U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
General Form for Registration of Securities of Small Business Issuers
Under Section 12(b) or 12(g) of the Securities Act of 1934.
PSI INDUSTRIES, INC.
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(Name of Small Business Issuer in its Charter)
FLORIDA 59-2736501
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1160 B SOUTH ROGERS CIRCLE, BOCA RATON, FLORIDA 33487
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(Address of Principal Executive Offices) (Zip Code)
(561) 997-1133
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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________________________________ _________________________________
________________________________ _________________________________
Securities to be registered under Section 12(g) of the Act:
Common Stock, .0001 Par Value
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(Title of Class)
________________________________ _________________________________
(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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GENERAL.
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PSI Industries, Inc. (the "Company") is engaged in the wholesale
distribution and manufacture of cameras, photographic film, certain
internationally branded cameras and ancillary photographic equipment nationwide
to wholesale and retail businesses. Since its formation in 1986, the Company has
evolved into a major national wholesale distribution company to over 20,000
specialty retail and mass market merchandise outlets and wholesalers.
The Company estimates that the market for cameras, film, and ancillary
photographic equipment is in excess of $75 billion annually and is projected to
enjoy steady growth as reported in the 1997 PMA Consumer Photographic Survey.
The Company markets and distributes its products to a market comprised of
photographic retailers, independent gift boutiques, sundry shops, convenience
stores, pharmacies, mass marketers, and other similar retailers and wholesalers.
The Company's product lines represent distinct market segments for these
customers, and often represent a potential one-stop source for the Company's
customers of the products that the Company distributes.
The Company's camera products consist of five segments of the
single-use disposable and 35mm camera industry: (1) The Message Camera(TM) which
allows for the application of full-color messages and graphics to pre-exposed
film offering the consumer occasion-specific messages on each print, utilizing
the Company's own patent pending proprietary technical process; (2)
Smiletime(TM) camera, a proprietary line of high quality 35mm and single-use
cameras competitively priced to meet the standards of wholesalers and the camera
retailer; (3) private label cameras, which contain customized camera identities
for private label retail customers; (4) Logo and Message-type cameras serving
corporate America for incentive and promotional and premium events; and (5)
international branded cameras, such as Kodak and Fuji.
The single-use camera photographic market continues to be one of the
fastest growing segments within the film-imaging sector. Since its introduction,
there has been dramatic growth in the sales of the cameras, from sales of less
than 1 million units in 1988 to in excess of 270 million units worldwide in 1997
with 84 million units sold in the United States. In 1996, 1997, and through
September 30, 1998, the Company has sold approximately 500,000, 1,500,000, and
2,300,000 units, respectively.
In January of 1996 the Company became the worldwide licensee,
distributor and manufacturer of The Message Camera(TM) under a licensing
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arrangement with Keepsake, Inc. With the establishment of a nationwide sales
force of independent manufacturer's representatives, independent distributors
and appointment of international distributors, the Company began to create a
demand for The Message Camera(TM) as well as its other camera products. It
subsequently became evident that Polaroid Corporation of Cambridge,
Massachusetts, held a patent for photographic technology encompassing
pre-exposed film. Effective November 1, 1997, due to a dispute that arose over
the validity of Keepsake's patents, the Company discontinued the royalty
payments to Keepsake and entered into a license agreement with Polaroid
Corporation, precipitating the termination of the Keepsake agreement in
February, 1998. See "LEGAL PROCEEDINGS".
Under the terms of the agreement with Polaroid, the Company has a
non-exclusive license to manufacture and sell single-use cameras containing
pre-exposed film worldwide. To the best of the Company's knowledge, Concord
Camera Corporation is the only other company that has been issued a
non-exclusive license from Polaroid for the use of the same technology. See
"DESCRIPTION OF BUSINESS - Licenses, Patents and Trademarks".
PRODUCTS.
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ANCILLARY IMAGING DIVISION. The Company's Ancillary Imaging Division is
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the distribution of branded cameras, photographic film, ancillary photographic
equipment and other proprietary photographic products. Among the products sold
are amateur film, cameras, batteries, travel supplies, albums, photo
accessories, mini-lab supplies and camera accessories. Among the brand names
sold by the Company are Kodak, Fuji, Konica, Keystone, Agfa, Polaroid, Duracell,
Sony, Canon, Olympus, Ricoh and Minolta, to name a few.
CAMERA DIVISION. The Camera Division is divided into four profit
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centers.
THE MESSAGE CAMERA(TM)/RETAIL. The Message Camera(TM) is a small,
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compact and contoured single-use camera, which incorporates a patent-pending
technological process, through which a color-latent image is pre-exposed onto
color negative film and placed into a technologically proprietary single-use
camera. The Message Camera(TM) is preloaded and ready to use with high quality
400 ISO high definition film and may contain 12, 15, 18 or 24 exposures.
The retail occasion-specific line of Message Camera(TM) includes the
following: The "Happy Birthday" Message Camera(TM), the "Wedding" Message
Camera(TM), the "Anniversary" Message Camera(TM), the "It's a Boy" Message
Camera(TM), the "It's a Girl" Message Camera(TM), the "Party" Message
Camera(TM), the "Vacation" Message Camera(TM), the "Bible" Message Camera(TM),
the "Graduation" Message Camera(TM), the "Pet Dog" Message Camera(TM), the "Pet
Cat" Message Camera(TM), the "Season's Greetings" Message Camera(TM), "Baby's
First Birthday" Message Camera(TM), the "Halloween" Message Camera(TM), the
"Baby Shower Message Camera(TM)", the "Bridal Shower Message Camera(TM)" and the
"Hawaii Message Camera(TM)". Certain cameras consist of 18 exposures and others
contain 24 exposures. Each occasion-specific camera has a different
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occasion-related message and/or colorful art on each frame and/or photographic
print. Printed on the top of each camera is the list of messages pre-exposed and
the frame on which it will appear.
SMILETIME(TM) CAMERAS. The Company's Smiletime(TM) cameras are
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a line of 35mm single-use cameras that are currently comprised of five different
colorful models, available with or without flash. The product line includes an
underwater use model and a panoramic model which produces broader and larger
snapshots. The Smiletime(TM) single-use cameras are pre-loaded with 400 ISO high
definition 15 or 27 exposure color film. Certain models are produced using newly
constructed proprietary cameras and other models are made using recycled camera
casings.
MESSAGE/LOGO PREMIUM INCENTIVE CAMERAS. Message/Logo Premium
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Incentive Cameras are a unique promotional tool for event marketing and product
promotions that enables corporate America to incorporate its name, logo, company
slogan or personalized message on the film itself or on the outer camera
packaging. Each standard premium camera may consist of 15 or 24 exposures. A
significant feature of the camera is the capability of including an
advertisement, rebate, coupon or free offer photograph on a 16th or 25th
exposure, which the user unexpectedly receives with their developed film.
Examples of this promotional tool may include an autographed photograph, a free
gift coupon, a discount on the next purchase, an announcement of an upcoming
event, promotion or an informative advertisement.
PRIVATE LABEL. Private Label cameras consist of single-use
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cameras or 35mm cameras prepared and designed specifically for the mass-market
retailers requiring a competitively priced high-quality product under their own
corporate image.
The Camera Division currently has cameras manufactured on a
sub-contract basis in the People's Republic of China and Hong Kong using its
camera requirements. These manufacturers are some of the world's foremost
single-use and 35mm camera manufacturers. Currently most of the product line of
35mm cameras manufactured by the Company are newly constructed. There is,
however, an on-going supply of recycled camera casings, which, from time to
time, the Company remanufactures and recycles for its own proprietary single-use
camera line. The advantage to the use of recycled casings enables the Company to
competitively sell a single-use camera in the marketplace at increased profits.
SHARP COLOR FILM. The Company has a wholly-owned subsidiary, Sharp Film
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Corp., and is currently using the name "Sharp Color Film(TM)" imprinted on each
canister of film and loaded into The Message Cameras(TM) and the Smiletime(TM)
and Logo cameras. It is the Company's intention to introduce a line of color
negative film to the consumer marketplace known as Sharp Film to its own niche
market as sales of the Camera Division grow and brand awareness is achieved.
SALES AND MARKETING.
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ANCILLARY IMAGING DIVISION. The Company distributes its ancillary
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imaging products to independent specialty retailers and regional chains, which
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include camera stores, film labs, gift shops, convenience stores, pharmacies and
one-hour photo retailers and wholesalers. The products are sold to an aggregate
of 20,000 individual customers. Sales of the ancillary imaging products are
primarily accomplished through the Company's in-house telemarketing sales
organization and mass catalogue mailings. In its sales of ancillary imaging
products there are no order requirements for the retailer and orders are usually
processed the same day received.
THE MESSAGE CAMERA(TM). The occasion-specific line of Message
----------------------
Cameras(TM) is marketed domestically by a group of 23 independent manufacturer's
representative organizations with a combined sales force of approximately 275
sales representatives. The sales organizations have been assigned to specific
market segments within their territory. The Company has currently divided the
segments into mass merchandise retailers and independent gift retailers. The
mass merchandise retailers include all drug, grocery and convenience store
chains, discount stores and wholesale clubs. The Company focuses its marketing
in this market segment on the top 141 retailers and has selected experienced
sales representative organizations to market this product. Several mass market
merchandisers including Walgreens, Toys-R-Us, K-Mart, American Stores, CVS and
Party City already carry The Message Camera(TM) line. The Message Camera(TM) is
also marketed to a wide range of independent retail stores such as gift and card
stores, party stores, airport hotel and motel gift shops, flower shops, baby
stores, religious book stores and military post exchanges. According to the 1996
Gift and Decorative Accessories Trade Publication, there are in excess of
170,000 independent retailers to whom the product line may be sold.
THE PREMIUM/INCENTIVE MESSAGE/LOGO CAMERAS. The Premium/Incentive
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Message/Logo camera is currently marketed by a combination of independent sales
representative organizations that focus on promotional activities for corporate
clients and by the Company's own product premium sales department. Some of the
companies that have utilized the message camera incentive program for
promotional purposes are: Coca Cola, IBM, NationsBank, John Hancock Insurance,
Club Med and Sprint. The Company also targets the private label promotional
market by utilizing the approximately 10,000 ad specialty distributors who are
members of the Ad Specialty Institute Association and offer The Message
Camera(TM) to their corporate clients throughout the world.
The Company believes that The Message Camera(TM) concept has a
potential in the world marketplace. Accordingly, it intends to market the
products internationally through the identification of overseas distributors
throughout Europe, Mid-East and Asia, each of which would be granted exclusive
distribution rights within a specified territory under negotiated sales and
distribution agreements.
SMILETIME(TM) CAMERAS. The Company markets its Smiletime(TM) camera
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line both as part of its ancillary imaging business through mass catalogue
distribution and telemarketing sales as well as through numerous sales
representative organizations that may include the same representative
organizations that market The Message Camera(TM). Most of the Smiletime(TM)
sales which have increased significantly in the first nine months of 1998 are to
independent specialty retailers, tobacco, sundry, and health and beauty aid
wholesalers.
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PRIVATE LABEL/LOGO CAMERAS. The Private Label/Logo camera line is
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currently marketed by a number of the independent sales representative
organizations. This line of cameras is overseen by the Company's Vice President
of Sales who is responsible for marketing the line to mass retailers and
regional chains. Among these retailers and wholesalers are K-Mart, Family Dollar
Stores and Bergen Brunswig Company (distributors to approximately 2,200
independent drug stores). The Company has recently been appointed the exclusive
vendor for private label/logo cameras for Cardinal Health, Inc., which services
2,500 retail pharmacies nationwide.
SIGNIFICANT CUSTOMERS.
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During 1996 and 1997, no customer accounted for more than 10% of net
sales.
MANUFACTURING AND SUPPLIES.
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ANCILLARY IMAGING AND CAMERA DIVISION. Management believes that astute
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purchasing is one of the key ingredients of the profitability of the Company's
ancillary imaging division business. Brand name film and photographic supplies
are purchased from what management perceives to be the best available sources
based on price and availability. Certain sources represent brand name, high
quality film and supplies manufactured domestically and abroad and purchased by
the Company at competitive prices.
The Company is also a distributor for Eastman Kodak, Agfa, Polaroid and
Imation products. During fiscal 1997, approximately 18% of the Company's total
purchases of ancillary imaging products were from Eastman Kodak.
The Company maintains an inventory of its product in its 18,000 sq. ft.
facility at its corporate headquarters in Boca Raton, Florida. The Company also
maintains inventory in the People's Republic of China and Hong Kong at its
manufacturing sources.
MESSAGE CAMERAS(TM). The Company has recently developed its own
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proprietary manufacturing method of imprinting messages and creative images on
color film. The imprinting process on the Message Camera(TM) is performed at the
Company's facility in Boca Raton, Florida. To date, the product has been
marketed under a license with Polaroid utilizing Polaroid's patent (see
"Licenses, Patents and Trademarks").
Currently, the Company purchases film from two major sources of film
manufacturers for use in its single-use cameras. Agfa Corporation and Imation
Company serve as the sources of supply for raw color negative film.
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The Company currently has its cameras manufactured by three separate
sources located in China and Hong Kong. Each of these manufacturers have been
qualified for quality control and dependability. The Company believes it has
several other choices of manufacturers but has chosen the current three for
their reliable history of performance with the Company.
The Company believes its relationships with Eastman Kodak, Agfa,
Imation and its other suppliers are satisfactory and that alternative suppliers
are available if relationships falter or existing suppliers are unable to
maintain standards meeting the Company's requirements. However, there can be no
assurance that the Company's current or future suppliers will be able to meet
the Company's requirements on commercially reasonable terms or within scheduled
delivery times. Any interruption of the Company's arrangements with suppliers
could cause a delay in the acquisition of the Company's products for timely
delivery to its customer base.
The Company is and will be dependent upon foreign contract
manufacturers for the manufacture and assembly of its single-use cameras. By
being dependent upon foreign contract manufacturers, the Company will be subject
to the risks of doing business abroad, such as import duties, trade
restrictions, work stoppages, foreign currency fluctuations, political
instability, difficulties in enforcing the manufacturer's obligations to the
Company and other factors which could have an adverse impact on the business of
the Company. The three manufacturers currently supplying the Company all have
the capability of supplying new casings as opposed to recycled.
See "LEGAL PROCEEDINGS" for information with regard to an action
instituted in February 1998 before the International Trade Commission by Fuji
Film in which the Company is one of 28 respondents. The action seeks an import
exclusion order against all defendants based upon claimed patent infringement.
COMPETITION.
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There are a number of distributors and wholesalers of photographic
supplies and equipment that actively compete with the Company. In some areas,
competition is directly with the manufacturers of these products. Many of these
companies have substantially greater financial, technical and other resources
than the Company and have established reputations for success in the
development, licensing and sale of their products and technology. Some of the
Company's direct competitors in its ancillary imaging and camera business
include Unique Photo, Concord Camera Corporation and Jazz Photo Corp. Unique is
a reseller of photo supplies and single-use cameras. Concord and Jazz market
cameras only and not other ancillary imaging products, as is the case with the
Company. Although select areas of price competition is intense in the Company's
ancillary imaging and camera business, the Company believes that it has certain
competitive advantages by virtue of its proprietary product lines, its
well-developed relationships with vendors and broad customer base allowing it to
provide a one-stop source of products for its customers.
There is one known competitor, DCC Compact Classics, which has begun to
market a camera similar to The Message Camera(TM). However, due to the Company's
marketing and product positioning over the past three years the Company believes
it has taken a leadership position in the marketplace. The Company has also
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recently become aware that there may be one or more foreign manufacturers that
have employed pre-imaging messages into single-use cameras. These cameras, to
the best of the Company's knowledge, are not a threat to the Company's future
performance levels and the Company is unaware of any cameras being marketed
domestically or internationally.
Other companies including Eastman Kodak, Fuji, Agfa and Polaroid
currently market single-use cameras. Although these companies have substantially
greater financial resources than the Company, none have marketed any camera
containing pre-imprinted messages onto color negative film.
LICENSES, PATENTS AND TRADEMARKS.
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POLAROID LICENSE. Effective November 1, 1997 the Company entered into a
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license agreement with the Polaroid Corporation ("Polaroid") under which the
Company received a non-exclusive license to manufacture and sell single-use
cameras containing pre-exposed film worldwide under Polaroid's patent for a
single-use camera containing pre-exposed film. The license, which continues
until the Polaroid patent expires, is terminable upon 60 days' notice by the
Company at any time and calls for the payment of a royalty to Polaroid of the
greater of $.30 per camera or 5% of the net selling price.
PSI PATENT APPLICATIONS. In July of 1998 the Company filed a patent
-----------------------
application with the U.S. Patent and Trademark Office relating to new and unique
methods for pre-burning a color latent image onto color negative film. In
addition, in November of 1998 the Company filed another patent application with
the U.S. Patent and Trademark Office relating to an invention regarding an
alternative method utilizing the single-use camera system to be loaded with film
outside of a dark room. Although the Company believes that if these patents are
issued they may be of considerable value and importance to its business, there
can be no assurance that the applications will result in the issuance of a
patent or patents, or that if patents are issued, whether they will provide
significant proprietary protection or will be circumvented or invalidated.
The Company has also applied for trademark registrations for The
Message Camera(TM), Smiletime(TM) and Sharp Color Film(TM).
EMPLOYEES.
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At December 24, 1998, the Company had 36 employees, 10 of whom are
engaged in marketing and sales, 10 in assembly, warehousing and shipping, and 16
in management and administration. The Company's employees are not represented by
a collective bargaining unit. The Company considers relations with its employees
to be good.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS.
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GENERAL.
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The Company was organized in 1986 to engage in the wholesale
distribution of branded cameras, photographic film, ancillary photographic
equipment and other proprietary photographic products. Since its formation, the
Company has evolved into a major national wholesale distribution company to over
20,000 specialty retailers, mass market merchandisers and wholesalers. Since
1987, the Company's revenues have increased on an annual basis from $1,000,000
to approximately $34,000,000 in 1994 and $19,000,000 in 1995. The Company has
been profitable throughout these years. The decline in revenues in 1995
reflected primarily a strategic decision by management to focus its distribution
efforts on higher margin products.
Beginning in the latter part of 1995, the Company embarked on a program
of identifying, acquiring and developing a proprietary line of cameras. In 1996,
through the acquisition of exclusive distribution and manufacturing rights to
the Message Camera(TM), an innovative, single-use disposable camera which allows
for the application of full-color messages and graphics to pre-exposed film, and
the development of its Smiletime(TM) camera, a proprietary line of high-quality
35mm single-use cameras, the Company added a Camera Division as an independent
profit center. The development of the Camera Division enabled the Company not
only to add products with significantly higher profit margins but also allowed
the Company to expand its marketing to other channels of distribution. Due
primarily to the market penetration of its Camera Division which achieved sales
of approximately $10,000,000 in 1997, the Company's revenues for 1997 increased
to approximately $24,000,000 compared with approximately $14,000,000 in 1996.
RESULTS OF OPERATIONS.
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The following table sets for the periods indicated the percentage of
revenues represented by certain items reflected in the Company's Statements of
Operations.
PERCENTAGE OF REVENUES
----------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1997 1996 1998 1997
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<S> <C> <C> <C> <C>
Net Sales 100% 100% 100% 100%
Cost of Sales 79.99% 75.62% 75.41% 74.13%
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Gross Profit 20.00% 24.38% 24.59% 25.87%
Selling, General and Administrative Expenses 17.73% 17.91% 16.32% 18.66%
Product Development Costs 1.70% 2.96% 0.34% 0.72%
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Operating Income 0.57% 3.51% 7.93% 6.49%
Other Expenses: 2.43% 2.09% 2.32% 2.39%
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Interest expense, net of interest income
Income (Loss) before Income Taxes (1.86%) 1.42% 5.61% 4.10%
Income Tax Provision (Benefit) (0.07%) 0.36% 1.47% 1.48%
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Net income (loss) (1.79%) 1.06% 4.14% 2.62%
======= ======= ====== ======
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YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996.
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NET SALES. The Company's net sales for 1997 were $23,976,069 compared
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to $14,055,252 in 1996, an increase of $9,920,817 or 70.6%. The increase in net
sales was primarily attributable to a full year of sales for the Message(TM)
Camera which was introduced in late 1996 and an increase in the customer base.
GROSS PROFIT. Gross profit for 1997 was $4,797,064 compared to
------------
$3,426,576 in 1996, an increase of $1,370,488 or 40%. As a percentage of sales,
gross profit decreased to 20% in 1997 from 24.4% in 1996. Several factors
accounted for the decrease in 1997 in gross profit as a percentage of net sales
over the prior year. These included additional production start-up costs for the
Message Camera(TM), primarily the development of point of purchase displays,
increased freight charges, reflecting the Company's need to employ air freight
to acquire adequate camera inventory to meet the demand for the Message
Camera(TM), increase in cost of sales in the Company's Ancillary Imaging
Division over the prior year and a change in the product mix with increased
sales in 1997 of film which carries small profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
--------------------------------------------
administrative expenses for 1997 were $4,251,152 compared to $2,517,044 in 1996,
an increase of $1,734,108 or 68.9%. As a percentage of sales, these expenses
decreased to 17.7% in 1997 from 17.9% in 1996. Of the dollar increase, $662,280
represented increased commissions and royalties due to higher sales, $337,085
represented increased payroll costs in connection with the hiring of additional
personnel to support the growth in sales, $194,801 primarily represented
increased professional fees in connection with litigation, financing and other
corporate matters, $181,000 represented increased amortization and depreciation
expenses due primarily to the amortization of the Message Camera(TM) product
development costs and $115,289 represented increased trade show costs. The
remaining increase was attributable to additional selling, general and
administrative expenses.
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PRODUCT DEVELOPMENT COSTS. Product development costs for 1997 were
-------------------------
$408,486 compared to $416,177 for 1996, a decrease of $7,691 or 1.8%. As a
percentage of sales, these costs decreased to 1.7% in 1997 from 3% in 1996.
INTEREST EXPENSE NET OF INTEREST INCOME. Interest expense net of
---------------------------------------
interest income for 1997 was $582,809 compared to $293,217 in 1996, an increase
of $289,592 or 98.8%. As a percentage of sales, these expenses increased to 2.4%
in 1997 from 2.1% in 1996. The dollar increase in interest expense was
attributable to increased borrowings on the line of credit required to finance
the Company's growth.
PROVISION FOR INCOME TAXES. For 1997 the Company recorded a tax benefit
--------------------------
of $15,874 due to a net operating loss for the year.
NET INCOME (LOSS). As a result of the foregoing, the Company posted a
------------------
net loss of $429,509 in 1997 compared to net income of $149,463 in 1996, a
decrease of $578,972.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997.
- - ------------------------------------------------------------
NET SALES. The Company's net sales for the nine months ended September
---------
30, 1998 were $21,029,453 compared to $17,025,282 for the nine months ended
September 30, 1997, an increase of $4,004,171 or 23.5%. The increase in net
sales was primarily attributable to an increase in the volume from existing
customers, securing new mass merchandise and independent gift retailers for the
Company's Camera Division products, and penetration of the international
markets.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1998
------------
was $5,171,945 compared to $4,404,702 for the nine months ended September 30,
1997, an increase of $767,243 or 17.4%. As a percentage of sales, gross profit
decreased to 24.6% for the nine months ended September 30 1998 from 25.9% for
the nine months ended September 30, 1997. The decrease in gross profit as a
percentage of sales was due to a change in the product mix, principally a
substantial increase in sales of Kodak cameras which carry a small profit
margin, and an increase in freight charges arising out of the incurrence of
additional air freight expenses that were necessary to obtain adequate product
to meet the substantial growth in sales of the Company's Camera Division
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
--------------------------------------------
administrative expenses for the nine months ended September 30, 1998 were
$3,432,734 compared to $3,176,898, for the nine months ended September 30, 1997
an increase of $255,836 or 8.1%. As a percentage of sales, these expenses
decreased to 16.3% for the nine months ended September 30, 1998 from 18.7% for
the nine months ended September 30, 1997. Of the dollar increase, $476,161
represented increased payroll costs in connection with the hiring of additional
personnel to support the growth in sales, offset by a decrease of $188,603 in
advertising, marketing and promotion expenses, and a decrease of $215,180 in
reduced royalties to Polariod Corporation compared to royalties paid the
previous licensor. The remaining dollar increase was attributable to various
selling, general and administrative expenses.
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PRODUCT DEVELOPMENT COSTS. Product development costs for the nine
-------------------------
months ended September 30, 1998 were $71,240 compared to $122,152 for the nine
months ended September 30 1997, a decrease of $50,912 or 41.7%. As a percentage
of sales, these costs decreased to .34% for the nine months ended September 30,
1998 from .72% for the nine months ended September 30, 1997.
INTEREST EXPENSE NET OF INTEREST INCOME. Interest expense net of
---------------------------------------
interest income for the nine months ended September 30,1998 was $488,690
compared to $407,372 for the nine months ended September 30, 1997, an increase
of $81,318 or 20%. As a percentage of sales, these expenses decreased to 2.3 %
for the nine months ended September 30, 1998 from 2.4% for the nine months ended
September 30, 1997. The dollar increase in interest expense was attributable to
increased borrowings on the line of credit required to finance the Company's
growth.
PROVISION FOR INCOME TAXES. Provision for income taxes for the nine
--------------------------
months ended September 30, 1998 was $309,000 compared to $251,381 for the nine
months ended September 1997, an increase of $57,619. The effective tax rate
decreased to 25.8% for the nine months ended September 30, 1998 from 36% for the
nine months ended September 30, 1997 due to the Company's utilization of its net
operating loss carry forward from the prior year.
As a result of the foregoing, net income for the nine months ended
September 30, 1998 was $870,281 compared to net income of $446,899 for the nine
months ended September 30, 1997, an increase of $423,382. This represents an
increase in net income as a percentage of net sales to 4.1% for the nine months
ended September 30, 1998 from 2.6% for the nine months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES.
- - --------------------------------
The Company has financed its cash requirements primarily through
operations, borrowings on its bank credit line and sales of its securities. The
Company also issued shares of Preferred Stock in order to finance the
acquisition of inventory during 1998.
The Company's bank credit facility currently permits borrowings of up
to $12,000,000 against a fixed percentage of eligible accounts receivable and
inventory. The interest rate on the line is at the financial institutions prime
rate or the LIBOR rate plus 225 basis points. The amount borrowed under the
credit facility varies based on the Company's cash requirements. The credit
facility is collateralized by substantially all of the assets of the Company. As
of September 30, 1998 the interest rate that was in effect was 8.25% and
$7,103,984 was outstanding and classified as a short term liability. The credit
facility terminates on September 15, 2001 and shall automatically renew itself
from year to year.
12
<PAGE>
As of September 30, 1998, the Company had working capital of
$4,624,100. Operating activities provided cash of $132,526 primarily due to
increases in accounts receivable and inventories of $214,485 and $2,896,996
respectively, which were partially offset by net income of $872,281. Net cash
used in investing activities was $108,197, reflecting the purchase of certain
fixed assets and investments in patents. Net cash used in financing activities
was $152,631, consisting primarily of payments to the Company's bank credit
facility.
Subsequent to September 30, 1998, the Company raised $875,000 through
sales to private investors of an aggregate number of 975,000 shares of its
Common Stock pursuant to a private offering under Rule 504 of Regulation D of
the Securities Act of 1933, as amended. The proceeds were used primarily for
working capital.
The Company is not currently generating sufficient working capital to
fund its projected expansion of operations. The Company believes that to create
a substantial increase in sales of the Message Camera(TM) product line, it will
be necessary to commence a national advertising campaign. In addition, expansion
of operations will require capital infusions to fund purchase of inventory and
to meet the Company's working capital needs. Accordingly, the Company is
actively exploring several possibilities of raising additional capital through
the issuance of its securities. In this regard, in October 1998 the Company
entered into an agreement with Dabney Flanigan, LLC, an investment banking firm,
to act as a placement agent in connection with a proposed offering of up to
$10,000,000 of senior subordinated debt. The specific terms of the debt
securities will be subject to negotiation with potential investors. There can be
no assurances that the Company will be successful in obtaining additional
financing in connection with this, or any other, financing possibility on terms
acceptable to the Company, or at all.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.
- - ----------------------------------------------------------
Certain statements contained in this Section and elsewhere in this
Registration Statement regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Because such forward-looking statements include
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. All statements which
address operating performance, events or developments that management expects or
anticipates to incur in the future, including statements relating to sales and
earnings growth or statements expressing general optimism about future operating
results, are forward-looking statements. The forward-looking statements are
based on management's current views and assumptions regarding future events and
operating performance. Many factors could cause actual results to differ
materially from estimates contained in management's forward-looking statements.
The differences may be caused by a variety of factors, including but not limited
to adverse economic conditions, competitive pressures, inadequate capital,
unexpected costs, lower revenues and net incomes and forecasts, the possibility
of fluctuation and volatility of the Company's operating results and financial
condition, inability to carry out marketing and sales plans, loss of key
executives, among other things.
13
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY.
- - ------- ------------------------
The Company currently owns an industrial building of approximately
18,000 square feet in Boca Raton, Florida. The Company maintains its principal
executive and administrative offices and warehouse space at this facility. The
Company financed the acquisition of the facility in January 1997 by a bank
mortgage, which was refinanced in December 1998 with a new bank mortgage in the
principal sum of $570,000 payable over a term of five years and bearing interest
at the rate of 8% per annum. The mortgage has been guaranteed by Dominick
Seminara and his wife. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
The Company believes that existing facilities are adequate for its
needs through at least the end of 1999. Should the Company require additional
space at that time, or prior thereto, it believes that such space can be secured
on commercially reasonable terms and without undue operational disruption.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- - ------- ---------------------------------------------------------------
The following table sets forth certain information regarding the
Company's common stock beneficially owned on December 21, 1998, for (i) each
shareholder known by the Company to be the beneficial owner of 5% or more of the
Company's outstanding common stock, (ii) each of the Company's executive
officers and directors, and (iii) all executive officers and directors as a
group. In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which the
person has the right to acquire beneficial ownership within 60 days. At December
21, 1998, there was 10,077,743 shares of common stock outstanding. The address
of each of the persons set forth below is 1160 B South Rogers Circle, Boca
Raton, Florida 33487, except as otherwise noted:
<TABLE>
<CAPTION>
NAME AND ADDRESS NO. OF SHARES OF COMMON STOCK PERCENT OF
OR IDENTITY OF GROUP BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
- - -------------------- ------------------ --------------------
<S> <C> <C>
Dominick M. Seminara (1) 2,035,606 20.2%
Benjamin Cohen (2) 926,970 9.2%
Mirco Vietti (3) 2,186,605 21.7%
Carol J. Seminara (4) 2,035,606 20.2%
Lisa A. Davidson 870,970 8.6%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NO. OF SHARES OF COMMON STOCK PERCENT OF
OR IDENTITY OF GROUP BENEFICIALLY OWNED BENEFICIAL OWNERSHIP
- - -------------------- ------------------ --------------------
<S> <C> <C>
Deborah A. Vietti (5) 2,186,605 21.7%
2599 N.W. 63rd Street
Boca Raton, Florida 33496
Richard Proodian 50,000 *
George Erfurt 15,000 *
Nico B.M. Letschert (6) 202,777
1801 Clint Moore Road
Suite 100
Boca Raton, Florida 33487
Cornelis F. Wit --
1801 Clint Moore Road
Suite 100
Boca Raton, Florida 33487
Martin Epstein
All Executive Officers and Directors 6,287,928 62.4%
as a Group (9 persons)
<FN>
- - -----------------------
*Less than 1%
(1) Includes 984,469 shares held by Carol Seminara, Mr. Seminara's wife, as
to which Mr. Seminara disclaims beneficial ownership.
(2) Includes 22,832 shares which are subject to certain forfeiture
restrictions under an Employment Agreement that vest over a period from
September 1, 1998 through January 1, 1999. See Item 6, "Executive
Compensation - Employment Agreement".
(3) Includes 1,001,719 shares held of record by Deborah Vietti, Mr.
Vietti's wife, as to which Mr. Vietti disclaims beneficial ownership
and 183,166 shares held jointly with his wife.
(4) Includes 1,051,137 shares held by Dominick Seminara, her husband, as to
which Mrs. Seminara disclaims beneficial ownership.
(5) Includes 1,001,720 shares held by Mirco Vietti, her husband, as to
which Mrs. Vietti disclaims beneficial ownership and 183,166 shares
held jointly with her husband.
15
<PAGE>
(6) Includes 202,777 shares underlying warrants issued to Noesis Capital
Corp., the placement agent of the Company's 1997 private offering. Mr.
Letschert is the beneficial holder of a majority interest in Noesis
Capital Corp.
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- - ------- -------------------------------------------------------------
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. All directors
serve until the next annual meeting of the Company's shareholders or until their
successors are elected and qualify. Officers are elected by the Board and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dominick M. Seminara (1)(2) 60 Chief Executive Officer and
Chairman ofthe Board of Directors
Benjamin Cohen (1) 61 President, Chief Operating Officer
and Director
Mirco Vietti 40 Executive Vice President and
Director
Martin D. Epstein 47 Vice President of Finance and
Administration, Chief Financial
Officer and Director
George A. Erfurt 54 Vice President of Sales
Richard Proodian 59 Vice President of Operations
Lisa A. Davidson 33 Director
Nico B.M. Letschert (2) 44 Director
Cornelis F. Wit (1) 52 Director
<FN>
- - ------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
</FN>
</TABLE>
Dominick M. Seminara was a co-founder of the Company in 1986. He has
served as the Company's Chief Executive Officer and Chairman of the Board from
the Company's formation. From inception to January 1997, he had also served as
the Company's President. Mr. Seminara's prior business experience includes over
35 years of experience in photographic wholesale distribution, and retail and
photo processing.
16
<PAGE>
Benjamin Cohen has served as the Company's President and Chief
Operating Officer and a Director since January 1997. From 1986 through January
1997, he was the President, Chief Executive Officer and founder of Marketing
Dynamics Group, a consulting company which specialized in marketing, sales
enhancement programs, product development and creative services for consumer
product manufacturers with a particular emphasis on the toy and gift industries.
Through his consulting firm, commencing from August 1996 through December 1996,
he provided consulting services to the Company. From 1985 to 1986, he was the
Corporate Vice President of Marketing for Viewmaster/Ideal. From 1983 to 1985,
he was the Divisional President and Senior Vice President and member of the
Executive Committee of Mattel Toys. Prior to that, commencing in 1979, he was
the Executive Vice President and Senior Vice President of Knickerbocker Toy
Company, a division of Warner Communications.
Mirco Vietti was a co-founder of the Company in 1986. He has served as
the Company's Executive Vice President and a Director since its formation. He
currently oversees the Company's purchasing operations for its ancillary imaging
division.
Martin D. Epstein joined the Company in July 1998 as Vice President of
Finance and Administration and Chief Financial Officer. He was also elected to
the Board of Directors on July 31, 1998. Prior to that he was a Financial
Officer of Technical Chemicals and Products, Inc., a manufacturer and
distributor of medical diagnostic products from 1995 to 1998. From 1988 to 1995
he was Controller with Furniture Consultants, Inc., a distributor of office
furniture. From 1985 to 1988 he served as Controller of FTC Communications,
Inc., an international telecommunications company. Mr. Epstein is a CPA and
obtained his undergraduate degree from Brooklyn College and received his MBA in
Business Administration from Dowling College.
