SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1568099 (State or other jurisdiction of ( IRS Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Bldg. 3, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (914) 795-2020
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 _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding as of
Class January 14, 2000
Common Stock, par value $.01 per share 8,355,628
<PAGE>
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Consolidated Balance Sheets -
November 30, 1999 (Unaudited) and February 28, 1999 1
Consolidated Statements of Operations - Nine Months and Three Months
Ended November 30, 1999 and 1998 (Unaudited) 2
Consolidated Statements of Cash Flows - Nine Months Ended
November 30, 1999 and 1998 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 14
Part II - Other Information 14 - 15
Item 3 - Quantitative and Qualitative Disclosure About Market Risk -
Not Applicable
Signatures 17
<PAGE>
<TABLE>
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
November 30, February 28,
<S> <C> <C>
1999 1999
Current Assets Unaudited
------------------------------
Cash and cash equivalents $ 140,414 $ 70,051
Accounts receivable (less allowance of $9,915 and $6,000
at November 30 and February 28, respectively) 887,687 264,217
Inventories (Note 5) 908,382 787,200
Prepaid expenses and other current assets 82,592 42,039
------------ ------------
Total current assets 2,019,075 1,163,507
Equipment and furnishings (less accumulated depreciation of
$447,696 and $407,486 at November 30 and February 28,
respectively) 181,552 127,892
Intangible assets, net:
Goodwill (Note 3) 1,219,325 0
Patents, patents pending and copyrights (Note 1) 33,313 38,333
Deferred financing fees (Note 7) 34,339 0
----------- -----------
Total intangible assets, net 1,286,977 38,333
Other assets 22,072 5,917
------------ --------------
TOTAL ASSETS $3,509,675 $1,335,649
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt (Note 8) $192,002 $10,503
Short term loans-related parties (Note 6) 165,000 88,000
Revolving line of credit 299,948 199,948
Accounts payable 458,408 324,192
Accrued expenses 396,804 267,948
---------- ----------
Total current liabilities 1,512,162 890,591
---------- ----------
Long term debt, less current maturities (Note 8) 279,513 37,293
Subordinated mezzanine debt (Note 7 ) 374,812 0
Subordinated long term loans-related parties (Note 6) 150,000 0
Noncurrent rent payable 9,832 9,083
------------ -----------
Total liabilities 2,326,319 936,967
Put Warrants 77,000 0
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized, 8,355,628
issued and outstanding at November 30 and 12,000,000
shares authorized, 6,281,667 issued and outstanding at February 28 83,556 62,817
Additional paid-in capital 5,454,049 4,735,975
Accumulated deficit (4,431,249) (4,400,110)
----------- ----------
Total stockholders' equity 1,106,356 398,682
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,509,675 $1,335,649
========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended November 30, Three Months Ended November 30,
Unaudited Unaudited
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net Sales $3,660,200 $2,395,727 $1,551,772 $679,428
Cost of Goods Sold 1,726,067 1,291,940 739,523 382,953
---------- --------- --------- ---------
Gross Profit 1,934,133 1,103,787 812,249 296,475
---------- --------- --------- ---------
Operating Expenses
Research and product development costs 430,068 370,572 170,712 107,906
Marketing and selling expenses 787,757 548,563 303,061 177,946
General and administrative costs 591,840 353,682 300,986 114,808
--------- ---------- --------- ---------
Total Operating Expenses 1,809,666 1,272,817 774,759 400,660
--------- --------- --------- ---------
Operating Income (Loss) 124,468 (169,030) 37,490 (104,185)
Interest Expense (167,587) (42,775) (38,550) (14,925)
Miscellaneous Income and (Expense) 9,854 8,137 (800) 8,137
Interest and Other Income 2,126 2,615 212 1,083
---------- ------------ ------- ----------
Loss Before Income Taxes (31,140)) (201,053) (1,648) (109,890)
Income Tax Expense (Note 9) 0 0 0 0
------------- ------------ ----------- ------------
Net Loss $(31,140) $(201,053) $(1,648) $(109,890)
======== ========== ======== ==========
Basic (Loss) Per Share $(0.00) $(0.05) $(0.00) $(0.03)
======= ======= ======= =======
Diluted (Loss) Per Share $(0.00) $(0.05) $(0.00) $(0.03)
======= ======= ======= =======
Weighted Average Shares - Basic 7,155,467 4,375,720 8,289,566 4,378,387
========= ========= ========= =========
Weighted Average Shares - Diluted 7,155,467 4,375,720 8,289,566 4,378,387
========= ========= ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended November 30,
Unaudited
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(31,140) $(201,053)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash charge for issuance of warrants 102,626 0
Depreciation and amortization 75,937 33,162
Provision for doubtful accounts 3,915 9,000
(Increase) decrease in:
Accounts receivable (421,013) 441,134
Inventories (36,919) (220,646)
Prepaid expenses and other current assets (10,423) (9,035)
Increase (decrease) in:
Accounts payable and accrued expenses 277 (179,287)
Customer deposit (16,000) 0
Non-current rent payable 749 744
---------- ----------
Net Cash Used in Operating Activities (331,991) (125,981)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs net of cash received (315,518) 0
Purchase of equipment and furnishings (46,424) (19,757)
--------- -----------
Net Cash Used in Investing Activities (361,942) (19,757)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 100,000 99,948
Proceeds from short term loans-related parties 127,000 0
Proceeds from issuance of stock 287,000 1,320
Proceeds from subordinated mezzanine debt 450,000 0
Deferred financing fees (35,523) 0
Repayments of short term loans-related party (100,000) 0
Repayments of long term debt (64,181) (6,760)
Repayments of note payable, bank 0 (46,253)
--------- --------
Net Cash Provided by Financing Activities 764,296 48,255
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 70,363 (97,483)
CASH AND CASH EQUIVALENTS
Beginning of period 70,051 113,759
-------- --------
End of period $140,414 $ 16,276
======== ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $39,179 $ 13,424
======= ========
Non-cash exchange of accrued bonuses
for common stock $17,188 $ 0
======= ====
</TABLE>
See notes to financial statements.
<PAGE>
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
November 30, 1999 and 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements of Sono-Tek
Corporation, a New York Corporation (the "Company"), include the accounts of the
Company and its wholly owned subsidiary, S&K Products International, Inc., a New
Jersey Corporation ("S&K"), which the Company acquired on August 3, 1999 (the
"S&K Acquisition see Note 3). All significant intercompany accounts and
transactions are eliminated in consolidation. The inclusion of S&K's results
since August 3, 1999 has an effect on the comparison of the Company's Fiscal
Year 2000 results to prior periods
Interim Reporting - The attached summary consolidated financial information does
not include all disclosures required to be included in a complete set of
financial statements prepared in conformity with generally accepted accounting
principles. Such disclosures were included with the financial statements of the
Company at February 28, 1999, and included in its report on Form 10-K. Such
statements should be read in conjunction with the data herein.
The financial information reflects all adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the interim
periods presented. The results for such interim periods are not necessarily
indicative of the results to be expected for the year.
Patent and Patent Pending Costs - Costs of patent applications are deferred and
charged to operations over seventeen years for domestic patents and twelve years
for foreign patents. However, if it appears that such costs are related to
products which are not expected to be developed for commercial application
within the reasonably foreseeable future, or are applicable to geographic areas
where the Company no longer requires patent protection, they are written-off to
operations. The accumulated amortization is $83,717 and $78,697 at November 30
and February 28, 1999, respectively.
NOTE 2: SEGMENT INFORMATION
The Company has adopted the Statement of Financial Accounting Standard No 131
("SFAS 131") "Disclosures About Segments of an Enterprise and Related
Information". The Company has two reportable segments: spraying products and
cleaning systems. The spraying products segment is primarily engaged in the
business of developing, manufacturing, installing and servicing ultrasonic spray
equipment. The cleaning systems segment is engaged in the business of
developing, manufacturing, installing and servicing cleaning systems for the
semiconductor, disk drive and precision cleaning industries.
Summary financial information concerning the Company's reportable segments is
shown in the following table:
<TABLE>
<CAPTION>
Nine Months Ended November 30, 1999
Spraying Cleaning
Products Systems Total
<S> <C> <C> <C>
Net Sales $3,056,832 $603,368 $3,660,200
Net Income (Loss) 7,777 (38,917) (31,140)
Identifiable Assets 148,290 39,262 181,552
Capital Expenditures 42,134 4,290 46,424
Depreciation and Amortization Expense 35,752 40,185 75,937
Three Months Ended November 30, 1999
Spraying Cleaning
Products Systems Total
Net Sales $1,036,179 $515,593 $1,551,772
Net Income (Loss) 9,051 (10,699) (1,648)
Identifiable Assets 148,290 39,262 181,552
Capital Expenditures 35,665 4,290 39,955
Depreciation and Amortization Expense 14,437 27,184 41,621
</TABLE>
The Company operated in a single reportable segment for the nine months and
three months ended November 30, 1998.
NOTE 3: ACQUISITION
On August 3, 1999 the Company purchased all the outstanding stock of S&K, a
supplier of cleaning and drying systems for the semiconductor, disk drive, and
precision cleaning industries. S&K is a wholly owned subsidiary of the Company.
The aggregate consideration tendered by the Company in respect to the
acquisition described above was $5,000 of cash and 810,000 shares of the
Company's common stock with a valuation of $0.30 per share. Also at the time of
the closing, two stock grants for a total of 250,000 shares of the Company's
common stock were made to two directors of the Company and 200,000 warrants were
issued to a non-employee director of the Company as an acknowledgment of their
services in consummating the acquisition. The value of the stock issued and
warrants granted to the non-employee director were accounted for as additional
purchase price. Professional fees of $101,345 associated with the acquisition
were also accounted for as additional purchase price. The fair value of net
assets acquired were:
Cash $26,648
Accounts Receivable 206,372
Inventory 84,263
Equipment & Furnishings 47,447
Other Assets 46,285
Accounts Payable (142,977)
Accrued Expenses (153,007)
Long Term Debt (687,901)
--------
Net Liabilities Assumed (572,870)
Acquisition Costs (674,166)
--------
Goodwill $1,247,036
==========
The aggregate purchase price exceeded the fair value of net assets acquired
resulting in goodwill that will be amortized on the straight-line basis over 15
years. Accumulated amortization of goodwill at November 30, 1999 was $27,711.
The following unaudited proforma information presents a summary of the
consolidated results of operations of Sono-Tek and S&K as if the acquisition had
occurred on March 1, 1998.
<TABLE>
<CAPTION>
Proforma Consolidated Statement of Operations
Nine months ended November 30,
1999 1998
---- ----
<S> <C> <C>
Net Sales $4,219,427 $3,653,584
Cost of Goods Sold 1,962,130 1,883,253
Gross Profit 2,257,297 1,770,331
Operating Expenses 2,329,840 1,978,471
Operating Loss (72,543) (208,140)
---------- ----------
Interest Expense (198,672) (95,973)
Interest & Misc. Income 28,382 (432)
---------- ----------
Net Loss $(242,833) $(304,545)
========== ==========
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill and the elimination of extraordinary items associated with
the S&K reorganization. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
March 1, 1998, or of future results of operations of the consolidated entities.
NOTE 4: PRIVATE PLACEMENT
On May 5, 1999, the Company issued a Private Placement Memorandum to raise up to
$500,000 by offering 1,666,667 shares of common stock at $0.30 per share (the
"Private Placement"). During the third quarter of Fiscal Year 2000 the Company
completed the sale of an additional 216,667 shares of common stock for a total
of 956,667 shares of common stock sold pursuant to the Private Placement. Of the
total shares sold, 385,000 were purchased by directors of the Company, including
75,000 shares of common stock purchased in the third quarter. The gross proceeds
from the Private Placement were used to pay certain costs associated with the
acquisition of S&K and for working capital. The Company continued to offer an
additional 210,000 shares pursuant to the Private Placement (Note 12).
NOTE 5: INVENTORY
Inventories at November 30, 1999 are comprised of:
Finished goods $186,257
Work in process 92,676
Raw materials and subassemblies 629,449
--------
Net total inventories $908,382
========
Note 6: RELATED PARTY LOANS
Short term loans - From time to time the Company has required short-term loans
to meet its payment obligations. All of these loans, which are payable on
demand, have been provided by certain officers and directors of the Company at
an interest rate of prime plus 2% computed at the time of the loan. The interest
rate on such short term loans was 10.50% at November 30, 1999. As of November
30, 1999 and February 28, 1999 the amount of these loans outstanding was
$165,000 and $88,000, respectively. Interest expense for the nine month period
and three month period ended November 30, 1999 was $11,972 and $4,508,
respectively. Accrued interest was $13,292 and $1,320 at November 30, 1999 and
February 28, 1999, respectively.
Long term loans - Two convertible subordinated notes, issued to the former S&K
shareholders or members of their immediate family, for an aggregate principal
amount of $150,000 were converted from S&K debt to Company debt on August 3,
1999, the date of the S&K Acquisition (the "S&K Notes"). The S&K Notes are
subordinate to the long-term debt with S&K's bank. The S&K Notes are payable
August 3, 2002 with interest accruing at a rate of 6% per annum. The unpaid
principal balance on the S&K Notes is convertible into common stock at $1.00 per
share. Interest expense for the nine month period and three month period ended
November 30, 1999 was $3,000 and $2,225, respectively. Accrued interest was
$3,000 at November 30, 1999.
NOTE 7: SUBORDINATED MEZZANINE DEBT
On September 30, 1999, the Company entered into a Note and Warrant Purchase
Agreement with a Small Business Investment Corporation (the "SBIC Note")
pursuant to which the Company obtained a loan, subordinated to the note payable,
bank (see Note 8), in the principal amount of $450,000 with an interest rate of
12%. The five year loan requires interest only payments for the first two years,
followed by monthly principal payments of $12,500 and interest for years three
to five. The SBIC Note is collateralized by certain assets of the Company,
equity interests in S&K and assigned life insurance policies on two directors of
the Company. The SBIC Note, among other things, restricts the payment of
dividends.
In addition, the SBIC Note was issued with a detachable stock purchase warrant
(the "Put Warrants") to purchase 1,100,000 shares of the Company's common stock
at a price of $.30, the fair market value of the Company's common stock on
September 30, 1999. The fair market value, as subsequently determined by an
independent appraisal, of the Put Warrants was determined to be $0.07, and is
accounted for as a discount to the SBIC Note and will be amortized over the
principal repayment term of the agreement. The unamortized discount at November
30, 1999 is $75,188. The Put Warrants can be put to the Company from May 29,
2006 to May 29, 2007 as otherwise defined by the agreement and they expire on
September 30, 2010, and have certain put options as defined by the agreement.
The deferred financing fees incurred to acquire the SBIC Note will be amortized
over the life of the loan. Accumulated amortization of the deferred financing
fees was $1,184 at November 30, 1999.
