or reproduced in any manner.
Article VII. Checks, Notes, Drafts, etc.
Checks, notes, drafts, acceptances, bills of exchange and other orders
or obligations for the payment of money shall be signed by such officer or
officers or person or persons as the Board of Directors shall from time to time
determine.
Article VIII. Miscellaneous.
Section 1. Fiscal Year. The fiscal year of the Company shall begin on
March 1 of each year and shall end on the last day of February of the following
year.
Section 2. Voting of Shares of Other Corporations. The Board of
Directors may authorize any officer, agent or proxy to vote shares of any
domestic or foreign corporation of any type or kind standing in the name of the
Company and to execute written consents respecting the same, but in the absence
of such specific authorization the Chairman, the President or any Vice President
of the Company may vote such shares and may execute proxies and written consents
with relation thereto.
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Article IX. Amendments.
These By-Laws or any of them may be amended or repealed, and new
By-Laws may be adopted, (i) by vote of the holders of the shares at the time
entitled to vote in the election of directors, at any annual meeting of the
shareholders, or at any special meeting of the shareholders called for that
purpose, or (ii) by the Board of Directors at any meeting of the Board; provided
that (i) any such action of the Board of Directors may be amended or repealed by
the shareholders at any annual meeting or any special meeting called for that
purpose, (ii) the Board of Directors shall not have the power to alter or amend
or repeal a specified By-Law if such By-Law is adopted by the shareholders and
contains an express provision that such By-Law may be amended or repealed only
by action of the shareholders and (iii) Article IV hereof may be altered or
amended by the Board of Directors to increase the indemnification of the persons
referred to therein to the extent permitted by law, but such Article may be
otherwise amended or repealed only by action of the shareholders as provided
above and, in that connection, any amendment or repeal which reduces or limits
the indemnification of the persons referred to therein shall apply prospectively
only and shall not be given retroactive effect. If any By-Law regulating an
impending election of directors is adopted, amended or repealed by the Board,
there shall be set forth in the notice of the next meeting of shareholders for
the election of directors the By-Law so adopted, amended or repealed, together
with a concise statement of the changes made. This Article IX may be amended or
repealed only by action of the shareholders.
-12-
<PAGE>
EXHIBIT 10.1
[LETTERHEAD]
October 4, 1999
Mr. Itzhak Goldenberg
Chairman and Chief Executive Officer
Noga Electro-Mechanical Industries (1986) LTD
P.O.B. 462
Tel-Hanan 20302, Israel
Dear Itzhak,
The following represents a memorandum of understanding between Noga
Electro-Mechanical Industries (1986) LTD (Noga) and Quadlogic Controls
Corporation (Quadlogic) concerning the following proposed financing arrangement:
NATURE OF FINANCING - Bank Hapoalim (the "Bank") will make available to
Quadlogic Controls Corporation a $1 million line of credit. This line of credit
will be guaranteed by Noga and be made available to Quadlogic as follows:
<TABLE>
<CAPTION>
DATE AVAILABLE
--------------
<S> <C> <C>
1st increment - $400,000 (See Availability of Financing below)
2nd increment - 200,000 October 31, 1999
3rd increment - 200,000 December 15, 1999
4th increment - 200,000 January 15, 2000
</TABLE>
AVAILABILITY OF FINANCING - The 1st $400,000 will be available as soon as the
banking arrangements are made (which is expected to be within one week of the
signing of this memorandum of understanding) and Quadlogic and Itzhak
Goldenberg, on behalf of Noga, sign this memorandum of understanding. The next
three increments will automatically be available on the dates noted above
subject to Quadlogic meeting its monthly operating cash flow targets, discussed
below. Each increment of the Credit Line will be available for a period of 360
days from the date of availability (whether or not drawn or repaid).
As the Bank makes available to Quadlogic each increment of financing, Noga will
be granted the warrants associated with each increment described below. If for
any reason, the increment is not made available on the dates indicated above in
"Nature of Financing", then Quadlogic will be under no obligation to issue Noga
the warrants associated with such increment.
