FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 33-10943-NY
PHOTON TECHNOLOGY INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2494774
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(State of Incorporation) (I.R.S. Employer Identification No.)
1 Deerpark Drive, Suite F, South Brunswick, NJ 08852
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (908) 329-0910
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of the registrants Common Stock, without par value,
outstanding as of December 31, 1995 was 3,461,328.
<PAGE>
INDEX
PHOTON TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: (Unaudited):
Consolidated Balance Sheets as of December 31, 1995
and June 30, 1995
Consolidated Statements of Operations for the
six months ended December 31, 1995 and 1994
Consolidated Statement of Operations for the
quarters ended December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the
six months ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations for the second
quarter and six months ended December 31, 1995
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................... $ 720,558 $ 46,364
Trade accounts receivable, less allowances
of $16,768 in Dec. 1995 ($3,568 in June 1995) .. 1,889,339 1,413,779
Inventory
Finished goods ................................ 590,222 775,609
Work in process ............................... 547,670 401,738
Raw materials ................................. 760,070 462,863
----------- -----------
1,897,962 1,640,210
Receivable from employees ....................... 9,694 28,834
Prepaid expenses and other current assets ....... 542,453 281,598
----------- -----------
TOTAL CURRENT ASSETS .................... 5,060,006 3,410,785
PROPERTY, PLANT AND EQUIPMENT
Furniture and fixtures .......................... 140,499 160,151
Machinery and equipment ......................... 1,592,428 1,546,227
----------- -----------
1,732,927 1,706,378
Accumulated depreciation ........................ (1,364,808) (1,278,313)
----------- -----------
368,119 428,065
OTHER ASSETS ..................................... 1,802,264 983,498
----------- -----------
$ 7,230,389 $ 4,822,348
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
Note: The balance sheet at June 30, 1995 has been derived from audited financial
statements at that date.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank indebtedness ...................................... $ 1,346,841 $ 1,022,689
Accounts payable ....................................... 866,690 774,923
Deferred income ........................................ 9,257 42,024
Accrued expenses ....................................... 140,618 247,948
Captial lease obligation ............................... 9,761 21,715
Current portion of long term debt ...................... 267,336 275,407
----------- -----------
TOTAL CURRENT LIABILITIES ....................... 2,640,503 2,384,706
DEFERRED INCOME TAXES .................................... 56,972 86,000
LONG TERM DEBT-SUBORDINATED .............................. 1,650,111 590,761
LONG TERM DEBT-OTHER ..................................... 529,077 541,199
MINORITY INTEREST - PHOTOMED GMBH ........................ -- 59,926
SHAREHOLDERS' EQUITY Preferred stock, $1,000 par value:
Authorized 500 shares; no shares
issued or outstanding
Common stock, $.01 par value:
Authorized 10,000,000 shares; issued 3,627,200
shares including 165,872 shares in treasury
(Sept. 1995) and 315,872 shares in treasury (June 1995) 26,272 26,272
Additional paid-in capital ............................. 6,246,892 5,278,879
Accumulated deficit .................................... (3,642,706) (3,855,815)
Treasury stock, at cost ................................ (56,433) (107,466)
Cumulative foreign currency
translation adjustment ............................... (220,299) (182,114)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ...................... 2,353,726 1,159,756
----------- -----------
$ 7,230,389 $ 4,822,348
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements.
Note: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31
----------------------------
1995 1994
----------- -----------
(Unaudited)
<S> <C> <C>
REVENUES
Net sales ................................... $ 4,461,096 $ 3,644,377
Other income ................................ 37,847 69,029
----------- -----------
4,498,943 3,713,406
COSTS AND EXPENSES
Cost of products sold ....................... 1,860,361 1,524,305
Selling, general and administrative ......... 1,692,809 1,351,392
Research and development .................... 480,740 216,106
Interest .................................... 120,913 43,322
Depreciation and amortization ............... 87,843 92,881
Goodwill amortization ....................... 75,132 --
Start up expenses - subsidiary .............. -- 326,984
Foreign exchange (gain) loss ................ (5,311) 3,432
----------- -----------
4,312,487 3,558,422
Income before income taxes .................... 186,456 154,984
Deferred income tax credit .................... (26,654) --
----------- -----------
Net income .................................... 213,110 154,984
=========== ===========
Net income per common share ................... $ .08 $ .07
=========== ===========
Weighted average number of common
shares outstanding ........................... 2,592,475 2,289,948
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Second Quarter
Ended December 31
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES
Net sales ................................... $ 2,512,403 $ 2,170,690
Other income ................................ 10,956 36,961
----------- -----------
2,523,359 2,207,651
COSTS AND EXPENSES
Cost of products sold ....................... 1,053,261 892,161
Selling, general and administrative ......... 931,746 724,532
Research and development .................... 264,022 83,023
Interest .................................... 80,913 28,165
Depreciation and amortization ............... 43,918 46,263
Goodwill amortization ....................... 34,670 --
Start-up expenses-subsidiary ................ -- 326,984
Foreign exchange (gain) loss ................ 2 2,695
----------- -----------
2,408,530 2,103,823
----------- -----------
Income before income taxes .................... 114,829 103,828
Deferred income tax credit .................... (14,514) --
----------- -----------
Net income .................................... 129,341 103,828
=========== ===========
Net income per common share ................... $ .05 $ .05
=========== ===========
Weighted average number of common
shares outstanding ............................ 2,722,784 2,297,889
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................ $ 213,110 $ 154,984
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Depreciation and amortization ................. 87,843 92,881
Provision for doubtful accounts ............... -- 570
Other amortization - intangible assets ........ 75,132 --
Deferred income taxes (credit) ................ (26,654) --
Changes in assets and liabilities:
(Increase) in trade accounts receivable ....... (492,328) (294,924)
(Increase) in inventories ..................... (257,752) (300,426)
(Increase) in other current assets ............ (241,715) (277,689)
(Decrease) increase in accounts payable
and accrued expenses ......................... (15,563) 67,174
(Decrease) increase in deferred income ........ (32,767) 35,757
Decrease (increase) in other assets ........... 56,234 (108,723)
----------- -----------
Net cash provided by (used in) operating activities (634,460) (630,387)
INVESTING ACTIVITIES:
Purchare of technology ......................... (875,000) --
Minority interest .............................. (59,926) --
Proceeds from maturity of certificate of deposit -- 25,120
Purchase of plant, property,and equipment ...... (26,549) (70,196)
----------- -----------
Net cash used in investing activities .......... (961,475) (45,076)
</TABLE>
See notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- Continued
<TABLE>
<CAPTION>
Six Months Ended
December 31
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES:
Net proceeds from issuance of stock to purchase
49% of PhotoMed GmbH ........................... 132,272 --
Net proceeds from issuance of stock to purchase
technology from MLTV ........................... 875,000 --
Increase borrowings on ODC loan facility ........ -- 319,663
Increase borrowings on notes payable to bank .... 324,152 125,674
Payment on current portion of long term debt .... (48,071) --
Increase long term debt - subordinated debt ..... 1,047,228 258,120
Principal payment on capital lease obligation ... (11,954) (35,698)
Issue treasury stock in lieu of cash compensation -- 62,265
----------- -----------
Net cash provided by financing activities ......... 2,318,627 730,024
Effect of exchange rate changes on cash ......... (48,498) (13,081)
----------- -----------
(Decrease) Increase in cash ....................... 674,194 41,480
CASH BALANCE AT THE BEGINNING OF PERIOD ........... 46,364 35,967
----------- -----------
CASH BALANCE AT THE ENDING OF PERIOD .............. $ 720,558 $ 77,447
=========== ===========
</TABLE>
See notes to Consolidated Financial Statements
<PAGE>
PHOTON TECHNOLOGY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged in the research, development, manufacturing and marketing
of proprietary electro-optical systems which enable customers in health care,
environmental science and industrial process control fields to perform advanced
analysis utilizing light.
The accompanying and unaudited consolidated financial statements of Photon
Technology International, Inc. have been prepared in accordance with generally
accepted accounting principles in the United States for interim financial
information and with the instructions to Form 10K and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six month period ended December 31, 1995 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10K for the year ended June 30, 1995.
NOTE B -- PHOTOMED GMBH
On July 5, 1995, the Company acquired the remaining 49% ownership of PhotoMed
GmbH from its minority shareholders. The Company issued 150,000 common shares
from treasury stock, at a fair market value of $1 per share. As a result of this
transaction, PhotoMed GmbH became a wholly-owned subsidiary of the Company. The
transaction is accounted for as a business combination (step-by-step
acquisition) using the purchase method of accounting.
The purchase price, which was comprised of the issuance of shares, was allocated
as follows:
Goodwill on acquisition $ 72,000
Net assets acquired 78,000
--------
$150,000
========
NOTE C -- TREASURY STOCK
As a result of acquiring the remaining 49% ownership of PhotoMed GmbH (see Note
B above) for treasury stock, the number of shares in treasury stock decreased
from 315,872 shares to 165,872 as of July 5, 1995.
NOTE D -- LONG TERM DEBT
On October 31, 1995, the Company completed a $1,500,000 Canadian dollar ($ 1.1
million US$) financing in the form of subordinated debt with C.I.-C.P.A.
Business Ventures Fund, Inc. of Toronto Ontario Canada. This subordinated debt
has a term of five (5) years and an interest rate of 12% per year compounded
monthly, with payments of interest only in the first twelve (12) months.
Principal payments of $6,250 Canadian dollars will begin November 1996 through
September 2000, with the balance due October 31, 2000. This agreement includes a
first option for 250,000 shares of common stock at $1.25 per share for a term of
five (5) years, and a second option of 400,000 shares of common stock at $2.50
per share until October 1996, and then $3.25 per share from November 1996 until
October 1997. The full amount of this sub-debt is classified as long term debt.
On December 8, 1995, the Company entered an agreement with M.L. Technology
Ventures, L.P. ("MLTV") to repay the outstanding subordinated debt in the full
amount of $771,000. The term of the agreement requires a $20,000 principal
payment per month for a term of twenty-four (24) months. The balance of $291,000
is to be paid at the end of this term. Under this agreement, there will be no
interest charged or accrued on the principal amount of debt provided that the
Company meets the monthly payment schedule.
NOTE E -- PAID IN CAPITAL
On December 8, 1995, the Company executed an agreement with MLTV (which the
Company had entered into by commitment on September 20, 1995) whereby the
Company issued 1,000,000 shares of common stock for payment of the technology
developed under the joint venture between the Company and MLTV, and MLTV's joint
venture interest. The 1,000,000 shares of common stock is in full settlement of
the $627,000 base purchase price option for the technology in addition to
royalties for a five year period. The common shares were recorded at market
value (bid price) of .875 per share or $875,000, and this value is recorded in
"Paid-in-Capital" The purchase of the technology represents an intangible asset
of $875,000 which was recorded as an "Other Asset" and will be amortized on a
straight-line basis over a five (5) year period.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter and six months ended December 31, 1995 of $2.5 million
and $4.5 million, respectively, increased $349,000 or 16.1% and $824,000 or
22.7%. These increases in net sales represent the continued strength of ratio
fluorescence systems sales on a world wide basis for existing products. The
second quarter sales performance was the highest sales quarter in the Company's
history.
Total revenue for the quarter and six-months ended December 31, 1995 of $2.5
million and 4.5 million, respectively, which include net sales and other income,
increased $316,000 or 14.3% and $786,000 or 21.2%. This performance primarily
reflects the impact of increased net sales. Other income decreased for the
quarter and six months from the comparative prior year periods as a result of
lower funding in fiscal 1996 from the Canadian government for direct labor
training support programs, which were impacted by budget constraints year to
year.
Cost of products sold for the second quarter of fiscal 1996 was $1.1 million or
41.9% of net sales, which compares to $892,000 or 41.2% of net sales in the same
period of fiscal 1995. This increase of $161,000 or 18.1% in cost of products
sold primarily relates to the real volume increase in sales. The increase as a
percentage of sales from 41.2% to 41.9% relates to the mix of products sold.
Cost of products sold for the six months ended December 31, 1995 was $1.9
million or 41.7% of net sales in comparison to $1.5 million or 41.9% of net
sales; an increase of $336,000 or 22.0%. This cost increase closely follows the
increase in sales volume.
Selling, general and administrative expenses of $932,000 for the second quarter
and $1.7 million for the six months, increased $207,000 or 28.6% and $341,000 or
25.3%, respectively, for the comparable periods of fiscal 1995. These expenses
as a percentage of sales increased from 33.4% to 37.1% in the second quarter and
from 37.1% to 37.9% for the six month period. The dollar and percentage of sales
increase in the quarter and six month periods primarily relates to volume
sensitive selling expenses, investment to increase the marketing support
programs, agent commissions due to mix of sales, and the investment in
additional sales personnel to expand sales territory coverage. Additionally,
administrative expenses were higher due to financing related expenses, and
increased administrative support expenses related to international operations.
Research and development expenditures, as reported, for the second quarter of
fiscal 1996 were $264,000 or 10.5% of net sales and for the first six months of
fiscal 1996 totaled $481,000 or 10.8% of net sales. In comparison to the prior
year, these expenses increased $181,000 or 218% for the quarter and $265,000 or
122.5% for the six month period. These increases primarily reflected an
incremental investment in additional staffing for product development support.
Interest expenses for the quarter and six months ended December 31, 1995 of
$81,000 and $121,000, increased $53,000 or 187.3% and $78,000 or 179.1%
respectively. These increases were primarily due to interest on incremental
short term borrowing on the credit facilities with the banks, interest payments
on new sub-debt, and interest payments on the shareholder loan to PhotoMed GmbH.
Depreciation and amortization of $44,000 for the second quarter decreased by
$2,000 or 5.1% and of $88,000 for the six months decreased by $51,000 or 5.4%.
This was primarily due to the impact of lower amortization on equipment under
capital lease pursuant to the amortization schedule.
Goodwill amortization of $35,000 for the second quarter and $75,000 for the six
months, represents an incremental expense in comparison to the prior year and is
related to the formation and capitalized start-up expenses of the PhotoMed GmbH
subsidiary in September 1994. The start-up expenses related to the subsidiary
and reported in the second quarter of the prior year was $327,000, a
non-recurring expense in these comparative periods and a favorable impact for
the quarter and six months.
Foreign exchange represented a nominal gain of $5,000 for the six month period
and had no impact on the second quarter. The gains in comparison to a nominal
loss in the prior year was due to the mix of transactional activity between the
parent company and international locations.
Deferred income tax credits of $15,000 for the quarter and $27,000 for six
months related to timing differences between book and tax income, which is a
partial reversal of deferred tax expense for fiscal 1995 of $86,000. The
deferred tax expense, and the resulting tax credit in the periods relate to the
PhotoMed GmbH subsidiary.
The Company reported net income of $129,000 for this second quarter of fiscal
1996, an increase of $26,000 or 24.6% over the same period in the prior year.
For the six month period ended December 31, 1995, net income was $213,000, an
increase of $58,000 or 37.5% over the same comparable prior year period. This
improved income performance reflected the higher gross margin on the sales
volume increase and the non-recurring start-up expenses which were related to
the PhotoMed GmbH subsidiary in September 1994.
In September 1994, the Company formed a new subsidiary named "PhotoMed GmbH". At
that time this subsidiary was 51% owned by the Company. This subsidiary operates
primarily as a sales and service office to handle Germany, Austria, Finland and
the Scandinavian countries. In July 1995 of this first quarter, the Company
acquired 49% minority interest for 150,000 shares of common stock, and PhotoMed
GmbH became a wholly owned subsidiary.
Net income per share was five (5) cents for the second quarter of fiscal 1996
and flat in comparison to the prior year. This was primarily the result of the
dilution effect of one cent per share due to the impact on the average common
stock outstanding of the 1,000,000 shares issued December 8, 1995 to MLTV to
purchase the technology and joint venture interest. Net income per share was
eight (8) cents per share for the six months ended December 31, 1996, an net
increase of one cent per share and also reflecting the impact of the one cent
share dilution.
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at December 31, 1995, was $2.4 million
compared to $1.0 million at June 30, 1995, an increase of $1.4 million or 136%.
Current assets of $5.1 million increased by $1.6 million or 48.3% with increase
in all current asset categories from the end of fiscal 1995. The cash increase
of $674,000 primarily relates to the impact of the proceeds from the
sub-ordinated debt issue of $1.5 million Canadian dollars ($1.1 million US$)
with C.I.-C.P.A. Business Ventures Fund Inc. (See Note D). The accounts
receivable increase of $476,000 or 33.6% strongly reflects the increased sales
volume and a slower accounts receivable turn due to a higher percentage of
foreign receivables. The accounts receivable balance of $1.9 million represents
2.1 months of sales in comparison to 1.9 months of sales at the end of fiscal
1995. The inventory increase of $258,000 or 15.7% reflects both a higher level
of production volume to support future sales, the build up of in-transit product
shipment to international locations for completion of orders, which will be
billed in the subsequent quarter, and new product inventory. The inventory level
at $1.9 million represents 5.5 months of sales and compares to 4.8 months of
sales at the end of fiscal 1995. The increase in other current assets of
$242,000 primarily relates to financing related expenses of $150,000, other
prepaid expenses related to goods and services taxes in all international
locations, the province of Ontario Canada minimum business taxes, general
insurance costs and employee benefits insurance.
Current liabilities of $2.6 million increased $256,000 or 10.7% from the end of
fiscal 1995. This net increase primarily was the result of increased short term
borrowings from the bank of $324,000 or 31.7% for working capital requirements.
This increase was partially offset by payments on lease obligations and a
reduction in deferred income related to customer prepayments on orders which
were shipped and billed.
As of December 31, 1995, borrowings on the Bank of Montreal credit facility
reached a maximum of $1.5 million Canadian Dollars ($1.1 million U.S.$). In
January 1996, the Company was approved for an increase to this credit facility
from $1.5 million Canadian dollars to $2.0 million ($1.5 million US$) based on
the Company's performance to date and requirements from incremental short term
working capital. The company is in compliance with all bank covenants.
On December 31, 1995, the borrowings outstanding on the PhotoMed GmbH bank line
with the local Stadtparkasse bank was 361,000 deutche marks ($249,000 US$) on
the 500,000 deutche marks line of credit. In January 1996 this bank line was
renewed at 500,000 deutche marks for another twelve (12) month period on the
basis of PhotoMed GmbH performance over the last year.
In January 1995, the Company negotiated a purchase price of $35,000 as a
residual value for equipment, which was a capital lease under a sale-leaseback
agreement with G.E. Capital. The capital lease had expired and under the terms
of this agreement the Company had an option to purchase the equipment at fair
market value or return the equipment to the leasing company. The Company
exercised its option to purchase the equipment, which is used for the
applications lab and customer demonstration support, for $35,000 over an
eighteen (18) month period and at a fixed interest rate of 10.25%. As of
December 31, 1995, the balance under the installment purchase represented
$10,000 and was reported as a current liability under the current portion of
long term debt. The full value of the $35,000 was capitalized an asset with a
short term depreciable life of two (2) years due to age of equipment and plans
to replace within a two (2) year period.
