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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________to_______________________
Commission File No. 33-9030
MAGNAVISION CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 22-2741313
(State or other jurisdiction (IRS Employer
of incorporation Identification No.)
1725 ROUTE 35, WALL, NEW JERSEY 07719
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (732) 449-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant is not available due to the unavailability of price quotations for
the Registrant's securities.
The number of shares of Registrant's Common Stock outstanding on March 15, 1999
was 1,154,390.
Documents Incorporated by Reference: None.
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P A R T I
ITEM 1. BUSINESS
All common share amounts and prices presented in this report reflect the effects
of the 1for 20 reverse split effected May 8, 1997.
THE STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THE
EXHIBITS HERETO, RELATING TO MAGNAVISION CORPORATION'S FUTURE OPERATIONS MAY
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE "SECURITIES
EXCHANGE ACT OF 1934", AS AMENDED. ACTUAL RESULTS OF THE COMPANY MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AND MAY BE AFFECTED BY A
NUMBER OF FACTORS INCLUDING THE COMPANY'S ABILITY TO EXECUTE ITS PRIVATE CABLE
OR WIRELESS PLAN, THE COMPANY'S ABILITY TO GENERATE REVENUE, THE ABILITY OF THE
COMPANY TO COMPLETE PROJECTS, TO ATTRACT ONE OR MORE NEW STRATEGIC PARTNERS,
THEIR WILLINGNESS TO ENTER INTO ARRANGEMENTS WITH MAGNAVISION CORPORATION ON A
TIMELY BASIS AND THE TERMS OF SUCH ARRANGEMENTS, THE RECEIPT OF REGULATORY
APPROVALS FOR ALTERNATIVE USES OF ITS MMDS SPECTRUM, THE COMMERCIAL VIABILITY OF
ANY ALTERNATIVE USE OF MMDS SPECTRUM CONTEMPLATED BY THE COMPANY'S BUSINESS
PLAN, CONSUMER ACCEPTANCE OF ANY NEW PRODUCTS OFFERED OR TO BE OFFERED BY
MAGNAVISION CORPORATION, SUBSCRIBER EQUIPMENT AVAILABILITY, TOWER SPACE
AVAILABILITY, ABSENCE OF INTERFERENCE AND THE ABILITY OF ITS COMPANY TO REDEPLOY
OR SELL EXCESS EQUIPMENT, THE ASSUMPTIONS, RISKS AND UNCERTAINTIES SET FORTH
BELOW IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE HEREIN, AS WELL AS OTHER FACTORS CONTAINED
HEREIN AND IN THE COMPANY'S OTHER SECURITIES FILINGS. FURTHERMORE, THE FINANCING
OBTAINED BY THE COMPANY TO DATE WILL NOT ENABLE IT TO MEET ITS FUTURE CASH NEEDS
AS CONTEMPLATED IN THE BUSINESS PLAN.
GENERAL
Magnavision Corporation (the "Registrant" or the "Company") was incorporated
under the name Yardley Ventures Inc. in Delaware on April 3, 1986 for the
purpose of acquiring one or more potential businesses. Effective December 30,
1991, the Registrant acquired all of the issued and outstanding capital stock of
Magnavision Corporation, a New Jersey corporation ("Magnavision - N.J."), in a
tax-free, stock-for-stock acquisition. The shareholders of Magnavision - N.J.
received newly issued shares of common stock in the Registrant for their
Magnavision - N.J. shares. The newly issued shares constituted approximately 98%
of the Registrant's outstanding common stock. In connection with the
acquisition, the Registrant effected a one-for-400 reverse split of its common
stock and changed its name to Magnavision Corporation. In addition, the board of
directors of Magnavision - N.J. became the board of directors of the Registrant
and Magnavision - N.J. became a wholly owned subsidiary of the Registrant.
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The Registrant does no business and has no significant assets other than its
stock in Magnavision - N.J. Unless otherwise specified herein, the terms
"Magnavision" and the "Company" shall be deemed to refer to the Registrant
and/or Magnavision - N.J.
In August 1995, the Company entered into a $5,000,000 lending facility with a
bank and two Small Business Investment Companies. On June 3, 1996, the Company
amended the Agreement with its lenders and at various times during 1996 and
1997, the Company, which had borrowed $4,062,932 and had issued senior
subordinated notes in exchange therefore, had not met several covenants under
this Agreement and failed to make its quarterly interest payment of $122,095. In
May 1997, pursuant to an Exchange Agreement, the Company and its lenders agreed
to exchange the entire $5 million of the lending facility for 8% redeemable
preferred stock due in 2002. The then current loan balance, along with the
unused balance of the $5 million line was exchanged for redeemable preferred
stock, which has five-year mandatory redemption provisions, which are
accelerated upon certain liquidity events. In connection with this transaction,
all covenants and defaults under the former lending facility were waived. At
closing, the Company drew down the balance of its line of approximately $800,000
after expenses. The Company issued redeemable preferred stock in the amount of
$5 million, with an 8% preferred dividend, and issued additional warrants (New
Warrants) to purchase additional shares of common stock, representing
approximately 20% of the common stock at $2.00 per share after a 1-for-20
reverse stock split. The exercise price of the original issued warrants, $.27
and $.38 per share, was reduced to $.10 per share prior to such reverse stock
split.
The preferred shareholders received a total of 1,826,932 warrants at an exercise
price of $2.00 per share to purchase 58% of the Company's common stock, acquired
the right to and have elected a majority of the Board of Directors, and thus
have effected a change of control of the Company. In connection with the
exchange, the Company issued a note to its lenders totaling $105,468. This note,
bearing 10% interest, represented the interest due in May 1997. Both interest
and principal were originally payable on May 8, 1998. At year end 1997, the
redeemable preferred stockholders agreed to extend the maturity of the note to
May 8, 1999 and at year end 1998 agreed to extend the maturity to May 8, 2000.
In September 1997, the Company and Access Capital, Inc. agreed to a $1,250,000
three-year revolving line of credit to be used to expand the Company's private
cable business. At December 1997, the Company had borrowed approximately
$405,000 under the line of credit. Interest was payable currently at the rate of
prime plus 5.5% and was current. The lender received warrants at an exercise
price of $2.00 per share to purchase approximately 4% of the Company's stock on
a fully diluted basis.
Subsequent to the fiscal year ended December 31, 1997, the Company was not in
compliance with the working capital and other covenants under the line of
credit. The Company requested a waiver thereof together with a separate working
capital advance. By letter dated May 8, 1998 Access Capital proposed a
restructuring of the financial covenants, an increase in the line of credit to
$3 million dollars and an increase in its warrant ownership of the Company. The
Company elected not to accept the offer and paid back the loan on July 3, 1998.
On July 3, 1998 the Company and BSB Bank and Trust Company entered into an
agreement to refinance the Company's existing credit line and supply working
capital.
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Pursuant thereto, Magnavision borrowed the sum of $2.5 million dollars which
bears interest at a fixed rate of 10% per annum and has a 5 year term. The loan
requires monthly installments of interest, plus 9 annual payments of principal,
payable in arrears, in accordance with the agreed upon schedule starting October
1998. The loan was utilized to refinance existing debt and the remaining
approximately $1.9 million was used to finance the completion of outstanding
contracts for private cable television service at various locations and to
complete the Fordham University data distribution system, and for working
capital. BSB Bank & Trust Company also granted the Company a $500,000 line of
credit, to be used for future installations of private cable systems and general
corporate purposes. This line of credit will be at an interest rate of prime
plus 1.5% payable monthly and will mature in 2 years. Interest and principal
payments are current and the Company is in compliance with the loan covenants.
In connection with the above transaction BSB Bank & Trust Company received
146,176 warrants to purchase approximately 4% of Magnavision's issued and
outstanding capital stock on a fully diluted basis at an exercise price of $2.00
per share.
DEVELOPMENT OF BUSINESS
The Company was initially formed for the purpose of owning and operating a
multi-channel, wireless cable television system in the New York market. In
August 1990, the Company entered into an agreement to lease channel capacity
(the "Channel Lease Agreement") from the Department of Education of the
Archdiocese of New York (the "Department"). The Channel Lease Agreement
(subsequently amended in January 1994) grants the Company a lease through
January 2004 (with a right to extend for an additional five years, and a right
of first refusal for subsequent renewals), which entitles the Company to use
twenty-eight (28) wireless cable licenses (168 MHz of spectrum), located on
seven different transmitting towers (24 MHz per tower) in New York State. Eight
(8) of these channels (48 MHz of spectrum) are located in New York City.
Since entering into the Channel Lease Agreement, the Company has conducted
various marketing and engineering activities to facilitate the planned operation
of a wireless system and, pursuant to the requirements of the Channel Lease
Agreement, made an escrow deposit of approximately $900,000 to the Department in
September 1995 which is to be utilized for system reconstruction. However, as of
the date hereof, the Company has not commenced operation of a wireless system,
and will require substantial additional funding in order to do so. There is no
assurance that such funding will be available. The Company is, in conjunction
with potential joint venture partners, exploring alternative use of the spectrum
available to it under the Channel Lease Agreement. The Company is pursuing a
business plan to develop high speed Internet access and private data delivery.
There can be no assurance that there will be consumer demand for alternative use
of the spectrum including Internet access services, that the Company will be
able to compete against other providers, that the Company can attract and retain
qualified personnel, that the Company can find a joint venture partner, or that
the Company will be able to achieve profitability from such services in future
years.
Apart from development of its wireless television system, the Company has been
engaged, since 1992, in the business of offering a private cable television
service to colleges, universities, nursing homes and hospitals throughout the
East Coast of the United States.
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PRIVATE CABLE BUSINESS
General
Private cable television service is a multi-channel subscription television
service where the programming is received at a facility by satellite receiver
and then transmitted via coaxial cable throughout private property, often
multiple dwelling units ("MDUs"). Private cable companies operate under
agreements with private landowners to service a specific MDU, institution, or
commercial establishment.
As of January 31, 1998, the Company had long term (generally 5-10 year)
agreements with a total of 41 institutions located primarily in the New York,
New Jersey, Pennsylvania area, but extending as far north as Massachusetts, and
as far south as North Carolina. For the year ended December 31, 1998, the
Company generated approximately $3,652,389 of revenues, (which constituted 100%
of the Company's total revenues for the year), from this business which included
the sale of equipment to Fordham University. For the year ended December 31,
1998, revenues from Fordham University which utilized both a data system and the
Company's private cable television services was 20% of the Company's principal
source of revenues; no other institution accounted for more then 10% of the
total revenues.
The Company has started offering a high-speed data system using cable modem
technology to deliver data over the television cable system. The benefit of
using this system is that an Institution can get high-speed data and internet
access without the expense of rewiring the campus. The Company has successfully
implemented this system at Fordham University. The Company intends to offer this
service at other schools.
Since 1992, the Company has offered private cable television services to various
colleges, universities and nursing home facilities, primarily in the
northeastern United States. To date, the Company has entered into or been
awarded contracts with 41 facilities. The Company believes that it has developed
the necessary skills and "know-how" over time to deliver a quality product and
that it has achieved a favorable reputation with its existing customer base. It
also believes that this business can be expanded on a national basis with
appropriate funding.
Agreements with Institutions
The Company has long-term agreements to provide service to 41 facilities used by
students and patients, with approximately 15,000 outlets for television and
3,200 data drops.
From the date a contract is signed, it generally takes approximately three
months to complete an installation and to make a site operational or place it
"on line". Except for one college and two senior living facilities, where the
Company bills residents directly, the Company receives its fees on a monthly
basis (nine (9) months a year for colleges and universities) directly from these
institutions, which include such charges in the tuition or other fees to
students or residents of the subject facilities.
The Company believes that the potential market for this segment of its business
is, in the near term, located in the Eastern portion of the United States. Only
a small portion of the Company's revenues to date include fees from advertisers.
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Sales and Marketing
The Company's sales and marketing efforts in the private cable business, be it
television or data system, have and will continue to focus primarily upon
institutions with concentrated populations, such as colleges and universities
with dormitories, nursing homes and other such locations. Institutional
subscribers are asked to commit to long-term agreements. Some state institutions
are prohibited from entering into long-term agreements, but the Company expects
that once it has wired the subject facility and provided private cable
television service the relationship will become one of long term duration.
Competition
The Company's competition in the residential private cable business consists of
numerous private cable operators located throughout the United States, none of
which is deemed to be a dominant factor. Among the private cable operators, the
largest provider to colleges and universities appears to be Campus Televideo. In
addition to this competition, any local cable operator as well as any other
cable television programming distributor can service these institutions in
direct competition with the Company. Many of these competitors are larger, have
greater financial resources and have more personnel to devote to this business
than does the Company. The Company believes, however, that its experience and
"know-how" in this field and customer endorsements to potential clients will
greatly assist the Company when competing for this business.
Regulation
The Telecommunications Act of 1996 (the "1996 Act") changed the rules with
respect to the 1992 Cable Act's uniform rate requirement and MDUs (Multiple
Dwelling Units). Prior to the adoption of the 1996 Act, franchised cable
operators were required to offer uniform rates within franchise areas and with
respect to bulk service contracts for MDUs. Now franchised cable operators may
establish different rates across franchise areas in which they are subject to
effective competition and may offer bulk service contracts to MDUs without any
uniform pricing requirement, except that the franchised cable operator may not
engage in predatory pricing, which concept is undefined in the 1996 Act.
The FCC has adopted a Final Rule and Order on inside wiring known as ICTA. This
rule relates to MDU (multi-housing unit) and delineates procedures for MDUs to
purchase the inside wire at the end of a cable contract. Under this rule the MDU
will notify the current service provider at the end of the contract and the
provider will choose to either sell, abandon or remove the inside wiring.
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WIRELESS CABLE BUSINESS
Wireless Technology
In 1983 the Federal Communications Commission ("FCC") reallocated a portion of
the electromagnetic radio spectrum located between 2500 and 2700 MHz and
permitted this spectrum to be used for commercial purposes. Today, there are a
maximum of thirty-three microwave channels used for wireless cable in each
market. These include thirteen Multipoint/Multichannel Distribution Service
("MMDS") channels (Channels 1, 2 or 2A, E1-E4, F1-F4 and H1-H3) and the excess
capacity on up to 20 additional Instructional Television Fixed Services ("ITFS")
channels (Channels A1-A4, B1-B4, C1-C4, D1-D4 and G1-G4). Grandfathered ITFS
stations on the eight E and F channels also lease excess capacity to wireless
cable operators. Except in limited circumstances, the 20 ITFS channels (120 MHz)
in each market can generally be licensed only to qualified non-profit
educational organizations and, in general, each of these channels or an
equivalent video transmission must be used a minimum of 20 hours per week for
instructional programming. The remaining "excess air time" on an ITFS Channel
may be leased to wireless cable operators for commercial use. In addition, the
13 MMDS channels (78 MHz) are made available by the FCC for full time usage
without programming restrictions. The ITFS spectrum is now licensed by the FCC
for one-way video and data transmission.
Two-way Services
In 1998, the FCC issued a report and order on two-way service for MMDS and ITFS.
The order makes provisions for protected service areas for existing licensed
MMDS and ITFS main transmitters, for booster stations, response stations, and
response hubs within protected service areas, and new interference protection
requirements among stations with potential co-channel or adjacent channel
interfaces.
Wireless Business Plan
A typical wireless cable system consists of headend equipment at transmission
locations and reception equipment at each subscriber location. Headend equipment
includes microwave transmitters, antennas and other broadcast equipment, and
headend equipment for reception of programming and or data, such as earth
stations and satellite receivers or high-speed data lines. For downstream data
transmission, headend equipment also includes routers, servers and Internet
access lines, all known as an Internet Point-of-Presence (PoP). An Internet
Service Provider (ISP) must also provide equipment for upstream data, such as
routers and modems. Reception equipment consists of an antenna and frequency
converter. A set-top converter is generally required for video reception. For
data, a single or multiport wireless modem is required.
The Company intends to develop a digital wireless cable system with its ITFS
leased spectrum as an alternative use of this spectrum including data and
Internet access. Recent developments in technology and regulatory changes now
allow ITFS spectrum to be used for high speed Internet access. The modems used
at a receive site can receive data at speeds up to 27 MBPS, almost 1000 times
faster than the typical modem used today (28.8 KBPS). Several operators are
operating one-way Internet over their spectrum using the phone lines for the
less demanding return path. The Company's business plan calls for one or more
strategic partners to participate in the development and include a large portion
of such expenditures to be borne by such partners. The Company believes there is
a market for businesses, which require high speed Internet access and data in
the New York market. However, Internet service over wireless is a newly
developed business. The Company does not currently have the funds or partner(s)
to implement such service and there is no assurance that the proposed service by
the Company, if such funds were available, could be deployed in a commercially
viable system.
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Channel Lease Agreement
On August 20, 1990, the Company entered into the Channel Lease Agreement to
lease from the Department the use of a portion of three (6 MHz) ITFS channels (a
total of 18 MHz) located on seven different tower locations (a total of 126
MHz), with an option to utilize one additional 6 MHz ITFS channel also located
on each of the seven tower locations when the Department obtains the necessary
FCC approvals for such channels. Under the Channel Lease Agreement, the Company
also leases three operationally fixed microwave service ("OFS") channels
(serving as links between the ITFS tower sites), with an option for one
additional OFS channel. The Channel Lease Agreement expires in January, 2004,
although the Company has an option to extend the lease for five years if the FCC
renews the Department's license. Following expiration of the option term (if
extended) in 2009, the Company has a right of first refusal covering the leased
channels. Extension and/or renewal of the Channel Lease Agreement is contingent
upon FCC renewal of the Department's license for the channels, of which there
can be no assurance.
The Company also paid a total of $180,600 in monthly royalties to the Department
during 1998 and will be required to pay additional monthly royalties during 1999
through the expiration of the Channel Lease Agreement, equal to the greater of
$17,984 plus five cents ($.05) per subscriber, or five (5) percent of the gross
receipts per month, whichever is higher.
The Channel Lease Agreement includes the Company's right to use space leased to
the Department at the seven transmission sites, including the Empire State
Building, Staten Island, NY, Yonkers, NY, Loomis, NY, Rhinecliff, NY,
Haverstraw, NY and Beacon, NY. Additional space is also available at all other
locations owned or leased by the Department and can be made available to the
Company by the Department for use in providing the Company's service. The
Agreement provides for certain content restrictions on transmittal materials.
Available Market
According to latest available data, there are approximately seven million
households located in the New York Area of Dominant Interest ("ADI") market. The
Company estimates that approximately 70% of these households can receive
wireless cable transmission. (Approximately 50% of such households subscribe to
cable.) The greater New York City area contains the largest commercial market in
the country with over a half million businesses.
Competition
The Company faces competition in data services from a number of sources, some of
which have significantly greater resources, both financial and other. Some of
these are traditional providers of data services, such as local telephone
companies. Others are cable television operators and other wireless data
services.
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Telephone Companies
Most Internet access today is provided at relatively low data rates through a
local telephone company using dial-up access at speeds of up to 56 Kilobits per
second (KBPS). Local telephone companies ("Telcos") and competitive access
providers ("CAPS") may also offer services using integrated service data network
("ISDN") technology at 128 KBPS. This service requires an improved Telco
connection and special equipment at the subscriber end. ISDN technology allows a
subscriber to simultaneously communicate using voice and data on a single line.
ISDN is not available in all areas.
A new technology being deployed by the Telcos and CAPS is asynchronous digital
subscriber line (ADSL). ADSL is intended to provide high-speed digital voice and
data services over Telco local loop twisted pair service lines. This service
requires a pre-conditioned ("clean") service line.
Local Telcos, CAPS and Internet service providers ("ISP") may also offer
services using leased lines. These are available at a variety of data rates,
beginning at Frame Relay (256 KBPS), T-1 (1.54 MBPS) and up to T-3 (45 MBPS).
Leased lines may be available on an exclusive or shared use basis.
In addition to Bell Atlantic, the local RBOC, there are at least four major CAPS
of telecommunications services that have proprietary fiber optic networks in the
New York Market: WorldCom, MCI, RCN Corporation, and AT&T.
Cable Television Operators
Cable television companies have recently been offering cable modem service to
their customers for Internet access. Cable modems operate at speeds similar to
the wireless modems in that it sends data over a "television" channel. Cable
modems may be either unidirectional or bi-directional.
Several of the country's largest cable operators have franchised cable systems
in the greater New York Market. These include Time Warner Cable, Cablevision
Systems, TCI Cable and Comcast Cablesystems. Some of these operators have been
upgrading their CATV plant and deploying for digital video and data
transmissions.
Direct Broadcast Satellite
Direct Broadcast Satellite ("DBS") service provider now offers to bring
unidirectional Internet service to customers. Hughes Corporation's DirecPC
service offers this Internet service. Subscribers must purchase and install a
21" satellite dish and a special computer modem adapter card and must maintain a
separate ISP account for the upstream path.
Other Wireless Multichannel Multipoint Distribution
CAI Wireless Systems, Inc. is the only other MMDS/ITFS provider operating in the
New York Market and is believed to be offering high speed Internet access to
customers. Cellular Vision, WinStar, and Telegent are also offering wireless
data services in the New York market but are using a higher frequency of at
least 28 GHz or higher.