QUADLOGIC CASH FLOW - If the Company's operating cash flow (defined as net
income plus depreciation less capital expenditures plus lease financing plus
deferred employee pay) does not exceed an average deficit of $100,000 per month
for the monthly periods noted below, the next $200,000 increment will
automatically become available to Quadlogic on the date noted above in "Nature
of Financing". The monthly periods will be as follows:
<PAGE>
For the October 31st increment, the monthly cash flow periods will be August
and September.
For the December 15th increment, the monthly cash flow periods will be October
and November.
For the January 15th increment, the monthly cash flow period will be December
1999.
If the Company's operating cash flow fails to meet the above target, then Noga
will have no obligation to provide a guarantee for the applicable $200,000
increment or any subsequent increments and it will be Noga's sole decision as to
whether it will guarantee any such additional funds for the Company. Should Noga
decide not to guarantee the additional increments of financing, it will not be
entitled to receive the warrants associated with such increment.
COMPENSATION TO GUARANTOR - In return for providing guarantees for the lines of
credit discussed above, Noga will receive from Quadlogic 1,210,000 warrants (to
be received as noted below). Each warrant will be convertible into one share of
common stock. At any time, the Company may notify Noga that it does not intend
to repay the increment of the line to which the warrants relate, in which event
the Company may force the exercise of a sufficient number of warrants to repay
such increment at $1.25 per share. The terms and conditions of these warrants
are as follows:
For each dollar increment of the line of credit that Quadlogic
receives, Noga will receive 1.2 warrants (e.g. for providing the first
line of credit increment of $400,000, Noga will receive 480,000
warrants). If Quadlogic subsequently pays down the line of credit the
amount of warrants that Noga received will remain in force.
To the extent that there is no amount of money outstanding on the line
of credit at the end of the 360-day period the line of credit is
available, the exercise price of the warrants shall be $1.75. If there
is an outstanding balance at the end of the year, Noga will be
required to provide the Company with such amount. The funds Noga will
provide to the Company to pay down the line of credit to zero will be
the result of Noga exercising part or all of its warrants. Such
warrants will be exercisable into common stock at the price of $1.25
per share to the extent needed to pay off the line. All remaining
warrants will be exercisable at $1.75 per share.
To the extent that Noga, at its option, converts any warrants into
common shares prior to the expiration of the term related line of
credit increment, such warrants will be exercisable at $1.75 per
share.
All warrants that Noga receives will expire on December 31, 2001.
The number of warrants noted above (1,210,000) that Quadlogic grants to Noga
assumes that Quadlogic will grant to a public relations firm, acceptable to Noga
and Quadlogic, 200,000 warrants associated with their work on behalf of the
Company. To the extent the number of warrants that Quadlogic grants to the
public relations firm differs from the 200,000 warrant estimate, the number of
warrants Noga receives will be adjusted by such difference (i.e. if the public
relations firm receives 150,000 warrants, Noga will be entitled to receive a
total of 1,260,000 warrants. If the public relations firm receives 250,000
warrants, Noga will be entitled to receive a total of 1,160,000 warrants).
Should the total number of warrants Noga is entitled to be adjusted, the
adjusted amount shall be allocated ratably over the four line of credit
increments. The basis of the allocation shall be the ratio of the dollar amount
of each increment to $1,000,000.
2
<PAGE>
RECEIPT OF WARRANTS - Noga shall receive the initial 490,000 warrants
simultaneous with the availability to Quadlogic of the 1st $400,000 increment of
financing. (There is additional 10,000 warrants being granted on the first
increment that is not considered part of the formula.) Noga will receive any
subsequent warrants simultaneous with the availability of and the acceptance by
Quadlogic of each of the remaining $200,000 financing increments.