NOTE 8. LONG TERM DEBT Long term debt consists of the following:
<TABLE>
<CAPTION>
November 30 February 28
----------- -----------
<S> <C> <C>
Equipment loan, bank, collateralized by related production equipment, payable in
monthly installments of $1,225, including interest at 2% over the bank's prime
rate (10.50% and 9.75% at November 30 and
February 28, 1999, respectively). $40,124 $47,796
Note payable, bank, collateralized by all assets of S&K,
personally guaranteed by two officers of S&K, payable in
monthly installments of $17,852, including interest at 9.5% 431,391 0
------- -------
Total long term debt 471,515 47,796
Due within one year (192,002) (10,503)
--------- --------
Due after one year $279,513 $37,293
======== =======
At November 30, 1999, long term debt is payable as follows:
November 30, 2000 $192,002
November 30, 2001 211,347
November 30, 2002 64,842
November 30, 2003 3,324
-----
$471,515
</TABLE>
NOTE 9: INCOME TAXES
The Company has a net operating loss carryforward, therefore no income tax
expense is recorded for the nine months and three months ended November 30, 1999
and 1998. For income tax purposes, the Company had available operating loss
carryforwards of approximately $3,632,000 at February 28, 1999. A valuation
allowance has been reported in an amount equal to the net deferred tax assets
due to the Company's inability to estimate it's ability to recover such amounts.
NOTE 10: LOSS PER SHARE
Basic earnings per share ("EPS") and loss per share ("LPS") are computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. Diluted EPS would reflect, if applicable, the
potential dilution that could occur if securities or other obligations to issue
common stock were exercised or converted into common stock. Stock options
granted but not yet exercised under the Company's stock option plans would be
included for Diluted EPS calculations, if applicable, under the treasury stock
method.
The computation of basic and diluted (loss) per share are set forth on the
following table:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
November 30, November 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted
(loss) per share $(31,140) $(201,053) $(1,648) $(109,890)
========= ========== ======== ==========
Denominator:
Denominator for basic (loss)
per share - weighted average shares 7,155,467 4,375,720 8,289,566 4,378,387
Effects of dilutive securities:
Stock warrants for directors 0* 0* 0* 0*
Stock options for employees, directors
and outside consultants 0* 0* 0* 0*
-------------- --------------- -------------- --------------
Denominator for diluted
(loss) per share 7,155,467** 4,375,720** 8,289,566** 4,378,387**
========= ========= ========= =========
</TABLE>
*Stock options and warrants for employees, directors and outside
consultants are antidilutive as a result of the net loss and therefore
are not considered in the Diluted LPS calculation.
**The effect of considering a) the detachable warrants related to $530,000
of convertible secured subordinated promissory notes which were converted
to equity as of February 26, 1999 and b) the detachable Put Warrants (see
Note 7) and c) the convertible long term loans-related parties (Note 6) are
antidilutive and therefore not considered in the Diluted EPS and LPS per
share calculations.
Under the assumption that stock options, warrants and convertible long term
loans were not antidilutive as described in * and **, the denominator for
Diluted LPS would be 9,408,667 and 5,701,811 weighted average shares for the
nine month period at November 30, 1999 and 1998, respectively and 11,340,411 and
5,704,478 weighted average shares for the three month period at November 30,
1999 and 1998, respectively.
On October 22, 1999, the Board of Directors of the Company granted options to
acquire 262,500 shares of common stock to qualified employees of the Company,
exercisable at the fair market value on the date of grant, under the Company's
1993 Stock Incentive Plan, as amended.
NOTE 11: OPERATING LEASES
The Company leases an office and manufacturing facility in Milton, NY under a
lease that expired in January 1997. The lease provided for a five-year renewal
option at annual rentals varying from $65,000 to $78,000, but that option was
not exercised. The Company is making payments on a month-to-month basis equal to
the amount that would have been required per month if the option had been
exercised. Subsequent to November 30, 1999, the Company entered into a new lease
for its existing facility in Milton, NY (see Note 12).
The Company leases an office and warehouse facility in Chestnut Ridge, NY
pursuant to a one year lease executed on August 3, 1999. The annual base rent
for the Company's Chestnut Ridge, NY facility is $92,000. The building is owned
by an officer of S&K. The rent expense under this agreement was $9,000 for the
period from August 3,1999 (see Note 3) to November 30, 1999.
NOTE 12: SUBSEQUENT EVENTS
Operating Leases-On December 1, 1999 the Company entered into a lease agreement
for an additional 3,500 square feet of space in Milton, NY. The space will be
used for additional offices necessitated by the relocation of a substantial
portion of S&K's operations to the Company's Milton, NY location. In addition,
the new space will also house additional production and testing areas.
On January 1, 2000 the Company entered into two lease agreements. The first
lease is for the Company's existing facility in Milton, NY. This lease
terminates November 30, 2002 and has an annual rent of $78,000. In addition, a
2000 square foot warehouse has been leased through November 30, 2002 with an
annual rent of $9,000.
Pursuant to the operating leases subsequent to November 30, 1999, the Company
has the following future annual minimum payments through the end of the three
year lease renewals:
Fiscal year ending February
2000 $ 19,000
2001 105,000
2002 105,000
2003 78,750
------
$307,750
Equipment Loan-On December 30, 1999 the Company entered into a loan agreement
with a bank for $73,000 for the construction of a cleanroom to be used in
testing S&K equipment. The five year loan has an interest rate of prime plus 2%,
which was 10.5 % on December 30, 1999, and is secured by the cleanroom. The loan
will be repaid in sixty equal monthly installments of principal and interest.
Private Placement-On January 11, 2000, the Company completed the sale of 210,000
shares of common stock for $63,000. This completes the Private Placement offered
by the Company on May 5, 1999.
<PAGE>
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Federal Securities Laws. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; political, regulatory,
competitive and technological developments affecting the Company's operations or
the demand for its products; timely development and market acceptance of new
products; adequacy of financing; capacity additions; and ability to enforce
patents.
The Company undertakes no obligation to update publicly any forward-looking
statements.
Liquidity and Capital Resources
The Company's working capital increased $233,997 from $272,916 at February 28,
1999 to $506,913 at November 30, 1999. The increase in working capital was
primarily a result of an increase in cash, accounts receivable and inventories
of $855,000 that was offset by an increase in short term loans and current
liabilities of $621,000. The increase in cash was derived from the Private
Placement Memorandum and the SBIC Note.
The Company's stockholders' equity increased $707,674 from $398,382 on February
28, 1999 to $1,106,346 on November 30, 1999. Of this increase, $287,000 was due
to the sale of 956,667 shares of common stock through the Private Placement
Memorandum dated May 5, 1999, $102,626 was due to the issuance of 600,000
warrants, $332,000 was due to the issuance of 960,000 shares of common stock and
200,000 warrants to purchase common stock related to the acquisition of S&K and
$17,000 was due to the conversion of accrued expenses into 57,294 shares of
common stock, all of which were partially offset by the $31,140loss for the nine
months ended November 30, 1999.
The Company currently has a $300,000 line of credit with a bank. The loan is
collateralized by accounts receivable, inventory and all other personal property
of the Company and is guaranteed by the Chairman and CEO of the Company. As of
November 30, 1999 the outstanding balance was $299,948. Due to losses incurred
during Fiscal Year 1999, the Company was required to borrow on a short-term
basis from certain directors of the Company. As of November 30, 1999 the balance
owed the directors was $165,000. A $150,000 related party loan to S&K was
assumed on August 3, 1999 and converted into subordinated convertible debt,
payable on August 3, 2002. On September 30, 1999, the Company obtained a
$450,000, five-year term loan from a Small Business Investment Corporation . The
Company also issued a warrant to the Small Business Investment Corporation to
purchase 1,100,000 shares of the Company's common stock with certain put
features as defined in the agreement. The proceeds of this loan were used for
(i) professional fees incurred in connection with the loan, (ii) the S&K
Acquisition, (iii) paying loans, salaries and accrued expenses of certain
officers, (iv) the reduction of trade payables, (v) acquiring certain fixed
assets, and (vi) general working capital and other corporate purposes of the
Company and its subsidiaries.
Although there can be no assurances, management believes that the continued
success of its new products, along with the improvement in the market for the
SonoFlux Systems will lead to broader markets and increases in sales and
profits. Management also believes that the acquisition of S&K will lead to
increased sales while at the same time realizing significant efficiencies by
integrating the operations of the two companies. With the increase in sales and
savings from the combined operation of both companies, management believes the
Company will be able to meet its current obligations as they become due.
Results of Operations
The Company's sales increased $1,264,473 from $2,395,727 for the nine months
ended November 30, 1998 to $3,660,200 for the nine months ended November 30,
1999. The increase was due to $603,000 in sales attributable to S&K, increased
sales of the SonoFlux System of $173,000, MCS Infinity and AccuMist Systems of
$191,000, pressure nozzles of $79,000 and special orders of $166,000 that were
offset by a decrease in nozzles and liquid delivery sales of $65,000.
The Company's sales increased $872,344 from $679,428 for the three months ended
November 30, 1999 to $1,551,772 for the three months ended November 30, 1999.
The increase was due to $515,000 in sales attributable to S&K, increased sales
of the SonoFlux System of $261,000, MCS Infinity and AccuMist Systems of
$35,000, pressure nozzles of $49,000 and special orders of $36,000 that were
offset by a decrease in nozzles and liquid delivery sales of $25,000.
Gross profit increased $830,346 from $1,103,787 for the nine-month period ended
November 30, 1998 to $1,934,133 for the nine-month period ended November 30,
1999. The Company's gross profit increased $515,774 from $296,475 for the three
months ended November 30, 1998 to $812,249 for the three months ended November
30, 1999. The gross profit was 52% and 46% of sales for the nine month period
ending November 30, 1999 and 1998, respectively. The gross profit was 52% and
44% of sales for the three month period ending November 30, 1999 and 1998,
respectively. For both the three and nine month periods the increase in the
Company's gross profit was primarily a result of increased sales of the
Company's products, combined with decreases in labor costs and warranty costs.
Research and product development costs increased $59,496 from $370,572 for the
nine months ended November 30, 1998 to $430,068 for the nine months ended
November 30, 1999. Research and product development costs increased $62,806 from
$107,906 for the three months ended November 30, 1998 to $170,712 for the three
months ended November 30, 1999. For both the three and nine month periods, the
increase in the Company's research and product development costs was a result of
increased compensation resulting from a larger engineering staff and additional
costs associated with S&K.
Marketing and selling costs increased $239,194 from $548,563 for the nine months
ended November 30, 1998 to $787,757 for the nine months ended November 30, 1999.
The increase was a result of additional commission and labor costs of $50,000,
expenses related to start up costs associated with the sale of pressure nozzles
of $44,000, trade shows and travel of $27,000, and costs associated with S&K.
Marketing and selling costs increased $125,115 from $177,946 for the three
months ended November 30, 1998 to $303,061 for the three months ended November
30, 1999. The increase was a result of additional commission and labor costs of
$95,000, trade shows and travel of $22,000, and the costs associated with S&K.
General and administrative costs increased $238,158 from $353,682 for the nine
month period ended November 30, 1998 to $591,840 for the nine month period ended
November 30, 1999. The increase was due to increases in compensation of
$122,000, goodwill amortization of $28,000, professional and consulting fees of
approximately $24,000, travel of $20,000 and additional S&K costs.
General and administrative costs increased $186,178 from $114,808 for the three
month period ended November 30, 1998 to $300,986 for the three month period
ended November 30, 1999. The increase was due to increases in compensation of
$100,000, professional and consulting fees of approximately $27,000, goodwill
amortization of $21,000, travel of $10,000, and additional S&K costs.
Interest expense increased $124,812 from $42,775 for the nine month period ended
November 30, 1998 to $167,587 for the nine months ended November 30, 1999. The
increase is primarily due to a non-cash charge of $102,626 for the costs
associated with 600,000 warrants that were issued on May 13, 1999 and to
interest expense on the S&K debt and the additional debt incurred on September
30, 1999.
Interest expense increased $23,625 from $14,925 for the three month period ended
November 30, 1998 to $38,550 for the three months ended November 30, 1999. The
increase is a result of interest expense on the S&K debt and the additional debt
incurred on September 30, 1999.
For the nine months ended November 30, 1999 the Company had a net loss of
$31,140 or $(0.00) per share as compared to a net loss of $201,053 or $(0.05)
per share for the nine months ended November 30, 1998. The decrease in net loss
was primarily a result of an increase in the Company's sales offset by the
non-cash charge of $102,626 for the warrants issued May 13, 1999.
For the three months ended November 30, 1999, the Company had a net loss of
$1,648 or $(0.00) per share as compared to a net loss of $109,890 or $(0.03) per
share for the three months ended November 30, 1998. The decrease in net loss for
the three month period was result of the increase in sales, offset by higher
costs due to interest, goodwill amortization and costs associated with S&K.
Year 2000 Compliance
The Company has assessed its readiness for the Year 2000 (Y2K). This assessment
identified areas that needed to be modified, and resulted in the Company
upgrading both hardware and software used internally.
As part of its assessment, the Company evaluated its phone, security and
manufacturing machinery and determined that all of these systems are Y2K
compliant. The Company also evaluated the software and hardware used in its
products and determined that they are Y2K compliant. The Company has surveyed
its major suppliers for their Y2K readiness. Because all major components and
materials used by the Company in the manufacture of its products are readily
available from several suppliers, management considers this area to be of
minimal risk.
At the present time, a contingency plan has not been developed. The Company will
continue to monitor the need for a contingency plan. The Company has incurred
internal staff costs, as well as the expense to purchase additional hardware and
software of approximately $28,000. Despite its efforts to survey its customers,
suppliers and service providers, the Company cannot be certain as to the actual
Y2K readiness of these third parties or the impact that any non-compliance on
their part may have on the Company's business, results of operations or
financial condition. This is a Year 2000 readiness disclosure entitled to
protection as provided in the Year 2000 Information and Readiness Disclosure
Act.
As of January 14, 2000, the Company has not, nor to its knowledge, has any of
the Company's customers, suppliers, financial institutions, vendors, and
distributors, experienced any material Y2K complications. However, there can be
no absolute assurances that the Company and the Company's external agents will
not experience some complications resulting from Y2K problems in the future.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Company's annual meeting of
shareholders held on September 30, 1999.
1. The election of three (3) directors of the Company to serve until the
Company's 2001 annual meeting of shareholders.
For Withheld
John J. Antretter 6,665,545 351,330
Harvey L. Berger 6,665,545 351,330
Christopher L. Coccio 6,665,545 351,330
2. The election of one (1) director of the Company to serve until the
Company's 2000 annual meeting of shareholders.
For Withheld
Kevin Schumacher 6,665,545 351,330
3. To increase the number of authorized shares of the Company's common stock
from 12,000,000 shares to 25,000,000 shares.
For Against Abstained
6,111,760 826,178 78,937
4. To increase the number of shares of common stock issuable under the 1993
Stock Incentive Plan (the "1993 Plan") from 750,000 shares to 1,500,000
shares and to expand the 1993 Plan to cover all employees of the Company
and its subsidiaries, and, in the case of Non-Qualified Stock Options,
employees of affiliates of the Company.