As of December 31, 1995 the Company had a notes payable balance of $17,000 with
Brooks Air Force base, which is a current liability under the current portion of
long term debt. This amount will be paid in full by July 1, 1996. This debt
arose from a duplicate payment and an installment repayment agreement between
Brooks Air Force and the Company for the principal amount of $90,155 in March
1994.
On December 8, 1995, the Company entered into several agreements with MLTV which
covered repayment of the subordinated debt in the amount of $771,000, the
purchase of the technology developed under a joint venture agreement between the
Company and MLTV and the acquisition of the joint venture interest of MLTV,
thereby dissolving the joint venture. As it relates to the subordinated debt,
the Company has agreed to pay the principle amount of $20,000 a month for a
twenty-four (24) month period for a total of $480,000, and the balance of
$291,000 at the end of this term. As of December 31, 1995, the Company paid
$40,000 and reduced the total outstanding to $731,000. The Company is not
required to pay any additional interest on the outstanding balance under this
agreement unless there is a payment not made on time or an event of default. The
purchase of the technology and the joint venture interest was completed with the
issuing of 1,000,000 shares of common stock, which is unregistered and
restricted. The 1,000,000 shares of common stock is in full settlement of the
purchase of technology and joint venture interest, which had a stated base price
of $627,000 plus royalties for a five-year term under a prior agreement between
the Company and MLTV. As of December 30, 1995, the 1,000,000 shares have been
recorded in paid-in-capital at the fair market value of .875 per share based on
the market bid price. This $875,000 value has been assigned to the technology as
an intangible asset under the "other assets" classification and will be
amortized over a five (5) year period starting in January 1996.
On October 31, 1995, the Company entered into a new subordinated debt agreement
for $1.5 million Canadian dollars ($1.1 million US) through Covington Capital's
C.I.-C.P.A. Business Ventures Fund Inc. of Toronto, Canada. This sub-ordinated
debt has a term of five (5) years at an interest rate of 12% per annum, with
interest payments only for the first twelve (12) months. As of December 31,
1995, the company had made two (2) interest payments totaling approximately
$29,000 Canadian dollars ($21,000 US). This agreement includes a first option
for 250,000 shares of common stock at a $1,25 per share for a term of five (5)
years and a second option of 400,000 shares of common stock at $2.50 per share
until October 1996, and then $3.25 per share until October 1997. The full amount
of this debt is classified as long term debt.
Long term debt also includes a 400,000 mark loan ($291,000 US$) by a private
individual (who is also an investor in the subsidiary) to the Company's wholly
owned German subsidiary, PhotoMed GmbH. The loan was made to the subsidiary on
October 1, 1994, and with a repayment of principal and interest to start at the
end of April 1995 with payment of 10,000 German marks per month. Interest
accrues from October 1 through the start date of the payments at a rate of
5.25%, plus the prevailing German bank discount rate (i.e. 4.5%). The loan has
clauses which would allow both slower and/or faster payments contingent upon the
cash flow of the PhotoMed GmbH operations. As of December 31, 1995, the
principal amount of $376,000 German marks ($259,000 US$) was outstanding, with
only four payments to date with included principal payments of 24,000 deutche
marks ($17,000 US$) and interest payments of 16,000 deutche marks ($11,000 US$).
A portion of this outstanding amount ($45,000 US$) has been classified as a
current liability and represents an estimated twelve payments of principal. The
balance ($214,000 US$) has been reported as a long term debt. Payments on a
monthly basis are contingent upon cash flow considerations and upon agreement
with the individual.
In July 1994 of this prior fiscal year, documents were fully executed between
the "ODC" and the Company for a term loan facility in the amount of $500,000
Canadian dollars. The loan credit facility was established to allow advance
requests for equipment, inventory and training expenditures associated with
moving the production operation from New Jersey plant to the London Ontario,
Canadian plant. This loan was a "carve out" from the original ODC credit
facility of $900,000 Canadian dollars under the Export Support Loan Program. As
a result, the Export loan facility was set at a $400,000 Canadian dollar limit,
prior to the full payment of the outstanding balance from the Bank of Montreal
credit facility in May 1995. The balance outstanding as of December 31, 1995 on
the ODC fixed loan was $415,000 Canadian dollars ($309,000 US$) based on
specific advance requests approved through this date. Payment of principal was
scheduled to start August 15, 1995 (of fiscal 1996) in that full disbursement
had not occurred by June 30, 1995. The Company has been granted an extension by
ODC until June 30, 1996 with principal payments to start on August 15, 1996.
Interest has been charged on a monthly basis since the first disbursement made
in July 1994, and has continued this fiscal year. The Company may not draw
additional funds on the facility for capital equipment up to $500,00 due to
Ontario government budgetary constraints. This term loan is classified as a long
term debt.
In September 1994, the Company acquired at 51% ownership position and formed a
German subsidiary, PhotoMed GmbH. The Company made a nominal cash investment for
51% ownership and on July 5, 1995 acquired the remaining 49% for 150,000 shares
of common stock from treasury stock and at a fair market value of $1 per share.
As a result of this transaction, PhotoMed GmbH became a wholly-owned subsidiary
of the Company. The PhotoMed GmbH operation was self-financing through the
utilization of a 400,000 DM ($290,000 US$) shareholder long-term loan, 500,000
DM ($362,000 US$) bank revolving line of credit, and cash provided by
operations. The cash start-up expenses incurred during the prior fiscal year was
approximately $900,000 which had a major impact on working capital requirements
and are non-recurring expenses going forward.
During this quarter, the Company improved its cash position and working capital
resources through short term debt provided by bank lines of credit and long term
debt thought a form of debenture with a Toronto Canada based business venture
fund. With this additional financing, agreement with MLTV on the purchase of
technology and scheduled repayment of sub-ordinated debt, established short term
credit facilities with the bank, and continued sales growth coupled with product
cost reduction efforts, the Company should be positioned to meet working capital
requirements. The cash flow will be directed to continued expansion of sales
coverage, increased marketing support programs, and continued focused effort in
research and development on products and technology. The Company will continue
to manage within these resources and attempt to balance working capital needs
with cash flow generated from operations and current financing. The Company will
continue to pursue business opportunities that will provide a good return on
investment and that will strengthen financial resources.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company nor any of its subsidiaries is currently a party to
nor is any of their property the subject of any legal proceedings which would be
material to the business or financial condition of the Company on a consolidated
basis.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on Friday, December
8, 1995. The only matters considered and voted upon at the meeting were the
election of three directors for a three-year term, and approval to adopt the
Company's Employee Stock Purchase Plan.
The voting for three directors: Charles G. Marianik, Ronald J. Kovach,
and Louis Balogh was 1,654,538 for and 5,900 withheld.
The voting for the Employee Stock Purchase Plan was 1,383,337 for,
37,952 against and 5,000 withheld.
Item 5. Other Information.
On December 8, 1995, the Company issued 1,000,000 shares of Common
Stock to MLTV pursuant to a Purchase Agreement between the Company and MLTV
dated as of December 8, 1995 (the "Purchase Agreement"), in consideration for
the transfer of the rights to certain technology and MLTV's interest in the
joint venture formed by MLTV and the Company pursuant to a Joint Venture and
Purchase Option Agreement dated April 6, 1987. In connection with the Purchase
Agreement, the Company will pay $771,000 to MLTV as evidence by a Second
Subordinated Promissory Note dated December 8, 1995 payable $20,000 per month
for a two year period, the balance to be paid at the end of such period and
secured by a security agreement.
On October 31, 1995, the Company secured additional financing of $1.5
million Canadian dollars ($1.1 million US$) in the form on a deberture with
C.I.-C.P.A. Business Venture Fund, Inc. of Toronto, Canada. This sub-ordinated
debt has a five year term with principal payment based on a twenty (20) year
amortization and at an annual interest rate of 12%. In the first year, there
will be only interest payments which will amount to an estimated $180,000
Canadian dollars ($134,000 US$). Starting in November 1996, the Company will owe
a principal amount of $6,250 Canadian Dollars ($4,650 US$) on a monthly basis
through the five year term. As a consideration for this financing, C.I.-C.P.A.
also has a stock option agreement which includes a first option equal to 250,000
shares of common stock at $1.25 per share with an expiration date of the
deberture, and a second option equal to 400,000 shares of common stock over a
two year period at $2,50 a share until September 1996, and $3,25 until September
1997.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herewith:
10.01 Purchase Agreement dated as of December 8, 1995, by and
between Photon Technology International, Inc. and ML
Technology Ventures, L.P. with all exhibits.
11.1 Deberture Agreement dated October 31, 1995, by and between
Photon Technology International, Inc. and C.I.-C.P.A. Business
Venture Fund, Inc.
11.2 Option Agreement dated October 31, 1995, by and between Photon
Technology International, Inc. and C.I.-C.P.A. Business
Venture Fund, Inc.
(b) The Company filed the following reports on Form 8-K during the
quarter for which this report is filed:
None
<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.
PHOTON TECHNOLOGY INTERNATIONAL, INC.
Date: February 12, 1996 By: /s/Charles G. Marianik
-------------------------------------
Charles G. Marianik
President, Chief Executive Officer
and Director
Principal Executive Officer
Date: February 12, 1996 By: /s/William D. Looney
-------------------------------------
William D. Looney
Vice President/Controller
Principal Financial and Accounting
Officer
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 8th day of December, 1995, by and
between Photon Technology International, Inc., a California corporation (the
"Company"), and ML Technology Ventures, LP (the "Purchaser").
WHEREAS, the Company and Purchaser have entered into that
certain Purchase Agreement (the "Purchase Agreement") of even date herewith
regarding the clarification of certain agreements and obligations between
Company and Purchaser (as more fully described in the Purchase Agreement); and
WHEREAS, the Purchase Agreement contemplates that the Company
and Purchaser shall terminate certain agreements (the "Initial Agreements") and
the rights and obligations contained therein, and enter into this Agreement.
NOW THEREFORE, IT IS HEREBY AGREED:
1. Sale of Stock. Subject to the terms hereof, the Purchaser
hereby receives, and the Company hereby delivers to the Purchaser, 1,000,000
shares of the Company's common stock (the "Stock"), subject to Section 4 hereof,
in consideration for termination of all such terms, rights and obligations of
the Initial Agreements.
2. Payment for Technology and Joint Venture Interest.
Purchaser acknowledges that the issuance of the Company's common stock pursuant
to this Agreement shall constitute payment in full of the Company's indebtedness
to Purchaser for the Technology and Joint Venture interest.
3. Issuance of Shares. Upon execution of this Agreement, the
Company shall issue a duly executed certificate evidencing the Stock in the name
of Purchaser.
4. Right of First Offer. Before any shares of Stock registered
in the name of Purchaser may be sold or transferred (including transfer by
operation of law or other involuntary transfer) such shares shall first be
offered to the Company in the following manner:
(a) The Purchaser or its transferee shall deliver a notice as
provided in subsection 8(a) ("Notice") to the principal business office of the
Company stating (i) his, her or its bona fide intention to sell or transfer such
shares, (ii) the number of such shares to be sold or transferred, (iii) the
price and terms, if any, for which he, she or it proposes to sell or transfer
such shares, and (iv) the name and address of the proposed purchaser or
transferee and that such purchaser or transferee is committed to acquire the
stated number of shares on the stated price and terms.
(b) The Company shall have the right at any time within thirty
(30) days of receipt of the Notice to purchase some or all of the shares to
which the Notice refers at the price per share specified in the Notice, or if no
price is specified therein, at the fair market value thereof as determined by
the Board of Directors in good faith. Said right shall be exercised by written
notice signed by an officer of the Company and delivered or mailed as provided
in subsection 8(a), which notice shall specify the time, place and date for
settlement of such purchase.
(c) In the event the Company does not, for any reason,
exercise its right pursuant hereto the Company may assign such right, provided
such right shall not extend beyond such thirty-day period. If exercised by the
assignee pursuant hereto, the right to purchase shall be exercised by written
notice signed by the exercising assignee and delivered or mailed as provided in
subsection 8(a), which notice shall specify the time, place and date for
settlement of such purchase. Purchaser shall sell to the Company or such
assignees the number of shares that either of them elect to purchase, such sale
to be consummated within thirty (30) days after the date of the Notice.
(d) If some or all of the shares to which the Notice refers
are not purchased, as provided in subsections 4(b) and 4(c) hereof, the
Purchaser may sell such shares to the person named in the Notice at the price
and terms specified in the Notice, provided that such sale or transfer is
consummated within thirty (30) days of the date of said Notice to the Company,
and provided, further, that any such sale is in accordance with all the terms
and conditions hereof If Purchaser does not consummate the sale or transfer
within such thirty-day period, the right provided hereby shall be deemed to be
revived with respect to such shares and no sale or transfer shall be effected
without first offering the shares in accordance herewith.
(e) Notwithstanding the above, neither the Company nor the
assignees of the Company shall have any right under this Section 4 at any time
subsequent to the closing of a bona fide, firm commitment underwritten public
offering of the common stock of the Company pursuant to a Registration Statement
declared effective under the Securities Act of 1933, as amended (the "Act").
5. "Market Stand-Off" Agreement. Purchaser hereby agrees that,
the underwriter or underwriters of common stock (or other securities) of the
Company, following the effective date of a registration statement of the Company
filed under the Act, Purchaser shall not, to the extent requested by the Company
and such underwriter, directly or indirectly, sell, offer or contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company at any time during such period except
common stock included in such registration, provided, however, that (a) such
agreement shall be applicable only to the first such registration statement of
the Company which covers common stock (or other securities) to be sold on its
behalf to the public in an underwritten offering and (b) all officers and
directors of the Company holding securities of the Company enter into similar
agreements.
In order to enforce the foregoing covenant, the Company may
impose stoptransfer instructions with respect to common stock held by Purchaser
until the end of such period.
6. Registration Rights.
(a) Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means any person owing of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 6(e) ("Assignment of
Registration Rights") hereof.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration of ordering of
effectiveness of such registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company
issued or issuable pursuant to this Agreement; and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which the
transferror's rights under this Section 6 are not assigned.
"Registrable Securities then outstanding" shall be the number
of shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to the then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with this Section 6, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed Ten
Thousand Dollars ($10,000) of a single special counsel for the Holders, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"SEC" or "Commission" means the Securities and Exchange
Commission.
(b) Piggyback Rights. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with a public
offering of such securities solely for cash (other than a registration relating
solely to the sale of Securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities or an SEC Rule 145 transaction), the
Company shall notify all Holders of Registrable Securities in writing at least
thirty (30) days prior to the filing of any such registration and will afford
each such Holder an opportunity to include in such registration statement all or
part of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within fifteen (15) days after the above-described
notice from the Company, so notify the Company in writing. If a Holder decides
not to include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent such
registration statement or registration statements as may be filed by the Company
with respect to offerings of its securities, all upon the terms and conditions
set forth herein.
(i) Underwriting. If the registration statement under
which the Company gives notice under this Section 6 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities. In
such event, the right of any such Holder to be included in a registration
pursuant to this Section 6 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Agreement, if the underwriter determines in good faith
that marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any shareholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting,
and in no event shall the amount of securities of the selling Holders included
in the registration be reduced below twenty-five percent (25%) of the total
amount of securities included in such registration, unless such offering is the
Initial Offering and such registration does not include shares of any other
selling shareholders, in which event any or all of the Registrable Securities of
the Holders may be excluded in accordance with the immediately preceding
sentence. In no event will shares of any other selling shareholder be included
in such registration which would reduce the number of shares which may be
included by Holders without the written consent of Holders of not less than
sixty-six and two-thirds (66 2/3%) of the Registrable Securities to be sold in
the offering.
(ii) Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 6 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with subparagraph 6(c)(iii) hereof
(iii) Expenses of Registration. All Registration Expenses
incurred in connection with any registration under this Section 6 shall be borne
by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. If the
Holders are required to pay the Registration Expenses, such expenses shall be
borne by the holder of securities (including Registrable Securities) requesting
such registration in proportion to the number of shares for which registration
was requested.
(c) Obligations of the Company. Whenever required under this
Section 6 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(vi) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(d) Indemnification. In the event any Registrable Securities
are included in a registration statement hereunder:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers, and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement' and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 6 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(ii) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors and its officers,
and each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 6(d) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 6~d) exceed the proceeds from the offering received
by such Holder.
(iii) Promptly after receipt by an indemnified party under
this Section 6(d) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6(d), deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 6(d), but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
6(d).
(iv) If the indemnification provided for in this Section
6(d) is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a Holder hereunder exceed the proceeds from the offering received by such
Holder.
(e) Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 6 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
acquires at least five hundred thousand (500,000) shares of Registrable
Securities (as adjusted for stock splits and combinations); provided, however,
(A) the transferor shall, within ten (10) days after such transfer, furnish to
the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned and (B) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.
(f) Amendment of Registration Rights. Any provision of this
Section 6 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
a majority of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 6(f) shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 6 Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
(g) Rule 144 Reporting. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(i) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;
(ii) File with the SEC, in a timely manner, all reports
and other documents required of the Company under the Exchange Act;
(iii) So long as Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act; a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
(h) Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 6.
7. Representations and Warranties of Purchaser.
(a) Limitations on Disposition. Purchaser agrees that in no
event will it make a disposition of any of the Stock, unless and until (a) it
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (b) it shall have furnished the Company with an
opinion of counsel satisfactory to the Company to the effect that (i) such
disposition will not require registration of such Stock under the Act, or (ii)
that appropriate action necessary for compliance with the Act has been taken, or
(c) the Company shall have waived, expressly and in writing, its rights under
clauses (a) and (b) of this subparagraph. In addition, prior to any disposition
of any of the Stock, the Company may require the transferee or assignee to
provide in writing investment representations and its agreement to the market
stand-off provisions hereof in a form acceptable to the Company.
The Company shall not be required (i) to transfer on its books
any shares of Stock of the Company which shall have been sold or transferred in
violation of any of the provisions set forth in this Agreement, or (ii) to treat
as owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares shall have been so transferred.
Purchaser shall, during the term of this Agreement, exercise all rights and
privileges of a shareholder of the Company with respect to the Stock after the
issuance, and prior to the repurchase, thereof.
(b) Legends. All certificates representing any shares of Stock
of the Company subject to the provisions of this Agreement shall have endorsed
thereon the following legends:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE SECURITIES ACT OF 1933, OR PURSUANT TO RULE 144 UNDER THE ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT."
(ii) "THE SALE OF THE SHARES HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF
SUCH SHARES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SHARES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100,25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UNLESS THE SALE IS SO EXEMPT."
8. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal delivery
or upon deposit in the United States Post Office, by registered or certified
mail with postage and fees prepaid, addressed to the other party hereto at his
or her address hereinafter shown below his or her signature or at such other
address as such party may designate by ten (10) days' advance written notice to
the other party hereto.
(b) Governing Law. Assignment and Enforcement. This Agreement
is governed by the internal laws of New Jersey and shall inure to the benefit of
the successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser and its successors and
assigns. The prevailing party in any action to enforce this Agreement shall be
entitled to attorneys' fees and costs. The parties agree that damages are not an
adequate remedy for Purchaser's breach hereof and the Company shall accordingly
be entitled to specific performance of this Agreement.