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Government Regulation
General. The wireless cable industry is subject to regulation by the FCC
pursuant to the Communications Act of 1934, as amended. The Communications Act
empowers the FCC, among other things, to issue, revoke, modify and renew
licenses within the spectrum available to wireless cable; to approve the
assignment and/or transfer of control of such licenses; to approve the location
of wireless cable systems; to regulate the kind, configuration and operation of
equipment used by wireless cable systems; and to impose certain equal employment
opportunity and other reporting requirements on wireless cable operators.
The FCC has determined that wireless cable systems are not "cable systems" for
purposes of the Communications Act. Accordingly, a wireless cable system does
not require a local franchise and is subject to fewer local regulations than a
hardwire cable system. Moreover, all transmission and reception equipment for a
wireless cable system can be located on private property; hence, there is no
need to make use of utility poles, dedicated easements or public rights-of-way.
Although wireless cable operators typically have to lease the right to use
wireless cable channels from the holders of channel licenses, unlike hardwire
cable operators they do not have to pay local franchise fees.
Recently, legislation has been introduced in some states to authorize state and
local authorities to impose on all video program distributors (including
wireless cable distributors) a tax on the distributor's gross receipts
comparable to the franchise fees cable operators' pay. While the proposals vary
among states, the bills all would require, if passed, as much as 5% percent of
gross receipts to be paid by wireless distributors to local authorities.
Under the retransmission consent provisions of the Communications Act, wireless
and hardwire cable operators seeking to retransmit certain commercial television
broadcast signals must first obtain the permission of the broadcast station in
order to retransmit the station's signal. However, wireless cable and private
cable systems, unlike hardwire cable systems, are not required under the FCC's
"must carry" rules to retransmit a specified number of local commercial
television or qualified low power television signals.
Under current FCC regulations, a wireless cable operator generally may broadcast
anywhere within the line-of-sight of its transmission facility, provided that
its signal does not violate interference standards in the FCC-protected area of
another wireless license holder. Existing wireless license holders generally are
protected from interference within 35 miles of the transmission site; however,
if that site is moved, the protection remains only within the original 35 mile
zone and approval from the FCC is required before a transmission site may be
moved.
On July 10, 1996, the FCC adopted an Order in which it authorized the interim
use of certain digital compression technologies for the provision of video,
voice and data services over MDS and ITFS frequencies. Such technologies may be
utilized by a wireless cable operator or an MDS or ITFS licensee, after applying
for, and being granted, such an authorization by the FCC. Upon receiving a
digital authorization, a licensee also may transmit one-way downstream Internet
service.
The Department has filed and has received grants of applications for digital
authorizations for its ITFS system located at the Empire State Building.
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In March 1997, various wireless cable industry companies petitioned the FCC to
permit the grant of applications for two-way transmission of interactive
services over MDS and ITFS frequencies. The petition proposes rule changes,
which would allow the FCC to routinely grant such licensees the right to
implement two-way wireless services. There can be no assurance that the petition
will be granted, or if granted, that the Company will be able to develop
commercially successful products using two-way transmission.
1996 Telecommunications Act. In February 1996, Congress passed and the President
signed into law the 1996 Act. Some of the provisions of the 1996 Act that
directly affect wireless cable television operators are discussed below. Beyond
those specific provisions, the 1996 Act contains provisions intended to increase
competition in the telephone, radio, broadcast television, and hardwire and
wireless cable television businesses. The long term effect of the 1996 Act
cannot be determined at this time, although competition in the video programming
delivery industry is likely to increase as a result of the adoption of the 1996
Act.
The 1996 Act may change the competitive environment of the wireless cable
business. The 1996 Act changes the definition of cable television system so that
the definition excludes any systems that serve customers without using any
public right of way. This change will allow wireless cable system operators to
wire together apartment complexes and other similar properties, as long as the
wiring system does not cross a public right-of-way, without the need to apply
for a local cable television franchise. The 1996 Act will also reduce the
regulatory authority over cable company rates, allow telephone companies, under
certain conditions, to distribute video and afford relief to DBS and wireless
cable providers by exempting them from certain local restrictions on antennas.
The 1996 Act also requires all providers of telecommunications services (as
defined by the 1996 Act) to contribute to a national Universal Service Fund (the
"Fund"). The Fund was created to promote the availability of telecommunications
services to those in low income, rural, insular, and high cost areas at rates
that are reasonably comparable to the lower rates charged in urban areas. The
1996 Act expanded the purpose of the Fund to include provision of affordable
access to advanced telecommunications services for schools, classrooms, health
care facilities, and libraries. Previously, only telephone companies were
required to contribute to the Fund. The FCC is considering whether and to what
extent wireless cable operators, such as the Company, must contribute to the
Fund. This matter remains pending before the FCC.
Pursuant to the 1996 Act, video-programming distributors, including wireless
cable operators, will be required to provide closed-captioned video programming
on a phased-in basis starting on January 1, 2000. Requirements to pass-through
captions already contained in programming and to maintain captioning at 1997
levels became effective on January 1, 1998. Because ITFS programming as a class
is exempt from captioning requirements, wireless cable operators that transmit
such programming are not required to provide closed captioning.
Other Regulations. Wireless cable license holders are subject to regulation by
the Federal Aviation Administration with respect to the construction of
transmission towers and to certain local zoning regulations affecting
construction of towers and other facilities. There may also be restrictions
imposed by local authorities.
There can be no assurance that the Company will not be required to incur
additional costs in complying with such regulations and restrictions.
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Copyright. Under the federal copyright laws, permission from the copyright
holder generally must be secured before a video program may be retransmitted.
Under Section 111 of the Copyright Act, certain "cable systems" are entitled to
engage in the secondary transmission of programming without the prior permission
of the holders of copyrights in the programming. In order to do so, a cable
system must secure a compulsory copyright license. Such a license comes into
existence upon the filing of certain reports with the payment of certain fees to
the U.S. Copyright Office. In 1994, Congress enacted the Satellite Home Viewer
Act of 1994, which enables operators of wireless cable television systems to
rely on the cable compulsory license under Section 111 of the Copyright Act.
TRADEMARKS, COPYRIGHTS, PATENTS
The Company holds no copyrights or patents but has received a federal service
mark registration for the name Magnavision. The Company does not believe that
these proprietary rights are material to its business.
PERSONNEL
The Company currently has a staff of 13 full time employees (2 in sales, 5 in
installations and service, 1 in customer service and marketing, 3 in
administration, and 2 in management) and various part time consultants, advisors
and subcontractors, none of whom is a member of a union. The Company does not
plan to expand its staff until it begins to generate sufficient revenue or
receives funding to support expansion. The Company considers its relationship
with its employees to be good.
MAJORITY SHAREHOLDER
Cacomm, Inc., a New Jersey corporation ("Cacomm"), is the majority shareholder
of the Registrant. As of the date of this Form 10-K, the Company believes that
Cacomm owns approximately 77.5% of the Registrant's outstanding common stock.
The Registrant has been advised that Cacomm is a 25% partner in a general
partnership known as The Grand MMDS Alliance (the "Alliance"), a designated
selectee of the FCC for four MMDS channels in the New York metropolitan market.
The possibility exists that the Alliance could commence business in direct
competition with the Registrant and the Registrant's former Chief Executive
Officer, in his letter of resignation, indicated that he intends to launch such
competitive activities. The Company believes that the Alliance has not commenced
operations as of the date of this report. The Company continues periodic
discussions with the Alliance (the other partners of which are unaffiliated with
the Registrant) for the purpose of exploring various alternatives relating to
the MMDS channels held by the Alliance. However, such discussions have not
proven fruitful in the past, and there is no assurance that such discussions
will be productive in the future.
12
<PAGE>
ITEM 2. PROPERTIES
The Registrant's principal offices are located at 1725 Highway 35, The Wedgewood
Building, Wall, New Jersey, where it occupies approximately 1200 square feet
under a lease agreement which expires in May 1999.
As part of the Channel Lease Agreement with the Department, the Company acquired
the right to use a portion of the Department's transmitting space at the Empire
State Building, in Yonkers, New York and on Staten Island, New York. The Company
pays no additional consideration for this space beyond the fees due to the
Department under the Channel Leasing Agreement.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Common Stock has been trading in the
over-the-counter market under the symbol "MAGV". The
following table sets forth for the periods indicated
the range of high and low bid quotations for the
Company's Common Stock since January 1, 1997 as
reported by the National Quotation Bureau, Inc. and
as reported by the National Association of Securities
Dealers composite feed or other qualified inter
quotation dealer medium. These quotations represent
inter-dealer prices, without retail mark-up,
mark-down or commissions and do not necessarily
represent actual transactions. As trading in the
Common Stock has historically been sporadic and in
small volumes, the Company cannot assure that an
active public trading market will develop or be
sustained. All Closing Bids have been restated to
reflect the effect of the 1 for 20 reverse stock
split of May 1997.
CLOSING BID
1997 HIGH LOW
January 2nd through March 31st 8.75 1.25
April 1st through June 30th 8.75 4.60
July 1st through September 30th 8.75 1.50
October 1st through December 31st 2.25 1.375
1998
January 2nd through March 31rd 1.8125 .9375
April 1st through June 30th 1.0625 .9375
July 1st through September 30th 1.00 .625
October 1st through December 31st .625 .4375
(b) As of December 31, 1998, according to the
Registrant's transfer agent, the approximate number
of holders of record of the Registrant's common stock
was 505.
(c) The Registrant has never paid any cash dividends on
its Common Stock and none are presently anticipated.
Under the Company's agreements with its redeemable
preferred stockholders and its principal lender, the
Company is prohibited, without their consent, from
declaring or paying any dividends on its Common Stock
until the loans made by the lender have been repaid
and the preferred stock is redeemed, in full. As of
December 31, 1998, the Company had accumulated
dividends of $657,778 on its 8% redeemable preferred
stock . The Company is not required to pay dividends
until the redemption date of May 2002, unless
accelerated by certain liquidity events. The
redeemable preferred stock will have a preference
over the common stock as to any dividends that may be
legally available for declaration and payment.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data. This data should be read
in conjunction with "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8-Financial Statements and
Schedules."
15
<PAGE>
<TABLE>
<CAPTION>
Income Statement Data
Years Ended December 31
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 3,652,389 $ 1,607,049 $ 1,285,442 $ 666,366 $ 516,053
Loss Before Extraordinary Item $ (428,409) $(1,152,529) $(1,411,509) $ (844,493) $ (531,863)
Extraordinary Item-Loss From
Extinguishment of Debt $ 165,779 $ 275,844 $ -- $ -- $ --
Net Loss ($ 594,188) $(1,428,373) $(1,411,509) $ (844,493) $ (531,863)
Redeemable Preferred Stock Dividend
Requirement $ 400,000 $ 257,778 $ -- $ -- $ --
Accretion of Preferred Stock $ 92,593 $ 54,012 $ -- $ -- $ --
Net Loss Applicable to Common Stockholders
$(1,086,781) $(1,740,163) $(1,411,509) $ (844,493) $ (531,863)
Basic & Diluted Loss Per Common Share From
Continuing Operations $ (.80) $ (1.27) $ (1.23) $ (.66) $ (.40)
Basic & Diluted Weighted Average Common
Shares Outstanding 1,154,354 1,152,504 1,147,030 1,276,539 1,313,743
Balance Sheet Data At December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Working Capital (Deficit) $ (366,026) $ (682,031) $(4,338,083) $ (213,988) $ (209,103)
Total Assets $ 3,953,476 $ 2,427,163 $ 2,196,994 $(2,065,771) $ (689,593)
Long Term Debt $ 1,899,468 $ 111,509 $ 10,563 $ 2,678,784 $ 58,776
Redeemable Preferred Stock $ 4,591,049 $ 4,498,456 $ - $ - $ -
Stockholders' Equity (Deficit) $(4,086,356) $(3,403,335) $(2,608,645) $(1,272,472) $ 12,004
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" and elsewhere in
this Form 10-K constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements of the Company, or industry results
expressed or implied by such forward-looking statements. Such factors include
among others, general economic and business conditions, which will, among other
things, impact demand for the Company's services; changes in public taste,
trends and demographic changes; competition from other SMATV and/or cable
companies, which may affect the Company's ability to generate revenues;
political, social and economic conditions and laws, rules and regulations, which
may affect the Company's results of operations; timely completion of
construction projects for new systems; changes in business strategy or
development plans; the significant indebtedness of the Company; quality of
management; availability of qualified personnel; changes in, or the failure to
comply with, government regulations; and other factors referenced in the Form
10-K.
RESULTS OF OPERATIONS
All of the Company's current revenues are derived from its private cable
operations, which now include data services. The wireless channel capacity
operations have not commenced; therefore, no revenue has been derived from the
wireless operation.
The Registrant and its wholly owned subsidiary began service in February 1992 to
various colleges, nursing homes, and hospital facilities in the New York/New
Jersey area utilizing direct satellite technology. This involves the use of
antennas, which are installed at the facility and then separately wired on a
room-by-room basis. The Company has long-term agreements with 41 facilities
under which it is currently providing service to students and patients through
approximately 15,000 outlets in rooms and common areas at such institutional
facilities.
In the fall of 1998, the Company completed the installation and sale of the Data
System at Fordham University and started to serve the University pursuant to
which the Company has an agreement to serve over 3,200 students located at
certain Fordham facilities with a data service using cable modems and the cable
television network backbone.
The majority of the facilities using the Company's private cable service are in
New Jersey and New York, but the market area currently reaches from North
Carolina to Massachusetts and as far west as Wisconsin .
Many colleges and senior living and nursing homes in the United States do not
have cable television, but the current trend is for these institutions to
install cable television. Management feels that this trend, coupled with the
fact that the Company can offer cable services normally not provided by
traditional wired cable companies, should permit significant subscriber
expansion in the future. Each installation is comprised of a number of billing
outlets. A billing outlet represents a hookup for a television.
The Company collects revenue from each television on-line. For the most part,
the colleges are on a nine month billing cycle starting in September and ending
in June of the subsequent year. The nursing homes and hospitals are on a 12
month billing cycle.
17
<PAGE>
1998 vs. 1997
Net loss for 1998 was $594,188 compared to a net loss of $1,428,373 in 1997. The
Company had an extraordinary item of $165,779 related to the extinguishment of
debt to Access Capital, Inc. In 1998, the Company refinanced its debt with BSB
Bank & Trust Company. The net loss from the private cable operation was $173,693
in 1998, compared to $889,289 in 1997. The reduction in the loss in 1998 was
partially due to the profit on the sale of equipment to Fordham University. The
loss from the Company's wireless cable for 1998 was $420,495 compared to
$539,084 in 1997. The loss was related to expenses such as the channel lease
expense, professional fees, engineering fees, and salaries.
Revenues increased $2,045,340 and gross profit increased $905,359 over last
year. The increases were primarily a result of increased outlets on line in the
fall of 1998, revenue related to the data contract at Fordham University, and
non-reoccurring revenue from the installed equipment at various sites.
Operating expenses primarily consist of salaries, depreciation and amortization
and general and administrative expenses. Operating expenses for 1998 was
$2,099,008, an increase of $264,177 over 1997. Salaries accounted for $87,708 of
the increase and deprecation represented $185,091 of the increase. The
additional deprecation was related to the purchase of equipment.
Interest expense decreased to $184,425 in 1998 from $280,546 in 1997. The
interest in 1997 includes interest for a partial year of senior debt over $4
million dollars prior to the conversion in June of 1997. In 1998 the Company
incurred interest expense for Access Capital, Inc. and starting in July interest
on $2.5 million for BSB Bank & Trust Company term loan.
The extraordinary item was the write-off of deferred financing cost and a
prepayment penalty after the pay off of the Access Capital, Inc. line of credit
after refinancing the existing debt with BSB Bank & Trust Company.
1997 vs. 1996
The net loss for 1997 was $1,428,373 compared to $1,411,509 for 1996. The
Company had an extraordinary item of $275,844 related to the extinguishment of
debt to its then principal lenders pursuant to an Exchange Agreement, whereby
its senior lending facility was converted into 5 year 8% redeemable preferred
stock. The net loss from the private cable operation was $889,289 in 1997,
compared to $443,940 in 1996. The loss from the Company's wireless cable
business for 1997 was $539,084 compared to $967,569 for 1996, which related to
expenses such as professional fees, engineering fees, salaries and channel lease
expenses.
Revenues in 1997 increased to $1,607,049 from $1,285,442 in 1996. The increase
was attributable to the addition of approximately 3,250 outlets in 1997 and the
inclusion of a full year's income for the college installations built over the
summer and put on line in September of 1996.
Cost of sales increased to $677,565 in 1997 from $526,654 in 1996, reflecting
the increase in programming expense for outlets in 1997 and the full year's
programming expense from the additional outlets added in 1996.
18
<PAGE>
Operating expenses primarily consist of salaries, depreciation and amortization
and general and administrative expenses. Total operating expenses for 1997
increased $87,498 to $1,834,831 from $1,747,333 in 1996. The increase was
primarily due to increased salaries because of increased staff and increased
depreciation and amortization expenses.
Interest expense decreased $185,796 to $280,546 in 1997 from $466,342 in 1996
due to the conversion of debt to redeemable preferred stock in May 1997. This
has been slightly offset by a higher loan balance in 1997 prior to the
conversion and for the new Access line of Credit in the fourth quarter.
The extraordinary item was for the write off of the deferred costs upon the
extinguishment of the debt after the conversion to Redeemable Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Year Ending 1998
For the year ending December 31, 1998, total cash increased by $85,545. The net
cash used in operating activities increased to $749,723 in 1998 compared to
$447,166 in 1997. The primary reason for the increase was a note from Fordham
for the payment of the data system which, the Company funded and installed.
The cash used in investing activities increased from $674,320 in 1997 to
$1,136,172 in 1998. The funds were used primarily to purchase equipment used to
increase the outlet count on the cable side and for the data system.
Net cash provided by financing activities increased from $1,098,736 in 1997 to
$1,971,440 in 1998. Cash flow from financing activities in 1998 was principally
from the proceeds of the BSB Bank term loan of which a portion was used to
payoff the Access Capital, Inc. loan, both described below.
Year Ending 1997
For the year ending December 31, 1997, total cash decreased by $22,750. The net
cash used in operating activities decreased to $447,166 in 1997 from $1,036,351.
The primary reason for the decrease was decreased losses from operations and an
increase in outstanding payables.
The cash used in investing activities increased from $503,408 in 1996 to
$674,320 in 1997. The funds were used primarily to purchase equipment used to
increase the outlet count.
19
<PAGE>
Net cash provided by financing activities decreased from $1,468,728 in 1996 to
$1,098,736 in 1997. Cash flow from financing activities in 1997 was principally
from the proceeds of the Redeemable Preferred Stock and the Access Capital, Inc.
loan, both described below.
Liquidity and Capital
Since the inception of service in 1992, the Company has experienced operating
losses, had been in default of certain provisions of its senior debt, and has
negative cash flow. At December 31, 1998, the Company had a working capital
deficiency and a shareholders' deficit.
The Company's capital commitments at December 31, 1998 include additional
capital to construct facilities at the Department of Education of the
Archdiocese of New York, capital to build the Monmouth and Ocean County ITFS
channel sites, and capital to expand the number of institutions the Company is
currently servicing in its private cable business, the payments required under
the BSB Bank & Trust Company term loan, and the payment of the preferred
shareholders principal and accumulated dividend due December 31, 2002 As of the
date hereof, the Company has not commenced operation of a wireless system, and
if it is executed, will require substantial additional funding in order to do
so.
Both the private cable and the wireless cable industry require significant
capital. The Company's plan for continued expansion requires substantial capital
investments and the availability of sufficient financing is essential to its
plan. The Company has access to the BSB Bank & Trust Company line of credit, but
after the line is exhausted, it may require additional funds for continued
growth. Funds are required for start-up costs related to the wireless asset and
are necessary to continue to build new institutional sites. The Company has
incurred operating losses since inception and its cash flow from operating
activities has been insufficient to cover its expenses.
Management plans to develop the ITFS spectrum with a strategic partner(s)
willing to participate with the Company in the development of alternative uses
of its ITFS spectrum. The Company's business plan related to ITFS spectrum is
dependent upon the Company securing a strategic partner(s) for the capital
resources required and the expertise of the internet of the business. There is
no assurance that the Company will be able to secure additional financing or
strategic relationships on terms or conditions satisfactory to the Company, or
at all. Failure to obtain financing will have a material adverse effect on the
Company. Also, there can be no assurance that, even with additional financing,
the Company will be able to launch its alternative use of ITFS spectrum in a
commercially successful manner.
The Company plans to meet short term liquidity requirements for the private
cable business through funds available under the BSB Bank & Trust Company line
of credit. In order for the Company's growth to exceed the current plan, it must
find additional financing for both the private cable operations and its wireless
plan. There can be no assurance that the Company will be able to obtain
additional financing on a timely basis or at all.
Access Capital, Inc. Line of Credit
In September 1997, the Company and Access Capital, Inc. agreed to a $1,250,000
three year revolving line of credit to be used to expand the Company's private
cable business.
20
<PAGE>
At December 31, 1997, the Company had borrowed approximately $405,000 under the
line of credit. Interest was payable currently at the default rate of prime plus
8%. The line was secured by a pledge of private cable contracts and other
Company assets.
The lender received 138,536 warrants at an exercise price of $2.00 per share to
purchase approximately 4% of the Company's stock on a fully diluted basis. This
loan was paid off in July 1998.