VOTING OF EXERCISED SHARES - Prior to a successful secondary offering, should
Noga convert any of the warrants it receives as a result of this transaction
into common stock, Noga agrees that it will give to Sayre Swarztrauber his proxy
relating to such converted shares. Sayre will vote this proxy in the manner he
deems appropriate. The shares issued upon the exercise of the warrants will bear
a legend to that effect. In addition, any other share purchased by Itzhak
Goldenberg, Noga or any of their affiliates (between the date hereof and the
closing of a successful secondary offering) shall be subject to a proxy, but
shall not bear any legend to that effect. This provision will cease simultaneous
with a successful secondary offering of Quadlogic's common stock. For the
purposes of this document, a successful secondary offering of Quadlogic's common
stock shall be the sale to the public of at least 1 million Quadlogic common
shares raising a minimum of $3,000,000 in net equity on terms satisfactory to
the Board of Directors of Quadlogic Controls Corporation.
REGISTERED COMPANY - The Company commits that it will use its best efforts to
become a registered company with the Securities and Exchange commission by
February 28, 2000. If the Company is not a registered company by February 28, it
will use its best efforts to become a registered company as soon as practical
after such date.
BOARD OF DIRECTOR APPROVAL - This memorandum of understanding is subject to
approval by the Quadlogic Controls Corporation Board of Directors and the
miscellaneous provision listed below.
TRANSFERABILITY - These warrants, subject to compliance with applicable federal
and state securities laws, and subject to the transferee entering into the
voting proxy referred to herein, and all rights thereunder are transferable, in
whole or in part, by the holder thereof to persons and entities reasonably
acceptable to the Company in its sole discretion.
MISCELLANEOUS - You agree to return to Quadlogic the 370,371 common shares of
Quadlogic Controls Corporation that you were issued in error. In addition, you
commit to obtaining on a prompt basis all required signatures that Quadlogic has
not yet received relating to the unsigned purchase agreements that were given to
Gert Hubatka and Shai Ofir relating to their purchase of Quadlogic common stock.
The Company and Noga agree that the release of the first $400,000 of financing
shall not occur until the Board of Directors of Quadlogic has approved this
agreement. Furthermore, the Company and Itzhak Goldenberg agree that Itzhak
Goldenberg shall become a member of the board upon Quadlogic's ability to access
the first $400,000 of financing.
3
<PAGE>
If you are in agreement with the proposed terms noted above, please indicate
your agreement by signing below.
Sincerely,
/s/ Sayre Swartzrauber
Sayre Swartztrauber Date: 10/5/99
Chairman of the Board and
Chief Executive Officer
I agree to the above noted terms.
/s/ Itzhak Goldenberg
Itzhak Goldenberg Date: 5/10/99
Chairman and Chief Executive Officer
Noga Electro-Mechanical Industries (1986) LTD
4
<PAGE>
EXHIBIT 10.2
TERM SHEET FOR AGREEMENT BETWEEN NOGA ELECTROTECHNICA LTD.
AND QUADLOGIC CONTROLS GROUP
10 JUNE 1998
1. Noga Electrotechnica Ltd. ("NOGA") and Quadlogic Controls Group
("QUADLOGIC") wish to enter into an agreement (the "AGREEMENT") for the
sale of shares of common stock of Quadlogic ("SHARES") to Noga.
2. Noga will grant to Quadlogic the right to sell shares to Noga (the "PUT").
2.1 By virtue of the Put, Quadlogic will be entitled to sell and require
Noga to purchase Shares in the share capital of Quadlogic having a
total purchase price of no less than $1,000,000 (the "MINIMUM AMOUNT")
and may require Noga to purchase Shares in the share capital of
Quadlogic having a total purchase price of no more than $2,000,000
(the "MAXIMUM AMOUNT").
2.2 Quadlogic may exercise the Put during a period (the "PERIOD OF THE
PUT") beginning on June 1, 1995 and ending on 31 December 1998 (the
"EXPIRATION DATE OF THE PUT").