George A. Erfurt joined the Company in July 1997 as Vice President of
Sales. Prior to that he was the President of Sunset Sales Company, a consulting
company he organized which specialized in sales and marketing services. From
1991 through 1997 he served in various positions at Concord Camera Corp., most
recently as Vice President of Sales and National Accounts. From 1986 to 1991 he
was the Executive Vice President of Sales and Marketing of Keystone Camera
Products in Clifton, New Jersey.
Richard Proodian has been the Company's Vice President of Operations
since July 1998. Prior to that he had been the Company's Chief Financial Officer
since July 1997. In August 1997, he also became a member of the Board of
Directors. Prior to July 1997, he served as the Company's Vice President of
Finance and Operations, a position he assumed in March 1997. From 1986 through
December 1996, he was a partner of the American Financial Consultants, a
financial and business consulting firm he co-founded, which provides business
consulting services. Through his consulting firm, commencing in August 1996, he
provided consulting services to the Company. From 1983 to 1986, he served as
President of Sun Dazzlers, Inc., a company he founded, which was a manufacturer
of imitation stained glass products for the hobby craft market. From 1977 to
17
<PAGE>
1983, he was the Vice President and General Manager of Makit & Bakit Division of
Fundementions, a toy division of General Mills, which manufactured imitation
stained glass products sold to the hobby, craft and toy markets. In 1995, Mr.
Proodian filed a petition under Chapter 13 of the Federal Bankruptcy Laws, which
proceeding is still pending.
Lisa A. Davidson, a 1987 graduate of Maryland University, has served as
Director of the Company since July 1987. From that date until September, 1998,
she served as Senior Vice President of the Company.
Nico B.M. Letschert, a director of the Company since September 1997, is
the Chief Executive Officer of Noesis Capital Corp. ("Noesis"), which
specializes in corporate finance and money management. He previously served as
President of Noble Investment Co. of Palm Beach, Florida, an investment banking
firm. He was educated at the Dutch Institute for Banking and Finance, and is a
certified financial planner and a director of Futuremedia PLC.
Cornelis F. Wit, a director of the Company since September 1997, is the
President-Corporate Finance of Noesis. He was formerly President and CEO of DMV,
Inc., the North American subsidiary of Campina Melkunie. Prior to this
involvement with DMV, Mr. Wit was Vice President-International Operations with
Duphar, where he was responsible for worldwide operations of its pharmaceutical
division. Prior to joining Duphar, Mr. Wit was with Organon (Akzo-Pharma) as
president of several different subsidiaries over a 12-year period. Mr. Wit has
spent his entire career working with international companies and has extensive
experience with crisis management and cross cultural negotiations. Mr. Wit has
lived in eight different countries during his career and is fluent in Dutch,
Spanish, Italian, English and German. He has a degree in business administration
from the University of Nijenrode in the Netherlands.
Dominick M. Seminara is Mirco Vietti's father-in-law and Lisa
Davidson's father.
ITEM 6. EXECUTIVE COMPENSATION.
- - ------- -----------------------
CASH COMPENSATION.
- - ------------------
The following table shows, for the three-year period ended December 31,
1997, the cash and other compensation paid by the Company to its Chief Executive
Officer and to each of the executive officers of the Company who had annual
compensation in excess of $100,000.
18
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- - ------------------ ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Dominick M. Seminara, 1997 $154,356 $ 0 $ 0
Chief Executive Officer 1996 $126,226 $ 0 $ 41,216(1)
1995 $ 68,012 $ 0 $ 84,667(1)
Benjamin Cohen, 1997 $136,462 $ 0 $111,594(2)
President and Chief
Operating Officer 1996 $ 0 $ 0 $ 0
1995 $ 0 $ 0 $ 0
Mirco Vietti, 1997 $129,320 $ 0 $ 0
Executive Vice President 1996 $119,846 $ 0 $ 44,979(3)
1995 $ 64,249 $ 0 $ 88,430(3)
Lisa A. Davidson, 1997 $ 77,225 $ 0 $ 0
Senior Vice President 1996 $ 78,006 $ 0 $ 37,759(4)
1995 $ 70,764 $ 0 $ 81,915(4)
<FN>
(1) Includes $72,679 and $29,228 in 1995 and 1996 respectively,
representing dividends distributed while the Company was a Subchapter S
corporation. Also includes $11,988 paid for Mr. Seminara for an
automobile lease and related costs in each of 1995 and 1996.
(2) Represents the amount of deferred compensation of shares of restricted
stock received by Mr. Cohen that vested during 1997.
(3) Includes $72,679 and $29,228 in 1995 and 1996 respectively,
representing dividends distributed while the Company was a Subchapter S
corporation. Also includes $15,751 paid for Mr. Vietti for an
automobile lease and related costs in each of 1995 and 1996.
(4) Includes $72,679 and $29,227 in 1995 and 1996 respectively,
representing dividends distributed while the Company was a Subchapter S
corporation. Also includes $9,236 and $8,532 paid for Mrs. Davidson for
an automobile lease and related costs in 1995 and 1996.
</FN>
</TABLE>
OPTION GRANTS IN THE LAST FISCAL YEAR.
- - --------------------------------------
The following table sets forth information with respect to the grant of
options to purchase shares of common stock during the fiscal year ended December
31, 1997, to each person named in the Summary Compensation Table.
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS/SARS EMPLOYEES IN ($/SHARES) EXPIRATION
NAME GRANTED (#) FISCAL YEAR DATE
---- ----------- ----------- ----
<S> <C> <C> <C> <C>
Dominick M. Seminara 0 0 0 0
Benjamin Cohen 0 0 0 0
Mirco Vietti 0 0 0 0
Lisa A. Davidson 0 0 0 0
</TABLE>
1996 STOCK OPTION PLAN.
- - -----------------------
In March of 1996, the Board of Directors adopted and the shareholders
approved the 1996 Stock Option Plan (the "Plan"). The Plan will work to increase
the employees', board of advisors, consultants' and non-employee directors'
proprietary interest in the Company and to align more closely their interests
with the interests of the Company's stockholders. The Plan will also maintain
the Company's ability to attract and retain the services of experienced and
highly qualified employees and non-employee directors.
Under the Plan, the Company has reserved an aggregate of 2,000,000
shares of Common Stock for issuance pursuant to options granted under the Plan
("Plan Options"). The Board of Directors or a Committee of the Board of
Directors (the "Committee") of the Company will administer the Plan, including,
without limitation, the selection of the persons who will be granted Plan
Options under the Plan, the type of Plan Options to be granted, the number of
shares subject to each Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the eligible person and receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
Directors or the Committee, provided that no Plan Option may be exercisable more
than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of the Company's
20
<PAGE>
Common Stock, no more than five years after the date of the grant. The exercise
price of Non-Qualified Options shall be determined by the Board of Directors or
the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and
its subsidiaries (if applicable in the future) will be eligible to receive
Non-Qualified Options under the Plan. Only employees of the Company who are
employed by the Company or by any subsidiary thereof are eligible to receive
Incentive Options.
All Plan Options are non-assignable and non-transferable, except by
will or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a Director is terminated for
any reason, other than death or disability, the Plan Option granted to him shall
lapse to the extent unexercised on the earlier of the expiration date or 30 days
following the date of termination. If the optionee dies during the term of his
employment, the Plan Option granted to him shall lapse to the extent unexercised
on the earlier of the expiration date of the Plan Option or the date one year
following the date of the optionee's death. If the optionee is disabled, the
Plan Option granted to him lapses to the extent unexercised on the earlier of
the expiration date of the option or one year following the date of such
disability.
The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan, or (ii) changes the definition
of an Eligible Person under the Plan.
As of November 1, 1998, 769,383 Plan Options had been granted pursuant
to the Plan, all of which were vested as of the date of grant and of which 4,300
Plan Options had been forfeited by the optionee's termination from employment
with the Company. As of the same date, 742,333 options had been exercised.
OPTION EXERCISES AND HOLDINGS.
- - ------------------------------
The following table sets forth information with respect to the exercise
of options to purchase shares of common stock during the fiscal year ended
December 31, 1997, to each person named in the Summary Compensation Table and
the unexercised options held as of the end of 1997 fiscal year.
21
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/ EXERCISES IN
LAST FISCAL YEAR AND 1997 FISCAL YEAR END OPTION/VALUES
-------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS/
UNEXERCISED OPTIONS SARS AT 1997 FISCAL
AT 1997 FISCAL YEAR YEAR END ($)
END (#) EXERCISABLE/ EXERCISABLE/
SHARES ACQUIRED ON VALUE UNEXERCISABLE UNEXERCISABLE
EXERCISE REALIZED (1)
NAME (#) ($)
---- ------------------- ------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Dominick M. Seminara 183,167 $ 7,326.68 None 0
Mirco Vietti 183,166 $ 7,326.68 None 0
Benjamin Cohen 0 0 None 0
Lisa A. Davidson 0 0 None 0
<FN>
- - -------------------
(1) Based on the Company's determination of fair market value of the
purchased shares on the option exercise date less the exercise price
paid for the shares.
</FN>
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
NUMBER OF SHARES, PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
UNITS OR OTHER OTHER PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
RIGHTS MATURATION OR ------------------------------
(#) PAYOUT THRESHOLD TARGET MAXIMUM
NAME ($ OR #) ($ OR #) ($ OR #)
---- ---------------- ----------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Dominick M. Seminara 0 0 0 0 0
Benjamin Cohen 0 0 0 0 0
Mirco Vietti 0 0 0 0 0
Lisa A. Davidson 0 0 0 0 0
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS.
- - --------------------------------
Effective January 1, 1997, the Company entered into an Employment
Agreement with Benjamin Cohen, whereby Mr. Cohen was employed as President and
Chief Operating Officer of the Company. The Agreement is for a term of five
22
<PAGE>
years and provides for an initial annual base salary of $180,000, to be
increased to $250,000 in the event that the Company has completed an
underwritten public offering of its securities. Mr. Cohen agreed to a reduction
in his salary for 1997. In connection with the Agreement, Mr. Cohen received a
grant of 1,164,470 shares of restricted stock. 388,156 shares vested as of
January 1, 1997, and the remaining shares shall vest pro rata on a monthly basis
over the period from February 1, 1997, through January 1, 1999. "Vesting" means
the time when certain forfeiture restrictions in connection with the Shares
lapse. As of December 1, 1998, 22,832 shares remain unvested. These forfeiture
restrictions include termination of Mr. Cohen's employment for cause, his death
or his disability, as defined in the Agreement.
Effective July 1, 1997, the Company entered into a three-year
Employment Agreement with George Erfurt. Under the Agreement, Mr. Erfurt serves
as the Company's Vice President of Sales and receives an annual base salary in
the amount of $100,000. In addition, he is entitled to receive a sales
commission of 1 1/2% on certain sales he makes of the Company's one-time-use
cameras as well as a 1% override commission on all sales of one-time-use
cameras. At the time of signing of the Agreement, Mr. Erfurt received 15,000
vested stock options exercisable at a price of $.15 per share, which he
subsequently exercised in 1997. He is also entitled to additional options based
upon certain performance standards of the Company's sales of one-time-use
cameras.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- - ------- -----------------------------------------------
In 1992, the Company advanced the sum of $138,098 to Photoline
Partners, a general partnership comprised of Dominick Seminara, Carol Seminara,
his wife, Mirco Vietti, his son-in-law, Deborah Vietti, his daughter and Mr.
Vietti's wife, and Lisa Davidson, his daughter (collectively the
"Shareholders"). In 1996, as distributions for the period during which the
Company was a Subchapter S corporation, the aggregate additional sum of $117,138
was distributed to the Shareholders.
On January 1, 1997, in connection with the issuance of shares to the
Company's new President, Benjamin Cohen, the Shareholders sold an aggregate of
1,164,470 shares to the Company at a purchase price of $.15 per share. The
purchase price for the redeemed shares was paid by the Company's forgiveness and
cancellation of the promissory note to Photoline Partners and the forgiveness of
the sum of $36,572 of advances due to the corporation by the Shareholders.
In 1996 and 1997, the Company made certain advances and paid certain
expenses to Dominick Seminara, Benjamin Cohen, Mirco Vietti and Lisa Davidson.
As of December 31, 1997, the aggregate of these advances which represent loans
payable to the Company totalled $362,681. The amount of each of these officers'
loan accounts as of December 31, 1997 was $152,462 for Mr. Seminara, $86,698 for
Mr. Cohen, $83,970 for Mr. Vietti, and $39,551 for Mrs. Davidson. Although the
loans are due on demand, the Company does not currently intend to demand
repayment prior to January 1, 1999.
23
<PAGE>
The mortgage on the building owned by the Company has been personally
guaranteed by Dominick Seminara and Carol Seminara. In connection with the
provision of the guaranty to the bank, the Company and the guarantors entered
into an agreement under the terms of which the Company agreed to a transfer of
the property to guarantors in the event that the guarantors are required to
repay the mortgage to the bank. See "DESCRIPTION OF PROPERTY".
ITEM 8. DESCRIPTION OF SECURITIES.
- - ------- --------------------------
Under the Company's Articles of Incorporation, as amended, the Company
is currently authorized to issue up to 20,000,000 shares of Common Stock, par
value $.0001 per share, of which 10,077,743 shares were outstanding as of
December 21, 1998. The Company is also authorized to issue up to 1,000,000
shares of Preferred Stock, par value $.0001 per share, of which 41,001 shares of
Series A Convertible Preferred Stock and 15,022 shares of Series B Convertible
Preferred Stock were issued and outstanding as of December 21, 1998.
COMMON STOCK.
- - -------------
Each shareholder is entitled to one vote for each share of Common Stock
owned of record. The holders of shares of Common Stock do not possess cumulative
voting rights, which means that the holders of more than 50% of the outstanding
shares voting for the election of directors can elect all of the directors, and
in such event the holders of the remaining shares will be unable to elect any of
the Company's directors. Holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board of Directors may from time to time
determine. Upon the liquidation, dissolution, or winding up of the Company, the
assets legally available for distribution to the shareholders will be
distributable ratably among the holders of the shares outstanding at the time.
Holders of the shares of Common Stock have no preemptive, conversion, or
subscription rights, and shares are not subject to redemption.
All outstanding shares of Common Stock will be fully paid and non-assessable.
PREFERRED STOCK.
- - ----------------
Under its Articles of Incorporation, the Company is authorized to issue
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors will be empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's stock. In the event of issuance, the preferred stock could be
24
<PAGE>
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change of control of the Company. Under its authority the Board has
created two series of preferred stock, Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock.
SERIES A CONVERTIBLE PREFERRED STOCK.
- - -------------------------------------
The holders of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") are entitled to such number of votes as are equal to the
number of shares into which their holdings of Series A Preferred Stock are
convertible (initially 10). The holders of Series A Preferred Stock vote,
together with the holders of Common Stock, as a member of a single class. There
is no cumulative voting with respect to election of directors, with the result
that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors then up for election.
The holders of the Series A Preferred Stock are entitled to a
cumulative annual dividend of $1.50 per share, payable semi-annually in cash on
July 1 and January 1 of each year, with the first dividend payment to be paid
January 1, 1998. The Series A Preferred Stock are convertible into 10 shares of
Common Stock at any time. The conversion price shall be subject to the following
adjustment: in the event that the average of the Company's earnings per share
for its 1997 and 1998 fiscal years, on a fully diluted basis, as reflected on
the Company's audited financial statements for each of these fiscal years (the
"Average EPS"), is less than $.20 per share, then the conversion price shall be
reduced to a number that equals 15 times the Average EPS, except that in no
event shall it be reduced to a price that is lower than $2.50. In recognition of
the fact that the agreed upon adjustment based on the Average EPS will clearly
need to be made, the Company agreed in November 1998 to adjust the price to
$2.50. The shares of Series A Preferred Stock also have certain anti-dilution
protection and there shall be appropriate adjustments in the conversion price
and/or number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock in the event of stock dividends, stock-splits, recapitalizations
and sales of shares of Common Stock at a price that is below the then current
conversion price if there is a decrease in the Company's tangible book value per
share.
At any time after one year from the date of issuance of the Series A
Preferred Stock, the Company can require that all outstanding shares of Series A
Preferred Stock be automatically converted at the conversion price then in
effect if at the time: (i) the closing bid price of the Company's Common Stock
has exceeded $7.50 per share for a period of 20 consecutive trading days, (ii)
the Company's Common Stock has been listed on NASDAQ or another national
securities exchange and (iii) a registration statement covering the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock has been
filed with the Securities and Exchange Commission and declared effective.
In the event of liquidation, dissolution or winding up of the Company,
the holders of the Series A Preferred Stock are entitled to share ratably with
all other holders of preferred stock (of all series outstanding) and all assets
remaining available for distribution after payment of liabilities, but before
any payments are made to the holders of Common Stock, up to $30 per share, plus
any accrued but unpaid dividends.
25
<PAGE>
The holders of the Series A Preferred Stock have "piggy-back"
registration rights which entitles them to have their shares included in any
registration statement (other than in connection with a merger or pursuant to
Forms S-8 or S-4) any time until December 31, 2000. In addition, the holders of
the Series A Preferred Stock acting by a majority in interest, have the right on
one occasion at any time after one year after the date of issuance of the
Preferred Stock to require the Company to register their shares.
SERIES B CONVERTIBLE PREFERRED STOCK.
- - -------------------------------------
The holders of the Series B Convertible Preferred Stock (the "Series B
Preferred Stock") do not have any voting rights, except as otherwise provided by
the laws of the State of Florida. They do not receive any dividends on their
shares. Each share of Series B Preferred Stock is convertible into 33.3 shares
of Common Stock at any time. The shares of Series B Preferred Stock also have
certain anti-dilution protection and there shall be appropriate adjustments in
the conversion price and/or number of shares of the Common Stock issuable upon
conversion of the Series B Preferred Stock in the event of stock dividends,
stock splits and recapitalizations. In the event of liquidation, dissolution or
winding up of the Company, the holders of Series B Preferred Stock are entitled
to share ratably with all other holders of preferred stock (of all series
outstanding) and all assets remaining available for distribution after payment
of liabilities, but before any payments are made to holders of Common Stock, up
to $100 per share.
COMMON STOCK PURCHASE WARRANTS.
- - -------------------------------
In connection with the completion of the Company's private placement
offering in December of 1997, the Company issued to the placement agent common
stock purchase warrants to purchase 202,777 shares of Common Stock. The warrants
are exercisable at a purchase price of $3 per share at any time subsequent to
December 30, 1998 and prior to December 30, 2002. In the event that the average
of the Company's earnings per share for its fiscal years of 1997 and 1998, on a
fully diluted basis (the "Average EPS"), is less than $.20 per share, the
exercise price shall be reduced to a number that equals 15 times the Average
EPS, provided that in no event shall the exercise price be reduced below $2.50.
In November 1998, the Company agreed to a reduction of the exercise price to
$2.50.
CERTAIN FLORIDA LEGISLATION.
- - ----------------------------
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights, unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. The Company has amended its by-laws
and elected not to be governed by the provisions of the Control Share Act.
26
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
- - ------ --------------------------------------------------------------------
OTHER SHAREHOLDER MATTERS.
-------------------------
The Company's shares of Common Stock are traded over-the-counter and
quoted on the OTC Electronic Bulletin Board under the symbol "PSII". The
reported high and low bid prices for the Common Stock are shown below for the
period from inception of trading in September 1996 through December 21, 1998.
The quotations reflect inter-dealer prices and do not include retail mark-ups,
mark-downs or commissions. The prices do not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
-------- -------
<S> <S> <C> <C>
1996
Fourth Quarter $ 5.12 $ 4.00
(from September 16, 1996)
1997
First Quarter $ 6.56 $ 4.50
Second Quarter $ 7.00 $ 5.25
Third Quarter $ 7.50 $ 6.00
Fourth Quarter $ 7.50 $ 5.25
1998
First Quarter $ 7.00 $ 4.25
Second Quarter $ 5.125 $ 3.875
Third Quarter $ 5.125 $ 2.75
Fourth Quarter $ 3.4375 $ 1.188
(through December 21, 1998)
</TABLE>
The closing bid and asked prices of the Company's Common Stock on
December 21, 1998 were $1.25 and $1.38, respectively, as quoted on the OTC
Electronic Bulletin Board. As of December 21, 1998, there were 59 shareholders
of record of the Company's Common Stock, and approximately 425 beneficial
holders of the Common Stock.
The transfer agent for the Company's Common Stock is Florida Atlantic
Stock Transfer, Inc., 5701 North Pine Island Road, Tamarac, Florida 33321.
Except for periods prior to March of 1996 when the Company was a
Subchapter S corporation, the Company has never paid cash dividends on its
Common Stock. The Company presently intends to retain future earnings, if any,
to finance the expansion of its business and does not anticipate that any cash
dividends will be paid in the foreseeable future. The future dividend policy
will depend on the Company's earnings, capital requirements, expansion plans,
financial condition and other relevant factors.
27
<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
- - ------- ------------------
The Company is a defendant in an action filed in the Circuit Court of
Orange County, Florida in February 1998 by Keepsake, Inc. The action is for,
among other things, breach of contract (failure to make royalty payments). The
Company has asserted counterclaims against the plaintiff for tortious
interference with contractual and advantageous business relationships,
misappropriation of trade secrets, defamation, conversion and fraud and
negligent misrepresentation. The Company seeks damages and injunctive relief.
The action is at the discovery stage. No trial has been set. The
Company intends to vigorously contest the plaintiff's claims and prosecute its
counterclaims. While the Company believes it has a strong case, given the
complexity of the issues involved, it is unable to evaluate the likelihood of a
favorable or unfavorable outcome at this time. An estimate of the amount or
range of potential loss or gain cannot be made at this time. However, the
Company does not believe that the ultimate outcome will have a material effect
on the Company, although there can be no assurance as to this.
The Company is one of 28 respondents in an action instituted in
February 1998 before the International Trade Commission by Fuji Film. The action
in which Fuji alleges violation of a number of its patents seeks an import
exclusion order against all of the respondents. The Company has asserted
defenses of non-infringement, patent invalidity and estoppel. In November 1998 a
hearing was conducted before the International Trade Commission and it is
anticipated that a decision will be rendered by the Spring of 1999. While the
Company is optimistic that there will be a decision in favor of the respondents,
there can be no assurance that Fuji will not prevail in the proceeding. However,
even if Fuji does prevail, the Company believes that this will not have a
material effect on the Company, although there can be no assurance as to this.
In June of 1998, the Company commenced an action in the Circuit Court
of Palm Beach County, Florida, against Jonathan Barash, a former employee. In
the action, the Company seeks injunctive relief and damages for breach of
confidentiality agreement and misappropriation of trade secrets. As of October
30, 1998, the Company had succeeded in obtaining a temporary injunction against
Mr. Barash, his agents and/or any other persons acting with him, enjoining them
from using, communicating (either orally or in writing), disclosing,
disseminating and misappropriating any documents, information or computer
records of the Company as well as any trade secret information. Mr. Barash, his
agents and/or any other persons acting with him are also enjoined from
soliciting and contacting the Company's customers, distributors and sales
representatives and from competing with the Company through and including May
19, 1999 and must return to the Company forthwith all originals and copies of
the Company's documents and computer records.
28
<PAGE>
The Company is a defendant in an action filed in the U.S. District
Court for the Middle District of Florida (Orlando Division) in November 1998 by
Keepsake, Inc. and Loura Dobbs. The other defendants are Walgreen Company, Party
City Corp. and K-Mart Corp. The action is for, among other things, unfair
competition and patent infringement. The Company intends to vigorously contest
the complainants' claims.
In December, 1998, the Company commenced an action in the Circuit Court
of Palm Beach County, Florida against Keepsake, Inc., The Edge Sports,
Promotional Designs, Inc., Playboy Enterprises, Inc. and Custom Camera Design.
In the action, the Company is seeking damages and injunctive relief for claims
of trademark infringement, tradename infringement, trade dress infringement and
unfair competition arising out of the defendants' manufacture, marketing,
distribution and sale of a disposable, single-use camera containing, among other
things, the Company's trademark, Message Camera(TM), as well as the Company's
tradename, PSI Industries, Inc. Defendants' responses to the complaint have not
yet been served.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
- - ------- ----------------------------------------------
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
- - ------- ----------------------------------------
On March 1, 1996, the Company undertook a 6.9641 forward stock split of
its Common Stock. All figures set forth below give effect to the forward split.
In March 1996, the Company sold to a consultant 227,963 shares of its
Common Stock in exchange for a promissory note in the amount of $37,841.86. The
shares were issued to the consultant in September of 1996 and the promissory
note was paid in full in February 1997. The shares were issued pursuant to Rule
504 of Regulation D of the Securities Act of 1933, as amended (the "Act"). In
addition in March 1996, the Company also agreed to issue an additional 227,963
shares of its Common Stock to the consultant for consulting services to be
rendered. The shares were issued to the consultant in September 1996. The
issuance of the shares was exempt from the registration requirements of the Act
pursuant to Section 4(2) of the Act.
In March 1996, the Company agreed to issue to a consulting firm an
aggregate of 341,944 shares of its Common Stock for consulting services to be
rendered. The shares were issued to the president of the consulting firm in
September 1996. In connection with a dispute with the consultant over its right
to receive the shares, the shares, which had not been delivered, were cancelled
in October 1996. In December 1997, in connection with settlement of the dispute
with the consultant, the Company issued 335,000 shares to the consultant, of
which 285,000 have been delivered and 50,000 shares were cancelled in May of
1998. The issuance of the shares and subsequent reissuance was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
29
<PAGE>
In September 1996, the Company completed an offering of Common Stock
pursuant to Rule 504 of Regulation D under the Act. An aggregate of 316,966
shares of Common Stock for an aggregate of $950,898 were sold by the Company to
43 investors.
In September 1996, the Company issued 7,900 shares of its Common Stock
to a law firm for legal services rendered. The issuance of the shares was exempt
from the registration requirements of the Act pursuant to either Section 4(2) of
the Act.
In April 1997, the Company issued 90,000 shares of its Common Stock to
four employees in connection with the exercise of stock options. The Company
received exercise proceeds of $9,000. The issuance of the shares was exempt from
the registration requirements of the Act pursuant to either Section 4(2) of the
Act or Rule 701 under the Act.
In June 1997, the Company issued 40,000 shares of its Common Stock to
two attorneys for legal services rendered. The issuance of the shares was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
In July 1997, the Company issued 15,000 shares of its Common Stock to a
consultant in consideration for consulting services rendered. The issuance of
the shares was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
In August 1997, the Company issued an aggregate of 30,000 shares to two
employees for a purchase price of $.10 per share in connection with exercise of
stock options. The issuance of the shares was exempt from the registration
requirements of the Act pursuant to either Section 4(2) of the Act or Rule 701
under the Act.
In August 1997, the Company issued 1,164,470 shares of its Common Stock
to its President, Benjamin Cohen. The shares were issued pursuant to the terms
of an employment agreement entered into with Mr. Cohen on January 1, 1997. The
issuance of the shares was exempt from the registration requirements of the Act
pursuant to Section 4(2) of the Act.
In October 1997, the Company issued 183,167 shares of its Common Stock
to Dominick M. Seminara, the Chief Executive Officer of the Company, 183,166
shares of its Common Stock to Mirco Vietti, its Executive Vice President, and
30,000 shares of its Common Stock to a former officer, in connection with the
exercise of stock options. Messrs. Seminara and Vietti paid $.11 per share and
the former officer paid $.10 per share in connection with the exercise by
delivery of promissory notes. The issuance of the shares was exempt from the
registration requirements of the Act pursuant to either Section 4(2) of the Act
or Rule 701 under the Act.
In December 1997, the Company issued 15,000 shares of its Common Stock
to George Erfurt, its Vice President of Sales, in the connection with the
exercise of his stock options. The Company received $.15 per share from Mr.
Erfurt. The issuance of the shares was exempt from the registration requirements
of the Act pursuant to either Section 4(2) of the Act or Rule 701 under the Act.
30
<PAGE>
In December 1997, the Company issued 5,000 shares to an accountant in
return for professional services rendered. The issuance of the shares was exempt
from the registration requirements of the Act pursuant to Section 4(2) of the
Act.
In December 1997, the Company completed a private offering of 48,667
shares of Series A Convertible Preferred Stock. The offering was conducted
pursuant to Rule 506 of Regulation D of the Act. In connection with the
offering, the firm of Noesis Capital Corp. served as the placement agent. As
compensation for its services as placement agent, Noesis received a selling
commission of 5% of the dollar amount of the offering. In addition, Noesis
received warrants to purchase shares of the Company's Common Stock exercisable
at $2.50 per share.
In the period from September 1997 through May 1998, the Company issued
176,800 shares of its Common Stock to 11 employees and 1 former employee in
connection with their exercise of stock options at per share prices ranging from
$.10 to $.25. The issuance of the shares was exempt from the registration
requirements of the Act pursuant to either Section 4(2) of the Act or Rule 701
under the Act.
In July 1998, the Company issued 15,022 shares of its Series B
Convertible Preferred Stock to a manufacturer of its products in satisfaction of
an obligation to pay the manufacturer the sum of $1,502,200. The issuance of the
shares was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
In September 1998, the Company issued 62,500 shares of its Common Stock
to two investors for gross proceeds of $125,000 in connection with an offering
pursuant to Rule 504 of Regulation D of the Act. The firm of Alexander Wescott
acted as placement agent in connection with the Offering and received
commissions and non-accountable expense allowance of an aggregate of 13% of the
proceeds raised.
In September 1998, the Company issued 7,500 shares to a public
relations firm, for services to be rendered. The issuance of the shares was
exempt from the registration requirements of the Act pursuant to Section 4(2) of
the Act.
In September 1998, the Company issued an aggregate of 15,000 shares to
two accountants in return for professional services rendered. The issuance of
the shares was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
In October 1998, the Company issued 100,000 shares to an investment
banking firm for services to be rendered pursuant to a financial advisory
agreement. The issuance of the shares was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
In November 1998, the Company issued an aggregate of 975,000 shares of
its Common Stock to six investors for aggregate proceeds of $875,000. The shares
were issued pursuant to Rule 504 of Regulation D of the Act.
31
<PAGE>
In November 1998, the Company issued an aggregate of 92,000 shares to
two investors in its 1997 preferred stock private offering in conversion of
their shares of Series A Convertable Preferred Stock into shares of Common
Stock. The issuance of the shares was exempt from the registration requirements
of the Act pursuant to Section 3(a)(9) of the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- - ------- ------------------------------------------
The Florida Business Corporation Act (the "Corporation Act") permits
the indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") provides
as follows:
ARTICLE IX - INDEMNIFICATION
----------------------------
"The Corporation shall indemnify any registered agent,
officer, director or incorporator, or any form of registered agent,
officer or director, to the full extent permitted by law."
In addition, the Company's by-laws provides as follows:
ARTICLE V
---------
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
------------------------------------------------------------
Section 5.01. DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
------------------------------------------
(1) The corporation shall have power to indemnify any person
who was or is a party to any proceeding (other than an action by,
or in the right of, the corporation), by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
liability incurred in connection with such proceeding, including
any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any proceeding by
judgment , order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not, or itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to,
the best interests of the corporation or, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(2) The corporation shall have power to indemnify any person,
who was or is a party to any proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other
enterprise, against expenses and amounts paid in settlement not
32
<PAGE>
exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion,
actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good
faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have
been adjudged to be liable unless, and only to the extent that,
the court in which such proceeding was brought, or any other court
of competent jurisdiction, shall determine upon application that,
despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or
agent of the corporation has been successful on the merits or
otherwise in defense of any proceeding referred to in subsections
(1) or (2), or in defense of any claim, issue, or matter therein,
he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith.
(4) Any indemnification under subsections (1) or (2), unless
pursuant to a determination by a court, shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee, or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections
(1) or (2). Such determination shall be made:
(a) By the board of directors by a majority vote of a
quorum consisting of directors who were not parties to such
proceeding;
(b) If such a quorum is not obtainable or, even if
obtainable, by majority vote of a committee duly designated by the
board of directors (in which directors who are parties may
participate) consisting solely of two or more directors not at the
time parties to the proceeding;
(c) By independent legal counsel:
(i) Selected by the board of directors prescribed
in paragraph (a) or the committee prescribed in paragraph (b); or
(ii) If a quorum of the directors cannot be
obtained for paragraph (a) and the committee cannot be designed
under paragraph (b), selected by majority vote of the full board
of directors (in which directors who are parties may participate);
or
33
<PAGE>
(d) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding
or, if no such quorum is obtainable, by a majority vote of
shareholders who were not parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and
authorization of indemnification shall be made in the same manner
as the determination that indemnification is permissible. However,
if the determination of permissibility is made by independent
legal counsel, persons specified by paragraph (4)(c) shall
evaluate the reasonableness of expenses and may authorize
indemnification.
(6) Expenses incurred by an officer or director in defending
a civil or criminal proceeding may be paid by the corporation in
advance of the final disposition of such proceeding upon receipt
of an undertaking by or on behalf of such director or officer to
repay such amount if he is ultimately found not to be entitled to
indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in
advance upon such terms or conditions that the board of directors
deems appropriate.
(7) The indemnification and advancement of expenses provided
pursuant to this section are not exclusive, and the corporation
may make any other or further indemnification or advancement of
expenses of any of its directors, officers, employees, or agents,
under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office. However, indemnification or advancement of expenses shall
not be made to or on behalf of any director, officer, employee, or
agent if a judgment or other final adjudication establishes that
his actions, or omissions to act, were material to the cause of
action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director,
officer, employee, or agent had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his
conduct was unlawful;
(b) A transaction from which the director, officer,
employee, or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which
the liability provisions of Section 607.0834 under the Act are
applicable; or
(d) Willful misconduct or a conscious disregard for the
best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in
a proceeding by or in the right of a shareholder.
34
<PAGE>
(8) Indemnification and advancement of expenses as provided
in this section shall continue as, unless otherwise provided when
authorized or ratified, to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a
person, unless otherwise provided when authorized or ratified.
(9) Notwithstanding the failure of the corporation to provide
indemnification, and despite any contrary determination of the
board or of the shareholders in the specific case, a director,
officer, employee, or agent of the corporation who is or was a
party to a proceeding may apply for indemnification or advancement
of expenses, or both, to the court conducting the proceeding, to
the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice
that it considers necessary, may order indemnification and
advancement of expenses, including expenses incurred in seeking
court-ordered indemnification or advancement of expenses, if it
determines that:
(a) The director, officer, employee, or agent if entitled
to mandatory indemnification under subsection (3), in which case
the court shall also order the corporation to pay the director
reasonable expenses incurred in obtaining court-ordered
indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled
to indemnification or advancement of expenses, or both, by virtue
of the exercise by the corporation of its power pursuant to
subsection (7); or
(c) The director, officer, employee, or agent is fairly
and reasonably entitled to indemnification or advancement of
expenses, or both, in view of all the relevant circumstances,
regardless of whether such person met the standard of conduct set
forth in subsection (1), subsection (2) or subsection (7).
(10) For purposes of this section, the term "corporation"
includes, in addition to the resulting corporation, any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any
person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a
constituent corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust or other
enterprise, is in the same position under this section with
respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate
existence had continued.