(c) Amendments and Waivers. This Agreement represents the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all previous understandings, written or oral. This Agreement may
only be amended with the written consent of the parties hereto and the Company's
assignees pursuant to subsection 4 hereof, or the successors or assigns of the
foregoing, and no oral waiver or amendment shall be effective under any
circumstances whatsoever.
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement"), is made and entered into as
of this 8th day of December 1995, by and between PHOTON TECHNOLOGY
INTERNATIONAL, INC., a New Jersey corporation ("Photon"), and ML TECHNOLOGY
VENTURES, L.P., a Delaware limited partnership ("MLTV").
RECITALS
A. Photon and MLTV are parties to that certain Master Agreement (the
"Master Agreement") dated April 6, 1987.
B. Photon and MLTV have entered into that certain Technology Agreement
(the "Technology Agreement") dated April 6, 1987.
C. Photon and MLTV have entered into that certain Development Agreement
(the "Development Agreement") dated April 6, 1987.
D. Photon and MLTV have entered into that certain Joint Venture and
Purchase Option Agreement (the "Joint Venture Agreement") dated April 6, 1987
regarding the purchase by Photon of certain Technology, as hereinafter defined
and MLTV's interest in the joint venture formed pursuant to the Joint Venture
Agreement. The purchase option granted by MLTV to Photon under the Joint Venture
Agreement (the "Purchase Option") was exercised by Photon effective March 20,
1990.
E. Photon and MLTV have entered into that certain Purchase Agreement
(the "Purchase Agreement") dated April 6, 1987. The Purchase Agreement, the
Master Agreement, the Technology Agreement, the Development Agreement and the
Joint Venture Agreement are hereinafter collectively referred to as the "Initial
Agreements."
F. Photon is the maker of that certain Secured 13% Subordinated Note
(the "Note") dated May 7, 1991, payable to MLTV in the original principal amount
of Five Hundred Thousand Dollars ($500,000.00).
G. The parties desire to enter into this Agreement to supplement and
clarify certain provisions of the Initial Agreements and to terminate the Note
and provide for an alternative payment arrangement all in accordance with the
terms and conditions hereinafter set forth.
NOW,THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained in this Agreement, the parties agree
as follows:
1. Rules of Construction. This Agreement shall be construed in
accordance with the following rules of construction: (a) the terms defined in
this Agreement include the plural as well as the singular; (b) all references in
this Agreement to designated Sections and other Subdivisions are to the
designated Sections and other Subdivisions of the body of this Agreement unless
otherwise stated herein; (c) pronouns of either gender or neuter shall include,
as appropriate, the other pronoun forms; (d) the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular Section or other Subdivision; (e) the words "includes"
and "including" are not limiting; and (f) the terms hereof reflect extensive
negotiations among the parties, and for purposes of construction and
interpretation all parties equally shall be deemed to have drafted this
Agreement.
2. Status as Definitive Agreement. Upon execution by all parties hereto
the terms of this Agreement to the extent such terms conflict with or differ
from the terms of the Initial Agreements, shall modify and supersede certain
terms of the Initial Agreements and such terms of the Initial Agreements shall
be of no further force or effect.
3. Purchase of Technology and Joint Venture Interest. In settlement of
any and all of its prior obligations under the Joint Venture Agreement, MLTV
hereby agrees to sell, transfer, assign and deliver to Photon, on the Closing
Date, as defined below, the technology and other rights set forth on Exhibit A
attached hereto and incorporated herein by this reference (the "Technology").
The purchase price for the Technology and the Joint Venture interest shall be
One Million (1,000,000) shares (the "Shares") of authorized common stock of
Photon (the "Purchase Price"). Said Purchase Price shall be delivered to MLTV by
Photon on the Closing Date pursuant to the terms of a Stock Purchase Agreement
in the form of Exhibit B, attached hereto and incorporated herein by this
reference (the "Stock Purchase Agreement").
4. Settlement of Outstanding Note Balance. In consideration of this
Agreement Photon agrees to pay MLTV the sum of Seven Hundred Seventy Thousand
Seven Hundred Sixty-One Dollars ($770,761.00) (the "Subordinated Debt Amount").
The Subordinated Debt Amount shall be paid as follows: (i) Twenty Thousand
Dollars ($20,000.00) per month for a period of twenty-four (24) months, with the
first such payment to be made at the Closing and subsequent payments to be made
on the first day of each month thereafter, with the final payment of Two Hundred
Ninety Thousand Seven Hundred Sixty-One Dollars ($290,761.00), together with any
and all other sums due under the Note, to be made at the end of such twenty-four
(24) month period. Photon's obligations to make such payments shall be evidenced
by a subordinated secured promissory note (the "Second Note") delivered by
Photon to MLTV at the Closing, in substantially the form of Exhibit C attached
hereto and incorporated herein by this reference and the Security Agreement in
the form of Exhibit D attached hereto and incorporated herein by this reference
(the "Security Agreement"). If (a) Photon shall have failed to make a monthly
payment under the Second Note or (b) any other Event of Default (as such term is
defined in the Second Note) shall have occurred and such Event of Default is not
cured within thirty (30) calendar days, such late payment shall bear interest at
the rate of twelve percent (12%) per annum, until such payment is paid in full.
5. Voting Agreement. As a condition to the execution of this Agreement
by MLTV, Photon shall cause Charles G. Marianik to execute a Voting Agreement in
the form of Exhibit E attached hereto and incorporated herein by this reference
(the "Voting Agreement").
6. Closing. Subject to the terms and conditions of this Agreement the
closing of the transactions contemplated herein (the "Closing") shall take place
at the Palo Alto offices of Brobeck, Phleger & Harrison on December 8. 1995 (the
"Closing Date") or at such other location, time or date as may be agreed to in
writing by the parties hereto.
7. Deliveries at Closing.
7.1. Obligations of Photon. At the Closing, Photon shall deliver to
MLTV:
(a) a duly executed Second Note in the form of Exhibit C;
(b) a duly executed Security Agreement in the form of Exhibit
D;
(c) a duly executed Stock Purchase Agreement in the form of
Exhibit B;
(d) a certificate representing the Shares; and
(e) an Officer's Certificate certifying that all of the
representations and warranties of Photon herein are true
and correct as of the Closing and that all of the
conditions of this Agreement have been met or performed in
full.
7.2. Obligations of MLTV. At the Closing, MLTV shall deliver to
Photon:
(a) a duly executed Stock Purchase Agreement in the form of
Exhibit B;
(b) a duly executed Voting Agreement in the form of Exhibit E;
(c) the Technology;
(d) a duly executed Second Note in the form of Exhibit C;
(e) the Note;
(f) evidence of limited partnership interest, if any; and
(g) an Officer's Certificate certifying that all of the
representations and warranties of MLTV herein are true and
correct as of the Closing and that all of the conditions of
this Agreement have been met or performed in full.
8. Confidential Treatment. Subject to the requirements of law, each
party hereto agrees to keep the terms and conditions of this Agreement
confidential; provided, however, that any party may disclose the terms and
conditions of this Agreement to its attorneys, accountants, auditors, insurance
carriers or other representatives on a need to know basis, and provided further
that the disclosing party shall cause each person to whom such disclosure is
made to be informed of and to agree to be bound by this confidentiality
provision. The foregoing provisions of this Section 8 shall not apply to such
information in the event that (i) such information becomes generally known to
the public other than as a result of an impermissible disclosure by any person
bound hereunder, (ii) to the extent that the disclosure is required by law,
statute, rule or regulation, or any writ or order of any court or jurisdiction
process or pursuant to any direction, request or requirement (whether or not
having the force of law but if not having the force of law being of a type with
which institutional investors in the relevant jurisdiction are accustomed to
comply) of any selfregulating organization or any governmental, fiscal, monetary
or other authority, or (iii) to the extent that either party needs to disclose
such information for the protection of any of such parties' rights or interests
against the other party, whether under this Agreement or otherwise.
9. Representations and Warranties.
9.1. By Each Party. Each party hereto represents and warrants to
each other party hereto as follows:
9.1.1. Authority and Enforceability. Such party has the
requisite legal right, power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. This Agreement, the
Second Note, the Voting Agreement, the Stock Purchase Agreement and the Security
Agreement have been duly and validly executed by such party and, upon delivery,
will constitute valid and binding agreements of each such party, enforceable in
accordance with their terms, subject as to enforceability to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors' rights from time to time in effect, and subject to
general principles of equity.
9.2. Representations of MLTV.
9.2.1. Authority. Approvals and Consents. MLTV has all
requisite corporate right, power and authority to execute and deliver this
Agreement, the Voting Agreement in the form attached hereto as Exhibit E, the
Stock Purchase Agreement attached hereto as Exhibit B, the Second Note attached
hereto as Exhibit C, and Security Agreement attached hereto as Exhibit D, and to
consummate the transactions contemplated hereby. This Agreement, the Voting
Agreement, the Stock Purchase Agreement, the Promissory Note, and the Security
Agreement, have been duly and validly executed by MLTV and, upon delivery by
MLTV, will constitute valid and binding agreements of MLTV, enforceable against
MLTV in accordance with their terms, subject as to enforceability to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditor's rights from time to time in effect and subject to
general equity principles.
9.2.2. Title to Assets. MLTV represents and warrants to Photon
that it has good and valid title to the Technology free and clear of all
pledges, liens, charges, encumbrances, defects, security interests, claims,
options and instruments of every kind and that the authorization of no other
person or entity is required in order to consummate the transactions
contemplated herein by virtue of any such person having an equitable and
beneficial interest in the Technology.
9.2.3. Application of Securities Laws.
(a) MLTV hereby acknowledges that the Shares will not be
registered under the Securities Act or any state securities laws and, therefore,
may not be sold by MLTV except pursuant to an effective registration statement
under the Securities Act or an exemption from registration thereunder and
pursuant to registration or qualification under any applicable state securities
law or exemption therefrom. MLTV represents and warrants to Photon that (i) in
acquiring the Shares it will be acting solely for its own account, for
investment purposes only and not with a view to the distribution of the Shares,
and (ii) that it (A) is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act and/or (B) with its purchaser
representative, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
Photon pursuant to this Agreement. MLTV acknowledges that it is able to weigh
for itself the risk of the transactions contemplated by this Agreement and has
the ability to bear the economic risks of its investment pursuant to this
Agreement. MLTV represents and warrants to Photon that it understands that the
securities being purchased hereunder are restricted securities within the
meaning of Rule 144 under the Securities Act; that such securities are not
registered and must be held indefinitely unless they are subsequently registered
or an exemption from such registration is available; that, in any event, the
exemption from registration under Rule 144 will not be available for at least
two years, and even then will not be available unless (i) a public trading
market then exists for the Shares, (ii) adequate information concerning Photon
is then available to the public, and (iii) other terms and conditions of Rule
144 are complied with; and that any sale of such securities may be made by MLTV
only in accordance with such terms and conditions.
(b) The certificates representing the Shares shall have
stamped, typed or printed thereon the following legend (in addition to any
legend required by applicable state securities law in the opinion of Photon's
legal counsel):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY IN FORM AND SCOPE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
9.2.4. Residence Or MLTV. MLTV is not, for United States
federal income tax purposes, a foreign corporation, a non-resident alien
individual, a nonresident alien fiduciary of a foreign estate or trust, or a
foreign partnership one or more of the members of which is, for United States
federal income tax purposes, a foreign corporation, a nonresident alien
individual or a non-resident alien fiduciary of a foreign estate or trust.
9.3. Representations of Photon.
9.3.1. Organization, Good Standing and Qualification. Photon is
a corporation duly organized, validly existing and in good standing under the
laws of the State of New Jersey. Photon has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Voting Agreement in the form attached hereto as Exhibit E,
the Stock Purchase Agreement attached hereto as Exhibit B, the Second Note
attached hereto as Exhibit C, and Security Agreement attached hereto as Exhibit
D, to issue and sell the Shares issuable pursuant to the Stock Purchase
Agreement as provided hereunder, and to carry out the provisions of this
Agreement, the Voting Agreement, the Stock Purchase Agreement, the Second Note
and the Security agreement, and to carry on its business as presently conducted
and as presently proposed to be conducted. Photon is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on Photon or its business. Photon owns no equity securities of any other
corporation, limited partnership or similar entity. Except with respect to the
Initial Agreements, Photon is not a participant in any joint venture,
partnership or similar arrangement.
9.3.2. Capitalization; Voting Rights. The authorized capital
stock of Photon, immediately prior to the Closing, will consist of 10,000,000
shares of Common Stock, 2,627,200 shares of which are issued and outstanding.
All issued and outstanding shares of Photon's Common Stock (i) have been duly
authorized and validly issued, (ii) are fully paid and nonassessable, and (iii)
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities. Except as may be granted pursuant to the Voting
Agreement, the Security agreement and the Stock Purchase Agreement
(collectively, the "Related Agreements"), there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or shareholder agreements, or agreements of any kind for the
purchase or acquisition from Photon of any of its securities. When issued in
compliance with the provisions of this Agreement and Photon's Articles of
Incorporation, the Shares will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances; provided, however, that the
Shares may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the
time a transfer is proposed.
10. Miscellaneous.
10.1. Notices. All notices, requests, claims, demands and other
communications to any party hereunder shall be in writing and shall be given to
such party, addressed to such party at such party's address or telecopier number
set forth below, or at such other address or telecopier number as such party
hereafter may specify for the purpose of notice, by notice given in accordance
with this Section 10 to the other parties. Each such notice, request, claim,
demand or other communication shall be effective (a) if given by telecopier when
such telecopy is transmitted to the telecopier number specified below, (b) if
given by mail five (5) days after the same is deposited as registered or
certified mail in the United States mail, postage prepaid and addressed as
provided herein, or (c) if given by any other means when delivered at the
address specified below. In addition, any communication given by telecopier
shall be confirmed by writing deposited in the United States mail in the manner
provided above. Notices hereunder shall be given to the parties at the following
addresses:
If to Photon:
Photon Technology International, Inc.
Princeton Corporate Plaza
1 Deerpark Drive, Suite F
South Brunswick, NJ 08852
Attention: Mr. William Looney
Telecopier: (908) 329-9069
With a copy to:
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303-0913
Telephone: (415) 424-0160
Attention: J. Stephan Dolezalek, Esq.
Telecopier: (415) 496-2736
If to MLTV:
ML Technology Ventures, L P.
Merrill Lynch World Headquarters
World Financial Center
North Tower, 18th Floor
New York, New York 10291-1318
Attention:
Telecopier:
With a copy to:
ML Technology Ventures, L.P.
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, California 94025
Attention: Dr. Robert E. Curry
Telephone: (415) 854-1550
Telecopier: (415) 854-1025
And a copy to:
Cooley Godward Castro Huddelson & Tatum
5 Palo Alto Square
3000 El Camino Ave.
Palo Alto, CA 94306-2155
Attention: Deborah A. Marshall, Esq.
Telephone: (415) 843-5137
Telecopier: (415) 857-0663
10.2. Entire Agreement. This Agreement, together with the Exhibits
attached hereto, contains the entire agreement among the parties hereto with
respect to the transactions contemplated hereby, and contains all of the terms
and conditions thereof and supersedes all prior agreements and understandings
relating to the subject matter hereof No changes or modifications of or
additions to this Agreement shall be valid unless the same shall be in writing
and signed by each party hereto.
10.3. Severability. The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any one or more of
the provisions hereof shall not affect the validity and enforceability of the
other provisions hereof
10.4. Successors and Assigns. This Agreement shall be binding upon
and shall enure to the benefit of the parties hereto and their respective
predecessors and successors, past, present and future affiliates, subsidiaries,
parent or related entities, joint ventures, sureties, insurers, principals,
partners, partnerships, assigns, shareholders, directors, officers, employees,
agents, consultants, attorneys, accountants, advisors, executors,
administrators, nominees and representatives; provided, however. that no party
may assign any of its rights or delegate any of its duties under this Agreement
without the prior written consent of each other party hereto which consent may
not be unreasonably withheld.
10.5. Waivers. No waiver of any of the provisions of this Agreement
shall be deemed to be or shall constitute a waiver of any other provision of
this Agreement, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver of any provision of this Agreement shall be binding
on the parties hereto unless it is executed in writing by the party making the
waiver.
10.6. Further Assurances. Following the execution of this
Agreement, each party hereto will execute and deliver or cause to be executed
and delivered such further documents, and will take such other actions, as any
other party hereto reasonably may request to effect the transactions
contemplated by this Agreement.
10.7. No Third Party Beneficiaries. None of the provisions of this
Agreement shall be for the benefit of, or shall be enforceable by, any
third-party beneficiary.
10.8. Headings. The cover page and Section and Subsection headings
used herein are for convenience of reference only, are not a part of this
Agreement and are not to affect the construction of, or be taken into
consideration in interpreting, any provision of this Agreement.
10.9. Counterparts. This Agreement may be executed in several
counterparts all of which together shall constitute one and the same instrument
with the same force and effect as though each of the parties hereto had executed
the same document.
10.10. Governing Law. This Agreement is made and shall be governed
by, and construed and enforced in accordance with, the laws of the State of New
Jersey, without regard to the conflict of laws principles thereof, as the same
apply to agreements executed solely by residents of New Jersey and wholly to be
performed within California.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
Photon Technology International, Inc.,
a New Jersey corporation
By:
Name: /s/Charles G. Marianik
Its:
ML Technology Ventures, LP,
a Delaware Limited Partnership
By:
General Partner
By:
Its:
<PAGE>
VOTING AGREEMENT
THIS AGREEMENT is made as of December 8, 1995, by and among
Photon Technology International, Inc. a New Jersey corporation ("Photon"),
Charles G. Marianik ("Marianik") and ML Technology Ventures, L.P., a Delaware
limited partnership ("MLTV").
WHEREAS, MLTV and Photon have entered into that certain
Purchase Agreement, of even date herewith (the "Purchase Agreement");
WHEREAS, upon consummation of the transactions contemplated by
the Purchase Agreement (the "Transactions") Marianik and MLTV will together hold
approximately 2,037,154 shares of Photon's Common Stock; and
WHEREAS, in connection with the consummation of the
Transactions, and in order to induce MLTV to enter into the Transactions,
Photon, Marianik and MLTV have agreed to provide for the future voting of the
Photon securities held by Marianik and MLTV, respectively, as set forth below:
NOW, THEREFORE, in consideration of the premises contained
herein and in the Purchase Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, IT
IS HEREBY AGREED AS FOLLOWS:
1. Agreement Regarding Vote. The parties hereto each agree to
hold all voting securities of Photon registered in their respective names or
beneficially owned by them as of the date hereof (collectively, the "Shares"),
subject to, and to vote the Shares in accordance with, the provisions of this
Agreement. During the term of this Agreement, in the event that it is proposed
that Photon and its shareholders effect a transaction or series of related
transactions in which more than fifty percent (50%) of Photon voting power of
the corporation is disposed of, or in which Photon will be liquidated or
dissolved, or in which Photon will sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other that a wholly-owned subsidiary
corporation or a merger solely to effect a change in domicile), the parties
hereto agree that neither party shall vote any of the shares of Photon's voting
securities now or hereafter owned by them, whether beneficially or otherwise
(the "Shares") in favor of such proposal without first consulting with and
obtaining the written consent of the other party.