2.3 Quadlogic may exercise the Put in full or in as many parts as it
wishes during the Period of the Put.
2.4 The price per Share under the Put shall be $1.35 for all shares which
Quadlogic sells Noga under the Put before 31 August 1998.
2.5 The price per Share under the Put shall be $1.62 for all shares which
Quadlogic sells to Noga under the Put after 31 August 1998.
3. If Quadlogic does not exercise the Put and sell the Maximum Amount to Noga
before the Expiration Date of the Put, Quadlogic will grant to Noga the
right (a "WARRANT") to purchase Shares in Quadlogic.
3.1 The exercise price per Share under the Warrant shall be $2.17
("WARRANT EXERCISE PRICE").
3.2 The exercise period of the Warrant shall begin on 1 January 1999 and
end on 31 December 1999.
<PAGE>
3.3 The number of Shares exercisable under the Warrant shall be the
difference between the Maximum Amount and the dollar value of Shares
sold by Quadlogic to Noga under the Put before the Expiration Date of
the Put, divided by the Warrant Exercise Price.
Agreed to on 10 June 1998 for NOGA Agreed to on 10 June 1998 for
ELECTROTECHNICA LTD. by QUADLOGIC CONTROLS GROUP by
/s/ Itzhak Goldenberg /s/ Sayre Swartzrauber
Itzhak Goldenberg Sayre Swerztrauber
Chairman CEO Chairman CEO
<PAGE>
JUNE 12, 1998
MEETING OF THE BOARD OF DIRECTORS OF QUADLOGIC CONTROLS CORP.
Resolved, that the attached agreement between Noga Electrotechnica Ltd. and
Quadlogic Controls Corporation be approved.
Resolved, that Quadlogic sell $500,000 of its common stock at $1.35 per share
pursuant to said agreement.
Resolved, that the Board of Directors of Quadlogic be increased in size to five
members.
Resolved, that one of the vacancies of the Board of Directors be filled by
Robert F. Wright.
Resolved, that one of the vacancies of the Board of Directors be filled by
Israel Averbach.
Agreed to on 12 June 1998
/s/ Sayre Swartzrauber
- ---------------------------------------
Sayre Swarztrauber
Director
/s/ Doron Shafrir
- ---------------------------------------
Doron Shafrir
Director
<PAGE>
MEETING OF THE BOARD OF DIRECTORS OF QUADLOGIC
15 JUNE 1998
Resolved, that pursuant to the attached agreement with Noga Electrotechnica, we
hereby issue the following shares of common stock of Quadlogic:
<TABLE>
<S> <C>
Israel Averbach 17,592
Ben Zvi 10
Kiryat Tivon
Israel
Gert Hubatka 75,000
Switzerland
Shai Ofir 92,593
Israel
Noga Electrotechnica Ltd. 185,185
Industrial Zone
Tel Hanan Nesher
P.O.B. 462
Israel
</TABLE>
Agreed to this 15th of June 1998:
/s/ Sayre Swartzrauber
- ----------------------------------
Sayre Swarztrauber
Director
/s/ Doron Shafrir
- ----------------------------------
Doron Shafrir
Director
<PAGE>
EXHIBIT 10.3
MARC HOWARD SEGAN
c/o M.H. Segan & Company Inc.
18 East 16th Street
New York, NY 10003
May 13, 1999
Quadlogic Controls Corporation
520 Eighth Avenue
New York, NY 10018
Attention: Sayre Swarztrauber, Chairman
Re: Promissory Note dated as of February 29, 1996
given by Quadlogic Controls Corporation ("QLC")
to Marc Howard Segan (the "Note")
Dear Sayre:
This is to confirm that you have requested that the principal
payments due under the Note be deferred until July 1, 1999, at which time the
regularly scheduled payments of $15,000.00 per month will commence, and that the
term of the loan be extended three (3) months. I am willing to agree to your
request provided QLC agrees to the following:
1. The payments due on April 1, May 1 and June 1, 1999, shall
be interest only at the rate of 12.950% per annum, payable
in installments of $7,122.50 per month.