BSB Bank & Trust Company Term Loan
On July 3, 1998, the Company and BSB Bank & Trust Company entered into an
agreement to refinance its existing credit line and supply working capital.
Pursuant thereto, the Company borrowed the sum of $2.5 million dollars which
bears interest at a fixed rate of 10% per annum and has a 5 year term.
Installments of principal plus interest, payable in arrears, will be made in
accordance with the agreed upon schedule of which $634,000 is due in 1999. This
loan was utilized to refinance existing debt and the remaining approximately
$1.9 million was used to finance the completion of outstanding contracts for
private cable television service at various locations, to complete the Fordham
University Internet distribution system, and for working capital. BSB Bank &
Trust Company also granted the Company a $500,000 line of credit, to be used for
future installations of private cable systems and general corporate purposes. At
this time the Company has not used any of this line. This line of credit is at
an interest rate of prime plus 1.5% payable monthly and will mature in 2 years.
In connection with the above transaction BSB Bank & Trust Company received
warrants to purchase 146,176 shares of Magnavision's issued and outstanding
capital stock on a fully diluted basis at an exercise price of $2.00 per share.
Exchange of Debt for Redeemable Preferred Stock
In August 1995, the Company entered into a $5 million lending facility with a
bank and two small business investment companies. See "Item 13- Certain
Relationships and Related Transactions" for further information with regard to
the transactions described above.
As of December 31, 1996, the Company was not in compliance with several
covenants under its senior debt agreement and, as of March 31, 1997, the Company
did not make its quarterly interest payment of $122,095. On May 8, 1997, the
Company agreed with its lenders to exchange its senior subordinated notes into
redeemable preferred stock. Under the terms thereof, the Company's outstanding
subordinated notes, aggregating approximately $4.1 million, together with
accrued interest and detachable warrants, were exchanged for $5 million of 8%
redeemable preferred stock due December 31, 2002. In connection with the
exchange, the lenders also funded the Company the remaining balance on the
existing line. In addition, the note holders received 1,826,932 warrants to
purchase up to 58% of the common stock on a fully diluted basis at an exercise
price of $2.00 per share after the Company effected a 1-for-20 reverse stock
split, and have the right, which they have exercised, to elect the majority of
the Board of Directors. This resulted in a change in control of the Company. The
agreement also requires the warrant holders to surrender up to 10% of their
stock on a fully diluted basis, if, as and when certain liquidity events occur.
In addition, warrant holders have the right to require the Company to repurchase
the warrants under certain conditions. This option can only be exercised upon
the sale of an asset of the Company. The value of the warrants was estimated at
$555,556 and represents a discount to the face value of the redeemable preferred
stock.
21
<PAGE>
The cost of the put can not be determined at this time since it is based upon
the value of a sale of a significant asset which cannot be assured. Also, one of
the warrant holders has entered into a management service agreement with the
Company. See Item 10, "Directors and Executive Officers of the Registrant."
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Comprehensive Income"
(SFAS 130), was issued in June 1997. SFAS 130 became effective for the
Corporation's fiscal year 1998, and requires reclassification of earlier
financial statements for comparative purposes. SFAS 130 requires that all items
defined as comprehensive income, including changes in the amounts of certain
items, foreign currency translation adjustments, and gains and losses on certain
securities, be shown in a financial statement. SFAS 130 does not require a
specific format for the financial statement in which comprehensive income is
reported, but does not require that an amount representing total comprehensive
income be reported in that statement. The adoption of SFAS 130 did not have a
material effect on the Corporation's consolidated financial statements.
On January 1, 1998 the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes standards
for disclosures about segments of a Company and provides different information
about the different type of business activities in which a Company engages and
the different economic environments in which it operates. This statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise". The adoption of SFAS 131 did not have an effect on the
Corporation's financial statements at it operates in only 1 segment.
Inflation
Management believes that inflation and changing prices will have a minimal
effect on operations. The above should be read in conjunction with the Company's
consolidated financial statements included elsewhere herein.
Seasonality of Installation Activities
The Company installs most of its college and university subscribers over the
summer because the institutions are, for the most part, vacant. Therefore, the
Company experiences lower revenues and higher capital expenditures during the
summer.
22
<PAGE>
Year 2000
Management of the Corporation is aware of the issues associated with the
programming code in existing computer systems as the year 2000 approaches. The
"year 2000" problem is the result of computer programs which were written using
two digits rather than four to define the applicable year, which could cause
certain systems to recognize the year 2000 as the year 1900. The Corporation has
assessed its hardware, software, and other non-Information Technology ("IT")
systems, and believes it has a plan in place to address year 2000 issues on a
timely basis. The Corporation's management anticipates using primarily internal
staff to identify, correct, and test the systems for year 2000 compliance,
which, therefore, will not likely result in incremental costs, but rather will
represent a redeployment of existing IT resources.
However, the Company is dependant upon suppliers that have not completed their
review for year 2000 but have indicated that there is a plan in place to address
year 2000 issues on a timely basis. The Company is reviewing alternative
suppliers and is monitoring their progress. Although management of the
Corporation anticipates completion of this project by the end of 1999, there can
be no assurances of this. The Corporation does not expect the amounts required
to be expensed related to correcting the year 2000 problem to have a material
effect on its financial position or results of operations. If the modifications
are not completed timely or suppliers are unable to deliver programming and
alternative sources are not available, the year 2000 problem could have a
material impact on the Corporation's ability to conduct its business.
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements of the
Company, or industry results expressed or implied by such forward-looking
statements. Such factors include among others, general economic and business
conditions, which will, among other things, impact demand for the Company's
services; changes in public taste, trends, and demographic changes; competition
from other SMATV and/or cable companies, which may affect the Company's ability
to generate revenues; political, social and economic conditions and laws, rules
and regulations, which may affect the Company's results of operations; timely
completion of construction projects.
ITEM 7 (a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No effect
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See pages F-1 through F-15.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None.
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the directors
and officers of the Registrant. These individuals serve in the same capacities
with Magnavision - N.J.
<TABLE>
<CAPTION>
Director or
Name Age Position Officer Since
- ---- --- -------- -------------
<S> <C> <C>
Robert E. Hoffman 54 Director, Chairman, President (1) (2) 1998
Nicholas Mastrorilli, Jr. 37 Vice President 1991
Jeffrey Haertlein 51 Chief Financial Officer 1996
Keith Heilos 36 Vice President 1991
Brian Mastrorilli 30 Vice President 1991
Evan Wildstein 28 Director (1) (2) (3) (4) 1997
Geoffrey Thompson 58 Director (4) 1997
George Zombek 35 Director (4) 1997
Kevin Falvey 42 Director (1) (2) (3) (4) 1997
</TABLE>
Pursuant to the Exchange Agreement of May 8, 1997 and the related Stockholders
Agreement of such date, Cacomm retained the right to designate three (3) out of
the Registrant's seven (7) member Board of Directors. Pursuant thereto Cacomm
appointed Messrs. Nicholas Mastrorilli, Sr., Nicholas Mastrorilli, Jr. and
Patrick Mastrorilli to the Registrant's Board of Directors. Effective upon Mr.
Mastrorilli Sr.'s resignation, Cacomm designated Mr. Hoffman as one of its
designees.
The Registrant received a letter dated April 24, 1998 from Cacomm removing
Nicholas Mastrorilli, Jr. and Patrick Mastrorilli as designees of Cacomm to the
Registrant's Board of Directors. The letter indicated that Cacomm would, in the
near future, appoint replacement designees. Such designees, if not from existing
management, must be reasonably acceptable to the preferred stockholders. By
letter dated February 5, 1999 Cacomm recommended the appointment of Mr. Joseph
M. Carlino as director. As of March 31, 1999, Mr. Carlino has not been seated as
a Director.
(1) Member of Executive Committee.
(2) Member of Audit Committee. The Audit Committee assists the Board of
Directors in fulfilling its responsibilities with respect to the
Company's accounting and financial reporting activities.
24
<PAGE>
(3) Member of Compensation Committee. The Compensation Committee determines
the compensation to be paid by the Company to its officers.
(4) Messrs. Wildstein and Thompson and Messrs. Zombek and Falvey are
representatives of KOCO Capital Company, LP ("KOCO") and IBJS Capital
Company, Inc. ("IBJS") respectively, and serve on the Registrant's
Board of Directors pursuant to the terms of a certain Stockholders
Agreement dated as of May 8, 1997 between the Registrant, KOCO, IBJS,
Cacomm and Nicholas Mastrorilli, Sr. The Stockholders Agreement
provides for the Registrant to have a Board of Directors consisting of
not more than seven (7) persons, of which, so long as KOCO and IBJS own
20% or more of the fully diluted common stock, such investors shall
each have the right to designate two (2) directors and so long as
Cacomm holds 20% or more of the fully diluted common stock, it has the
right to designate three (3) directors that are members of the
registrant's management or are approved by KOCO and IBJS. Cacomm,
pursuant to such agreement, previously designated Robert E. Hoffman,
Nicholas Mastrorilli, Jr. and Patrick Mastrorilli its designees to
serve on Registrant's Board of Directors. As noted above, by letter
dated April 24, 1998, Cacomm removed Nicholas Mastrorilli, Jr. and
Patrick Mastrorilli as its designees to be members of the Board of
Directors. Should there be an increase in the size of the Board of
Directors, KOCO and IBJS have the right to designate additional
directors such that their nominees at all times constitute a simple
majority of the Board of Directors. The parties to the Stockholders
Agreement also agreed to appoint one KOCO director and one IBJS
director to serve on the Audit, Compensation and Executive Committees
of the Board of Directors and one management director to serve on the
Compensation and Executive Committees of the Board of Directors. As a
result of the implementation of the Stockholders Agreement, a change in
control of the Registrant has been effected. Reference is made to the
Exhibits attached as part of this Form 10-K for additional information
contained in the Exchange Agreement and the Stockholders Agreement of
May 8, 1997.
The directors and officers, other than Mr. Hoffman, who serves pursuant to the
terms of the Employment Agreement described in Item 11, Executive Compensation,
will hold office until the next annual meeting of shareholders and directors,
respectively, or until their successors are duly elected and qualified. Nicholas
Mastrorilli, Jr. and Brian Mastrorilli are brothers. Nicholas Mastrorilli, Sr.
is their father and is the controlling shareholder of Cacomm.
Robert E. Hoffman, became Chairman and Chief Executive Officer of the Registrant
and its subsidiaries on January 8, 1998, effective upon the resignation from
such positions by Nicholas Mastrorilli, Sr. Mr. Hoffman was also elected
President on such date. Prior thereto, and from August 1996, Mr. Hoffman was a
self-employed technology consultant to telecommunications businesses in wireless
cable, television, communications products and DTH satellite television.
Prior thereto and concurrent therewith, Mr. Hoffman was President of Wireless
America, Inc., a private company which held and leased frequency licenses for
use in wireless cable television systems. Wireless America, Inc. sold all the
assets and was liquidated in February 1997. From June of 1994 through July of
1996, Mr. Hoffman was Vice President, Engineering for C-COR Electronics, a
manufacturer of cable television distribution equipment.
25
<PAGE>
From January of 1993 through June of 1994, Mr. Hoffman was Vice President,
Engineering for Cincinnati Microwave, Inc., a domestic manufacturer of specialty
consumer electronics and communication products. Prior thereto and from July of
1986 through December 1992, he was President of Comband Technologies, Inc., a
supplier of systems, equipment and services to the wireless (microwave) cable
television industry. Mr. Hoffman received a Bachelors and a Masters degree in
Electrical Engineering from Rensselaer Polytechnic Institute in 1966 and 1971,
respectively.
Nicholas Mastrorilli, Jr., has been Vice President since April of 1991. Mr.
Mastrorilli, Jr. has also served as Vice President and Director of Cacomm, Inc.
from April 1991 to April 1998. He was responsible for all the Company's
financial matters until December 1995. He is now responsible for marketing and
sales to senior living facilities with respect to the Company's private cable
television service and Project Management responsibilities for the installation
of new systems for the Company. Effective March 26, 1999 Mr. Mastrorilli
resigned from the Company. The Company wishes him well in his pursuits.
Jeffrey Haertlein, was elected as the Company's Chief Financial Officer
effective as of January 1, 1996 with responsibility for all of the Registrant's
financial matters. Mr. Haertlein was previously Assistant Vice President of
Midatlantic Corporation from 1978 to 1995 with responsibility for financial
planning and reporting for such bank holding company and its various
subsidiaries. Prior thereto and from 1977 to 1978 Mr. Haertlein was employed by
Chase Manhattan Bank in the capacity of Internal Auditor. Mr. Haertlein received
a B.A. degree from Monmouth College in accounting/marketing.
Keith M. Heilos, has been Vice President, Customer Relations for the Registrant
since April 1991. Prior to 1991, Mr. Heilos served as Director of Video
Production for Cacomm, Inc. from July of 1987 to April 1991. Mr. Heilos is
directly responsible for customer relations and is the liaison between the
Company and its client base. Mr. Heilos received a B.A. degree from Montclair
State College in 1986.
Brian J. Mastrorilli, has been Vice President, Technical Operations since April
1991. He has also informed the Company that he has been a Vice President and
Director of Cacomm, Inc. from April 1991 to the present. Mr. Mastrorilli is
responsible for all the company's technical projects, including system design,
construction coordination and FCC licensing of the private cable systems and
design management of the cable modem systems.
Evan Wildstein, has been a director of the Registrant since June 1997 as a
representative of Koco Capital Company, LP ("KOCO"), a Small Business Investment
Company. Mr. Wildstein is President of Kisco Capital Corporation, the general
partner of KOCO, and is an associate at Kohlberg & Company, LLC which he joined
in October 1994. Prior to that Mr. Wildstein was a financial analyst at Dean
Witter Reynolds, Inc. from August 1993 to October 1994. Mr. Wildstein received a
bachelor's degree in Business Administration from the University of Michigan in
1993.
26
<PAGE>
Geoffrey Thompson, has been a Director of the Registrant since November 1997 as
a representative of KOCO. Mr. Thompson, joined Kohlberg & Company as Principal
in 1996 and resigned in 1998. Previously, he was managing partner of Norman
Broadbent International (1995-1996), President of Nordeman Grimm (1993-1994) and
President/CEO of Marine Midland Banks, Inc. from 1981-1993. He holds a
bachelor's degree from Columbia College (1963) and an MBA degree from Harvard
University (1967).
George Zombek, has been a Director of the Registrant since June 1997 as a
representative of IBJS, a Small Business Investment Company and a wholly-owned
subsidiary of IBJ Whitehall Financial Group. Mr. Zombek is Chief Operating
Officer of IBJS and joined such firm in 1997. Prior thereto and from its
inception in 1995, Mr. Zombek was a principal at Canterbury Mezzanine Capital, a
mezzanine finance fund. From 1992 through 1995, Mr. Zombek was affiliated with
the BZW Mezzanine Group and briefly during such period with its Mergers and
Acquisitions Group. Mr. Zombek received an MBA degree in Finance from University
of Chicago in 1989 and a BA degree from New York University in 1985.
Kevin Falvey, has been a Director of the Registrant since November 1997 as a
representative of IBJS. Mr. Falvey joined IBJS in November 1997. From 1992 to
February 1997 Mr. Falvey was a Vice President of CIT Group/Equity Investments,
Inc. Prior thereto and from 1986 to 1991, he was Managing Director of
Manufacturers Hanover Capital Partners, Inc. Mr. Falvey received an MBA degree,
with distinction, from New York University in 1987 and a B.B.A. degree from the
University of Massachusetts in 1978.
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is the aggregate remuneration paid or accrued by the Company
during the years ended December 31, 1998, 1997 and 1996 to the Company's Chief
Executive Officer. No other executive officer of the Company received salary and
bonus aggregating in excess of $100,000 in any of those years.
The Company currently does not have significant agreement with any of its
officers.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary Bonus
--------------------------- ---- ------ -----
Robert E. Hoffman (1) 1998 $ 74,038 $15,000
Nicholas Mastrorilli, Sr. (2) 1997 $109,800 0
Nicholas Mastrorilli, Sr. 1996 $112,067 0
(1) Effective January 8, 1998, the Company entered into an agreement with
Robert E. Hoffman.
27
<PAGE>
Pursuant thereto, Mr. Hoffman has agreed to act as Chairman, President and
Chief Executive Officer of the Registrant, for which service an executive
search firm will be paid the sum of $17,500 monthly together with
additional amounts if Mr. Hoffman became an employee on a long term basis.
These payments are not reflected in the chart above .
In June Robert E. Hoffman became an employee acting as Chairman,
President, and Chief Executive Officer at an annual salary of $125,000 per
year, annual living allowance of $2,000 per month until December 1998 and
a $15,000 cash payment. Effective starting January 1, 1999, his annual
salary is $175,000. He will participate in the bonus compensation program
and he is to receive 150,000 options under the 1999 option plan at $1.00
per share.
(2) Effective as of January 8, 1998, Nicholas Mastrorilli, Sr. resigned as an
officer, director and employee of the Registrant and its subsidiaries. In
connection therewith, the Registrant agreed to continue Mr. Mastrorilli's
base salary of $105,000 per annum and all health benefits up to the sum of
$500.00 per month, until January 8, 1999.
28
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
The following table contains information as of December 31, 1998 as to the
beneficial ownership of shares of Common Stock of the Registrant of each person
who, to the knowledge of the Registrant at that date, was the beneficial owner
of 5% or more of its outstanding shares.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership % of Class
- ------------------- -------------------- ----------
Cacomm, Inc. 894,889 77.5
P.O. Box 163
Sea Girt, NJ 08750
KOCO Capital Company, LP 730,773 (1) 38.8
111 Radio Circle
Mt. Kisco, NY 10549
IBJS Whitehall Capital Corporation 1,096,159 (2) 48.7
One State Street
New York, NY 10004
Access Capital, Inc. 138,536 (3) 10.7
405 Park Avenue
New York, NY 10022
BSB Bank & Trust Company 146,176 (4) 11.2
58-68 Exchange Street
Binghamton, NY 13902-1056
(1) Constitutes shares subject to currently exercisable warrants issued to
KOCO Capital Company, LP.
(2) Constitutes shares subject to currently exercisable warrants issued to
IBJS Whitehall Capital Corporation
(3) Constitutes shares subject to currently exercisable warrants issued to
Access Capital, Inc.
(4) Constitutes shares subject to currently exercisable warrants issued to BSB
Bank & Trust Company.
29
<PAGE>
(b) Security Ownership of Management:
Set forth below is certain information, as of December 31, 1998, concerning the
number and percentage of shares of Common Stock of the Registrant owned of
record and beneficially by each officer and director of the Registrant and by
all officers and directors as a group.
Name of Amount of Nature of
Beneficial Owner Beneficial Ownership % of Class
---------------- -------------------- ----------
Robert E. Hoffman 5,000 .4
Nicholas Mastrorilli, Jr. 14,500 (1) 1.2
Brian Mastrorilli 14,880 (2) 1.3
Keith Heilos 16,832 (3) 1.4
All officers and directors
as a group (6 persons) 51,212 (4) 4.3
(1) Constitutes shares subject to currently exercisable warrants held by Mr.
Mastrorilli, Jr.
(2) Constitutes shares subject to currently exercisable warrants held by Mr.
Mastrorilli.
(3) Includes shares subject to currently exercisable warrants held by Mr.
Heilos.
(4) Includes 46,132 shares subject to currently exercisable warrants held by
all officers and directors. Excludes 1,826,932 shares subject to currently
exercisable warrants held in the aggregate by IBJS Whitehall Capital
Corporation and KOCO Capital Company, L.P., beneficial ownership of which
is disclaimed by Messrs. Zombek and Falvey and by Messrs. Wildstein and
Thompson, respectively, on behalf of IBJS Capital Company, Inc. and KOCO
Capital Company, L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described in Part I of this Form 10-K, in August 1995, the Company obtained a
$5,000,000 lending facility from IBJ Schroder Bank & Trust Co., IBJS Whitehall
Capital Corporation and KOCO Capital Company, L.P. (the "Lenders").
Approximately $2,637,000 of that amount was furnished to the Company at the time
the facility was entered into, and the remainder was to be advanced based on the
present value of the projected cash flow from new contracts with purchasers of
the Company's private cable television service, with the funds advanced to be
used for equipment and construction costs incurred in connection with
installation of the new outlets and for working capital. In connection therewith
the Company executed 12% interest-only promissory notes, the principal of which
was due on February 26, 2001.
30
<PAGE>
The proceeds furnished at the time the lending facility was entered into were
utilized to fund an escrow deposit for system configuration required under the
Channel Lease Agreement, to repurchase approximately 18% of the Company's issued
and outstanding capital stock and to provide working capital. In connection with
obtaining the lending facility, the Company issued to the Lenders warrants
expiring on August 27, 2003 to purchase approximately 27% of the Company's
Common Stock on a fully diluted basis at exercise prices of $7.60 and $5.40 per
share. Under the terms of the lending facility, the Lenders also had the right
to designate two of the Company's five directors and the Company had agreed to
various covenants. In connection therewith the Company was also required to
issue additional warrants to purchase 18,000 shares of its Common Stock at an
exercise price of $7.60 in satisfaction of certain investment banking and finder
fees.