(11) For purposes of this section:
35
<PAGE>
(a) The term "other enterprises" includes employee
benefit plans;
(b) The term "expenses" includes counsel fees, including
those for appeal;
(c) The term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax
assessed with respect to any employee benefit plan), and expenses
actually and reasonably incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened,
pending, or completed action, suit or other type of proceeding,
whether civil, criminal, administrative, or investigative and
whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation"
includes any service as a director, officer, employee, or agent of
the corporation that imposes duties on such persons, including
duties relating to an employee benefit plan and its participants
or beneficiaries; and
(g) The term "not opposed to the best interest of the
corporation" describes the actions of a person who acts in good
faith and in a manner he reasonably believes to be in the best
interests of the participants and beneficiaries of an employee
benefit plan.
(12) The corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the corporation or is or
was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under
the provisions of this section.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
36
<PAGE>
PART F/S
The financial statements and supplementary data are included herein.
FINANCIAL STATEMENTS AND EXHIBITS.
- - ----------------------------------
The following audited financial statements for the Company, including
the audited balance sheet at December 31, 1997 and the related audited
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1997 and the
unaudited balance sheet at September 30, 1998 and the related unaudited
statements of operations, changes in stockholders' equity, and cash flows for
each of the nine months ended September 30, 1998 and September 30, 1997.
PSI INDUSTRIES, INC.
CONTENTS
--------
PAGE
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
37
<PAGE>
PSI INDUSTRIES, INC.
REPORT ON AUDIT OF CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of
PSI Industries, Inc.
We have audited the accompanying consolidated balance sheets of PSI
Industries, Inc. (the "Company") as of December 31, 1997, and 1996, the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PSI Industries, Inc.
as of December 31, 1997, and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Feldman Sherb Ehrlich & Co., P.C.
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
New York, New York
September 22, 1998
F-2
<PAGE>
PSI INDUSTRIES, INC.
--------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
September 30, December 31,
--------------------- ------------------------
1998 1997 1996
--------------------- ------------ ----------
ASSETS (Unaudited)
- - ------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 96,388 $ 224,680 $ 242,982
Accounts receivable, net of allowance for doubtful
accounts of $170,297 in 1998, $138,142 in 1997
and $107,659 in 1996 4,631,121 4,479,636 1,681,812
Inventories 10,173,459 5,774,263 6,719,457
Deferred income taxes 25,708 25,708 67,295
Prepaid expenses and other current assets 450,069 272,200 338,019
Notes receivable from and advances to related parties 401,594 -- --
------------ ------------ -----------
Total current assets 15,778,339 10,776,487 9,049,565
Notes receivable from and advances to related parties -- 380,613 255,236
Property and equipment, net 1,464,669 1,355,501 338,084
Investment in H & G Venture, Inc. -- -- 706,455
Deferred income taxes -- -- 27,123
Other assets 254,608 624,466 172,003
------------ ------------ -----------
Total assets $ 17,497,616 $ 13,137,067 $10,548,466
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
-----------
CURRENT LIABILITIES:
Trade accounts payable $ 3,605,392 $ 1,984,426 $ 3,611,687
Accrued expenses 587,720 241,460 126,702
Line of credit 6,917,226 7,103,984 3,855,029
Current portion of long-term notes payable 43,900 22,682 26,841
------------ ------------ -----------
Total current liabilities 11,154,238 9,352,552 7,620,259
Deferred income taxes 25,708 25,708 110,292
Long-term notes payable 577,993 517,196 527,550
STOCKHOLDERS' EQUITY:
Common Stock, $.0001 par value - 20,000,000 shares
authorized,8,910,743, 8,836,943 and 7,767,610 shares issued
and outstanding in 1998, 1997 and 1996, respecti891y 884 777
Convertible Preferred Stock - Series A, $.0001 par value,
200,000 shares authorized, 48,667 shares issued and
outstanding, $1,460,010 liquidation value 5 5 --
Convertible Preferred Stock - Series B, $.001 par value,
20,000 shares authorized, 15,022 shares issued and
outstanding, $1,502,200 liquidation value 15 -- --
Additional paid-in capital 4,151,771 2,512,925 989,494
Deferred compensation (19,409) (63,076) --
Stock subscription receivable (60,747) (60,747) --
Retained earnings 1,667,151 851,620 1,300,094
------------ ------------ -----------
Total stockholders' equity 5,739,677 3,241,611 2,290,365
------------ ------------ -----------
Total liabilities and stockholders' equity $ 17,497,616 $ 13,137,067 $10,548,466
============ ============ ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
PSI INDUSTRIES, INC.
--------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Nine Months Ended September 30, Year Ended December 31,
-------------------------------- ---------------------------
1998 1997 1997 1996
----------------- ------------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 21,029,453 $ 17,025,282 $ 23,976,069 $ 14,055,252
Cost of sales 15,857,508 12,620,580 19,179,005 10,628,676
------------ ------------ ------------ ------------
Gross profit 5,171,945 4,404,702 4,797,064 3,426,576
Selling, general and administrative expenses 3,432,734 3,176,898 4,251,152 2,517,044
Product development costs 71,240 122,152 408,486 416,177
------------ ------------ ------------ ------------
Operating income 1,667,971 1,105,652 137,426 493,355
Other expenses:
Interest expense, net of interest income (488,690) (407,372) (582,809) (293,217)
------------ ------------ ------------ ------------
Income (loss) before income taxes 1,179,281 698,280 (445,383) 200,138
Income tax provision (benefit) 309,000 251,381 (15,874) 50,675
------------ ------------ ------------ ------------
Net income (loss) $ 870,281 $ 446,899 $ (429,509) $ 149,463
Cumulative preferred stock dividend 54,750 -- 18,965 --
------------ ------------ ------------ ------------
Net income to common stockholders $ 815,531 $ 446,899 $ (448,474) $ 149,463
============ ============ ============ ============
Net income per common share - basic $ 0.09 $ 0.06 $ (0.06) $ 0.02
============ ============ ============ ============
Net income per common share - diluted $ 0.09 $ 0.05 $ (0.06) $ 0.02
============ ============ ============ ============
Weighted average number of common shares - basic 8,601,362 7,208,657 7,392,619 7,326,853
============ ============ ============ ============
Weighted average number of common shares - diluted 9,063,586 8,298,689 7,443,183 7,785,781
============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PSI INDUSTRIES, INC.
--------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Additional
Common Stock Preferred Stock Paid - In
----------------------- --------------------- -------------------
Shares Amount Shares Amount Capital
-------------------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,004,000 $ 100 -- $-- $ 5,800
Cash distributions to stockholders -- -- -- -- --
Additional shares issued in connection with 0
6.96-for-one stock split 5,982,818 598 -- -- (598)
Issuance of shares in connection with private 0
placement, net of issuance costs of $55,427 316,966 32 -- -- 895,439
Issuance of shares to a domestic corporation 0
for cash 455,926 46 -- -- 65,154
Issuance of shares for legal services 7,900 1 -- -- 23,699
Net income -- -- -- -- 0
---------- ----- ------ --- -----------
Balance at December 31, 1996 7,767,610 777 -- -- 989,494
Pruchase of treasury stock (1,164,470) (116) -- -- (174,554)
Deferred compensation related to issuance of
1,164,470 shares of common stock in
connection with an employment agreement 1,164,470 116 -- -- 174,554
Amortization of deferred compensation -- -- -- -- --
Issuance of Preferred Stock-Series A, net of
issuance costs of $72,733 -- -- 48,667 5 1,387,639
Issuance of common stock for cash 156,000 16 -- -- 15,584
Issuance of common stock for services 397,000 40 -- -- 59,512
Issuance of common stock for subscription
receivable 516,333 51 -- -- 60,696
Preferred stock dividends -- -- -- -- --
Net loss -- -- -- -- --
---------- ----- ------ --- -----------
Balance at December 31, 1997 8,836,943 884 48,667 5 2,512,925
Issuance of Preferred Stock-Series B for inventory -- -- 15,022 15 1,502,185
Issuance of common stock for cash 103,300 10 -- -- 112,938
Issuance of common stock for services 20,500 2 -- -- 28,718
Cancellation of common stock (50,000) (5) -- -- (4,995)
Preferred stock dividends -- -- -- -- --
Deferred compensation amortization -- -- -- -- --
Net income -- -- -- -- --
---------- ----- ------ --- -----------
Balance at September 30, 1998 8,910,743 $ 891 63,689 $20 $ 4,151,771
========== ===== ====== === ===========
</TABLE>
<TABLE>
<CAPTION>
Stock Total
Deferred Subscription Retained Stockholders'
Compensation Receivable Earnings Equity
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ -- $ -- $ 1,179,631 $ 1,185,531
Cash distributions to stockholders -- -- (29,000) (29,000)
Additional shares issued in connection with
6.96-for-one stock split -- -- 0 0
Issuance of shares in connection with private
placement, net of issuance costs of $55,427 -- -- 0 895,471
Issuance of shares to a domestic corporation
for cash -- -- 0 65,200
Issuance of shares for legal services -- -- 0 23,700
Net income -- -- 149,463 149,463
--------- -------- ----------- -----------
Balance at December 31, 1996 -- -- 1,300,094 2,290,365
Pruchase of treasury stock -- -- -- (174,670)
Deferred compensation related to issuance of
1,164,470 shares of common stock in
connection with an employment agreement (174,670) -- -- --
Amortization of deferred compensation 111,594 -- -- 111,594
Issuance of Preferred Stock-Series A, net of
issuance costs of $72,733 -- -- -- 1,387,644
Issuance of common stock for cash -- -- -- 15,600
Issuance of common stock for services -- -- -- 59,552
Issuance of common stock for subscription
receivable -- (60,747) -- --
Preferred stock dividends -- -- (18,965) (18,965)
Net loss -- -- (429,509) (429,509)
--------- -------- ----------- -----------
Balance at December 31, 1997 (63,076) (60,747) 851,620 3,241,611
Issuance of Preferred Stock-Series B for inventory -- -- -- 1,502,200
Issuance of common stock for cash -- -- -- 112,948
Issuance of common stock for services -- -- -- 28,720
Cancellation of common stock -- -- -- (5,000)
Preferred stock dividends -- -- (54,750) (54,750)
Deferred compensation amortization 43,667 -- -- 43,667
Net income -- -- 870,281 870,281
--------- -------- ----------- -----------
Balance at September 30, 1998 $ (19,409) $(60,747) $ 1,667,151 $ 5,739,677
========= ======== =========== ===========
</TABLE>
See notes financial statements.
F-5
<TABLE>
<CAPTION>
PSI INDUSTRIES, INC.
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Nine Months Ended September 30, Year ended December 31,
----------------------------- --------------------------
1998 1997 1997 1996
------------- ---------- ------------ ---------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 870,281 $ 446,899 $ (429,509) $ 149,463
----------- ----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Bad debt expense 63,000 34,000 116,000 184,828
Depreciation 63,000 47,000 76,500 48,202
Amortization 43,667 175,177 111,594 72,076
Loss on disposal of asset -- -- 3,693 --
Deferred income taxes -- -- (15,874) 15,874
Issuance of common stock for services 23,720 -- 59,551 23,700
Changes in operating assets and liabilities:
Accounts receivable (214,485) (2,290,078) (2,913,824) (166,781)
Notes receivable (20,981) -- (300,047) --
Inventories (2,896,996) 78,694 945,194 (4,829,316)
Prepaid expenses and other current assets (177,869) 13,862 65,819 (177,598)
Other assets 411,965 20,972 (452,462) (233,462)
Accounts payable 1,620,963 (1,491,902) (1,627,260) 2,968,107
Accrued expenses 346,261 275,608 114,758 115,411
----------- ----------- ----------- -----------
Total adjustments (737,755) (3,136,667) (3,816,358) (1,978,959)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 132,526 (2,689,768) (4,245,867) (1,829,496)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (66,081) (56,719) (407,055) (103,653)
Proceeds from disposal of property and equipment -- -- 15,900 --
Investment in patents (42,106) -- -- --
Advances to stockholders -- (441,751) -- (117,138)
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (108,187) (498,470) (391,155) (220,791)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from/(Payments to) line of credit, net (186,758) 2,040,439 3,248,955 1,354,237
Proceeds from issuance of common and preferred stock,
net of issuance costs 112,949 929,731 1,403,244 933,315
Principal payments on borrowings (24,072) (24,914) (14,514) (19,270)
Distributions to stockholders (54,750) -- (18,965) (29,000)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (152,631) 2,945,256 4,618,720 2,239,282
NET INCREASE (DECREASE) IN CASH (128,292) (242,982) (18,302) 188,995
CASH AT BEGINNING OF PERIOD 224,680 242,982 242,982 53,987
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 96,388 $ -- $ 224,680 $ 242,982
=========== =========== =========== ===========
</TABLE>
See notes financial statements.
F-6
<PAGE>
PSI INDUSTRIES, INC.
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30, Years ended December 31,
------------------------------------- ---------------------------
Supplemental disclosures of cash flow information: 1998 1997 1997 1996
------------------ ---------------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Noncash investing and financing activities:
Decrease in investment in H& G Venture, Inc. and
increase in property and equipment $ - $ 706,455 $ 706,455 $ -
================== ================ ============= ========
Purchase of equipment for a note payable $ 106,087 $ - $ - $ -
================== ================ ============= ========
Purchase of common stock in exchange for notes
receivable from and advances to related parties $ - $ 174,670 $ 174,670 $ -
================== ================ ============= ========
Issuance of common stock related to deferred compensation $ - $ 174,670 $ 174,670 $ -
================== ================ ============= ========
Issuance of common stock for services $ 23,720 $ - $ 59,552 $ 23,700
================== ================ ============= ========
Issuance of preferred stock for inventory $ 1,502,200 $ - $ - $ -
================== ================ ============= ========
Issuance of common stock for subscriptions receivable $ - $ - $ 60,696 $ -
================== ================ ============= ========
Interest paid $ 266,054 $ 245,650 $ 598,675 $ 299,074
================== ================ ============= ========
</TABLE>
See notes financial statements.
F-7
<PAGE>
PSI INDUSTRIES, INC.
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED DECEMBER 31, 1997 AND 1996
--------------------------------------
The consolidated balance sheet at September 30,1998 and the
consolidated statements of operations and cash flows for the nine months ended
September 30, 1998 and 1997 and the consolidated statement of stockholders'
equity for the nine months ended September 30, 1998 are unaudited but include
all adjustments which in the opinion of management, are necessary to the fair
presentation of the financial position and results of operations for the periods
then ended. All such adjustments are of normal and recurring nature. The results
of the operations for any interim period are not necessarily indicative of
results of operations for a full fiscal year.
1. ORGANIZATION
------------
PSI Industries, Inc. (the "Company") was incorporated in 1986 under the
laws of the State of Florida. The Company manufactures and distributes
a single-use camera, "The Message Camera." In addition, the Company is
a wholesale distributor of photographic film, cameras, ancillary
photographic equipment and consumer electronics nationwide to wholesale
and retail businesses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated
financial statements include the accounts of the Company and its wholly
owned subsidiaries. All material inter-company transactions have been
eliminated in consolidation.
B. REVENUE RECOGNITION - Sales are recorded at the time merchandise is
shipped and risk of ownership is transferred, and are reported net of
estimated returns and allowances.
C. INVENTORIES - Inventories, consisting primarily of finished goods
held for resale and raw material, are stated at the lower of cost,
determined on the weighted average method or market.
D. PROPERTY AND EQUIPMENT - Property and Equipment is carried at cost,
less accumulated
F-8
<PAGE>
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the asset which range from 5 to 30
years.
E. ADVERTISING COSTS - The Company expenses advertising costs when
incurred, with the exception of direct costs associated with the first
showing of advertisements which are deferred until such first showing.
At December 31, 1997, advertising costs deferred and reported as
prepaid expenses and other assets were approximately $242,000.
Advertising costs, included in selling, general and administrative
expenses, totaled approximately $39,000 and $26,000 for 1997 and 1996,
respectively.
F. USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
G. PRODUCT DEVELOPMENT COSTS - Costs related to the design and
development of The Message Camera are expensed as incurred.
H. INCOME TAXES - Prior to March 31, 1996, the Company had elected to
be taxed as an S corporation pursuant to the provisions of the Internal
Revenue Code, which provides that, in general, in lieu of corporate
income taxes, the stockholders shall be taxed on the Company's taxable
income in accordance with their ownership interest. Effective March
31,1996, the Company terminated the S corporation election upon the
completed sale of shares of its common stock to a domestic corporation
(see Note 10). Deferred income taxes are determined on the liability
method in accordance with the Statement of Financial Accounting
Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES.
I. LONG LIVED ASSETS - The Company has adopted SFAS, No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. In accordance with this statement, the
Company evaluates the recovery of the carrying amount of its long-lived
assets, primarily property and equipment, whenever events or changes in
circumstances indicate that the carrying amount of such assets may not
be fully recoverable. If this review indicates that the carrying value
of the assets will not be recoverable, as determined based on the
estimated non-discounted cash flows of the Company over their remaining
estimated useful lives, the carrying amount is reduced by the estimated
shortfall of cash flows.
J. EARNINGS PER SHARE - The Company has adopted SFAS, No. 128, Earnings
per Share. Net income (loss) per common share has been restated for all
periods presented to conform to the
F-9
<PAGE>
provisions of SFAS No. 128. Basic earnings (loss) per share is computed
by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share reflects the per share amount that
would have resulted if diluted potential common stock had been
converted to common stock, as prescribed by SFAS No. 128.
3. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
-------------------------------------------------
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash in banks and
trade accounts receivable. The credit risk associated with cash in
banks is considered low due to the credit quality of the institutions.
The Company performs on-going credit evaluations of its trade customers
and generally does not require collateral.
At December 31, 1997 and 1996, accounts receivable include one customer
and three customers representing 18% and 53%, respectively, whose
balance exceeds 10% of aggregate accounts receivable.
4. INVENTORIES
-----------
At, December 31, 1997 and 1996, inventories are comprised of the
following:
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
<S> <C> <C>
Raw materials $ 1,147,599 $ 575,255
Finished goods 4,626,664 6,144,202
---------------- --------------
$ 5,774,263 $ 6,719,457
================ ==============
</TABLE>
5. PROPERTY AND EQUIPMENT
----------------------
F-10
<PAGE>
At, December 31, 1997 and 1996, property and equipment is comprised of
the following:
<TABLE>
<CAPTION>
1997 1996
---------------- ------------------
<S> <C> <C>
Building and building $ 844,320 $ 133,733
improvements
Machinery and equipment 484,583 134,166
Furniture and fixtures 173,044 139,117
Vehicles 69,338 71,368
---------------- ------------------
1,571,285 478,384
Less: Accumulated depreciation (215,784) (140,300)
---------------- ------------------
$ 1,355,501 $ 338,084
================ ==================
</TABLE>
6. INVESTMENT IN H & G VENTURE, INC.
---------------------------------
On April 24, 1995, the Company entered into a stock purchase agreement
for 35 shares of H & G Venture, Inc.( "H&G"), which represents 35% of
its authorized, issued and outstanding common stock. H&G's sole asset
is a building in which the Company occupies approximately 35% of the
available square footage. During 1997, the 65% owner of H & G
refinanced H & G's first mortgage such that it allowed for the purchase
of 35% of the building by the Company. Prior to the refinancing, the
Company purchased the above mentioned shares which were held in escrow
as collateral for the Company's note payable to the 65% owner of H & G.
The stock held in escrow was reflected on the balance sheet at December
31, 1996 as a long-term investment since the Company intended to
exchange its shares in H & G for an ownership interest in 35% of the
building. The aggregate purchase price for the shares was $700,000,
with a cash payment of $140,000 and a promissory note of $560,000(see
Note 8).
F-11
<PAGE>
7. LINE OF CREDIT
--------------
On May 29, 1997, the Company refinanced its existing revolving line of
credit. The new line of credit of $7,500,000 provides for borrowings
based on a percentage of eligible trade accounts receivable and
inventories. Borrowings pursuant to the agreement bear interest,
payable monthly, at the financial institution's prime rate plus
.25%(8.75% at December 31, 1997) and are due on demand. At December 31,
1997, there was no additional availability under this agreement. This
revolving line of credit is collateralized by substantially all
accounts receivable and inventories of the Company and is guaranteed by
certain stockholders of the Company.
Prior to May 29, 1997, the Company had a revolving line of credit with
a financial institution for $5,000,000 and provided for borrowings
based on a percentage of eligible trade accounts receivable and
inventories. Borrowings pursuant to the agreement bore interest,
payable monthly, at the financial institution's prime rate plus .25%
(8.50% at December 31, 1996) and were due on demand. This revolving
line of credit was collateralized by substantially all accounts
receivable and inventories of the Company and was guaranteed by certain
stockholders of the Company.
8. DEBT
----
Long-term debt consists of the following:
F-12
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------
<S> <C> <C>
Mortgage note, payable in monthly principal
payments of $1,890 plus interest at the financial
institutions prime rate plus .50% (9.00% at
December 31, 1997) with a balloon payment of
$449,150 due on March 31, 2002, collateralized by
building and building improvements (a) $ 539,878 $ -
Promissory note, issued in connection with the
Company's investment in H & G described in Note 6,
bearing interest at 9.875% at December 31, 1996
payable in full on January 31, 1997,
collateralized by the Company's investment in H &
G (a) - 546,451
Promissory note - 7,940
------------------------------------
539,878 554,391
Less current maturities (22,682) (26,841)
------------------------------------
$517,196 $527,550
================== =================
<FN>
(a) On January 31, 1997, the Company entered into a 90-day note payable
with a bank, the proceeds of which were used to pay-off the existing
promissory note. On March 31, 1997, this promissory note was repaid
with the proceeds of the mortgage note.
</FN>
</TABLE>
Maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 22,682
1999 22,682
2000 22,682
2001 22,682
2002 449,150
----------------
$ 539,878
================
</TABLE>
9. RELATED PARTY TRANSACTIONS
--------------------------
F-13
<PAGE>
On January 1, 1997, in connection with the issuance of shares under an
employment agreement (Note 11) certain stockholders' sold 1,164,741
shares of common stock to the Company at a purchase price of $.15 per
share totaling $174,670. The purchase price of $174,670 was paid
through the reduction of notes receivable and advances to related
parties.
As of December 31, 1997, the Company had notes receivable and advances
to related parties, due on demand, totaling $380,613, of which $187,656
represents advances to certain officers for 1998 compensation. The
Company does not intend to demand repayment prior to January 1, 1999.
10. INCOME TAXES
------------
Concurrent with the March 31, 1996 issuance of additional shares of
common stock to a domestic corporation, the Company's S corporation
election was terminated, making it subject to corporate income taxes.
The components of the income tax provision for the year ended December
31, 1997 and the period April 1, 1996 to December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Period from
April 1,
Year ended 1996 to
December 31, December 31,
1997 1996
--------------------- ----------------------
<S> <C> <C>
Current $ - $ 34,801
Deferred (15,874) 15,874
--------------------- ----------------------
Total $ (15,874) $ 50,675
===================== ======================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
(liabilities) are as follows:
10. INCOME TAXES (CONTINUED)
------------------------
F-14
<PAGE>
<TABLE>
<CAPTION>
Period from
Year ended April 1,1996
December to December
31,1997 31, 1996
------------------ --------------------
Deferred tax assets:
<S> <C> <C>
Net operating loss $ 49,587 $ -
carryforwards
Allowance for doubtful 51,983 40,512
accounts
Amortization---expansion costs - 27,132
Uniform inventory 61,332 26,774
capitalization
---------------- --------------------
Deferred tax assets 162,902 94,418
Less valuation allowance (137,194) -
---------------- --------------------
Total deferred tax assets 25,708 94,418
Deferred tax liabilities:
Fixed assets (25,708) (25,708)
Expansion costs - (84,584)
---------------- --------------------
Total deferred tax liabilities (25,708) (110,292)
---------------- --------------------
Total net deferred taxes $ - $ (15,874)
================ ====================
</TABLE>
10. INCOME TAXES (CONTINUED)
------------------------
The reconciliation of the income tax computed at the U.S. federal
statutory rate to income
F-15
<PAGE>
tax expense for the year ended December 31, 1997 and the period April
1, 1996 through December 31, 1996 is as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
----------------- ---------------
<S> <C> <C>
Tax at federal statutory rate (34.00)% 34.00%
State taxes, net of federal tax benefit (3.32) 4.14
Nondeductible items 2.95 4.78
Benefit of change in tax status - (7.08)
Benefit of graduated tax rates - (4.50)
Valuation allowance 30.80 -
----------------- ---------------
Total (3.57)% 31.34%
================= ===============
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on weight of the evidence , it is more likely
than not that some portion or all of the deferred tax assets will not
be realized. After consideration of all the evidence, both positive and
negative, management has determined that a $137,194 valuation allowance
at December 31, 1997 is necessary to reduce the deferred tax assets to
the amount that will more likely than not be realized. The change in
the valuation allowance for the current year is $137,194. At December
31, 1997, the Company has available net operating loss carryforwards of
approximately $132,000, which expire in the year 2012.
11. COMMITMENTS
-----------
OPERATING LEASES
The Company leases vehicles and office equipment under noncancelable
operating leases expiring in various years through 2001. The leases
require the Company to pay maintenance, taxes and insurance. Future
minimum rental commitments under long-term noncancelable operating
leases are as follows:
F-16
<PAGE>
11. COMMITMENTS (CONTINUED)
-----------------------
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
1998 $ 120,265
1999 94,565
2000 28,198
2001 11,139
----------
$ 254,167
==========
</TABLE>
During the years ended December 31, 1997 and 1996, rent expense was
$110,384 and $70,895 respectively.
AGREEMENTS
Effective December 1, 1995, the Company entered into an exclusive
distributorship agreement with Keepsake, Inc. (Keepsake), a Florida
Corporation, from which the Company obtained a license to utilize the
intellectual property (technology) of Keepsake in the manufacturing and
sale of "The Message Camera." The technology involves the imprint of
graphic pictorial representations upon photographic film for these
single use cameras. On October 22, 1996, the Company amended this
agreement extending the initial term from 5 to 20 years. The agreement
provided for monthly royalty payments based on sales of single-use
cameras. In order to prevent the termination of the Company's rights
under this amended agreement, the Company is required to make certain
minimum annual guaranteed royalty payments. During 1997, the Company
incurred royalty expense to Keepsake of approximately $538,000, of
which $95,667 remains unpaid and is included in trade accounts payable
at December 31, 1997. At December 31, 1997, the remaining guaranteed
royalty commitment was approximately $23.3 million. However, effective
November 1, 1997, the Company discontinued the payments to Keepsake due
to a dispute that arose in connection with the validity of Keepsake's
patents. On February 20,1998, Keepsake terminated the distributorship
agreement and brought a suit against the Company for, among other
things, breach of contract. At December 31,1997, raw material inventory
totaling approximately $434,000 was being held by Keepsake, and,
accordingly, is included in noncurrent other assets.
See legal matters below.
On November 1, 1997 the Company entered into a nonexclusive license
agreement with Polaroid, the owner of certain patents, for the
manufacture and sale of pre-exposed film for use in The Message Camera.
The license agreement with Polariod continues until the patents expire
and may be terminated by the Company at any time by 60 days prior
written notice. In the event the Company is unable to substantially
perform its
11. COMMITMENTS (CONTINUED)
-----------------------
obligations under the agreement and such default or inability is not
cured within 60 days after written notice from Polaroid, then Polaroid
may terminate the agreement by giving written notice. The agreement
provides for monthly royalty payments of $.30 for each
F-17
<PAGE>
licensed product sold or disposed of or 5% of the net selling price of
the licensed product, whichever is greater. During 1997, the Company
incurred royalty expense to Polaroid of approximately $27,000 of which
$27,000 is included in trade accounts payable at December 31, 1997.
On January 1, 1997, the Company entered into a five-year employment
agreement with an officer that requires the Company to pay a minimum
compensation of $180,000 per year. At such time as the Company
completes an underwritten public offering, the base salary shall
increase to $250,000 per year. In addition, the Company issued to this
officer 1,164,470 shares of common stock, of which 388,156 vested on
January 1, 1997. The remaining shares vest pro rata on a monthly basis
over the period from February 1, 1997 through January 1, 1999. Deferred
compensation of $63,076 relates to the unvested shares at December 31,
1997 and is being amortized over the vesting period of the related
shares.
On July 1, 1997, the Company entered into a three year employment
agreement with an officer that requires the Company to pay a minimum
compensation of $100,000 per year, plus commissions.
LEGAL MATTERS
The Company is a defendant in an action by Keepsake, alleging, among
other things, breach of contract (failure to make continuing fee
payments, failure to accurately report sales and make payments under
its agreements), civil theft, declaratory judgement, specific
performance and injunctive relief ( failure to obtain written approval
from Keepsake before appointing exclusive sub-distributorships). This
action is at the pleadings stage. No trial date has been set.
Management believes it has a strong defense in this action; however,
given the complexity of the issues involved, it is unable to evaluate
the likelihood of a favorable or unfavorable outcome at this time. The
Company is a plaintiff in an action alleging, among other things,
breach of certain written agreements and misappropriation of trade
secrets. The defendant in that action has filed a lawsuit, in which the
Company is a named defendant, asking the court to declare it is not
infringing on certain patents underlying the technology described above
alleging, among other things, unfair competition. Both parties have
exchanged a release and settlement agreement, but it has not been
executed and the action has not been dismissed. Management intends to
continue to seek a settlement and believes the ultimate outcome will
not have a material adverse effect on the Company's financial condition
or results of operations.
The Company is one of 28 defendants in an action by Fuji Film, alleging
violation of a number of its patents. Management is unable to evaluate
the likelihood of a favorable or unfavorable action at this time, but
even if Fuji Film prevails, the Company believes that this will not
have a material effect on the Company's business.
The Company is a defendant in an action filed in the U.S. District
Court for the Middle District of Florida (Orlando Division) in November
1998 by Keepsake, Inc. and Loura Dobbs. The action is for, among other
things, unfair competition and patent infringement. The Company intends
to vigorously contest the complainants' claims.
F-18
<PAGE>
12. EMPLOYEE BENEFIT PLANS
----------------------
The Company has a defined contribution profit sharing plan, covering
substantially all employees with more than one year of service.
Contributions for the profit sharing plan are discretionary and
determined by the Company's Board of Directors. During the years ended
December 31, 1997 and 1996, no contributions were made to this plan
13. STOCKHOLDERS' EQUITY
--------------------
On March 11, 1996, the Board of directors authorized a 6.96-for-one
stock split resulting in 5,982,818 additional shares which were
distributed to the shareholders of record.In March 1996, the Company
issued 227,963 shares of unrestricted common stock to a domestic
corporation at approximately $0.17 per share. The issue price was
determined by the Board of Directors to be the market value at the date
of issuance. Additionally, the Company granted the corporation an
option to purchase an additional 227,963 shares of restricted stock at
$0.12 per share, which option was exercised in 1996. The option price
of $0.12 per share was determined by the Board of Directors to be the
market value at the date of grant.
In August 1996, the Company completed a private placement of 316,966
shares of common stock at $3.00 per share for an aggregate offering
price of $950,898. In connection with this private placement, the
Company issued 7,900 shares of common stock for legal services and
recorded $23,700 of expense based on the private placement offering
price of $3.00 per share. In December 1997, the Company completed a
private placement of 48,667 shares of Series A convertible preferred
stock with a $.0001 par value, at $30.00 per share for an aggregate
offering price of $1,460,377. The Series A convertible preferred stock
provides for payment of semiannual cash dividends of 5% per annum
($18,695 for the year ended December 31, 1997). Each share of Series A
convertible preferred stock is convertible at the option of the holder
into ten shares of the Company's common stock, $.0001 par value,
equivalent to a price of $3.00 per share of common stock. The
conversion price is subject to adjustment in the event the average of
the Company's earnings per share for its fiscal years of 1997 and 1998,
on a fully diluted basis (the "Average EPS"), is less than $.20 per
share, in which event the conversion price shall be reduced to a number
that equals 15 times the Average EPS, provided that in no event shall
the conversion price be reduced below $2.50, an equivalent of 12 shares
of the Company's common stock. At any time after one year from the date
of issuance, the Company can require that all outstanding shares of the
Series A convertible preferred stock be automatically converted at the
conversion price then in effect if at any time (i) the closing bid
price of the Company's common stock has exceeded $7.50 per share for a
period of 20 consecutive trading days, (ii) the Company's common stock
has been listed on NASDAQ or another national securities exchange and
(iii) a registration statement covering the shares of common stock
issuable upon conversion of the Series A convertible preferred stock
has been filed with the Securities and Exchange Commission
F-19
<PAGE>
and declared effective. The holders of the Series A convertible
preferred stock are entitled to such number of votes as are equal to
the number of shares into which their holdings are convertible and vote
together with the holders of the Company's common stock. In the event
of liquidation, dissolution or winding up of the Company, the holders
are entitled to share ratably, with all other holders of preferred
stock all assets remaining available for distribution after payment of
liabilities, but before any payments are made to the holders of common
stock, up to $30.00 per share, plus any accrued but unpaid dividends.
In connection with this private placement, the Company issued warrants
to purchase 202,77 shares of common stock to the placement agent. The
warrants are exercisable at $3 per share after December 30, 1998 and
prior to December 30, 2002. The conversion price is subject to
adjustment in the event Average EPS is less than $.20 per share, in
which event the conversion price shall be reduced to a number that
equals 15 times the Average EPS, provided that in no event shall the
conversion price be reduced below $2.50.
14. STOCK OPTION PLAN
-----------------
On March 15, 1996, the Company established the PSI Industries, Inc.
1996 Stock Option Plan (the "Plan"). The Company has elected to follow
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and related Interpretations on accounting for its
employee stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, requires the use of option valuation models
that were not developed for use in valuing employee stock options.
Under APB No. 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock at the
date of grant, no compensation expense is recognized.
Pursuant to the Plan, during 1996, the Company granted options to its
employees to purchase 224,000 shares of its common stock at an exercise
price of $0.10 per share and 366,333 at an exercise price of $.11 per
share. From July 1, 1997 through December 31, 1997 the Company granted
options to its employees to purchase 135,000 shares of its
F-20
<PAGE>
14. STOCK OPTION PLAN(CONTINUED)
----------------------------
common stock at an exercise price of $.15 per share and 5,000 shares at
an exercise price of $.25 per share. The exercise prices were
determined by the Board of Directors to be the market value at the date
of grant, and, therefore, no compensation expenses was recognized.
Under the Plan, incentive stock options ("ISOs") may be granted at an
exercise price of not less than the market value at the date of grant,
except for ISOs granted to a 10% or greater stockholder, for which the
exercise price is no less than 110% of the market value at the date of
grant.
During 1997, the Company issued 397,000 shares of restricted common
stock in exchange for services which were valued at $59,551.
During 1997, 672,333 options granted under this plan were exercised of
which 156,000 were exercised for cash and 516,333 were exercised for
stock subscriptions receivable.
Pro forma information regarding net income is required by SFAS No. 123,
and has been determined as if the Company had accounted for its
employees stock options under the fair value method of that statement.