2. Commencing July 1, 1999, QLC shall pay monthly installments
of interest and principal in the amount of $15,000.00, with
interest at the rate of 12.950% per annum and the principal
amount of $660,000.00 fully amortizing over sixty (60)
months. Therefore the Maturity Date (as defined in the Note)
shall be extended to June 1, 2004.
3. If an Event of Default (as defined in the Note) shall occur,
I shall have the right to immediately exercise any and all
remedies available under the Note.
4. QLC agrees that any waiver of my rights under the Note shall
only be in a writing signed by me and shall not constitute a
continuing waiver or a waiver of any other rights,
including, but not limited to, the right to enforce a Late
Charge (as defined in the Note).
5. QLC represents, warrants and agrees that the Note
constitutes a valid and binding obligation enforceable in
accordance with its terms, that no defense exists to QLC's
obligations thereunder and that the Note is hereby ratified
and confirmed in all respects.
<PAGE>
6. The person signing below has the full power and authority to
enter into this agreement, which has been duly authorized by
a resolution of the Board of Directors of QLC.
Very truly yours,
/s/ Marc Howard Segan
Marc Howard Segan
AGREED:
QUADLOGIC CONTROLS CORPORATION Witness:
By: /s/ Doron Shafrir
--------------------------------- --------------------------------
Name: Doron Shafrir Name:
Title: President Title: Secretary
[CORPORATE SEAL]
2
<PAGE>
PROMISSORY NOTE
- ---------------
$660,000.00 New York, New York
as of February 29, 1996
FOR VALUE RECEIVED QUADLOGIC CONTROLS CORPORATION, a New York
corporation, having an office at 520 Broadway, 6th Floor, New York, NY 10012
(hereinafter referred to as "Maker"), promises to pay to the order of MARC
HOWARD SEGAN, an individual having an address c/o M.H. Segan & Company Inc., 18
East 16th Street, New York, NY 10003 (hereinafter referred to as "Payee"), or at
such other place as the holder hereof may from time to time designate in
writing, the principal sum of SIX HUNDRED SIXTY THOUSAND AND 00/100 DOLLARS, in
lawful money of the United States of America with interest thereon to be
computed from the date of this Note at the Applicable Interest Rate (hereinafter
defined), and to be paid in installments as follows:
1. The sum of $4,000.00 on the first day of April, 1996 and on
the first day of each calendar month thereafter up to and
including the first day of March, 1997; each of such
payments to be applied to the payment of interest computed
at the Applicable Interest Rate;
2. The sum of $5,000.00 on the first day of April, 1997 and on
the first day of each calendar month thereafter up to and
including the first day of March, 1998; each of such
payments to be applied to the payment of interest computed
at the Applicable Interest Rate;
3. The sum of $6,000.00 on the first day of April, 1998 and an
the first day of each calendar month thereafter up to and
including the first day of March, 1999; each of such
payments to be applied to the payment of interest computed
at the Applicable Interest Rate;
4. The sum of $15,000.00 on the first day of April, 1999, and
on the first day of each calendar month thereafter up to and
including the first day of February, 2004; each of such
payments to be applied as follows: (a) to the payment of
interest computed at the Applicable Interest Rate; and (b)
the balance applied toward the reduction of the principal
sum;
and the balance of said principal sum and all interest thereon and all other
sums due under this Note shall be due and payable on the first day of March,
2004 (the "Maturity Date"). Interest on the principal sum of this Note shall be
calculated on the basis of a 360 day year consisting of twelve (12) months of
thirty (30) days each.
The term "Applicable Interest Rate" as used in this Note shall
mean:
1. During the period from March 1, 1996 through and including
February 28, 1997 the rate of seven and 273/1000 percent
(7.273%) per annum.