For Against Abstained
5,107,225 804,512 81,687
5 Ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending February 29, 2000.
For Against Abstained
6,944,989 53,201 18,685
There were no broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3.1.1 Certificate of Amendment of the Certificate
of Incorporation, dated September 30, 1999
4.11 Note and Warrant Purchase Agreement dated
September 29, 1999 by and between the Company and
Norwood Venture Corp.
4.11(a) Note issued by the Company, dated September 29,
1999, in the principal sum of $450,000.
4.11(b) Common Stock Purchase Warrant, dated September 29,
1999,issued by the Company to Norwood Venture Corp
4.11(c) General Security Agreement, dated September 29,
1999, issued by the Company in favor of Norwood
Venture Corp.
27. Financial Data Schedule - EDGAR filing only
(b) Reports on Form 8-K/A
Filed October 18, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 14, 2000
SONO-TEK CORPORATION
(Registrant)
By: /s/ James L. Kehoe
James L. Kehoe
Chief Executive Officer
By: /s/ Kathleen N. Martin
Kathleen N. Martin
Chief Financial Officer
<PAGE>
Exhibit 3.1.1
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
SONO-TEK CORPORATION
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
* * * * *
1. The name of the corporation is SONO-TEK CORPORATION.
2. The certificate of incorporation of said corporation was filed by the
Department of State on the 21st day of March, 1975.
3. (a) The certificate of incorporation is amended to increase the number of
authorized shares of the corporation.
(b) To effect the foregoing, Article Four of the Certificate of
Incorporation is amended to read as follows:
(4) The aggregate number of shares of all classes which the
Corporation shall have authority to issue is twenty-five million
(25,000,000) common shares, par value $0.01 per share. No holder of any
share of the Corporation shall, because of his ownership of shares,
have a pre-emptive or other right to purchase, subscribe for, or take
any part of any shares or any part of the notes, debentures, bonds or
other securities convertible into or carrying options or warrants to
purchase shares of the Corporation issued, optioned or sold by the
Corporation
4. The amendment was authorized by the vote of all the directors of the
Corporation, followed by the vote of the holders of a majority of the
outstanding shares entitled to vote on an amendment to the Certificate of
Incorporation at the annual meeting of shareholders on September 30, 1999.
s/s James L. Kehoe
Name: James Kehoe
Title: Chief Executive Officer
<PAGE>
Exhibit 4.11
NOTE AND WARRANT PURCHASE AGREEMENT
SONO-TEK CORPORATION
$450,000 Principal Amount
12% Note
Due September 30, 2004
and
Warrant for 1,100,000 Shares of
$0.01 Par Value Common Stock
September 29, 1999
SONO-TEK CORPORATION, a corporation organized and existing under
the laws of the State of New York (the "Company") and NORWOOD VENTURE CORP., a
corporation organized and existing under the laws of the State of Delaware
("NVC") hereby agree as follows:
Article 1.
PURCHASE AND SALE
1.1 Purchase and Sale of Note and Warrant; Payments. Upon the
terms and subject to the conditions of this Agreement, the Company agrees to
issue and sell to NVC, and NVC agrees to purchase, by check or wire transfer in
immediately available funds to one or more accounts designated in writing by the
Company, from the Company, on the date on which this Agreement is executed and
delivered (the "Closing Date") (a) at par, a 12% Note of the Company due
September 30, 2004 in the principal amount of $450,000 (the "Note") and (b) for
$100, a Warrant for the purchase of 1,100,000 shares of the Company's $0.01 par
value Common Stock ("Common Stock"). The shares issued or issuable on exercise
of the Warrant are hereinafter referred to as "Warrant Shares". The Note shall
be in substantially the form of Exhibit A hereto with the blanks completed in
conformity herewith. The Warrant shall be in substantially the form of Exhibit B
hereto with the blanks completed in conformity herewith. The Company shall apply
$12,500.00 to the prepayment of the principal amount of the Note on the last
business day of each month, commencing in the month of October, 2001 and
continuing to and including the month of August, 2004, and shall pay the
remaining outstanding principal amount of the Note and any interest accrued and
unpaid thereon at the scheduled maturity of the Note.
1.2 Issuance of Stock on Exercise of Warrant; Participation
Rights. The Company agrees in accordance with the terms of, and under the
circumstances set forth in, the Warrant, to issue to the holder thereof the
number (subject to adjustment as provided in the Warrant) of shares of Common
Stock for which the Warrant is then exercisable in accordance with the terms of
the Warrant. The Company shall not issue or agree to issue any equity securities
or securities with an equity feature unless either (a) it has given NVC at least
20 days' prior written notice thereof and afforded NVC a reasonable opportunity
during such 20 day period to acquire up to eight and one-half percent (8 1/2%)
of the securities to be issued (or rights to be granted) on the best terms on
which they are to be issued to any other person or entity (except that NVC shall
have the right to pay in cash the fair market value, as reasonably determined by
the Company's Board of Director's, of any non-cash consideration involved) or
(b) Common Stock is to be issuedand the cash consideration to be received by the
Company for the issuance thereof exceeds $0.50 per share. Notwithstanding the
foregoing, NVC shall have no such rights of participation with respect to the
issuance of (a) any securities to satisfy any conversion, option, subscription
or similar right outstanding on the date hereof or theretofore granted by the
Company in compliance with this Section 1.2, (b) up to 250,000 shares of Common
Stock issued to employees pursuant to the Company's employee stock option plan
and (c) up to 500,000 shares of Common Stock issued pursuant to private
placements in all material respects consistent with the terms provided in the
private placement memorandum dated May 5, 1999 a true copy of which has been
furnished to NVC by the Company (any such private placement being hereinafter
referred to as a "Company Private Placement").
1.3 Note Collateral. As collateral security for the due and
punctual payment and performance of the Note, (a) the Company is, on the date
hereof (i) executing and delivering to and in favor of NVC a General Security
Agreement and UCC-1 financing statements pursuant to which certain of the assets
of the Company are pledged to NVC to secure the Company's liabilities under the
Note and this Agreement (together, the "Security Agreement") and (ii) delivering
to NVC all evidences of its equity interest in, and debt securities issued to it
by, S&K Products International, Inc., a New Jersey Corporation ("S&K") together
with stock and bond powers executed in blank and (b) the Company shall, within
30 days of the Closing Date, deliver to NVC original policies insuring the lives
of James L. Kehoe and Kevin Schumacher each in the amount of at least $450,000,
together with instruments assigning such policies and the proceeds thereof to
NVC to secure the Company's liabilities under the Note and this Agreement, each
of which shall be satisfactory to NVC in NVC's reasonable discretion (such
policies and instruments of assignment being together referred to herein as the
"Insurance Assignment"; the Security Agreement and the Insurance Assignment
being hereinafter referred to collectively as the "Security Agreements")..
ARTICLE 2
PUT; MANDATORY WARRANT EXERCISE
2.1 NVC's Put. At any time commencing on the delivery by the
Company of the Company's audited financial statements for the Company's fiscal
year ending February 28, 2006 and terminating one year thereafter (such period,
the "Put Period"), NVC shall have the right (once, but not more than once), on
written notice to the Company (which notice shall be irrevocable), specifying a
closing date (the "Put Date") not less than 90 days from the date of such
notice, to sell to the Company, and to require the Company to purchase from it,
on the Put Date, the Warrant (to the extent not theretofore exercised) and all
(but not less than all) of the Warrant Shares then owned by NVC at a price (the
"Put Price") equal to the result obtained by subtracting the aggregate exercise
price of the Warrant to the extent then remaining unexercised from the product
of the greatest of:
(a) the Fair Market Value of the Company as determined by an
Independent Appraiser as at the end of the Company's fiscal year ended
February 28, 2006 (the "Company's 2006 Fiscal Year"),
(b) five times EBITDA for the Company's 2006 Fiscal Year or, if
higher, average EBITDA for such year and the fiscal year of the Company
immediately prior to such year, or
(c) the book value of the Company as at the end of the Company's
2006 Fiscal Year,
and a fraction (the "Put Fraction") the numerator of which is the total number
of shares of Common Stock which would then be owned by NVC if all then issued
and outstanding options, warrants and rights (together, "Rights") to acquire
Common Stock on conversion, exchange, subscription or otherwise, whether or not
at the time exercisable, had been exercised in full and the denominator of which
is the number (the "Full Dilution Number") of shares of Common Stock which would
be outstanding if all Rights to acquire Common Stock were exercisable and
exercised in full. For purposes of this Agreement, (v) "EBITDA" means the
consolidated net income of the Company and its Subsidiaries plus (adding back)
any deductions for income taxes, interest expense, depreciation and amortization
of intangible assets (including amortization of goodwill) for such period, (w)
EBITDA, book value, net income, income taxes, interest expense, depreciation and
such amortization shall each be as set forth in the Company's audited financial
statements prepared in accordance with Section 6.2 of this Agreement, (x)
"Subsidiary" means each Person (as hereinafter defined) which the Company or
another Subsidiary shall control or own more than 50% of the capital or equity,
(y) "Independent Appraiser" means the independent investment banking firm
located in New York City designated in writing by the Company or NVC to the
other unless within 30 days after such designation the other objects thereto in
writing, in which case, if the Company and NVC are unable to agree upon such an
investment banker, then such firm shall be the New York City office of a
nationally recognized firm of investment bankers to be chosen by the President
of the American Arbitration Association (the "AAA") and (z) "Fair Market Value"
of the Company means the highest purchase price which one could reasonably
expect would be paid for all of the business and assets of the Company and its
ownership interest in its Subsidiaries in a sale of the Company as a going
concern in an arm's-length sale transaction between an informed, willing and
strategically motivated buyer under no compulsion to buy, and an informed and
willing seller under no compulsion to sell, assuming that, at the time of the
sale, the purchase price is paid entirely in cash. NVC shall pay one-half, and
the Company shall pay one-half, of all fees and expenses charged by the
Independent Appraiser for determining the Fair Market Value of the Company.
Payment of the Put Price pursuant to this Section 2.1 shall be made by transfer
of good funds on the Put Date in an amount equal to one-third of the Put Price
and delivery of a note (the "Put Note") for the balance of the Put Price. The
Put Note shall (i) be payable in thirty-six equal monthly installments due on
the last business day of each month following the month in which the Put Date
occurs, each such installment to consist of a portion of the balance of the Put
Price and interest on the unpaid balance at an annual rate of 12% per annum,
(ii) become, by its terms, immediately payable in full upon the occurrence of an
Event of Default (as hereinafter defined) or payable on default (if unwaived) in
any payment thereon after ten days' notice by the holder of the Put Note of such
payment default (if such payment is not made within such period) and (iii) shall
otherwise be in substantially in the form of the Note.
Section 2.2 Termination of Put Rights. NVC's rights to sell to
the Company (or cause the Company to purchase) the Warrant and/or Warrant Shares
pursuant to Section 2.1 shall terminate if (a) (i) Common Stock has for 90
consecutive trading days been listed and traded on the NASDAQ small cap market
at a price of at least $1.50 per share (appropriately adjusted for any change in
the Company's equity capitalization) (such event being hereinafter referred to
as a "Liquity Condition") and (ii) the Company causes to be registered for sale,
and NVC sells, at least 300,000 Warrant Shares and receives net sale proceeds
therefrom of at least $1.50 per Warrant Share after subtracting the exercise
price paid by NVC to acquire such Warrant Shares pursuant to the Warrant (the
occurrence of (i) and (ii) being hereinafter referred to as a "Liquidity Event")
or (b) the Company receives net proceeds of at least $5,000,000 from the sale of
its Common Stock in a registered public offering which places a valuation (prior
to such sale of Common Stock) on the Company of at least $15,000,000 (the events
described in (b) being hereinafter referred to as a "Qualified Public
Offering").
Section 2.3 Mandatory Warrant Exercise. At the request of the
Company, NVC shall, upon the occurrence of a Liquidity Condition, exercise the
Warrant and cooperate with the Company (in the manner described in Article 10)
in the registration and sale of at least 300,000 Warrant Shares if the resulting
sale would create a Liquidity Event.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to NVC that:
3.1 Organization; Good Standing. The Company is a corporation
duly organized and validly existing under the laws of the State of its
incorporation and has all requisite corporate power and authority to own,
operate and lease its properties, to carry on its business as now being
conducted and to enter into this Agreement and perform its obligations hereunder
and under each of the other documents entered into by it in connection herewith
(including the Note and Warrant), which documents are listed on the List of
Closing Documents attached hereto as Exhibit C (such other documents, together
with this Agreement, being collectively referred to as the "Transaction
Documents"). The Company is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the failure to be
so qualified would have a material adverse effect upon its business or assets.
The jurisdictions in which the Company is qualified to do business are set forth
on Schedule 3.1 hereto.
3.2 Authorization. The execution, delivery and performance by
the Company of each Transaction Document to be executed by the Company
(including this Agreement, the Note, the Warrant and the Security Agreements)
listed on Exhibit C) has been duly authorized by all requisite corporate action
on the part of the Company. No consent, license, approval, authorization,
registration, filing or similar requirement ("Permit") is necessary in
connection therewith except as set forth on Schedule 3.2 hereto; there are, to
the Company's knowledge, no pending or threatened investigations or legal
proceedings ("Actions") which question the transactions contemplated thereby;
and none of such transactions will conflict with or result in any violation of
or constitute a breach of or default under the certificate of incorporation or
by-laws of the Company or any applicable laws, rules, regulations, agreements
with governmental authorities (together, "Laws"), orders, injunctions,
judgments, awards or decrees (together, "Orders") or, except as set forth on
Schedule 3.2 hereto, other agreements, understandings, deeds, notes, mortgages
or licenses (together, "Contracts") binding upon the Company or its assets or
will result in the creation of any lien, charge or encumbrance (together,
"Liens") (except the Lien created by the Security Agreements) upon any of the
assets of the Company pursuant to any Contracts. Each such Transaction Document
has been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company enforceable in accordance with its
terms except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights or by general equitable principles.