On June 3, 1996 the Company and its Lenders amended the terms of the lending
facility. Pursuant thereto, the Lenders agreed to continue to waive existing
defaults and provide up to $1,200,000 toward the Company's working capital
requirements (of which approximately $1,000,000 had been advanced to the Company
by December 31, 1996) without regard to the present value formula referred to
above. In exchange therefor, the Company agreed to issue warrants ("New
Warrants") to purchase additional shares of Common Stock, representing
approximately 12% of the Company's Common Stock on a fully diluted basis, at an
exercise price of $5.40 per share. The New Warrants expire on June 4, 2004. The
amended agreements required the Lenders to surrender to the Company warrants
representing the right to purchase certain shares if, as and when the Company
complied with certain conditions outlined in the amended agreements. In
addition, the Lenders each had the right to require the Company to repurchase
certain, and the Company had the right to repurchase all, of the warrants held
by the Lenders under certain conditions. The Lenders also had the right to
designate three out of the five directors of a subsidiary which owns the
Company's rights under the Channel Lease Agreement and under such circumstances,
would receive a proxy to vote the shares thereof. No such rights were ever
exercised.
On May 8, 1997 the Company and its lenders reached an agreement ("Exchange
Agreement") to exchange their existing senior subordinated note financing for
redeemable preferred stock ("Redeemable Preferred Stock"). The Registrant's
outstanding subordinated notes, approximately $4,000,000, together with accrued
interest and detachable warrants, were exchanged for $5,000,000 of 8% Redeemable
Preferred Stock due December 31, 2002 and at the close thereof, the Company
received the cash balance of the remaining line of credit (approximately
$800,000).
The Redeemable Preferred Stock can be redeemed at the Company's option and has a
mandatory redemption feature upon the occurrence of certain liquidity events.
The holders of the Redeemable Preferred Stock have received warrants to purchase
up to 58% of the common stock on a fully diluted basis at an exercise price of
$2.00 per share after giving effect to a 1-for-20 reverse stock split. In
addition, the warrant holders have the right to require the Company to
repurchase certain of the warrants under certain conditions. In connection with
the agreement, the warrant holders have the right to designate the majority of
the directors of the Company and have exercised their right, which resulted in a
change of control of the Registrant. As part of the Exchange Agreement, the
prior lenders converted the accrued interest in the amount of $105,468 to one
year notes at 10% interest, with interest and principal due and payable May 8,
1998. At year end the preferred stockholders agreed to extend the maturity of
notes to May 8, 2000.
31
<PAGE>
The Company also entered into a two year management service agreement with one
of the preferred stockholders to provide management services at $24,000 per year
plus expenses.
The description of the terms and conditions of the 1995 and 1996 agreements with
the Lenders is qualified in its entirety by reference to the entire agreements,
copies of which have been filed as exhibits to Form 10-K dated July 19, 1996 and
is incorporated herein in full by reference thereto. The description of the May,
1997 Exchange Agreement and related documents is qualified in entirety by
reference to the entire agreement, copies of which have been filed as an exhibit
to this Form 10-K.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements. The following financial statements are included in
Part II, Item 8:
Page
Report of Independent Auditors ........................................ F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 ......... F-2
Consolidated Statements of Operations for years ended
December 31, 1998, 1997 and 1996....................................... F-3
Consolidated Statements of Stockholders' Deficiency for years
ended December 31, 1998, 1997 and 1996 .............................. F-4
Consolidated Statements of Cash Flows for years ended
December 31, 1998, 1997 and 1996 .................................... F-5
Notes to Consolidated Financial Statements ............................ F-6
(a) (2) Schedules. All schedules are omitted since the required information is
either not applicable or not present in amounts sufficient to require submission
of the schedule.
(a) (10) Exhibits
<TABLE>
<CAPTION>
Page or
Document
Incorporated
No. Description of Document by Reference
--- ----------------------- ------------
<S> <C> <C>
(2) Merger Agreement dated September 13, Form 8-K
1991 between Yardley Ventures, Inc. dated 9/17/91
and Magnavision Corporation
(3) (a) Articles of Incorporation and By Laws Form S-1
dated 12/29/86
(3) (b) Amendment to Certificate of Incorporation Form 8-K
dated 9/17/91
(10) (a) License Agreement dated August 20, 1990 Form 10-K
between Magnavision Corporation and dated 12/31/91
Department of Education, Archdiocese
of New York
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Page or
Document
Incorporated
No. Description of Document by Reference
--- ----------------------- ------------
<S> <C> <C>
(b) Amended License Agreement dated January Form 10-K
6, 1994 between Magnavision Corporation dated 12/31/93
and Department of Education, Archdiocese
of New York
(c) Microcell Systems Corporation Agreement Form Form 10-K
10-K dated December 15, 1993 dated 12/31/93 dated 12/31/93
(d) Securities Purchase Agreement dated as of August 25, 1995 Form 10-K
among the Registrant, Magnavision Corporation (N.J.), dated 4/19/96
IBJS Whitehall Capital Corporation, IBJ Schroder Bank & Trust
Company and Koco Capital Company, L.P.
(e) Form of Senior Subordinated Note of the Form 10-K
Registrant and Magnavision Corporation (N.J.) dated 4/19/96
due February 26, 2001
(f) Form of Warrant to Purchase Shares of Form 10-K
Registrant's Form 10-K Common Stock expiring dated 12/31/93
on August 26, 2003 dated 4/19/96
(g) Security Agreement and Collateral Assignment Form 10-K
dated as of August 25, 1995 among dated 4/19/96
Magnavision Corporation (N.J.), University
Connection, Inc. and IBJS Capital
Corporation as agent
(h) Registration Rights Agreement dated as of Form 10-K
August 25, 1995 among the Registrant and the dated 4/19/96
investors listed therein
(i) Stockholders' Agreement dated as of August Form 10-K
25, 1995 among the Registrant, the investors dated 4/19/96
and the other parties listed therein
(j) Non-Competition Agreement dated as of August 25, 1995 Form 10-K
between Magnavision Corporation (N.J.) and dated 4/19/96
Nicholas Mastrorilli, Sr.
(k) Indemnification Agreement dated as of August Form 10-K
25, 1995 between the Registrant, Cacomm, dated 4/19/96
Inc., and the investors listed therein
(l) Lockbox Service Agreement dated as of August Form 10-K
25, 1995 among Magnavision Corporation dated 4/19/96
(N.J.), University Connection, Inc., IBJS
Whitehall Capital Corporation and IBJ
Schroder Bank & Trust Company
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Page or
Document
Incorporated
No. Description of Document by Reference
--- ----------------------- ------------
<S> <C> <C>
(m) Amendment No. 1 dated as of June 3, 1996 to Form 10-K
Securities Purchase Agreement dated as of August dated 4/19/96
25, 1995 among the Registrant, Magnavision
Corporation (N.J.), Magnavision Wireless Cable, Inc.,
IBJS Whitehall Capital Corporation, IBJ Schroder Bank & Trust
Company and Koco Capital Company, L.P.
(n) Amended and Restated Stockholders' Agreement Form 10-K
dated as of June 3, 1996 among the dated 4/19/96
Registrant, Magnavision Corporation (N.J.),
Magnavision Wireless Cable, Inc. and the
investors and other parties listed therein
(o) Amendment No. 1 dated as of June 3, 1996 to Form 10-K
the Registration Rights Agreement dated as dated 4/19/96
of August 25, 1995 among the Registrant and
the investors listed therein
(p) Amendment No. 1 dated as of June 3, 1996 to Form 10-K
the Security Agreement and Collateral Assignment dated 4/19/96
dated as of August 25, 1995 among Magnavision
Corporation (N.J.) Magnavision Wireless Cable,
Inc., Magnavision Private Cable, Inc., University
Connection, Inc. and IBJS Whitehall Capital Corporation,
as agent
(q) Amended and Restated Lockbox Service Agreement Form 10-K Form 10-K
dated as of June 3, 1996 among Magnavision dated 4/19/96 dated 4/19/96
Corporation (N.J.), University Connection, Inc.,
Magnavision Private Cable, Inc., IBJS Capital Corporation and
IBJ Schroder Bank & Trust Company
(r) Pledge Agreement dated as of June 3, 1996 between Form 10-K Form 10-K
Magnavision Corporation (N.J.) and IBJS Capital dated 4/19/96 dated 4/19/96
Corporation as agent
(s) Pledge Agreement dated as of June 3, 1996 between Form 10-K Form 10-K
Magnavision Corporation (N.J.) and IBJS Capital dated 4/19/96 dated 4/19/96
Corporation as agent
(t) General Indenture of Conveyance, Assignment and Form 10-K
Transfer dated as of June 3, 1996 from Magnavision dated 4/19/96
Corporation (N.J.) and University Connection, Inc.
to Magnavision Private Cable, Inc.
(u) General Indenture of Conveyance, Assignment and Form 10-K
Transfer dated as of June 3, 1996 from Magnavision dated 4/19/96
Corporation (N.J.) to Magnavision Wireless Cable, Inc.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Page or
Document
Incorporated
No. Description of Document by Reference
--- ----------------------- ------------
<S> <C> <C>
(v) Indenture of Assumption of Liabilities dated Form 10-K
as of June 3, 1996 from Magnavision Private dated 4/19/96
Cable, Inc. to Magnavision Corporation (N.J.) and
University Connection, Inc.
(w) Indenture of Assumption of Liabilities dated Form 10-K
as of June 3, 1996 from Magnavision Wireless dated 4/19/96
Cable, Inc. to Magnavision Corporation
(N.J.)
(x) Irrevocable Proxy dated June 3, 1996 issued Form 10-K
by Magnavision Corporation (N.J.) to IBJS dated 4/19/96
Capital Corporation as agent
(y) Form of Amended and Restated Senior Form 10-K
Subordinated Notes dated June 3, 1996 dated 4/19/96
(z) Form of Warrant to Purchase Shares of Form 10-K
Registrant's Common Stock expiring on June dated 4/19/96
4, 2004
(aa) Letter Agreement dated July 11, 1995 between the Form 10-K
Registrant, Cacomm, Inc. and George S. Callas dated 4/19/96
(bb) Letter Agreement dated August 25, 1995 among the Form 10-K
Registrant, Midlantic Bank, N.A. and George S. Callas dated 4/19/96
(cc) Letter Agreement dated April 3, 1997 between the Form 10-K
Registrant, KOCO Capital Company, L.P. and IBJS dated 4/19/96
Capital Corporation
(dd) Form of Indemnification Agreement for executive officers and Form 10-K
directors dated 6/5/98
(ee) Exchange Agreement dated May 8, 1997 among the Registrant and Form 10-K
the investors listed therein. dated 6/5/98
(ff) Stockholders Agreement dated May 8, 1997 among the Registrant Form 10-K
and the other parties listed therein. dated 6/5/98
(gg) Registration Rights Agreement dated May 8, 1997 among the Form 10-K
Registrant and the other parties listed therein. dated 6/5/98
(hh) Warrant to purchase shares of Common Stock Form 10-K
dated May 8, 1997 among the Registrant and dated 6/5/98
the other parties listed therein
(ii) Employment Agreements dated May 8 1997 Form 10-K
between the Registrant and Nicholas dated 6/5/98
Mastrorilli, Sr., Nicholas Mastrorilli,
Jr., and Patrick Mastrorilli,
respectively.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
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Document
Incorporated
No. Description of Document by Reference
--- ----------------------- ------------
<S> <C> <C>
(jj) Management Agreement dated May 8, 1997 Form 10-K
between the Registrant and KOCO Capital dated 6/5/98
Company, L.P.
(kk) Common Stock Purchase Warrant dated Form 10-K
September 10, 1997 issued by the dated 6/5/98
Registrant to the Lender listed therein.
(ll) Loan and Security Agreement dated Form 10-K
September 10, 1997 by and among the dated 6/5/98
Registrant, Access Capital, Inc. and the
other parties listed therein.
(mm) Resignation letter from Nicholas Form 10-K
Mastrorilli, Sr. to the Registrant dated dated 6/5/98
January 8, 1998.
(nn) Employment Agreement dated January 9, 1998 Form 10-K
between the Registrant and IMCOR dated 6/5/98
concerning Robert E. Hoffman.
(oo) Letter from Cacomm, Inc. to the Registrant Form 10-K
dated April 24,1998. dated 6/5/98
</TABLE>
(21) Subsidiaries of Registrant
(27) Financial Data Schedule
(b) Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on the
Company's behalf by the undersigned, thereunto duly authorized.
MAGNAVISION CORPORATION
DATE: April 6, 1999 By: /s/ Robert E. Hoffman
-----------------------------
ROBERT E. HOFFMAN
Principal Executive Officer
By: /s/ Jeffrey Haertlein
-----------------------------
JEFFREY HAERTLEIN
Principal Financial and
Accounting Officer
37
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert E. Hoffman CEO, President, Director April 6, 1999
- -------------------------
Robert E. Hoffman
/s/ George Zombek Director April 6, 1999
- -------------------------
George Zombek
/s/ Evan Wildstein Director April 6, 1999
- -------------------------
Evan Wildstein
/s/ Kevin Falvey Director April 6, 1999
- -------------------------
Kevin Falvey
/s/ Geoffrey Thompson Director April 6, 1999
- -------------------------
Geoffrey Thompson
</TABLE>
<PAGE>
EXHIBITS
(10) (pp) Form of Promissory Note of the Company to BSB Bank & Trust
Company Dated July 3, 1998
(qq) Form of Loan Agreement dated as of July 3, 1998 between the
Company and BSB Bank & Trust Company
(rr) Form of Commercial Security Agreement dated July 3, 1998 between
the Company and BSB Bank & Trust Company
(ss) Form of Commercial Pledge and Security Agreement between the
Company and BSB Bank & Trust Company dated July 3, 1998
(tt) Form of Warrant to purchase shares of the Company's
Common Stock expiring on July 3, 2008
Supplemental Information to be furnished with reports filed pursuant to Section
15(d) of the Act by Registrants which have not registered securities pursuant to
Section 12 of the Act.
As of the date hereof, the Registrant has never sent any annual report or proxy
material to its security holders. If and when such annual report or proxy
material is furnished to its stockholders, the Registrant shall furnish to the
Commission for its information copies of such material. Such material, when
furnished, shall not be deemed to be "filed" with the Commission or otherwise
subject to liabilities of Section 18 of the Act (except to the extent that the
Registrant specifically incorporates such material by reference in its Form
10-K).
39
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Magnavision Corporation:
We have audited the accompanying consolidated balance sheets of Magnavision
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the years in the three-year period ended December 31, 1998. these
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit included examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Magnavision
Corporation and subsidiaries as of December 31, 1998 and 1997, and results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operation, and has a shareholders' deficiency which raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
Short Hills, New Jersey
March 5, 1999
F-1
<PAGE>
ITEM 1. FINANCIAL INFORMATION
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------------------------
<S> <C> <C>
CURRENT ASSETS
Cash 227,091 141,546
Trade Accounts and Other Receivables 276,203 236,375
Notes receivable from customer 467,000 --
Shareholder Loans Receivable 38,707 --
Prepaid Expenses 1,986 8,516
-------------------------
Total Current Assets 1,010,987 386,437
-------------------------
PROPERTY AND EQUIPMENT
Property and Equipment at Cost 3,077,185 1,944,558
Less: Accumulated Depreciation (1,122,022) (748,375)
-------------------------
Net Property and Equipment 1,955,163 1,196,183
OTHER ASSETS
Shareholder Loans Receivable -- 43,810
Notes receivable from customer , net of current portion 441,271 --
Prepaid lease expense 543,716 650,684
Deferred financing costs, net of accumulated amortization -- 145,496
Deposits 2,339 4,553
-------------------------
TOTAL ASSETS 3,953,476 2,427,163
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts Payable 212,390 190,101
Accrued Expenses 169,384 136,616
Accrued sevarance payments -- 117,000
Deferred Revenues 354,596 214,490
Current Portion of Long-Term Debt 640,642 4,225
Income Taxes Payable -- 741
Line of Credit -- 405,295
-------------------------
Total Current Liabilities 1,377,012 1,068,468
Security Deposits 172,303 152,065
Long-Term Debt, net of current portion 1,899,468 111,509
Commitments and contingencies
Series A Preferred Stock, $1 par value, 9,850,000
shares authorized; issued and outstanding, 5,000,000
shares, net of unamortized discount 4,591,049 4,498,456
SHAREHOLDERS' DEFICIENCY
Series B Preferred Stock, $1 par value , 150,000 shares 131,889 131,889
authorized; issued and outstanding, 131,889 shares
Common Stock, $0.08 par value - 10,000,000 shares
authorized; issued and outstanding, 1,154,390 shares
at December 31,1998 and 1,152,510 shares at December 31, 1997 92,350 92,200
Additional Paid-In Capital 3,880,601 3,876,991
Accumulated Deficit (8,191,196) (7,504,415)
-------------------------
Total Shareholder's Deficiency (4,086,356) (3,403,335)
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY 3,953,476 2,427,163
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
REVENUES
<S> <C> <C> <C>
Gross Revenues $ 3,652,389 1,607,049 1,285,442
Cost of Sales 1,817,546 677,565 526,654
-----------------------------------------
GROSS PROFIT 1,834,843 929,484 758,788
Salaries 715,064 627,356 595,358
Depreciation 382,289 197,198 168,896
General and Administrative Expenses 1,001,655 1,010,277 983,079
-----------------------------------------
TOTAL OPERATING EXPENSES 2,099,008 1,834,831 1,747,333
OPERATING LOSS (264,165) (905,347) (988,545)
OTHER INCOME (EXPENSES)
Interest expense (184,425) (280,546) (466,342)
Interest Income 25,032 35,824 35,383
Other -- 1,529 8,705
-----------------------------------------
Total other income (expense) (159,393) (243,193) (422,254)
LOSS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM (423,558) (1,148,540) (1,410,799)
PROVISION FOR INCOME TAXES 4,851 3,989 710
-----------------------------------------
LOSS BEFORE EXTRAORDINARY ITEM (428,409) (1,152,529) (1,411,509)
EXTRAORDINARY ITEM -LOSS ON EXTINGUISHMENT OF DEBT 165,779 275,844 --
-----------------------------------------
NET LOSS (594,188) (1,428,373) (1,411,509)
Preferred Stockholders Dividend Requirement 400,000 257,778 --
Accretion of preferred stock 92,593 54,012 --
-----------------------------------------
Net loss to Common Stockholders ($1,086,781) ($1,740,163) (1,411,509)
Net Loss per Common Share:
Loss from continuing operations ($0.80) ($1.27) ($1.23)
Extraordinary item - loss on extinguishment of debt ($0.14) ($0.24) --
Net loss per common share: basic ($0.94) ($1.51) ($1.23)
Weighted Average Common Shares used to Compute net loss per share:
Basic 1,154,354 1,152,504 1,147,030
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIENCY
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Series B Additional
Preferred Stock Common Stock Paid in
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
Balance, December 31,1995 1,368,473 $109,478 $3,988,571
Common Stock Issued -- -- 15,067 1,205 74,131
Retirement of Common Stock held in Treasury -- -- (231,318) (18,505) (741,495)
Net loss
-----------------------------------------------------------------------
Balance, December 31,1996 -- -- 1,152,222 92,178 3,321,207
Common Stock Issued
-- -- 354 28 679
Conversion of Shareholder loan to Series B Preferred Stock 131,889 $131,889
Allocation to Warrants Issued 555,556
Purchase of Fractional Shares (66) (6) (451)
Net loss
Accretion of preferred stock
-----------------------------------------------------------------------
Balance, December 31, 1997 131,889 131,889 1,152,510 92,200 3,876,991
Common Stock Issued
1,880 150 3,610
Net loss
Accretion of preferred stock
-----------------------------------------------------------------------
Balance, December 31, 1998 131,889 $131,889 1,154,390 $92,350 $3,880,601
</TABLE>
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIENCY
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Total
Accumulated Treasury Stockholders
Deficit Stock Equity
<S> <C> <C> <C>
Balance, December 31,1995 ($4,610,521) ($760,000) ($1,272,472)
Common Stock Issued 75,336
Retirement of Common Stock held in Treasury 760,000 0
Net loss (1,411,509) (1,411,509)
-------------------------------------------------------
Balance, December 31,1996 (6,022,030) -- (2,608,645)
Common Stock Issued
-- -- 707
Conversion of Shareholder loan to Series B Preferred Stock 131,889
Allocation to Warrants Issued 555,556
Purchase of Fractional Shares (457)
Net loss (1,428,373) (1,428,373)
Accretion of preferred stock (54,012) (54,012)
-------------------------------------------------------
Balance, December 31, 1997 (7,504,415) -- ($3,403,335)
Common Stock Issued
3,760
Net loss (594,188) (594,188)
Accretion of preferred stock (92,593) (92,593)
-------------------------------------------------------
Balance, December 31, 1998 ($8,191,196) ($4,086,356)
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Loss (594,188) (1,428,373) (1,411,509)
Adjustments to Reconcile Net Loss to Net Cash used in Operating activities
Extraordinary item 165,779 275,844 --
Depreciation and Amortization 382,289 197,198 168,896
Amortization of deferred financing costs 31,123 80,475 70,404
Amortization of channel lease prepayments 106,968 106,968 106,969
Gain on sale of assets -- -- (1,583)
Changes in Assets and Liabilities:
Increase in Trade Accounts and
Other Receivables (39,828) (80,123) (48,096)
Increase in Deferred Revenues 140,106 39,142 --
(Increase) Decrease in prepaid expenses 6,530 (457) 4,569
Decrease in Deposits 2,214 133 --
(Decrease) Increase in Accounts Payable and 22,291 206,769 (62,241)
(Decrease) Increase in Accrued Expenses 32,768 12,579 (4,279)
(Decrease) Increase in Accrued severance payment (117,000) 117,000 --
Increase in note receivable from customer (908,271) --
Increase in Security Deposits Payable 20,238 25,679 67,565
(Decrease) Income Taxes Payable (741) -- (150)
Increase Deferred Charges -- -- 73,104
----------------------------------------
Net cash used in operating activities (749,723) (447,166) (1,036,351)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) shareholder loans receivable 5,103 351 (300)
Purchases of property and equipment (1,141,275) (674,671) (503,108)
----------------------------------------
Net cash used in investing activities (1,136,172) (674,320) (503,408)
CASH FLOW FROM FINANCING ACTIVITIES
Payments of Long-Term Debt (3,624) (3,983) (3,910)
Payments of Obligation under Capital leases -- -- (23,411)
Decrease in Due to Shareholders -- (8,000) (5,000)
Proceeds from Issuance of Preferred Stock, net -- 863,811 --
Proceeds from Issuance of Common Stock 3,760 707 75,336
Proceeds from Issuance Debt 2,428,000 405,295 1,425,713
Payment of Access Capital line of credit, including penalty (456,696) --
Payment of financing fees -- (158,637) --
Purchase of Common Stock -- (457) --
----------------------------------------
Net cash provided by financing activities 1,971,440 1,098,736 1,468,728
Net increase (decrease) in cash 85,545 (22,750) (71,031)
Cash beginning of year 141,546 164,296 235,327
Cash end of year 227,091 141,546 164,296
----------------------------------------
Supplemental schedule of cash paid during year for :
Interest 91,129 84,161 479,915
Income Tax 4,851 3,989 710
NON CASH ITEMS:
Exchange of Senior Debt to Redeemable Preferred Stock -- 4,062,932 --
Conversion of Senior Debt Accrued interest to term loan -- 105,468 --
Conversion of amounts Due to Shareholder to Preferred Stock -- 131,889 --
Value assigned to warrants issued -- 555,556 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
1 - OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
a. Consolidated Financial Statements - The accompanying financial
statements present the consolidated accounts of Magnavision
Corporation, a Delaware corporation (formerly Yardley Ventures, Inc.),
and its wholly owned subsidiary, Magnavision Corporation, a New Jersey
corporation, and its wholly owned subsidiaries, University Connection,
Inc., a New Jersey corporation, Accu-Trek, Inc., a New Jersey
corporation and Magnavision Laboratories, Inc., a Delaware Corporation
("the Company"). As required by the amended senior debt agreement of
June 4, 1996, Magnavision Corporation, a New Jersey corporation,
formed two additional wholly owned subsidiaries, Magnavision Private
Cable, Inc., established to hold the private cable contracts and
Magnavision Wireless Cable, Inc., established to hold the wireless
lease. The consolidated financial statements include all of the
assets, liabilities, income, expenses and cash flows for these
companies. All significant intercompany transactions and balances have
been eliminated, in consolidation. Effective at the end of June 1998,
the Company merged Accu-Trek, Inc. and University Connection, Inc.