The fair value of outstanding options was estimated at the date of
grant using the minimum value method, using the following assumptions:
risk free rate of 5.11% for 1997, no expected dividends and weighted
average expected life of the options of 2.7 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Based
on the assumptions utilized above, the pro forma impact on net loss for
1997 is not materially different from amounts reported.
15. EARNINGS PER SHARE
------------------
F-21
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended
December 31
1997 1996
--------------------------------------------
<S> <C> <C>
Numerator:
Net (loss) income $ (429,509) $ 149,463
Dividend on Series A preferred stock (18,965) -
--------------------- ---------------------
Numerator for basic and diluted
earnings (loss) per share-income
available to common stockholders $ (448,474) $ 149,463
--------------------- ---------------------
Denominator:
Denominator for basic earnings (loss)
per share-weighted average shares
outstanding 7,392,619 7,326,853
Effect of dilutive securities
Options - 454,497
--------------------- ---------------------
Denominator for diluted earnings (loss)
per share-adjusted weighted average and
assumed conversions 7,392,619 7,781,350
===================== =====================
Basic earnings (loss) per share $ (0.06) $ 0.02
===================== =====================
Diluted earnings (loss) per share $ (0.06) $ 0.02
===================== =====================
</TABLE>
16. BANK CREDIT
-----------
On September 15, 1998, the Company entered into a new credit agreement
with a bank, which replaces the existing line of credit. The new
agreement of $12,000,000 provides for borrowings based on a percentage
of eligible trade accounts receivable and inventories. Several options
are available to borrow at floating interest rates based on LIBOR
(London Interbank Offered Rate) plus 2.25% or, at the financial
institution's prime rate. The loan is due on demand. The credit
agreement is collateralized by substantially all assets of the Company.
The credit agreement contains covenants that
F-22
<PAGE>
place certain limits on the Company's ability to merge with another
entity, incur debt or create liens on assets. In addition the credit
agreement requires the Company to meet a tangible net worth test.
17. YEAR 2000 ISSUE AND SUBSEQUENT EVENTS (UNAUDITED)
-------------------------------------------------
A. Until recently, many computer programs were written using two digits
rather than four digits to define the applicable year in the twentieth
century. Such software may recognize a date using "00" as the year 1900
rather than the year 2000. Utilizing both internal and external
resources, the Company is in the process of defining, assessing and
converting or replacing various programs, hardware and instrumentation
systems to make them Year 2000 compatible. The Company's Year 2000
project is comprised of two components-business applications and
equipment. The business applications component consists of the
Company's business computer systems, as well as the computer systems of
third-party suppliers or customers, whose Year 2000 problems could
potentially impact the Company. Equipment exposures consist of personal
computers, system servers, and telephone equipment whose Year 2000
problems could also impact the Company. Management believes that the
cost of its Year 2000 initiatives is not expected to be material to the
Company's results of operations or financial position.
B. Through November, 1998, the Company sold 1,037,500 shares of
common stock for $1,000,000 under Rule 504.
F-23
<PAGE>
PART III
--------
ITEM 2. INDEX TO EXHIBITS.
- - ------- ------------------
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
2 Articles of Merger
3.1 Articles of Incorporation
3.2 Articles of Amendment of Articles of Incorporation
of Registrant dated September 10, 1993
3.3 Articles of Amendment of Articles of Incorporation
of Registrant dated September 24, 1997
3.4 Articles of Amendment of Articles of Incorporation
of Registrant dated September 24, 1997
3.5 Articles of Amendment of Articles of Incorporation
of Registrant dated July 13, 1998
3.6 By-Laws, as amended
4.1 Placement Agent Agreement between Registrant and
Noesis Capital Corp. dated July 3, 1997
4.2 Form of Warrant Certificate
4.3 Form of Series A Preferred Stock Certificate
4.4 Form of Series B Preferred Stock Certificate
10.1 1996 Stock Option Plan, as amended
10.2 License Agreement between Registrant and Polaroid
Corp. dated November 1, 1997
10.3 Employment Agreement for Benjamin Cohen dated
January 1, 1997
10.4 Employment Agreement for George Erfurt dated
July 1, 1997
10.5 Photoline Standardized Profit Sharing Plan & Trust
10.6 Loan and Security Agreement between Registrant and
Lasalle National Bank dated September 15, 1998
10.7 Promissory Note of Registrant and Mortgage Deed
between Registrant and Mellon United National Bank
dated December 16, 1998
10.8 Letter Agreement between Registrant and Dabney
Flanigan, LLC dated August 11, 1998
10.9 List of Subsidiaries of Registrant
38
<PAGE>
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
PSI INDUSTRIES, INC.
Date: December 29, 1998 By: /S/BENJAMIN COHEN
-----------------------
Benjamin Cohen, President
39
ARTICLES OF MERGER
OF
PSI INDUSTRIES, INC., a Florida corporation and
BRANDON SALES CORPORATION, A DELAWARE CORPORATION
-------------------------------------------------
Pursuant to Section 607.1101, FLORIDA STATUTES, and applicable
----------------
provisions of the Delaware Corporate Code, PSI INDUSTRIES, INC., a Florida
corporation (hereinafter "PSI"), and BRANDON SALES CORPORATION, a Delaware
corporation (hereinafter "Brandon") adopt these Articles of Merger.
ARTICLE I
---------
The parties to the merger are Brandon and PSI.
On the Effective Date (as defined in Article V hereof) Brandon
shall be merged with and into PSI, the separate existence of Brandon shall
cease, and PSI, as the surviving corporation, shall continue its corporate
existence.
ARTICLE II
----------
The Articles of Incorporation and Bylaws of PSI shall be
unchanged by the Merger effected hereby and such Articles of Incorporation of
PSI shall be the Articles of Incorporation and Bylaws of such surviving
corporation EXCEPT that Article IV of the Articles of Incorporation of PSI shall
be amended in its entirety and shall henceforth be as follows:
The maximum number of shares of capital stock that this
corporation is authorized to issue and have outstanding at any
one time is Ten Million (10,000,000) shares of common stock
having a par value of $0.0001 per share.
ARTICLE III
-----------
The Agreement and Plan of Merger was adopted by the directors
and shareholders of Brandon on March 29, 1994, and by the directors and
shareholders of PSI on March 29, 1994.
ARTICLE IV
----------
Automatically on and as of the Effective date, by virtue of
the merger, and without any action on the part of the holder(s) thereof:
(i) Each share of PSI Common issued and outstanding as of the
Effective Date shall remain issued and outstanding unaffected by the Merger and
each certificate evidencing such previously issued shares of PSI Common shall
remain valid and unimpaired by said Merger;
<PAGE>
(ii) Each share of Brandon Common Stock issued and outstanding
as of the Effective Date of the Merger shall be converted into and exchanged for
$1.00 in cash. Any other options, warrants or other rights (whether legal,
equitable or otherwise) to acquire shares of Brandon Common, if any, shall be
canceled;
(iii) Upon the Effective Date of the Merger, PSI, as the
surviving corporation, shall act as disbursing agent (the "Disbursing Agent").
After the Effective Date of the Merger, each holder, other than PSI, of an
outstanding certificate or certificates which immediately prior thereto
represent an outstanding shares of Brandon Common shall surrender the same to
the Disbursing Agent and each such holder shall be entitled upon such surrender
to receive in exchange therefore $1.00 in cash for each such share theretofore
represented by the certificate or certificates so surrendered. Until so
surrendered and exchanged, each outstanding certificate which prior to the
Effective Date of the Merger represented shares of Brandon Common shall be
deemed for all purposes to represent only the right to receive $1.00 in cash per
share. Payment shall only be made to the person in whose name the certificate
surrendered is registered. After the Effective Date of the Merger, no transfer
of the shares of Brandon Common outstanding immediately prior to the Effective
Date of the Merger shall be made on the stock transfer books of the surviving
corporation. No interest shall accrue or be payable with respect to any cash
held by the Disbursing Agent for the benefit of holders of certificates which,
immediately prior to the Effective Date of the Merger, represented shares of
Brandon Common.
(iv) If the holder(s) of any shares of Brandon Common issued
and outstanding as of the Effective Date of the Merger shall, in accordance with
the applicable provisions of Section 607.1301, 607. 1302 and 607.1320, FLORIDA
STATUTES, as amended, become entitled to receive payment for such shares, such
payment shall be made by the surviving corporation.
ARTICLE V
---------
The merger shall become effective as of the filing of
appropriate Articles of Merger with the off ices of the Secretary of State of
Florida and Delaware (the "Effective Date").
ARTICLE VI
----------
These Articles of Merger may be terminated at any time prior
to the Effective Date by the Board of Directors of any party. notwithstanding
approval or adoption of the Agreement And Plan of Merger or these Articles of
Merger by the shareholders of either or both of the parties.
2
<PAGE>
At any time prior to the Effective Date these Articles of
Merger may be amended by written agreement of the parties by their respective
Board of Directors either before or after adoption of the Agreement and Plan of
Merger by the respective shareholders of the parties.
IT WITNESS WHEREOF, the parties to these Articles of Merger
have caused them to be duly executed by their respective authorized officers.
PSI INDUSTRIES, INC.,
a Florida corporation
By:
-------------------------------
Dominick M. Seminara
As its: President and Secretary
BRANDON SALES CORPORATION,
a Delaware corporation
By:
-------------------------------
Carol Grapski
As its: President and Secretary
STATE OF FLORIDA
SS.
COUNTY OF PALM BEACH
The foregoing instrument was acknowledged, before me this 29th
day of March, 1994, by Dominick M. Seminara, who is personally known to so to be
the President and Secretary of PSI Industries, Inc., a Florida corporation, on
behalf of the corporation.
-------------------------------
Notary Public
--------------------------------
Print Name
My Commission Expires:
3
<PAGE>
STATE OF FLORIDA
SS.
COUNTY OF PALM BEACH
The foregoing instrument was acknowledged, before me this 29th
day of March, 1994, by Carol Grapski, who is personally known to so to be the
President and Secretary of Brandon Sales Corporation, a Delaware corporation, on
behalf of the corporation.
----------------------------
Notary Public
----------------------------
Print Name
My Commission Expires:
4
STATE OF FLORIDA
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of
Incorporation, as amended to date, along with the Corporation Annual Report for
the year 1996, for PSI INDUSTRIES, INC., a corporation organized under the laws
of the State of Florida, as shown by the records of this office.
The document number of this corporation is J38802.
Given under my hand and the Great Seal of
the State of Florida, at Tallahassee, the
Capitol, this Twenty-fifth day of April, 1997
/S/
Sandra B. Mortham
Secretary of State
GREAT SEAL OF THE
STATE OF FLORIDA
In God We Trust
[SEAL]
CR2EO22 (2-95)
<PAGE>
ARTICLES OF INCORPORATION
OF
PHOTOLINE SUPPLIES INCORPORATED
The undersigned acting as incorporator of this corporation pursuant to
Chapter 607 of the Florida Statutes hereby forms a corporation for profit under
the laws of the State of Florida and adopts the following Articles of
Incorporation for such corporation:
ARTICLE I - NAME OF CORPORATION
-------------------------------
The name of this corporation stall be PHOTOLINE SUPPLIES INCORPORATED
ARTICLE II -TERMS OF EXISTENCE
------------------------------
This corporation shall exist perpetually commencing such existence on
October 20, 1986.
ARTICLE III - GENERAL PURPOSE
-----------------------------
The general purpose for which this corporation is organized shall be:
(1) To manufacture, construct: purchase or otherwise acquire and to
own, mortgage, pledge, sell, assign, transfer or otherwise dispose of, and to
invest in, trade in, deal in and with products, goods, wares, merchandise, real
and personal property and services of every kind, class and description.
(2) To organize, equip and manage a photographic supply business.
(3) It is Intended that this corporation is organized for and may
conduct and transact any or all lawful business authorized and not prohibited by
Chapter 607, Florida Statutes, as the same may be from time to time amended.
Provided, however, and notwithstanding the generality of the foregoing, this
corporation is not to conduct a banking, safe deposit, trust, insurance, surety,
express, building and loan association, mutual fire insurance association,
cooperative association, fraternal benefit society, state fair or exposition
business.
<PAGE>
ARTICLE IV - CAPITAL STOCK
--------------------------
The maximum number of shares of capital stock that this corporation is
authorized to issue and have outstanding at any one time is Seven Thousand Five
Hundred (7,500) shares of common stock having a par value of one dollar ($1.00)
per share.
ARTICLE V - INITIAL REGISTERED OFFICE
-------------------------------------
AND REGISTERED AGENT
--------------------
The initial street address of the registered office of this corporation
in the State of Florida will be 200 Sweetwater Square, Fox Valley Drive,
Longwood, Florida 32779. The Board of Directors may from time to time move the
registered office to any other address in Florida. The name of the initial
registered agent of this corporation at that address is Stephen C.L. Chong. The
Board of Directors may from time to time designate a new registered agent.
ARTICLE VI - INITIAL BOARD OF DIRECTORS
---------------------------------------
A. The initial number of Directors of this corporation shall be four
(4).
B. The number of Directors may be increased or diminished from time to
time by By-Laws adopted by the shareholders, but shall never be less than one.
C. The name and street address of the initial members of the Board of
Directors, who shall hold office for the first year of existence of this
corporation or until their successors are elected or appointed and have
qualified are:
NAME STREET ADDRESS ---- --------------
Dominick M. Seminara 2446 Sweetwater Country Club Drive
Apopka, Florida 32712
Carol J. Seminara 2446 Sweetwater Country Club Drive
Apopka, Florida 32712
Deborah A. Seminara 2446 Sweetwater Country Club Drive
Apopka, Florida 32712
Lisa A. Seminara 2446 Sweetwater Country Club Drive
Apopka, Florida 32712
<PAGE>
ARTICLE VII - INCORPORATOR
--------------------------
The name and address of the incorporator of this corporation is:
NAME ADDRESS
---- -------
Dominick M. Seminara 2446 Sweetwater Country Club Drive
Apopka, Florida 32712
ARTICLE VIII - AMENDMENT TO ARTICLES
------------------------------------
This corporation reserves the right to amend or repeal any provisions
contained in these Articles of Incorporation, or any amendment hereto any right
conferred upon the shareholders is subject to this reservation.
ARTICLE IX - INDEMNIFICATION
----------------------------
The corporation shall indemnify any registered agent, officer, director
or incorporator, or any former registered agent, officer or director, to the
full extent permitted by law.
IN WITNESS WHEREOF, the undersigned incorporator has made and
subscribed these Articles of Incorporation at Longwood, Florida the 13th day of
October, 1986.
/S/
------------------------------
Dominick M. Seminara
STATE OF FLORIDA
COUNTY OF SEMINOLE
BEFORE ME, the undersigned authority, personally appeared
Dominick M. Seminara, known to me to be the individual described in and who
executed the foregoing Articles of Incorporation, and he acknowledged that he
subscribed the said instrument for the uses and purposes set forth herein.
WITNESS my hand and official seal in the County and State last
aforesaid this 13th day of October, 1986.
/S/
--------------------------------
Notary Public - State of Florida
My Commission Expires:
ARTICLES OF AMENDMENT
The undersigned, Dale D. Helling, the duly elected and qualified
President and Secretary of PHOTOLINE SUPPLIES, INCORPORATED, a Florida
corporation, does hereby certify that the following is a true and correct copy
of action taken by written consent without a meeting by the shareholders and
directors of said corporation on the 10th day of September, 1993, pursuant to
the provisions of Section 607.0821 and Section 607.0704, Florida Statutes:
RESOLVED, that Article IV of the Articles of Incorporation of
PHOTOLINE SUPPLIES, INCORPORATED, be, and the same hereby is,
amended it its entirety as follows:
ARTICLE VI. CAPITAL STOCK. The corporation shall be authorized to issue
50,000,000 million shares of common stock, par value $0.0001 per share.
RESOLVED, that Article I of the Articles of Incorporation of
PHOTOLINE SUPPLIES, INCORPORATED, be, and the same hereby is,
amended to change the name of the corporation to PSI
INDUSTRIES, INC.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal as of the 30th day of September 1993.
/S/
----------------------------------
Dominick M. Seminara, President
and Secretary
STATE OF FLORIDA
COUNTY OF ORANGE
Before me, an officer duly authorized in the State and County aforesaid
to administer oaths, personally appeared Dominick M. Seminara, who being duly
sworn, desposes and says: That he is the President and Secretary of Photoline
Supplies, Incorporated (a/k/a PSI Industries, Inc.), a corporation duly
organized under the laws of the State of Florida, having its principal place of
business in Boca Raton, Florida; that he has read the foregoing Articles of
Amendment and that the same is true and correct.
/S/
-----------------------------------
Dominick M. Seminara
Sworn to and subscribed before me this _____
day of _______________, 199__ by Dominick
M. Seminara who is personally known by me.
/S/
- - -------------------------------
Notary Public
STATE OF FLORIDA
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of Amendment,
filed on September 24, 1997, to Articles of Incorporation for PSI INDUSTRIES,
INC., a Florida corporation, as shown by the records of this office.
The document number of this corporation is J38802.
Given under my hand and the
Great Seal of the State of Florida
at Tallahassee, the Capitol, this the
Twenty-fifth day of September, 1997
/S/
----------------------------------
Sandra B. Mortham
Secretary of State
GREAT SEAL OF THE
STATE OF FLORIDA
In God We Trust
[SEAL]
CR2EO22 (2-95)
<PAGE>
ARTICLES OF AMENDMENT OF
------------------------
ARTICLES OF INCORPORATION OF
----------------------------
PSI INDUSTRIES, INC.
--------------------
Pursuant to the provisions of Section 607.1006 of the Florida Business
Corporation Act, PSI Industries, Inc., a Florida corporation, hereby amends its
Articles of Incorporation, as follows:
(1) Article IV is hereby amended in its entirety to read as follows:
"ARTICLE IV
The maximum number of shares of capital stock that this
Corporation is authorized to issue and have outstanding at any
one time is twenty-one million (21,000,000) shares, comprised
of:
(i) Twenty million (20,000,000) shares of Common Stock,
having a par value of $.0001 per share; and
(ii) One million (1,000,000) shares of Preferred Stock, having
a par value of $.0001 per share, which may be issued from to
time in one or more series. The number of shares, the stated
value and dividend rate, if any, of each such series and the
preferences and relative, participating and special rights and
the qualifications, limitations or restrictions shall be fixed
in the case of each series by the Board of Directors at the
time of issuance subject in all cases to the laws of the State
of Florida applicable thereto and determined in accordance
with the provisions of Section 607.0602 of the Florida
Business Corporation Act."
The foregoing Amendment to the Articles of Incorporation of PSI
Industries, Inc. was approved and adopted by the Board of Directors on July 3,
1997, and by a majority of the Shareholders on September 23, 1997, in accordance
with the provisions of the Florida Business Corporation Act, and the number of
votes cast by the shareholders was sufficient for approval.
IN WITNESS WHEREOF, the undersigned Chief Executive Officer of this
corporation, pursuant to the approval and authority given by the Board of
Directors and the Shareholders, has executed these Articles of Amendment this
23rd day of September, 1997.
/S/
--------------------------------
Dominick M. Seminara,
Chief Executive Officer
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
September 25, 1997
UCC FILING & SEARCH
TALLAHASSEE, FL
Re: Document Number J38802
The Articles of Amendment to the Articles of Incorporation for PSI INDUSTRIES,
INC., a Florida corporation, were filed on September 24, 1997.
The certification requested is enclosed.
Should you have any question regarding this matter, please telephone (850) 487-
6050, the Amendment Filing Section.
Karen Gibson
Corporate Specialist
Division of Corporations Letter Number: 097AO0047549
Division of Corporations - P.O. BOX 6327 -Tallahassee, Florida 32314
<PAGE>
STATE OF FLORIDA
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of Amendment,
filed on September 24, 1997, to Articles of Incorporation for PSI INDUSTRIES,
INC., a Florida corporation, as shown by the records of this office.
The document number of this corporation is J38802.
Given under my hand and the
Great Seal of the State of Florida
at Tallahassee, the Capitol, this the
Twenty-fifth day of September, 1997
/S/
-------------------------------
Sandra B. Mortham
Secretary of State
GREAT SEAL OF THE
STATE OF FLORIDA
In God We Trust
[SEAL]
CR2EO22 (2-95)
<PAGE>
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
--------------------------------------------------
OF PSI INDUSTRIES, INC.
-----------------------
Pursuant to the provisions of Section 607.1006 of the Florida Business
C' Act, PSI Industries, Inc., a Florida corporation, hereby amends its Articles
of Inco follows:
ARTICLE IV is hereby amended to authorize and create a series of
Preferred Stock which shall be designated Series A Convertible Preferred Stock,
which Series shall contain the following terms, rights, qualifications and
limitations:
The Corporation is hereby authorized to issue up to 200,000 shares of
a Series of Preferred Stock which shall be entitled "Series A Convertible
Preferred Stock ('Series A Preferred')" which shall have the following
preferences, rights, qualifications, limitations or restrictions:
1. VOTING RIGHTS. Except as otherwise provided by law, the holders of
-------------
Series A Preferred, by virtue of their ownership thereof, shall be entitled to
cast the number of votes per share thereof on each matter submitted to the
Corporation's shareholders for voting which equals the number of votes which
could be cast by the holders of the number of shares of Common Stock into which
such shares of Series A Preferred could be converted pursuant to Section 4
hereof immediately prior to the taking of such vote. Such vote shall be cast
together with those cast by the holders of Common Stock and not as a separate
class except as otherwise provided by law. The Series A Preferred shall not have
cumulative voting rights.
2. LIQUIDATION RIGHTS. If the Corporation shall be voluntarily or
------------------
involuntarily liquidated, dissolved or wound up, at any time any Series A
Preferred shall be outstanding, the holders of the then outstanding Series A
Preferred shall have a preference against the property of the Corporation
available for distribution to the holders of the Corporation's equity securities
equal to the amount of $30.00 per share, together with an amount equal to all
unpaid dividends accrued thereon to the date of payment of such preference (the
"Preferential Amount"), whether or not funds of the Corporation are legally
available therefor and whether or not declared by the Board. In addition, the
holders of the Series A Preferred shall be entitled to receive a participating
share of any further assets available for distribution to holders of Common
Stock, whether by reason of declared and unpaid dividends or otherwise, which
participating share shall be the same as that which such holders would have been
entitled to receive if, on the record date for determining the recipients of
such distributions, such holders were the holders of record of the number of
shares of Common Stock into which the outstanding shares of Series A Preferred
were then convertible. In the event the assets of the Corporation available for
distribution to the holders of shares of the Series A Preferred upon
dissolution, liquidation or winding up of the Corporation shall be insufficient
to pay in full all amounts to which such holders are entitled pursuant to the
immediately preceding portions of this paragraph, no such distribution shall be
made on account of any shares of any other class or series of capital stock of
the Corporation ranking on a parity with or junior to the shares of the Series A
Preferred and any other class of shares ranking on a parity with the Series A
Preferred, ratably, in proportion to the full distributable amounts for which
holders of all such parity shares are respectively entitled upon such
dissolution, liquidation or winding up.
<PAGE>
3. DIVIDENDS. Holders of record of shares of Series A Preferred, out of
---------
funds legally available therefor, shall be entitled to receive dividends on
their shares, which dividends shall accrue at the rate per share of 5% per annum
of the stated amount of $30.00 ($1.50 per share per year for each full year)
commencing on the date of issuance, in cash. Dividends on shares of Series A
Preferred shall be cumulative, and no dividends or other distributions shall be
paid or declared and set aside for payment on the Common Stock or any other
capital stock of the Corporation ranking junior to the Series A Preferred until
full cumulative dividends on all outstanding shares of Series A Preferred shall
have been paid or declared and set aside for payment. Dividends shall be payable
in arrears at the rate of $.75 per share for each six-month period on each
January 1 and July 1 of each calendar year, to the holders of record of the
Series A Preferred as they appear on the stock record books of the Corporation
on such record dates not more than sixty (60) nor less than ten (10) days
preceding the payment dates thereof, as shall be fixed by the Board of Directors
of the Corporation or a duly authorized committee thereof; provided, however,
that the initial dividend for the Series A Preferred shall accrue for the period
commencing the date of issuance through January 1, 1998. If, in any six-month
period, insufficient funds are available to pay such dividends as are then due
and payable with respect to the Series A Preferred and all other classes and
series of capital stock ranking in parity thereof (or such payment is otherwise
prohibited by provisions of the Florida Business Corporation Law as then in
effect), such funds (or shares of Series A Preferred) as are legally available
to pay such dividends shall be paid to the holders of the Series A Preferred and
to the holders of such other classes and series of capital stock, on a PRO RATA
basis, in accordance with the rights of each such holder, and the balance of
accrued but undeclared and/or unpaid dividends shall be declared and paid on the
next succeeding dividend date to the extent that funds (or shares of Series A
Preferred) are then legally available for such purpose. Each reference herein to
the Common Stock includes each other class or series of capital stock, if any,
ranking junior to the Series A Preferred that may be authorized from time to
time.
4. CONVERSION.
----------
(A) GENERAL. For the purposes of conversion, the Series A
-------
Preferred shall be valued at $30.00 per share ("Value"), and, if converted, the
Series A Preferred shall be converted into shares of Common Stock (the
"Conversion Stock") at the price per share of $3.00 per share of Conversion
Stock ("Conversion Price"), subject to adjustment pursuant to the provisions of
this Section 4.
(B) ADJUSTMENT IN CONVERSION. Price. In the event that the
------------------------
average of the Corporation's earnings per share for its 1997 and 1998 fiscal
years, on a fully diluted basis, as reflected on the Corporation's audited
financial statements for each of these fiscal years (the "Average EPS"), is less
than $.20 per share, then the conversion price shall be reduced to a number that
equals 15 times the Average EPS, provided that in no event shall the conversion
price be reduced below $2.50.
<PAGE>
(C) RIGHT TO CONVERSION. At any time from and after the date
-------------------
of issuance, any holder of Series A Preferred shall have the right, at such
holder's option, to convert such shares into Conversion Stock.
(D) METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW SERIES A
-----------------------------------------------------
PREFERRED; TRANSFER AND EXCHANGE. The conversion right granted by Section 4(C)
- - --------------------------------
hereof may be exercised, in whole or in part, by the surrender of the stock
certificate or stock certificates representing Series A Preferred to be
converted at the principal office of the Corporation (or at such other place as
the Corporation may designate in a written notice sent to the holder by
first-class mail, postage prepaid, at its address shown on the books of the
Corporation) accompanied by written notice of election to convert against
delivery of that number of whole shares of Common Stock as shall be computed by
dividing (1) the aggregate value of the Series A Preferred so surrendered by (2)
tile Conversion Price in effect at the time of such surrender. At the time of
conversion of a share of Series A Preferred, the Corporation shall pay in cash
to the holder thereof an amount equal to all unpaid dividends accrued thereon to
the date of conversion, or at the Corporation's option additional shares of
Common Stock calculated based on the assumption that the unpaid dividends were
satisfied by the issuance of additional shares of Series A Preferred which were
surrendered for conversion, whether or not funds of the Corporation are legally
available therefor and whether or not declared by the Board. Each Series A
Preferred stock certificate surrendered for conversion shall be endorsed by its
holder. In the event of any exercise of the conversion right of the Series A
Preferred granted herein, (i) stock certificates for the shares of Common Stock
purchased by virtue of such exercise shall be delivered to such holder
forthwith, and (ii) unless the Series A Preferred has been fully converted, a
new Series A Preferred stock certificate, representing the Series A Preferred
not so converted, if any, shall also be delivered to such holder forthwith. The
stock certificates for the shares of Common Stock so purchased shall be dated
the date of such surrender and the holder making such surrender shall be deemed
for all purposes to be the holder of the shares of Common Stock so purchased as
of the date of such surrender.
(E) MANDATORY CONVERSION. At any time after one year from the
--------------------
date of issuance, the Corporation can require that all outstanding shares of
Series A Preferred be automatically converted at the conversion price then in
effect ("Mandatory Conversion") if at the time (i) the closing bid of the
Corporation's Common Stock has exceeded $7.50 per share for a period of 20
consecutive trading days, (ii) the Corporation's Common Stock has been listed on
NASDAQ or another national securities exchange, and (iii) a registration
statement covering the shares of Common Stock issuable upon conversion of the
Series A Preferred has been filed with the Securities and Exchange Commission
and declared effective. At the time of Mandatory Conversion, the Corporation
shall pay in cash to holder thereof an amount equal to all unpaid dividends
accrued thereon to the date of Mandatory Conversion. Notice shall be mailed
within ten (10) days after the Mandatory Conversion, by the Corporation to each
holder of Series A Preferred by first-class mail, postage prepaid, to such
holder's most current address shown on the books of the Corporation. Such notice
shall specify the date on which Mandatory Conversion occurred and call upon such
holder to surrender to the Corporation, in the manner and at the place
designated in such notice, the certificate or certificates representing the
shares of Series A Preferred so converted. In the event of Mandatory Conversion,
<PAGE>
the Corporation shall forthwith transmit to each holder of Series A Preferred
upon surrender of the certificate(s) representing such shares, stock
certificates for the shares of Common Stock issued as a result thereof, date the
date of Mandatory Conversion, and such holder shall be deemed for all purposes
to be the holder of such Common Stock as of the date of Mandatory Conversion.
(F) STOCK FULLY PAID; RESERVATION OF SHARES. All shares of
---------------------------------------
Common Stock which may be issued upon conversion of Series A Preferred will,
upon issuance, by duly issued, fully paid and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof. At all times that
any Series A Preferred is outstanding, the Corporation shall have authorized,
and shall have reserved for the purpose of issuance upon such conversion, a
sufficient number of shares of Common Stock to provide for the conversion into
Common Stock of all Series A Preferred then outstanding at the then effective
Conversion Price. Without limiting the generality of the foregoing, if, at any
time, the Conversion Price is decreased, the number of shares of Common Stock
authorized and reserved for issuance upon the conversion of Series A Preferred
shall be proportionately increased.
(G) FURTHER ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF
----------------------------------------------------
SHARES. The number of shares of Common Stock issuable upon conversion of Series
- - ------
A Preferred and the Conversion Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(1) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of
-----------------------------------------
any reclassification or change of outstanding Common Stock issuable upon
conversion of Series A Preferred (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of
subdivision or combination), or in case of any consolidation or merger of the
Corporation with or into another corporation (other than a merger with another
corporation in which the Corporation is the surviving corporation and which does
not result in any reclassification or change -- other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination -- of outstanding Common Stock
issuable upon such conversion) the rights of the holders of the outstanding
Series A Preferred shall be adjusted in the manner described below:
(a) In the event that the Corporation is the surviving
corporation, the Series A Preferred shall, without payment of additional
consideration therefor, be deemed modified so as to provide that upon conversion
thereof the holder of the Series A Preferred being converted shall procure, in
lieu of each share of Common Stock theretofore issuable upon such conversion,
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change, consolidation or merger by the
holder of one share of Common Stock issuable upon such conversion had conversion
occurred immediately prior to such reclassification, change, consolidation or
merger. The Series A Preferred shall be deemed thereafter to provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this clause (a)
shall apply in the mane manner to successive reclassifications, changes,
consolidations and mergers.
<PAGE>
(b) In the event that the. Corporation is not the
surviving corporation, the surviving corporation shall, without payment of any
additional consideration thereof, issue new Series A Preferred, providing that
upon conversion thereof, the holder thereof shall procure in lieu of each share
of Common Stock theretofore issuable upon conversion of the Series A Preferred,
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change, consolidation or merger by the
holder of one share of Corporation issuable upon conversion of the Series A
Preferred had such conversion occurred immediately prior to such
reclassification, change, consolidation or merger. Such new Series A Preferred
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. The provisions of
this clause (b) shall apply in the same manner to successive reclassifications,
changes, consolidations and mergers.
(2) SUBDIVISION OR COMBINATION OF SHARES. If the
------------------------------------
Corporation, at any time while any of the Series A Preferred is outstanding,
shall subdivide or combine its Common Stock, the Conversion Price shall be
proportionately reduced, in case of subdivision of shares, as of the effective
date of such subdivision, or if the Corporation shall take a record of holders
of its Common Stock for the purpose of a subdividing, as of such record date,
whichever is earlier, or shall be proportionately increased, in the case of
combination of shares, as of the effective date of such combination or, if the
Corporation shall take a record of holders of this Common Stock for the purpose
of so combining, as of such record date, whichever is earlier.
(3) CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the Corporation,
-----------------------------------
at any time while any of the Series A Preferred is outstanding, shall:
(a) STOCK DIVIDENDS. Pay a dividend payable in Common
---------------
Stock, effect a stock split or make any other distribution of Common Stock in
respect of its Common Stock, the Conversion Price shall be adjusted, as of the
date the Corporation shall take a record of the holders of its Common Stock for
the purpose of receiving such dividend, stock split or other distribution (or if
no such record is taken, as of the date of such payment or other distribution),
to that price determined by multiplying the Conversion Price theretofore in
effect by a fraction (1) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to such dividend, stock
split or distribution and (2) the denominator of which shall be the total number
of shares of Common Stock outstanding immediately after such dividend, stock
split or distribution (plus in the event that the Corporation paid cash for
fractional shares, the number of additional shares which would have been
outstanding had the Corporation issued fractional shares in connection with said
dividend, stock split or distribution); or
(b) LIQUIDATING DIVIDENDS, ETC. Make a distribution of
--------------------------
its property to the holders of its Common Stock as a dividend in liquidation or
<PAGE>
partial liquidation or by way of return of capital or other than as a dividend
payable out of funds legally available for dividends under the Articles of
Incorporation and the laws of the State of Utah, the holders of the Series A
Preferred shall, upon conversion thereof, be entitled to receive, in addition to
the number of shares of Common Stock receivable thereupon, and without payment
of any consideration therefor, a sum equal to the amount of such property as
would have been payable to them as owners of that number of shares of Common
Stock of the Corporation receivable upon such conversion, had they been the
holders of record of such Common Stock on the record date for such distribution
and an appropriate provision therefor shall be made a part of any such
distribution.
(4) SALES OF COMMON STOCK AT A PRICE BELOW THE
------------------------------------------
CONVERSION PRICE. If at any time the Corporation sells shares of its Common
- - ----------------
Stock at a per share price that is below the then current conversion price with
respect to the Series A Preferred, the conversion price of the Series A
Preferred shall be correspondingly adjusted to account for the decrease in the
Company's tangible book value per share.
(H) NOTICE OF ADJUSTMENTS. Whenever the Conversion Price
----------------------
shall be adjusted pursuant to Subsection 4(F) hereof, the Corporation shall make
a certificate signed by its President or a Vice President and by its Treasurer,
Assistant Treasurer, Security or Assistant Secretary, setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors made any determination
hereunder), and the Conversion Price after giving effect to such adjustment, and
shall cause copies of such certificate to be mailed (by first-class mail,
postage prepaid) to each holder of Series A Preferred at its address shown on
the books of the Corporation. The Corporation shall make such certificate and
mail it to each such holder promptly after each adjustment.
(I) FRACTIONAL SHARES. No fractional shares of Common Stock
-----------------
shall be issued in connection with any conversion of Series A Preferred, but in
lieu of such fractional shares, the Corporation shall make a cash payment
therefor equal in amount to the product of the applicable fraction multiplied by
the Conversion Price then in effect.