3.3 Capitalization. On the Closing Date, after consummation of
the transactions contemplated hereby, the Company's authorized capital stock
will consist solely of those shares identified under the heading "Authorized
Capital Stock" on Schedule 3.3. Of such shares, only those shares identified
under the heading "Outstanding Common Shares and Ownership Thereof" on Schedule
3.3 are outstanding and such shares are held of record and, to the knowledge of
the Company, beneficially as indicated under such heading except as set forth on
Schedule 3.3. No person, corporation, association or other entity ("Person") has
any Right issued by the Company entitling such Person to acquire shares of the
Company's capital stock or any other securities (whether or not authorized or
outstanding on the date of this Agreement) which are convertible into or
exchangeable for such shares except as indicated on Schedule 3.3 under the
heading "Rights". The shares of the Company's Common Stock purchasable on the
exercise of the Warrant have been duly reserved for issuance, and when issued
upon the valid exercise of the Warrant, will be validly issued, fully paid and
non-assessable shares of the Company's Common Stock. No Person is entitled to
any preemptive or other rights to subscribe for the Warrant Shares. Except as
set forth under the heading "Liabilities Owed to or by Affiliates" on Schedule
3.3, there is no outstanding indebtedness of the Company owed to any Person (or
any close relative of such Person) who owns directly or indirectly 5% or more of
any class of the outstanding securities of the Company or of which the Company
owns 5% or more of the equity or capital or to any officer or director of the
Company or any of their close relatives (any Person with such an ownership or
other relationship with the Company described in this sentence being hereinafter
referred to as an "Affiliate") or any indebtedness of any Affiliate to the
Company. Other than as described on Schedule 3.3 under the heading "Management
or Control", there are no agreements or other instruments of any kind which
relate to the voting of the capital stock or other securities of the Company or
the management or control of the Company other than the certificate of
incorporation and by-laws of the Company. Except pursuant to Article 10 of this
Agreement, or those agreements listed on Schedule 3.3 under the heading
"Registration Rights", there are no agreements or other instruments providing
registration rights to holders of any security issued or issuable by the
Company.
3.4 Equity Investments. The Company does not own, beneficially
or of record, any capital stock or other equity securities of, or direct or
indirect equity interest in, any other Person or enterprise except as indicated
on Schedule 3.4.
3.5 Litigation. To the Company's knowledge, except as set forth
on Schedule 3.5, there are no Actions which would, if adversely determined,
severally or in the aggregate, materially and adversely affect the business,
operations, assets or financial or other condition (together, the "Financial
Condition") of the Company or the transactions contemplated by the Transaction
Documents.
3.6 Compliance; Permits. To the Company's knowledge, except as
set forth on Schedule 3.6, there is no failure by the Company to comply with or
any default or violation by the Company under, any Laws, Orders, Permits or
Contracts applicable to its business which failure, violation or default could
have a material adverse effect on the Company's Financial Condition and the
Company has not received notice of any claim to the contrary. To the Company's
knowledge, the Company has all material Permits necessary for the conduct of its
business, all of which material Permits are listed on Schedule 3.6.
3.7 Material Contracts. Except for the Contracts described on
Schedule 3.7, true copies of which have been furnished to NVC, the Company is
not bound by any contracts with employees or Affiliates, collective bargaining,
pension, retirement, profit-sharing or similar agreements, or Contracts which
are material to the business of the Company.
3.8 Financial Statements. True copies of the financial
statements and other information identified on Schedule 3.8 have been furnished
to NVC by the Company. Except as described in the next sentence, such statements
and information present fairly the financial condition and the results of
operations of the Company as at the dates thereof and for the periods covered
thereby including contingent liabilities. Such financial statements were
prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved except that such financial
statements with respect to periods other than full fiscal years of the Company
are subject to normal year-end adjustments and may lack footnotes and other
presentation items. The Company has no material obligations or liabilities,
contingent or otherwise, except (a) as set forth on Schedule 3.5 or Schedule
3.8, (b) as reflected on such financial statements and (c) those obligations and
liabilities incurred in the ordinary course of the Company's business since the
date of the latest financial statements identified on Schedule 3.8 and, except
as may be set forth on Schedule 3.8, there has been no material adverse change
in the Financial Condition of the Company since the date of the most recently
dated balance sheet of the Company included in such financial statements (the
"Most Recent Balance Sheet").
3.9 Pro Forma Balance Sheet. Set forth on Schedule 3.9 is the
Company's pro forma opening balance sheet reflecting the Most Recent Balance
Sheet, but giving effect to the transactions contemplated by this Agreement and
the acquisition by the Company of S&K as if such transactions had occurred on
the date of the Most Recent Balance Sheet pursuant to the Stock Purchase
Agreement (the "S&K Agreement") between the Company and S&K dated as of August
3, 1999 (a true copy of which Agreement has been furnished by the Company to
NVC). If the Closing Date and the consummation of the Company's acquisition of
S&K had occurred on the date of the Most Recent Balance Sheet, such pro forma
opening balance sheet would present fairly, on a pro forma basis, the financial
condition of the Company as at such date.
3.10 Projections. Except as described on Schedule 3.10, in light
of all material facts known to the Company on the date hereof and based upon the
assumptions that underlie the Company's projections (which assumptions the
Company believes in good faith are reasonable), the Company has no reason, in
good faith, to believe that its prospects are not at least as favorable as
indicated in the projections concerning the Company included in Exhibit D
attached hereto.
3.11 Capital Changes. Except as set forth on Schedule 3.11, and
other than pursuant to the terms of the Transaction Documents, since the date of
the Most Recent Balance Sheet, (i) no dividend has been declared or paid by the
Company, (ii) the Company has not issued, acquired or redeemed or agreed to
acquire or redeem any of its securities and (iii) no capital stock of the
Company has been split or otherwise subdivided.
3.12 Taxes. Except as set forth on Schedule 3.12, to the
Company's knowledge, the Company has filed all tax returns required to be filed,
and has paid all taxes shown to be payable thereon or which are otherwise due
and payable by it or as to which claim for payment has been made.
3.13 Indebtedness. The Company has no liability for borrowed
money or any other liability evidenced by bonds, debentures, notes or similar
instruments (together, "Indebtedness for Borrowed Money") except as disclosed on
the Most Recent Balance Sheet or set forth on Schedule 3.13.
3.14 Title; Operating Condition; Insurance. The Company has good
title to, or a valid leasehold interest in, all its assets subject only to the
Liens described on Schedule 3.14. All plant and equipment owned or leased by the
Company is operating satisfactorily in all material respects and the Company has
no reason to believe that it will not continue to do so subject to normal
maintenance, repair, deterioration and obsolescence. Insurance is in effect to
such extent and covering such risks as is required by law and as is customary
for companies engaged in similar businesses. Such insurance is described on
Schedule 3.14 and is considered adequate by management.
3.15 Patents, Copyrights, etc. Except as set forth on Schedule
3.15, the Company owns or possesses adequate licenses or other rights to use all
patents, processes, trademarks, trade names or copyrights necessary to the
conduct of its business as now conducted or presently intended to be conducted
(together, "Proprietary Rights") and the Company has no reason to believe that
any such Proprietary Rights conflict or will conflict with the rights of others.
3.16 Security Interest. Upon the consummation of the purchase of
the Note by NVC, the execution and delivery of the Security Agreements and the
filing of the UCC-1 financing statements in the jurisdictions set forth on
Schedule 3.16 will be effective to create in favor of NVC a legal, valid,
enforceable, fully perfected security interest in the collateral described
therein (to the extent perfection of such Lien may be obtained by such filing
under Article 9 of the Uniform Commercial Code).superior in right to any Liens,
existing or future, which any Person other than NVC may have against such
collateral, subject only to the superior right of those Liens described on
Schedule 3.14.
3.17 ERISA. The Company is in compliance in all material
respects with the Employee Retirement Income Security Act of 1974 ("ERISA") and
all rules and regulations thereunder. The Company has no unfunded vested
liability under any plan described in Section 4021(a) of ERISA ("Plan") and no
reportable event described in Section 4043(b) of ERISA has occurred or is
continuing with respect to any Plan.
3.18 Investment Company Act. The Company is not an "investment
company", or a company "controlled by an investment company", within the meaning
of the Investment Company Act of 1940, as amended.
3.19 Flood Hazard. The Company will not use the proceeds from
the sale of the Note or Warrant to construct or acquire property to be located
within the boundaries of a special flood hazard area so designated by the United
States Federal Emergency Management Administration.
3.20 Hazardous Wastes. To the best of the Company's knowledge,
none of the Company's assets has ever been used by it or others, nor has the
Company taken any action, to dispose of, produce, store, handle, treat, release
or transport any hazardous waste or substance except in a manner which would
have complied in all material respects with all Laws applicable to such
activities if taken on the date hereof, nor has the Company been notified of any
claim to the contrary.
3.21 Full Disclosure. To the Company's knowledge, this Agreement
and all of the Exhibits and other written material delivered by the Company to
NVC in connection with the transactions contemplated hereby do not contain any
statement that is false or misleading with respect to any material fact and do
not omit to state a material fact necessary in order to make the statements
therein not false or misleading. There is no additional fact (other than facts
generally known to the public or in the Company's industry) of which the Company
is aware that has not been disclosed in writing to NVC that materially affects
adversely or, so far as the Company can reasonably foresee on the date hereof,
will materially affect adversely the Company's Financial Condition.
3.22 Representation as to Subsidiaries. To the Company's best
knowledge, each of the representations set forth in Sections 3.1 through 3.21
(other than Section 3.16) would be true if made by each Subsidiary if such
Subsidiary were the Company referred to therein, provided that this
representation and warranty is qualified in its entirety by the matters
disclosed in the S&K Agreement (including its schedules and exhibits).
ARTICLE 4
AFFIRMATIVE COVENANTS
Until the date (the "Covenant Termination Date") on which either
(a) the Note and any Put Note has been paid in full and NVC ceases to hold at
least 20% of the Common Stock or Rights to acquire the same which are purchased
hereunder or (b) the Note has been paid in full and there has been a Qualified
Public Offering, or, in the case of Section 4.4 and Section 4.7, until the Note
is paid in full, the Company shall,:
4.1 Compliance with Applicable Law. Comply with all Laws, Orders
and Permits, except for such non-compliance that does not have a material
adverse effect on the Financial Condition of the Company and its Subsidiaries
taken as a whole;
4.2 Maintenance of Corporate Existence and Properties. Maintain
its corporate existence, maintain its qualification and good standing in all
jurisdictions where failure to maintain qualification or good standing would
have a material adverse effect on the conduct of its business and the ownership
of its assets, keep its material physical assets in reasonably good repair and
make all necessary replacements, additions and improvements to such assets;
4.3 Accounting Methods and Fiscal Year. (i) Maintain a system of
accounting and keep such books, records and accounts (which shall be true and
complete in all material respects) as may be required to permit the preparation
of the financial statements required by this Agreement, and (ii) make no change
in its fiscal year, unless it gives prior notice to NVC and appropriate changes
are made to this Agreement, satisfactory to NVC, to adjust the fiscal periods
referred to herein;
4.4 Use of Proceeds. Use the proceeds received by it from the
sale of the Note pursuant to this Agreement for the purposes indicated on
Exhibit E;
4.5 Insurance. Maintain insurance with financially sound and
reputable insurance companies to such extent and covering such risks as shall be
required by applicable Laws and such additional insurance (consistent with the
insurance presently maintained by the Company) as is customary for companies
engaged in the same or a similar business or as may be reasonably requested by
NVC;
4.6 Visits and Inspections. Permit representatives designated by
NVC, from time to time, as often as may be reasonably requested, but only during
normal business hours and on at least five (5) days' prior written notice, to
(a) visit and inspect any properties in which the Company might have an
interest, (b) inspect and make extracts from the Company's books and records,
including but not limited to management letters prepared by its independent
accountants, and (c) discuss with the Company's principal officers and its
independent accountants the Company's Financial Condition;
4.7 Continuation in Present Fields of Business. Engage
substantially in the areas of business ("Permitted Fields") heretofore and most
recently conducted by it and conduct its business, without substantial change,
in accordance with past practice; and
4.8 Subsidiaries. Cause each Subsidiary to comply with each of
the covenants set forth in Article 4 (which covenants shall, for purposes of
this Section 4.8, apply to each such Subsidiary as if it were the Company
referred to therein).
ARTICLE 5
NEGATIVE COVENANTS
Until the Covenant Termination Date (but in the case of Sections
5.1, 5.2, 5.3, 5.4, 5.5, 5.7 and 5.10 only until the Note shall have been paid
in full), the Company shall not directly or indirectly:
5.1 Indebtedness. Create, assume, incur or otherwise become or
remain obligated in respect of any Indebtedness for Borrowed Money (not
including purchase money indebtedness) except as set forth on Schedule 5.1 (it
being understood that trade debt incurred in the ordinary course of business is
not deemed to be Indebtedness for Borrowed Money) or repay indebtedness to James
L. Kehoe or Samuel Schwartz listed on Schedule 3.3 other than pursuant to the
limitations described in such Schedule;
5.2 Guaranties. Become or remain liable with respect to any
obligation of any other Person, except by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business and except as set
forth on Schedule 5.2;
5.3 Liens. Create, assume, incur, permit, or suffer to exist any
Lien upon or with respect to any of its assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom except Liens (a) in favor of
NVC, (b) for taxes and other governmental charges, (c) of materialmen,
mechanics, carriers, warehousemen or landlords or similar liens incurred in the
ordinary course of business, (d) incidental to either the ordinary and normal
conduct of its business or the acquisition or ownership of any of its assets,
(d) securing purchase money indebtedness or (e) set forth on Schedule 5.3;
provided that in the case of (b) or (c), payment is not yet due or is being
contested by appropriate proceedings and, in the case of (d), the Liens do not
materially impair the Company's use of assets in its business;
5.4 Acquisitions and Investments. Except as set forth on
Schedule 5.4, purchase or acquire (a) assets constituting the business or a
division or operating unit of any Person or (b) the stock, securities or
obligations of any Person except (i) current trade and customer accounts
receivable for goods sold or services rendered in the ordinary course of
business and payable in accordance with customary trade terms, (ii) notes
accepted in the ordinary course of business evidencing overdue trade and
customer accounts receivable arising in the ordinary course of business, (iii)
direct obligations of the United States of America with a maturity of not more
than 365 days, (iv) deposits insured by the FDIC, and (v) investments in
open-end regulated investment companies which invest in money market and other
debt securities with maturities generally not exceeding one year;
5.5 Loans. Except as set forth on Schedule 5.5, lend money or
extend credit, or make or permit to be outstanding loans or advances, to any
Person, except, in the ordinary course of business, loans or advances (a) in the
nature of prepayments to subcontractors and suppliers, (b) as contemplated by
Section 5.4(b)(i) and (ii), and (c) to employees for travel, relocation or other
similar allowances not exceeding (for the Company and its Subsidiaries together)
$20,000 in the aggregate at any one time outstanding, and except for loans or
advances to Subsidiaries which are directly or indirectly wholly-owned by the
Company;
5.6 Restricted Payments. Until the Note has been paid in full
and a Qualified Public Offering or Liquidity Event has taken place, except as
set forth on Schedule 5.6 or required by Section 2.1, declare, pay or make any
dividend or other distribution on any shares of the Company's capital stock or
redeem, retire, purchase or acquire directly or indirectly any shares of its
capital stock now or hereafter outstanding or return any capital to its
stockholders;
5.7 Merger, Consolidation and Sale of Assets. Except as set
forth on Schedule 5.7, merge or consolidate with any other Person, liquidate,
wind up or reorganize its business, or sell, lease, transfer or otherwise
dispose of (a) any of its assets with a fair market value in excess of $50,000,
other than in the ordinary course of the Company's business, or (b) in a single
transaction or a series of related transactions, all or a substantial portion of
its assets outside the ordinary course of business (not including dispositions
of worn out or obsolete assets);
5.8 Transactions with Affiliates. Permit any income or profits
of the Company to be diverted for the direct or indirect benefit of any
director, officer, employee or shareholder or effect any transaction with, or on
behalf of, any Affiliate (a) not in the ordinary course of the Company's
business or (b) on a basis less favorable to the Company than would be the case
if such transaction had been effected with a Person who is not an Affiliate or
make any transfer or payment to or directly or indirectly for the benefit of any
Affiliate without receiving full value therefor or make any transfer or cash or
non-cash payment (including any such payment in the form of salary or fringe
benefits such as personal use of Company facilities or resources) to or directly
or indirectly for the benefit of any Affiliate in respect of any services,
except as described on Schedule 5.8;
5.9 ERISA Plans. (i) Terminate any Plan so as to result in any
material liability to the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (the "PBGC"), (ii) engage in or
permit any Person to engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended) involving any Plan which would subject the Company to any material tax,
penalty or other liability, (iii) incur or suffer to exist any material
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived, involving any Plan, or (iv) allow or suffer to exist any event or
condition, which presents a material risk of incurring a material liability to
the PBGC by reason of termination of any Plan;
5.10 Sale or Discount of Receivables. Sell with recourse, or
discount or otherwise sell for less than the face value thereof, any substantial
portion of its notes or accounts receivable (provided that this Section 5.10
shall not be deemed to restrict the Company from granting discounts to customers
in the normal course of its business);
5.11 Charter and By-Laws. Amend its certificate of incorporation
(other than to increase the number of the Company's authorized shares to
25,000,000) or By-Laws.