into Magnavision Corporation (New Jersey). These subsidiaries had no
assets, liabilities or operations and therefore, the transaction had
no impact on the Company's financial statements.
b. Organization, Operations and Liquidity- Magnavision Corporation was
incorporated in Delaware on April 3, 1986, to seek to acquire one or
more potential businesses. Magnavision Corporation and its
subsidiaries were established to conduct the business of providing
wireless and private cable television, which is now the business
purpose of the Company, to segments where cable television is not
available and as an alternative to cable television. Magnavision
Corporation of New Jersey was formed on June 15, 1989, pursuant to the
laws of the State of New Jersey. As a result of the amended lending
agreement, the Company created two new subsidiaries, Magnavision
Private Cable and Magnavision Wireless Cable.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, the Company has
suffered recurring losses from operations and has a shareholder's
deficiency at December 31, 1998. To execute its current business plan
the Company requires additional funding, and if the plan is not
executed, may still require additional funding. If the Company
requires additional funding and can not execute the sale of assets,
restructuring of the Company, or restructuring of it's existing debt,
the Company will have insufficient liquidity to pay principal and
interest on it's existing debt and may experience liquidity shortfalls
in meeting it's ongoing obligations.
F-6
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
The Company plans to meet short-term liquidity requirements with its
loan from BSB Bank & Trust Company described in Note 6. On a long-term
basis for its wireless business plan, the Company is currently seeking
long-term arrangements with a strategic partner(s) for financing and
Management believes this partner will participate in the Company's
development of the alternative use of its rights to wireless spectrum.
This business plan is dependent upon the Company securing the
necessary capital resources, as well as engineering and other
expertise required to offer this alternative service. There can be no
assurance that the Company will be able to secure financing or a
strategic relationship or partnership on terms and conditions
satisfactory to the Company, if at all.
Failure to obtain such financing and the expertise required to develop
the wireless business plan would result in the Company not being able
to implement the wireless business plan. This may have a significant
impact on the Company's future performance.
Also, there can be no assurance that, even with financing, and receipt
of necessary regulatory authorization, the Company will be able to
launch this wireless alternative service or that it will be
commercially successful.
c. Property and Equipment - Property and equipment are stated at cost.
Depreciation, for financial reporting purposes, is provided on the
straight-line method over the estimated useful lives of the related
assets, which are:
Office Equipment 5 years
Furniture and Fixtures 10 years
Transportation Equipment 5 years
Machinery and Equipment 5 to 10 years
Leasehold Improvements 7 years or life of lease
The Company uses accelerated methods and lives, as allowed by the
Internal Revenue Code, to calculate depreciation for income tax
purposes.
d. Revenue Recognition - Revenue is recognized as services are provided
to subscribers. The Company records subscriptions received in advance
of the service being provided as a deferred revenue.
e. Income Taxes - Deferred tax assets and liabilities are recognized for
the expected tax consequences of temporary differences between the
financial statement carrying amount of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry
forwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
f. Use of Estimates- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and revenue and expenses and the disclosure of contingent
assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
F-7
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
g. Fair Value of Financial Instruments - Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" (Statement 107), requires disclosure of fair
value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In many cases, fair value estimates cannot be
substantiated by comparison to independent market information and
could not be realized in immediate settlement of the instrument.
Statement 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented may not
represent the underlying value of the Company. In management's
opinion, cash, trade accounts receivables, shareholder loans
receivable, notes receivable from customers, deposits, accounts
payable, accrued expenses and deferred revenue, equal or approximate
fair market value due to their current nature. The long-term debt,
term loans and line of credit are at market rates, which equal or
approximate fair value. The prepaid lease expense approximates its
fair value.
h. Impairment of Long-Lived Assets - 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 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 assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell.
i. Prepaid Lease Expense - Prepaid lease expense represents the Company's
deposit relating to the Channel Lease Agreement (see note 8). The
amount is being amortized over the term of the lease agreement.
j. Deferred Financing Costs - Deferred financing costs at December 31,
1997 represent expenditures relating to the Access Capital, Inc. debt
financing (see note 10). The amount was being amortized over the term
of the loan and security agreement and was expensed as an
extraordinary item in 1998.
k. Earnings Per Share of Common Stock - The Company adopted SFAS 128
"Earnings Per Share" ("SFAS 128") which establishes standards for
computing and presenting earning per share and is effective for
financial statements for both interim and annual periods ending after
December 15, 1997. SFAS 128 replaced the calculation of primary and
fully diluted net income per share with basic and diluted net income
per share. Net loss per common share amounts for 1996 have been
restated to conform to SFAS 128 requirements. In calculating diluted
earnings per share, no potential shares of common stock are to be
included in the calculation when there is a loss from continuing
operations available to common stockholders.
F-8
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
NOTE 2 - RELATED PARTY TRANSACTIONS-CONFLICTS OF INTEREST
The following transactions occurred between the Company and
related parties:
a. Shareholder loans receivable of $38,707 and $43,810 at December 31,
1998 and 1997 are payable after May 1999 and are interest free.
b. In May 1997, the Company's majority shareholder converted its payables
of $131,889 to preferred stock. Previously this was recorded as a
current liability.
c. The Company has been informed that Cacomm, Inc., the Company's
majority shareholder, is a partner in a general partnership known as
the Grand MMDS Alliance. The Grand MMDS Alliance claims to hold the
licenses to certain MMDS channels, as a designated selectee of the
FCC. These channels cover similar broadcast areas as the Company, and
the possibility exists that the Grand MMDS Alliance could commence
business in direct competition with the Company. The Company has no
reliable information as to whether the Grand MMDS Alliance has
commenced business operations as of the date of this report.
d. During 1997, the prior lenders converted their accrued interest in the
amount of $105,468 to one year notes at 10% interest, with interest
and principal originally payable May 8,1998. The preferred
stockholders agreed to extend the maturity of the above mentioned
notes to May 8, 2000.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 are summarized by
major classification as follows:
1998 1997
---- ----
Office Furniture and Equipment $ 73,683 $ 67,771
Transportation Equipment 37,582 46,224
Machinery and Equipment 2,965,920 1,830,563
----------- -----------
3,077,185 1,944,558
Less: Accumulated Depreciation (1,122,022) (748,375)
----------- -----------
$ 1,955,163 $ 1,196,183
=========== ===========
Machinery and equipment relate principally to assets owned by the
Company located at the various colleges and nursing home sites
serviced by the Company.
F-9
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
NOTE 4 - INCOME TAXES
Income tax expense attributable to loss before provision for income
taxes and extraordinary item:
Current
Year ended December 31, 1998 1997 1996
---- ---- ----
Federal 0 0 0
State 4,851 3,989 710
----- ----- ---
TOTAL $4,851 $3,989 $710
====== ====== ====
Income tax expense attributable to loss before provision for income
taxes and extraordinary item differed from the amounts computed by
applying the U.S. Federal income tax rate of 34 percent to pretax
income from operations as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed expected tax benefit $(202,024) $(485,647) $(479,672)
Increase (reduction) in income taxes
resulting from:
Increase in valuation allowance for
federal & state deferred tax assets
180,794 462,815 467,009
Book vs. tax depreciation 11,310 19,200 11,153
State and local income taxes, net of
federal income tax benefit 3,202 2,633 469
Non-deductible portion of meals and
entertainment 1,867 2,775 736
Other, net 9,702 2,213 1,015
------- ------- -----
$ 4,851 $ 3,989 $ 710
======= ======= =====
</TABLE>
F-10
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
The temporary differences and carry forwards which give rise to
significant portions of the deferred tax assets and liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred tax assets:
<S> <C> <C>
Net operating loss carry forwards $ 3,359,823 $ 3,160,701
Compensation paid with Company stock 28,123 28,123
Organization and construction costs capitalized for tax
purposes 256,359 305,197
Less valuation allowance (3,622,645) (3,441,851)
----------- -----------
Net deferred tax assets 21,660 52,170
----------- -----------
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation (21,660) (52,170)
----------- -----------
Net deferred income taxes $ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, the Company has net operating loss carry
forwards for federal income tax purposes of approximately $7,606,000
which are available to offset future taxable income which expire in
varying amounts through 2013.
The Company's ability to use such net operating losses is limited by
change of control provisions under the Internal Revenue Code section
382.
NOTE 5 - NOTES RECEIVABLE FROM CUSTOMER
As part of the purchase of equipment by Fordham University for its
data system Fordham issued two non-interest bearing notes for $467,000
and $441,271 due May 15, 1999 and May 15, 2000, respectively. These
notes are secured by a security interest in the equipment at the
University for the data system.
F-11
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following at December 31,
Senior Debt 1998 1997
- ----------- ---- ----
10% Term Loan (a) $2,428,000 --
12.25% Term Note Due April 2000 (b) 6,642 $ 10,266
10% Note related to conversion (c) 105,468 105,468
---------- ----------
$2,540,110 $ 115,734
Less Current Portion 640,642 4,225
---------- ----------
Long-Term Debt $1,899,468 $ 111,509
========== ==========
Scheduled maturies of long-term debt at December 31, 1998 are as
follows:
Years Ending December 31,
1999 640,642
2000 799,468
2001 363,000
2002 426,000
2003 311,000
---------
2,540,110
=========
a. 10% Term BSB Bank & Trust Company Loan - On July 3, 1998, the Company
and BSB Bank and Trust Company ("BSB") entered into an agreement to
refinance the Company's existing credit line and supply working
capital. Pursuant thereto, Magnavision borrowed the sum of $2.5
million dollars which bears interest at a fixed rate of 10% per annum
and has a 5 year term. The loan requires monthly installments of
interest, plus 9 monthly payments of principal, payable in arrears, in
accordance with the agreed upon schedule starting October 1998. The
loan was utilized to refinance existing debt, (see note 10) and the
remaining approximate $1.9 million was used to finance the completion
of outstanding contracts for private cable television service at
various locations and to complete the Fordham University data
distribution system and for working capital. BSB also granted the
Company a $500,000 line of credit, to be used for future installations
of private cable systems and general corporate purposes. This line of
credit will be at an interest rate of prime plus 1.5% payable monthly
and will mature in 2 years. No amount was outstanding on the line of
credit at December 31, 1998.
In connection with the above transaction BSB received 146,176 warrants
to purchase approximately 4% of Magnavision's issued and outstanding
capital stock on a fully diluted basis at an exercise price of $2.00
per share.
(b) 12.25% Term note due April 2000 - Note payable to financing
company, payable in monthly installments of $436, including
interest at 12.25%, final payment due April 2000
collateralized by a vehicle with a book value of $5,985.
(c) 10% Note Related to Conversion - In 1997, the prior lenders
converted their accrued interest in the amount of $105,468 to
one year notes at 10% interest, with interest and principal
originally payable May 8,1998. The preferred stockholders
agreed to extend the maturity of the above mentioned notes to
May 8, 2000.
F-12
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
NOTE 7 - OPERATING LEASES
The Company leases office space and automobiles for use in continuing
operations for terms of 1 to 3 years. Minimum lease payments over the
remaining lease terms are as follows:
1999 $12,302
2000 4,490
2001 594
-------
$17,386
Rent expense under operating leases amounted to $38,998, $47,464 and
$40,127 for the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE 8 - LICENSE AGREEMENT
On August 20, 1990, the Company entered into an agreement with the
Department of Education, Archdiocese of New York ("the Archdiocese") which
would permit the Company to use the transmission capacity of the
Archdiocese. The agreement, which was amended in January 1994, grants the
Company a lease through January 2004 with a right to extend for an
additional five years and a right of first refusal for subsequent
renewals. Pursuant to the agreement, the Company must also pay to the
Archdiocese a royalty fee for the use of the Transmission Capacity, in
accordance with the terms and amounts described in the amended agreement.
In connection with the amended agreement the Company had a contingent
obligation to fund the reconstruction of the Archdiocese's system and
deposited $900,277 in an escrow account for the purpose of system
reconstruction upgrades. The Company recorded the deposit as prepaid lease
expense, and is amortizing the amount over the life of the agreement
through January 2004.
At December 31, 1998, the minimum royalty payments over the remaining
license term are as follows:
For the Year Ended
1999 $ 215,808
2000 215,808
2001 215,808
2002 215,808
2003 215,808
Thereafter 17,984
----------
$1,097,024
==========
F-13
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
NOTE 9 - NET INCOME (LOSS) PER SHARE
The Company computes basic and diluted earnings per share in accordance
with SFAS 128 "Earnings Per Share" which the Company adopted as of
December 31, 1997. The table reconciles the numerator and denominator of
the basic earnings per share computations shown on the consolidated
statements of operations.
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic and Diluted EPS
Numerator:
Extraordinary loss from early
extinguishment of debt $ 165,779 $ 275,844 -
Net loss (594,188) (1,428,373) (1,411,509)
Redeemable preferred stockholders
dividend 400,000 257,778 -
Accretion of Preferred Stock 92,593 54,012
------- ------ -----------
Net Loss to common stockholder (1,086,781) (1,740,163) (1,411,509)
=========== =========== ===========
Denominator:
Weighted Average
Common shares outstanding 1,154,354 1,152,504 1,147,030
Basic and Diluted EPS ($.94) ($1.51) ($1.23)
</TABLE>
Warrants to purchase 2,279,040, 2,134,774, and 1,025,150 of common stock
outstanding as of December 31, 1998, 1997 and 1996, respectively, were
excluded from the calculation of diluted net loss per share as the effect
of their inclusion would have been anti-dilutive.
Earnings per share data has been restated for 1996 to reflect the adoption
of SFAS 128.
NOTE 10 - ACCESS CAPITAL, INC. LINE OF CREDIT
In September 1997 the Company and Access Capital, Inc. agreed to a
$1,250,000 three year revolving line of credit to be used to expand the
Company's private cable business. At December 31, 1997 the Company had
borrowed $405,295 under the line of credit. Interest was payable currently
under the line of credit at prime rate plus five and one-half percent and
all outstanding amounts were payable in September 2000.
The line was secured with the lender by a pledge of private cable
contracts and all other Company assets. In addition the lender received
138,536 warrants at an exercise price of $2.00 per share to purchase
approximately 4% of the Company's stock on a fully diluted basis. The
warrants contain a put and call option in the event that the Company sells
a significant asset. The put option requires the Company to purchase a
percentage of the lenders' warrants as required by a formula outlined in
the amended agreement.
This option can only be exercised upon the sale of a significant asset of
the Company or change of control. Conversely, the call option allows the
Company to purchase all the outstanding warrants at a price set by the
formula stated above. The cost of either the put or call option can not be
determined at this time since it is based upon the value of a sale of a
significant asset which cannot be assured.
F-14
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
At December 31, 1997, the Company had not met certain non-monetary working
capital covenants under this agreement and the lender instituted a default
interest rate, equivalent to two and one-half percent over the contract
rate. As a result, the outstanding balance was classified as a current
liability in the accompanying consolidated balance sheet. The lender
continued to lend funds under the agreement.
The Company paid off this loan with the proceeds of the BSB Bank & Trust
loan on July 3, 1998 as discussed in note 6. The Company incurred a
penalty in connection with this termination together with the write-off of
the unamortized deferred financing costs have been classified as an
extra-ordinary item in the accompanying consolidated statement of
operations. The Warrant remains outstanding and expires May 8, 2008.
NOTE 11 - EXCHANGE OF DEBT TO REDEEMABLE PREFERRED STOCK
In August 1995, the Company obtained a $5,000,000 lending facility from
IBJ Schroder Bank & Trust Co., IBJS Whitehall Capital Corporation
(collectively "IBJS") and KOCO Capital Company, L.P. ("KOCO"), with
interest at 12% payable quarterly on any outstanding balance. The final
maturity date of any outstanding amount under the lending facility was
February 2001. Approximately $2,637,000 of that amount was furnished to
the Company at the time the lending facility was entered into, and the
remainder was to be advanced based on the present value of the projected
cash flow from new contracts with purchasers of the Company's private
cable television service.
Funds advanced were to be used for equipment and contract costs incurred
in connection with installation of the service at the new locations and
for working capital. The proceeds furnished at the time the lending
facility was entered into were utilized to fund an escrow deposit of
$900,000 for system configuration required under the Channel Lease
Agreement, to repurchase approximately 18% of the Company's issued and
outstanding capital stock and to provide working capital. In connection
with obtaining the lending facility, the Company issued to its lenders
361,965 and 121,909 warrants, respectively, to purchase approximately 27%
of the Company's Common Stock on a fully diluted basis at exercise prices
of $7.60 and $5.40 per share, respectively. These warrants expire on
August 27, 2003.
On June 3, 1996, the terms of the lending facility were amended. Pursuant
to the amendment, the lenders agreed to waive existing defaults and
provide up to the sum of $1,200,000 toward the Company's working capital
requirements without regard to the present value formula referred to
above, with the remaining balance of the $5 million to be advanced based
on the present value of projected cash flow from the contracts for new
outlets with institutions. In exchange therefore, the Company agreed to
issue warrants to purchase an additional 370,547 shares, representing 12%
of the Company's Common Stock on a fully diluted basis at an exercise
price of $5.40 per share. These warrants expire on June 4, 2004.
The amendment required the lenders to surrender to the Company warrants
for the purchase of up to 344,245 shares if, as and when the Company
complied with certain conditions outlined in the agreement. The amendment
had a put/call option in the event that the Company sold a significant
asset. The put option required the Company to purchase a percentage of the
lenders' warrants as required by a formula outlined in the amended
agreement. This option was only exercisable upon the sale of a significant
asset of the Company or a change of control. Conversely, the call option
allowed the Company to purchase all the outstanding warrants at a price
set by the formula stated above. The cost of either the put or call option
can not be determined at this time since it is based upon the value of a
sale of a significant asset which cannot be assured.
In connection with the June 3, 1996 amendment, the Company's rights under
the Channel Lease Agreement were transferred to a subsidiary whose stock
was pledged to the Lenders as security for amounts advanced under the
lending facility. The agreement was secured by the License Agreement and
the Company's institutional cable contracts. The agreement contained a
prepayment penalty for the first two years and placed limits on stock
sales and payment of dividends, and also contained several financial
covenants.