2. Legend.
(a) Concurrently with the execution of this Agreement,
there shall be imprinted or otherwise placed, on certificates representing the
Shares the following restrictive legend (the "Legend"):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A VOTING AGREEMENT WHICH
PLACES CERTAIN RESTRICTIONS ON THE VOTING OF THE SHARES
REPRESENTED HEREBY. ANY PERSON ACCEPTING ANY INTEREST IN
SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
BOUND BY ALL OF THE PROVISIONS OF SUCH VOTING AGREEMENT.
A COPY OF SUCH VOTING AGREEMENT WILL BE FURNISHED TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON
WRITTEN REQUEST TO PHOTON AT ITS PRINCIPAL PLACE OF
BUSINESS."
(b) Photon agrees that, during the term of this Agreement,
it will not remove, and will not permit to be removed (upon registration of
transfer, reissuance or otherwise), the Legend from any such certificate and
will place or cause to be placed the Legend on any new certificate issued to
represent Shares theretofore represented by a certificate carrying the Legend.
3. Successors in Interest of the Investors. The provisions of
this Agreement shall be binding upon the successors in interest of the parties
hereto to any of the Shares owned by such parties. Photon shall not permit the
transfer of any Shares owned by either party to this Agreement on its books or
issue a new certificate representing any such Shares unless and until the person
to whom such security is to be transferred shall have executed a written
agreement in the form of this Agreement pursuant to which such person becomes a
party to this Agreement and agrees to be bound by all the provisions hereof as
if such person was an original party hereunder.
4. Other Rights. Except as provided by this Agreement, MLTV
and Marianik, and their successors and assigns, shall exercise the full rights
of a shareholder with respect to the Shares.
5. Amendments and Waivers. Any term hereof may be amended and
the observance of any term hereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of each of the parties hereto. Any amendment or waiver so
effected shall be binding upon the parties hereto or their assigns.
6. Stock Splits, Stock Dividend, etc. In the event of any
stock split, stock dividend, recapitalization, reorganization, or the like, any
securities issued with respect to the Shares shall be subject to this Agreement.
7. Further Action. If and whenever the Shares are sold, the
parties hereto or their personal representatives shall do all things and execute
and deliver all documents and make all transfers, and cause any transferee of
the Shares to do all things and execute and deliver all documents, as may be
reasonable and necessary to consummate such sale consistent with this Agreement.
8. Specific Performance. The parties hereto declare that it is
impossible to measure in money the damages which will accrue to a party hereto
or to their heirs, personal representatives, or assigns by reason of a failure
to perform any of the obligations under this Agreement and agree that the terms
of this Agreement shall be specifically enforceable. If any party hereto or his
or her or its heirs, personal representatives, or assigns institutes any action
or proceeding to specifically enforce the provisions hereof, any person against
whom such action or proceeding is brought hereby waives the claim or defense
therein that such party or such personal representative or assign has an
adequate remedy at law, and such person shall not offer any such action or
proceeding the claim or defense that such remedy at law exists.
9. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manners as to be effective and valid
under applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
10. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New Jersey without regard to the
conflict of laws provisions thereof, as such laws apply to agreements among New
Jersey residents made and to be performed entirely within the State of New
Jersey.
11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. Successors and Assigns. Except as otherwise expressly
provided in this Agreement, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors and assigns of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year hereinabove first written.
_________________________________
Charles G. Marianik
ML TECHNOLOGY VENTURES, L.P., a
Delaware Limited Partnership
By:_____________________________
General Partner
By:_____________________________
Its: ___________________________
By: ML Technology Ventures, L.P.
DLJ Capital Management Corporation PHOTON TECHNOLOGY INTERNATIONAL,
its Sub-Manager INC., a New Jersey corporation
By: /s/Robert F. Curry By: ____________________________
----------------------------------
Authorized Officer
Its: ___________________________
DEBENTURE
THIS DEBENTURE delivered the 31st day of October, 1995,
BY:
PHOTON TECHNOLOGY INTERNATIONAL (CANADA) INC., a corporation
incorporated under the laws of Ontario and having its chief
executive office at 347 Consortium Court, London, Ontario N6E 2S8
("Photon")
TO:
C.I.-C.P.A. BUSINESS VENTURES FUND INC.
("C.I.-C.P.A.")
WITNESSES THAT:
The Corporation, for value received, hereby acknowledges
itself indebted and promises to pay to the Debentureholder, in accordance with
the provisions hereof, (i) on the Maturity Date or on such earlier date as the
remaining principal amount outstanding hereunder may become due and payable as
hereinafter provided, upon presentation and surrender of this Debenture to the
Corporation, the remaining principal amount outstanding hereunder at such time
as set out in Schedule A hereto; (ii) instalments on the principal amount
hereunder in the amounts, on the dates and in the manner set forth herein; (iii)
all such other amounts as may be payable by the Corporation to the
Debentureholder hereunder in the manner set forth herein; and (iv) interest as
hereinafter provided, on the principal amount outstanding under this Debenture
from time to time and on all such other amounts that may become overdue
hereunder, at the rate of 12% per annum from the date of the Initial Advance to
the date the entire principal amount outstanding under this Debenture and all
other amounts payable hereunder are fully paid and satisfied.
The following provisions shall apply to this Debenture:
<PAGE>
ARTICLE 1.
INTERPRETATION
1.1. Definitions
Where used in this Debenture, the following words and phrases shall,
unless there is something in the context otherwise inconsistent therewith, have
the following meanings, respectively:
"Business Day" means any day other than a Saturday, a Sunday and any other
day on which Canadian chartered banks in Toronto are required to be or may
be closed for business;
"Charged Property" means the Collateral as defined in the Security
Agreement;
"Close of Business" means 4:00 p.m., Toronto time;
"Corporation" means Photon and its successors hereunder;
"Contaminant" means any solid, liquid, gas, odour, heat, sound, smoke,
waste, vibration, radiation or combination of any of them resulting
directly or indirectly from human activities that may cause: (i) impairment
of the quality of the natural environment for any use that can be made of
it, (ii) injury or damage to property or to plant or animal life, (iii)
harm or material discomfort to any Person, (iv) an adverse effect on the
health of any Person, (v) impairment of the safety of any Person, (vi)
rendering any property or plant or animal life unfit for use by man, (vii)
loss of enjoyment of normal use of property, or (viii) interference with
the normal conduct of business, and includes any pollutant or contaminant
as defined in any applicable Environmental Laws and any biological,
chemical or physical agent which is regulated, prohibited, restricted or
controlled;
"Debenture" means this Debenture and all schedules attached hereto as it
and they may be amended or supplemented from time to time;
"Debentureholder" means C.I.-C.P.A. or such other Person for the time being
who may be entered in the Register as holder of this Debenture;
"Environmental Laws" means the common laws and all applicable federal,
provincial, local, municipal, governmental or quasi-governmental laws,
rules, regulations, licences, orders, permits, decisions or requirements
concerning Contaminants, occupational or public health and safety of the
environment and any other order, injunction, judgment, declaration, notice
or demand issued thereunder;
"Equity" means, on a consolidated basis, the aggregate of all issued share
capital, retained earnings and contributed surplus less goodwill;
"Event of Default" has the meaning attributed to that term in Section 9.1;
"GAAP" means accounting principles generally accepted in the United States
of America;
"Group" means the Corporation together with all related corporations and
partnerships within the meaning of the Labour Sponsored Venture Capital
Corporations Act, 1992 (Ontario), as amended;
"Guarantor" means Photon Technology International, Inc., a corporation
incorporated under the laws of the State of New Jersey;
"herein", "hereto", "hereunder", "hereof", "hereby" and similar expressions
mean or refer to these provisions of this Debenture and not to any
particular Article, Section, subsection, subdivision or portion hereof, and
the expressions "Article", "Section" and "subsection" followed by a number
or a letter mean and refer to the specified article, section or subsection
hereof;
"Initial Advance" has the meaning attributed to that term in Section 2.1;
"Interest Coverage Ratio" means at the end of any particular 1 2-month
period, consolidated net income of the Guarantor as determined in
accordance with GAAP, before taking into account taxes and extraordinary
items, plus interest on all debt, divided by interest on all debt;
"Material Contracts" means those agreements set out on the attached
Schedule C;
"Maturity Date" means the date on which the remaining principal amount
outstanding under this Debenture falls due, being October 31, 2000;
"MLTV" means M.L. Technology Ventures, L.P., a limited partnership under
the laws of the State of Delaware;
"MLTV Debt" means the amount owing from time to time by the Guarantor to
MLTV pursuant to a subordinated debt agreement originally entered into
between the Guarantor and MLTV on May 7, 1991, as such agreement has been
amended and revised;
"Option Agreement" means the agreement dated the date hereof between the
Guarantor and the Debentureholder pursuant to which the Guarantor has
granted to the Debentureholder options to purchase common shares of the
Guarantor;
"Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, unincorporated association, trust, trustee,
executor, administrator or other legal personal representative, regulatory
body or agency, government or governmental agency, authority or entity
however designated or constituted;
"Pledge Agreement" means the pledge agreement and related guarantee in
favour of the Debentureholder pledging one common share of the Corporation
(being all of the issued and outstanding common shares of the Corporation)
registered in the name of the Guarantor as security for the performance by
the Corporation of its obligations hereunder;
"Prepayment Date" means the date fixed by the directors of the Corporation
for prepayment of all or any part of this Debenture set forth in the notice
of prepayment referred to in Section 6.2;
"Principal" means Charles G. Marianik, the Chairman, President and CEO of
the Corporation at the date hereof;
"Program" means the proposed expenditure program of the Corporation, the
details of which are set out in the use of proceeds schedule attached
hereto as Schedule B;
"Register" has the meaning attributed to that term in Section 10.1;
"Security Agreement" means the general security agreement in favour of the
Debentureholder, providing for the creation of a security interest over
certain assets of the Corporation to secure the performance by the
Corporation of its obligations under this Debenture;
"Senior Indebtedness" means (a) the principal of; (b) all interest and
premium (if any) on; and (c) all fees, costs, expenses and other amounts
(including legal fees and disbursements, on a solicitor and own client
basis) incurred by any Person to whom Senior Indebtedness is due in
connection with any realization or due to proceedings under the Bankruptcy
and Insolvency Act (Canada) relating to, any existing or future debt
obligations of the Corporation, other than:
(i) indebtedness of the Corporation evidenced by this Debenture;
(ii) debt obligations issued by the Corporation which are
prescribed to be "small business securities" for the purposes
of paragraph (a) of the definition of "small business
property" in subsection 206(1) oftheIncome Tax Act (Canada);
(iii) indebtedness of the Corporation owing to a shareholder of the
Corporation or to a Person related to a shareholder; and
(iv) indebtedness which, by the terms of the instrument creating or
evidencing such indebtedness or pursuant to which such
indebtedness is outstanding, is not prior in right of payment
to this Debenture but ranks pari passu with or is subordinated
in right of payment to this Debenture;
"Subordinated Debt" means any indebtedness of the Corporation other than
Senior Indebtedness, indebtedness evidenced by this Debenture and
indebtedness which ranks pari passu with this Debenture;
"Taxable Canadian Corporation" has the meaning attributed to that term by
subsection 89(1 ) of the Income Tax Act (Canada);
"Total Debt" means, on a consolidated basis, the aggregate of all current
and long term liabilities including all capital equipment leases measured
at the capitalized value of the remaining rentals due on such leases;
"Working Capital" means, on a consolidated basis, the aggregate of all
current assets less current liabilities (excluding the MLTV Debt and the
current portion of the final payment of principal due hereunder at the
Maturity Date), all calculated in accordance with GAAP; and
"Working Capital Ratio" means, on a consolidated basis, the aggregate of
all current assets divided by current liabilities (excluding the MLTV Debt
and the current portion of the final payment of principal due hereunder at
the Maturity Date), all calculated in accordance with GAAP.
1.2. Gender, etc.
Words importing the singular number only include the plural and vice
versa, and words importing a gender include all genders.
1.3. Currency
Unless otherwise specifically stated, all dollar amounts referred to
herein shall be in lawful money of Canada.
1.4. Headings
The division of this Debenture into Articles, Sections and subsections
or other subdivisions, and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation hereof.
1.5. Business Day
In the event that any day on which any principal, interest or other
amount is payable by the Corporation, or on or by which any other action is
required to be taken by the Corporation hereunder is not a Business Day, then
such principal, interest or other amount shall be payable or such other action
shall be required to be taken on or by the next succeeding day which is a
Business Day. If the payment of any amount is deferred for any period, then such
period shall be included for purposes of the computation of any interest payable
hereunder.
1.6. Computation of Time Period
Except to the extent otherwise provided herein, in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding".
ARTICLE 2.
INITIAL ADVANCE
2.1. Amount of Initial Advance
The Debentureholder hereby agrees to advance to the Corporation the
amount of $1,500,000 (the "Initial Advance") upon the satisfaction of the
conditions contained in Section 2.2. Schedule A attached hereto shall set forth
the schedule of payments of principal to be made in repayment of the principal
amount outstanding hereunder.
2.2. Conditions of Initial Advance
The Initial Advance shall be made upon the satisfaction of all of the
following:
2.2.1. The Guarantor shall have entered into binding arrangements to the
satisfaction of the Debentureholder for the repayment of the MLTV Debt
and for the issuance to MLTV of common shares of the Guarantor in
satisfaction of the purchase price of certain technology rights;
2.2.2. The Option Agreement shall have been executed and delivered by the
Guarantor;
2.2.3. A life insurance policy in the minimum amount of US$500,000 on the life
of the Principal, in form satisfactory to the Debentureholder, shall
have been obtained and all interests in such policy shall have been
assigned to the Debentureholder as security for the Corporation's
obligations hereunder and the Guarantor's obligations under the Pledge
Agreement;
2.2.4. The Corporation shall have paid to C.I.-C.P.A. a fee in the amount of
$30,000 and to Covington Capital Corporation a fee in the amount of
$26,500 for services rendered;
2.2.5. The Security Agreement and any other security instrument delivered in
connection with this Debenture, including the Pledge Agreement, shall
be in form and substance satisfactory to the Debentureholder and shall
have been executed and delivered by the party providing the security
thereunder;
2.2.6. All legal and insurance documentation (including the addition of the
Debentureholder as an additional insured under all insurance policies
of the Corporation) shall have been completed to the satisfaction of
the Debentureholder;
2.2.7. All appropriate legal and business due diligence shall have been
completed to the satisfaction of the Debentureholder;
2.2.8. Unqualified, audited consolidated financial statements as at June 30,
1995 showing no adverse change in the financial condition of the
Guarantor and its subsidiaries since June 30, 1994 shall have been
prepared and delivered to the Debentureholder;
2.2.9. Evidence shall have been produced to the satisfaction of the
Debentureholder demonstrating that the Corporation has received
approval from its bankers of an operating line of credit in an amount
of not less than $1,500,000;
2.2.10.Counsel to the Corporation and to the Guarantor shall have delivered
to the Debentureholder opinions in form and content satisfactory to the
Debentureholder, including opinions as to the enforceability of this
Debenture, the Option Agreement, the Security Agreement, the Pledge
Agreement and any other instrument delivered in connection with this
Debenture and as to the validity of the security interests created by
any security instruments delivered in connection herewith; and
2.2.11.This Debenture shall remain in full force and effect, all
representations and warranties of the Corporation hereunder shall be
true and correct, no Event of Default shall exist, no material adverse
change shall have occurred, and all covenants and agreements required
to have been performed on the date of the Initial Advance shall have
been performed.
ARTICLE 3.
SUBSEQUENT ADVANCES
3.1. Subsequent Advances
The making of any further advances to the Corporation hereunder shall
be on such terms and conditions as may be agreed upon between the
Debentureholder and the Corporation from time to time and, if made, Schedule A
attached hereto shall be amended and initialed for identification to reflect the
change in the principal amount outstanding hereunder.
ARTICLE 4.
PAYMENT AND INTEREST
4.1. Payment of Principal
4.1.1. Payments of instalments on the principal amount hereunder shall be made
in accordance with the provisions hereof and in the amounts and on the
dates set forth in Schedule A hereto.
4.1.2. The principal amount remaining outstanding under this Debenture
(together with any accrued and unpaid interest thereon) shall be
payable at the Maturity Date or at any such other time provided
hereunder for the payment of the entire principal amount outstanding
under this Debenture, upon presentation and surrender of this Debenture
at the principal office of the Corporation at 347 Consortium Court,
London, Ontario or at such other place as the Debentureholder may
request in writing by notice to the Corporation in accordance with
Section 11.2.1.
4.2. Payment of Interest
Interest at the rate of 12% per annum calculated and compounded monthly
from the date of the Initial Advance shall accrue from that date on the
outstanding principal amount under this Debenture from time to time and on all
other amounts payable hereunder which may become overdue, and shall be payable
monthly in arrears on the last day of each month both before and after maturity,
default and judgment, with interest on overdue interest payable at the same rate
and upon the same terms.
4.3. Payments
As payments under this Debenture become due, the Corporation shall
(except in the case of payment at the Maturity Date or at such other time as the
entire amount outstanding hereunder may be payable upon surrender of this
Debenture), at least three Business Days prior to each date on which a payment
becomes due, forward or cause to be forwarded by prepaid post to the registered
address of the Debentureholder as it appears in the Register, a cheque for such
amount, less any tax required by law to be deducted, payable to or to the order
of the Debentureholder. The forwarding of such cheque shall satisfy and
discharge the liability for such payment under this Debenture to the extent of
the sum represented thereby (plus the amount of any tax deducted as aforesaid)
unless such cheque be not paid on presentation; provided that, in the event of
non-receipt of such cheque by the Debentureholder, or the loss or destruction
thereof, the Corporation, upon being furnished with reasonable evidence of such
non-receipt, loss or destruction and indemnity reasonably satisfactory to it,
will issue to the Debentureholder a replacement cheque for the same amount of
such cheque.
4.4. Service Fee
The Corporation shall pay to the Debentureholder a monthly service fee
in the amount of $100 on the last day of every month in which:
4.4.1. the Corporation fails to make payment of an amount due hereunder when
due;
4.4.2. the Corporation fails to make payment of any amount overdue hereunder;
4.4.3. the Corporation fails to maintain or cause to be maintained the
insurance required pursuant to Sections 8.1.18 and 8.1.19; or
4.4.4. the Corporation fails to provide to the Debentureholder the financial
information required to be provided pursuant to Section 8.1.12.
4.5. Amount Owing Under
Debenture
The amount owing under this Debenture shall be deemed to include all
interest, compound interest, receivership fees, costs of seizure and
realization, and legal fees relating to collections and realization, all levies,
taxes and liens that must be paid, satisfied or otherwise discharged in order to
seize or realize on the Charged Property and all other costs, fees and amounts
payable under the terms of this Debenture (and any renewal or extension hereof),
in addition to any principal amounts advanced.