5.12 Transfer of Shares. Suffer or permit the transfer or
registration of transfer on the books of the Company any shares of Common Stock
of any of the persons identified on Schedule 5.12 (the "Principals") or of
persons to whom their shares are transferred pursuant to this Section 5.12 if
NVC has not been afforded a reasonable opportunity to transfer (or has waived
the right to transfer), on the same terms (except that it shall receive cash
equal to the fair market value of any non-cash consideration involved in such
terms), a portion of the Warrant Shares which is equal to the percentage of the
Common Stock of such transferor which is being transferred. This Section 5.12
shall not be deemed to prohibit the transfer of shares of Common Stock by a
Principal to members of his immediate family or to a trust for the benefit of
such Principal or members of his immediate family.
5.13 Observation Rights. Take any action pursuant to resolutions
adopted by the Board of Directors of the Company, or any committee thereof
unless a representative of NVC has been afforded the same opportunity to attend
a meeting at which such resolutions are adopted or to review the written consent
pursuant to which such resolutions are adopted which such representative would
have been required to have been afforded if such representative had been a
member of such Board of Directors or committee.
5.14 Subsidiaries. Permit any Subsidiary to violate any of the
covenants set forth in this Article 5 (which covenants shall for purposes of
this Section 5.13 apply to each Subsidiary as if it were the Company referred to
therein), provided that this Section 5.13 shall not prohibit a Subsidiary
wholly-owned by the Company from making payments which would otherwise violate
Section 5.6.
ARTICLE 6
CERTAIN INFORMATION COVENANTS
Until the Covenant Termination Date, the Company shall furnish to NVC:
6.1 Monthly Financial Statements. As soon as available, and in
any event within 45 days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such month and the related consolidated and consolidating statements of
income, retained earnings and cash flows of the Company and its Subsidiaries for
such month all in reasonable detail, and setting forth in each case in
comparative form the corresponding figures for the Company and its Subsidiaries
for the corresponding period of the previous fiscal year accompanied by (i) an
analysis of the variations from the budget (referred to in Section 6.4) for such
month and for the portion of the Company's fiscal year then ended, and (ii) a
certificate of the President or chief financial officer of the Company to the
effect that such statements fairly present the financial condition of the
Company and its Subsidiaries as of the balance sheet date and results of the
operations of the Company and its Subsidiaries for the period then ended,
subject to normal year-end adjustments and the absence of footnotes.
6.2 Audited Year-End Statements. As soon as available, and in
any event within 90 days after the end of each fiscal year of the Company, the
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year and the related consolidated and
consolidating statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for such fiscal year, setting forth in comparative
form the corresponding figures for the Company and its Subsidiaries as at the
end of and for the previous fiscal year, in each case audited by independent
certified public accountants reasonably acceptable to NVC and who shall have
authorized the Company to deliver such financial statements and audit thereof to
NVC pursuant to this Agreement.
6.3 Officer's Certificate. So long as the Note has not been paid
in full, at the time financial statements are furnished pursuant to Section 6.1
or 6.2, a certificate of the President or chief financial officer of the Company
stating that, based on an examination sufficient to enable him to make an
informed statement, to his knowledge no event described in Article 7 (an "Event
of Default") or any event which with the giving of notice and/or lapse of time
would constitute an Event of Default (a "Default") exists or, if such is not the
case, specifying such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the action being taken with respect
thereto.
6.4 Budgets. Prior to each March 1, a budget setting forth
projections of the consolidated income statements and cash flow statements of
the Company and its Subsidiaries for the Company's following fiscal year and
projections of the income statements and cash flow statements of the Company and
its Subsidiaries for each quarter of such fiscal year, which budget shall be
prepared in form consistent with the form of the financial statements furnished
pursuant to Sections 6.l and 6.2 and shall include an explanation of the
assumptions made by the Company with respect thereto and such other information
as NVC may reasonably request.
6.5 Additional Information. (i) Promptly upon receipt thereof,
copies of all reports, if any, submitted to the Board of Directors of the
Company by its independent public accountants, including without limitation any
management or audit report; (ii) promptly, upon receipt thereof, all amendments
to the terms of the Company's Indebtedness for Borrowed Money (not including
rate adjustments made automatically pursuant to the terms of any such
indebtedness) and all communications received from or on behalf of the holders
thereof relating to defaults or waivers thereof; (iii) as soon as practicable,
copies of all such financial statements and reports as the Company shall send to
its stockholders and of all registration statements and all regular or periodic
reports which the Company shall file, or may be required to file, with the SEC
or any successor commission; (iv) promptly upon submission thereof, copies of
all such financial statements, financial projections, reports and other written
communications as shall be submitted to the Directors of the Company in their
capacity as such; and (v) from time to time and promptly upon the reasonable
request of NVC, such additional data, certificates, reports, statements,
documents or further information regarding this Agreement, the Note, the
Warrant, the Warrant Shares or the Financial Condition of the Company or any
Subsidiary as NVC may reasonably request, including without limitation such
information as NVC shall reasonably require to show that the Company has carried
out its obligations under Section 4.4 or to furnish information which NVC must,
in turn, supply to the United States Small Business Administration.
6.6 Notice of Defaults, Litigation and Other Matters. Prompt notice of:
(a) any Default or Event of Default;
(b) any amendment of the certificate of incorporation or by-Laws
of the Company or any Subsidiary;
(c) any event described in Section 4043 of ERISA and any
proposed termination, partial termination or merger of a Plan of the Company or
of a Subsidiary or any proposed transfer of such a Plan's assets;
(d) any Action which could if adversely determined and if no
insurance were in effect have a material adverse effect on the Financial
Condition of the Company and its Subsidiaries taken as a whole; or
(e) (i) any material change since the date of this Agreement in
the Financial Condition of the Company or any Subsidiary of the Company or (ii)
the occurrence or non-occurrence, since such date, of any event of which the
Company has knowledge, in either case, that has had or is reasonably likely to
have a materially adverse effect on the Financial Condition of the Company and
its Subsidiaries taken as a whole.
ARTICLE 7
EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default,
whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of Laws or Orders:
7.1 Payment Defaults. The Company shall fail to make within ten
days after the date when due any payment of principal or interest on the Note or
shall fail to make for a period of more than five days after the date on which
it is due and after receipt of written notice from NVC any other payment
required to be made to NVC hereunder; or
7.2 Misrepresentations. Any representation or warranty made in
or pursuant to this Agreement or in any document delivered to NVC at the closing
of the transactions contemplated hereby shall at any time prove to have been
incorrect or misleading in any material respect when made; or
7.3 Covenant Defaults. The Company shall cease to maintain its
legal existence or shall default in any material respect in the performance or
observance of
(a) any term, covenant, condition or agreement
contained in (i) Article 5 or (ii) Sections 4.4, 4.7 or 6.6 and, if such
default can be remedied, such default continues unremedied for a period
of thirty consecutive (30) days during which the Company diligently
attempts to remedy such Default; or
(b) any term, covenant, condition or agreement
contained in this Agreement (other than a term, covenant, condition or
agreement, a default in the performance or observance of which is
elsewhere in Section 7.1 or 7.2 or in this Section 7.3 specifically
dealt with), and such default shall continue unremedied for a period of
30 days after notice from NVC, or, in the case of defaults which can be
remedied, for such longer period after notice from NVC as shall be
reasonably required to remedy such default, provided that such grace
period shall terminate if and when the Company shall cease to diligently
attempt to remedy such default; or
7.4 Cross-Default with Other Indebtedness. The Company shall
fail to pay, in accordance with its terms and when due and payable, and after
the expiration of all applicable cure periods, the principal of or interest on
any Indebtedness for Borrowed Money which aggregates at least $50,000, or the
maturity of any such Indebtedness shall have been accelerated or been required
to be prepaid prior to the stated maturity thereof or any event shall have
occurred and be continuing which, with the passage of time or the giving of
notice or both, would permit the acceleration of such maturity and the Company
shall not have obtained a waiver of default with respect thereto from the
applicable creditor; or
7.5 Cross-Default with Material Contracts. The Company shall
default in the payment when due, or in the performance or observance, of any
obligation or condition of any Contract, unless the Company has obtained a
waiver of such default from the other party to such Contract, or unless such
default, together with all other such defaults, has not had and will not have a
materially adverse effect on the Financial Condition of the Company and its
Subsidiaries taken as a whole; or
7.6 Bankruptcy, etc. (a) The Company, or any Subsidiary shall
(i) commence a voluntary case under Federal bankruptcy laws, (ii) file a
petition seeking to take advantage of any other Laws relating to bankruptcy,
insolvency, reorganization, winding up or composition or adjustment of debts
("Bankruptcy"), (iii) consent to or fail to contest in a timely and appropriate
manner any petition filed against it in any involuntary case under such
Bankruptcy laws or such other Laws, (iv) apply for or consent to, or fail to
contest in a timely and appropriate manner, the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator or the like
("Receiver") of itself or of a substantial part of its property, (v) admit in
writing its inability to pay, or generally not be paying, its debts as they
become due, (vi) make a general assignment for the benefit of creditors, or
(vii) take any corporate action for the purpose of effecting any of the
foregoing; or
(b) a case or other proceeding shall be commenced against the Company or
any Subsidiary in any court of competent jurisdiction seeking (i) relief under
Federal bankruptcy laws or under any other Laws relating to Bankruptcy, (ii) the
appointment of a Receiver of the Company or any Subsidiary or of all or any
substantial part of the assets of the Company or any Subsidiary and such case or
proceeding shall continue undismissed or unstayed for a period of 60 consecutive
calendar days, or an order granting the relief requested in such case or
proceeding against the Company or any Subsidiary (including, but not limited to,
an order for relief under Bankruptcy laws) shall be entered; or
7.7 Judgments. A judgment or order for the payment of money
shall be entered and become final against the Company or any Subsidiary which,
together with all other outstanding undischarged or unstayed judgments against
the Company and its Subsidiaries, exceeds $100,000 in the aggregate, and such
judgment or order shall continue undischarged or unstayed for 60 days; or
7.8 Noncompliance with ERISA. Any event occurs with respect to a
Plan of the Company or any Subsidiary of a type described in Section 4043(b) of
ERISA or any accumulated funding deficiency (as defined in Section 302 of
ERISA), whether or not waived, exists with respect to any such Plan or any
proceedings are instituted by the PBGC, or any other event or condition with
respect to any such Plan occurs which, in each case, in the reasonable opinion
of NVC, is likely to cause a material adverse change in the Financial Condition
of the Company and its Subsidiaries taken as a whole; or
7.9 Failure to Replace Executives. James L. Kehoe shall cease to
be or function as the chief executive officer of the Company and a successor
chief executive officer reasonably satisfactory to NVC shall not have been
appointed within 120 days of such cessation on terms reasonably satisfactory to
NVC; or
7.10 Default as to Warrant or Security Agreements. (a) The
Company defaults in the performance of any term, covenant or condition set forth
in (i)Section 1.2 or (ii) the Warrant, or (b) the provisions of the Note, the
Warrant or any of the Security Agreements shall be or become or shall be claimed
to be or to have become in any material respect invalid or unenforceable or (c)
NVC shall at any time cease to have a valid, fully perfected security interest
in the collateral referred to in the Security Agreements in each case subject to
no prior Liens other than any which may be specifically permitted pursuant to
the terms of this Agreement or the Security Agreements; or
ARTICLE 8
REMEDIES
Upon the occurrence of any Event of Default described in Section
7.6(a) or Section 7.6(b), the entire unpaid principal amount of the Note and any
interest accrued and unpaid thereon shall automatically be due and payable. Upon
the occurrence and during the continuance of any other Event of Default, NVC
shall have the right, by written notice to the Company, to declare due and
payable the principal of, and interest on, the Note, whereupon the same shall be
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. No right or remedy herein
conferred is intended to be exclusive of any other rights or remedies and each
and every right or remedy shall be cumulative and shall be in addition to every
other right or remedy given hereunder or now or hereafter existing at law or in
equity. No delay or omission in the exercise of any right or power accruing upon
the occurrence of any Default or Event of Default shall impair any such right or
power or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Every power and remedy given by this Article
8 may be exercised from time to time and as often as may be deemed expedient by
NVC.
ARTICLE 9
CONSENTS
Any provision in this Agreement to the contrary notwithstanding,
with the written consent of NVC, the Company may be relieved from the effect of
any Event of Default or from performance of such obligations. Unless otherwise
specified in a written waiver or consent, a waiver or consent given hereunder
shall be effective only in the specific instance and for the specific purpose
for which given.
ARTICLE 10
REGISTRATION RIGHTS
10.1 Piggyback Registration. The Company shall give at least 20
days' prior written notice to NVC of its filing of any registration statement
under the Securities Act of 1933 (the "Securities Act") that is to be on a form
of the Securities and Exchange Commission pursuant to which there is to be sold
Common Stock (other than (a) the Common Stock owned by Kevin Schumacher, Justine
Schumacher or members of their immediate families on the date hereof, (b) Common
Stock issued to persons other than officers or directors of the Company pursuant
to a Company Private Placement or (c) Common Stock issued to employees who are
not officers or directors of the Company pursuant to the Company's stock option
plan) which is at the time already outstanding or which is subject to issuance
pursuant to then outstanding Rights and in each case is to be registered by
existing holders of Common Stock or Rights. NVC shall have an opportunity to
elect within 15 days after receipt thereof to include in such filing (if
permitted by the applicable form) any shares of Common Stock which are owned by
NVC or may be acquired on exercise of the Warrant to the extent that, in the
reasonable opinion of the underwriter, such inclusion shall not adversely affect
the proposed offering by the Company (but in any case NVC shall be entitled to
include in such filing the percentage of the shares of Common Stock owned by, or
that may on exercise of the Warrant be acquired by, NVC which is equal to 100%
of the highest percentage of the shares of Common Stock owned and/or subject to
acquisition by any other Person which are included in such filing). NVC may
assign or transfer its right to include a given number of shares of Common Stock
in a filing to any person to whom NVC transfers Common Stock or Warrants.