F-15
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
On May 8, 1997, the Company agreed with its lenders to exchange its senior
subordinated notes into redeemable preferred stock. Under the terms
thereof, the Company's outstanding subordinated notes, aggregating
approximately $4.1 million, together with accrued interest and detachable
warrants, were exchanged for $5 million of 8% redeemable preferred stock
due December 31, 2002.
In connection with the exchange, the lenders also funded the Company the
remaining balance on the existing line. In addition, the note holders
received 1,826,932 warrants to purchase up to 58% of the common stock on a
fully diluted basis at an exercise price of $2.00 per share after the
Company effected a 1-for-20 reverse stock split, and have the right, which
they have exercised, to elect the majority of the Board of Directors. This
resulted in a change in control of the Company. The agreement also
requires the warrant holders to surrender up to 10% of their stock on a
fully diluted basis, if, as and when certain liquidity events occur. In
addition, warrant holders have the right to require the Company to
repurchase the warrants under certain conditions. This option can only be
exercised upon the sale of an asset of the Company. The value of these
warrants was determined to have a fair value of $555,556 and represents a
discount to the face value of the redeemable preferred stock. The cost of
the put can not be determined at this time since it is based upon the
value of a sale of a significant asset which cannot be assured. Also, one
of the warrant holders has entered into a management service agreement
with the Company.
In connection with the exchange, the lenders agreed to issue one year
unsecured notes totaling $105,468 with interest at 10% payable at
maturity. (see note 6)
During 1997, the Company wrote off the unamortized deferred financing
costs related to the subordinated notes, which has been classified as an
extraordinary item in the accompanying consolidated statement of
operations.
NOTE 12 - REDEEMABLE PREFERRED STOCK
During 1997, the Company authorized 10,000,000 shares of Preferred Stock.
The Company also designated 5,000,000 shares of the authorized amount as
Series A Preferred Stock and 150,000 shares as Series B Preferred Stock
concurrent with the designation of the Preferred Stock. The Series A
Preferred Stock has a mandatory redemption due December 31, 2002 and an
optional redemption at face value at the Company's option. The then senior
subordinated notes along with the remaining balance of the line was
exchanged for 5,000,000 shares of 8% cumulative redeemable Series A
Preferred Stock, (see note 11). At closing, the Company received cash of
approximately $800,000 after expenses.
Holders of Series A Preferred Stock are entitled to receive, when and as
declared by the Company's Board of Directors, cash dividends cumulative at
the rate of 8% per share. Cumulative and unpaid dividends amounted to
approximately $657,778 at December 31, 1998.
F-16
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1998, 1997 AND 1996
NOTE 13 - STOCKHOLDERS EQUITY TRANSACTION
During 1998, warrant holders exercised warrants to purchase 1,880 shares
of common stock at $2.00 per share.
On May 8,1997 the Company effected a 1-for-20 reverse split of its common
stock such that each outstanding share of common stock was, effective May
9, 1997, converted into .05 shares of post split common stock and the par
value of common stock was changed from $.004 to $.08 per share. All
periods have been reinstated to reflect the stock split.
During 1997, the Company purchased 66 shares, which represented fractional
shares purchased in the execution of the 1 for 20 reverse stock split for
shareholders.
During 1997, the Company also converted a shareholder loan into shares of
Series B Preferred Stock (see note 2).
During 1997, a management warrant holder exercised warrants to purchase
354 shares of common stock at $2.00 per share.
During 1996, the Company issued 10,000 shares of common stock at $5.00.
These shares were issued to non-management shareholders who assisted in
facilitating the redemption of the 231,318 shares of common stock held in
treasury. The treasury stock was subsequently retired as required by its
lenders.
During 1996, non-management and management warrant holders exercised
warrants for 5,067 shares of common stock at an exercise price of $5.00
per share.
During 1996, the Company granted 370,546 warrants to purchase shares of
its common stock at exercise prices ranging from $5.00 to $20.00 per
share.
In February 1997, the Company reduced the exercise price of 123,464
warrants held by officers and directors of the Company from an exercise
price of $5.00 to $2.00. Such reduction was effected to more accurately
reflect the market value of the underlying shares.
NOTE 14 - SIGNIFICANT CUSTOMERS
For the years ending December 31, 1998, 1997 and 1996, revenue from three
customers represented 33%, 40%, and 50% respectively, of total revenues.
NOTE 15 - CONCENTRATION OF CREDIT RISK
The Company has notes receivable from Fordham University. The notes are
secured by equipment at the University.
Also, the Company maintains its cash at a financial institution. The
Federal Deposit Insurance Corporation only insures up to $100,000 at any
one financial institution. The Company rarely, if ever, maintains cash of
more than $100,000 in any one institution.
F-17
<PAGE>
PROMISSORY NOTE
Borrower: MAGNAVISION CORPORATION
1725 Route 35
Wall, NJ 07719
Lender: BSB BANK & TRUST COMPANY
Commercial Loan Department
P. O. Box 1056 (58-68 Exchange St.)
Binghamton, NY 13902
Principal Amount: $500,000.00
Initial Rate: 10.00%
Date of Note: July 3, 1998
PROMISE TO PAY. MAGNAVISION CORPORATION (referred to in this Note as "Borrower")
promises to pay to BSB BANK & TRUST COMPANY ("Lender"), or order, in lawful
money of the United States of America, the principal amount of Five Hundred
Thousand & 00/100 Dollars ($500,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on July 1, 2000. In addition, Borrower will pay
regular monthly payments of accrued unpaid interest beginning August 1, 1998,
and all subsequent interest payments are due on the some day of each month after
that. Borrower will pay Lender at Lender's address shown above or at such other
place as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the lowest Prime Rate as
quoted from time to time in the Wall Street Journal (the "Index"). Lender will
tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans to other parties based on other rates as
well. The interest rate change will not occur more often than each day. The
Index currently is 8.50% per annum. The interest rate to be applied to the
unpaid principal balance of this Note will be at a rate equivalent to the Index,
plus 1.5% (the "Index Spread"), resulting in an initial rate of 10.00% per
annum.
NOTICE: In no event shall the interest rate at any time be higher than that
permitted under applicable law.
INDEX SPREAD ADJUSTMENT. Index Spread to be charged on Line of Credit shall be
subject to adjustment on an annual basis, at a date thirty (30) days following
the Lender's receipt of the Borrower's audited year end financial statement, in
accordance with the following grid:
Debt Service Coverage Ratio Adjustment to Index Spread
------------------------------------------ ------------------------------
Less than 2.0 times 0.00%
Equal to 2.0 times but less than 3.0 times 0.50% reduction
Equal to 3.0 times or more 1.00% reduction
Debt Service Coverage Ratio shall be defined as (1) Borrower's net earnings
before interest paid to Bank, taxes, depreciation, and amortization, divided by
(2) all principal scheduled and interest projected to be paid by Borrower to
Lender in the Borrower's next following fiscal year.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
4.000% of the unpaid portion of the regularly scheduled payment or $10.00,
whichever is greater.
<PAGE>
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment within 5 days when due. (b) Borrower breaks
any promise Borrower has made to Lender contained in this Note or any agreement
executed contemporaneously herewith, or Borrower fails to comply with or to
perform when due, in any material respects, any other term, obligation,
covenant, or condition contained in this Note or any agreement executed
contemporaneously herewith. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other agreement,
in favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any of the other
events described in this default section occurs with respect to any guarantor of
this Note.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within thirty (30) days; or (b) if
the cure requires more than thirty (30) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 4.000
percentage points over the Index Spread. The interest rate will not exceed the
maximum rate permitted by applicable law. Borrower agrees to pay all costs and
expenses incurred by Lender to collect this Note. This includes, subject to any
limits under applicable law, Lender's reasonable attorneys' fees and Lender's
legal expenses whether or not there is a lawsuit, including reasonable
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of New York. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Broome County, the State
of New York. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other. This Note shall be governed by and construed In accordance with the
laws of the State of New York.
RIGHT OF SETOFF. In addition to Lender's right of setoff arising by operation of
law, Borrower grants to Lender a contractual possessory security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account and whether evidenced by a
certificate of deposit), including without limitation all accounts held jointly
with someone else and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Borrower authorizes Lender,
to the extent permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
COLLATERAL. This Note is secured by ALL ACCOUNTS, INVENTORY, EQUIPMENT, GENERAL
INTANGIBLES, NOW OWNED OR ACQUIRED LATER, TOGETHER WITH ALL PROCEEDS OF
COLLATERAL. If there is any inconsistency between the terms and conditions of
this Note and the terms and conditions of the collateral documents, the terms
and conditions of this Note shall prevail.
<PAGE>
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. All
communications, instructions, or directions by telephone or otherwise to Lender
are to be directed to Lender's office shown above. The following party or
parties are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: _______________
______________________________________. Borrower agrees to be liable for all
sums either (a) advanced in accordance with the instructions of an authorized
person or (b) credited to any of Borrower's accounts with Lender. The unpaid
principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; or (d) Borrower has
applied funds provided pursuant to this Note for purposes other than those
authorized by Lender.
YEAR 2000. Borrower warrants and represents that all software utilized by
Borrower in the conduct of Borrower's business will have appropriate
capabilities and compatibility for operation to handle calendar dates falling on
or after January 1, 2000, and all information pertaining to such calendar dates,
in the same manner and with the same functionality, in all material respects, as
the software does respecting calendar dates falling on or before December 31,
1999. Further, Borrower warrants and represents that the data-related user
interface functions, date-fields, and date-related program instructions and
functions of the software include the indication of the century. GENERAL
PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
MAGNAVISION CORPORATION
By:_____________________________
<PAGE>
LOAN AGREEMENT
Borrower: MAGNAVISION CORPORATION
1725 Route 35
Wall, NJ 07719
Lender: BSB BANK & TRUST COMPANY
Commercial Loan Department
P.O. Box 1056 (58-68 Exchange St.)
Binghamton, NY 13902
THIS LOAN AGREEMENT between MAGNAVISION CORPORATION (referred to in this
Agreement as "Borrower") and BSB BANK & TRUST COMPANY (referred to in this
Agreement as "Lender") is made and executed on the following terms and
conditions. Borrower has applied to Lender for a commercial loan or loans and
other financial accommodations, which are described in this Agreement. All such
loans and financial accommodations, are referred to in this Agreement
individually as the "Loan" and collectively as the "Loans." Borrower understands
and agrees that: (a) in granting, renewing, or extending any Loan, Lender is
relying upon Borrower's representations, warranties, and agreements, as set
forth in this Agreement; (b) the granting, renewing, or extending of any Loan by
Lender at all times shall be subject to Lender's sole judgment and discretion
except for what has been agreed to herein; and (c) all such Loans shall be and
shall remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of July 3, 1998, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement have the meanings
attributed to such terms in the Uniform Commercial Code. All references to
dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with
all exhibits and schedules attached to this Loan Agreement from time to
time.
Borrower. The word "Borrower" means MAGNAVISION CORPORATION.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or
title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Event of Default. The words "Event of Default" mean any of the Events
of Default set forth below in the section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means each and all of the persons or
entities granting a Security Interest in any Collateral for the
Indebtedness, including without limitation all Borrowers granting such
a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surety, or otherwise; whether
recovery upon such Indebtedness may be or hereafter may become barred
by any statute of limitations; and whether such Indebtedness may be or
hereafter may become otherwise unenforceable.
Lender. The word "Lender" means BSB BANK & TRUST COMPANY, its
successors and assigns.
<PAGE>
Loan. The word "Loan" or "Loans" means and includes the commercial
loans and financial accommodations from Lender to Borrower described
herein or described on any document executed contemporaneously herewith
or exhibit or schedule attached to this Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens
and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of
Borrower's assets.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
Security Agreement. The words "Security Agreement" mean the Security
Agreement executed contemporaneously herewith.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel, including without limitation any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender__roperly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds and as of the date of any renewal, extension or modification of any
Loan.
<PAGE>
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the state of
its incorporation and is validly existing and in good standing in all
states in which Borrower is doing business. Borrower has the requisite
power and authority to own its properties and to transact the
businesses in which it is presently engaged or presently proposes to
engage. Borrower also is duly qualified as a foreign corporation and is
in good standing in all states in which the failure to so qualify would
have a material adverse effect on its businesses or financial
condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute
a default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed in all material respect
Borrower's financial condition as of the date of the statement, and
there has been no material adverse change in Borrower's financial
condition subsequent to the date of the most recent financial statement
supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good
title to all of Borrower's properties free and clear of all Security
Interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower's properties
are titled in Borrower's legal name, and Borrower has not used, or
filed a financing statement under, any other name for at least the last
five (5) years.
<PAGE>
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to Lender, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there
has been no use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any hazardous waste or substance by
any person on, under, about or from any of the properties in violation
of any applicable state or federal law or regulation. (b) Borrower has
no knowledge of, or reason to believe that there has been (i) any use,
generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about
or from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower
nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or
from any of the properties in violation of any applicable state or
federal law or regulation; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or tests
made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or
liability on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on Borrower's
due diligence in investigating the properties for hazardous waste and
hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnify and hold harmless Lender against any and
all claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened
release occurring prior to Borrower's ownership or interest in the
properties, whether or not the same was or should have been known to
Borrower. The provisions of this section of the Agreement, including
the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of
the properties, whether by foreclosure or otherwise.
<PAGE>
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event
has occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided. Lien Priority. Unless otherwise previously
disclosed to Lender in writing, Borrower has not entered into or
granted any Security Agreements, or permitted the filing or attachment
of any Security Interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrowers Loan and Note,
that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and any of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 1725 Route 35, Wall, New
Jersey 07719. Unless Borrower has designated otherwise in writing this
location is also the office or offices where Borrower keeps its records
concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be
paid in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Deposit Accounts. Maintain its operating deposit accounts with Lender
and use a Lender lock box to deposit all daily cash receipts of
accounts receivable.
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could reasonably be expected to materially affect the financial
condition of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
<PAGE>
Financial Statements. Furnish Lender with, as soon as available, but in
no event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and,
as soon as available, but in no event later than seventy five (75) days
after the end of each fiscal quarter, Borrower's balance sheet and
profit and loss statement for the period ended, as provided by Borrower
to the Securities and Exchange Commission. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis.
Annual Budget. The Borrower shall provide the Lender, at least thirty
(30) days prior to the beginning of each fiscal year, with an annual
budget prepared on a month-by-month basis for the next following fiscal
year, including consolidated income and cash flow statements and
balance sheets.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may reasonably request from time to time.
Financial Covenants. The Borrower shall be required to adhere to the
following covenants as of the Borrower's December 31, 1998 fiscal year
end:
1) Maintain Minimum Net Worth of $350,000.00. Net Worth
shall include Total Shareholders' Equity (Deficiency)
and all Preferred Stock issues.
The Borrower shall as of Borrower's December 31, 1999 fiscal year end:
1) Maintain Minimum Net Worth (as defined) of
$375,000.00.
2) Maintain Minimum Earnings before Interest, Taxes,
Depreciation, and Amortization ("EBITDA") of
$800,000.00.
Additional financial covenants, mutually agreed to by Borrower and
Bank, shall be established for fiscal years ending after December 31,
1999, by not later than March 1, 2000.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender. Borrower,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be canceled or
diminished without at least thirty (30) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more often
than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
<PAGE>
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, executed by the
guarantors named below, on Lender's forms, and in the amounts and under
the conditions spelled out in those guaranties.
Guarantor Amounts
Magnavision Corporation (NJ) Unlimited
Magnavision Private Cable, Inc. Unlimited
Magnavision Wireless Cable, Inc. Unlimited
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender promptly in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or
profits.
Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.
Operations. Provide written notice to Lender of any change in executive
and management personnel; conduct its business affairs in a reasonable
and prudent manner and in compliance with all applicable federal, state
and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
<PAGE>
Inspection. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts,
and records and to make copies and memoranda of Borrower's books,
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement are
true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of Default
exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
material respects with all environmental protection federal, state and
local laws, statutes, regulations and ordinances; not cause or permit
to exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrowers part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
<PAGE>
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error and which Lender shall apply to all
similarly situated borrowers equally.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien,
sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity after the date hereof, or (c) incur any
obligation as surety or guarantor other than in the ordinary course at
business.
Wireless Business. Prohibit further material investment or allocation
of capital or other Borrower resources in the development of its
Wireless Business Plan, (1) except from equity or investment funds
raised (or subordinated debt financing borrowed) specifically for that
purpose, (2) except from operating cash flows generated by and directly
attributable to the operation of the Wireless Business Plan, (3) except
for an aggregate amount not to exceed $100,000.00 from the Term Loan,
and (4) except for continuing payments required under the License
Agreement between the Borrower and the Department of Education of the
Archdiocese of New York.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement of
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
RIGHT OF SETOFF. In addition to Lender's right of setoff arising by operation of
law, Borrower grants to Lender a contractual possessory security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account and whether evidenced by a
certificate of deposit), including without limitation all accounts held jointly
with someone else and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Borrower authorizes Lender,
to the extent permitted by applicable law, to charge or setoff all sums owing on
the Indebtedness against any and all such accounts.
<PAGE>
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment within
5 days when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due, in any material respect, any other term, obligation,
covenant or condition contained in this Agreement or in any of the
Related Documents, or failure of Borrower to comply with or to perform,
in any material respect, any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower
executed contemporaneously herewith.
Default In Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or any warranty,
representation or statement is made which is false or misleading at any
time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings. whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower or Grantor, as the case may
be, as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding, and if Borrower or
Grantor give Lender written notice of the creditor or forfeiture
proceeding and furnishes reserves or a surety bond for the creditor or
forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness, or revokes or
disputes the validity of, or liability under, any Guaranty of the
Indebtedness.
Change In Ownership. The directors designated from time to time by any
of IBJ Schroder Bank & Trust Co., IBJS Capital Corporation and KOCO
Capital Company, L.P. no longer constitute a majority of the board of
directors.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been
given a notice of a similar default within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such default: (a) cures the default
within thirty (30) days; or (b) if the cure requires more than thirty
(30) days, immediately initiates steps which Lender deems in Lender's
sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
<PAGE>
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of New York. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Broome County, the State of New York. Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret
or define the provisions of this Agreement.
<PAGE>
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any
rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of
any such participation interests will be considered as the absolute
owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses
that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
reasonable expenses, including without limitation reasonable attorneys'
fees, incurred in connection with the preparation, execution,
enforcement, modification and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement. Borrower
further agrees to pay all costs and expenses incurred by Lender to
collect the Loans and to enforce this Agreement. This includes, subject
to any limits under applicable law, Lender's reasonable attorneys' fees
and Lender's legal expenses, whether or not there is a lawsuit,
including reasonable attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunctions, appeals, and any anticipated post-judgment collection
services). Borrower also will pay any court costs, in addition to all
other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, certified mail, return receipt requested, addressed to
the party to whom the notice is to be given at the address shown above.
Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party's address. To the extent
permitted by applicable law, if there is more than one Borrower, notice
to any Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of Borrower's
current address(es).
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
<PAGE>
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on Lender's
behalf.
Time Is of the Essence. Time is of the essence in the performance of
this Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of
Borrower or of any Grantor as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of
such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
Termination. When Lender has been paid in full under all of Borrower's
outstanding obligations and all Loans have been terminated, Lender will
release any and all liens. Borrower will be responsible for all fees
and costs to effectuate the release of liens.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY 3, 1998.
BORROWER:
MAGNAVISION CORPORATION
By:
-------------------------------------
LENDER:
BSB BANK & TRUST COMPANY
By:
-------------------------------------
John B. Westcott
Administrative Vice President
<PAGE>
COMMERCIAL SECURITY AGREEMENT
Borrower: MAGNAVISION CORPORATION
1725 Route 35
Wall, NJ 07719
Lender: BSB BANK & TRUST COMPANY
Commercial Loan Department
P. O. Box 1056 (58-68 Exchange St.)
Binghamton, NY 13902
THIS COMMERCIAL SECURITY AGREEMENT is entered into between MAGNAVISION
CORPORATION (referred to below as "Grantor"); and BSB BANK & TRUST COMPANY
(referred to below as "Lender"). For valuable consideration, Grantor grants to
Lender a security interest in the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All inventory, equipment, accounts and general intangibles
in addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described
in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
<PAGE>
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means MAGNAVISION CORPORATION, its
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means BSB BANK & TRUST COMPANY, its
successors and assigns.
Notes. The word "Note" means (i) the note or credit agreements dated
July 3, 1998, in the aggregate principal amount of $2,500,000.00 from
MAGNAVISION CORPORATION to Lender, (ii) the note dated July 3, 1998, in
the aggregate principal amount of $500,000.00 from MAGNAVISION
CORPORATION to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions
for the note or credit agreement.
Related Documents. The words "Related Document" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
RIGHT OF SETOFF. In addition to Lender's right of setoff arising by operation of
law, Grantor hereby grants Lender a contractual possessory security interest in
and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's
right, title and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account and whether evidenced by a certificate
of deposit), including all accounts held jointly with someone else and all
accounts Grantor may open in the future, excluding, however, all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Grantor authorizes Lender, to the extent permitted
by applicable law, to charge or setoff all Indebtedness against any and all such
accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are reasonably
requested by Lender to perfect and continue Lender's security interest
in the Collateral. Upon request of Lender, Grantor will deliver to
Lender any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable attorney-in-fact for
the purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement. Lender may at
any time, and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement
or of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor authorizes Lender to file a financing statement
covering the Collateral without Grantor's signature pursuant to Uniform
Commercial Code Section 9-402(2)(e). Grantor promptly will notify
Lender before any change in Grantor's name including any change to the
assumed business names of Grantor. This is a continuing Security
Agreement and will continue in effect until all of the Indebtedness is
paid in full and the Loan is terminated and even though for a period of
time Grantor may not be indebted to Lender.