(J) NO REISSUANCE OF SERIES A PREFERRED. No shares of Series
-----------------------------------
A Preferred which have been converted into Common Stock shall be reissued by the
Corporation; PROVIDED HOWEVER, that each such share, after being retired and
cancelled, shall be restored to the status of an authorized but unissued share
of Preferred Stock without designation as to series and may thereafter be issued
as a share of Preferred Stock not designated Series A Preferred.
The foregoing Amendment to the Articles of Incorporation of PSI
Industries, Inc. was approved and adopted by the Board of Directors on July 3,
1997 in accordance with the authorization of Article IV of the Company's
Articles of Incorporation and with the provisions of the Florida Business
Corporation Act.
<PAGE>
IN WITNESS WHEREOF, the undersigned President of this Corporation,
pursuant to the approval and authority given by the Board of Directors, has
executed these Articles of Amendment this 23rd day of September, 1997.
/S/
-------------------------------------
Dominick M. Seminara,
Chief Executive Officer and Director
STATE OF FLORIDA
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of Amendment,
filed on July 13, 1998, to Articles of Incorporation for PSI INDUSTRIES, INC., a
Florida corporation, as shown by the records of this office.
I further certify the document was electronically received under FAX audit
number H98000012854. This certificate is issued in accordance with section
15.16, Florida Statutes, and authenticated by the code noted below:
The document number of this corporation is J38802.
Given under my hand and the Great Seal of
the State of Florida, at Tallahassee, the
Capital, this the Thirteenth day of July, 1998
Authentication Code: 898AO0037232-071398-J38802 -1/1
/S/
---------------------------------
Sandra B. Mortham
Secretary of State
GREAT SEAL OF THE
STATE OF FLORIDA
In God We Trust
[SEAL]
CR2EO22 (1-95)
<PAGE>
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
July 13, 1998
PSI INDUSTRIES, INC.
1160B SOUTH ROGERS CIRCLE
BOCA RATON, FL 33487US
Re: Document Number J38802
The Articles of Amendment to the Articles of Incorporation for PSI INDUSTRIES,
INC., a Florida corporation, were filed on July 13, 1998.
The certification requested is enclosed. To be official, the certification for a
certified copy must be attached to the original document that was electronically
submitted and filed under FAX audit number H98000012854.
Should you have any question regarding this matter, please telephone (850)
487-6050, the Amendment Filing Section.
Darlene Connell
Corporate Specialist
Division of Corporations Letter Number: 898AO0037232
Division of Corporations - P.O. BOX 6327 - Tallahassee, Florida 32314
<PAGE>
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
--------------------------------------------------
OF PSI INDUSTRIES, INC.
-----------------------
Pursuant to the provisions of Section 607.0602 of the Florida Business
Corporation Act, PSI Industries, Inc., a Florida corporation, hereby amends its
Articles of Incorporation as follows:
ARTICLE IV is hereby amended to authorize and create a series of
Preferred Stock which shall be designated Series B Convertible Preferred Stock,
which Series shall contain the following terms, rights, qualifications and
limitations:
The Corporation is hereby authorized to issue up to 20,000 shares of a
Series of Preferred Stock which shall be entitled "Series B Convertible
Preferred Stock ('Series B Preferred')" which shall have the following
preferences, rights, qualifications, limitations or restrictions:
1. VOTING RIGHTS. Except as otherwise provided by law, the holders of
-------------
Series B Preferred, by virtue of their ownership thereof, shall not have any
voting rights.
2. LIQUIDATION RIGHTS. If the Corporation shall be voluntarily or
------------------
involuntarily liquidated, dissolved or wound up, at any time any Series B
Preferred shall be outstanding, the holders of the then outstanding Series B
Preferred shall have a preference (on an equal and pro-rata basis with holders
of the Company's Series A Convertible Preferred Stock against the property of
the Corporation available for distribution to the holders of the Corporation's
equity securities equal to the amount of $100.00 per share.
3. DIVIDENDS. Holders of record of shares of Series A Preferred, shall
---------
not receive dividends on their shares.
4. CONVERSION.
----------
(A) GENERAL. For the purposes of conversion, the Series B
-------
Preferred shall be valued at $100.00 per share ("Value"), and, if converted, the
Series B Preferred shall be converted into shares of Common Stock (the
"Conversion Stock") at the price per share of $3.00 per share of Conversion
Stock ("Conversion Price"), subject to adjustment pursuant to the provisions of
this Section 4.
(B) RIGHT TO CONVERSION. At any time from and after the date
-------------------
of issuance, any holder of Series B Preferred shall have the right, at such
holder's option, to convert such shares into Conversion Stock.
(C) METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW SERIES B
-----------------------------------------------------
PREFERRED; TRANSFER AND EXCHANGE. The conversion right granted by Section 4(B)
- - ---------------------------------
hereof may be exercised, in whole or in part, by the surrender of the stock
certificate or stock certificates representing Series B Preferred to be
converted at the principal office of the Corporation (or at such other place as
<PAGE>
the Corporation may designate in a written notice sent to the holder by
first-class mail, postage prepaid, at its address shown on the books of the
Corporation) accompanied by written notice of election to convert against
delivery of that number of whole shares of Common Stock as shall be computed by
dividing (1) the aggregate value of the Series B Preferred so surrendered by (2)
the Conversion Price in effect at the time of such surrender. Each Series B
Preferred stock certificate surrendered for conversion shall be endorsed by its
holder. In the event of any exercise of the conversion right of the Series B
Preferred granted herein, (i) stock certificates for the shares of Common Stock
purchased by virtue of such exercise shall be delivered to such holder
forthwith, and (ii) unless the Series B Preferred has been fully converted, a
new Series B Preferred stock certificate, representing the Series B Preferred
not so converted, if any, shall also be delivered to such holder forthwith. The
stock certificates for the shares of Common Stock so purchased shall be dated
the date of such surrender and the holder making such surrender shall be deemed
for all purposes to be the holder of the shares of Common Stock so purchased as
of the date of such surrender.
(D) STOCK FULLY PAID, RESERVATION OF SHARES. All shares of
---------------------------------------
Common Stock which may be issued upon conversion of Series B Preferred will,
upon issuance, by duly issued, fully paid and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof. At all times that
any Series B Preferred is outstanding, the Corporation shall have authorized,
and shall have reserved for the purpose of issuance upon such conversion, a
sufficient number of shares of Common Stock to provide for the conversion into
Common Stock of all Series B Preferred then outstanding at the then effective
Conversion Price. Without limiting the generality of the foregoing, if, at any
time, the Conversion Price is decreased, the number of shares of Common Stock
authorized and reserved for issuance upon the conversion of Series B Preferred
shall be proportionately increased.
(E) FURTHER ADJUSTMENT OF CONVERSION PRICE AND NUMBER OF
----------------------------------------------------
SHARES. The number of shares of Common Stock issuable upon conversion of Series
- - ------
B Preferred and the Conversion Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(1) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
-----------------------------------------
reclassification or change of outstanding Common Stock issuable upon conversion
of Series B Preferred (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of subdivision or
combination), or in case of any consolidation or merger of the Corporation with
or into another corporation (other than a merger with another corporation in
which the Corporation is the surviving corporation and which does not result in
any reclassification or change -- other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination -- of outstanding Common Stock issuable upon such
conversion) the rights of the holders of the outstanding Series B Preferred
shall be adjusted in the manner described below:
(a) In the event that the Corporation is the surviving
corporation, the Series B Preferred shall, without payment of additional
consideration therefor, be deemed modified so as to provide that upon conversion
thereof the holder of the Series B Preferred being converted shall procure, in
lieu of each share of Common Stock theretofore issuable upon such conversion,
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change, consolidation or merger by the
holder of one share of Common Stock issuable upon such conversion had conversion
occurred immediately prior to such reclassification, change, consolidation or
<PAGE>
merger. The Series B Preferred shall be deemed thereafter to provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this clause (a)
shall apply in the mane manner to successive reclassifications, changes,
consolidations and mergers.
(b) In the event that the Corporation is not the surviving
corporation, the surviving corporation shall, without payment of any additional
consideration thereof, issue new Series B Preferred, providing that upon
conversion thereof, the holder thereof shall procure in lieu of each share of
Common Stock theretofore issuable upon conversion of the Series B Preferred, the
kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change, consolidation or merger by the
holder of one share of Corporation issuable upon conversion of the Series B
Preferred had such conversion occurred immediately prior to such
reclassification, change, consolidation or merger. Such new Series B Preferred
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4. The provisions of
this clause (b) shall apply in the same manner to successive reclassifications,
changes, consolidations and mergers.
(2) SUBDIVISION OR COMBINATION OF SHARES. If the Corporation, at
------------------------------------
any time while any of the Series B Preferred is outstanding, shall subdivide or
combine its Common Stock, the Conversion Price shall be proportionately reduced,
in case of subdivision of shares, as of the effective date of such subdivision,
or if the Corporation shall take a record of holders of its Common Stock for the
purpose of a subdividing, as of such record date, whichever is earlier, or shall
be proportionately increased, in the case of combination of shares, as of the
effective date of such combination or, if the Corporation shall take a record of
holders of this Common Stock for the purpose of so combining, as of such record
date, whichever is earlier.
(3) CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the Corporation, at
-----------------------------------
any time while any of the Series B Preferred is outstanding, shall:
(a) STOCK DIVIDENDS. Pay a dividend payable in Common Stock,
---------------
effect a stock split or make any other distribution of Common Stock in respect
of its Common Stock, the Conversion Price shall be adjusted, as of the date the
Corporation shall take a record of the holders of its Common Stock for the
purpose of receiving such dividend, stock split or other distribution (or if no
such record is taken, as of the date of such payment or other distribution), to
that price determined by multiplying the Conversion Price theretofore in effect
by a fraction (1) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend, stock split or
distribution and (2) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend, stock split
or distribution (plus in the event that the Corporation paid cash for fractional
shares, the number of additional shares which would have been outstanding had
the Corporation issued fractional shares in connection with said dividend, stock
split or distribution); or
(b) LIQUIDATING DIVIDENDS, ETC. Make a distribution of its
--------------------------
property to the holders of its Common Stock as a dividend in liquidation or
partial liquidation or by way of return of capital or other than as a dividend
payable out of funds legally available for dividends under the Articles of
<PAGE>
Incorporation and the laws of the State of Florida, the holders of the Series B
Preferred shall, upon conversion thereof, be entitled to receive, in addition to
the number of shares of Common Stock receivable thereupon, and without payment
of any consideration therefor, a sum equal to the amount of such property as
would have been payable to them as owners of that number of shares of Common
Stock of the Corporation receivable upon such conversion, had they been the
holders of record of such Common Stock on the record date for such distribution
and an appropriate provision therefor shall be made a part of any such
distribution.
(F) FRACTIONAL SHARES. No fractional shares of Common Stock
-----------------
shall be issued in connection with any conversion of Series B Preferred, but in
lieu of such fractional shares, the Corporation shall make a cash payment
therefor equal in amount to the product of the applicable fraction multiplied by
the Conversion Price then in effect.
(G) NO REISSUANCE OF SERIES B PREFERRED. No shares of Series
-----------------------------------
B Preferred which have been converted into Common Stock shall be reissued by the
Corporation; PROVIDED HOWEVER, that each such share, after being retired and
cancelled, shall be restored to the status of an authorized but unissued share
of Preferred Stock without designation as to series and may thereafter be issued
as a share of Preferred Stock not designated Series B Preferred.
The foregoing Amendment to the Articles of Incorporation of PSI
Industries, Inc. was approved and adopted by the Board of Directors at a meeting
held on March 13, 1998, in accordance with the authorization of Article IV of
the Company's Articles of Incorporation and with the provisions of the Florida
Business Corporation Act.
IN WITNESS WHEREOF, the undersigned Chief Executive Officer of this
Corporation, pursuant to the approval and authority given by the Board of
Directors, has executed these Articles of Amendment this 7 day of July, 1998.
/S/
----------------------------------
Dominick M. Seminara,
Chief Executive Officer
BY-LAWS
OF
PSI INDUSTRIES, INC.
A FLORIDA CORPORATION
<PAGE>
INDEX
-----
PAGE
----
ARTICLE I
---------
OFFICES
-------
Section 1.01 PRINCIPAL OFFICE .........................................1
-----------------
Section 1.02 REGISTERED OFFICE ........................................1
-----------------
Section 1.03 OTHER OFFICES ............................................1
--------------
ARTICLE II
----------
MEETINGS OF SHAREHOLDERS
------------------------
Section 2.01 ANNUAL MEETING ...........................................1
---------------
Section 2.02 SPECIAL MEETINGS .........................................2
-----------------
Section 2.03 SHAREHOLDERS' LIST FOR MEETING ...........................2
-------------------------------
Section 2.04 RECORD DATE ..............................................3
-----------
Section 2.05 NOTICE OF MEETINGS AND ADJOURNMENT .......................3
-----------------------------------
Section 2.06 WAIVER OF NOTICE .........................................4
-----------------
ARTICLE III
-----------
SHAREHOLDER VOTING
------------------
Section 3.01 VOTING GROUP DEFINED .....................................5
--------------------
Section 3.02 QUORUM AND VOTING REQUIREMENTS FOR
VOTING GROUPS ............................................5
Section 3.03 ACTION BY SINGLE AND MULTIPLE VOTING
GROUPS ...................................................5
Section 3.04 SHAREHOLDER QUORUM AND VOTING: GREATER
OR LESSER VOTING REQUIREMENTS ............................6
Section 3.05 VOTING FOR DIRECTORS: CUMULATIVE VOTING ..................6
----------------------------------------
<PAGE>
Section 3.06 VOTING ENTITLEMENT OF SHARES..............................7
----------------------------
Section 3.07 PROXIES ..................................................8
-------
Section 3.08 SHARES HELD BY NOMINEES ..................................9
------------------------
Section 3.09 CORPORATION'S ACCEPTANCE OF VOTES .......................10
----------------------------------
Section 3.10 ACTION BY SHAREHOLDERS WITHOUT MEETING ..................11
---------------------------------------
ARTICLE IV
----------
BOARD OF DIRECTORS AND OFFICERS
-------------------------------
Section 4.01 QUALIFICATIONS OF DIRECTORS .............................11
----------------------------
Section 4.02 NUMBER OF DIRECTORS .....................................11
--------------------
Section 4.03 TERMS OF DIRECTORS GENERALLY ............................12
-----------------------------
Section 4.04 STAGGERED TERMS FOR DIRECTORS ...........................12
------------------------------
Section 4.05 VACANCY ON BOARD ........................................12
-----------------
Section 4.06 COMPENSATION OF DIRECTORS ...............................12
--------------------------
Section 4.07 MEETINGS ................................................13
---------
Section 4.08 ACTION BY DIRECTORS WITHOUT A MEETING ...................13
--------------------------------------
Section 4.09 NOTICE OF MEETINGS ......................................13
-------------------
Section 4.10 WAIVER OF NOTICE ........................................13
-----------------
Section 4.11 QUORUM AND VOTING .......................................14
------------------
Section 4.12 COMMITTEES ..............................................14
-----------
Section 4.13 LOANS TO OFFICERS, DIRECTORS AND
--------------------------------
EMPLOYEES: GUARANTY OF OBLIGATIONS ......................15
----------------------------------
Section 4.14 REQUIRED OFFICERS .......................................15
------------------
Section 4.15 DUTIES OF OFFICERS ......................................16
-------------------
ii
<PAGE>
Section 4.16 RESIGNATION AND REMOVAL OF OFFICERS ....................16
------------------------------------
Section 4.17 CONTRACT RIGHTS OF OFFICERS ............................16
----------------------------
Section 4.18 GENERAL STANDARDS FOR DIRECTORS ........................16
-------------------------------
Section 4.19 DIRECTOR CONFLICTS OF INTEREST .........................17
-------------------------------
Section 4.20 RESIGNATION OF DIRECTORS ...............................18
-------------------------
ARTICLE V
---------
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
--------------------
Section 5.01 DIRECTORS, OFFICERS, EMPLOYEES
------------------------------
AND AGENTS .............................................18
----------
ARTICLE VI
----------
OFFICE AND AGENT
----------------
Section 6.01 REGISTERED OFFICE AND REGISTERED AGENT .................22
---------------------------------------
Section 6.02 CHANGE OF REGISTERED OFFICE OR REGISTERED
-----------------------------------------
AGENT: RESIGNATION OF REGISTERED AGENT .................23
--------------------------------------
ARTICLE VII
-----------
SHARES, OPTION, DIVIDENDS AND DISTRIBUTIONS
-------------------------------------------
Section 7.01 AUTHORIZED SHARES ......................................24
------------------
Section 7.02 TERMS OF CLASS OR SERIES DETERMINED
-----------------------------------
BY BOARD OF DIRECTORS ..................................24
---------------------
Section 7.03 ISSUED AND OUTSTANDING SHARES ..........................25
-----------------------------
Section 7.04 ISSUANCE OF SHARES .....................................25
-------------------
Section 7.05 FORM AND CONTENT OF CERTIFICATES .......................26
---------------------------------
Section 7.06 SHARES WITHOUT CERTIFICATES ............................27
----------------------------
iii
<PAGE>
Section 7.07 RESTRICTION ON TRANSFER OF SHARES
---------------------------------
AND OTHER SECURITIES ...................................27
--------------------
Section 7.08 SHAREHOLDER'S PRE-EMPTIVE RIGHTS .......................27
---------------------------------
Section 7.09 CORPORATION'S ACQUISITION OF ITS
--------------------------------
OWN SHARES .............................................28
----------
Section 7.10 SHARE OPTIONS ..........................................28
--------------
Section 7.11 TERMS AND CONDITIONS OF STOCK RIGHTS
------------------------------------
AND OPTIONS ............................................28
-----------
Section 7.12 SHARE DIVIDENDS ........................................29
----------------
Section 7.13 DISTRIBUTIONS TO SHAREHOLDERS ..........................29
------------------------------
ARTICLE VIII
------------
AMENDMENT OF ARTICLES AND BYLAWS
--------------------------------
Section 8.01 AUTHORITY TO AMEND THE ARTICLES OF
----------------------------------
INCORPORATION ..........................................31
-------------
Section 8.02 AMENDMENT BY BOARD OF DIRECTORS ........................31
-------------------------------
Section 8.03 AMENDMENT OF BYLAWS BY BOARD OF
-------------------------------
DIRECTORS ..............................................32
---------
Section 8.04 BYLAW INCREASING QUORUM OR VOTING
---------------------------------
REQUIREMENTS FOR DIRECTORS .............................32
--------------------------
ARTICLE IX
----------
RECORDS AND REPORT
------------------
Section 9.01 CORPORATE RECORDS ......................................33
------------------
Section 9.02 FINANCIAL STATEMENTS FOR SHAREHOLDERS ..................34
--------------------------------------
Section 9.03 OTHER REPORTS TO SHAREHOLDERS ..........................34
------------------------------
Section 9.04 ANNUAL REPORT FOR DEPARTMENT OF STATE ..................35
--------------------------------------
iv
<PAGE>
ARTICLE X
---------
MISCELLANEOUS
-------------
SECTION 10.01 DEFINITION OF THE "ACT .......................................35
- - ------------------------------------
SECTION 10.02 APPLICATION OF FLORIDA LAW ...................................36
- - ----------------------------------------
SECTION 10.03 FISCAL YEAR ..................................................36
- - -------------------------
SECTION 10.04 CONFLICTS WITH ARTICLES OF
- - ----------------------------------------
INCORPORATION...............................................................36
- - -------------
v
<PAGE>
ARTICLE I
OFFICES
-------
SECTION 1.01. PRINCIPAL OFFICE.
-----------------
The principal office of the corporation in the State of Florida shall
be established at such places as the board of directors from time to time
determine.
SECTION 1.02. REGISTERED OFFICE.
------------------
The registered office of the corporation in the State of Florida shall
be at the office of its registered agent as stated in the articles of
incorporation or as the board of directors shall from time to time determine.
SECTION 1.03. OTHER OFFICES.
--------------
The corporation may have additional offices at such other places,
either within or without the State of Florida, as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 2.01. ANNUAL MEETING.
---------------
(1) The corporation shall hold a meeting of shareholders annually, for
the election of directors and for the transaction of any proper business, at a
time stated in or fixed in accordance with a resolution of the board of
directors.
(2) Annual shareholders' meeting may be held in or out of the State of
Florida at a place stated in or fixed in accordance with a resolution by the
board of directors or, when not inconsistent with the board of directors'
resolution stated in the notice of the annual meeting. If no place is stated in
or fixed in accordance with these bylaws, or stated in the notice of the annual
meeting, annual meetings shall be held at the corporation's principal office.
(3) The failure to hold the annual meeting at the time stated in or
fixed in accordance with these bylaws or pursuant to the Act does not affect the
validity of any corporate action and shall not work a forfeiture of or
dissolution of the corporation.
SECTION 2.02. SPECIAL MEETING.
---------------
(1) The corporation shall hold a special meeting of shareholders:
<PAGE>
(a) On call of its board of directors or the person or persons
authorized to do so by the board of directors; or
(b) If the holders of not less than 10% of all votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting
sign, date and deliver to the corporation's secretary one or more written
demands for the meeting describing the purpose or purposes for which it is to be
held.
(2) Special shareholders' meetings may be held in or out of the State
of Florida at a place stated in or fixed in accordance with a resolution of the
board of directors, or, when not inconsistent with the board of directors'
resolution, in the notice of the special meeting. If no place is stated in or
fixed in accordance with these bylaws or in the notice of the special meeting,
special meetings shall be held at the corporation's principal office.
(3) Only business within the purpose or purposes described in the
special meeting notice may be conducted at a special shareholders' meeting.
SECTION 2.03. SHAREHOLDERS' LIST FOR MEETING.
------------------------------
(1) After fixing a record date for a meeting, a corporation shall
prepare a list of the names of all its shareholders who are entitled to notice
of a shareholders' meeting, in accordance with the Florida Business Corporation
Act (the "Act"), or arranged by voting group, with the address of, and the
number and class and series, if any, of shares held by, each.
(2) The shareholders' list must be available for inspection by any
shareholder for a period of ten days prior to the meeting or such shorter time
as exists between the record date and the meeting and continuing through the
meeting at the corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office of
the corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list (subject to the
requirements of Section 607.1602(3) of the Act), during regular business hours
and at his expense, during the period it is available for inspection.
(3) The corporation shall make the shareholders' list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
SECTION 2.04. RECORD DATE.
-----------
(1) The board of directors may set a record date for purposes of
determining the shareholders entitled to notice of and to vote at a
2
<PAGE>
shareholders' meeting; however, in no event may a record date fixed by the board
of directors be a date preceding the date upon which the resolution fixing the
record date is adopted.
(2) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to demand a special meeting is the date
the first shareholder delivers his demand to the corporation. In the event that
the board of directors sets the record date for a special meeting of
shareholders, it shall not be a date preceding the date upon which the
corporation receives the first demand from a shareholder requesting a special
meeting.
(3) If no prior action is required by the board of directors pursuant
to the Act, and, unless otherwise fixed by the board of directors, the record
date for determining shareholders entitled to take action without a meeting is
the date the first signed written consent is delivered to the corporation under
Section 607.0704 of the Act. If prior action is required by the board of
directors pursuant to the Act, the record date for determining shareholders
entitled to take action without a meeting is at the close of business on the day
on which the board of directors adopts the resolution taking such prior action.
(4) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to notice of and to vote at an annual or
special shareholders' meeting is the close of business on the day before the
first notice is delivered to shareholders.
(5) A record date may not be more than 70 days before the meeting or
action requiring a determination of shareholders.
(6) A determination of shareholders entitled to notice of or to vote at
a shareholders' meeting is effective for any adjournment of the meeting unless
the board of directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than one 120 days after the date fixed for the
original meeting.
SECTION 2.05. NOTICE OF MEETINGS AND ADJOURNMENT.
----------------------------------
(1) The corporation shall notify shareholders of the date, time and
place of each annual and special shareholders' meeting no fewer than 10 or more
than 60 days before the meeting date. Unless the Act requires otherwise, the
corporation is required to give notice only to shareholders entitled to vote at
the meeting. Notice shall be given in the manner provided in Section 607.0141 of
the Act, by or at the direction of the president, the secretary, of the officer
or persons calling the meeting. If the notice is mailed at least 30 days before
the date of the meeting, it may be done by a class of United States mail other
than first class. Notwithstanding Section 607.0141, if mailed, such notice shall
be deemed to be delivered when deposited in the United Statement mail addressed
to the shareholder at his address as it appears on the stock transfer books of
the corporation, with postage thereon prepaid.
3
<PAGE>
(2) Unless the Act or the articles of incorporation requires otherwise,
notice of an annual meeting need not include a description of the purpose or
purposes for which the meeting is called.
(3) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(4) If an annual or special shareholders meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time or place is announced at the meeting before
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If
a new record date is or must be fixed under Section 607.0707 of the Act,
however, notice of the adjourned meeting must be given under this section to
persons who are shareholders as of the new record date who are entitled to
notice of the meeting.
(5) Notwithstanding the foregoing, no notice of a shareholders' meeting
need be given if. (a) an annual report and proxy statements for two consecutive
annual meetings of shareholders, or (b) all, and at least two checks in payment
of dividends or interest on securities during a 12-month period, have been sent
by first-class United States mail, addressed to the shareholder at his address
as it appears on the share transfer books of the corporation, and returned
undeliverable. The obligation of the corporation to give notice of a
shareholders' meeting to any such shareholder shall be reinstated once the
corporation has received a new address for such shareholder for entry on its
share transfer books.
SECTION 2.06. WAIVER OF NOTICE.
-----------------
(1) A shareholder may waive any notice required by the Act, the
articles of incorporation, or bylaws before or after the date and time stated in
the notice. The waiver must be in writing, be signed by the shareholder entitled
to the notice, and be delivered to the corporation for inclusion in the minutes
or filing with the corporate records. Neither the business to be transacted at
nor the purpose of any regular or special meeting of the shareholders need be
specified in any written waiver of notice.
(2) A shareholder's attendance at a meeting: (a) Waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; or (b) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when it
is presented.
4
<PAGE>
ARTICLE III
SHAREHOLDER VOTING
SECTION 3.01. VOTING GROUP DEFINED.
---------------------
A "voting group" means all shares of one or more classes or series that
under the articles of incorporation or the Act are entitled to vote and be
counted together collectively on a matter at a meeting of shareholders. All
shares entitled by the articles of incorporation or the Act to vote generally on
the matter are for that purpose a single voting group.
SECTION 3.02. QUORUM AND VOTING REQUIREMENTS FOR VOTING GROUPS.
-------------------------------------------------
(1) Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the articles of incorporation or the Act provides otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
(2) Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
(3) If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Act requires a greater number of affirmative
votes.
SECTION 3.03. ACTION BY SINGLE AND MULTIPLE VOTING GROUPS.
-------------------------------------------
(1) If the articles of incorporation or the Act provides for voting by
a single voting group on a matter, action on that matter is taken when voted
upon by that voting group as provided in Section 3.02 of these bylaws.
(2) If the articles of incorporation or the Act provides for voting by
two or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately as provided in
Section 3.02 of these bylaws. Action may be taken by one voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter.
5
<PAGE>
SECTION 3.04. SHAREHOLDER QUORUM AND VOTING: GREATER OR LESSER VOTING
-------------------------------------------------------
REQUIREMENTS.
-------------
(1) A majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders, but in no
event shall a quorum consist of less than one-third of the shares entitled to
vote. When a specified item of business is required to be voted on by a class or
series of stock, a majority of the shares of such class or series shall
constitute a quorum for the transaction of such item of business by that class
or series.
(2) An amendment to the articles of incorporation that adds, changes or
deletes a greater or lesser quorum or voting requirement must meet the same
quorum requirement and be adopted by the same vote and voting groups required to
take action under the quorum and voting requirements then in effect or proposed
to be adopted, whichever is greater.
(3) If a quorum exists, action on a matter, other than the election of
directors, is approved if the votes cast by the holders of the shares
represented at the meeting and entitled to vote on the subject matter favoring
the action exceed the votes cast opposing the action, unless a greater number of
affirmative votes or voting by classes is required by the Act or the articles of
incorporation.
(4) After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
(5) The articles of incorporation may provide for a greater voting
requirement or a greater or lesser quorum requirement for shareholders (or
voting groups of shareholders) than is provided by the Act, but in no event
shall a quorum consist of less than one-third of the shares entitled to vote.
SECTION 3.05. VOTING FOR DIRECTORS: CUMULATIVE VOTING.
---------------------------------------
(1) Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
(2) Each shareholder who is entitled to vote at an election of
directors has the right to vote the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote. Shareholders do not have a right to cumulate their votes for
directors unless the articles of incorporation so provide.
6
<PAGE>
SECTION 3.06. VOTING ENTITLEMENT OF SHARES.
-----------------------------
(1) Unless the articles of incorporation or the Act provides otherwise,
each outstanding share, regardless of class, is entitled to one vote on each
matter submitted to a vote at a meeting of shareholders.
Only shares are entitled to vote.
(2) The shares of the corporation are not entitled to vote if they are
owned, directly or indirectly, by a second corporation, domestic or foreign, and
the first corporation owns, directly or indirectly, a majority of shares
entitled to vote for directors of the second corporation.
(3) This section does not limit the power of the corporation to vote
any shares, including its own shares, held by it in a fiduciary capacity.
(4) Redeemable shares are not entitled to vote on any matter, and shall
not be deemed to be outstanding, after notice of redemption is mailed to the
holders thereof and a sum sufficient to redeem such shares has been deposited
with a bank, trust company, or other financial institution upon an irrevocable
obligation to pay the holders the redemption price upon surrender of the shares.
(5) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of the
corporate shareholder may prescribe or, in the absence of any applicable
provision, by such person as the board of directors of the corporate shareholder
may designate. In the absence of any such designation or in case of conflicting
designation by the corporate shareholder, the chairman of the board, the
president, any vice president, the secretary, and the treasurer of the corporate
shareholder, in that order, shall be presumed to be fully authorized to vote
such shares.
(6) Shares held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name or the name of his nominee.
(7) Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
(8) If a share or shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the secretary
of the corporation is given notice to the contrary and is furnished with a copy
7
<PAGE>
of the instrument or order appointing them or creating the relationship wherein
it is so provided, then acts with respect to voting have the following effect:
(a) If only one votes, in person or in proxy, his act binds
all;
(b) If more than one vote, in person or by proxy, the act of
the majority so voting binds all;
(c) If more than one vote, in person or by proxy, but the vote
is evenly split on any particular matter, each faction is entitled to vote the
share or shares in question proportionally;
(d) If the instrument or order so filed shows that any such
tenancy is held in unequal interest, a majority or a vote evenly split for
purposes of this subsection shall be a majority or a vote evenly split in
interest;
(e) The principles of this subsection shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for the
purpose of ascertaining the presence of a quorum;
(f) Subject to Section 3.08 of these bylaws, nothing herein
contained shall prevent trustees or other fiduciaries holding shares registered
in the name of a nominee from causing such shares to be voted by such nominee as
the trustee or other fiduciary may direct. Such nominee may vote shares as
directed by a trustee or their fiduciary without the necessity of transferring
the shares to the name of the trustee or other fiduciary.
SECTION 3.07. PROXIES.
-------
(1) A shareholder, other person entitled to vote on behalf of a
shareholder pursuant to Section 3.06 of these bylaws, or attorney in fact may
vote the shareholder's shares in person or by proxy.
(2) A shareholder may appoint a proxy to vote or otherwise act for him
by signing an appointment form, either personally or by his attorney in fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, is a sufficient appointment form.
(3) An appointment of a proxy is effective when received by the
secretary or other officer or agent authorized to tabulate votes. An appointment
is valid for up to 11 months unless a longer period is expressly provided in the
appointment form.
(4) The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
8
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(5) An appointment of a proxy is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest. Appointments coupled with an interest
include the appointment of: (a) a pledgee; (b) a person who purchased or agreed
to purchase the shares; (c) a creditor of the corporation who extended credit to
the corporation under terms requiring the appointment; (d) an employee of the
corporation whose employment contract requires the appointment; or (e) a party
to a voting agreement created in accordance with the Act.
(6) An appointment made irrevocable under this section becomes
revocable when the interest with which it is coupled is extinguished and, in a
case provided for in Subsection 5(c) or 5(d), the proxy becomes revocable three
years after the date of the proxy or at the end of the period, if any, specified
herein, whichever is less, unless the period of irrevocability is renewed from
time to time by the execution of a new irrevocable proxy as provided in this
section. This does not affect the duration of a proxy under subsection (3).
(7) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if he did not know of its existence when
he acquired the shares and the existence of the irrevocable appointment was not
noted conspicuously on the certificate representing the shares or on the
information statement for shares without certificates.
(8) Subject to Section 3.09 of these bylaws and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, a corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment.
(9) If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
SECTION 3.08. SHARES HELD BY NOMINEES.
-----------------------
(1) The corporation may establish a procedure by which the beneficial
owner of shares that are registered in the name of a nominee is recognized by
the corporation as the shareholder. The extent of this recognition may be
determined in the procedure.
(2) The procedure may set forth (a) the types of nominees to which it
applies; (b) the rights or privileges that the corporation recognizes in a
beneficial owner; (c) the manner in which the procedure is selected by the
nominee; (d) the information that must be provided when the procedure is
selected; (e) the period for which selection of the procedure is effective; and
(f) other aspects of the rights and duties created.
9
<PAGE>
SECTION 3.09. CORPORATION'S ACCEPTANCE OF VOTES.
----------------------------------
(1) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation if acting in good
faith is entitled to accept the vote, consent waiver, or proxy appointment and
give it effect as the act of the shareholder.
(2) If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the corporation if acting in
good faith is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if: (a) the
shareholder is an entity and the name signed purports to be that of an officer
or agent of the entity; (b) the name signed purports to be that of an
administrator, executor, guardian, personal representative, or conservator
representing the shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, or proxy appointment; (c) the name signed purports
to be that of a receiver, trustee in bankruptcy, or assignee for the benefit of
creditors of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, or proxy appointment; (d) the name signed purports to be
that of a pledgee, beneficial owner, or attorney in fact of the shareholder and,
if the corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented with
respect to the vote, consent, waiver, or proxy appointment; or (e) two or more
persons are the shareholder as covenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all the co-owners.
(3) The corporation is entitled to reject a vote, consent, waiver, or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
(4) The corporation and its officer or agent who accepts or rejects a
vote, consent, waiver, or proxy appointment in good faith and in accordance with
the standards of this section are not liable in damages to the shareholder for
the consequences of the acceptance or rejection.
(5) Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
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SECTION 3.10. ACTION BY SHAREHOLDERS WITHOUT MEETING.
--------------------------------------
(1) Any action required or permitted by the Act to be taken at any
annual or special meeting of shareholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if the action is
taken by the holders of outstanding stock of each voting group entitled to vote
thereon having not less than the minimum number of votes with respect to each
voting group that would be necessary to authorize or take such action at a
meeting at which all voting groups and shares entitled to vote thereon were
present and voted. In order to be effective, the action must by evidenced by one
or more written consents describing the action taken, dated and signed by
approving shareholders having the requisite number of votes of each voting group
entitled to vote thereon, and delivered to the corporation by delivery to its
principal office in this state, its principal place of business, the corporate
secretary, or another office or agent of the corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the date of the earliest dated consent is delivered in
the manner required by this section, written consent signed by the number of
holders required to take action is delivered to the corporation by delivery as
set forth in this section.