10.2 Registration Procedure. To include shares of Common Stock
in any registration, NVC shall (i) cooperate with the Company in preparing such
registration and execute all such agreements as the underwriter thereof may
reasonably deem to be necessary in favor of such underwriter, (ii) promptly
supply the Company with all information, documents, representations and
agreements as such underwriter may reasonably deem to be necessary in connection
with such registration and (iii) agree in writing not to sell or transfer any
Common Stock not included in such registration for such periods, not to exceed
180 days, as the underwriter may require, but NVC shall not be required to take
the actions described in this Section 10.2 unless the holders of all other
shares of Common Stock included in any offering covered by such registration
shall similarly take such actions.
10.3 Expenses. The costs and expenses (other than underwriting
discounts or commissions) of all registrations and qualifications under the
Securities Act, and of all other actions, that the Company is required to take
or effect pursuant to this Article 10 shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses, costs
of special audits incident to or required by any such registration, and fees and
disbursements of counsel for the Company and the reasonable fees and
disbursements of counsel for NVC).
10.4 Indemnification. (a) In the event of a registration of
Common Stock pursuant to the Securities Act, the Company shall
(1) indemnify and hold harmless NVC and each Person, if any, who
controls NVC within the meaning of the Securities Act, against any
losses, claims, damages, expenses (including attorneys' fees), or
liabilities (or actions in respect thereof) under the Securities Act or
otherwise, that arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any such
registration statement, any preliminary prospectus or final prospectus,
or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any other violation of law by the Company
with respect thereto, and
(2) reimburse NVC and each such controlling Person for any legal
or other expenses reasonably incurred by NVC or such controlling Person
in connection with defending against any such loss, claim, damage,
expense, liability or action (together, "Losses");
provided, however, that the Company shall not be liable to NVC or to any Person
who controls NVC within the meaning of the Securities Act in any such case to
the extent that any such Loss arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished by or on behalf of NVC or such controlling Person
expressly for use in the preparation thereof.
(b) In the event of a registration of Common Stock pursuant to
this Agreement, NVC shall
(1) indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed any such registration
statement, and any Person who controls the Company within the meaning of
the Securities Act, against any Losses to which the Company or any such
director, officer or controlling Person may become subject, under the
Securities Act or otherwise, insofar as such Losses arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in any such registration statement, preliminary prospectus or
final prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any other violation of
law by NVC with respect thereto, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary prospectus or final prospectus, or amendment or supplement,
in reliance upon and in conformity with written information furnished by
or on behalf of NVC for use in such disclosure documents, and
(2) reimburse the Company or any such director, officer or
controlling Person for any legal or other expenses reasonably incurred
by it or him in connection with defending against any such Loss.
(c) Promptly after receipt by an indemnified party under this
Section 10.4 of notice of the commencement of any action which may involve a
Loss indemnified hereunder, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under this Section 10.4,
notify the indemnifying party of the commencement thereof, but the omission so
to notify the indemnifying party shall not relieve it from any liability that it
may have to any indemnified party except, and then only, to the extent such
indemnifying party is prejudiced by such omission.
(d) In case any Action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof (in which event, it shall do so diligently), with
counsel reasonably satisfactory to such indemnified party. In the event the
indemnifying party gives notice to the indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof subsequent to the date of such notice.
ARTICLE 11
INVESTMENT REPRESENTATIONS
NVC hereby represents and warrants that it is an "accredited
investor" within the meaning of Regulation D under the Securities Act and is
acquiring the Note and Warrant issued to it under this Agreement for purposes of
investment and with no present intent to sell or view to distribute the same.
NVC understands that neither the Note, the Warrant nor the Warrant Shares have
been registered under the Securities Act, in reliance upon exemptions from
registration and qualification thereunder, and that such exemptions are in part
dependent on the representations made herein. NVC represents and warrants that
it has such knowledge and experience that it is capable of evaluating the merits
and risks of this investment and protecting its own interest in connection with
this investment and that its Financial Condition is such that it is in a
financial position to hold the Note, the Warrant and the Warrant Shares to be
held by it for an indefinite period of time and to bear the economic risk of,
and withstand a complete loss of, the investment represented thereby.
ARTICLE 12
MISCELLANEOUS
12.1 Transferees; Additional Shareholders. (a) Upon any transfer
or assignment by NVC of any interest in the Note, the Warrant or the Warrant
Shares, as the case may be, the term "NVC" shall, with respect to the interest
so transferred or assigned, thereafter include such transferee or assignee.
(b) On surrender of any document representing all or
part of the Note or the Warrant for such purpose, one or more new Notes or
Warrants, as the case may be, shall be issued with appropriate revisions to
reflect, in the aggregate, the obligations of the Company under the
Note or the Warrant so surrendered.
12.2 Fees and Expenses. The Company is paying to NVC
simultaneously herewith, to the extent not already paid, a financing fee of
$20,000, which fee shall cover all costs incurred by NVC through and including
the Closing Date in effecting the transaction contemplated hereby and which the
Company has agreed to pay (including any fees or disbursements of NVC's counsel)
in connection with the negotiation, execution and delivery of the Transaction
Documents. The Company shall pay all reasonable costs of NVC (including any fees
or disbursements of NVC's counsel) incurred after the date hereof in connection
with the amendment or the enforcement of any Transaction Document.
12.3 Brokerage Fees. The Company agrees to indemnify NVC against
all brokers', finders' or similar fees that may be payable to any Person in
connection with the purchase of the Note and Warrant hereunder and against all
losses, claims, damages and liabilities and related expenses, including counsel
fees and expenses incurred by NVC in connection with such fees in each case
arising out of the actions of the Company. The Company represents and warrants
that no such fees are or will be payable except as set forth on Schedule 12.3.
NVC represents and warrants to the Company that it has not dealt with any
broker, finder or third party in connection with its purchase of the Note and
Warrant under any circumstances that could give rise to a claim for brokers',
finders' or similar fees.
12.4 Effectiveness. All representations and warranties made in
this Agreement shall survive the execution and delivery of this Agreement and
the purchase hereunder of the Note and the Warrant. Except as otherwise provided
herein, the covenants contained in this Agreement shall continue in full force
and effect until such date as the Note, any Put Note, the Warrant and the
Warrant Shares no longer remain outstanding.
12.5 Accuracy of Information. All data, certificates, reports,
statements, opinions of counsel, documents and other information furnished after
the date hereof to NVC by or on behalf of or at the request of the Company
pursuant to this Agreement or in connection with or pursuant to any amendment or
modification of, or waiver under, this Agreement shall, at the time the same are
so furnished, be complete and correct in all material respects to the extent
necessary to give NVC true and accurate knowledge of the subject matter thereof,
not contain any untrue statement of a material fact known to the Person
furnishing the same, or omit to state a material fact known to the Person
furnishing the same which fact is necessary to be stated therein in order to
make the statements contained therein not misleading, and the furnishing of the
same to NVC shall constitute a representation and warranty by the Company to
that effect. Notwithstanding the foregoing, any financial statements shall be
deemed to comply with the provisions of this Section 12.5 if such financial
statements comply with generally accepted accounting principles.
12.6 Notices. All notices and other communications under this
Agreement shall (a) be in writing, (b) be sent by registered or certified mail,
postage prepaid, return receipt requested, delivered by hand or by nationally
recognized overnight courier or sent by facsimile machine transmission (with
facsimile machine verification and hard copy delivered by one of the other
methods permitted under this Section 12.6) and (c) be given at the following
respective addresses:
If to the Company, to it at:
2012 Route 9W, Building 3
Milton, New York 12547
Facsimile No.: (914) 795-2720;
with a copy to:
D'Ancona & Pflaum LLC
111 E. Wacker Drive
Suite 2800
Chicago, Illinois 60601
Attention: Paul L. Applebaum, Esq.
Facsimile No.: (312) 602-3072
If to NVC, to it at:
Suite 1607
1430 Broadway
New York, New York 10018
Facsimile No.: (212) 869-5331
with a copy to:
DeForest & Duer
90 Broad Street
New York, New York 10004
Attn.: Arthur A. Lane, Esq.
Facsimile No.: (212) 425-7581.
The address of any party may be changed by such party by a notice to the other
parties specifically captioned "Notice of Change of Address Pursuant to Section
12.6". All notices and other communications shall be effective (i) if given by
mail, on the third business day after such communication is deposited in the
mail, addressed as above provided, (ii) if given by hand delivery or overnight
courier, when left at the address of the addressee as above provided, and (iii)
if given by facsimile machine transmission, upon facsimile machine verification
of receipt, except that notices of a change of address shall not be effective
until received. No other method of giving notice is hereby precluded.
12.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one instrument.
12.8 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
12.9 GAAP. Financial terms used and not otherwise defined herein
shall be interpreted, and calculations, to the extent not otherwise specified,
shall be made, in accordance with generally accepted accounting principles and
terminology.
12.10 Judicial Proceedings.
(a) Consent to Jurisdiction. The Company irrevocably submits to
the non-exclusive jurisdiction of any New York State or Federal court sitting in
the City of New York over any Action arising out of or relating to this
Agreement, the Note, the Warrant, the Warrant Shares, any Transaction Document
or any aspect of the transactions contemplated thereby. To the fullest extent it
may effectively do so under applicable law, the Company irrevocably waives and
agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the laying of the venue of any such Action
brought in any such court and any claim that any such Action brought in any such
court has been brought in an inconvenient forum.
(b) Enforcement of Judgments. The Company agrees, to the fullest
extent it may effectively do so under applicable law, that a judgment in any
Action of the nature referred to in subsection (a) above brought in any such
court shall, subject to such rights of appeal on issues other than jurisdiction
as may be available to it, be conclusive and binding upon it and may be enforced
in the courts of the United States of America or the State of New York (or any
other courts to the jurisdiction of which it is or may be subject) by a suit
upon such judgment.
(c) Service of Process. The Company consents to process being
served in any Action of the nature referred to in subsection (a) above by
mailing a copy thereof by registered or certified air mail, postage prepaid,
return receipt requested, to the address of the Company specified in or
designated pursuant to Section 12.6. The Company agrees that such service (i)
shall be deemed in every respect effective service of process upon it in any
such Action and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to it.
(d) No Limitation on Service or Suit. Nothing in this Section
12.10 shall affect the right of NVC to serve process in any manner permitted by
law, or limit any right that NVC may have to bring any Action against the
Company in the courts of any jurisdiction or to enforce in any lawful manner a
judgment obtained in one jurisdiction in any other jurisdiction.
(e) Waiver of Trial by Jury. The Company hereby waives trial by
jury in any Action of the nature referred to in subsection (a) above, whether
brought by it or NVC.
12.11 Assignability. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns, except that the Company may not assign or transfer any of its rights or
obligations under this Agreement or subject this Agreement or its rights
hereunder to any lien or security interest of any kind whatever and any such
assignment by the Company and any such lien or security interest shall be
absolutely void and unenforceable as against NVC.
12.12 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York excluding choice of law rules
12.13 Confidentiality. For the longest period permitted under
applicable law, NVC shall hold in strictest confidence all
Confidential Information, shall not use any Confidential
Information, and shall not disclose any Confidential Information
to any person or entity; provided that such use and disclosure
may be made to the extent reasonably required in the proper
exercise of NVC's rights and performance of its obligations
under this Agreement or to the extent required pursuant to
applicable law, and NVC may disclose Confidential Information to
its agents and representatives, or its permitted assigns, who
reasonably require the same for purposes permitted under this
Section (and who agree in writing for the benefit of the Company
to be bound by the requirements of this Section). "Confidential
Information" means any and all confidential and/or proprietary
information of the Company or its Subsidiaries, including
without limitation, customer lists, marketing information,
pricing information, budgeting information, personnel
information, financial information, research, business plans and
strategies or other information concerning the business or
affairs of the Company (including information obtained under
Section 5.13), except to the extent such information is or
becomes generally known to the public other than as a result of
acts or omissions by NVC (or its agents or representatives) in
violation of this Agreement. The provisions of this Section
shall survive termination of this Agreement for the longest time
permitted under applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Note and
Warrant Purchase Agreement to be executed by their duly authorized
representatives as of the day and year first above written.
SONO-TEK CORPORATION
By: s/s James L. Kehoe
James L. Kehoe,
Chairman and Chief Executive Officer
NORWOOD VENTURE CORP.
By: s/s Mark R. Littell
Mark R. Littell,
President
<PAGE>
Exhibit 4.11(a)
EXHIBIT A
FORM OF NOTE
THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN (i)
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933 ("THE
SECURITIES ACT") OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT AND (ii)
UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY TO IT OF COMPLIANCE WITH THE
SECURITIES ACT AND THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION.
SONO-TEK CORPORATION
12% Note
$ New York, New York
[Date]
FOR VALUE RECEIVED, the undersigned, SONO-TEK CORPORATION, a New
York corporation (the "Company"), hereby promises to pay to the order of at its
office located at , the principal sum of ($ ) in lawful money of the United
States of America on or before September 30, 2004 and to pay interest that shall
accrue on the unpaid principal amount hereof from the date hereof until such
principal amount is paid in full, at the rate of twelve percent (12%) per annum,
which rate shall be calculated on the basis of a 360-day year and actual days
elapsed. Overdue principal and (to the extent permitted by law) overdue interest
shall bear interest at the rate of fourteen percent (14%) per annum, calculated
in the same manner, payable on demand. Nothing herein shall at any time require
the Company to pay interest at a rate in excess of the maximum rate permitted by
applicable law. In the event that the interest specified in this Note is deemed
to be in excess of the maximum rate permitted by applicable law, the interest
payable hereunder shall be the maximum rate so permitted.
Interest shall be payable on the last business day of each month
until the entire principal amount hereof is paid in full and on each other date
on which a payment of principal is made.
This Note was issued pursuant to the Note and Warrant Purchase
Agreement dated September 29, 1999 (the "Purchase Agreement") between the
Company and Norwood Venture Corp. The Purchase Agreement requires the making of
scheduled payments of the principal amount of this Note prior to its final
maturity date and provides, among other things, for the acceleration of the
maturity of this Note upon the happening of certain events as set forth in the
Purchase Agreement.
This Note is collateralized by a General Security Agreement
executed by the Company.
The Company shall have the right at any time or from time to
time, on 30 days' prior written notice, to make prepayments (in addition to the
scheduled payments) of this Note in whole or in part, without premium or
penalty, provided that each partial prepayment shall be in an amount which is
not less than $50,000 and is an integral multiple thereof. Any such prepayment
shall be applied first to accrued and unpaid interest and then, in
chronologically inverse order, to the scheduled payments of principal required
to be made on this Note by the Purchase Agreement.