<PAGE>
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property owned
or being purchased by Grantor; (b) all real property being rented or
leased by Grantor, (c) all storage facilities owned, rented, leased, or
being used by Grantor; and (d) all other properties where Collateral is
or may be located. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of New York, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or dispose
of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of Grantor's
business does not include a transfer in partial or total satisfaction
of a debt or any bulk sale. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement or Permitted Liens, without the
prior written consent of Lender. This includes security interests even
if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (not in the ordinary course of business) shall be
held in trust for Lender and shall not be commingled with any other
funds; provided however, this requirement shall not constitute consent
by Lender to any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement and Permitted Liens.
No financing statement covering any of the Collateral is on file in any
public office other than those which reflect the security interest
created by this Agreement or to which Lender has specifically consented
or with respect to Permitted Liens. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
<PAGE>
Collateral Schedules and Locations. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may reasonably
require, including without limitation names and addresses of account
debtors and agings of accounts and general intangibles. Insofar as the
Collateral consists of inventory and equipment, Grantor shall deliver
to Lender, as often as Lender shall reasonably require, such lists,
descriptions, and designations of such Collateral as Lender may require
to identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries
or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall promptly notify
Lender of all cases in excess of $50,000.00, involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any
request for credit or adjustment or of any other dispute arising with
respect to the Collateral; and generally of all happenings and events
affecting the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due any taxes, assessments
and liens upon the Collateral, its use or operation, upon this Agreement, upon
any promissory note or notes evidencing the Indebtedness, or upon any of the
other Related Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as Lender's interest in
the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or other
security satisfactory to Lender in an amount adequate to provide for the
discharge of the lien plus any interest, costs, reasonable attorneys' fees or
other charges that could accrue as a result of foreclosure or sale of the
Collateral. In any contest Grantor shall defend itself and Lender and shall
satisfy any final adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
<PAGE>
Compliance With Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
(CERCLA), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 (SARA), the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing which is in violation of any of the above. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this provision of
this Agreement. This obligation to indemnify shall survive the payment
of the Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be canceled or diminished without
at least thirty (30) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to give
such a notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest, Grantor will provide Lender with such
loss payable or other endorsements as Lender may require. If Grantor at
any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in
the Collateral.
<PAGE>
Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within
six (6) months after their receipt and which Grantor has not committed
to the repair or restoration of the Collateral shall be used to prepay
the Indebtedness. Grantor hereby appoints Lender as its
attorney-in-fact with full power and authority to endorse in Grantor's
name any check or draft representing the proceeds of any insurance on
the Collateral and to settle or compromise in Grantor's name any claims
with respect to such insurance.
Insurance Reserves. If Grantor is in Default of this Agreement or any
Related Documents, Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the
premium due date, amounts at least equal to the insurance premiums to
be paid. If fifteen (15) days before payment is due, the reserve funds
are insufficient, Grantor shall upon demand pay any deficiency to
Lender. The reserve funds shall be held by Lender as a general deposit
and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by
Grantor as they become due. Lender does not hold the reserve funds in
trust for Grantor, and Lender is not the agent of Grantor for payment
of the insurance premiums required to be paid by Grantor. The
responsibility for the payment of premiums shall remain Grantor's sole
responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
<PAGE>
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default, as defined
in the default provisions, and except as otherwise provided below with respect
to accounts, Grantor may have possession of the tangible personal property and
beneficial use of all the Collateral and may use it in any lawful manner not
inconsistent with this Agreement or the Related Documents, provided that
Grantor's right to possession and beneficial use shall not apply to any
Collateral where possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Grantor may collect any
of the Collateral consisting of accounts. At any time an Event of Default
exists, Lender may exercise its rights to collect the accounts and to notify
account debtors to make payments directly to Lender for application to the
Indebtedness. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Grantor shall request or as Lender, in
Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes,
with the exception of insurance premiums paid by Lender with respect to motor
vehicles, will then bear interest at the rate charged under the Note from the
date incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment within
5 days when due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
<PAGE>
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any time
and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of
the same provision of this Agreement, it may be cured (and no Event of
Default will have occurred) if Grantor, after Lender sends written
notice demanding cure of such default, (a) cures the default within
thirty (30) days; or (b), if the cure requires more than thirty (30)
days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the New York Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness, including
any prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice.
<PAGE>
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and selling
the Collateral (including legal fees and costs), shall become a part of
the Indebtedness secured by this Agreement and payable from the
proceeds of the disposition of the Collateral, and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
payable from the proceeds of the disposition of the Collateral, and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then
due. For these purposes, Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to Grantor; change
any address to which mail and payments are to be sent; and endorse
notes, checks, draft, money orders, documents of title, instruments and
items pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors
on any Collateral to make payments directly to Lender.
<PAGE>
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part at
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of New York. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Broome County,
the State of New York. Lender and Grantor hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by either Lender or
Grantor against the other. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, including
reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment
collection services. Grantor also shall pay all court costs and such
additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, draft or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral,
and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness, and
the authority hereby conferred is and shall be irrevocable and shall
remain in full force and effect until renounced by Lender.
<PAGE>
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
Termination. When Lender has been paid in full under all of Borrower's
outstanding obligations and all Loans have been terminated, Lender will
release any and all liens. Borrower will be responsible for all fees
and costs to effectuate the release of liens.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 3,
1998.
GRANTOR:
MAGNAVISION CORPORATION
By:
----------------------------------
LENDER:
BSB BANK & TRUST COMPANY
By:
----------------------------------
John B. Westcott
Administrative Vice President
<PAGE>
COMMERCIAL PLEDGE AND SECURITY AGREEMENT
Borrower: Magnavision Corporation Lender: BSB Bank & Trust Company
1725 Route 35 Commercial Loan Department
Wall, NJ 07719 P. O. Box 1056 (58-68 Exchange St.)
Binghamton, NY 13902
THIS COMMERCIAL PLEDGE AND SECURITY AGREEMENT is entered into between
Magnavision Corporation (referred to below as "Grantor"); and BSB Bank & Trust
Company (referred to below as "Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement:
Agreement. The word "Agreement" means this Commercial Pledge and
Security Agreement, as this Commercial Pledge and Security Agreement
may be amended or modified from time to time, together with all
exhibits and schedules attached to this Commercial Pledge and Security
Agreement from time to time.
Collateral. The word "Collateral" means the following specifically
described property, which Grantor has delivered or agrees to deliver
(or cause to be delivered or appropriate book-entries made) immediately
to Lender, together with all Income and Proceeds as described below:
Magnavision Corporation stock, Cert#_________
Event of Default. The words "Event of Default' mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word 'Grantor" means Magnavision Corporation, its
successors and assigns.
<PAGE>
Guarantor. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
the Indebtedness.
Income and Proceeds. The words "Income and Proceeds' mean all present
and future income, proceeds, earnings, increases, and substitutions
from or for the Collateral of every kind and nature, including without
limitation all payments, interest, profits, distributions, benefits,
rights, options, warrants, dividends, stock dividends, stock splits,
stock rights, regulatory dividends, distributions, subscriptions,
monies, claims for money due and to become due, proceeds of any
insurance on the Collateral, shares of stock of different par value or
no par value issued in substitution or exchange for shares included in
the Collateral, and all other property Grantor is entitled to receive
on account of such Collateral, including accounts, documents,
instruments, chattel paper, and general intangibles.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" includes all other obligations,
debts and liabilities, plus interest thereon, of Grantor, or any one or
more of them, to Lender, as well as all claims by Lender against
Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others; whether
Grantor may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such indebtedness may be or hereafter
may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means BSB Bank & Trust Company, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated June 18,
1998, in the principal amount of $2,500,000.00 from Magnavision
Corporation to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions
for the note or credit agreement.
Obligor. The word "Obligor" means and includes without limitation any and all
persons or entities obligated to pay money or to perform some other act under
the Collateral.
<PAGE>
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
RIGHT OF SETOFF. In addition to Lender's right of setoff arising by operation of
law, Grantor hereby grants Lender a contractual security interest in and hereby
assigns, conveys, delivers, pledges, and transfers all of Grantor's right, title
and interest in and to Grantor's accounts with Lender (whether checking,
savings, or some other account and whether evidenced by a certificate of
deposit), including all accounts held jointly with someone else and all accounts
Grantor may open in the future, excluding, however, all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all Indebtedness against any and all such
accounts.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor
represents and warrants to Lender that:
Ownership. Grantor is the lawful owner of the Collateral free and clear
of all security interests, liens, encumbrances and claims of others
except as disclosed to and accepted by Lender in writing prior to
execution of this Agreement.
Right to Pledge. Grantor has the full right, power and authority to
enter into this Agreement and to pledge the Collateral.
Binding Effect. This Agreement is binding upon Grantor, as well as
Grantor's heirs, successors, representatives and assigns, and is
legally enforceable in accordance with its terms.
No Further Assignment. Grantor has not, and will not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor's rights in
the Collateral except as provided in this Agreement.
No Defaults. There are no defaults existing under the Collateral, and
there are no offsets or counterclaims to the same. Grantor will
strictly and promptly perform each of the terms, conditions, covenants
and agreements contained in the Collateral which are to be performed by
Grantor, if any.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
<PAGE>
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold the
Collateral until all the Indebtedness has been paid and satisfied and thereafter
may deliver the Collateral to any Grantor. Lender shall have the following
rights in addition to all other rights it may have by law:
Maintenance and Protection of Collateral. Lender may, but shall not be
obligated to, take such steps as it deems necessary or desirable to
protect, maintain, insure, store, or care for the Collateral, including
payment of any liens or claims against the Collateral. Lender may
charge any cost incurred in so doing to Grantor.
Income and Proceeds from the Collateral. Lender may receive all Income
and Proceeds and add it to the Collateral. Grantor agrees to deliver to
Lender immediately upon receipt, in the exact form received and without
commingling with other property, all income and Proceeds from the
Collateral which may be received by, paid, or delivered to Grantor or
for Grantor's account, whether as an addition to, in discharge of, in
substitution of, or in exchange for any of the Collateral.
Application of Cash. At Lender's option, Lender may apply any cash,
whether included in the Collateral or received as Income and Proceeds
or through liquidation, sale, or retirement, of the Collateral, to the
satisfaction of the Indebtedness or such portion thereof as Lender
shall choose, whether or not matured.
Transactions with Others. Lender may (a) extend time for payment or
other performance, (b) grant a renewal or change in terms or
conditions, or (c) compromise, compound or release any obligation, with
any one or more Obligors, endorsers, or Guarantors of the Indebtedness
as Lender deems advisable, without obtaining the prior written consent
of Grantor, and no such act or failure to act shall affect Lender's
rights against Grantor or the Collateral.
All Collateral Secures Indebtedness. All Collateral shall be security
for the Indebtedness, whether the Collateral is located at one or more
offices or branches of Lender and whether or not the office or branch
where the Indebtedness is created is aware of or relies upon the
Collateral.
Collection of Collateral. Lender, at Lender's option may, but need not,
collect directly from the Obligors on any of the Collateral all Income
and Proceeds or other sums of money and other property due and to
become due under the Collateral, and Grantor authorizes and directs the
Obligors, if Lender exercises such option, to pay and deliver to Lender
all Income and Proceeds and other sums of money and other property
payable by the terms of the Collateral and to accept Lender's receipt
for the payments.
<PAGE>
Power of Attorney. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, with full power of substitution, (a) to demand,
collect, receive, receipt for, sue and recover all Income and Proceeds
and other sums of money and other property which may now or hereafter
become due, owing or payable from the Obligors in accordance with the
terms of the Collateral; (b) to execute, sign and endorse any and all
instruments, receipts, checks, drafts and warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and in the place and stead of Grantor,
execute and deliver Grantor's release and acquittance for Grantor; (d)
to file any claim or claims or to take any action or institute or take
part in any proceedings, either in Lender's own name or in the name of
Grantor, or otherwise, which in the discretion of Lender may seem to be
necessary or advisable; and (e) to execute in Grantor's name and to
deliver to the Obligors on Grantor's behalf, at the time and in the
manner specified by the Collateral, any necessary instruments or
documents.
Perfection of Security Interest. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral. When applicable law provides more than one
method of perfection of Lender's security interest, Lender may choose
the method(s) to be used. Upon request of Lender, Grantor will sign and
deliver any writings necessary to perfect Lender's security interest.
If the Collateral consists of securities for which no certificate has
been issued, Grantor agrees, at Lender's option, either to request
issuance of an appropriate certificate or to execute appropriate
instructions on Lender's forms instructing the issuer, transfer agent,
mutual fund company, or broker, as the case may be, to record on its
books or records, by book-entry or otherwise, Lender's security
interest in the Collateral. Grantor hereby appoints Lender 'as
Grantor's irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue the security interest
granted in this Agreement. This is a continuing Security Agreement and
will continue in effect even though all or any part of the Indebtedness
is paid in full and even though for a period of time Grantor may not be
indebted to Lender.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may
(but shall not be obligated to) discharge or pay any amounts required
to be discharged or paid by Grantor under this Agreement, including
without limitation all taxes, liens, security interests, encumbrances,
and other claims, at any time levied or placed on the Collateral.
Lender also may (but shall not be obligated to) pay all costs for
insuring, maintaining and preserving the Collateral. All such
expenditures incurred or paid by Lender for such purposes, with the
exception of insurance premiums paid by Lender with respect to motor
vehicles, will then bear interest at the rate charged under the Note
from the date incurred of paid by Lender to the date of repayment by
Grantor.
<PAGE>
All such expenses shall become a part of the Indebtedness and, at
Lender's option, will (a) be payable on demand, (b) be added to the
balance of the Note and be apportioned among and be payable with any
installment payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the Note, or
(c) be treated as a balloon payment which will be due and payable at
the Note's maturity. This Agreement also will secure payment of these
amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an
Event of Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary
reasonable care in the physical preservation and custody of the
Collateral in Lender's possession, but shall have no other obligation
to protect the Collateral or its value. In particular, but without
limitation, Lender shall have no responsibility for (a) any
depreciation in value of the Collateral or for the collection or
protection of any Income and Proceeds from the Collateral, (b)
preservation of rights against parties to the Collateral or against
third persons, (c) ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to any of the
Collateral, or (d) informing Grantor about any of the above, whether or
not Lender has or is deemed to have knowledge of such matters. Except
as provided above, Lender shall have no liability for depreciation or
deterioration of the Collateral.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment with 5
days when due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason. Insolvency. The
dissolution or termination of Grantor's existence as a going business,
the insolvency of Grantor, the appointment of a receiver for any part
of Grantor's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture
proceeding, in an amount determined by Lender, in its sole discretion,
as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
<PAGE>
Right to Cure. If any default, other than a Default on Indebtedness, is curable
and if Grantor has not been given a prior notice of a breach of the same
provision of this Agreement, it may be cured (and no Event of Default will have
occurred) if Grantor, after Lender sends written notice demanding cure of such
default, (a) cures the default within thirty (30) days; or (b), if the cure
requires more than thirty (30) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
Accelerate Indebtedness. Declare all Indebtedness, including any
prepayment penalty which Grantor would be required to pay, immediately
due and payable, without notice of any kind to Grantor.
Collect the Collateral. Collect any of the Collateral and, at Lender's
option and to the extent permitted by applicable law, retain possession
of the Collateral while suing on the Indebtedness.
Sell the Collateral. Sell the Collateral, at Lender's discretion, as a
unit or in parcels, at one or more public or private sales. Unless the
Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, Lender shall give
or mail to Grantor, or any of them, notice at least ten (10) days in
advance of the time and place of any public sale, or of the date after
which any private sale may be made. Grantor agrees that any requirement
of reasonable notice is satisfied if Lender mails notice by ordinary
mail addressed to Grantor, or any of them, at the last address Grantor
has given Lender in writing. If a public sale is held, there shall be
sufficient compliance with all requirements of notice to the public by
a single publication in any newspaper of general circulation in the
county where the Collateral is located, setting forth the time and
place of sale and a brief description of the property to be sold.
Lender may be a purchaser at any public sale.
Register Securities. Register any securities included in the Collateral
in Lender's name and exercise any rights normally incident to the
ownership of securities.
Sell Securities. Sell any securities included in the Collateral in a
manner consistent with applicable federal and state securities laws,
notwithstanding any other provision of this or any other agreement. If,
because of restrictions under such laws, Lender is or believes it is
unable to sell the 'securities in an open market transaction, Grantor
agrees that Lender shall have no obligation to delay sale until the
securities can be registered, and may make a private sale to one or
more persons or to a restricted group of persons, even though such sale
may result in a price that is less favorable than might be obtained in
an open market transaction, and such a sale shall be considered
commercially reasonable. If any securities held as Collateral are
"restricted securities" as defined in the Rules of the Securities and
Exchange Commission (such as Regulation D or Rule 144) or state
securities departments under state "Blue Sky" laws, or if Grantor is an
affiliate of the issuer of the securities, Grantor agrees that neither
Grantor nor any member of Grantor's family will sell or dispose of any
securities of such issuer without obtaining Lender's prior written
consent.
Foreclosure. Maintain a judicial suit for foreclosure and sale of the
Collateral.
Transfer Title. Effect transfer of title upon sale of all or part of
the Collateral. For this purpose, Grantor irrevocably appoints Lender
as its attorney-in-fact to execute endorsements, assignments and
instruments in the name of Grantor and each of them (if more than one)
as shall be necessary or reasonable.
Other Rights and Remedies. Have and exercise any or all of the rights
and remedies of a secured creditor under the provisions of the Uniform
Commercial Code, at law, in equity, or otherwise.
Application of Proceeds. Apply any cash which is part of the
Collateral, or which is received from the collection or sale of the
Collateral, to reimbursement of any expenses, including any costs for
registration of securities, commissions incurred in connection with a
sale, attorney fees as provided below, and court costs, whether or not
there is a lawsuit and including any fees on appeal, incurred by Lender
in connection with the collection and sale of such Collateral and to
the payment of the Indebtedness of Grantor to Lender, with any excess
funds to be paid to Grantor as the interests of Grantor may appear.
Grantor agrees, to the extent permitted by law, to pay any deficiency
after application of the proceeds of the Collateral to the
Indebtedness.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to
perform an obligation of Grantor under this Agreement, after Grantor's
failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
<PAGE>
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of New York. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of Broome County, the State of New York. Lender and Grantor
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Grantor against the other.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, including
reasonable attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment
collection services. Grantor also shall pay all court costs and such
additional fees as may be directed by the court. Caption Headings.
Caption headings in this Agreement are for convenience purposes only
and are not to be used to interpret or define the provisions of this
Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more
than one Grantor, notice to any Grantor will constitute notice to all
Grantors. For notice purposes, Grantor will keep Lender informed at all
times of Grantor's current addressees).
<PAGE>
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
Termination. When Lender has been paid in full under all of Borrower's
outstanding obligations and all Loans have been terminated, Lender will
release any and all liens. Borrower will be responsible for all fees
and costs to effectuate the release of liens.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AND SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 3,
1998.
GRANTOR:
Magnavision Corporation
By:
----------------------------------
Robert E. Hoffman, President
<PAGE>
Void after July 3, 2008
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS WARRANT AND SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. THIS WARRANT AND SUCH SHARES MAY NOT BE
TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS WARRANT, AND NO
TRANSFER OF THIS WARRANT OR SUCH SHARES SHALL BE VALID OR EFFECTIVE UNLESS AND
UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
------------------------
COMMON STOCK PURCHASE WARRANT
MAGNAVISION CORPORATION, a Delaware corporation (the "Company"), having
its principal office at 1725 Highway 35, Wall, New Jersey 07719 hereby certifies
that, for value received, BSB BANK & TRUST COMPANY, or assigns, is entitled,
subject to the terms set forth below, to purchase from the Company at any time
on or from time to time after July 3, 1998 and before 5:00 P.M., New York City
time, on July 3, 2008, fully paid and non-assessable shares of Common Stock of
the Company, at the price per share (the "Purchase Price") of $2.00. The number
and character of such shares of Common Stock and the Purchase Price are subject
to adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants") originally issued as of the Original Issue Date (as defined below)
and evidencing the right to purchase an aggregate of 146,176 shares of Common
Stock of the Company, subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes the Company and any corporation which
shall succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized upon the Original Issue Date or
thereafter, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies and except to the extent affected by the rights of
holders of the Company's Redeemable Preferred Stock, be entitled to vote for the
election of a majority of directors of the Company (even though the right so to
vote has been suspended by the happening of such a contingency).
(c) The "Original Issue Date" is July 3, 1998 the date as of which this
Warrant was first issued.
(d) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of this Warrant at any time shall be entitled to
receive, or shall have received, upon the exercise of this Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to section 6 or otherwise.
(e) The term "Purchase Price per share" shall be the then applicable
exercise price for one share of Common Stock.