ARTICLE 5.
SECURITY AND DEALING WITH CHARGE .D PROPERTY
5.1. General Security Agreement
The security for the payment of the principal, interest and other
monies from time to time owing under this Debenture, and the performance by the
Corporation of all of its obligations hereunder, shall be set out in the
Security Agreement and the Pledge Agreement.
5.2. Dealing with Charged Property
5.2.1. The security interest created by the Security Agreement shall in no way
hinder or prevent the Corporation at any time and from time to time
until the security thereby constituted shall have become enforceable,
from pledging, charging, selling, alienating, leasing or otherwise
disposing of or dealing with the Charged Property in the ordinary
course of business.
5.2.2. The Corporation may give security to secure the payment or repayment of
any Senior Indebtedness, and such security if validly perfected shall
rank prior to the lien created by the Security Agreement on such assets
without further action by the Debentureholder.
ARTICLE 6.
PREPAYMENT
6.1. Prepayment of Debenture
Provided that the Corporation is not in default of any of its
obligations hereunder, the Corporation may at any time make payments in
multiples of $100,000 on the principal amount outstanding hereunder in addition
to the instalments set forth in Schedule A. The funds used by the Corporation to
make any such additional payments, except payments that would satisfy all
amounts then outstanding hereunder, shall be from either operating cash flow or
refinancing approved by the Debentureholder.
6.2. Notice of Prepayment
Notice of intention to make any additional payment of principal under
this Debenture prior to the Maturity Date shall be given by or on behalf of the
Corporation to the Debentureholder not more than 90 days nor less than 60 days
prior to the date fixed for such additional payment, in the manner provided in
Section 11.2.1. Any notice of intention to make an additional payment shall
specify the payment date (the "Prepayment Date"), the amount to be paid, and
shall state that all interest in respect of the additional amount to be paid
shall cease to accrue from and after the Prepayment Date unless the Corporation
shall make default in the payment of the amount so to be paid.
6.3. Amendment or Surrender for Cancellation
6.3.1. If an amount other than the entire amount remaining outstanding under
this Debenture shall become payable pursuant to this Article 6,
Schedule A attached hereto shall be amended and initialled for
identification to reflect the change in the amount outstanding
hereunder. The instalment amounts payable on the principal amount
outstanding hereunder as set out in Schedule A shall not be affected by
any additional payment of principal made pursuant to this Article 6
except in the case of any such additional payment causing the principal
amount then outstanding to be less than the aggregate of all remaining
instalments set out in Schedule A. In such a case, the instalments
payable on the remaining principal amount outstanding hereunder shall
be amended in a manner mutually agreed upon by the Debentureholder and
the Corporation.
6.3.2. If the entire amount remaining outstanding under this Debenture shall
become payable before the Maturity Date~ the Debentureholder shall
surrender this Debenture for cancellation against receipt of payment of
the entire amount remaining outstanding hereunder.
ARTICLE 7.
SUBORDINATION
7.1. Agreement to Subordinate
The Corporation covenants and agrees, and the Debentureholder, by its
acceptance hereof, likewise covenants and agrees, that the indebtedness
represented by this Debenture and the payment of the principal of, interest on,
and any other amounts due under this Debenture, is hereby expressly postponed
and subordinated, to the extent and in the manner hereinafter set forth, in
right of payment to the prior payment in full of all Senior Indebtedness.
7.2. Distribution of Assets, etc.
Upon any distribution of assets of the Corporation on any dissolution,
winding up, liquidation or reorganization of the Corporation, whether in
bankruptcy, insolvency, reorganization or receivership proceedings or on an
assignment for the benefit of its creditors, the Persons to whom any Senior
Indebtedness is owing will first be entitled to receive payment in full of the
Senior Indebtedness, in accordance with the terms of me agreements governing the
Senior Indebtedness, before the Debentureholder is entitled to receive any
payment on account of the principal of, interest on, or any other amounts due
under this Debenture.
7.3. Subrogation
Subject to and upon the prior payment in full of all Senior
Indebtedness, the Debentureholder shall be subrogated to the rights of the
Persons to whom Senior Indebtedness is due to receive payments and distributions
of cash, property and securities applicable to the Senior Indebtedness until all
amounts owing on this Debenture shall have been paid in full. For purposes of
such subrogation, no payments or distributions to the Persons to whom Senior
Indebtedness is due of any cash, property or securities to which the
Debentureholder would be entitled except for the provisions of this Article, and
no payments over pursuant to the provisions of this Article to the Persons to
whom Senior Indebtedness is due by the Debentureholder, shall, as between the
Corporation, its creditors (other than the Persons to whom Senior Indebtedness
is due) and the Debentureholder, be deemed to be a payment or distribution by
the Corporation to or on account of the Persons to whom the Senior Indebtedness
is due, it being understood that the provisions of this Article 7 are and are
intended solely for the purpose of defining the relative rights of the
Debentureholder, on the one hand, and the Persons to whom the Senior
Indebtedness is due, on the other hand.
7.4. Obligations of Corporation Unconditional
Nothing contained in this Article 7 is intended to or impairs, as
between the Corporation, its creditors (other than the Persons to whom Senior
Indebtedness is due), and the Debentureholder, the obligation of the
Corporation, which is absolute and unconditional, to pay to the Debentureholder
the principal of, interest on, and any other amounts due under this Debenture as
and when the same become due and payable in accordance with its terms, or
affects the relative rights of the Debentureholder and creditors of the
Corporation (other than the Persons to whom Senior Indebtedness is due), nor
does anything herein prevent the Debentureholder from exercising all remedies
otherwise permitted by applicable law upon an Event of Default, subject to the
rights, if any, under this Article of the Persons to whom Senior Indebtedness is
due in respect of cash, property or securities of the Corporation received upon
the exercise of any such remedy.
7.5. No Payments to Debentureholder if Senior Indebtedness is in Default
7.5.1. Upon me maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, or upon demand being made for payment of any
Senior Indebtedness which is payable upon demand, all principal thereof
(premium, if any) and interest due thereon must first be paid in full,
or such payment duly provided for in cash or in a manner satisfactory
to the Persons to whom such Senior Indebtedness is due, before any
payment is made on account of me principal of, interest on, or any
other amounts due under this Debenture or to acquire this Debenture.
7.5.2. Upon the occurrence of an event of default, or an event which with the
giving of notice or lapse of time or both would constitute an event of
default, with respect to any Senior Indebtedness, as such event of
default is defined therein or in the instrument under which it is
outstanding, permitting the Persons to whom such Senior Indebtedness is
due to accelerate the maturity thereof, or upon demand being made for
payment of any Senior Indebtedness which is payable on demand, no
payment may be made by the Corporation with respect to the principal
of, interest on, or any other amounts due under this Debenture or to
acquire this Debenture until such event or event of default has been
cured or waived or has ceased to exist or until payment of the amount
demanded which is payable on demand shall have been made in full, as
the case may be.
7.6. Payments on Debenture Permitted
Nothing contained in this Article 7 or elsewhere in this Debenture,
affects the obligation or right of the Corporation to make, at the times
specified or permitted therefor, except during the pendency of any dissolution,
winding up, liquidation, reorganization or receivership proceeding, and except
during the continuance of any event of default specified in Section 7.5 (not
cured or waived), payments of principal of, interest on and any other amounts
due under this Debenture, or any additional payments of principal outstanding
under this Debenture with respect to which notice shall have been given pursuant
to Section 6.2 hereof, prior to the happening of such event of default or the
existence of facts described in Section 7.5.
ARTICLE 8.
COVENANTS AND REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION
8.1. Covenants
The Corporation covenants and agrees with the Debentureholder that, so
long as any principal of, interest on, or any other amounts due under this
Debenture remain outstanding, it will:
8.1.1. use the principal amount of the Initial Advance under this Debenture
only towards the purposes of the Program;
8.1.2. perform all covenants and agreements contained herein and duly and
punctually pay or cause to be paid to the Debentureholder the principal
of, interest on, and any other amounts due under this Debenture in
accordance with the terms hereof;
8.1.3. maintain its corporate existence; maintain the security created in
accordance herewith as a valid and effective charge on the Charged
Property; carry on and conduct its business in a proper and efficient
manner and in accordance with all applicable laws; not materially alter
me kind of business carried on by it; advise the Debentureholder
promptly in writing of any proposed change in its name; observe and
perform all of its obligations under leases, licences and other
agreements to which it is a party so as to preserve and protect the
Charged Property and the income therefrom; and keep proper books of
account with correct entries of all transactions in relation to its
business;
8.1.4. pay all amounts secured by and observe and perform all covenants and
conditions contained in all other charges on the whole or any part of
the Charged Property in accordance with their terms, whether those
charges rank prior to, pari passu with or subsequent to this Debenture;
8.1.5. pay or cause to be paid, all costs, liabilities, taxes, levies or
assessments properly payable or validly assessed or imposed upon it as
and when the same shall become due and payable, save and except when
and so long as the validity of the costs, liabilities, taxes, levies or
assessments is being contested by it diligently and in good faith;
8.1.6. observe and conform to all valid requirements of any governmental
authority with respect to the Charged Property;
8.1.7. defend the Charged Property against the claims and demands of other
parties claiming to have an interest therein, and against every charge.
Lien, encumbrance, execution, sequestration or analogous process;
8.1.8. not permit any of the Charged Property to be moved out of the Province
of Ontario except in the ordinary course of business; refrain from and
prevent waste from being committed on or against the Charged Property
(reasonable wear and tear excepted); and maintain the Charged Property
in good order and repair to the satisfaction of the Debentureholder,
acting reasonably;
8.1.9. not, except in the ordinary course of business, dispose of or transfer,
or allow any subsidiary to dispose of or transfer, (i) any machinery,
equipment or vehicles unless such are replaced with similar property of
equal or greater value or (ii) any other property or rights
(contractual or otherwise) without the prior written approval of the
Debentureholder; provided however, that when the Corporation is not
otherwise in default of any obligation owing to the Debentureholder,
the Corporation shall have the right to sell or otherwise dispose of
any equipment or vehicles of an aggregate net book value of up to
$150,000 in any one 12-month period. The proceeds of any such permitted
disposition shall be applied to the payment of any long-term debt, if
any, secured by such assets;
8.1.10. in the event the Charged Property or any part thereof is sold or
disposed of prior to the full discharge of this Debenture in any manner
not authorized by this Debenture and subject to any rights of Persons
to whom any Senior Indebtedness is due, hold all proceeds of such sale
or disposition received by the Corporation as trustee for the
Debentureholder until the Corporation has been fully released from this
Debenture;
8.1.11. from time to time upon request of the Debentureholder, do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged or
delivered, all and every such further acts, deeds, mortgages, transfers
and assurances in law or otherwise as the Debentureholder shall
reasonably require to perfect the security of the Debentureholder on
all or part of the Charged Property, or to carry into effect the
intentions of the parties as set out in this Debenture;
8.1.12. furnish or cause to be furnished to the Debentureholder concurrently
with the filing thereof, copies of all 1 0-K, I 0-Q or similar reports
of the Guarantor filed with the relevant securities regulatory
authorities, and monthly, within 30 days of the end of each month,
separate unaudited statements of profit and loss and source and
application of funds in respect of the Corporation, the Guarantor and
any other subsidiary of the Guarantor. Separate monthly statements
shall include comments by the Vice-President of Finance and the
President of the Guarantor regarding variances from budget, any other
significant operational or other developments that may affect the
Corporation, the Guarantor or any other subsidiary of the Guarantor,
and a brief note on the business outlook for the near term;
8.1.13. provide to the Debentureholder a monthly compliance certificate signed
by the Vice-President of Finance and the President of the Corporation
stating that the Corporation is not in breach of any covenants with the
Debentureholder or with any other creditors, or if any such covenants
shall have been breached, stating which covenants have been breached
and, if applicable, to which creditors such covenants were provided,
for how long such breach has existed and for how long management
expects it to continue;
8.1.14. ensure that management of the Guarantor prepares an annual business
plan and budget and presents such annual business plan and budget at
least 45 days prior to the end of each fiscal year, to the board of
directors of the Guarantor for approval; and will also ensure that
management of the Guarantor prepares and presents to the board of
directors of the Guarantor for approval a report of any material
variances from the approved annual business plan and budget throughout
the course of the year;
8.1.15. provide to the Debentureholder the Guarantor's approved annual business
plan and budget for the next fiscal year at least 30 days prior to the
commencement of such next fiscal year;
8.1.16. not, except as specifically provided for in Section 5.2.2 and Article
7, create or permit to exist any security interest in the Charged
Property which ranks or may rank in priority to or pari passu with the
security interests created by the Security Agreement;
8.1.17. not, without the prior written consent of the Debentureholder, make
loans to or investments in any Person other than a wholly-owned
subsidiary of the Corporation;
8.1.18. maintain or cause to be maintained a life insurance policy in the
minimum amount of US$500,000 on the life of the Principal in form
satisfactory to the Debentureholder, and the Corporation shall assign,
or cause to be assigned, to the Debentureholder all interests in such
policy as security for the Corporation's obligations hereunder and the
Guarantor's obligations under the Pledge Agreement. The Corporation
will also, at the request of the Debentureholder and if available at a
reasonable cost from the insurer which issued the policy, obtain or
cause to be obtained from such insurer a "Breach of Warranty" clause
which shall form part of such policy, whereby such insurer agrees that
a breach of the insuring conditions by the Corporation, the Guarantor,
the life insured or any other Person shall not give such insurer the
right to refuse any payment under such policy;
8.1.19. obtain and keep, in form satisfactory to the Debentureholder acting
reasonably, fire, extended coverage and boiler and machinery insurance
on the Corporation's property and assets to their full insurable value
with insurers approved by the Debentureholder, which insurance shall
include a standard mortgage clause in favour of the Debentureholder as
its interest may appear in the form approved by the Insurance Bureau of
Canada and shall not include a co-insurance clause requiring the
Corporation to bear more than 10% of any loss. The Corporation will
also pay all premiums necessary to maintain such insurance as the same
shall become due. All policies of insurance issued in respect of the
Charged Property and all proceeds thereof shall be assigned to the
Debentureholder as security for the Corporation's obligations
hereunder. Each policy of insurance shall show the Debentureholder as
an additional insured, as its interest may appear and, at me
Debentureholder's request, shall be delivered to and held by the
Debentureholder. The Corporation will also provide evidence of business
interruption and public liability insurance on terms and conditions
satisfactory to the Debentureholder, acting reasonably;
8.1.20. forthwith on the happening of any loss or damage, furnish at its
expense all necessary proofs and do all necessary acts to enable the
Debentureholder to obtain payment out of the insurance monies under
Section 8.1.19;
8.1.21. notify the Debentureholder within 24 hours of any changes in the
insurance coverage provided above, including any change in the insurer
providing the coverage;
8.1.22. give the Debentureholder prompt written notice of any material adverse
change in the condition, financial or otherwise, of its or the
Guarantor's business;
8.1.23. give the Debentureholder prompt written notice of the occurrence of an
Event of Default, or of an event or circumstance that, with the giving
of notice or lapse of time or both, would constitute an Event of
Default;
8.1.24. notify the Debentureholder promptly of the details of any material
claims or litigation affecting the Corporation, the Guarantor, or the
Charged Property;
8.1.25. notify the Debentureholder within 24 hours of any substantial change in
the amount or terms of the Corporation's bank operating line of credit;
8.1.26. not, without the prior written consent of the Debentureholder (which
consent shall not be unreasonably withheld or delayed), amend or permit
to be amended any Material Contract in a manner that may have a
material adverse effect upon the Corporation's ability to perform its
obligations hereunder;
8.1.27. at any time it is in arrears of payment of principal of, interest on,
or any other amounts due under this Debenture, refrain from (i)
declaring or paying any dividends on any shares of the Corporation and
(ii) calling for redemption or purchase for cancellation or making any
capital distribution with respect to any shares of the Corporation;
8.1.28. not, without the approval of the Debentureholder, permit any sale,
transfer, or pledge of, or permit to exist any encumbrance on, any
shares in the capital of the Corporation;
8.1.29. not declare dividends if, after giving effect to the declaration or
payment of such dividends, it would be in default of any obligations
owing to the Debentureholder;
8.1.30. on default in the observance of any of the covenants and conditions
contained in this Debenture and subject to any rights of Persons to
whom any Senior Indebtedness is due, deliver up quiet possession of the
Charged Property to the Debentureholder;
8.1.31. pay, or reimburse the Debentureholder for payments made by it on
account of, all reasonable legal fees and disbursements incurred by the
Debentureholder in connection with this Debenture or the transactions
related hereto;
8.1.32. conduct and maintain its business, operations and the Charged Property
so as to comply in all respects with all applicable Environmental Laws,
including obtaining all necessary licenses, permits, consents and
approvals required to own or operate the Charged Property and the
business carried on with the Charged Property;
8.1.33. not, except as specifically permitted by the Debentureholder in
writing, permit Contaminants or dangerous or potentially dangerous
conditions in, on or below the Charged Property or the premises used in
connection with the Charged Property including, without limitation, any
polychlorinated biphenyls, radio-active substances, underground storage
tanks, asbestos or urea formaldehyde foam insulation;
8.1.34. notify the Debentureholder promptly and in reasonable detail upon
receipt of any notice, claim, communication or information regarding
any past, present, planned or threatened treatment, storage, disposal,
presence, release or spill of any Contaminant at, on, under or from the
Charged Property or any property in the vicinity of or used in
connection with the Charged Property including any notice pursuant to
any Environmental Laws or any environmental report or audit, or if the
Corporation becomes aware of any violation or potential violation by
the Corporation of any Environmental Laws, and shall describe therein
the action which the Corporation intends to take with respect to such
matter;
8.1.35. establish and maintain a system to assure and monitor continued
compliance with, and to prevent the contravention of, Environmental
Laws, which system shall include periodic reviews of such compliance;
and
8.1.36. indemnify and save harmless the Debentureholder, its officers,
directors, employed agents and shareholders from and against all
losses, damages or costs suffered by the Debentureholder arising from
or relating to any breach by the Corporation of the covenants contained
in Sections 8.1.32, 8.1.33, 8.1.34 and 8.1.35 and any breach by the
Corporation or any other Person now or hereafter having an interest in
the Charged Property which is asserted or claimed against the
Debentureholder. This indemnity shall survive the payment in full of
all amounts outstanding hereunder and the discharge of this Debenture.
The Debentureholder shall hold the benefit of this indemnity in trust
for those indemnified Persons who are not parties to this Debenture.