Presentment, demand, protest and notice of dishonor are hereby
waived by the Company.
This Note shall be construed in accordance with and governed by
the laws of the State of New York.
SONO-TEK CORPORATION
By:
Name:
Title: Chairman
<PAGE>
Exhibit 4.11(b)
EXHIBIT B
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE ON EXERCISE THEREOF MAY NOT BE OFFERED
FOR SALE, SOLD OR TRANSFERRED OTHER THAN (i) PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR AN
EXEMPTION THEREFROM AND (ii) UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY
TO IT OF COMPLIANCE WITH THE SECURITIES ACT AND THE APPLICABLE SECURITIES LAWS
OF ANY OTHER JUSRIDCITION.
SONO-TEK CORPORATION
Common Stock Purchase Warrant
This certifies that, for value received,
or registered assigns is entitled to purchase
from SONO-TEK CORPORATION, a New York corporation (the
"Company"), 1,100,000 (subject to adjustment as provided herein) shares of the
Company's $0.01 par value Common Stock ("Common Stock") at a price of $0.30 per
share (the "Initial Exercise Price"; such price as adjusted from time to time
pursuant to this Warrant being hereinafter referred to as the "Exercise Price").
In making payment of part or all of the Exercise Price, the holder shall be
credited with any obligations payable or to become payable on the 12% Note due
September 30, 2004 issued by the Company (the "Note") pursuant to a certain Note
and Warrant Purchase Agreement dated September 29, 1999 (the "Purchase
Agreement") between the Company and Norwood Venture Corp. ("NVC") to the extent
that the holder tenders all or any portion of such holder's Note for
cancellation and requests the application of such obligations to the payment of
the Exercise Price. The Company agrees, on any such tender, to cause to be
issued and to deliver to such holder a duly executed Note (in the form required
by the Purchase Agreement) dated the date through which all accrued interest was
fully paid on the Note so tendered and evidencing the obligation of the Company
to pay that portion of the outstanding principal amount of the Note so tendered
which is not requested to be so applied. Payment of the Exercise Price may be
made in cash, by certified check payable to the order of the Company or by wire
transfer of immediately available funds to an account designated in writing by
the Company. Terms not otherwise defined in this Warrant are used with the
meanings of such terms which are set forth in the Purchase Agreement.
This Warrant shall expire on the sixth anniversary of the date on which
payment has been made of the Note in full, but shall in no event expire earlier
than the Put Date.
This Warrant is exercisable in whole or in part at any time on surrender
to the Company at its address set forth in the Purchase Agreement of this
Warrant together with a statement in the form attached hereto (with the blanks
in such form appropriately completed and duly executed) of such holder's
election to purchase, together with payment of the Exercise Price. The holder
shall be deemed to be the record owner of the shares thereby purchased as of the
close of business on the date this Warrant shall have been exercised. Upon such
surrender of the Warrant and payment of the Exercise Price as described above,
the Company agrees to cause to be issued and delivered with all reasonable
dispatch to or upon the written order of the registered holder and in such name
or names as such registered holder may designate, a certificate or certificates
for the number of shares and fractional shares so purchased upon the exercise of
such Warrant. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such shares as of the date of surrender of such
Warrant and payment of the Exercise Price as described above.
The number and type of securities for which this Warrant is exercisable
shall be appropriately changed and adjusted so that in all events (whether the
Company subdivides, reclassifies or combines, or declares or pays a dividend
(other than a cash dividend) on its Common Stock or merges or consolidates with
any other corporation, reorganizes or transfers other than in the ordinary
course of its business all or substantially all of the assets of the Company or
liquidates or dissolves or is subject to any other change which might otherwise
affect the securities for which this Warrant is exercisable), the holder shall
continue to be entitled to receive upon exercise of this Warrant shares of the
Company's capital stock and other securities and consideration as nearly
equivalent (on an economic basis) as practicable to what such holder would have
been entitled to receive if the exercise of this Warrant had occurred
immediately prior to such event.
The Company shall give written notice to the record holder of this
Warrant at such holder's address appearing on the Company's records of any of
the events which would cause a change or adjustment pursuant to the preceding
paragraph and of any proposed payment of any dividend or other distribution to
the holders of Common Stock, which notice shall be given at least twenty days
prior to the earlier of (a) the date on which such event is to occur or such
payment is to be made and (b) the record date, if any, with respect thereto.
Such notice shall specify any such record date, the date on which such event is
to take place and such facts as shall be reasonably necessary to indicate the
effect of such event on the number, kind or class of shares or other securities
or consideration that shall be deliverable or purchasable upon the occurrence of
such event or upon exercise of this Warrant. As to any change or adjustment to
be made pursuant to the preceding paragraph, the determination of the Company's
independent certified public accountants shall be determinative absent manifest
error.
All shares issued upon the exercise of the rights represented by this
Warrant shall be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company shall from time to time take all such action as may be requisite to
assure that the par value per share of Common Stock is at all times equal to or
less than the per share Exercise Price then in effect. During the period within
which the rights represented by this Warrant may be exercised, the Company shall
at all times have authorized, and reserved for the purpose of issuance upon
exercise of the rights evidenced by this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of the rights represented by this
Warrant. The Company shall take all such action as may be necessary to assure
that such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the shares of Common Stock may be listed. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. The Company shall not take any action which would
result in any adjustment of the Exercise Price if the total number of shares of
Common Stock issuable after such action upon exercise of all Warrants then
outstanding would exceed the total number of then authorized but unissued shares
of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf by a duly authorized officer, as of the day of , 19 .
[SEAL] SONO-TEK CORPORATION
By:
Chairman and Chief Executive Officer
Attest:
Secretary
<PAGE>
8/3/99
[Form of]
ELECTION TO PURCHASE
To: Sono-Tek Corporation
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder, the
following securities and other property:
and tenders payment in the amount of $ by [delivery of a certified check] [wire
transfer] payable to you in such amount or delivery of the Note (referred to in
the Warrant) for cancellation of indebtedness represented thereby in such
amount. The undersigned requests that certificates for such securities be issued
in the name of and delivered, together with any other property referred to
above, to
and, if such securities and property shall not be all of the securities and
property issuable and/or deliverable thereunder, that a new Warrant for the
balance be registered in the name of, and issued and delivered to, the
undersigned at the following address:
Dated:
- -----------------------
<PAGE>
Exhibit 4.11(c)
GENERAL SECURITY AGREEMENT
September 29, 1999
The undersigned, SONO-TEK COPORATION, a New York corporation (herein
referred to as "Debtor") with an address as it appears with the signature below,
hereby agree(s) in favor of Norwood Venture Corp.(herein referred to as Secured
Party), as follows:
1. In consideration of one or more loans, advances, or other financial
accommodations at any time before, at or after date made or extended by Secured
Party to Debtor, directly or indirectly, as principal, guarantor or otherwise,
at the sole discretion of Secured Party in each instance, including without
limitation the purchase by Secured Party of Debtor's Note due September 30, 2004
pursuant to the Note and Warrant Purchase Agreement dated of even date herewith
between Debtor and Secured Party (the "Purchase Agreement"), Debtor hereby
grants to Secured Party a security interest in, a continuing lien upon and a
right of set-off against, and Debtor hereby assigns to Secured Party, the
Collateral described in Paragraph 2, to secure the payment, performance and
observance of all indebtedness, obligations, liabilities and agreements of any
kind of Debtor to Secured Party, now existing or hereafter arising, direct or
indirect (including participations or any interest of Secured Party in
obligations of Debtor to others), acquired outright, conditionally, or as
collateral security from another, absolute or contingent, joint or several,
secured or unsecured, due or not, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, and of all loan
agreements, documents and instruments evidencing any of the foregoing
obligations or under which any of the foregoing obligations may have been
issued, created, assumed or guaranteed (all of the foregoing being herein
referred to as the "Obligations").
2. The Collateral is described as follows and/or on Schedule A, if any,
annexed hereto as part hereof and on any separate schedule at any time furnished
by Debtor to Secured Party (all of which are hereby deemed part of this Security
Agreement), which Collateral includes all attachments, accessions and equipment
now or hereafter affixed to the Collateral or used in connection therewith,
substitutions and replacements thereof, and (unless the description of the
Collateral expressly excludes after acquired Collateral) all items of the
Collateral both now owned or existing and hereafter acquired, created or
arising, and any and all products and proceeds thereof (including, without
limitation, any claims of Debtor against third parties, for loss or damage to or
destruction of any or all of the Collateral):
SEE ATTACHED SCHEDULE A ANNEXED HERETO AND MADE A PART HEREOF.
together with any and all monies, securities, drafts, notes, items and other
property of the Debtor and the proceeds thereof, now or hereafter held or
received by or in transit to, Secured Party from or for the Debtor, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and any and
all deposits (general or special), balances, sums, proceeds, and credits of the
Debtor with, and any and all claims of the Debtor against, Secured Party, at any
time existing. In the event that the Collateral includes inventory, Debtor also
grants to Secured Party a security interest in, and the collateral shall
include, all labels and other devices, names, or marks affixed or to be affixed
to inventory for purposes of selling or of identifying the same or the seller or
manufacturer thereof and all right, title and interest of Debtor therein and
thereto.
3. Debtor warrants, represents and covenants that: (a) the chief and
other places of business of Debtor, the books and records relating to the
Collateral and the Collateral are located at the addresses set forth below and
Debtor will not change any of the same without prior written notice to Secured
Party; (b) the Collateral is and will be used in Debtor's business and not for
personal, family, household or farming use; (c) the Collateral is now, and at
all times will be, owned by Debtor free and clear of all liens, security
interests, claims and encumbrances except as otherwise permitted in the Purchase
Agreement; (d) except as otherwise permitted in the Purchase Agreement, Debtor
will not assign, sell, mortgage, lease, transfer, pledge, grant a security
interest in or lien upon, encumber or otherwise dispose of or abandon, nor will
Debtor suffer or permit any of the same to occur with respect to, any part or
all of the Collateral, without prior written consent of Secured Party, except
for the sale from time to time in the ordinary course of business of Debtor of
such items of Collateral as may constitute part of the business inventory of
Debtor, and the inclusion of "proceeds" of the Collateral under the security
interest granted herein, shall not be deemed a consent by Secured Party to any
sale or other disposition of any part or all of the Collateral except as
expressly permitted herein; (e) subject to the provisions of the Purchase
Agreement, Debtor has made, and will continue to make payment or deposit or
otherwise provide for the payment, when due, of all taxes, assessments or
contributions required by law which have been or may be levied or assessed
against the Debtor, whether with respect to any of the Collateral, to any wages
or salaries paid by Debtor, or otherwise, and will deliver to Secured Party, on
demand, certificates or other evidence satisfactory to Secured Party attesting
thereto; (f) Debtor will use the Collateral for lawful purposes only, with all
reasonable care and caution and in conformity with the provisions of the
Purchase Agreement; (g) Debtor will keep the Collateral in reasonably good
repair at Debtor's own cost and expense; (h) subject to any limitations in the
Purchase Agreement, Secured Party shall at all times have free access to and
right of inspection of the Collateral and any records pertaining thereto (and
the right to make extracts from and to receive from Debtor originals or true
copies of such records and any papers and instruments relating to any or all of
the Collateral and to receive from Debtor originals or true copies of such
records and any papers and instruments relating to any or all of the Collateral
upon request therefor) and Debtor hereby grants to Secured Party a security
interest in all such records, papers and instruments to secure the payment,
performance and observance of the Obligations; (i) the Collateral is now and
shall remain personal property and Debtor will not permit any of the Collateral
to become a part of or affixed to real property without prior written notice to
Secured Party and without first making all arrangements, and delivering, or
causing to be delivered, to Secured Party all instruments and documents,
including, without limitation, waivers and subordination agreements by any
landlords or mortgagees, requested by and satisfactory to Secured Party to
preserve and protect the primary security interest granted herein against all
persons; (j) Debtor will, at its expense, perform all acts and execute all
documents reasonably requested by Secured party at any time to evidence,
perfect, maintain and enforce Secured Party's primary security interest in the
Collateral or otherwise in furtherance of the provisions of this Security
Agreement; (k) Debtor assumes all responsibility and liability arising from the
use of the Collateral; (l) upon request of Secured Party, at any time and from
time to time, Debtor shall, at its sole cost and expense, execute and deliver to
Secured Party one or more financing statements pursuant to the Uniform
Commercial Code ("UCC") and one or more applications for certificate of title
and any other papers, documents or instruments requested by Secured Party in
connection with this Security Agreement, and Debtor hereby authorizes Secured
Party to execute and file at any time or times, one or more financing statements
with respect to all or any part of the Collateral, signed only by the Secured
Party; (m) in its discretion, Secured Party may, only after a Default (as
hereinafter defined) has occurred, in its name or Debtor's or otherwise, notify
any account debtor or obligor of any account, contract, instrument, chattel
paper or general intangible included in the Collateral to make payment to
Secured Party; (n) Secured Party may, in its reasonable discretion at any time
after a Default demand, sue for, collect or receive any money or property at any
time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable by Secured Party with respect to, any
of the Collateral, and/or extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the
Collateral or the Obligations, all without consent by Debtor and without
otherwise discharging the Obligations, the Collateral or the security interest
granted herein; (o) Secured Party may, in its reasonable discretion, after a
Default, for the account and expense of Debtor, pay any amount or do any act
required of Debtor hereunder or requested by Secured Party to preserve, protect,
maintain or enforce the Obligations, the Collateral or the primary security
interest granted herein, and which Debtor fails to do or pay, and any such
payment shall be deemed an advance by Secured Party to Debtor and shall be
payable on demand together with interest at the highest rate then payable on any
of the Obligations; (p) after a Default, Debtor will promptly pay Secured Party
for any and all sums, costs and expenses which Secured Party may reasonably pay
or reasonably incur pursuant to the provisions of this Security Agreement or in
defending, protecting or enforcing the security interest granted herein or in
enforcing payment of the Obligations or otherwise in connection with the
provisions hereof, including but not limited to all court costs, collection
charges, reasonable travel, and reasonable attorney's fees (not less than 15% of
the outstanding Obligations where permitted by applicable law), all of which,
together with interest at a rate equal to the highest rate then payable on any
of the Obligations, shall be part of the Obligations and be payable on demand;
(q) Secured Party shall have the right to receive and retain as additional
Collateral all securities and rights issued or granted in respect of any
Collateral consisting of securities and after a Default, Secured Party, in its
discretion, may transfer to or register in the name of Secured Party or its
nominee all or any of the Collateral consisting of securities, and whether or
not so transferred or registered, Secured Party, after a Default, shall be
entitled to receive and retain all income, dividends and other distributions
thereon as part of the Collateral and to exchange any or all such Collateral
upon the reorganization, recapitalization, or readjustment of any entity issuing
such securities, and to exercise all rights with respect thereto as if it was
the absolute owner thereof (provided that prior to a Default Debtor alone shall
be entitled to exercise the right to vote such Collateral), and if the
Collateral has been so transferred or registered, Secured Party shall take such
action as Debtor may reasonably request to enable Debtor to exercise the right
to vote such Collateral or any part thereof for any purpose which is not
inconsistent with the terms of this Security Agreement or the Obligations or
which would not have an adverse effect on the value of the Collateral or any
part thereof; (r) after a Default any of the proceeds of the Collateral received
by Debtor shall not be commingled with other property of Debtor, but shall be
segregated, held by the Debtor in trust as the exclusive property of Secured
Party, and Debtor will immediately deliver to Secured Party the identical
checks, monies, or other proceeds of Collateral received, duly endorsed in blank
where appropriate to effectuate the provisions hereof, the same to be held by
Secured party as additional Collateral hereunder or, at Secured Party's option,
to be applied to payment of any of the Obligations, whether or not due and in
any order; and (s) at any time Secured Party may assign, transfer and deliver to
any transferee of any of the Obligations, any or all of the Collateral,
whereupon Secured Party shall be fully discharged from all responsibility and
the transferee shall be vested with all powers and rights of Secured Party
hereunder with respect thereto, but Secured Party shall retain all rights and
powers with respect to any Collateral not assigned, transferred or delivered.