(2) Within 10 days after obtaining such authorization by written
consent, notice in accordance with Section 607.0704(3) of the Act must be given
to those shareholders who have not consented in writing.
ARTICLE IV
----------
BOARD OF DIRECTORS AND OFFICERS
-------------------------------
SECTION 4.01. QUALIFICATIONS OF DIRECTORS.
----------------------------
Directors must be natural persons who are 18 years of age or older but
need not be residents of the State of Florida or shareholders of the
corporation.
SECTION 4.02. NUMBER OF DIRECTORS.
-------------------
(1) The board of directors shall consist of not less than one nor more
than nine individuals.
(2) The number of directors may be increased or decreased from time to
time by amendment to these bylaws.
(3) Directors are elected at the first annual shareholders' meeting and
at each annual meeting thereafter unless their terms are staggered under Section
4.04 of these bylaws.
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SECTION 4.03. TERMS OF DIRECTORS GENERALLY.
-----------------------------
(1) The terms of the initial directors of the corporation expire at the
first shareholders' meeting at which directors are elected.
(2) The terms of all other directors expire at the next annual
shareholders' meeting following their election unless their terms are staggered
under Section 4.04 of these bylaws.
(3) A decrease in the number of directors does not shorten an incumbent
director's term.
(4) The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected.
(5) Despite the expiration of a director's term, he continues to serve
until his successor is elected and qualifies or until there is a decrease in the
number of directors.
SECTION 4.04. STAGGERED TERMS FOR DIRECTORS.
------------------------------
The directors of any corporation organized under the Act may, by the
articles of incorporation, or by amendment to these bylaws adopted by a vote of
the shareholders, be divided into one, two or three classes with the number of
directors in each class being as nearly equal as possible; the term of office of
those of the first class to expire at the annual meeting next ensuing; of the
second class one year thereafter; at the third class two years thereafter; and
at each annual election held after such classification and election, directors
shall be -chosen for a full term, as the case may be, to succeed those whose
terms expire. If the directors have staggered terms, then any increase or
decrease in the number of directors shall be so apportioned among the classes as
to make all classes as nearly equal in number as possible.
SECTION 4.05. VACANCY ON BOARD.
----------------
(1) Whenever a vacancy occurs on a board of directors, including a
vacancy resulting from an increase in the number of directors, it may be filled
by the affirmative vote of a majority of the remaining directors.
(2) A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
SECTION 4.06. COMPENSATION OF DIRECTORS.
--------------------------
The board of directors may fix the compensation of directors.
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SECTION 4.07. MEETINGS.
---------
(1) The board of directors may hold regular or special meetings in or
out of the State of Florida.
(2) A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time and
place. Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and place
of the adjourned meeting are announced at the time of the adjournment, to the
other directors.
(3) Meetings of the board of directors may be called by the chairman of
the board or by the president.
(4) The board of directors may permit any or all directors to
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
SECTION 4.08. ACTION BY DIRECTORS WITHOUT A MEETING.
--------------------------------------
(1) Action required or permitted by the Act to be taken at a board of
directors' meeting or committee meeting may be taken without a meeting if the
action is taken by all members of the board or of the committee. The action must
be evidenced by one or more written consents describing the action taken and
signed by each director or committee member.
(2) Action taken under this section is effective when the last director
signs the consent, unless the consent specifies a different effective date.
(3) A consent signed under this section has the effect of a meeting
vote and may be described as such in any document.
SECTION 4.09. NOTICE OF MEETINGS.
------------------
Regular and special meetings of the board of directors may be held
without notice of the date, time, place, or purpose of the meeting.
SECTION 4.10. WAIVER OF NOTICE.
----------------
Notice of a meeting of the board of directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting or promptly upon
arrival at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
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SECTION 4.11. QUORUM AND VOTING.
-----------------
(1) A quorum of a board of directors consists of a majority of the
number of directors prescribed by the articles of incorporation or these bylaws.
(2) If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the board of directors.
(3) A director of a corporation who is present at a meeting of the
board of directors or a committee of the board of directors when corporate
action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly upon
his arrival) to holding it or transacting specified business at the meeting; or
(b) He votes against or abstains from the action taken.
SECTION 4.12. COMMITTEES.
----------
(1) The board of directors, by resolution adopted by a majority of the
full board of directors, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in such resolution, shall have and may exercise all the authority of the board
of directors, except that no such committee shall have the authority to:
(a) Approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders.
(b) Fill vacancies on the board of directors or any committee
thereof.
(c) Adopt, amend, or repeal these bylaws.
(d) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the board of directors.
(e) Authorize or approve the issuance or sale or contract for the
sale of shares, or determine the designation and relative rights, preferences,
and limitations of a voting group except that the board of directors may
authorize a committee (or a senior executive officer of the corporation) to do
so within limits specifically prescribed by the board of directors.
14
<PAGE>
(2) The sections of these bylaws which govern meetings, notice and
waiver of notice, and quorum and voting requirements of the board of directors
apply to committees and their members as well.
(3) Each committee must have two or more members who serve at the
pleasure of the board of directors. The board, by resolution adopted in
accordance herewith, may designate one or more directors as alternate members of
any such committee who may act in the place and stead of any absent member or
members at any meeting of such committee.
(4) Neither the designation of any such commiftee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the board of directors not a
member of the committee in question with his responsibility to act in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
SECTION 4.13. LOANS TO OFFICERS, DIRECTORS, AND EMRLOYEES: GUARANTY OF
---------------------------------------------------------
OBLIGATIONS.
------------
The corporation may lend money to, guaranty any obligation of, or
otherwise assist any officer, director, or employee of the corporation or of a
subsidiary, whenever, in the judgment of the board of directors, such loan,
guaranty, or assistance may reasonably be expected to benefit the corporation.
The loan, guaranty, or other assistance may be with or without interest and may
be unsecured or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this section shall be deemed to deny, limit, or restrict the powers
of guaranty or warranty of any corporation at common law or under any statute.
Loans, guaranties, or other types of assistance are subject to section 4.19.
SECTION 4.14. REQUIRED OFFICERS.
-----------------
(1) The corporation shall have such officers as the board of directors
may appoint from time to time.
(2) A duly appointed officer may appoint one or more assistant
officers.
(3) The board of directors shall delegate to one of the officers
responsibility for preparing minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation.
(4) The same individual may simultaneously hold more than one office in
the corporation.
15
<PAGE>
SECTION 4.15. DUTIES OF OFFICERS.
------------------
Each officer has the authority and shall perform the duties set forth
in a resolution or resolutions of the board of directors or by direction of any
officer authorized by the board of directors to prescribe the duties of other
officers.
SECTION 4.16. RESIGNATION AND REMOVAL OF OFFICERS.
-----------------------------------
(1) An officer may resign at any time by delivering notice to the
corporation. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the corporation accepts the future effective date, the board of
directors may fill the pending vacancy before the effective date if the board of
directors provides that the successor does not take office until the effective
date.
(2) The board of directors may remove any officer at any time with or
without cause. Any assistant officer, if appointed by another officer, may
likewise be removed by the board of directors or by the officer which appointed
him in accordance with these bylaws.
SECTION 4.17. CONTRACT RIGHTS OF OFFICERS.
----------------------------
The appointment of an officer does not itself create contract rights.
SECTION 4.18. GENERAL STANDARDS FOR DIRECTORS.
-------------------------------
(1) A director shall discharge his duties as a director, including his
duties as a member of a committee:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like position
would exercise under similar circumstances; and
(c) In a manner he reasonably believes to be in the best interests
of the corporation.
(2) In discharging his duties, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
(a) One or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented;
16
<PAGE>
(b) Legal counsel, public accountants, or other persons as to
matters the director reasonably believes are within the persons' professional or
expert competence; or
(c) A committee of the board of directors of which he is not a
member if the director reasonably believes the committee merits confidence.
(3) In discharging his duties, a director may consider such factors as
the director deems relevant., including the long-term prospects and interests of
the corporation and its shareholders, and the social, economic, legal, or other
effects of any action on the employees, suppliers, customers of the corporation
or its subsidiaries, the communities and society in which the corporation or its
subsidiaries operate, and the economy of the state and the nation.
(4) A director is not acting in good faith if he has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (2) unwarranted.
(5) A director is not liable for any action taken as a director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
SECTION 4.19. DIRECTOR CONFLICTS OF INTEREST.
------------------------------
No contract or other transaction between a corporation and one or more
interested directors shall be either void or voidable because of such
relationship or interest, because such director or directors are present at the
meeting of the board of directors or a committee thereof which authorizes,
approves or ratifies such contract or transaction, or because his or their votes
are counted for such purpose, if:
(1) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves or ratifies the
contract or transactions by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors;
(2) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(3) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at the meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
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<PAGE>
For the purpose of paragraph (2) above, a conflict of interest
transaction is authorized, approved or ratified if it receives the vote of a
majority of the shares entitled to be counted under this subsection. Shares
owned by or voted under the control of a director who has a relationship or
interest in the conflict of interest transaction may not be counted in a vote of
shareholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under paragraph (2). The vote of those shares, however, is
counted in determining whether the transaction is approved under other sections
of the Act. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction under this subsection constitutes a
quorum for the purpose of taking action under this section.
SECTION 4.20. RESIGNATION OF DIRECTORS.
-------------------------
A director may resign at any time by delivering written notice to the
board of directors or its chairman or to the corporation.
A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date, the board of directors may fill the pending vacancy before the
effective date if the board of directors provides that the successor does not
take office until the effective date.
ARTICLE V
---------
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
--------------------
SECTION 5.01. DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
------------------------------------------
(1) The corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any proceeding by judgment, order, settlement,
or conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
18
<PAGE>
(2) The corporation shall have power to indemnify any person, who was
or is a party to any proceeding by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses and amounts paid in settlement not exceeding, in the judgment of the
board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, except that no indemnification shall be made under this
subsection in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable unless, and only to the extent that, the
court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsections (1) or (2), or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith.
(4) Any indemnification under subsections (1) or (2), unless pursuant
to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (1) or (2).
Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable, by
majority vote of a committee duly designated by the board of directors (in which
directors who are parties may participate) consisting solely of two or more
directors not at the time parties to the proceeding;
(c) By independent legal counsel:
(i) Selected by the board of directors prescribed in paragraph
(a) or the committee prescribed in paragraph (b); or
19
<PAGE>
(ii) If a quorum of the directors cannot be obtained for
paragraph (a) and the committee cannot be designed under paragraph (b), selected
by majority vote of the full board of directors (in which directors who are
parties may participate); or
(d) By the shareholders by a majority vote of a quorum consisting
of shareholders who were not parties to such proceeding or, if no such quorum is
obtainable, by a majority vote 6f shareholders who were not parties to such
proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (4)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and the corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his conduct was lawful or had
no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee, or
agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Section 607.0834 under the Act are applicable; or
20
<PAGE>
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person, unless otherwise provided when authorized or ratified.
(9) Notwithstanding the failure of the corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer, employee, or agent of
the corporation who is or was a party to a proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice that it
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent if entitled to
mandatory indemnification under subsection (3), in which case the court shall
also order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the exercise
by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether such person met
the standard of conduct set forth in subsection (1), subsection (2) or
subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(11) For purposes of this section:
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(a) The term "other enterprises" includes employee benefit plans;
(b) The term "expenses" includes counsel fees, including those for
appeal;
(c) The term "liability" includes obligations to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to any
employee benefit plan), and expenses actually and reasonably incurred with
respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation" includes
any service as a director, officer, employee, or agent of the corporation that
imposes duties on such persons, including duties relating to an employee benefit
plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the corporation"
describes the actions of a person who acts in good faith and in a manner he
reasonably believes to be in the best interests of the participants and
beneficiaries of an employee benefit plan.
(12) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE VI
OFFICE AND AGENT
----------------
SECTION 6.01. REGISTERED OFFICE AND REGISTERED AGENT.
--------------------------------------
(1) The corporation shall have and continuously maintain in the State
of Florida:
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(a) A registered office which may be the same as its place of
business; and
(b) A registered agent, who, may be either:
(i) An individual who resides in the State of Florida whose
business office is identical with such registered office; or
(ii) Another corporation or not-for-profit corporation as
defined in Chapter 617 of the Act, authorized to transact business or conduct
its affairs in the State of Florida, having a business office identical with the
registered office; or
(iii) A foreign corporation or not-for-profit foreign
corporation authorized pursuant to chapter 607 or chapter 617 of the Act to
transact business or conduct its affairs in the State of Florida, having a
business office identical with the registered office.
SECTION 6.02. CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT: RESIGNATION
------------------------------------------------------------
OF REGISTERED AGENT.
--------------------
(1) The corporation may change its registered office or its registered
agent upon filing with the Department of State of the State of Florida a
statement of change setting forth:
(a) The name of the corporation;
(b) The street address of its current registered office;
(c) If the current registered office is to be changed, the street
address of the new registered office;
(d) The name of its current registered agent;
(e) If its current registered agent is to be changed, the name of
the new registered agent and the new agent's written consent (either on the
statement or attached to it) to the appointment;
(f) That the street address of its registered office and the street
address of the business office of its registered agent, as changed, will be
identical;
(g) That such change was authorized by resolution duly adopted by
its board of directors or by an officer of the corporation so authorized by the
board of directors.
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ARTICLE VII
SHARES, OPTIONS, DIVIDENDS AND DISTRIBUTIONS
--------------------------------------------
SECTION 7.01. AUTHORIZED SHARES.
-----------------
(1) The articles of incorporation prescribe the classes of shares and
the number of shares of each class that the corporation is authorized to issue,
as well as a distinguishing designation for each class, and prior to the
issuance of shares of a class the preferences, limitations, and relative rights
of that class must be described in the articles of incorporation.
(2) The articles of incorporation must authorize:
(a) One or more classes of shares that together have unlimited
voting rights, and
(b) One or more classes of shares (which may be the same class or
classes as those with voting rights) that together are entitled to receive the
net assets of the corporation upon dissolution.
(3) The articles of incorporation may authorize one or more classes of
shares that have special, conditional, or limited voting rights, or no rights,
or no right to vote, except to the extent prohibited by the Act;
(a) Are redeemable or convertible as specified in the articles of
incorporation;
(b) Entitle the holders to distributions calculated in any manner,
including dividends that may be cumulative, non-cumulative, or partially
cumulative;
(c) Have preference over any other class of shares with respect to
distributions, including dividends and distributions upon the dissolution of the
corporation.
(4) Shares which are entitled to preference in the distribution of
dividends or assets shall not be designated as common shares. Shares which are
not entitled to preference in the distribution of dividends or assets shall be
common shares and shall not be designated as preferred shares.
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<PAGE>
SECTION 7.02. TERMS OF CLASS OR SERIES DETERMINED BY BOARD OF DIRECTORS.
---------------------------------------------------------
(1) If the articles of incorporation so provide, the board of directors
may determine, in whole or part, the preferences, limitations, and relative
rights (within the limits set forth in Section 7.01) of:
(a) Any class of shares before the issuance of any shares of that
class, or
(b) One or more series within a class before the issuance of any
shares of that series.
(2) Each series of a class must be given a distinguishing designation.
(3) All shares of a series must have preferences, limitations, and
relative rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the series, of
those of other series of the same class.
(4) Before issuing any shares of a class or series created under this
section, the corporation must deliver to the Department of State of the State of
Florida for filing articles of amendment, which are effective without
shareholder action, in accordance with Section 607.0602 of the Act.
SECTION 7.03. ISSUED AND OUTSTANDING SHARES.
-----------------------------
(1) A corporation may issue the number of shares of each class or
series authorized by the articles of incorporation. Shares that are issued are
outstanding shares until they are reacquired, redeemed, converted, or canceled.
(2) The reacquisition, redemption, or conversion of outstanding shares
is subject to the limitations of subsection (3) and to Section 607.06401 of the
Act.
(3) At all times that shares of the corporation are outstanding, one or
more shares that together have unlimited voting rights and one or more shares
that together are entitled to receive the net assets of the corporation upon
dissolution must be outstanding.
SECTION 7.04. ISSUANCE OF SHARES.
------------------
(1) The board of directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit -to
the corporation, including cash, promissory notes, services performed, promises
to perform services evidenced by a written contract, or other securities of the
corporation.
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<PAGE>
(2) Before the corporation issues shares, the board of directors must
determine that the consideration received or to be received for shares to be
issued is adequate. That determination by the board of directors is conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid, and non-assessable. When it
cannot be determined that outstanding shares are fully paid and non-assessable,
there shall be a conclusive presumption that such shares are fully paid and
non-assessable if the board of directors makes a good faith determination that
there is no substantial evidence that the full consideration for such shares has
not been paid.
(3) When the corporation receives the consideration for which the board
of directors authorized the issuance of shares, the shares issued therefor are
fully paid and non-assessable. Consideration in the form of a promise to pay
money or a promise to perform services is received by the corporation at the
time of the making of the promise, unless the agreement specifically provides
otherwise.
(4) The corporation may place in escrow shares issued for a contract
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits received. If the services are not performed,
the shares escrowed or restricted and the distributions credited may be canceled
in whole or part.
SECTION 7.05. FORM AND CONTENT OF CERTIFICATES.
--------------------------------
(1) Shares may but need not be represented by certificates. Unless the
Act or another statute expressly provides otherwise, the rights and obligations
of shareholders are identical whether or not their shares are represented by
certificates.
(2) At a minimum, each share certificate must state on its face:
(a) The name of the issuing corporation and that the corporation is
organized under the laws of the State of Florida;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, the certificate represents.
(3) If the shares being issued are of different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the board of directors to determine variations for future series) must be
summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder a full statement of this information on request and
without charge.
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<PAGE>
(4) Each share certificate:
(a) Must be signed (either manually or in facsimile) by an officer
or officers designated by the board of directors, and
(b) May bear the corporate seal or its facsimile.
(5) If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
(6) Nothing in this section may be construed to invalidate any share
certificate validly issued and outstanding under the Act on July 1, 1990.
SECTION 7.06. SHARES WITHOUT CERTIFICATES.
---------------------------
(1) The board of directors of the corporation may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
(2) Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send the shareholder a written
statement of the information required on certificates by the Act.
SECTION 7.07. RESTRICTION ON TRANSFER OF SHARES AND OTHER SECURITIES.
------------------------------------------------------
(1) The articles of incorporation, these bylaws, an agreement among
shareholders, or an agreement between shareholders and the corporation may
impose restrictions on the transfer or registration of transfer of shares of the
corporation. A restriction does not affect shares issued before the restriction
was adopted unless the holders of such shares are parties to the restriction
agreement or voted in favor of the restriction.
(2) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section, and effected in compliance with the
provisions of the Act, including having a proper purpose as referred to in the
Act.
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<PAGE>
SECTION 7.08. SHAREHOLDER'S PRE-EMPTIVE RIGHTS.
---------------------------------
The shareholders of the corporation do not have a pre-emptive right to
acquire the corporation's unissued shares.
SECTION 7.09. CORPORATION'S ACQUISITION OF ITS OWN SHARES.
--------------------------------------------
(1) The corporation may acquire its own shares, and, unless otherwise
provided in the articles of incorporation or except as provided in subsection
(4), shares so acquired constitute authorized but unissued shares of the same
class but undesignated as to series.
(2) If the articles of incorporation prohibit the reissue of acquired
shares, the number of authorized shares is reduced by the number of shares
acquired, effective upon amendment of the articles of incorporation.
(3) Articles of amendment may be adopted by the board of directors
without shareholder action, shall be delivered to the Department of State of the
State of Florida for filing, and shall set forth the information required by
Section 607.0631 of the Act.
(4) Shares of the corporation in existence on June 30, 1990, which are
treasury shares under Section 607.004(18), Florida Statutes (1987), shall be
issued, but not outstanding, until canceled or disposed of by the corporation.
SECTION 7.10. SHARE OPTIONS.
-------------
(1) Unless the articles of incorporation provide otherwise, the
corporation may issue rights, options, or warrants for the purchase of shares of
the corporation. The board of directors shall determine the terms upon which the
rights, options, or warrants are issued, their form and content, and the
consideration for which the shares are to be issued.
(2) The terms and conditions of stock rights and options which are
created and issued by the corporation, or its successor, and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized by unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions, or conditions that preclude or limit the exercise, transfer,
receipt, or holding of such rights or options by any person or persons,
including any person or persons owning or offering to acquire a specified number
or percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
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<PAGE>
SECTION 7.11. TERMS AND CONDITIONS OF STOCK RIGHTS AND OPTIONS.
-------------------------------------------------
The terms and conditions of the stock rights and options which are
created and issued by the corporation [or its successor], and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized but unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions or conditions that preclude or limit the exercise, transfer,
receipt or holding of such rights or options by any person or persons, including
any person or persons owning or offering to acquire a specified number or
percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
SECTION 7.12. SHARE DIVIDENDS.
----------------
(1) Shares may be issued pro rata and without consideration to the
corporation's shareholders or to the shareholders of one or more classes or
series. An issuance of shares under this subsection is a share dividend.
(2) Shares of one class or series may not be issued as a share dividend
in respect of shares of another class or series unless:
(a) The articles of incorporation so authorize,
(b) A majority of the votes entitled to be cast by the class or
series to be issued approves the issue, or
(c) There are no outstanding shares of the class or series to be
issued.
(3) If the board of directors does not fix the record date for
determining shareholders entitled to a share dividend, it is the date of the
board of directors authorizes the share dividend.
SECTION 7.13. DISTRIBUTIONS TO SHAREHOLDERS.
------------------------------
(1) The board of directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by the articles of
incorporation and the limitations in subsection (3).
(2) If the board of directors does not fix the record date for
determining shareholders entitled to a distribution (other than one involving a
purchase, redemption, or other acquisition of the corporation's shares), it is
the date the board of directors authorizes the distribution.
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<PAGE>
(3) No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its debts as they
become due in the usual course of business; or
(b) The corporation's total assets would be less than the sum of
its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
(4) The board of directors may base a determination that a distribution
is not prohibited under subsection (3) either on financial statements prepared
on the basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. In the case of any distribution based upon such a valuation, each
such distribution shall be identified as a distribution based upon a current
valuation of assets, and the amount per share paid on the basis of such
valuation shall be disclosed to the shareholders concurrent with their receipt
of the distribution.
(5) Except as provided in subsection (7), the effect of a distribution
under subsection (3) is measured;
(a) In the case of distribution by purchase, redemption, or other
acquisition of the corporation's shares, as of the earlier of-
(i) The date money or other property is transferred or debt
incurred by the corporation, or
(ii) The date the shareholder ceases to be a shareholder with
respect to the acquired shares;
(b) In the case of any other distribution of indebtedness, as of
the date the indebtedness is distributed;
(c) In all other cases, as of:
(i) The date the distribution is authorized if the payment
occurs within 120 days after the date of authorization, or
(ii) The date the payment is made if it occurs more than 120
days after the date of authorization.
(6) A corporation's indebtedness to a shareholder incurred by reason of
a distribution made in accordance with this section is at parity with the
corporation's indebtedness to its general, unsecured creditors except to the
extent subordinated by agreement.
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<PAGE>
(7) Indebtedness of the corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection (3) if its terms provide that payment of principal and interest are
made only if and to the extent that payment of a distribution to shareholders
could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.
ARTICLE VIII
AMENDMENT OF ARTICLES AND BYLAWS
SECTION 8.01. AUTHORITY TO AMEND THE ARTICLES OF INCORPORATION.
-------------------------------------------------
(1) The corporation may amend its articles of incorporation at any time
to add or change a provision that is required or permitted in the articles of
incorporation or to delete a provision not required in the articles of
incorporation. Whether a provision is required or permitted in the articles of
incorporation is determined as of the effective date of the amendment.
(2) A shareholder of the corporation does not have a vested property
right resulting from any provision in the articles of incorporation, including
provisions relating to management, control, capital structure, dividend
entitlement, or purpose or duration of the corporation.
SECTION 8.02. AMENDMENT BY BOARD OF DIRECTORS.
--------------------------------
The corporation's board of directors may adopt one or more amendments
to the corporation's articles of incorporation without shareholder action:
(1) To extend the duration of the corporation if it was incorporated at
a time when limited duration was required by law;
(2) To delete the names and addresses of the initial directors;
(3) To delete the name and address of the initial registered agent or
registered office, if a statement of change is on file with the Department of
State of the State of Florida;
(4) To delete any other information contained in the articles of
incorporation that is solely of historical interest;
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<PAGE>
(5) To change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the corporation has
only shares of that class outstanding;
(6) To delete the authorization for a class or series of shares
authorized pursuant to Section 607.0602 of the Act, if no shares of such class
or series have been issued;
(7) To change the corporate name by substituting the word
"corporation," "incorporated," or "company," or the abbreviation "corp.," Inc.,"
or Co.," for a similar word or abbreviation in the name, or by adding, deleting,
or changing a geographical attribution for the name; or
(8) To make any other change expressly permitted by the Act to be made
without shareholder action.
SECTION 8.03. AMENDMENT OF BYLAWS BY BOARD OF DIRECTORS.
------------------------------------------
The corporation's board of directors may amend or repeal the
corporation's bylaws unless the Act reserves the power to amend a particular
bylaw provision exclusively to the shareholders.
SECTION 8.04. BYLAW INCREASING QUORUM OR VOTING REQUIREMENTS FOR DIRECTORS.
-------------------------------------------------------------
(1) A bylaw that fixes a greater quorum or voting requirement for the
board of directors may be amended or repealed:
(a) If originally adopted by the shareholders, only by the
shareholders;
(b) If originally adopted by the board of directors, either by the
shareholders or by the board of directors.
(2) A bylaw adopted or amended by the shareholders that fixes a greater
quorum or voting requirement for the board of directors may provide that it may
be amended or repealed only by a specified vote of either the shareholders or
the board of directors.
(3) Action by the board of directors under paragraph (1)(b) to adopt or
amend a bylaw that changes the quorum or voting requirement for the board of
directors must meet the same quorum requirement and be adopted by the same vote
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
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<PAGE>
ARTICLE IX
RECORDS AND REPORTS
-------------------
SECTION 9.01. CORPORATE RECORDS.
------------------
(1) The corporation shall keep as permanent records minutes of al
meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a record
of all actions taken by a committee of the board of directors in place of the
board of directors on behalf of the corporation.
(2) The corporation shall maintain accurate accounting records.
(3) The corporation or its agent shall maintain a record of its
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(4) The corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
(5) The corporation shall keep a copy of the following records:
(a) Its articles or restated articles of incorporation and all
amendments to them currently in effect;
(b) Its bylaws or restated bylaws and all amendments to them
currently in effect;
(c) Resolutions adopted by the board of directors creating one or
more classes or series of shares and finding their relative rights, preferences,
and limitations, if shares issued pursuant to those resolutions are outstanding;
(d) The minutes of all shareholders' meetings and records of all
action taken by shareholders without a meeting for the past three years;
(e) Written communications to all shareholders generally or all
shareholders of a class or series within the past three years, including the
financial statements furnished for the past three years;
(f) A list of the names and business street addresses of its
current directors and officers; and
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<PAGE>
(g) Its most recent annual report delivered to the Department of
State of the State of Florida.
SECTION 9.02. FINANCIAL STATEMENTS FOR SHAREHOLDERS.
--------------------------------------
(1) Unless modified by resolution of the shareholders within 120 days
of the close of each fiscal year, the corporation shall furnish its shareholders
annual financial statements which may be consolidated or combined statements of
the corporation and one or more of its subsidiaries, as appropriate, that
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for that year. If financial
statements are prepared for the corporation on the basis of generally-accepted
accounting principles, the annual financial statements must also be prepared on
that basis.
(2) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(a) Stating his reasonable belief whether the statements were
prepared on the basis of generally-accepted accounting principles and, if not,
describing the basis of preparation; and
(b) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
(3) The corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within such
additional time thereafter as is reasonably necessary to enable the corporation
to prepare its financial statements, if for reasons beyond the corporation's
control, it is unable to prepare its financial statements within the prescribed
period. Thereafter, on written request from a shareholder who was not mailed the
statements, the corporation shall mail him the latest annual financial
statements.
SECTION 9.03. OTHER REPORTS TO SHAREHOLDERS.
------------------------------
(1) If the corporation indemnifies or advances expenses to any
director, officer, employee or agent otherwise than by court order or action by
the shareholders or by an insurance carrier pursuant to insurance maintained by
the corporation, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting, or prior to such meeting if the indemnification or advance occurs after
the giving of such notice but prior to the time such meeting is held, which
report shall include a statement specifying the persons paid, the amounts paid,
and the nature and status at the time of such payment of the litigation or
threatened litigation.
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<PAGE>
(2) If the corporation issues or authorizes the issuance of shares for
promises to render services in the future, the corporation shall report in
writing to the shareholders the number of shares authorized or issued, and the
consideration received by the corporation, with or before the notice of the next
shareholders' meeting.
SECTION 9.04. ANNUAL REPORT FOR DEPARTMENT OF STATE.
-------------------------------------
(1) The corporation shall deliver to the Department of State of the
State of Florida for filing a sworn annual report on such forms as the
Department of State of the State of Florida prescribes that sets forth the
information prescribed by Section 607.1622 of the Act.
(2) Proof to the satisfaction of the Department of State of the State
of Florida on or before July 1 of each calendar year that such report was
deposited in the United States mail in a sealed envelope, properly addressed
with postage prepaid, shall be deemed in compliance with this requirement.
(3) Each report shall be executed by the corporation by an officer or
director or, if the corporation is in the hands of a receiver or trustee, shall
be executed on behalf of the corporation by such receiver or trustee, and the
signing thereof shall have the same legal effect as if made under oath, without
the necessity of appending such oath thereto.
(4) Information in the annual report must be current as of the date the
annual report is executed on behalf of the corporation.
(5) Any corporation failing to file an annual report which complies
with the requirements of this section shall not be permitted to maintain or
defend any action in any court of this state until such report is filed and all
fees and taxes due under the Act are paid and shall be subject to dissolution or
cancellation of its certificate of authority to do business as provided in the
Act.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.01. DEFINITION OF THE "ACT".
------------------------
All references contained herein to the "Act" or to sections of the
"Act" shall be deemed to be in reference to the Florida Business Corporation
Act.
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<PAGE>
SECTION 10.02. APPLICATION OF FLORIDA LAW.
---------------------------
Whenever any provision of these bylaws is inconsistent with any
provision of the Florida Business Corporation Act, Statutes 607, as they may be
amended from time to time, then in such instance Florida law shall prevail.
SECTION 10.03. FISCAL YEAR.
------------
The fiscal year of the corporation shall be determined by resolution of
the board of directors.
SECTION 10.04. CONFLICTS WITH ARTICLES OF INCORPORATION.
-----------------------------------------
In the event that any provision contained in these bylaws conflicts
with any provision of the corporation's articles of incorporation, as amended
from time to time, the provisions of the articles of incorporation shall prevail
and be given full force and effect, to the full extent permissible under the
Act.
36
<PAGE>
AMENDMENT TO BY-LAWS
OF
PSI INDUSTRIES, INC.,
A FLORIDA CORPORATION
There shall be added to the By-Laws of PSI Industries Inc. (the
"Corporation"), Section 10.05 as follows:
Pursuant to Florida Statute Annotated, Chapter 607.0902(5),
the Corporation hereby elects not to be governed by Chapter
607.0902, the "Florida Control Share Acquisition Act."
Effective: December 23, 1998.
July 3, 1997
Noesis Capital Corp.
1801 Clint Moore Road
Boca Raton, FL 33487
Dear Sirs:
PSI Industries, Inc., a Florida corporation (the "Company"), hereby
confirms its agreement with you (the "Placement Agent") as follows:
1. DESCRIPTION OF TRANSACTION. Company proposes to issue and sell
--------------------------
through the Placement Agent, in a transaction (the "Offering") exempt from
registration under the Securities Act of 1933, as amended (the "1933 Act"), to
persons meeting certain criteria for "Accredited Investor" status and other
qualified investors (collectively, the "Investors") (as more fully described in
the private placement memorandum and exhibits thereto (the "Memorandum")), a
maximum of 700,000 shares (the "Shares") of the Company's Series A Convertible
Preferred Stock (the "Preferred Stock"), on a "best efforts" basis. The
Preferred Stock will be sold in units (the "Units-"), each Unit consisting of
1000 Shares of Preferred Stock, at a purchase price of $30,000 per Unit. Each
Share of Preferred Stock will be convertible at the option of the holder into
ten (10) shares of the Company's common stock (the "Common Stock"). The
conversion price is subject to adjustment in the event that the average of the
Company's earnings per share for its fiscal years of 1997 and 1998, on a fully
diluted basis, is less than $.20 per share, in which case the conversion price
shall be reduced to a rate that equals 15 times the Company's actual earning per
share for the same period; provided, however, that in no event shall the
conversion price be reduced below $2.50. At any time after one year from the
date of issuance, the Company can require that all outstanding shares of
Preferred Stock be automatically converted at the conversion price then in
effect if at the time (i) the closing bid price of the Company's Common Stock
has exceeded $7.50 for 20 consecutive trading days, (ii) the Company's Common
Stock has been listed on the Nasdaq or such other comparable national stock
exchange and (iii) a registration statement covering the shares of Common Stock
issuable upon conversion of the Preferred Stork has been filed with the
Securities and Exchange Commission and declared effective. The full terms of the
Offering and the Shares is more fully described in the Memorandum. Capitalized
terms not defined herein shall have the meaning set forth in the Memorandum.
1
<PAGE>
2. APPOINTMENT OF THE PLACEMENT AGENT. The Company hereby appoints the
----------------------------------
Placement Agent as its exclusive agent to offer and sell the Units to Investors
on a "best efforts" basis, subject to the earlier termination of the Offering as
provided herein. The Offering shall terminate on the earliest of (i) September
30, 1997, Subject to extension until December 31, 1997 by the Company and the
Placement Agent in their sole discretion), (ii) the date all of the Units are
sold; or (iii) such earlier date as determined by the Company and the Placement
Agent. The Placement Agent, on the basis of the representations, warranties,
covenants and agreements of the Company, and subject to the conditions contained
herein, accepts such appointment and agrees to use its best efforts to sell the
Units. It is understood that the Placement Agent has no commitment to sell the
Units other than to use its best efforts.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
-------------------------------------
representations and warranties, contained herein, and subject to the term and
conditions set forth herein, the parties agree that:
(a) REGULATION D OFFERING. Neither the offer nor the sale of the
---------------------
Shares has been or will be registered with the Securities and Exchange
Commission. The Shares will be offered and sold in reliance upon the
exemption from registration provided by Regulation D ("Reg D") adopted
under the 1933 Act, and will only be sold to "Accredited Investors" as
such term is defined under Reg D and other qualified investors; the
Shares will be offered for sale only in states in which the Shares have
been qualified or registered for sale or are exempt from such
qualification or registration; and the Company will provide the
Placement Agent for delivery to all offerees and purchasers and their
representatives, if any, with any information, documents and
instruments which the Placement Agent and the Company deem necessary to
comply with the rules, regulations and judicial and administrative
interpretations concerning compliance with applicable state and federal
statues and regulations.