(f) The terms "registered" and "registration" refer to a registration
effected by filing a registration statement in compliance with the Securities
Act, to permit the disposition of Common Stock (or Other Securities) issued or
issuable upon the exercise of this Warrant, and any post-effective amendments
and supplements filed or required to be filed to permit any such disposition.
(g) The term "Securities Act" means the Securities Act of 1933 as the
same shall be in effect at the time.
<PAGE>
1. Registration, etc.
1.1 In the event that the Company, at any time within the ten (10) year
period commencing on the Original Issue Date, proposes to file a registration
statement (other than a registration statement on Form S-4, S-8 or similar
forms) or maintains the effectiveness of a registration statement on a general
form of registration under the Securities Act and relating to securities issued
or to be issued by it, then it shall give written notice of such proposal to the
record owner of this Warrant and any shares of Common Stock issued upon exercise
thereof. If, within thirty (30) days after the giving of such notice, the record
owner of this Warrant or shares of Common Stock issued upon its exercise shall
request in writing that all or any of such Common Stock or Other Securities
issued or issuable upon exercise of this Warrant be included in such proposed
registration, the Company will, at its own expense, also register such
securities as shall have been requested in writing; provided, however, that:
(a) such owner shall deliver to the Company a statement in
writing from the beneficial owners of such securities that they have a
bona fide intent to sell, transfer or otherwise dispose of such
securities;
(b) the Company shall not be required to include any of such
securities if, by reason of such inclusion, the Company shall be
required to prepare and file a registration statement on a form
promulgated by the Securities and Exchange Commission substantially
different from that which the Company otherwise would use;
(c) such owner shall cooperate with the Company in the
preparation of such registration statement to the extent required to
furnish information concerning such owners therein; and
(d) if any underwriter or managing agent is purchasing or
arranging for the sale of the securities then being offered by the
Company under such registration statement, then such owner (i) shall
agree to have the securities being so registered by such owner sold to
or by such underwriter or managing agent on terms substantially
equivalent to the terms upon which the Company is selling the
securities so registered, or (ii) at the request of such underwriter or
managing agent, shall delay the sale of such securities for the 30 day
period commencing with the effective date of the registration
statement; provided that any such request to delay inclusion of
securities to be registered by such owner shall be allocated pari passu
among all holders of Company securities who are asserting registration
rights in connection with such registration statement.
1.2 In connection with the filing of a registration statement pursuant
to subsection 1.1 of this section 1, the Company shall:
(a) notify such owners as to the filing thereof and of all
amendments thereto filed prior to the effective date of said
registration statement;
(b) notify such owners promptly after it shall have received
notice thereof, of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part of the
registration statement has been filed;
(c) prepare and file without expense to such owners any
necessary amendment or supplement to such registration statement or
prospectus as may be necessary to comply with Section 10(a)(3) of the
Securities Act or advisable in connection with the proposed
distribution of the securities by such owners;
(d) use its reasonable best efforts to qualify the shares of
Common Stock or Other Securities being so registered for sale under the
securities or blue sky laws of not more than eight states as such
registered owners may designate in writing and to register or obtain
the approval of any federal or state authority which may be required in
connection with the proposed distribution, except, in each case, in
jurisdictions in which the Company must either qualify to do business
or file a general consent to service of process as a condition to the
qualification of such securities;
(e) notify such registered owners of any stop order suspending
the effectiveness of the registration statement and use its reasonable
best efforts to remove such stop order;
(f) undertake to keep said registration statement and
prospectus effective for a period of sixteen months after such shares
of Common Stock first become free to be sold under such registration
statement;
<PAGE>
(g) furnish to such registered owners as soon as available,
copies of any such registration statement and each preliminary or final
prospectus and any supplement or amendment required to be prepared
pursuant to the foregoing provisions of this paragraph 1, all in such
quantities as such owners may from time to time reasonably request; and
(h) furnish to BSB BANK & TRUST COMPANY without cost one set
of the Exhibits to such registration statement.
1.3 The record owners of the shares of Common Stock or Other Securities
being so registered agree to pay all of the underwriting discounts and
commissions, transfer taxes, registration fees and their own counsel fees with
respect to the securities owned by them and being registered. The Company agrees
that the costs and expenses which it is obligated to pay in connection with a
registration statement to be filed pursuant to subsection 1.1 above include, but
are not limited to, the fees and expenses of counsel for the Company, the fees
and expenses of its accountants and all other costs and expenses incident to the
preparation, printing and filing under the Securities Act of any such
registration statement, each prospectus and all amendments and supplements
thereto, the costs incurred in connection with the qualification of such
securities for sale in not more than eight states, including fees and
disbursements of counsel for the Company, and the costs of supplying a
reasonable number of copies of the registration statement, each preliminary
prospectus, final prospectus and any supplements or amendments thereto to such
registered owners.
1.4 The Company agrees to enter into an appropriate cross-indemnity
agreement with any underwriter (as defined in the Securities Act) for such
registered owners in connection with the filing of a registration statement
pursuant to subsection 1.1 hereof.
1.5 In the event that the Company shall file any registration statement
including therein all or any part of shares of Common Stock or Other Securities
issued or issuable upon exercise of the Warrants, the Company and each holder of
such securities shall enter into an appropriate cross-indemnity agreement
whereby the Company shall indemnify and hold harmless the holder against any
losses, claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make statements therein not misleading and each such holder
shall indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement and each person, if any,
who controls the Company within the meaning of the Securities Act against any
losses, claims, damages or liabilities (or actions in respect thereof) arising
out of or based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with written information
furnished or required to be furnished by such holder or such controlling person
expressly for use in such registration statement.
2. Sale or Exercise Without Registration. If, at the time of any exercise,
transfer or surrender for exchange of this Warrant or of Common Stock (or Other
Securities) previously issued upon the exercise of this Warrant, this Warrant or
Common Stock (or Other Securities) shall not be registered under the Securities
Act, the Company may require, as a condition of allowing such exercise, transfer
or exchange, that the holder or transferee of this Warrant or Common Stock (or
Other Securities), as the case may be, furnish to the Company a satisfactory
opinion of counsel to the effect that such exercise, transfer or exchange may be
made without registration under the Securities Act, provided that the
disposition thereof shall at all times be within the control of such holder or
transferee, as the case may be, and provided further that nothing contained in
this section 2 shall relieve the Company from complying with any request for
registration pursuant to section 1 hereof. The first holder of this Warrant
represents to the Company that it is acquiring this Warrant for investment and
not with a view to the distribution thereof.
3. Exercise of Warrant; Partial Exercise; Exercise by Surrender.
3.1 Exercise in Full. Subject to the provisions hereof, this Warrant
may be exercised in full by the holder hereof by surrender of this Warrant, with
the form of subscription at the end hereof duly executed by such holder, to the
Company at its principal office accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the amount
obtained by multiplying the number of shares of Common Stock called for on the
face of this Warrant (without giving effect to any adjustment therein) by the
Purchase Price.
<PAGE>
3.2 Partial Exercise. Subject to the provisions hereof, this Warrant
may be exercised in part by surrender of this Warrant in the manner and at the
place provided in subsection 3.1 except that the amount payable by the holder
upon any partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock (without giving effect to any adjustment
therein) designated by the holder in the subscription at the end hereof by (b)
the Purchase Price. Upon any such partial exercise, the Company at its expense
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares designated by the holder in the subscription at the end
hereof.
3.3 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in sections 3.1 and 3.2 and in lieu of any cash payment
required thereunder, the holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner and at the place specified in
section 3.1 as payment of the aggregate Purchase Price per share for the
Warrants to be exercised. The number of Warrants to be surrendered in payment of
the aggregate Purchase Price for the Warrants to be exercised shall be
determined by multiplying the number of Warrants to be exercised by the Purchase
Price per share, and then dividing the product thereof by an amount equal to the
Market Price (as defined below). Solely for the purposes of this paragraph,
Market Price shall be calculated as the average of the Market Prices for each of
the ten (10) trading days preceding the date which the form of election attached
hereto is deemed to have been sent to the Company.
3.4 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) if the principal trading market for
such securities is an exchange, the last reported sale price, or, in case no
such reported sale takes place on such date, the average of the last reported
sale prices for the last three (3) trading days, in either case as officially
reported on any consolidated tape, (ii) if the principal market for such
securities is the over-the-counter market, the high bid price on such date as
set forth by NASDAQ or, if the security is not quoted on NASDAQ, the high bid
price as set forth in the National Quotation Bureau sheet listing such
securities for such day. Notwithstanding the foregoing, if there is no reported
closing price or high bid price, as the case may be, on the date next preceding
the event requiring an adjustment hereunder, then the Market Price shall be
determined as of the latest date prior to such day for which such closing price
or high bid price is available, or if the securities are not quoted on NASDAQ,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it.
3.5 Company to Reaffirm Obligations. The Company will, at the time of
any exercise of this Warrant, upon the request of the holder hereof, acknowledge
in writing its continuing obligation to afford to such holder any rights
(including, without limitation, any right to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant, provided that if the holder of this Warrant shall
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford such holder any such rights.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part, and in any event within
ten (10) days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof, or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of full paid and non-assessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled upon such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be entitled,
cash equal to such fraction multiplied by the then current market value of one
full share, together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise pursuant to section 5 or otherwise.
5. Adjustment for Dividends in Other Stock, Property, etc.; Reclassification,
etc. In case at any time or from time to time after the Original Issue Date the
holders of Common Stock (or Other Securities) shall have received, or (on or
after the record date fixed for the determination of stockholders eligible to
receive) shall have become entitled to receive, without payment therefor
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation,
by way of dividend), or
<PAGE>
(c) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate rearrangement,
then, and in each such case the holder of this Warrant, upon the exercise hereof
as provided in section 3, shall be entitled to receive the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this section 5) which such holder would hold on the
date of such exercise if on the Original Issue Date he had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant and had thereafter, during the period from the Original Issue Date to
and including the date of such exercise, retained such shares and all such other
or additional (or less) stock and other securities and property (including cash
in the cases referred to in subdivisions (b) and (c) of this section 5)
receivable by him as aforesaid during such period, giving effect to all
adjustments called for during such period by sections 6 and 7 hereof.
6. Reorganization, Consolidation, Merger, etc.
In case the Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the holder of this Warrant, upon the exercise
hereof as provided in section 3 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall be entitled to receive (and the Company
shall be entitled to deliver), in lieu of the Common Stock (or Other Securities)
issuable upon such exercise prior to such consummation or such effective date,
the stock and other securities and property (including cash) to which such
holder would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had so exercised this
Warrant immediately prior thereto, all subject to further adjustment thereafter
as provided in sections 5 and 7 hereof.
7. Other Adjustments.
7.1 General. In any case to which sections 5 and 6 hereof are not
applicable, where the Company shall issue or sell shares of its Common Stock
after the Original Issue Date and prior to the expiration of this Warrant for a
consideration per share less than the Purchase Price in effect pursuant to the
terms of this Warrant at the time of issuance or sale of such additional shares
(the "Lower Exercise Price"), then the Purchase Price in effect hereunder shall
simultaneously with such issuance or sale be reduced to the Lower Exercise Price
and the number of shares of Common Stock issuable upon exercise hereof shall be
increased so that the aggregate exercise price of this Warrant is not reduced as
a result of such reduction of Purchase Price.
7.2 Convertible Securities. In case the Company shall issue or sell any
securities convertible into Common Stock of the Company ("Convertible
Securities") after the date hereof, there shall be determined the price per
share for which Common Stock is issuable upon the conversion or exchange
thereof, such determination to be made by dividing (a) the total amount received
or receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (b) the maximum number of shares of Common Stock of the Company
issuable upon the conversion or exchange of all of such Convertible Securities.
If the price per share so determined shall be less than the applicable
Purchase Price per share, then such issue or sale shall be deemed to be an issue
or sale for cash (as of the date of issue or sale of such Convertible
Securities) of such maximum number of shares of Common Stock at the price per
share so determined, provided that, if such Convertible Securities shall by
their terms provide for an increase or increases, with the passage of time, in
the amount of additional consideration, if any, to the Company, or in the rate
of exchange, upon the conversion or exchange thereof, the adjusted Purchase
Price per share shall, forthwith upon any such increase becoming effective, be
readjusted to reflect the same, and provided further, that upon the expiration
of such rights of conversion or exchange of such Convertible Securities, if any
thereof shall not have been exercised, the adjusted Purchase Price per share
shall forthwith be readjusted and thereafter be the price which it would have
been had an adjustment been made on the basis that the only shares of Common
Stock so issued or sold were issued or sold upon the conversion or exchange of
such Convertible Securities, and that they were issued or sold for the
consideration actually received by the Company upon such conversion or exchange,
plus the consideration, if any, actually received by the Company for the issue
or sale of all of such Convertible Securities which shall have been converted or
exchanged.
7.3 Rights and Options. In case the Company shall grant any rights or
options to subscribe for, purchase or otherwise acquire Common Stock, there
shall be determined the price per share for which Common Stock is issuable upon
the exercise of such rights or options, such determination to be made by
dividing (a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such rights or options, by (b) the maximum number of shares of
Common Stock of the Company issuable upon the exercise of such rights or
options.
<PAGE>
If the price per share so determined shall be less than the applicable
Purchase Price per share, then the granting of such rights or options shall be
deemed to be an issue or sale for cash (as of the date of the granting of such
rights or options) of such maximum number of shares of Common Stock at the price
per share so determined, provided that, if such rights or options shall by their
terms provide for an increase or increases, with the passage of time, in the
amount of additional consideration payable to the Company upon the exercise
thereof, the adjusted Purchase Price per share shall, forthwith upon any such
increase becoming effective, be readjusted to reflect the same, and provided,
further, that upon the expiration of such rights or options, if any thereof
shall not have been exercised, the adjusted Purchase Price per share shall
forthwith be readjusted and thereafter be the price which it would have been had
an adjustment been made on the basis that the only shares of Common Stock so
issued or sold were those issued or sold upon the exercise of such rights or
options and that they were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such rights or options,
whether or not exercised.
8. Further Assurances. The Company will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and non-assessable shares of stock upon the exercise of all Warrants from
time to time outstanding.
9. Accountants' Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable upon
the exercise of this Warrant, the Company at its expense will promptly cause the
Company's regularly retained auditor to compute such adjustment or readjustment
in accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, and the number of shares of Common
Stock outstanding or deemed to be outstanding. The Company will forthwith mail a
copy of each such certificate to the holder of this Warrant.
10. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend payable out of
earned surplus of the Company) or other distribution, or 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, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or consolidation or merger of the
Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company, or
(d) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities (other than the issue of Common Stock on the exercise of this
Warrant), then and in each such event the Company will mail or cause to be
mailed to the holder of this Warrant a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up, and
(iii) the amount and character of any stock or other securities, or rights or
options with respect thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall be mailed at
least 20 days prior to date therein specified.
11. Reservation of Stock, etc., Issuable on Exercise of Warrants. The Company
will at all times reserve and keep available, solely for issuance and delivery
upon the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable upon the exercise of this Warrant.
<PAGE>
12. Listing on Securities Exchanges; Registration. If the Company at any time
after the Original Issue Date shall list any Common Stock on any national
securities exchange and shall register such Common Stock under the Securities
Exchange Act of 1934 (as then in effect, or any similar statute then in effect),
the Company will, at its expense, simultaneously list on such exchange, upon
official notice of issuance upon the exercise of this Warrant, and maintain such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant, and the Company will so list on any national
securities exchange, will so register and will maintain such listing of, any
Other Securities if and at the time that any securities of like class or similar
type shall be listed on such national securities exchange by the Company.
13. Exchange of Warrants. Subject to the provisions of section 2 hereof, upon
surrender for exchange of this Warrant, properly endorsed, to the Company, the
Company at its own expense will issue and deliver to or upon the order of the
holder thereof a new Warrant of like tenor, in the name of such holder or as
such holder (upon payment by such holder of any applicable transfer taxes) may
direct, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face of this Warrant. 14. Replacement
of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of this Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
15. Warrant Agent. The Company may, by written notice to each holder of this
Warrant, appoint an agent having an office in New York, New York, for the
purpose of issuing Common Stock (or Other Securities) upon the exercise of this
Warrant pursuant to section 3, exchanging this Warrant pursuant to section 13,
and replacing this Warrant pursuant to section 14, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
16. Remedies. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
17. Negotiability, etc. This Warrant is issued upon the following terms, to all
of which each holder or owner hereof by the taking hereof consents and agrees:
(a) subject to the provisions hereof, title to this Warrant may be
transferred by endorsement (by the holder hereof executing the form of
assignment at the end hereof) and delivery in the same manner as in the case of
a negotiable instrument transferable by endorsement and delivery;
(b) subject to the foregoing, any person in possession of this Warrant
properly endorsed is authorized to represent himself as absolute owner hereof
and is empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or owner
waives and renounces all of his equities or rights in this Warrant in favor of
each such bona fide purchaser and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.
18. Notices, etc. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such holder, or, until an address is so furnished, to and at the
address of the last holder of this Warrant who has so furnished an address to
the Company.
19. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of New York and shall be
construed and enforced in accordance with and governed by the laws of such
State. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
20. Extended Expiration.
The right to exercise this Warrant shall expire at 5:00 P.M., New York
City time, on July 3, 2008, provided, however, that if the holder of this
Warrant issued hereunder has, in accordance with the terms hereof, requested a
registration statement pursuant to subsection 1.2 hereof and such registration
statement has not become effective prior to the expiration date of the right to
exercise this Warrant, then the right to exercise this Warrant shall be extended
and shall expire thirty (30) days after the effective date of such registration
statement.
<PAGE>
21. Drag-Along Rights.
The rights of the holder of this Warrant are subject to the holder's
agreement to the following: In the event that the Company's Board of Directors
approves a sale of the Company (pursuant to a merger or other business
combination transaction, sale of outstanding stock or otherwise) to a third
party not affiliated with either IBJS Capital Corporation or KOCO Capital
Company, L.P. (an "Approved Sale"), the holder of this Warrant (or shares issued
upon exercise hereof) shall consent to and raise no objections against such
Approved Sale (including exercising any statutory right of appraisal) and shall
take all necessary and desirable action in such holder's capacity, if any, as a
stockholder of the Company to facilitate such Approved Sale. If the Approved
Sale is structured as a sale of stock, notwithstanding Section 6 above, the
holder shall agree to sell all of such holder's Warrants and any shares of
Common Stock and Other Securities on the terms and conditions approved by the
Board of Directors; provided, however, that the obligations of the holder
pursuant to this Section 21 are conditioned upon all holders of Common Stock
concurrently receiving the same form and amount of consideration per share of
Common Stock pursuant to such Approved Sale or, if any holders of Common Stock
are given an option as to the form and amount of consideration to be received,
all such holders, including the holder of this Warrant, are given the same
option.
22. Assignability. This Warrant is fully assignable at any time, subject to
applicable securities laws.
<PAGE>
Dated: July 3, 1998
MAGNAVISION CORPORATION
By:
----------------------------
Name: Robert E. Hoffman
Title: President
[Corporate Seal]
Witness:
- ------------------------------
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: MAGNAVISION CORPORATION
1725 Highway 35
Wall, New Jersey 07719
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, * shares of Common Stock of MAGNAVISION CORPORATION, and
herewith makes payment of $ __________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
______________________________, whose address is
- -----------------------------------------.
Dated: __________________
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
---------------------------------------
---------------------------------------
(Address)
- -----------------
* Insert here the number of shares called for on the face of the Warrant (or, in
the case of a partial exercise, the portion thereof as to which the Warrant is
being exercised), in either case without making any adjustment for additional
Common Stock or any other stock or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase shares of Common Stock of MAGNAVISION CORPORATION to which
the within Warrant relates, and appoints _______________ as Attorney-in-Fact to
transfer such right on the books of ________________________ with full power of
substitution in the premises. The Warrant being transferred hereby is one of the
Common Stock Purchase Warrants initially issued by MAGNAVISION CORPORATION as of
July 3, 1998.
Dated: __________________
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
---------------------------------------
---------------------------------------
(Address)
- ---------------------------------
Signature guaranteed by a Bank or Trust Company having its principal office in
New York City or by a Member Firm of the New York or American Stock Exchange
<PAGE>
Exhibit 21
(21) SUBSIDIARIES OF REGISTRANT
Magnavision Corporation, a Delaware Corporation
Subsidiaries
Magnavision, a New Jersey Corporation
Wholly owned subsidiaries:
Magnavision Private Cable, Inc., a Delaware Corporation
Magnavision Wireless Cable, Inc., a Delaware Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 227,091
<SECURITIES> 0
<RECEIVABLES> 1,223,181
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,010,987
<PP&E> 3,077,185
<DEPRECIATION> 1,122,022
<TOTAL-ASSETS> 3,953,476
<CURRENT-LIABILITIES> 1,377,012
<BONDS> 0
4,591,049
0
<COMMON> (4,086,356)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,953,476
<SALES> 3,652,389
<TOTAL-REVENUES> 3,652,389
<CGS> 0
<TOTAL-COSTS> 1,817,546
<OTHER-EXPENSES> 2,099,008
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184,425
<INCOME-PRETAX> (423,558)
<INCOME-TAX> 4,851
<INCOME-CONTINUING> (428,409)
<DISCONTINUED> 0
<EXTRAORDINARY> 165,779
<CHANGES> 0
<NET-INCOME> (594,188)
<EPS-PRIMARY> (.94)
<EPS-DILUTED> (.94)
</TABLE>