8.2. Representations and Warranties
The Corporation hereby represents and warrants with and to the
Debentureholder that:
8.2.1. the Corporation has good and marketable title to the Charged Property,
free of all encumbrances save those for which public filings or
registrations have been made under the Bank Act (Canada) and the
Personal Property Security Act (Ontario);
8.2.2. the Corporation is a duly incorporated, organized and subsisting
Taxable Canadian Corporation, and has all requisite powers, capacities,
licences and permissions under its governing legislation and the other
laws applicable to it, and under its articles of incorporation, by-laws
and governing resolutions to (i) own the Charged Property which the
Corporation has represented to the Debentureholder as belonging to the
Corporation, (ii) carry on all businesses in which the Corporation is
engaged, (iii) enter into, exercise its rights and perform and comply
with its obligations under this Debenture and the Security Agreement,
and all actions, conditions and things have been done, taken or
fulfilled with respect thereto, that are required by law, contract or
otherwise;
8.2.3. the Corporation has the right and capacity to create the security
interest created by the Security Agreement upon the Charged Property,
and all requisite steps necessary to create the security interest and
to approve the Security Agreement and this Debenture have been taken;
8.2.4. this Debenture and the Security Agreement constitute valid, legal and
binding obligations of the Corporation;
8.2.5. the agreements referred to under the definition "Material Contracts"
are all the agreements which could be considered material to the
operations, financial or otherwise, of the Corporation and all of the
Material Contracts are in full force and effect on the date hereof and
constitute valid, legal and binding obligations of the Corporation or
the Guarantor, as the case may be, in accordance with their terms, and
none of the Material Contracts have been amended since the date of
their execution and delivery;
8.2.6. all of the issued and outstanding common shares of the Corporation are
validly issued and outstanding as fully paid and non-assessable common
shares in the capital of the Corporation, free and clear of all liens,
charges. encumbrances and adverse claims except for security interests
created therein in favour of the Bank of Montreal and the
Debentureholder;
8.2.7. the Corporation has no subsidiaries;
8.2.8. except for that of which the Debentureholder has been made aware in
writing, the Corporation is not party to any unanimous or other
shareholders agreement which limits the powers of the board of
directors to direct the management of the affairs of the Corporation;
8.2.9. there are no agreements, options, warrants, rights of conversion or
other rights pursuant to which me Corporation is, or may become,
obligated to issue any shares or any securities convertible or
exchangeable, directly or indirectly, into any shares of the
Corporation;
8.2.10. the financial statements referred to in Section 2.2.8 hereof have been
prepared in accordance with GAAP and fairly, completely and accurately
present the financial position of the Guarantor and its subsidiaries
and the results of its and their operations as of the date and for the
period indicated and there have been no material adverse changes in the
financial position of the Guarantor and any of its subsidiaries from
that reflected in such statements;
8.2.11. the Corporation does not have any material outstanding liabilities,
contingent or otherwise, and the Corporation is not a party to or bound
in any agreement of guarantee, support, indemnification, assumption, or
endorsement of, or any other similar commitment with respect to the
obligations, liabilities (contingent or otherwise) or indebtedness of
any Person other man those set out in the financial statements referred
to in Section 2.2.8;
8.2.12. except as set out in the financial statements referred to in Section
2.2.8, and except for the principal amount outstanding under this
Debenture, the Corporation does not have outstanding any bonds,
debentures, notes, mortgages or other indebtedness which mature more
than one year after the date of their original creation or issuance and
the Corporation has not agreed to create or issue any bonds,
debentures, notes, mortgages or other indebtedness which will mature
more than one year after the date of their creation or issuance;
8.2.13. the Corporation is conducting its business in compliance with all
applicable laws, regulations, by-laws and ordinances of each
jurisdiction in which it conducts its business;
8.2.14. the Corporation holds all permits, licences, approvals and franchises
(collectively, "permits") which it requires, or is required to have, to
own its properties and assets and to carry on its business as presently
conducted by it. All such permits are in full force and effect; the
Corporation is in compliance with all the terms and conditions relating
to such permits; and there are no proceedings in progress, pending or
threatened which may result in revocation, cancellation, suspension or
any adverse modification of any such permits;
8.2.15. there is no court, administrative, regulatory or similar proceeding
(whether civil, quasi-criminal or criminal); arbitration or other
dispute settlement procedure; investigation or inquiry by any
governmental, administrative, regulatory or similar body; or any
similar matter or proceeding (collectively "proceedings") against or
involving the Corporation (whether in progress or threatened) which, if
determined adversely to the Corporation would materially adversely
affect the business or the financial condition or future prospects of
the Corporation, no event has occurred which might give rise to any
proceedings and there is no judgment, decree, injunction, rule, award
or order of any court, government department, board, commission,
agency, arbitrator or similar body outstanding against the Corporation;
8.2.16. neither the entering into of this Debenture or the Security Agreement
nor the performance by the Corporation of its obligations thereunder
will contravene, breach or result in any default under the articles,
by-laws, constating documents or other organizational documents of the
Corporation or under any mortgage, lease, agreement, other legally
binding instrument, licence, permit, statute, regulation, order,
judgment, decree or law to which it is a party or by which it may be
bound;
8.2.17. no authorization, consent, approval of, or filing with or notice to,
any governmental agency, regulatory body, court or other Person is
required in connection with the execution, delivery or performance of
this Debenture or the Security Agreement by the Corporation;
8.2.18. the Corporation is not in material default or breach of any contract,
agreement, lease or instrument to which it is a party or by which it
may be bound and there exist no state of facts which after notice or
lapse of time, or both would constitute such a default or breach, and
all such contracts, agreements, leases and other instruments are now in
good standing and the Corporation is entitled to all benefits, rights
and privileges thereunder;
8.2.19. the corporate records and minute books of the Corporation contain
complete and accurate minutes of all meetings of directors and
committees thereof and shareholders held since its date of
incorporation, and all such meetings were duly called and held. The
share certificate books, register of shareholders, register of
transfers and registers of directors of the Corporation are complete
and accurate;
8.2.20. no act or event has occurred that would constitute or is capable of
becoming, whether by notice or the lapse of time or both, an Event of
Default under this Debenture;
8.2.21. the Corporation has no knowledge of the existence of any Contaminants
or dangerous or potentially dangerous conditions at, on or under the
Charged Property or any properties in the vicinity of or used in
connection with the Charged Property which could affect the Charged
Property or the market value thereof;
8.2.22. the Corporation has not given or received, nor does it have any
obligation to give, any notice, claim, communication or information
regarding any past, present, planned or threatened treatment, storage,
disposal, presence, release or spill of any Contaminant at, on, under
or from the Charged Property or any property in the vicinity of or used
in connection with the Charged Property, including any notice pursuant
to any Environmental Laws or any environmental report or audit;
8.2.23. the Corporation pays 50 per cent or more of its wages and salaries to
employees whose ordinary place of employment is a permanent
establishment of the Corporation located in the Province of Ontario;
8.2.24. me Corporation has 50 per cent or more of its full-time employees
employed in respect of its business in the Province of Ontario;
8.2.25. the total assets of the Group do not exceed $50,000,000;
8.2.26. the Group does not have more than 500 employees; and
8.2.27. the Corporation is not aware of any material facts or circumstances
which have not been disclosed to the Debentureholder in writing that
may have a material adverse impact on the Corporation.
ARTICLE 9.
DEFAULT
9.1. Events of Default
The remaining principal amount of and any other amounts payable under
this Debenture, and any accrued but unpaid interest thereon, shall immediately
become due and payable in each and every of the events following (each, an
"Event of Default"):
9.1.1. if the Corporation defaults in any payment of principal or interest
under this Debenture when the same becomes due and payable under any
provision hereof;
9.1.2. if the Corporation defaults in the payment of any other amounts due
under this Debenture and any such default continues for a period of
seven (7) days following notice thereof;
9.1.3. if any representation or warranty or other statement made by the
Corporation to the Debentureholder in this or any other document
delivered by the Corporation to the Debentureholder or its agents on or
prior to the date hereof is false or misleading in any material respect
as of the date on which it was made;
9.1.4. if an order shall be made or an effective resolution be passed for the
winding-up or liquidation of the Corporation;
9.1.5. if the Corporation ceases or threatens to cease to carry on its
business, or, except in a manner specifically permitted hereunder, if
the Corporation makes or agrees to make a bulk sale of the Charged
Property;
9.1.6. if the Corporation becomes insolvent or takes any voluntary action in
respect of a liquidation or winding-up, including the making of an
assignment for the benefit of its creditors, or makes any proposal
under the Bankruptcy and Insolvency Act (Canada) or any legislation in
supplement or replacement thereof or any legislation of similar effect
of any applicable jurisdiction, or if a bankruptcy or similar petition
is filed or presented against the Corporation and is not contested in
good faith or is not withdrawn or stayed within 60 days thereof, or if
a judgment or order is entered by any court of competent jurisdiction
ordering a reorganization, arrangement or composition of any debts or
obligations of the Corporation, or if a receiver or receiver and
manager or any other official with similar powers is appointed by court
order or other vise for the Corporation of all or a substantial portion
of its properties or assets;
9.1.7. if an encumbrancer shall take possession of the property or assets of
the Corporation or any substantial part thereof or if a distress or
execution or any similar process be levied or enforced thereagainst and
remains unsatisfied for such period as would permit such property or
assets or such part thereof to be sold thereunder;
9.1.8. if the Corporation shall make default beyond any period of grace
provided with respect thereto in the payment of the principal, interest
or premium of any other indebtedness for borrowed money in an aggregate
amount in excess of $50,000 or in the performance or observance of any
term, agreement or condition in respect of such indebtedness and the
effect of such default is to cause such indebtedness in excess of
$50,000 to become due, prior to the date of its stated maturity unless
and for so long as such default is waived or unless such acceleration
is rescinded or such default is remedied or cured;
9.1.9. if the Total Debt to Equity ratio (excluding for the purposes of such
calculation the effects of the issuance of this Debenture) of the
Guarantor at any time exceeds 4.0: 1 ;
9.1.10. if the Interest Coverage Ratio of the Guarantor at any time prior to
January 30, 1996 is less than 2.0:1 and at any time thereafter is less
than 2.5:1;
9.1.11. if the Working Capital and the Working Capital Ratio of the Guarantor
at any time prior to June 30, 1996 are less than US$ I ,000,000 and I
.5: 1. respectively, and thereafter are less than US$ I ,500,000 and
1.75: 1, respectively;
9.1.12. if the Corporation shall neglect to carry out or shall breach its
covenants in subsections 8.1.1, 8.1.3, 8.1.4, 8.1.8, 8.1.9, 8.1.27,
8.1.28, 8.1.29 or 11.3;
9.1.13. if the Pledge Agreement shall cease to create a valid and enforceable
perfected security interest under the laws of the Province of Ontario;
9.1.14. if any covenant or agreement contained in the Pledge Agreement or the
Option Agreement shall not be performed when due or any representation
and warranty contained therein shall prove to be false;
9.1.15. if the Corporation shall neglect to carry out or observe any other
covenant, agreement or condition contained herein to be observed and
performed by it and the Corporation shall fail to make good such
default within a period of seven (7) days from notice having been given
thereof; or
9.1.16. if the Debentureholder in good faith believes and has commercially
reasonable grounds to believe that the prospect of payment or
performance of the Corporation's obligations hereunder is or is about
to be materially impaired or that the Charged Property is or is about
to be placed in jeopardy.
9.2. Recourses on Default
9.2.1. Upon the occurrence of an Event of Default, the Debentureholder may:
9.2.1.1. declare all amounts owing hereunder to be immediately due and payable;
9.2.1.2.realize upon all or any part of the security created by the Security
Agreement, the Pledge Agreement or by any other security instrument
delivered in connection with this Debenture; and
9.2.1.3.take all actions and commence all such proceedings as may be permitted
at law or in equity (whether or not provided for herein, in the
Security Agreement or in the Pledge Agreement) at such times and in
such manner as the Debentureholder in its sole discretion may consider
expedient, all without additional notice, presentment, demand, protest,
notice of protest, dishonour or other action. The rights and remedies
of the Debentureholder hereunder are cumulative and are in addition to
and not in substitution for any other rights or remedies provided by
law, by the Security Agreement, the Pledge Agreement or by any other
security instrument delivered in connection with this Debenture.
9.2.2. The procedures for the exercise of any recourses available and for the
application of proceeds received on any such exercise shall be as set
forth in the Security Agreement and the Pledge Agreement.
ARTICLE 10.
REGISTRATION. ETC.
10.1. Debenture Register
A register (the "Register") shall be kept by the Corporation at its
principal office as specified in Section 4.1 and at any office or other offices
as may be required by law, in which shall be entered the name and address of the
Debentureholder and the particulars of this Debenture. The Register shall at all
reasonable times be open for inspection by the Debentureholder.
10.2. Exclusive Benefit
The Debentureholder will be regarded as exclusively entitled to the
benefit of this Debenture and all Persons may act accordingly. Payment of or on
account of the principal of, interest on, and any other amounts owing under this
Debenture will be made only to or upon the order in writing of the
Debentureholder and any such payment will be a good and sufficient discharge to
the Corporation for the amounts so paid. The Corporation shall not be bound to
enter in the Register notice of any trust or, except as ordered by a court of
competent jurisdiction, to recognize any trust or equity affecting the title to
this Debenture or the monies secured hereby.
10.3. Transfer of Debenture
The obligations of the Corporation under this Debenture may not be
transferred except with the prior written consent of the Debentureholder. Any
transfer of this Debenture or any part of it by the Debentureholder shall be in
writing and made by the Debentureholder or its attorney duly authorized by an
instrument in writing. Any such transfer by the Debentureholder must be
accompanied by this Debenture and delivered to the principal office of the
Corporation as specified in Section 4.1 and be in compliance with such other
reasonable requirements as the Corporation may prescribe. Any transfer by the
Debentureholder completed pursuant to the provisions hereof, will be registered
and duly noted by endorsement hereon signed by the Secretary or Assistant
Secretary of the Corporation and the transferee w ill be entered as the owner of
this Debenture on the Register kept pursuant to Section 10.1, free from all
equities or rights of set-off or counterclaim between the Corporation and the
transferor or any previous Debentureholder, save in respect of equities of which
the Corporation is required to take notice by statute or by order of a court of
competent jurisdiction.
ARTICLE II.
MISCELLANEOUS
11.1. Right of Set-Off
The principal and other monies and interest owing hereunder will be
paid without regard to any equities between the Corporation and the original or
any intermediary Debentureholder or any right of set-off or counterclaim, and
the receipt of the Debentureholder for the payment of such monies or interest
will be a good discharge to the Corporation for the amounts due hereunder.
11.2. Notices
11.2.1. Subject to Section 11.2.3, any notice to the Corporation under the
provisions of this Debenture shall be in writing and shall be given by
prepaid first class mail, by facsimile or other means of electronic
communication or by delivering the same to the Corporation at 347
Consortium Court, London, Ontario N6E 2S8, telecopier number (519)
668-8437; with a copy to the Guarantor at I Deerpark Drive, Suite F,
South Brunswick, NJ, 08852, telecopier number (908) 329-9069. Any
notice to the Debentureholder shall be in writing and shall be given by
prepaid first class mail, by facsimile or other means of electronic
communication or by delivering the same to the registered address of
the Debentureholder.
11.2.2. Any notice if sent by facsimile or other means of electronic
communication shall be deemed to have been received on the Business Day
of sending, or if delivered by hand shall be deemed to have been
received at the time it is delivered to the applicable address noted
above to an individual at such address having apparent authority to
accept deliveries on behalf of the addressee, or if mailed by prepaid
first-class mail at any time other than during or within three Business
Days prior to a general discontinuance of postal service due to strike,
lockout or otherwise, shall be deemed to have been received on the
fourth Business Day after the postmarked date thereof
11.2.3. In the event of a general discontinuance of postal service due to
strike, lock-out or otherwise, notices or other communications shall be
delivered by hand or sent by facsimile or other means of electronic
communication and shall be deemed to have been received in accordance
with Section 11.2.2.
11.3. Successor Corporations
The Corporation will not, directly or indirectly, sell, transfer or
otherwise dispose of all or substantially all of its property and assets as an
entirety to any other corporation and will not amalgamate or merge with or into
any other corporation (any such other corporation being herein referred to as a
"successor corporation") unless:
11.3.1. the successor corporation executes prior to or contemporaneously with
the consummation of any such transaction, such instruments as are
satisfactory to the Debentureholder and in the opinion of counsel to
the Debentureholder as are necessary or advisable to evidence the
assumption by the successor corporation of the due and punctual payment
of the principal, interest and all other monies payable hereunder and
the covenant of the successor corporation to pay the same, the
continuance of the security interests created by the Security
Agreement, and its agreement to observe and perform all the covenants
and obligations of the Corporation under this Debenture;
11.3.2. the transaction, to the satisfaction of the Debentureholder, is upon
such terms as substantially preserve and do not impair any of the
rights and powers of the Debentureholder hereunder or under the
Security Agreement and upon such terms as are not prejudicial to the
interests of the Debentureholder; and
11.3.3. no condition or event will exist as to the Corporation or the successor
corporation either at the time of or immediately after the consummation
of any such transaction and after giving full effect thereto or
immediately after the successor corporation complying with the
provisions of Section 11.3.1 above which constitutes or would
constitute an Event of Default.
11.4. Governing Law
This Debenture shall be governed by the laws of the Province of Ontario
and the laws of Canada applicable therein.
11.5. Time of the Essence
Time shall be of the essence hereof.
11.6. Binding Effect
The terms and provisions of this Debenture shall enure to the benefit
of and be binding upon the Debentureholder and its successors and assigns to the
extent provided herein, and shall enure to the benefit of and be binding upon
the Corporation and its permitted assigns.
IN WITNESS WHEREOF the Corporation has executed this Debenture as of
the date first written above.
PHOTON TECHNOLOGY
INTERNATIONAL (CANADA) INC.
By: /s/Charles Marianik
---------------------------
Charles Marianik, President
<PAGE>
Schedule A
Principal Payment Schedule
<TABLE>
<CAPTION>
Additional
Pmt. # Pmt. Date Payment Prepayment Advance Balance
- ------ --------- ------- ---------- ---------- -------
[initial] [initial]
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
opening balance $1,500,000
- ---------------------------------------------------------------------------------------------------
Nov. 30, 1996 $6,250
- ---------------------------------------------------------------------------------------------------
2 Dec. 31, 1996 $6,250
- ---------------------------------------------------------------------------------------------------
3 Jan. 31, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
4 Feb. 28, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
5 Mar. 31, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
6 Apr. 30, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
7 May 31, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
8 Jun. 30, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
9 July 31, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
10 Aug. 31, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
11 Sept. 30, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
12 Oct. 31, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
13 Nov. 30, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
14 Dec. 31, 1997 $6,250
- ---------------------------------------------------------------------------------------------------
15 Jan. 31, 1998 $6,250
- ---------------------------------------------------------------------------------------------------
16 Feb. 28, 1998 $6,250
- ---------------------------------------------------------------------------------------------------
17 Mar. 31, 1998 $6,250
- ---------------------------------------------------------------------------------------------------
18 Apr. 30, 1998 $6,250
- ---------------------------------------------------------------------------------------------------
19 May 31, 1998 $6,250
- ---------------------------------------------------------------------------------------------------
20 Jun. 30, 1998 $6,250
- ---------------------------------------------------------------------------------------------------
21 July 31, 1998 $6,250
- ---------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Additional
Pmt. # Pmt. Date Payment Prepayment Advance Balance
- ------ --------- ------- ---------- ---------- -------
[initial] [initial]
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
46 Aug. 31, 2000 $6,250
47 Sept. 30, 2000 $6,250
48 Oct. 31, 2000 [remaining $ 0
balance] ==========
</TABLE>
<PAGE>
Schedule B
Program - Use of Proceeds
<TABLE>
<CAPTION>
<S> <C>
o Fees, including legal fees $ 86,500
o Working capital 510,000
o Distribution and product launches 903,500
----------
$1,500,000
</TABLE>
<PAGE>
Schedule C
Material Contracts
1. Unanimous Shareholders Agreement made as of the 28th day of September, 1987
between Photon Technology International, Inc., Michael Beattie and PTI Lasers
Inc.;
2. Bank of Montreal commitment letter dated February 8, 1995; together with
First Bank Lending Agreement dated April 13, 1995;
3. Ontario Development Corporation offer of loan dated February 3, 1994;
together with loan agreement dated March 16, 1994;
4. MLTV Agreement dated September 20, 1995 relating to repayment of indebtedness
and purchase of technology rights;
5. Lease of London Ontario premises dated January 6, 1988; together with
amending agreement dated August 14, 1992.