<PAGE>
2. During the period from March 1, 1997 through and including
February 28, 1998 the rate of nine and 91/1000 percent
(9.091%) per annum.
3. During the period from March 1, 1998 through and including
February 28, 1999 the rate of ten and 909/1000 percent
(10.909%) per annum.
4. During the period from March 1, 1999 through and including
the Maturity Date the rate of twelve and 950/1000 percent
(12.950%) per annum.
The whole of the principal sum of this Note, together with all
interest accrued and unpaid thereon, all prepayment consideration set forth
hereinafter, and all other sums due under this Note (all such sums hereinafter
collectively referred to as the "Debt") shall without notice become immediately
due and payable at the option of Payee upon the occurrence of any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) (hereinafter an "Event of Default"):
1. if any payment required in this Note is not paid within
forty-five (45) days of the date when due;
2. the entry by court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Maker in an
involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar
law, or (B) a decree or order adjudging the Maker a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or State
law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator, or other similar official of the Maker or
of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any
such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 90 consecutive
days; or
3. the commencement by the Maker of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by it to the entry of a decree or order for relief
in respect of the Maker in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or
the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State
law, or consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator, or similar official
of the Maker or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay debts
generally
2
<PAGE>
as they become due, or the taking of corporate action by the
Maker in furtherance of such action.
In the event that it should become necessary to employ counsel
to collect the Debt, Maker also agrees to pay reasonable attorney's fees and
expenses for the services of such counsel whether or not suit be brought.
Maker does hereby agree that upon the occurrence of an Event of
Default or upon the failure of Maker to pay the Debt in full on the Maturity
Date, Payee shall be entitled to receive and Maker shall pay interest on the
entire unpaid principal sum at a rate equal to the greatest of (i) fifteen
percent (15%) per annum; (ii) the Applicable Interest Rate; or (iii) three
percent (3%) above such fluctuating rate of interest as is publicly announced by
Citibank, N.A. in New York City as its "Base Rate", as such Base Rate shall
change from time to time but in no event in excess of the maximum rate of
interest which Maker may by law pay to be computed from the occurrence of the
Event of Default until the actual receipt and collection of the Debt. This
charge shall be added to the Debt. This clause, however, shall not be construed
as an agreement or privilege to extend the date of the payment of the Debt, nor
as a waiver of any other right or remedy accruing to Payee by reason of the
occurrence of any Event of Default.
Whenever used, the singular number shall include the plural, the
plural the singular, and the words "Payee" and "Maker" shall include their
respective successors, assigns, heirs, executors and administrators.
This Note is subject to the express condition that at no time
shall Maker be obligated or required to pay interest on the principal balance
due hereunder at a rate which could subject Payee to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Maker is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Maker is at any time required or obligated to pay interest
on the principal balance due hereunder at a rate in excess of such maximum rate,
the Applicable Interest Rate shall be deemed to be immediately reduced to such
maximum rate and all previous payments in excess of the maximum rate shall be
deemed to have been payments in reduction of principal and not on account of the
interest due hereunder.
If any sum payable under this Note is not paid within fifteen
(15) days after the date on which it is due (a "Delinquent Payment"), Maker
shall pay to Payee upon demand an amount equal to the lesser of two percent (2%)
of such Delinquent Payment or the maximum amount permitted by applicable law
(the "Late Charge"). Notwithstanding the preceding sentence, the Late Charge for
any Delinquent Payment occurring within twelve (12) months of a prior Delinquent
Payment shall equal the lesser of five percent (5%) of such Delinquent Payment
or the maximum amount permitted by applicable law.