(b) SUBSCRIPTION FOR SHARES. Subscription for the Shares shall occur
-----------------------
by execution and delivery by the Investor of a subscription agreement
(the "Subscription Agreement") in the form annexed to the Memorandum;
(c) DISTRIBUTION OF PROCEEDS, CLOSING; TERMINATION OF OFFERING. The
----------------------------------------------------------
proceeds of the Offering will be deposited into an account designated
by the Company for purposes of this Offering. One or more closings will
occur, from time to time, at such time as a subscription is accepted by
the Company and the Placement Agent. The Company shall deliver to the
Placement Agent on each Closing Date, on behalf of the Subscribers, the
certificates evidencing the Shares against payment therefor, after
deducting the amounts set forth in Section 4 below.
2
<PAGE>
(d) REGISTRATION OF SHARES. The Shares of Preferred Stock are
----------------------
convertible into shares of Common Stock of the Company, at the
conversion price and in accordance with the terms set forth in the
Memorandum. The Company shall grant the investors in the Offering
"piggyback" registration rights entitling the holders to have their
Shares included in any registration statement (other than in connection
with a merger or pursuant to Forms S-8 or S-4) any time from the last
Closing Date for a period of three years thereafter. In addition,
subject to the Placement Agent raising $1,000,000 in gross proceeds for
the Company, the holders of a majority in interest of the Shares shall
have the right on one occasion to demand that the Company file a
registration statement with the SEC. The Company shall bear all costs
and expenses incurred in the preparation and filing of such
registration statements or post-effective amendment (and related state
registrations, to the extent permitted by applicable, law) and
furnishing of copies of the preliminary and final prospectus thereof to
the Placement Agent and such holders of securities, other than expenses
of the Placement Agent's counsel, and other than sales commissions
incurred by the then holders with respect to the sale of such
securities.
4. COMPENSATION OF PLACEMENT AGENT. As compensation for its services
-------------------------------
rendered as Placement Agent under this Agreement, the Placement Agent shall
receive a sales commission equal to 5% of the gross proceeds from the sale of
the Shares, payable by deducting the sales commission from such gross proceeds
on each Closing Date, or as the proceeds are distributed to the Company. In
addition, on the final Closing Date, the Company will sell to the Placement
Agent or it designee, five year warrants (the "Placement Agent's Warrants") to
purchase a number of shares of Common Stock, as set forth below, at an exercise
price of $3.00 per share. The Placement Agent shall receive 250,000 Placement
Agent Warrants in the event that the Placement Agent raises $1,800,000 in gross
proceeds for the Company, which number shall be increased or decreased on a
pro-rata basis in the event that it raises more or less than $1,800,000. For
example, in the event that the Placement Agent raises $1,000,000 in gross
proceeds, the Placement Agent shall receive 137,000 Placement Agent Warrants,
and in the event that the Placement Agent raises $2,100,000 in gross proceeds,
the Placement Agent shall receive 292,000 Placement Agent Warrant. The Placement
Agent's Warrants will be non-transferable during the first 12 months following
the Final Closing Date, except to officers or directors of the Placement Agent
and to selected dealers, and may be exercised in whole or in part at any time
and from time to time during the period of four years following the expiration
of the one-year period of non-transferability. The Placement Agent shall have
the same registration rights with respect to the Placement Agent Warrants as the
holders of Shares. The Company shall bear all costs and expenses iii connection
with such registration.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants to, and agrees with, the Placement Agent that:
3
<PAGE>
(a) MEMORANDUM. The Company has prepared or will promptly upon
----------
execution hereof prepare a Memorandum, which may be supplemented from
time to time, which contains information, accurate as of the date
specified therein, of the kind specified by applicable statues and
regulations. The Memorandum as of its date and at an times subsequent
thereto up to and including the final Closing Date does not and will
not include any untrue statement of a material fact, or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they
were made, not misleading.
(b) ADDITIONAL INFORMATION. The Company has provided, and shall
----------------------
provide to the Placement Agent, such information, documents and
instruments as may be required under Section 4(2) of the 1933 Act and
Reg D.
(c) ORGANIZATION: GOOD STANDING. The Company, and each of its
---------------------------
subsidiaries, is a corporate duly organized, validly existing and in
good standing under the laws of the State of Florida, with full power
and authority, corporate and other, to own or lease and operate its
properties and to conduct its business as described in the Memorandum
and to execute, deliver and perform this Agreement, and the Placement
Agent's Warrants and to consummate the transactions contemplated hereby
and thereby. The Company and each of its subsidiaries (as hereinafter
defined) is fully qualified to do business as a foreign corporation and
is in good standing in all jurisdictions where such qualification is
necessary and where failure so to qualify could have a material adverse
effect on the financial condition, results of operations, business or
properties of the Company.
(d) CORPORATE AUTHORIZATION. This Agreement has been duly executed
-----------------------
and delivered by the Company and constitutes the valid and binding
obligation of the Company, and the Placement Agent's Warrants, when
executed and delivered by the Company against payment therefor will be
the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms except as such enforceability
may be limited by applicable bankruptcy, insolvency, moratorium, or
other similar laws or arrangements affecting creditors' rights
generally and subject to principles of equity and public policy
considerations. The execution, delivery and performance of this
Agreement and the Placement Agent's Warrants by the company, the
consummation by the Company of the transactions herein and therein
contemplated, and the compliance by the Company with terms of this
Agreement and the Placement Agent's Warrants have been duly authorized
by all necessary corporate action and do not and will not. with or
without the giving of notice or the lapse of time, or both: (i) result
in any violation of the Articles of Incorporation or by-laws of the
Company; (ii) result in a material breach of or conflict with any of
the terms or provisions of, or constitute a default under, or result in
the modification or termination of, or result in the creation or
4
<PAGE>
imposition of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company pursuant to any
indenture, mortgage, note, contract, commitment or other agreement or
instrument to which the company is a party or by which the Company or
any of its properties or assets are or may be bound or affected; (iii)
violate in any material respect any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or
court, domestic or foreign, having jurisdiction over the Company or any
of its properties or business; or (iv) have any effect on any permit,
certification, registration, approval, consent, license or franchise
necessary for the Company to own or lease and operate its properties
and to conduct its business or the ability of the Company to make use
thereof.
(e) CAPITALIZATION. The Company has a duly authorized and
--------------
outstanding capitalization as set forth in the Memorandum. The
outstanding shares of Preferred Stock, Common Stock, and outstanding
options, warrants and other securities to purchase Common Stock, have
been, or will be immediately following this Offer, duly authorized and
validly issued. All such outstanding shares of Common Stock and
Preferred Stock are, or will be, fully paid and nonassessable. All such
outstanding options, warrants and other securities to purchase Common
Stock and Preferred Stock constitute valid and binding obligations of
the Company, enforceable in accordance with their terms. None of such
outstanding shares of Common Stock and Preferred Stock, options or
warrants to purchase Common Stock and Preferred Stock has been, or will
be, issued in violation of the preemptive rights of any security holder
of the Company. The Company's Articles of Incorporation does not
subject the holders of such outstanding shares of Common Stock and
Preferred Stock to personal liability solely by reason of being such a
holder. All issuances of securities by the Company prior to the date
hereof were not subject to the registration requirements of the 1933
Act, as amended, except to the extent registered thereunder, and were
made in full compliance with all applicable federal or state laws,
rules and regulations, and the holders thereof have no rights of
rescission with respect thereto. The authorized shares of Common Stock
and Preferred Stock, outstanding options, warrants and other securities
to purchase Common Stock and Preferred Stock issued by the Company,
conform to the description thereof contained in the Memorandum. Except
as otherwise set forth in the Memorandum, no holder of any of the
Company's securities has any rights, "demand," "piggyback" or
otherwise, to have such securities registered or to demand the filing
of a prospectus, or has any material antidilution rights with respect
to securities of the Company. Except as otherwise set forth in the
Memorandum, on each of the Closing Dates there will be no outstanding
options or warrants for the purchase of, or other outstanding rights to
purchase, Common Stock or securities convertible into Common Stock.
(f) AUTHORIZATION OF SECURITIES. The issuance of the Shares has been
---------------------------
duly authorized and, when such Shares have been duly delivered, such
5
<PAGE>
Shares will be validly issued, fully paid and nonassessable. The Shares
are not subject to statutory preemptive rights, preemptive rights under
the Company's Articles of Incorporation and By-laws and contractual
preemptive rights of any security holder of the Company.. The
certificates representing the Shares will be in proper legal form when
delivered in accordance with the terms of this Agreement and the
Memorandum.
(g) NONCONTRAVENTION. The Company is not in violation of, or in
----------------
default under, (i) any term or provision of its Articles of
Incorporation or By-laws, (ii) any material term or provision of any
financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or
any of its properties or business is or may be bound or affected, or
(iii) any existing applicable law, rule, regulation, judgment, order or
decree of arty governmental agency or court, domestic or foreign,
having jurisdiction over the Company or any of its properties or
business. The Company owns, possesses or has obtained all governmental
and other licenses, permits, certifications, registrations, approvals,
or consents and other authorizations necessary to own or lease, as the
case may be, and to operate its properties and to conduct its business
or operations as currently conducted and all such governmental and
other licenses, permits, certifications, registrations, approvals,
consents and other authorizations are outstanding and in good standing,
and there are no proceedings pending or, to the best of the Company's
knowledge, threatened, nor is there any basis therefor, see" to cancel,
terminate or limit such licenses, permits. certifications,
registrations, approvals or consents or authorizations.
(h) LITIGATION. Except as otherwise set forth in the Memorandum,
----------
there are no claims, actions, suits, proceedings, arbitrations,
investigation or inquiries before any governmental agency, court or
tribunal, domestic or foreign, or before any private arbitration
tribunal, pending or to the best of the Company's knowledge threatened
or involving the Company or its subsidiaries or any of their respective
properties or businesses (i) that are required to be disclosed in the
Memorandum or the exhibits thereto in accordance with the Act and are
not so disclosed, (ii) which question the validity of the capital stock
of the Company, (iii) which question the validity, performance or
enforceability of this Agreement or any action taken or to be taken by
the Company or its subsidiaries pursuant hereto or in connection
therewith, or (iv) which, if adversely determined, would have a
material adverse effect on the condition, financial or otherwise,
prospects, properties, businesses, net worth or results of operation of
the Company or its subsidiaries; nor is there any basis for any such
claim, action, suit, proceeding arbitration, investigation or inquiry.
There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal specifically naming the Company
and enjoining the Company from taking, or requiring the Company to
take, any action, or to which the Company, its properties or business
is bound or subject.
6
<PAGE>
(i) LIABILITIES. Except as otherwise set forth in the Memorandum,
-----------
the Company as of March 31, 1997, had no material liabilities, debts,
obligations or claims asserted against it, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, including,
but not limited to, liabilities on account of taxes. Subsequent to
March 31, 1997, the Company has not incurred material liabilities or
debts or obligations of any nature whatsoever other than those incurred
in the ordinary course of its business.
(j) TAXES. The Company has filed all federal tax returns in the
-----
United States and all state and municipal and local tax returns
(whether relating to income, sales, franchise, withholding, real or
personal property or other type of taxes) required to be filed under
the laws of the United States and applicable states, and has paid in
full all taxes which have become due pursuant to such returns or
claimed to be due by any taxing authority or otherwise due and owing.
Each of the tax returns heretofore filed by the Company correctly and
accurately reflects the amount of its tax liability thereunder. The
Company has withheld, collected and paid all other levies, assessments,
license fees and taxes to the extent required and. with respect to
payments. to the extent that the same have become due and payable.
(k) CONDUCT OF BUSINESS. Since the respective dates as of which
-------------------
information is given in the Memorandum and except as otherwise set
forth in the Memorandum, the Company has not: (a) incurred any material
obligation or liability (absolute or contingent) except obligations and
liabilities incurred in the ordinary course of operation of business of
the Company as carried on at and prior to such date; (b) canceled,
without payment in full, any notes loans or other obligations
receivable or other debts or claims held by it other than in the
ordinary course of business; (c) sold, assigned transferred, abandoned,
mortgaged, pledged or subjected to lien any of its material properties,
tangible or intangible, or rights under any material contract, permit,
license, franchise or other agreement other than sales or other
dispositions of goods or services in the ordinary course of business at
customary terms and prices; (d) increased compensation payable to any
of its officers, directors or other employees (including in the term
"compensation," salaries, fringe benefits, pensions, profit
participations and payments or benefits of any kind whatsoever) other
than in the ordinary course of business; (e) entered into any line of
business other than that conducted by it on such date or entered into
any transaction not in the ordinary course of its business; (f)
conducted any line of business in any manner except by transactions
customary in the operation of its business as conducted on such date;
or (g) declared, made or paid or set aside for payment any cash or
non-cash distribution on any shares of its capital stock.
(l) REG D QUALIFICATION. The Company has used its best efforts to
-------------------
ensure that the offer and sale of the Shares and of the Placement
7
<PAGE>
Agent's Warrants by the Company has satisfied, and on each of the
Closing Dates will have satisfied, all of the requirements of Reg D.
(m) INTANGIBLES. Except as disclosed in the Memorandum and the
-----------
exhibits thereto (i) there is no claim or action by any person
pertaining to, or proceeding pending or threatened, that challenges the
ownership or use by the Company or any of its subsidiaries of any
patent, trademark, service mark, service name and trade name used by
the Company or any of its subsidiaries in the conduct of its business;
and (ii) the Company owns and has full right, title and interest in and
to, or has the valid and exclusive right to, all trademarks, services
marks, trade names and copyrights necessary in the conduct of its
business as presently conducted, or as proposed to be conducted as
described in the Memorandum and the exhibits thereto, except where such
failure has not and will not have a material adverse effect on the
condition, financial or otherwise, prospects, properties, business, net
worth or results of operation of the Company or any of its
subsidiaries.
(n) LABOR RELATIONS. No labor problem exists with the Company's
---------------
employees or is imminent which could materially adversely affect the
Company.
(o) FINANCIAL STATEMENTS. The financial statements and notes thereto
--------------------
contained in the Memorandum present fairly the financial position of
the Company as of the respective dates thereof and the results of
operations, and changes in financial position of the Company for each
of the periods covered thereby. The financial statements contained in
the Memorandum have been prepared m conformity with generally accepted
accounting principles for unaudited financial statements, applied on a
consistent basis throughout the entire periods involved.
(p) NO ADVERSE CHANGE. Since the respective dates as of which
-----------------
information is given in the Memorandum, the Company has not sustained
any material loss or interference with its business from fire, storm,
explosion, flood or other casualty, whether or not covered by
insurance, of from any labor dispute or court or governmental action,
order or decree; and since the respective dates as of which information
is given in the Memorandum, there have not been, and prior to each of
the Closing Dates there will not be, any changes in the capital stock
or any material adverse change in or affecting the general affairs,
management, financial condition, shareholders' equity, results of
operations or prospects of the Company, otherwise than as set forth or
contemplated in the Memorandum.
(q) GOVERNMENTAL REGULATION. There are no laws, rules or
-----------------------
regulations, judgments, orders or decrees, required to be described in
the Memorandum or the exhibits thereto other than those described
therein. The statements in the Memorandum and the exhibits thereto,
8
<PAGE>
insofar as such statements constitute a summary of laws, rules,
regulations or legal conclusions, are accurate summaries and fairly and
correctly present the information called for in the Act with respect to
such laws, rules, regulations or conclusions.
(r) MATERIAL AGREEMENTS. There are no agreements. contacts or other
-------------------
documents or instruments required to be described in the Memorandum and
the exhibits thereto other than those described in therein.
(s) NOTE AN INVESTMENT COMPANY. The Company is not an "investment
--------------------------
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as that term is defined in
the investment Company Act of 1940, as amended.
(t) VIOLATIONS OF AND DEFAULTS UNDER AGREEMENTS. Except as described
-------------------------------------------
in the Memorandum and the exhibits thereto, the Company and its
subsidiaries are not in violation of. or breach of, or in default under
(i) their respective Articles of Incorporation or By-laws, (ii) any
material license, contract, indenture, mortgage, installment contract.
deed of trust, lease, voting trust agreement, stockholders agreement,
note, loan or credit agreement, other agreement or instrument to which
the Company or its subsidiaries are a party, by which the Company and
its subsidiaries are bound or to which any of their respective
properties are subject, or (iii) any law, rule or regulation applicable
to the Company or any of its subsidiaries or any of their properties,
or, any judgment, decree or order of any arbitrator, court, regulatory,
administrative body or other governmental agency or body having
jurisdiction over the Company or its subsidiaries and their respective
properties.
(u) LICENSES AND PERMITS. Except for such licenses, permits,
--------------------
certificates, registrations, approvals, consents and exemptions, the
absence of which would not have a materially adverse effect on the
Company or its subsidiaries or their respective business and
properties, the Company and its subsidiaries hold all licenses,
permits, certifications, registrations, approvals, consents and
franchises from all governmental or regulatory authorities, officials
or agencies necessary to own or lease and operate their respective
properties and to conduct their respective business as described in the
Memorandum and the exhibits thereto.
(v) NO ADVERSE CLAIM. Upon delivery to investors of certificates for
----------------
the Shares being sold under this Agreement by the Company against
payment therefor as provided in this Agreement, investors will acquire
the shares of Preferred Stock free and clear of any "adverse claim" (as
such term is used in Section 678,302(2) of the Uniform Commercial Code
as in effect in the State of Florida), assuming the investors acquired
such shares of Preferred Stock in good faith and without notice of any
such "adverse claim".
9
<PAGE>
(w) CRIMINAL HISTORY OR BANKRUPTCY. The Company represents that
------------------------------
except as disclosed in the Memorandum or otherwise disclosed to the
Placement Agent, no director, executive officer, or key employee of the
Company has been convicted of any felony, experienced a personal
bankruptcy, or been an officer, director, or key employee of any
company that during their tenure with such company experienced any
bankruptcy, or bad any trustee, receiver, or conservator appointed with
respect to its business or assets
6. COVENANTS OF THE COMPANY.
------------------------
(a) MEMORANDUM. The Company will furnish the Placement Agent, during
----------
the Offering with as many copies of the Memorandum (and any amendments
or supplements thereto) as the Placement Agent may reasonably request.
if during the Offering any event occurs as a result of which the
Memorandum, as then amended or supplemented, would include an untrue
statement of a material fact, or omit to state a material fact
necessary in order to make the statements made in light of the
circumstances in which they were made not misleading, or if it
otherwise shall be necessary to amend or supplement the Memorandum to
comply with applicable law, the Company will forthwith notify the
Placement Agent thereof, and furnish to the Placement Agent in such
quantities as may be reasonably requested, an amendment, supplement or
amended or supplemented Memorandum which corrects such statements or
omissions or causes the Memorandum to comply with applicable law. No
copies of the Memorandum, or any exhibit thereto, or any material
prepared by the Company in connection with the Offering will be given
without the prior written permission of the Placement Agent, by the
Company or its counsel or by a principal or agent of the Company to any
person not a party to this Agreement, unless such person is a director
or principal shareholder of, or directly employed by. the Company, or
unless required by law.
(b) STATE SECURITIES REGISTRATION. The Company will provide
-----------------------------
Placement Agent's counsel with all information which such counsel
reasonably determines to be necessary and otherwise cooperate with such
counsel, to permit such counsel to take all necessary action and file
all necessary forms and documents in order to qualify or register the
Shares for sale under the securities laws of the states in which offers
or sales will be made or to take any necessary action and file any
necessary forms which are required to obtain an exemption from such
qualification or registration in such jurisdictions. The Company will
pay all fees and expenses of registering or qualifying the Shares for
offer and sale in the applicable states, or obtaining exemptions
therefrom.
The Company will provide the Placement Agent with any additional
information, documents and instruments which the Placement Agent's
10
<PAGE>
counsel shall determine to be necessary to comply with the rules,
regulations and judicial and administration interpretation in those
states and jurisdictions where the Shares are to be offered for sale or
sold for delivery to all offerees and purchasers. The Company will file
all post-offering forms, documents or materials and take all other
actions required by states in which the Shares has been offered or
sold. The Placement Agent will not make offers or sales of the Shares
in any jurisdiction in which the Shares have not been qualified or
registered, or are not exempt from such or registration.
(c) USE OF PROCEEDS. The Company will apply the net Proceeds from
---------------
this offering in the manner set forth in the Memorandum.
(d) REG D COMPLIANCE. The Company will use its reasonable best
----------------
efforts to determine whether an investor is qualified, and the Company
will comply in all respects with the terms and conditions of Reg D and
applicable state securities laws with respect to the offering and the
sale of the Shares.
(e) APPOINTMENT. Provided that the Placement Agent raises at least
-----------
$1,000,000 in the Offering. the Placement Agent shall have the right to
designate a member of the Company's Board of Directors for a period of
five (5) years from the final Closing Date. The Company will indemnify
and provide liability insurance for such appointee on the same basis
and pursuant to the same terms as other members of the Company's Board
of Directors.
(g) RIGHT OF FIRST REFUSAL. Provided that the Placement Agent raises
----------------------
at least $1,000,000 in the Offering, the Company will grant to the
Placement Agent a right of first refusal for a period of three (3)
years after the final Closing Date for the underwriting of any public
or private sales of securities to be made by the Company.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLACEMENT AGENT.
-----------------------------------------------------------------
The Placement Agent represents, warrants and covenants to the Company that:
(a) DULY REGISTERED. The Placement Agent is duly registered,
---------------
pursuant to the applicable provisions of the Securities Exchange Act of
1934, as amended (the "Securities Act"), as a dealer, and as a member
in good standing of the National Association of Securities Dealers,
Inc., and is duly registered as a broker-dealer in such states as the
Placement Agent is required to be registered in order to complete the
Offering contemplated by this Agreement and the Memorandum.
(b) NO GENERAL SOLICITATION OR ADVERTISING. The Placement Agent has
--------------------------------------
not and will not offer to sell the Shares by means of general
solicitation or general advertising.
11
<PAGE>
(c) FURNISH MEMORANDA. A reasonable time prior to each applicable
-----------------
Closing Date, the Placement Agent will furnish to each offeree of the
Shares a copy of the Memorandum, each supplement or amendment thereto,
the Subscription Agreement, Investor Questionnaire and other ancillary
documents (the "Subscription Documents"). Notwithstanding the
foregoing, the delivery of the Memorandum shall not constitute an offer
to sell the Shares to any person. Such sale my be made only upon
acceptance by the Company of an offeree's subscription, after a
determination that the offeree satisfied all of the applicable
requirements.
(d) REG D COMPLIANCE. The Placement Agent will use its reasonable
----------------
best efforts to determine whether an offeree is qualified and the
Placement Agent will comply in all respects with Reg D and
corresponding state statutes and regulations regarding qualifications
of prospective and actual investors.
(e) BLUE SKY COMPLIANCE. The Placement Agent will solicit purchasers
-------------------
only in those jurisdictions where such solicitation could and can be
made and which it is so qualified to act.
(f) AUTHORIZATION. This Agreement has been duly authorized, executed
-------------
and delivered by the Placement Agent and is enforceable in accordance
with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally and at the discretion of
courts in granting equitable remedies and except that enforceability of
the indemnification provisions and the contribution provisions SET
forth herein may be limited by federal or state securities laws or
public policy underlying such laws .
(g) COMPLIANCE. In connection with the offer and sale of the Units,
----------
the Placement Agent will comply with all applicable requirements of the
1933 Act, the 1934 Act, and the rules and regulations of the SEC
promulgated thereunder, including Reg D, and the Rules of Fair Practice
of the National Association of Securities Dealers.
(h) CONFLICTS. In connection with the offer and sale of the Units,
---------
the Placement Agent will not take or omit to take any action in
conflict with the applicable requirements of the 1933 Act or Reg D, or
applicable state securities or Blue Sky laws, or which would make the
exemptions provided by the Act, Reg D, or exemptions pursuant to
applicable state securities or Blue Sky laws unavailable with respect
to the Offering and sale of the Units.
12
<PAGE>
8. (a) CONDITIONS TO PLACEMENT AGENT'S OBLIGATIONS. The obligations of the
-------------------------------------------
Placement Agent hereunder will be subject to the accuracy of the representations
and warranties of the Company herein contained as of the date hereof and as of
each of the Closing Dates, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(i) DUE QUALIFICATION OR EXEMPTION. (A) The Offering will become
------------------------------
qualified or be exempt from qualification under the securities laws
of the several states pursuant to paragraph 6(b) above not later
than the Initial Closing Date, and (B) at each of the Closing Dates,
no stop order suspending the sale of the Shares shall have been
issued, and no proceeding for that purpose shall have been initiated
or threatened;
(ii) NO MATERIAL MISSTATEMENTS; SATISFACTORY MEMORANDUM. (A) The
--------------------------------------------------
Placement Agent will not have notified the Company that the Blue Sky
qualification materials or the Memorandum, or any amendment
supplement thereto, contains an untrue statement of a fact which in
its opinion is material, or omits to state a fact, which in its
opinion is material and is required to be stated therein, or is
necessary to make the statement therein not misleading, and (B) The
Placement Agent will not have notified the Company that the
Memorandum is not reasonably satisfactory in form and in substance
to the Placement Agent and its legal and accounting advisors;
(iii) COMPLIANCE WITH AGREEMENTS. The Company will have complied
--------------------------
with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder at or prior to each Closing Date;
(iv) CORPORATE ACTION. The Company will have taken all necessary
----------------
corporate, action, including, without limitation, obtaining the
approval of the Company's board of directors for the execution and
delivery of this Agreement, and the performance by the Company of
its obligations hereunder and thereunder and the commencement of the
offering contemplated hereby;
(v) OPINION OF COUNSEL. On the Closing Date, the Placement Agent
------------------
will have received from the Company's counsel, ("Company Counsel"),
a signed opinion, reasonably satisfactory to Placement Agent's
counsel in substantially the form attached hereto as Exhibit A. In
rendering its opinion, Company Counsel may rely upon (1) opinions of
counsel reasonably acceptable to Placement Agent's counsel with
respect to matters relating to the laws of any jurisdiction other
than Florida, Delaware and federal law, (2) the certificates of
government officials and officers of the Company as to matters of
fact (3) the genuineness of all signatures, and (4) the authenticity
and completeness of the books and records of the Company and such
other qualifications and conditions consistent with the Company's
Counsel's opinion practices, provided that Company Counsel shall
13
<PAGE>
state that they have no reason to believe, and do not believe, that
they are not justified in relying upon any of the foregoing. It is
agreed and understood that the Placement Agent's requirements for
the opinion of Company counsel, and Company's Counsel's ability to
render such opinion, may be modified as a result of due diligence
investigations in connection with the Offering. Notwithstanding the
foregoing, it is further agreed and understood that a condition
precedent to the Placement Agent's obligations hereunder shall be
receipt by the Placement Agent of a satisfactory opinion of Company
Counsel. Nothing herein shall be construed as a waiver of the
Placement Agent's right to require further or additional opinions in
connection with a public offering of the Company's securities.
(b) CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of the
---------------------------------------
Company hereunder will be subject to the accuracy of the
representations, warranties and covenants of the Placement Agent
contained herein as of the date hereof and as of each of die Closing
Dates, to the performance by the Placement Agent of its obligations
hereunder and to the following additional conditions:
(i) ABSENCE OF CERTAIN EVENTS. Not stop order or other judicial
-------------------------
or administrative action suspending the sale of the Shares win have
been issued, and no proceeding for that purpose will have been
initiated or threatened; and
(ii) NO MATERIAL MISSTATEMENTS. The Company will not have
-------------------------
notified the Placement Agent that the Blue Sky qualification
material, or the Memorandum, or any amendment or supplement thereto,
contains an untrue statement of fact, which in its opinion is
material and is required to be stated therein or is necessary to
make the statements therein not misleading, in each case only with
respect to information Contained therein concerning the Placement
Agent.
9. INDEMNIFICATION BY THE COMPANY.
-------------------------------
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
------------------------------
indemnify and hold harmless the Placement Agent and each person, if
any, who controls the Placement Agent within the meaning of the Act
or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against any losses, claim , damages or liabilities, joint or
several to which the Placement Agent or such controlling person may
become subject, under the Act or otherwise, to the extent and only
to the extent such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact
contained (A) in the Memorandum, or (B) in any Blue Sky Application
(as hereinafter defined) or other document executed by the Company
specifically for that purpose or based upon false or misleading
14
<PAGE>
written information furnished by the Company filed in any state or
other jurisdiction in order to qualify the Shares under the
securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii)
the omission or alleged omission to state in the Memorandum or in
any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading,
or (iii) any untrue statement or alleged untrue statement of a
material fact contained in the Memorandum or the omission or alleged
omission to stated therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; and will reimburse the Placement Agent and each such
controlling person for any legal or other expenses reasonably
incurred by the Placement Agent or such controlling person in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written
information furnished to the Company by the Placement Agent or Blue
Sky counsel specifically for use in the preparation of the
Memorandum or any such Blue Sky Application.
(b) INDEMNIFICATION BY THE PLACEMENT AGENT. The Placement Agent
--------------------------------------
agrees to indemnify and hold harmless the Company, its directors and
officers and each person, if any, who controls the Company within
the meaning of the Act and the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which the
Company or such controlling person may become subject, under the Act
or otherwise to the extent such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Memorandum, or (B) in any Blue
Sky Application, or (ii) the omission or alleged omission to state
in the Memorandum or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged
untrue statement of a material fact contained in the Memorandum, or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; in each case to the extent but only
to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company
by the Placement Agent or Blue Sky counsel specifically for use in
the preparation of the Memorandum or any such Blue Sky Application.
(c) PROCEDURE. Promptly after receipt by an indemnified party
---------
under this Section 9 of notice of the commencement of any action,
15
<PAGE>
such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9, notify in
writing the indemnifying party of commencement thereof; and the
omission so to notify the indemnifying party will relieve it from
any liability under this Section 9 as to the particular item for
which indemnification is then being sought, but not from any other
liability which it may have to any indemnified party. In case any
such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to
the extent that it may wish, jointly with any other indemnifying
party, similarly notified, to assume the defense thereof, with
counsel who shall be to the reasonable satisfaction of such
indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying Party will not be liable to such
indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. Any such indemnifying party shall not be liable to
any such indemnified party on account of any settlement of any claim
or action effected without consent of such indemnifying party.
(d) CONTRIBUTION. If the indemnification provided for in this
------------
Section 9 is unavailable to any indemnified party in respect to any
losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, will contribute to the amount paid or payable by
such indemnified party, as a result of such losses, claims, damages,
liabilities or expenses (i) in such is appropriate to reflect the
relative benefits received by the Company on the one hand, and the
Placement Agent on the other hand, from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand,
and of the Placement Agent on the other hand. in connection with the
statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses as well as any other relevant
equitable considerations. The relative benefits received by the
Company on the one hand, and the Placement Agent on the other hand,
shall be deemed to be in the same proportion as the total proceeds
from the Offering (net of sales commissions and non-accountable
expense allowance, but before deducting expenses) received by the
Company relative to the commission and non-accountable expense
allowance received by the Placement Agent. The relative fault of the
Company on the one hand, and the Placement Agent on the other hand,
will be determined with reference to, among other things, whether
the untrue or alleged untrue statement of a matter fact or the
omission to state a material fact relates to information supplied by
the Company or the Placement Agent, and its relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount payable by a party as
a result of the losses, claims, damages, liabilities or expenses
referred to above will be deemed to include, subject to the
16
<PAGE>
limitations set forth in Section 9(c) below. any legal or other fees
or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
(e) EQUITABLE CONSIDERATIONS. The Company and the Placement Agent
------------------------
agree that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation or
by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately
preceding paragraph. No person committing fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution or indemnification from any person
not committing such fraudulent misrepresentation.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
--------------------------------------------------
representations. warranties and agreements of the Company and of the Placement
Agent herein will survive the delivery and execution hereof and the Closings
hereunder for a period of two (2) years from the Final Closing Date, and shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Placement Agent or any person who controls the
Placement Agent within the meaning of the Act, or by the Company or any person
who controls the Company within the meaning of the Act, and will survive
delivery of the securities constituting the Shares and the Placement Agent
Warrants hereunder and any termination of this Agreement.
11. TERMINATION. Either the Placement Agent or the Company will have
-----------
the right to terminate this Agreement by giving written notice as herein
specified, at any time, at or prior to the initial Closing Date:
(a) If either the Company or the Placement Agent shall have
failed, refused, or been unable at or prior to the date of
termination of this Agreement, to perform any of its respective
obligations hereunder;
(b) If any other condition of the Company's or Placement Agent's
obligations hereunder is not fulfilled; or
(c) If there has occurred an event materially or adversely
affecting the value of the Company.
If the Placement Agent or the Company elects to terminate this
Agreement pursuant to subsection 12(a), (b) or (e) hereof, notice
will be provided to the non-terminating party promptly by telephone,
telecopier or telegram, and such notification will be confirmed by
written notice as provided for in Section 13 below.
12. NOTICES. Any notice hereunder shall be In writing and shall be
-------
effective when delivered, or mailed by certified or registered mail, postage
17
<PAGE>
prepaid, return receipt requested to the appropriate party or parties, at the
following addresses: if to the Placement Agent, to Noesis Capital Corp., 1801
Clint Moore Road, Suite 100, Boca Raton, Florida 33487, Attention: Mr. Nico B.M.
Letschert; if to the Company, PSI Industries, Inc., 1160-B South Rogers Circle,
Boca Raton, Florida 33487, Attention: Dominick Seminara, CEO.
13. PARTIES. This Agreement will inure to the benefit of and be
-------
binding upon the Placement Agent, the Company and their respective successors
and assigns. This Agreement is intended to be, and is for the sole and exclusive
benefit of the parties hereto and the persons described in Sections 9(a) and
9(b) hereof, and their respective successors and assigns, and for the benefit of
no other person, and no other person will have any legal or equitable right,
remedy or claim under, or in respect of this Agreement and the parties hereto
may not assign their rights or obligations hereunder. No purchaser of the Shares
will be construed as successor assign merely by reason of such purchase.
14. AMENDMENT AND/OR MODIFICATION. Neither this Agreement, nor any
-----------------------------
term of provision hereof, may be changed, waived, discharged, amended, modified
or terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
15. FURTHER ASSURANCES. Each party to this Agreement will perform any
------------------
and all acts and execute any and all documents as may be necessary and proper
under the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
16. VALIDITY. In case any term of this Agreement will be held invalid,
--------
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
17. WAIVER OF BREACH. The failure of any party hereto to insist upon
----------------
strict performance of any of the covenants and agreement herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or of any such option or right, or of any other
covenants or agreements, and the same will be and remain in full force and
effect.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
----------------
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein. Any and all prior discussions, negotiations,
commitments and understanding relating thereto are superseded hereby. There are
no conditions precedent to the effectiveness of this Agreement other than as
stated herein, and there arc no related collateral agreements existing between
the parties that are not referred to herein.
18
<PAGE>
19. COUNTERPARTS. This Agreement may be executed in counterparts and
------------
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts will together constitute one and the same instrument.