OPTION AGREEMENT
THIS AGREEMENT made as of the 31st day of October, 1995
B E T W E E N:
PHOTON TECHNOLOGY INTERNATIONAL, INC., a corporation
incorporated under the laws of the State of New Jersey
(the "Corporation")
-and-
C.I. - C.P.A. BUSINESS VENTURES FUND INC., a corporation
incorporated under the laws of Canada
(the "Optionee")
RECITES THAT:
A. The Corporation has agreed to grant to the Optionee certain options to
acquire common shares of the Corporation on the terms and subject to
the conditions of this agreement.
NOW THEREFORE in consideration of the sum of $1.00 now paid by
the Optionee to the Corporation and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the Corporation, the
parties hereto agree as follows:
ARTICLE 1.
INTERPRETATION
1.1. Definitions
In this agreement:
"Adjustment Period" means the period from and including the date hereof
to and including October 31, 1997;
"Business Day" means any day, other than a Saturday, a Sunday and any
other day on which Canadian chartered banks in Toronto are required to
be or may be closed for business;
"Common Shares" means the common shares in the capital of the
Corporation as such shares exist at the date hereof, provided that in
the event of any adjustment of Subscription Rights pursuant to Article
3. "Common Shares" shall thereafter mean the shares or other securities
or property which resulted from the event which caused such adjustment;
"Current Market Price of the Common Shares" at any date means the
simple average of the closing prices (or if there were no sales on any
particular day, the mean between the closing bid and ask quotations on
such day) per Common Share on the principal trading market therefor for
any 20 consecutive trading days selected by the Corporation commencing
not later than 45 trading days before such date, or, if such Common
Shares are not traded on a published market during such 45 day period
for at least 20 consecutive trading days, a price to be established in
good faith by the board of directors of the Corporation;
"Debenture" means the Debenture issued on the date hereof by Photon
Canada to the Optionee evidencing an indebtedness owed by Photon Canada
to the Optionee;
"Dividend Paid in the Ordinary Course" means a dividend paid on the
Common Shares in any financial year of the Corporation whether in (i)
cash; (ii) securities of the Corporation, including rights, options or
warrants (but excluding rights, options or warrants referred to in
Section 3.2.3 and rights, options or warrants referred to in
parentheses in Section 3.2.4(d)); or (iii) property or other assets of
the Corporation, in each case to the extent that the amount or value of
such dividend together with the amount or value of all other such
dividends previously paid during such financial year does not exceed
the greater of:
(a) 125% of the aggregate amount of dividends declared payable by
the Corporation on the Common Shares in the period of 12
consecutive months ended immediately prior to the first day of
such financial year; and
(b) 100% of the consolidated net income of the Corporation before
extraordinary items (but after dividends payable on all shares
ranking prior to or on a parity with the Common Shares with
respect to the payment of dividends) for the period of 12
consecutive months ended immediately prior to the first day of
such financial year, such consolidated net income,
extraordinary items and dividends as shown in the audited
consolidated financial statements of the Corporation for such
period of 12 consecutive months or if there are no audited
consolidated financial statements for such period, computed in
accordance with GAAP, consistent with those applied in the
preparation of the most recent audited consolidated financial
statements of the Corporation;
and, for the purpose of the foregoing (i) where any dividend is paid
otherwise than in cash, any securities, property or other assets so
distributed by way of dividend shall be valued at the fair market value
of such securities, property or other assets, as the case may be, as
determined in good faith by the board of directors of the Corporation,
and (ii) a dividend paid on the Common Shares in Common Shares shall
not be a Dividend Paid in the Ordinary Course where the effect of such
a dividend is substantially the same as a subdivision of the Common
Shares;
"Exercise Funds" has the meaning attributed to that term in Section
2.2.1;
"Exercise Notice" has the meaning attributed to that term in Section
2.2.1;
"First Option" has the meaning attributed to that term in Section
2.1.1;
"First Option Expiry Time" means midnight on October 31, 2000;
"First Option Price" means U.S. $1.25 unless such price shall have been
adjusted in accordance with the provisions of Article 3, in which case
it shall mean the adjusted price then in effect;
"First Option Shares" means 250,000 Common Shares, as the same may be
adjusted from time to time as provided in Article 3;
"First Year Second Option Expiry Time" means midnight on October 31,
1996;
"First Year Second Option Price" means U.S. $2.50;
"GAAP" means generally accepted accounting principles in the United
States of America from time to time;
"Option" means the First Option and/or the Second Option, as the case
may be;
"Option Price" means the First Option Price, the First Year Second
Option Price or the Second Year Second Option Price, as the case may
be;
"Option Shares" means the First Option Shares and/or the Second Option
Shares, as the case may be;
"Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, unincorporated association, trust, trustee,
executor, administrator or other legal personal representative,
regulatory body or agency, government or governmental agency, authority
or entity however designated or constituted;
"Photon Canada" means Photon Technology International (Canada) Inc., a
whollyowned subsidiary of the Corporation;
"record date" and "effective date" mean the particular time on the
relevant date;
"Rights Offering" has the meaning attributed to that term in Section
3.2.3;
"Rights Period" has the meaning attributed to that term in Section
3.2.3;
"Second Option" has the meaning attributed to that term in Section
2.1.2;
"Second Option Shares" means 400,000 Common Shares;
"Second Year Second Option Expiry Time" means midnight on October 31,
1997;
"Second Year Second Option Price" means U.S. $3.25;
"securities convertible into Common Shares" includes securities which
are exchangeable into Common Shares, and the terms "conversion price",
"converted" and "convertible" include the terms "exchange price",
"exchanged" and "exchangeable", as the case may be;
"Share Issuance" has the meaning attributed to that term in Section
3.2.1;
"Special Distribution" has the meaning attributed to that term in
Section 3.2.4;
"Subscription Rights" means the relevant Option Price and the number of
Common Shares issuable upon exercise of an Option;
"Time of Expiry" means the First Option Expiry Time, the First Year
Second Option Expiry Time or the Second Year Second Option Expiry Time,
as the case may be; and
"Underlying Share Reorganization" has the meaning attributed to that
term in Section 3.2.2.
1.2. Headings and Table of Contents
The inclusion of headings and a table of contents in this
agreement are for convenience of reference only and shall not affect the
construction or interpretation hereof
1.3. Gender and Number
In this agreement, unless the context otherwise requires,
words importing the singular include the plural and vice versa and words
importing gender include all genders.
1.4. Currency
Unless otherwise specifically stated, all dollar amounts in
this agreement are stated and shall be paid in Canadian currency.
1.5. Invalidity of Provisions
Each of the provisions contained in this agreement is distinct
and severable and a declaration of invalidity or unenforceability of any such
provision by a court of competent jurisdiction shall not affect the validity or
enforceability of any other provision hereof.
1.6. Entire Agreement, Waiver. etc.
This agreement constitutes the entire agreement between the
parties hereto pertaining to the subject matter hereof. There are no other
agreements between the parties in connection with the subject matter hereof
except as specifically set forth or referred to herein. No amendment, waiver or
termination of this agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any provision of this agreement shall
constitute a waiver of any other provision nor shall any such waiver constitute
a continuing waiver unless otherwise expressly provided.
1.7. Governing Law
This agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
ARTICLE 2.
GRANT OF OPTIONS AND EXERCISE THEREOF
2.1. Grant of Options
Subject to the terms and conditions of this agreement, the
Corporation grants to the Optionee:
2.1.1. an irrevocable, transferable option (the "First Option"),
exercisable in whole or in part at any time or from time to time from
the date hereof up to and including the First Option Expiry Time, to
purchase the First Option Shares at a price per share equal to the
First Option Price; and
2.1.2. an irrevocable, transferable option (the "Second Option"),
exercisable in whole or in part at any time or from time to time from
the date hereof up to and including the First Year Second Option Expiry
Time, to purchase the Second Option Shares at a price per share equal
to the First Year Second Option Price and then thereafter up to and
including the Second Year Second Option Expiry Time, to purchase any
remaining Second Option Shares at a price per share equal to the Second
Year Second Option Price.
2.2. Exercise of Options
2.2.1. The Options shall be exercised in the following manner:
(a) the Optionee shall deliver to the Corporation at its registered
office a notice (the "Exercise Notice") stating that the
Optionee wishes to exercise either the First Option, the Second
Option, or both, as the case maybe, in whole or in part (but not
for aggregate Exercise Funds of less than $100,000 on any one
exercise except on the exercise of all remaining Options), and
stating the number of Common Shares in respect of which the
Optionee wishes to exercise such Option or Options;
(b) the Exercise Notice shall be accompanied by payment by certified
cheque or bank draft payable to the Corporation in an amount
equal to the product obtained when the relevant Option Price is
multiplied by the number of Common Shares to be purchased as
specified in the Exercise Notice (the "Exercise Funds"); and
(c) as soon as practicable and, in any event within two Business
Days after receipt of the Exercise Notice and the Exercise
Funds, the Corporation shall execute and deliver one or more
share certificates registered in the name of the Optionee or its
nominee representing the aggregate number of Common Shares
specified in the Exercise Notice.
2.2.2. If less than all of the First Option Shares or Second Option
Shares, as the case may be, are purchased by the Optionee at any time,
then this agreement shall continue and remain in force as to the
balance of the Option Shares.
2.2.3. Notwithstanding anything herein to the contrary, no rights of
the Optionee to exercise either Option, in whole or in part, shall be
exercisable by C.l.-C.P.A. Business Ventures Fund Inc.
2.3. Optionee as Holder of Record of Common Shares and Delivery of Share
Certificates
2.3.1. Notwithstanding the actual date of issue thereof, the share
certificate or certificates representing Common Shares purchased on the
exercise of an Option at any time shall be deemed to have been issued,
and the Optionee shall be deemed for all purposes to have become the
holder of record of the number of Common Shares specified in the
Exercise Notice relating to such exercise of the Option, as of the date
of receipt by the Corporation of the Exercise Notice and the Exercise
Funds in respect thereof.
2.3.2. The Corporation shall not be required to deliver share
certificates while the transfer registers of the Corporation are closed
prior to any meeting of shareholders or for the payment of dividends or
for any other purpose. In the event of the exercise of an Option during
any such period, delivery of the share certificates may be postponed to
a date not exceeding five Business Days after the date of reopening of
the transfer registers; provided that the period during which the
transfer registers may be closed shall not be unreasonable and provided
further that any such postponement of the delivery of share
certificates shall not detract from the provisions of this Section 2.3.
2.4. No Fractional Shares
The Corporation shall not issue fractional shares upon any
exercise of an Option but in lieu thereof shall, in respect of any fractional
interest resulting from the exercise of the Option, pay a cash adjustment by
cheque. The amount of any cash adjustment shall equal the current market value
of such fractional interest computed on the basis of the last board lot sale
price (or average of the bid and ask prices if there was no sale) per share for
the Common Shares on the principal trading market therefor (or, if such shares
are not then traded on a published market, a price to be established in good
faith by the board of directors of the Corporation) on the Business Day next
preceding the date of exercise of the Option. If a cash adjustment is to be paid
under this Section 2.4, the mailing from the Corporation's registered office or
the principal office of the registrar of the Common Shares to the Optionee shall
be deemed to be payment of the cash adjustment resulting from such fractional
interest unless the cheque is not paid upon due presentation. Cash adjustments
that are represented by a cheque that has not been presented to the
Corporation's bankers for payment or that otherwise remain unclaimed for a
period of six years from the date on which the same became payable will be
forfeited to the Corporation.
2.5. Payment of Taxes
The Corporation shall pay all expenses, taxes (except income
tax or security transfer tax, if any) and other charges payable in connection
with the issuance of Common Shares and the delivery of share certificates
representing the same upon the exercise from time to time of an Option.
ARTICLE 3.
ADJUSTMENT OF SUBSCRIPTION RIGHTS
3.1. Conversion Price
Where an issuance or distribution of rights, options or
warrants to purchase securities convertible into Common Shares or a distribution
of such convertible securities to which Sections 3.2.3 or 3.2.4 apply, then for
the purposes of Sections 3.2.3 or 3.2.4, as the case may be, the "conversion
price" of the convertible security shall be the quotient obtained when the
aggregate of:
3.1.1. the consideration, if any, paid for the issuance or distribution
of the right, option or warrant;
3.1.2. the issue price of the convertible security (or in the case of
rights, options and warrants, the exercise price thereof); and
3.1.3. the price, if any, which must be paid to the Corporation by the
holder of such convertible security to exercise the conversion rights
attaching thereto; is divided by the number of Common Shares into which
each such convertible security is convertible,
3.2. Adjustment of First Option Price
3.2.1. Common Share Issuance
If, during the Adjustment Period, the Corporation issues Common
Shares (other than pursuant to the exercise of rights, options or
warrants to acquire Common Shares outstanding on the date hereof) at a
price per share of less than the greater of (i) the Current Market
Price of the Common Shares immediately prior to such issuance and (ii)
the First Option Price then in effect (such event being called a "Share
Issuance"), then the First Option Price shall be adjusted effective
immediately upon such issuance to a price determined by multiplying the
First Option Price in effect immediately prior to the Share Issuance by
a fraction:
(a) the numerator of which shall be the price per share of the
Common Shares issued pursuant to the Share Issuance, and
(b) the denominator of which shall be the greater of (i) the Current
Market Price of the Common Shares immediately prior to the Share
Issuance and (ii) the First Option Price then in effect,
provided however that no such adjustment shall be made if the result of
such adjustment would be to increase the First Option Price then in
effect.
3.2.2. Underlying Share Reorganization
If, during the Adjustment Period, the Corporation:
(a) changes its outstanding Common Shares into a greater or smaller
number of Common Shares; or
(b) issues Common Shares to the holders of all or substantially all
of the outstanding Common Shares by way of a stock dividend,
other than a Dividend Paid in the Ordinary Course;
(any of such events being called an "Underlying Share Reorganization"), then the
First Option Price shall be adjusted immediately after the effective date, in
the case of a change referred to in (a), or immediately after the record date
for a stock dividend referred to in (b), by multiplying the First Option Price
in effect on such record date or effective date by a fraction:
(i) the numerator of which shall be the number of Common Shares
outstanding on such record date or effective date before
giving effect to the Underlying Share Reorganization; and
(ii) the denominator of which shall be the number of Common
Shares outstanding after giving effect to the Underlying
Share Reorganization.
3.2.3. Rights Offering
If, during the Adjustment Period, the Corporation issues rights,
options or warrants to the holders of all or substantially all of the
outstanding Common Shares under which such holders are entitled, during
a period expiring not more than 45 days after the record date for such
issue (the "Rights Period"), to acquire Common Shares or securities
convertible into Common Shares at a price per share (or having a
conversion price per share) of less than 95% of the greater of (i) the
Current Market Price of the Common Shares on such record date and (ii)
the First Option Price then in effect (any of such events being called
a "Rights Offering"), then the First Option Price shall be adjusted
effective immediately after the end of the Rights Period to a price
determined by multiplying the First Option Price in effect immediately
prior to the end of the Rights Period by a fraction:
(a) the numerator of which shall be the aggregate of:
(i) the number of Common Shares outstanding on the record date
for the Rights Offering, and
(ii) a number determined by dividing (I) either (a) the product
of the number of Common Shares subscribed for during the
Rights Period under the Rights Offering and the price at
which such Common Shares were offered, or, as the case may
be, (b) the product of the conversion price of such
securities offered and the number of Common Shares for or
into which the securities so offered under the Rights
Offering may be converted, by (2) the greater of (i) the
Current Market Price of the Common Shares on the record
date for the Rights Offering and (ii) the First Option
Price then in effect; and
(b) the denominator of which shall be the number of Common Shares
outstanding after giving effect to the Rights Offering and for
this purpose there shall be included, in determining the number
of outstanding Common Shares, Common Shares which, although not
yet issued, have been subscribed for during the Rights Period
under the Rights Offering and in the case of a Rights Offering
of convertible securities, the Common Shares for or into which
the securities issued or, to the extent not issued, subscribed
for under the Rights Offering are convertible.
If the Optionee shall have exercised all or part of the First Option after the
record date for the Rights Offering but before the end of the Rights Period, the
Optionee shall receive from the Corporation, no later than 60 days after the end
of the Rights Period, a cash payment equal to the difference, if any, between
the First Option Price in effect immediately prior to the end of the Rights
Period and the First Option Price as adjusted pursuant to this Section 3.2.3
multiplied by the number of Common Shares purchased upon such exercise during
such period. Such payment shall be made by cheque in Canadian dollars payable to
the Optionee and mailed to the address to which the Common Shares purchased upon
such exercise are to be sent.
3.2.4. Special Distribution
If, during the Adjustment Period, the Corporation issues or
distributes to all or substantially all holders of the Common Shares:
(a) shares of the Corporation of any class;
(b) evidences of indebtedness of the Corporation;
(c) any cash, property or other assets of the Corporation; or
(d) rights, options or warrants to acquire any of the foregoing
(other than rights, options or warrants to purchase Common
Shares or securities convertible into Common Shares at a price
per share (or having a conversion price per share) equal to or
greater than 95% of the greater of (i) the Current Market Price
of the Common Shares on the record date referred to below and
(ii) the First Option Price then in effect);
and if such issuance or distribution does not constitute a Share Issuance, an
Underlying Share Reorganization or a Rights Offering, or to the extent that such
issuance or distribution does not constitute a Dividend Paid in the Ordinary
Course, (any such issuance or distribution being called a "Special
Distribution"), then the First Option Price shall be adjusted effective
immediately after the record date on which the holders of Common Shares are
determined for purposes of the Special Distribution by multiplying the First
Option Price in effect on such record date by a fraction:
(a) the numerator of which shall be the result obtained when:
(i) the fair market value, as determined by the board of
directors of the Corporation (whose determination will be
conclusive), of the shares, evidences of indebtedness,
cash, property or other assets, rights, options or warrants
issued or distributed in the Special Distribution (after
taking into consideration any payment or payments, if any,
to be made to the Corporation by the recipients of the
Special Distribution);
is subtracted from:
(ii) the product of the number of Common Shares outstanding on
such record date and the Current Market Price of the Common
Shares on such record date; and
(b) the denominator of which shall be the number of Common Shares
outstanding on such record date multiplied by the Current Market
Price of the Common Shares on such record date;
provided that no such adjustment shall be made if the result of such adjustment
would be to increase the First Option Price in effect on the record date. To the
extent that such distribution is not so made, the First Option Price will be
readjusted effective immediately to the First Option Price that would be in
effect based upon such shares, evidences of indebtedness, cash, property or
other assets, rights, options or warrants actually distributed.