4. The occurrence of any one or more "Defaults" or "Events of Default",
as defined in the Purchase Agreement, or the failure of Debtor to perform its
obligations under this Security Agreement shall constitute an event of default
("Default") by Debtor under this Security Agreement.
5. Upon the occurrence of any Default and during the continuance
thereof, Secured Party may, without demand upon Debtor, declare any or all
Obligations of Debtor immediately due and payable and Secured party shall have
the following rights and remedies (to the extent permitted by applicable law) in
addition to all rights and remedies of a secured party under the UCC, or of
Secured Party under the Obligations, all such rights and remedies being
cumulative, not exclusive and enforceable alternatively, successively or
concurrently: Secured Party may at any time and from time to time, with or
without judicial process or the aid and assistance of others, enter upon any
premises in which any of the Collateral may be located and, without resistance
or interference by Debtor, take possession of the Collateral; and/or dispose of
any part or all of the Collateral on any premises of Debtor; and/or require
Debtor to assemble and make available to Secured Party at the expense of Debtor
any part or all of the Collateral at any place and time designated by Secured
Party which is reasonably convenient to both parties and/or remove any part or
all of the Collateral from any premises on which any part may be located for the
purpose of effecting sale or other disposition thereof (and if any of the
Collateral consists of motor vehicles, Secured Party may use Debtor's license
plates) and/or sell, resell, lease, assign and deliver, grant options for or
otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing, at public or
private sale or proceedings or otherwise, by one or more contracts, in one or
more parcels, at the same or different times, with or without having the
Collateral at the place of sale or other disposition, for cash and/or credit,
and upon any terms, at such place(s) and time(s) and to such persons, firms or
corporations as Secured Party deems best, all without demand for performance or
any notice or advertisement whatsoever except that where an applicable statute
requires reasonable notice of sale or other disposition Debtor hereby agrees
that five days notice by ordinary mail, postage prepaid, to any address of
Debtor set forth in this Security Agreement of the place and time of any public
sale or of the time after which any private sale or other intended disposition
is to be made, shall be deemed reasonable notice thereof (if any of the
Collateral is sold by Secured Party upon credit or for future delivery, Secured
Party shall not be liable for the failure of the purchaser to pay for same and
in such event Secured Party may resell such Collateral); Secured Party may buy
any part or all of the Collateral at any public sale and if any part or all of
the Collateral is of a type customarily sold in a recognized market or is of the
type which is the subject of widely distributed standard price quotations
Secured Party may buy at private sale and may make payment therefor by any
means; Secured Party may apply the cash proceeds actually received from any sale
or other disposition to the reasonable expenses of retaking, holding, preparing
for sale, selling, leasing and the like, to reasonable attorney's fees (not
exceeding 15% of the outstanding Obligations) and all reasonable travel and
other expenses which may be incurred by Secured Party in attempting to collect
the Obligations or enforce this Security Agreement or in the prosecution or
defense of any action or proceeding related to the subject matter of this
Security Agreement (and then to the Obligations in such order and as to
principal or interest as Secured Party may desire), Debtor remaining liable and
agreeing to pay Secured Party on demand any deficiency remaining, together with
interest thereon at a rate equal to the highest rate then payable on the
Obligations and the balance of any expenses unpaid, with any surplus to be paid
to Debtor (subject to any duty of Secured Party imposed by law to the holder of
any subordinate security interest in the Collateral); Secured Party may
appropriate, set off and apply to the payment of any or all of the Obligations,
any and all Collateral in or coming into the possession of Secured Party or its
agents and belonging or owing to Debtor, without notice to Debtor, and in such
manner as Secured Party may in its discretion determine; Secured Party may
exercise all voting rights with respect to all or any of the Collateral
consisting of securities and may exercise all powers with respect thereto as if
an absolute owner thereof. Debtor recognizes that the Secured Party may be
unable to effect a public sale of all or a part of the Collateral consisting of
securities by reason of certain prohibitions contained in the Securities Act of
1933, but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such securities for their own account, for investment and not with a
view to the distribution or resale thereof. Debtor agrees that any such private
sales may be at prices and other terms less favorable to the seller than if sold
at public sales and that such private sales shall be deemed to have been made in
a commercially reasonable manner. Secured party has no obligation to delay sale
of any such securities for the period to time necessary to permit the issuer of
such securities, even if such issuer would agree, to register such securities
for public sale under the Securities Act of 1933
6. To effectuate the terms and provisions hereof, Debtor hereby
designates and appoints Secured Party and its designees or agents as
attorney-in-fact of Debtor, irrevocably and with power of substitution, with
authority, after a Default, to receive, open and dispose of all mail addressed
to Debtor, to notify the Post Office authorities to change the address for
delivery of mail addressed to Debtor to such address as Secured Party may
designate; to endorse the name of Debtor on any notes, acceptances, checks,
drafts, money orders, instruments or other evidences of payment or proceeds of
the Collateral that may come into Secured Party's possession; to sign the name
of Debtor on any invoices, documents, drafts against and notices to account
debtors or obligors of Debtor, assignments and requests for verification of
accounts; to execute proofs of claim and loss; to execute any endorsements,
assignments, or other instruments of conveyance or transfer; to adjust and
compromise any claims under insurance policies; to execute releases; and to do
all other acts and things (before as well as after a Default) necessary and
advisable in the reasonable discretion of Secured Party to carry out and enforce
this Security Agreement. All lawful and reasonable acts of said attorney or
designee are hereby ratified and approved and, except for willful misconduct or
gross negligence, said attorney or designee shall not be liable for any acts of
commission or omission, nor for any error of judgment or mistake of fact or law.
This power of attorney being coupled with an interest is irrevocable while any
of the Obligations shall remain unpaid.
7. Secured Party shall have the duty to exercise reasonable care in the
custody and preservation of any securities in its possession included in the
Collateral, which duty shall be fully satisfied if Secured Party maintains safe
custody of any such securities, and, with respect to any maturities, calls,
conversions, exchanges, redemption, offers, tenders or similar matters relating
to any of such securities (herein called "events"), in the exercise of its sole
discretion (a) Secured Party endeavors to take such action with respect to any
of the events as Debtor may reasonably and specifically request in writing in
sufficient time for such action to be evaluated and taken or (b) if Secured
Party determines that the action requested might adversely affect the value of
the securities as collateral, the collection of the Obligations secured, or
otherwise prejudice the interests of Secured Party, Secured Party gives
reasonable notice to Debtor that any such requested action will not be taken and
if Secured Party makes such determination or if Debtor fails to make such timely
request, Secured Party takes such other action as it deems advisable in the
circumstances. Secured Party shall have no further obligation to ascertain the
occurrence of, or to notify Debtor with respect to, any events and shall not be
deemed to assume any such obligation as a result of the establishment by Secured
Party of any internal procedures with respect to any securities in its
possession, nor shall Secured Party be deemed to assume any responsibility for,
or obligation or duty with respect to, any part or all of the Collateral, of any
nature or kind, or any matter or proceedings arising out of or relating thereto,
including, without limitation, any obligation or duty to take any action to
collect, preserve or protect its or Debtor's rights in the Collateral or against
any prior parties thereto, but the same shall be at Debtor's sole risk at all
times. If the Collateral hereunder includes "stock" as defined in Regulation U
of the Federal Reserve Board, it is hereby agreed such "stock" shall not secure
Obligations which are "purpose credits", as that term is used in Regulation U,
and (i) are secured solely by collateral other than "stock" or (ii) are
unsecured. Secured Party's prior recourse to any part or all of the Collateral
shall not constitute a condition of any demand, suit or proceeding for payment
or collection of the Obligations. No act, failure or delay by Secured Party
shall constitute a waiver of its rights and remedies hereunder or otherwise. No
single or partial waiver by the Secured Party of any Default or right or remedy
which it may have shall operate as a waiver of any other Default, right or
remedy or of the same Default, right or remedy on a future occasion. Debtor
hereby waives presentment, notice of dishonor and protest of all instruments
included in or evidencing any of the Obligations or the Collateral, and any and
all other notices and demands whatsoever (except as expressly provided herein).
Subject to the terms of the Purchase Agreement, Debtor agrees to pay, on demand,
all reasonable out-of-pocket expenses incurred by Secured Party in connection
with the enforcement of this Security Agreement, the Obligations, and the
transactions contemplated hereunder and thereunder, including but not limited to
the reasonable fees and expenses of counsel to Secured Party. In the event of
any litigation, with respect to any matter connected with this Security
Agreement, the Obligations or the Collateral, Debtor hereby waives the right to
a trial by jury and all defenses, including any defense based on any Statute of
Limitations, any claim of laches, rights of setoff and the rights to interpose
counterclaims of any nature other than mandatory counterclaims. Debtor hereby
irrevocably consents to the jurisdiction of the courts of the State of New York
and of any Federal Court located in such State in connection with any action or
proceeding arising out of or relating to the Obligations, this Security
Agreement or the Collateral, or any document or instrument delivered with
respect to any of the Obligations. Debtor hereby waives personal service of any
summons, complaint or other process in connection with any such action or
proceeding and agrees that the service thereof may be made by certified or
registered mail directed to Debtor at any place of business set forth below, or
at such other address as Debtor may designate by written notification by
certified or registered mail directed to and received by Secured Party at its
office set forth in the financing statements filed hereunder (or if no such
financing statements have been filed, at the office of Secured Party at which is
located the officer in direct supervision of the within security interest). The
Debtor so served shall appear or answer to such summons, complaint or other
process within thirty days after the mailing thereof. Should the Debtor so
served fail to appear or answer within said thirty-day period, such Debtor shall
be deemed in default and judgment may be entered by Secured Party against such
Debtor for the amount or such other relief as may be demanded in any summons,
complaint or other process so served. In the alternative, in its discretion
Secured Party may effect service upon Debtor in any other form or manner
permitted by law. All terms used herein shall have the meanings as defined in
the UCC, unless the context otherwise requires. No provision hereof shall be
modified, altered or limited except by a written instrument expressly referring
to this Security Agreement and to such provision, and executed by the party to
be charged. The execution and delivery of this Security Agreement has been
authorized by the Board of Directors of Debtor and by any necessary vote or
consent of stockholders of Debtor. This Security Agreement and all Obligations
shall be binding upon the successors and assigns of Debtor, and the foregoing,
together with the rights and remedies of Secured Party hereunder, shall inure to
the benefit of Secured Party, its successors, endorsees and assigns. This
Security Agreement and the Obligations shall be governed in all respects by the
laws of the State of New York. If any term of this Security Agreement shall be
held to be invalid, illegal or unenforceable, the validity of all other terms
hereof shall in no way be affected thereby. Secured Party is authorized to annex
hereto any schedules referred to herein. Debtor acknowledges receipt of a copy
of this Security Agreement.
IN WITNESS WHEREOF, the undersigned has executed or caused this
Security Agreement to be executed in the State of New York, the date first above
set forth.
(CORPORATE SEAL) SONO-TEK CORPORATION
By
James L. Kehoe, Chairman
Trade Name (if any)
All location(s) of
Collateral (including the
Section, Block and Lot
where there is located any
of the Collateral which is
or may be affixed to
realty).
Chief Place of Business:
<PAGE>
Other Places of Business:
Name of record owner of real estate where any of the Collateral
is or may be affixed to realty:
Location of Books and Records
Relating to the Collateral:
<PAGE>
1
Schedule A
Collateral shall mean and include all of Debtor's right, title and
interest in and to:
1. All Accounts;
2. All Inventory;
3. All Equipment; and
4. All Proceeds and products of any or all of the foregoing, to the
extent not otherwise included.
5. That certain Secured Note, dated as of August 3, 1999, payable by
S&K Products International, Inc. to Sono-Tek Corporation in the original
principal amount of $300,000 and ninety (90) shares of the Common Stock of S&K
Products International, Inc. standing in the name of Sono-Tek Corporation on the
books of S&K Products International, Inc. represented by Certificate No. 5.
For purposes of this Schedule A, the following terms shall have the following
meanings:
"Accounts" shall mean all "accounts", as such term is defined
in Section 9-106 of the Uniform Commercial Code as in effect on the
date hereof in the State of New York (the "Code"), in which Debtor now
or hereafter has any right, title or interest.
"Equipment" shall mean all "equipment", as such term is
defined in Section 9-109 of the Code, in which Debtor now or hereafter
has any right, title or interest.
"Inventory" shall mean all "inventory", as such term is
defined in Section 9-109 of the Code, in which Debtor now or hereafter
has any right, title or interest.
"Proceeds" shall mean "proceeds", as such term id defined in
Section 9-306 of the Code including, but not limited to (i) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to
Debtor from time to time with respect to any of the Collateral, (ii)
any and all payments (in any form whatsoever) made or due and payable
to Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of
the Collateral by any governmental body, authority, bureau or agency
(or any person, corporation, agency, authority or other entity acting
under color of governmental authority) and (iii) any and all other
amounts from time to time paid or payable under or in connection with
any of the Collateral.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1
<CASH> 140,414
<SECURITIES> 0
<RECEIVABLES> 887,687
<ALLOWANCES> 9,915
<INVENTORY> 908,382
<CURRENT-ASSETS> 2,019,075
<PP&E> 181,552
<DEPRECIATION> 447,696
<TOTAL-ASSETS> 3,509,675
<CURRENT-LIABILITIES> 1,512,162
<BONDS> 0
0
0
<COMMON> 83,556
<OTHER-SE> 1,022,800
<TOTAL-LIABILITY-AND-EQUITY> 3,509,675
<SALES> 3,660,200
<TOTAL-REVENUES> 3,660,220
<CGS> 1,726,067
<TOTAL-COSTS> 1,726,067
<OTHER-EXPENSES> 1,809,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,587
<INCOME-PRETAX> (31,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,140)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