Maker shall have no right to prepay this Note except as
specifically set forth herein. Maker shall have no right to prepay this Note in
part. Maker, upon thirty (30) days prior written notice to Payee, shall have the
privilege of prepaying the entire principal balance of this
3
<PAGE>
Note on any date upon paying to Payee, as consideration for such prepayment
privilege, a sum equal to:
(i) $100,000.00 if such prepayment occurs during the period from
the date hereof through and including February 28, 1999;
(ii) $97,000.00 if such prepayment occurs during the period from
March 1, 1999 through and including August 31, 1999;
(iii) $81,000.00 if such prepayment occurs during the period
from September 1, 1999 through and including February 29, 2000;
(iv) $66,000.00 if such prepayment occurs during the period from
March 1, 2000 through and including August 31, 2000;
(v) $52,000.00 if such prepayment occurs during the period from
September 1, 2000 through and including February 28, 2001;
(vi) $39,000.00 if such prepayment occurs during the period from
March 1, 2001 through and including August 31, 2001;
(vii) $28,000.00 if such prepayment occurs during the period
from September 1, 2001 through and including February 28, 2002;
(viii) $18,000.00 if such prepayment occurs during the period
from March 1, 2002 through and including August 31, 2002;
(ix) $10,500.00 if such prepayment occurs during the period from
September 1, 2002 through and including February 28, 2003;
(x) $4,700.00 if such prepayment occurs during the period from
March 1, 2003 through and including August 31, 2003.
Maker shall have the right to prepay the entire principal
balance of this Note on any date during the period from September 1, 2003
through and including February 29, 2004 without any prepayment consideration
being due in connection therewith.
This Note is given to evidence the total aggregate indebtedness
owed by Maker to Payee under (i) that certain Royalty Agreement dated June 11,
1984 between Maker and M.H. Segan & Company, and assigned to Payee, and (ii)
that certain agreement dated July 17, 1986 between Maker and Payee
(collectively, the "Agreements"). Maker acknowledges that the prepayment
consideration agreed herein is the result of extensive negotiations between
Maker and Payee in settlement of a dispute as to the amounts now due under the
Agreements; Payee has agreed to accept a reduced principal sum in exchange for
Maker's agreement to pay such prepayment consideration, whether such prepayment
is voluntary or involuntary; and that in the event of a prepayment or default
hereunder, whether voluntary or involuntary, Payee will suffer a substantial
loss if the entire prepayment consideration set forth hereinabove is not paid.
Therefore, Maker agrees that upon Payee's acceleration of the principal sum due
hereunder following the occurrence of an Event of Default, the entire amount of
prepayment consideration set forth hereinabove shall become due and payable as
if such date of acceleration were the date of prepayment set forth hereinabove.
Maker represents that the principal sum hereunder is comprised
of the sum of $105,000.00, representing royalties due under the Royalty
Agreement dated June 11, 1984, the
4
<PAGE>
sum of $423,000.00, representing payment for Payee's stock in Maker under the
agreement dated July 17, 1986, and the balance of said principal sum is
comprised of previously accrued interest on said royalties.
This Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to act on the
part of Maker or Payee, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
Maker and all others who may become liable for the payment of
all or any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment. No
extension of time for payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Note made by agreement
between Payee and any other person or party shall release, modify, amend, waive,
extend, change, discharge, terminate or affect the liability of Maker, and any
other who may become liable for the payment of all or any part of the Debt,
under this Note.
Maker (and the undersigned representative of Maker, if any)
represents that Maker has full power, authority and legal right to execute and
deliver this Note and that this Note constitutes a valid and binding obligation
of Maker.
This Note shall be governed and construed in accordance with the
laws of the State of New York and the applicable laws of the United States of
America.
IN WITNESS WHEREOF, Maker has duly executed this Note the day
and year first above written.
Attest: QUADLOGIC CONTROLS CORP.
By: /s/ Doron Shafrir
- --------------------------------- -------------------------------
Name: Doron Shafrir
Title: President
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On this 5th day of June, 1996 before me personally came, DORON
SHAFRIR, to me known, who being by me duly sworn, did depose and say that he
resides at BARAPAHO DR. __________________, is the President of Quadlogic
Controls Corp., the corporation described in and which executed the above
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
---------------------------------
5