3.2.5. Readjustment of First Option Price Upon Expiry of Convertible
Securities and of Rights, Options and Warrant Relating Thereto
To the extent that any adjustment in the First Option Price
occurs pursuant to Section 3.2.3 as a result of the fixing by the
Corporation of a record date for a Rights Offering in respect of
securities convertible into Common Shares, pursuant to Section 3.2.4(a)
as a result of a Special Distribution of such convertible securities or
pursuant to Section 3.2.4(d) as a result of a Special Distribution of
rights, options or warrants to purchase such convertible securities,
the First Option Price shall be readjusted:
(a) in the case of the adjustments contemplated by Sections 3.2.3
and 3.2.4(a), upon the expiry of the unexercised conversion
right attaching to the convertible securities actually issued
pursuant to the Rights Offering or the Special Distribution, as
the case may be; and
(b) in the case of the adjustment contemplated by Section 3.2.4.(d),
upon the expiry of:
(i) the unexercised rights, options or warrants; and
(ii) to the extent that such rights, options or warrants have
been exercised and relate to securities convertible into
Common Shares, the unexercised conversion rights attaching
to such convertible securities;
to the First Option Price which would have resulted from an adjustment pursuant
to Sections 3.2.3 or 3.2.4, as the case may be, had such adjustment been based
upon the number of Common Shares actually issued, or the fair market value of
such securities or rights, options or warrants, as the case may be, immediately
after such expiry, and the First Option Price shall be further readjusted from
time to time in such manner upon the expiry of any such further right.
3.3. Adjustment of Subscription Rights Upon a Capital Reorganization
If, during the Adjustment Period, there occurs a
reclassification or redesignation of Common Shares or a change of the Common
Shares into other shares or securities (other than an Underlying Share
Reorganization), or a consolidation, amalgamation or merger of the Corporation
with or into any other corporation or entity (other than a consolidation,
amalgamation or merger which does not result in any reclassification of the
outstanding Common Shares or a change of the Common Shares into other shares or
securities) (any of such events being called a "Capital Reorganization"), and
the Optionee, after the effective date of such Capital Reorganization, exercises
its right to purchase Common Shares pursuant to the exercise of an Option, the
Optionee shall be entitled to receive, and shall accept, in lieu of the number
of Common Shares to which the Optionee was theretofore entitled upon such
exercise, the kind and amount of shares or other securities, property or cash
resulting from the Capital Reorganization which the Optionee would have been
entitled to receive as a result of such Capital Reorganization if, on the
effective date thereof, the Optionee had been the registered holder of the
number of Common Shares to which it was entitled upon such exercise. If
determined appropriate by the board of directors of the Corporation, appropriate
modifications shall be made, as a result of any such Capital Reorganization, to
the provisions of this Article 3 such that such provisions shall thereafter
correspond as nearly as is reasonably possible in relation to any shares or
other securities, property or cash thereafter deliverable upon the exercise of
an Option. Any such modifications shall be made by and set forth in an amendment
hereto.
3.4. Adjustment of Number of Common Shares Issuable Upon Exercise
3.4.1. Upon an Adjustment to the First Option Price
If, during the Adjustment Period, any adjustment in the First
Option Price occurs pursuant to Section 3.2 (other than as a result of
the application of Section 3.2.5), then the number of Common Shares
issuable upon the exercise of the First Option will be adjusted
concurrently with such adjustment of the First Option Price by
multiplying the number of Common Shares issuable on the exercise
thereof immediately prior to such adjustment by a fraction the
numerator of which is the First Option Price in effect immediately
prior to such adjustment and the denominator of which is the First
Option Price resulting from such adjustment.
3.4.2. Upon the Expiry of Conversion Rights of a Convertible Security
If, during the Adjustment Period, any readjustment in the First
Option Price occurs as a result of the application of Section 3.2.5,
then the number of Common Shares issuable upon exercise of the First
Option will be readjusted concurrently with such readjustment of the
First Option Price by multiplying the number of Common Shares issuable
on the exercise thereof immediately prior to such readjustment by a
fraction the numerator of which is the First Option Price in effect
immediately prior to such readjustment and the denominator of which is
the First Option Price resulting from such readjustment.
3.5. Readjustment Upon Change in Conversion Rights of a Convertible Security
If there has been an adjustment to the Subscription Rights as
a result of a Rights Offering or Special Distribution of or relating to
securities convertible into Common Shares, and if, for any reason, the
conversion rights attaching to such a convertible security change, and if such
change does not otherwise result in a readjustment of the Subscription Rights
hereunder, then upon such change becoming effective, the Subscription Rights
shall be readjusted in such manner as the board of directors of the Corporation
determines is appropriate in the circumstances.
3.6. Other Adjustment of Subscription Rights
If the Corporation shall take any action affecting the Common
Shares, other than an action described in Sections 3.2 or 3.3, which in the
opinion of the board of directors of the Corporation would have a material
adverse effect upon the rights of the Optionee, the Subscription Rights shall be
adjusted in such manner and at such time as the board of directors of the
Corporation determines to be equitable in the circumstances. Failure of the
board of directors of the Corporation to take any such action shall be
conclusive evidence that the board of directors has determined that it is
equitable to make no adjustment in the circumstances.
3.7. Special Provision Relating to Adjustment on a Special Distribution
If the Corporation shall take or proposes to take any action
which constitutes or would constitute a Special Distribution under Section 3.2.4
and if, as a result thereof, the adjustment to the First Option Price that is
required pursuant to Section 3.2.4 would be inappropriate in the opinion of the
board of directors of the Corporation acting in good faith, taking into
consideration the fair market value of the Special Distribution, the fair market
value of the Common Shares and the Current Market Price of the Common Shares on
the relevant date, then the adjustment required by Section 3.2.4 as a result of
the Special Distribution shall not be made and, in lieu thereof, the board of
directors of the Corporation shall determine the adjustment to the First Option
Price that is appropriate in all the circumstances and such determination will
be conclusive.
3.8. Miscellaneous Adjustment Rules
The following rules and procedures shall be applicable to
adjustments made pursuant to Article 3:
3.8.1. Adjustments Successive
Subject to the other provisions of this Section 3.8, any
adjustment pursuant to Sections 3.2, 3.3, 3.4 or 3.5 shall be made
successively whenever an event referred to therein shall occur, and
shall be made in respect of all of the First Option then outstanding or
which may be outstanding thereafter.
3.8.2. Minimum Adjustment
No adjustment in the First Option Price shall be required unless
such adjustment would result in a change of at least 1% in the
prevailing First Option Price and no adjustment shall be made in the
number of Common Shares purchasable upon exercise of the First Option
unless it would result in a change of at least one one-hundredth of a
share, provided, however, that any adjustments which, if not for the
provisions of this Section 3.8.2, would otherwise have been required to
be made, shall be carried forward and taken into account in any
subsequent adjustment.
3.8.3. Equal Participation
No adjustment in the Subscription Rights shall be made in
respect of any event described in Section 3.2 (other than the event
referred to in Section 3.2.2(a)), if the Optionee is entitled to
participate in such event on the same terms, mutatis mutandis, as if
the Optionee had exercised the First Option prior to or on the
effective date or record date of such event.
3.8.4. Disputes
If a dispute shall at any time arise with respect to adjustments
or readjustments of Subscription Rights, such dispute shall be
conclusively determined by the auditors of the Corporation or if they
are unable or unwilling to act, by such other firm of independent
chartered accountants as may be selected by the board of directors of
the Corporation and approved by the Optionee.
3.8.5. Failure to Fix a Record Date
In the absence of a resolution of the board of directors of the
Corporation fixing a record date for a stock dividend or other
distribution comprising an Underlying Share Reorganization, a Rights
Offering or a Special Distribution, the Corporation shall be deemed to
have fixed as the record date therefor the effective date of such
event.
3.8.6. Termination of Adjustment Provisions
Notwithstanding anything herein to the contrary, and for greater
certainty, the adjustment provisions set forth in this Article 3 shall
terminate and be of no further effect at midnight on October 31, 1997.
3.8.7. MLTV Share Issuance
For greater certainty, the issuance to M.L. Technology Ventures,
L.P. ("MLTV") of 1,000,000 Common Shares pursuant to an agreement dated
September 20, 1995 between MLTV and the Corporation shall not give rise
to the application of the adjustment provisions of this Article 3.
3.9. Proceedings Prior to any Action Requiring Adjustment
As a condition precedent to the taking of any action which
would require an adjustment or readjustment pursuant to Sections 3.2, 3.3, 3.4
or 3.5, the Corporation shall take any action which may, in the opinion of
counsel, be necessary in order that the Corporation may validly and legally
issue, as fully paid and non-assessable shares, all the Common Shares which the
Optionee is entitled to receive on the full exercise thereof in accordance with
the provisions hereof
3.10. Notice of Adjustment of First Option Price and Number of Common Shares
Purchasable Upon Exercise
3.10.1. At least 21 days prior to the effective date or record date, as
the case may be, of any event which requires or might require an
adjustment or readjustment to the Subscription Rights, the Corporation
shall give notice to the Optionee of the particulars of such event and,
if determinable, the required adjustment or readjustment.
3.10.2. In case any adjustment for which a notice referred to in
Section 3.10.1 has been given is not then determinable, the Corporation
shall promptly after such adjustment or readjustrnent is determinable
give notice to the Optionee of the adjustment or readjustment.
ARTICLE 4.
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE CORPORATION
4.1. Representations and Warranties
The Corporation represents and warrants to the Optionee as
follows:
4.1.1. the Corporation is incorporated and is an existing corporation
under the laws of the State of New Jersey;
4.1.2. the authorized capital of the Corporation consists of 500 shares
of preferred stock of which no shares are issued or outstanding and
10,000,000 Common Shares of which 2,627,200 Common Shares were, on
October 24, 1995, validly issued and outstanding as fully paid and
non-assessable;
4.1.3. the Corporation has the corporate power and capacity to enter
into, and to perform its obligations under, this agreement and this
agreement has been duly executed and delivered by the Corporation and
is a valid and binding obligation of the Corporation, enforceable in
accordance with its terms;
4.1.4. the issue of the Option Shares upon the exercise of the Options
has been authorized by all necessary corporate action and, upon receipt
of the consideration therefor, the Option Shares issuable upon the
exercise of such Options shall be issued as fully paid and
non-assessable shares in the capital of the Corporation;
4.1.5. neither the entering into of this agreement, nor the performance
by the Corporation of any of its obligations under this agreement will
contravene, breach or result in any default under the articles,
by-laws, constating documents or other organizational documents of the
Corporation or under any mortgage, lease, agreement, other legally
binding instrument, licence, permit, statute, regulation, order,
judgment, decree or law to which it is a party or by which it may be
bound; and
4.1.6. no authorization, consent or approval of, or filing with or
notice to, any governmental agency, regulatory body, court or other
Person is required in connection with the execution, delivery or
performance of this agreement by the Corporation or the issue of any of
the Option Shares, other than the approval of the securities exchanges
and/or markets on which the Option Shares are to be listed and the
filing of a registration statement or similar document required for the
purposes of making the Option Shares freely tradeable securities in the
United States of America.
4.2. Covenants
The Corporation covenants with the Optionee that so long as
any part of either of the Options remains outstanding:
4.2.1. it shall reserve and keep available out of its authorized Common
Shares a sufficient number of Common Shares for the purpose of enabling
it to satisfy its obligation to issue Common Shares upon the exercise
of the Options;
4.2.2. it shall. upon the one time demand of the Optionee and in any
event prior to the Time of Expiry of the Options, take all actions
which may be necessary so that the Option Shares issuable upon the
exercise of the Options will be registered for trading under the
securities laws of the United States of America;
4.2.3. it shall from time to time take all action which may be
necessary so that the Option Shares issuable upon the exercise of the
Options will, immediately upon their issuance, be listed on the
principal securities exchanges and/or markets within the United States
of America and Canada, if any, on which the Common Shares are then
listed;
4.2.4. it shall use its best efforts to maintain its corporate
existence; and
4.2.5. it shall not, by closing its transfer registers or taking any
other action, deprive the Optionee of the ability to exercise an Option
during the period of 14 days after the giving of the notice required by
Section 3.10.
ARTICLE 5.
TRANSFER OF RIGHTS TO EXERCISE OPTIONS
5.1. Transfer of Rights to Exercise All or Part of Options Permitted
5.1.1. The Optionee shall be entitled at any time and from time to time
to transfer or assign to any Person in accordance with the provisions
of applicable securities legislation, the right to exercise all or any
part of either of the Options and to acquire the Option Shares relating
thereto.
5.1.2. Upon any transfer of rights referred to in Section 5.1.1, the
Corporation shall enter into an acknowledgement in form satisfactory to
the Optionee and the Person to whom the rights are being transferred,
acknowledging the number of First Options and/or Second Options, as the
case may be, the rights relating to which are being transferred and the
number of First Options and/or Second Options, as the case may be, if
any, the rights relating to which are being retained by the Optionee.
The Corporation shall also acknowledge the right of the transferee to
acquire the relevant number of Option Shares upon the due exercise of
the rights so transferred.
5.1.3. Upon any transfer of rights in accordance with the provisions of
this Article 5, all of the provisions of this agreement shall apply to
the Options the rights relating to which were transferred, and shall
continue to apply to the balance of the Options the rights relating to
which were retained.
ARTICLE 6.
GENERAL
6.1. Filing of Agreement and Notice to Registrar
A copy of this agreement shall be filed in the minute book of
the Corporation and the Corporation shall give notice of this agreement to the
registrar, if any, of the Common Shares.
6.2. Optionee not a Shareholder
The holding of the Options shall not, in itself, constitute
the Optionee a shareholder of the Corporation nor entitle it to any right or
interest except as expressly provided in this agreement.
6.3. Submission to Jurisdiction
The Corporation agrees that any suit, action or proceeding
arising out of or relating to this agreement against it or any of its assets may
be brought in any court of the Province of Ontario or Canada (or, at the option
of the Optionee in the Federal Court of Canada, if within that court's
jurisdiction) and the Corporation hereby irrevocably and unconditionally attorns
and submits to the jurisdiction of such courts over the subject matter of any
such suit, action or proceeding. The Corporation irrevocably waives and agrees
not to raise any objection it might now or hereafter have to any such suit,
action or proceeding in any such court including, without limitation, any
objection that the place where such court is located is an inconvenient forum or
that there is any other suit, action or proceeding in any other place relating
in whole or in part to the same subject matter. The Corporation agrees that any
judgment or order in any such suit, action or proceeding brought in such a court
shall be conclusive and binding upon it and consents to any such judgment or
order being recognized and enforced in the courts of its jurisdiction of
incorporation or any other courts, by registration or homologation of such
judgment or order, by a suit, action or proceeding upon such judgment or order,
or any other means available for enforcement of judgments or orders, at the
option of the Optionee, provided that service of any required process is
effected upon it in the manner specified in Section 6.4 or as otherwise
permitted by law. Nothing in this Section 6.3 shall restrict the bringing of any
such suit, action or proceeding in the courts of any other jurisdiction.
6.4. Attorney for Service
The Corporation irrevocably appoints Photon Technology
International (Canada) Inc., at the following address: 347 Consortium Court,
London, Ontario, N6E 2S8 its authorized attorney and agent to accept and
acknowledge, for and on behalf of the Corporation, service of any and all
process in the Province of Ontario, Canada in any suit, action or proceeding
arising out of or relating to this agreement. The Corporation agrees that
service of process upon such attorney and agent by delivering a copy thereof,
addressed to Mr. Charles Marianik, in care of such attorney and agent, at the
above address, shall be conclusively deemed to have come to the notice of the
Corporation at the time of such delivery and shall constitute in every respect
valid and effective personal service upon the Corporation at the time of such
delivery, and that failure by such attorney and agent to give notice of such
service to the Corporation shall not affect the validity or effect of such
service or any judgment or order based thereon or arising therefrom. The
Corporation irrevocably authorizes and directs such attorney and agent to accept
service on its behalf and agrees to appear in such suit, action or proceeding.
The Corporation further agrees to take all action as may be necessary to confirm
and continue in full force and effect the appointment of such attorney and agent
so that until the expiry of all rights and remedies associated with either of
the Options, or both, the Corporation shall have an attorney and agent for
service of process in the Province of Ontario, Canada.
6.5. Notices
Any notice or other communication required or permitted to be
given or delivered hereunder shall be in writing and shall be given by prepaid
first-class mail, by facsimile or other means of electronic communication or by
hand-delivery as hereafter provided. Any such notice or other communication, if
mailed by prepaid first-class mail at any time other than during or within three
Business Days prior to a general discontinuance of postal service due to strike,
lockout or otherwise, shall be deemed to have been received on the fourth
Business Day after the post-marked date thereof, or if sent by facsimile or
other means of electronic communication, shall be deemed to have been received
on the Business Day of sending, or if delivered by hand shall be deemed to have
been received at the time it is delivered to the applicable address noted below
either to the individual designated below or to an individual at such address
having apparent authority to accept deliveries on behalf of the addressee.
Notice of change of address shall also be governed by this Section. In the event
of a general discontinuance of postal service due to strike, lock-out or
otherwise, notices or other communications shall be delivered by hand or sent by
facsimile or other means of electronic communication and shall be deemed to have
been received in accordance with this Section. Notices and other communications
shall be addressed as follows:
(a) if to the Optionee:
C.I.-C.P.A. Business Ventures Fund Inc.
Aetna Tower, Suite 3512
P.O. Box 270
Toronto-Dominion Centre
Toronto, Ontario
M5K IN2
Attention: Mr. M. Grant Brown
Telecopier number: (416) 814-8475
(b) if to the Corporation:
Photon Technology International, Inc.
1 Deerpark Drive
Suite F
South Brunswick
New Jersey 08852
Attention: Mr. Charles Marianik
Telecopier number: (908) 329-9069
6.6. Time of Essence
Time is of the essence of this agreement.
6.7. Enurement
This agreement shall enure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
6.8. Counterparts
This agreement may be signed in counterparts and each of such
counterparts shall constitute an original document and such counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF the parties have executed this agreement.
PHOTON TECHNOLOGY INTERNATIONAL, INC.
By: /s/ Charles Marianik
--------------------------------------
C.I. - C.P.A. BUSINESS VENTURES FUND INC.
By: /s/Robert Curry
--------------------------------------
--------------------------------------
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