20. LAW. This Agreement will be deemed to have been made and delivered
---
in Palm Beach County, Florida and will be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of Florida. The Company (a) agrees that any legal suit, action
or proceeding arising out of or relating to this letter will be instituted
exclusively in the appropriate state court in the State of Florida, Palm Beach
County, or in the United States District Court for the Southern District of
Florida; (b) waives any objection which the Company may have now or hereafter to
the venue of any such suit, action or proceeding, and (c) irrevocably consents
to the jurisdiction of the state courts of the State of Florida, County of Palm
Beach or in the United States District Court for the Southern District of
Florida and agrees that service of process upon the Company mailed by certified
mail to the Company's address will be deemed in every respect effective service
or process upon the Company, in any suit, action or proceeding.
If the foregoing correctly sets forth our understanding, please so
indication in the space provided below for that purpose, whereupon this letter
will constitute a binding agreement between us.
PSI INDUSTRIES, INC.
By: /S/ DOMINICK SEMINARA
------------------------
Dominick Seminara, CEO
CONFIRMED and ACCEPTED, as of this 3 day of July, 1997, by the
undersigned authorized representative.
NOESIS CAPITAL CORP.
By: /S/ NICO B.M. LETSCHERT
----------------------------
Nico B.M. Letschert, CEO
19
WARRANT FOR THE PURCHASE
OF 202,777 SHARES
NO. W-1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND THE
SECURITIES LAWS OF ALL APPLICABLE STATES AND OTHER
JURISDICTIONS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE ACT AND SUCH SECURITIES LAWS.
WARRANTS TO PURCHASE
COMMON STOCK
PSI INDUSTRIES, INC.
FOR VALUE RECEIVED, Noesis Capital Corp. or registered assigns (the
"Holder") is hereby granted the right to purchase from PSI Industries, Inc., a
Florida corporation (the "Company"), at any time subsequent to December 30, 1998
and prior to 5:30 p.m., Eastern time, on December 30, 2002 (the "Expiration
Date"), the number of shares of Common Stock, par common value $.0001 per share
(the "Common Stock"), of the Company set forth above, at a purchase price of
$3.00 per share. The number of shares of Common Stock deliverable upon the
exercise of this Warrant and the price to be paid per share of Common Stock upon
exercise hereof are subject to adjustment from time to time as hereinafter set
forth. The purchase price of a share of Common Stock in effect at any time and
as adjusted from time to time is herein referred to as the "Exercise Price."
1. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF SHARES; TRANSFER AND
-------------------------------------------------------------
EXCHANGE.
---------
(a) This Warrant may be exercised by the Holder hereof, during the
period set forth above, in whole or in part, by the surrender of this
certificate, together with the exercise form attached hereto as Exhibit "A" (the
"Exercise Form") duly executed, at the principal office of the Company, and by
payment to the Company in United States Dollars by cash or by certified or
cashier's check of the Exercise Price for the number of shares specified in such
form.
(b) Subject to the provisions hereof, upon receipt by the Company of
this certificate, in proper form for exercise, and payment of the Exercise
Price, the Company shall issue and cause to be delivered to or upon order of the
Holder hereof and in such name or names as the Holder shall designate a
certificate or certificates for the number of full shares of Common Stock so
<PAGE>
purchased upon exercise of this Warrant. Such certificate or certificates shall
be deemed to have been issued, and any person so designated to be named thereon
shall be deemed to become a holder of record of such shares, as of the date of
such surrender of this certificate and payment of the Exercise Price of the
Warrants exercised. Unless the Warrants have expired, a new certificate
representing the right to purchase the number of shares of Common Stock, if any,
with respect to which the certificate shall not then have been exercised, shall
also be issued to the Holder hereof.
(c) Subject to the provisions of Section 7, certificates for
Warrants may be exchanged, without expense, for other certificates representing
an equal aggregate number of Warrants, or may be transferred in whole or in
part, except that until December 30, 1998, the Warrants shall not be
transferable except only to the officers and directors of Noesis Capital Corp.
The Warrants shall be transferable only on the books of the Company maintained
at its principal office upon delivery thereof by the holder or by its duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer, together with the form of the
assignment, attached hereto as Exhibit "B", (the "Assignment Form") duly filed
in and signed.
2. STOCK FULLY PAID; RESERVATION OF SHARES; PAYMENT OF TAXES.
----------------------------------------------------------
(a) The Company covenants and agrees that all shares of Common
Stock issued upon the exercise of this Warrant shall, upon issuance, be fully
paid and non-assessable. The Company further covenants and agrees that during
the period within which the Warrants may be exercised, the Company shall at all
times reserve and keep available out of its authorized Common Stock, for the
purpose of the issue upon exercise of the Warrants, at least the maximum number
of shares of Common Stock as are issuable upon the exercise of the Warrants.
(b) The Company will pay all documentary, stamp or similar taxes,
if any, imposed upon the initial issuance of delivery of shares of Common Stock
issuable upon the exercise of the Warrants; provided, however, that the Company
shall not be required to pay any tax or taxes in respect of any transfer
involved in the issuance and delivery of any certificate for shares of Common
Stock in a name other than that of the registered holder of this certificate.
Any such tax shall be paid at the time of surrender, and the Company shall not
be required to issue or deliver any certificate for shares of Common Stock until
such tax or taxes shall have been paid.
3. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
------------------------------------------------------
3.1 ADJUSTMENT BASED ON COMPANY'S EARNINGS PER SHARE.
------------------------------------------------
In the event that the average of the Company's earnings per share for
its fiscal years of 1997 and 1998, on a fully diluted basis (the "Average EPS")
is less than $.20 per share, the Exercise Price shall be reduced to a number
that equals fifteen (15) times the Average EPS, provided that in no event shall
the Exercise Price be reduced below $2.50.
2
<PAGE>
3.2 ADJUSTMENT FOR DIVIDENDS, SUBDIVISIONS, COMBINATIONS OR
-------------------------------------------------------
RECLASSIFICATIONS.
------------------
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrants in effect
immediately prior to such action shall be adjusted so that the Holder of this
Warrant thereafter upon the exercise hereof shall be entitled to receive the
number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price and/or the number
of warrants pursuant to this Section, the Company shall send written notice
thereof to the Holder of this Warrant certificate (by first class mail, postage
prepaid), which notice shall state the Exercise Price resulting from such
adjustment, and any increase or decrease in the number of Warrants to be
acquired upon exercise of the Warrants, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
3.3 ADJUSTMENT FOR REORGANIZATION, MERGER OR CONSOLIDATION.
-------------------------------------------------------
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder shall have
the right thereafter (until the expiration of such Warrant), to receive, upon
exercise of such warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such reorganization,
consolidation, merger, conveyance, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 3. The Company shall not effect any such
consolidation, merger, or similar transaction as contemplated by this paragraph,
unless prior to or simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing, receiving, or leasing such assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Holder, the obligation to deliver to the Holder, such
shares of stock, securities, or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase, and to perform the other
3
<PAGE>
obligations of the Company under this Warrant certificate. The above provision
of this Subsection shall similarly apply to successive consolidations or
successively whenever any event listed above shall occur.
3.4 ADJUSTMENT IN NUMBER OF SECURITIES.
-----------------------------------
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 3, the number of securities issuable upon the exercise of the
Warrant shall be adjusted to the nearest full amount by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of securities issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
3.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES.
------------------------------------------------
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
3.6 ACCOUNTANT'S CERTIFICATE OF ADJUSTMENT.
--------------------------------------
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrant, under
Section 3.3, the Company, at its expense, shall cause independent certified
private accountants of recognized standing selected by the Company (who may be
the independent certified private accountants then auditing the books of the
Company) to compute such adjustment or readjustment in accordance herewith and
prepare a certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to the Holder of the
Warrant at the Holder's address as shown on the Company's books. The certificate
shall set forth such adjustment or readjustment, showing in detail the facts
upon which such adjustment or readjustment is based including, but not limited
to, a statement of (i) the Exercise Price at the time in effect, and (ii) the
number of additional securities and the type and amount, if any, of other
property which at the time would be received upon exercise of the Warrant.
4. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATE.
------------------------------------------------
This certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive office of the
Company, for a new Warrant certificate of like tenor and date representing in
the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant, if
mutilated, the Company will make and deliver a new Warrant certificate of like
tenor, in lieu thereof.
4
<PAGE>
5. ELIMINATION OF FRACTIONAL INTEREST.
-----------------------------------
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrant, nor shall
it be required to issue script or pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests may be eliminated,
at the Company's option, by rounding any fraction up to the nearest whole number
of shares of Common Stock or other securities, properties or rights, or in lieu
thereof paying cash equal to such fractional interest multiplied by the current
value of a share of Common Stock.
6. NOTICES TO WARRANT HOLDER.
--------------------------
Nothing contained in this Agreement shall be construed as conferring
upon the Holder of the Warrants the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights whatsoever as
a stockholder of the Company. If, however, at any time prior to the expiration
of the Warrant, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
then the Company shall give the Holder of the Warrant written notice of such
event at least fifteen (15) days prior to the date fixed as a record date of the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notices shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
5
<PAGE>
7. RESTRICTIONS ON TRANSFER OF WARRANTS.
-------------------------------------
Neither the Warrants evidenced by this certificate nor the shares of
Common Stock issuable upon exercise hereof have been registered under the Act or
applicable state securities laws, and no transfers, sales or other dispositions
of the Warrants may be made by the Holder hereof unless subsequently registered
under the Act and applicable state securities laws or unless an exemption from
registration thereunder is available. No Warrants shall be transferred upon the
books of the Company unless and until the Company has received an opinion of
counsel to the holder thereof, satisfactory to the Company, stating that such
transfer will not violate the Act or applicable state securities laws. Except as
specifically provided to the Holder in a Registration Rights Agreement dated the
date hereof (the "Registration Rights Agreement"), the Company will be under no
obligation to file any registration statement under the Act or any state
securities laws with respect to this Warrant and any shares of Common Stock
issued upon exercise of this Warrant, or to take any other action necessary to
make an exemption from registration thereunder available to a holder of
Warrants. Unless the Registration Statement required to be filed under the
Registration Rights Agreement has been declared effective, shares of Common
Stock issuable upon exercise of Warrants will bear a legend evidencing the
foregoing restrictions, and the Company may issue stop orders or take such other
actions as it deems necessary in order to assure compliance therewith.
8. GENDER AND NUMBER.
-----------------
As used herein, the use of any of the masculine, feminine, or neuter
gender and the use of singular or plural numbers shall include any or all of the
other, wherever and whenever appropriate in the context.
9. NOTICES.
-------
Except as otherwise provided herein, any notice pursuant to this
certificate by the Company or any Holder of the Warrants shall be in writing and
shall be deemed to have been duly given if personally delivered or when mailed
by certified mail, return receipt requested, postage prepaid (a) if to the
Company, to 1160-B South Rogers Circle, Boca Raton, Florida 33487, Attention:
Dominick M. Seminara, Chief Executive Officer, and (b) if to the Holder of
Warrants, to his address on the books of the Company. Each party hereto may from
time to time change the address to which notices to it are to be delivered or
mailed hereunder by notice in writing to the other party.
10. BENEFITS OF THE CERTIFICATE.
---------------------------
Nothing in this certificate shall be construed to give to any person or
corporation other than the Company and the Holder of the Warrants any legal or
equitable right, remedy, or claim under this certificate; but the certificate
shall be for the sole and exclusive benefit of the Company and the Holder of the
Warrants.
6
<PAGE>
11. CAPTIONS.
--------
The captions of the sections and subsections of this certificate have
been inserted for convenience only and shall have no substantive effect.
12. APPLICABLE LAW.
---------------
This certificate and the Warrants evidenced hereby shall for all
purposes be governed by, and construed and interpreted in accordance with, the
laws of the State of Florida.
DATED as of December 30, 1997.
PSI INDUSTRIES, INC.
By:
---------------------------
Dominick M. Seminara,
Chief Executive Officer
<PAGE>
EXHIBIT "A"
EXERCISE FORM
(To be signed only upon exercise of Warrants)
TO: PSI Industries, Inc.
1160-B South Rogers Circle
Boca Raton, Florida 33487
The undersigned, the Holder of Warrant certificate number No. W-1 (the
"Warrant"), for the purchase of 202,777 Shares of PSI Industries, Inc. (the
"Company"), which Warrant certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
certificate for, and to purchase thereunder, ___________________ Shares of the
Company, and herewith makes payment of $_________________________ therefor, and
requests that the certificates for such Shares be issued in the name of, and
delivered to, _________________________, whose address is,
___________________________________, all in accordance with the Warrant
certificate.
Dated: ______________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant certificate)
<PAGE>
EXHIBIT "B"
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such
holder desires to transfer the Warrant certificate.)
FOR VALUE RECEIVED ______________________________________________ hereby sells,
assigns and transfers unto
(Print name and address of transferee)
this Warrant certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
_______________________________________________ Attorney, to transfer the within
Warrant certificate on the books of the within-named Company, and full power of
substitution.
Dated: Signature:
- - ---------------------------------
-------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face
of the Warrant certificate)
-------------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
CERTIFICATE NO. 0 FOR _____ SHARES FROM WHOM TRANSFERRED
ISSUED TO___________________________ _____________________
____________________________________ DATED_________19_____
DATED__________________________19___ NO. ORIGINAL NO. OF ORIGINAL
CERTIFICATE SHARES
NO. OF SHARES
TRANSFERRED
RECEIVED CERTIFICATE NO._____
FOR____________________SHARES
ON_____________________19____
_____________________________
CERTIFICATE ORGANIZED UNDER THE LAWS OF SHARES
NO. 0 THE STATE OF FLORIDA
PSI INDUSTRIES, INC.
200,000 SHARES SERIES A CONVERTIBLE PREFERRED STOCK $.0001 PAR VALUE
THIS CERTIFIES THAT_________________________________________________IS THE
REGISTERED HOLDER OF________________________________________________SHARES
SERIES A CONVERTIBLE PREFERRED STOCK OF PSI INDUSTRIES, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE HEREUNTO
AFFIXED THIS ___________________ DAY OF ________________ A.D. 19__________
[SEAL]
SAMPLE CERTIFICATE
- - ---------------------------------- -----------------------------
SECRETARY PRESIDENT
<PAGE>
FOR VALUE RECEIVED,_____HEREBY SELL, ASSIGN AND TRANSFER
UNTO____________________________________________________
__________________________________________________SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
________________________________________________ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN
NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.
DATED_______________19____
IN PRESENCE OF __________________________
________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVER PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
NUMBER SHARES
1
PSI INDUSTRIES, INC.
20,000 SERIES B CONVERTIBLE PREFERRED STOCK $.0001 PAR VALUE
THIS CERTIFIES THAT ____________________________________________IS THE OWNER OF
_________________________________________________________________FULLY PAID AND
NON-ASSESSABLE SHARES OF THE ABOVE CORPORATION TRANSFERABLE ONLY ON THE BOOKS OF
THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY
UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SIAD CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF THE
CORPORATION.
DATED___________________19____
[SEAL]
- - ---------------------------- -------------------------
RICHARD PROODIAN, SECRETARY DOMINICK SEMINARA
CHIEF EXECUTIVE OFFICER
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
1. GRANT OF OPTIONS: GENERALLY. In accordance with the provisions
---------------------------
hereinafter set forth in this stock option plan, the name of which is the PSI
INDUSTRIES, INC. 1996 STOCK OPTION PLAN (the "Plan"), the Board of Directors
(the "Board") or, the Compensation Committee (the "Stock Option Committee") of
PSI INDUSTRIES, INC. (the "Corporation") is hereby authorized to issue from
time to time on the Corporation's behalf to any one or more Eligible Persons,
as hereinafter defined, options to acquire shares of the Corporation's $.001
par value common stock (the "Stock").
2. TYPE OF OPTIONS. The Board or the Stock Option Committee is
---------------
authorized to issue options which meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), which options are
hereinafter referred to collectively as ISOS, or singularly as an ISO. The
Board or the Stock Option Committee is also, in its discretion, authorized to
issue options which are not ISOS, which options are hereinafter referred to
collectively as NSOS, or singularly as an NSO. The Board or the Stock Option
Committee is also authorized, but not obligated, to issue "Reload Options" in
accordance with Paragraph 8 herein, which options are hereinafter referred to
collectively as Reload Options, or singularly as a Reload Option. Except where
the context indicates to the contrary, the term "Option' or "Options" means
ISOS, NSOs and Reload Options.
3. AMOUNT OF STOCK. The aggregate number of shares of Stock which may
---------------
be purchased pursuant to the exercise of Options shall be 2,000,000 shares. Of
this amount, the Board or the Stock Option Committee shall have the power and
authority to designate whether any Options so issued shall be ISOs or NSOS,
subject to the restrictions on ISOs contained elsewhere herein. If an Option
ceases to be exercisable, in whole or in part, the shares of Stock underlying
such Option shall continue to be available under this Plan. Further, if shares
of Stock are delivered to the Corporation as payment for shares of Stock
purchased by the exercise of an Options granted under this Plan, such shares of
Stock shall also be available under this Plan. If there is any change in the
number of shares of Stock on account of the declaration of stock dividends,
recapitalization resulting in stock split-ups, or combinations or exchanges of
shares of Stock, or otherwise, the number of shares of Stock available for
purchase upon the exercise of Options, the shares of Stock subject to any
Option and the exercise price of any outstanding Option shall be appropriately
adjusted by the Board or the-Stock Option Committee. The Board or the Stock
Option Committee shall give notice of any adjustments to each Eligible Person
granted an Option under this Plan, and such adjustments shall be effective and
binding on all Eligible Persons. If because of one or more recapitalizations,
reorganizations or other corporate events, the holders of outstanding Stock
receive something other than shares of Stock then, upon exercise of an Option,
the Eligible Person will receive what the holder would have owned if the holder
had exercised the Option immediately before the first such corporate event and
not disposed of anything the holder received as a result of the corporate
event.
<PAGE>
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
4. ELIGIBLE PERSONS.
-----------------
(a) With respect to ISOS, an Eligible Person means any individual
who has been employed by the Corporation or by any subsidiary of the Corporation
for a continuous period of at least sixty (60) days.
(b) With respect to NSOS, and Eligible Person means (i) any
individual who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days, (H) any
director of the Corporation or any subsidiary of the Corporation (iii) any
member of the Corporations advisory board member or of any of the Corporation's
subsidiar(ies), or (iv) any consultant of the Corporation or by any subsidiary
of the Corporation.
5. GRANT OF OPTIONS. The Board or the Stock Option Committee has the
----------------
right to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures prescribed for
it elsewhere in this Plan. A grant of Options shall be set forth in a writing
signed on behalf of the Corporation or by a majority of the members of the
Stock Option Committee. The writing shall identify whether the Option being
granted is an ISO or an NSO and shall set forth the terms which govern the
Option. The terms shall be determined by the Board or the Stock Option
Committee, and may include, among other terms, the number of shares of Stock
that may be acquired pursuant to the exercise of the Options, when the Options
may be exercised, the period for which the Option is granted and including the
expiration date, the effect on the Options of the Eligible Person terminates
employment and whether the Eligible Person may deliver shares of Stock to pay
for the shares of Stock to be purchased by the exercise of the Option. However,
no term shall be set forth in the writing which is inconsistent with any of the
terms of this Plan. The terms of an Option granted to an Eligible Person may
differ from the terms of an Option granted to another Eligible Person, and may
offer form the terms of an earlier Option granted to the same Eligible Person
6. OPTION PRICE. The option price per share shall be determined by the
------------
Board or the Stock Option Committee at the time any Option is granted, and
shall be not less than (i) in the case of an ISO, the fair market value, (ii)
in the case of an ISO granted to a ten percent or greater stockholder, 110% of
the fair market value, or (iii) in the case of an NSO, not less than 75% of the
fair market value (but in no event less than the par value) of one share of
Stock on the date the Option is granted, as determined by the Board or the
Stock Option Committee. Fair market value as used herein shall be:
(a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the closing price or the closing bid price of such
Stock on such exchange or over-the-counter market on which such shares shall be
traded on that date, or if such exchange or over-the-counter market is closed or
if no shares shall have traded on such date, on the last preceding date on which
such shares shall have traded.
2
<PAGE>
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by the Board of Directors or
the Stock Option Committee of the Corporation.
7. PURCHASE OF SHARES. An Option shall be exercised by the tender to
------------------
the Corporation of the full purchase price of the Stock with respect to which
the Option is exercised and written notice of the exercise. The purchase price
of the Stock shall be in United States dollars, payable in cash or by check, or
in property or Corporation stock, if so permitted by the Board or the Stock
Option Committee in accordance with the discretion granted in Paragraph 5
hereof, having a value equal to such purchase price. The Corporation shall not
be required to issue or deliver any certificates for shares of Stock purchased
upon the exercise of an Option prior to (i) if requested by the Corporation,
the filing with the Corporation by the Eligible Person of a representation in
writing that it is the Eligible Persons then present intention to acquire the
Stock being purchased for investment and not for resale, and/or (ii) the
completion of any registration or other qualification of such shares under any
government regulatory body, which the Corporation shall determine to be
necessary or advisable.
8. GRANT OF RELOAD OPTIONS. In granting an Option under this Plan, the
-----------------------
Board or the Stock Option Committee may, but shall not be obligated to include,
a Reload Option provision therein, subject to the provisions set forth in
Paragraphs 20 and 21 herein. A Reload Option provision provides that if the
Eligible Person pays the exercise price of shares of Stock to be purchased by
the exercise of an ISO, NSO or another Reload Option (the "Original Option") by
delivering to the Corporation shares of Stock already owned by the Eligible
Person (the "Tendered Shares"), the Eligible Person shall receive a Reload
Option which shall be a new Option to purchase shares of Stock equal in number
to the tendered shares. The terms of any Reload Option shall be determined by
the Board or the Stock Option Committee consistent with the provisions of this
Plan.
9. STOCK OPTION COMMITTEE. The Stock Option Committee may be appointed
----------------------
from time to time by the Corporation's Board of Directors. The Board may from
time to time remove members from or add members to the Stock Option Committee.
The Stock Option Committee shall be constituted so as to permit the Plan to
comply in all respects with the provisions set forth in Paragraph 20 herein.
The members of the Stock Option Committee may elect one to its members as its
chairman. The Stock Option Committee shall hold its meetings at such time and
places as its chairman shall determine. A majority of the Stock Option
Committee's members present in person shall constitute a quorum for the
transaction of business. All determinations of the Stock Option Committee will
be made by the majority vote of the members constituting the quorum. The
members may participate in a meeting of the Stock Option Committee by
conference telephone or similar communications equipment by means of which all
members participating in the meeting can hear each other. Participation in a
meeting in that manner will constitute presence in person at the meeting. Any
decision or determination reduced to writing and signed by all members of the
3
<PAGE>
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
Stock Option Committee will be effective as if it had been made by a majority
vote of all members of the Stock Option Committee at a meeting which is duly
called and held.
10. ADMINISTRATION OF PLAN. In addition to granting Options and to
----------------------
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Option Committee is granted the full right and authority to interpret and
construe the provisions of this Plan, promulgate, amend and rescind rules and
procedures relating to the implementation of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan,
consistent, however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21
herein. All determinations made by the Board or the Stock Option Committee
shall be final, binding and conclusive on all persons including the Eligible
Person, the Corporation and its stockholders, employees, officers and directors
and consultants. No member of the Board or the Stock Option Committee will be
liable for any act or omission in connection with the administration of this
Plan unless it is attributable to that member's willful misconduct.
11. PROVISIONS APPLICABLE TO ISOS. The following provisions shall
-----------------------------
apply to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from March 15,
1996, the date that this Plan was originally adopted by the Corporation's Board
of Directors.
(b) An ISO may not be exercised after the expiration of ten (10)
years from the date the ISO is granted.
(c) The option price may not be less than the fair market value of
the Stock at the time the ISO is granted.
(d) An ISO is not transferable by the Eligible Person to whom it is
granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time of the
grant stock possessing more than ten (10%) percent of the total combined voting
power of all classes of stock of the employer corporation or of its parent or
subsidiary corporation (as those terms are defined in the Code), then the option
price shall be at least 110% of the fair market value of the Stock, and the ISO
shall not be exercisable after the expiration of five (5) years from the date
the ISO is granted.
(f) The aggregate fair market value (determined at the time the ISO
is granted) of the Stock with respect to which the ISO is first exercisable by
4
<PAGE>
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
the Eligible Person during any calendar year (under this Plan and any other
incentive stock option plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock which are issued upon exercise of an
ISO are sold within one year following the exercise of such ISO so that the sale
constitutes a disqualifying disposition for ISO treatment under the Code, no
provision of this Plan shall be construed as prohibiting such a sale.
(h) This Plan was adopted by the Corporation on March 15, 1996, by
virtue of its approval by the Corporation's Board of Directors. Approval by the
stockholders of the Corporation is to occur prior to March 15, 1997.
12. DETERMINATION OF FAIR MARKET VALUE. In granting ISOs under this
----------------------------------
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
13. RESTRICTIONS ON ISSUANCE OF STOCK. The Corporation shall not be
---------------------------------
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted in
accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such
exercise it is his or her then present intention to acquire the shares of Stock
for investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal representative of an
Eligible Person, "distribution" shall be defined to exclude distribution by
will or under the laws of descent and distribution. Prior to issuing any shares
of Stock pursuant to the exercise of an Option, the Corporation shall take such
steps as it deems necessary to satisfy any withholding tax obligations imposed
upon it by any level of government.
14. EXERCISE IN THE EVENT OF DEATH OF TERMINATION OR EMPLOYMENT.
-----------------------------------------------------------
(a) If an optionee shall die (i) while an employee of the
Corporation or a Subsidiary or (d) within three months after termination of his
employment with the Corporation or a Subsidiary because of his disability, or
retirement or otherwise, his Options may be exercised, to the extent that the
optionee shall have been entitled to do so on the date of his death or such
termination of employment by the person or persons to whom the optionee's right
under the Option pass by will or applicable law, or if no such person has such
right by his executors or administrators, at any time, or from time to time. In
the event of termination of employment because of his death while an employee or
because of disability, his Options may be exercised not later than the
expiration date specified in Paragraph 5 or one year after the optionee's death,
whichever date is earlier, or in the event of termination of employment because
5
<PAGE>
of retirement or otherwise, not later than the expiration date specified in
Paragraph 5 hereof or one year after the optionee's death, whichever date is
earlier.
(b) If an optionee!s employment by the Corporation or a Subsidiary
shall terminate because of his disability and such optionee has not died within
the following three months, he may exercise his Options, to the extent that he
shall have been entitled to do so at the date of the termination of his
employment, at any time, or from time to time, but not later than the expiration
date specified in Paragraph 5 hereof or one year after termination of
employment, whichever date is earlier.
(c) If an optionee's employment shall terminate by reason of his
retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans or with the consent of the Board or the Stock Option Committee
or involuntarily other than by termination for cause, and such optionee had not
died within the following three months, he may exercise his Option to the extent
he shall have been entitled to do so at the date of the termination of his
employment, at any time and from time to time, but not later than the expiration
date specified in Paragraph 5 hereof or thirty (30) days after termination of
employment whichever date is earlier. For purposes of this Paragraph 14,
termination for cause shall mean termination of employment by reason of the
optionee's commission of a felony, fraud or willful misconduct which has
resulted, or is likely to result, in substantial and material damage to the
Corporation or a Subsidiary, all as the Board or the Stock Option committee in
its sole discretion may determine.
(d) if an optionee's employment shall terminate for any reason other
than death, disability, retirement or otherwise, all right to exercise his
Option shall terminate at the date of such termination of employment.
15. CORPORATE EVENTS. In the event of the proposed dissolution or
----------------
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock the Board of Directors shall declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and
each such Eligible Person shall have the right, during the period of thirty
(30) days preceding such termination, to exercise his Option as to all or any
part of the shares of Stock covered thereby, including shares of Stock as to
which such Option would not otherwise be exercisable. Nothing set forth herein
shall extend the term set for purchasing the shares of Stock set forth in the
Option.
16. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan or in any writing
--------------------------
granting an Option will confer upon any Eligible Person the right to continue
in the employ of the Eligible Person's employer, or will interfere with or
restrict in any way the right of the Eligible Person's employer to discharge
such Eligible Person at any time for any reason whatsoever, with or without
cause.
6
<PAGE>
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
17. NONTRANSFERABILITY. No Option granted under the Plan shall be
------------------
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by
him.
18. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights as a
-------------------------
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
19. AMENDMENT AND DISCONTINUANCE OF PLAN. The Corporation's Board of
------------------------------------
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may PREJUDICE the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this
Plan which has the effect of (a) increasing the aggregate number of shares of
Stock subject to this Plan (except for adjustments pursuant to Paragraph 3
herein), or (b) changing the definition of Eligible Person under this Plan, may
be effective unless and until approval of the stockholders of the Corporation
is obtained in the same manner as approval of this Plan is required. The
Corporation's Board of Directors is authorized to seek the approval of the
Corporation's stockholders for any other changes it proposes to make to this
Plan which require such approval, however, the Board of Directors may modify
the Plan as necessary, to effectuate the intent of the Plan as a result of any
changes in the tax, accounting or securities laws treatment of Eligible Persons
and the Plan, subject to the provisions set forth in this Paragraph 19, and
Paragraphs 20 and 21.
20. COMPLIANCE WITH RULE 16B-3. This Plan is intended to comply in aU
--------------------------
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule
16b-3 shall be deemed null and void to the extent appropriate by either the
Stock Option Committee or the Corporation's Board of Directors.
21. COMPLIANCE WITH CODE. The aspects of this Plan on ISOs are
--------------------
intended to comply in every respect with Section 422 of the Code and the
regulations promulgated thereunder. in the event any future statute or
regulation shall modify the existing stature, the aspects of this Plan on ISOs
shall be deemed to incorporate by reference such modification. Any stock option
agreement relating to any Option granted pursuant to this Plan outstanding and
unexercised at the time any modifying statute or regulation becomes effective
shall also be deemed to incorporate by reference such modification and no
notice of such modification need to be given to optionee.
If any provision of the aspects of this Plan on ISOs is
determined to disqua* the shares purchasable pursuant to the Options granted
under this Plan from the special tax treatment provided by Code Section 422,
such provision shall be deemed null and void and to incorporate by reference
the modification required to qualify the shares for said tax treatment.
7
<PAGE>
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
22. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
------------------------------------------
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such options, shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required. The Corporation shall not
be required to issue or deliver any certificates for shares of Stock prior to
(a) the listing of such shares on any stock exchange or over-the-counter market
on which the Stock may then be fisted and (b) the completion of any
registration or qualification of such shares under any federal or state law, or
any ruling or regulation of any government body which the Corporation shall, in
its sole discretion, determine to be necessary or advisable. Moreover, no
option may be exercised if its exercise or the receipt of Stock pursuant
thereto would be contrary to applicable laws.
23. DISPOSITION OF SHARES. In the event any share of Stock acquired by
---------------------
an exercise of an Option granted under the Plan shall be transferable other
than by will or by the laws of descent and distribution within two years of the
date such Option was granted or within one year after the transfer of such
Stock pursuant to such exercise, the optionee shall give prompt written notice
thereof to the Corporation or the Stock Option Committee.
24. NAME. The Plan shall be known as the "PSI Industries 1996 Stock
----
Option Plan."
25. NOTICES. Any notice hereunder shall be in writing and sent by
-------
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation shall be sent to it at its office, 1160B South Rogers Circle, Boca
Raton, Florida 33487-2709 and when addressed to the Committee shall be sent to
it 1160-B South Rogers Circle, Boca Raton Florida 33487-2709, subject to the
right of either party to designate at any time hereafter in writing some other
address, facsimile number or person to whose attention such notice shall be
sent.
26. HEADINGS. The headings preceding the text of Sections and
--------
subparagraphs hereof are inserted solely for convenience of reference, and
shall not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
27. EFFECTIVE DATE. This Plan the PSI Industries, Inc. 1996 Stock
--------------
Option Plan, was adopted by the Board of Directors of the Corporation on March
15, 1996. The effective date of the Plan shall be the same date.
Dated as of March 15, 1996.
8
<PAGE>
PSI INDUSTRIES, INC.
1996 STOCK OPTION PLAN
----------------------
PSI INDUSTRIES, INC.
By:
---------------------------
Its: President
9
<PAGE>
AMENDMENT TO 1996 STOCK OPTION PLAN
PSI INDUSTRIES, INC.
Paragraph 6 (a) of the 1996 Stock Option Plan shall be amended so that
it shall read as follows:
6 (a). If shares of Stock shall be traded on an exchange or over-the-counter
market, the closing price or the closing bid price of such Stock on such
exchange or over-the-counter market on which such shares shall be traded on that
date, or if such exchange or over-the-counter market is closed or if no shares
shall have traded on such date, on the last preceding date on which such shares
shall have traded, or such other value as determined by the Board of Directors
or the Stock Option Committee of the Corporation.
Effective as of October 1, 1996.
LICENSE AGREEMENT
BETWEEN
POLAROID CORPORATION
AND
PSI INDUSTRIES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
DESCRIPTION PAGE NO.
ARTICLE 1: PARTIES 1
1.1 Licensee 1
1.2 Polaroid 1
ARTICLE 2: NATURE, PURPOSE AND SCOPE 1
ARTICLE 3: LICENSE PATENT - LICENSE PRODUCT DEFINITIONS 1
ARTICLE 4: GRANT OF LICENSE 2
ARTICLE 5: DURATION 2
ARTICLE 6: COMPENSATION/ACCOUNTING 2
ARTICLE 7: INVENTIONS, DISCOVERIES, OR IMPROVEMENTS 4
ARTICLE 8: REPRESENTATIONS, DISCLAIMER, INFRINGEMENT 4
ARTICLE 9: PATENT MARKING 6
ARTICLE 10: CONFIDENTIAL INFORMATION 6
ARTICLE 11: MOST FAVORED LICENSEE 6
ARTICLE 12: DISPUTE RESOLUTION 7
ARTICLE 13: FORCE MAJEURE 7
ARTICLE 14: MISCELLANEOUS 8
14.1 Relationship of Parties 8
14.2 Choice of Law/Choice of Forum 8
14.3 Waiver Jury Trial 8
14.4 Assignments 8
14-5 Severability 8
14.6 Non-Waiver 8
15.7 Notices 9
14.8 Survival 9
14.9 Entire Agreement 9
14.10 Paragraph Headings 9
-i-
<PAGE>
TABLE OF SCHEDULES
------------------
SCHEDULE DESCRIPTION
- - -------- -----------
A U.S. Patent and foreign counterparts
-ii-
LICENSE AGREEMENT
-----------------
This Agreement made as of this lst day of November, 1997 between POLAROID
CORPORATION ("Polaroid), with its principal place of business at 549 Technology
Square, Cambridge, Massachusetts 02139 and PSI INDUSTRIES, INC. ("Licensee'),
with its principal place of business at 1160-B South Rogers Circle, Boca Raton,
Florida 33497-2709.
ARTICLE 1: PARTIES
1.1 LICENSEE. PSI INDUSTRIES, INC. ("Licensee"), with its principal place
of business at 1160-B South Rogers Circle, Boca Raton, Florida
33487-2709.
1.2 POLAROID. POLAROID CORPORATION ("Polaroid"), with its principal place
of business at 549 Technology Square, Cambridge, Massachusetts 02139.
ARTICLE 2: NATURE, PURPOSE AND SCOPE
Polaroid is the owner of the United States patent and foreign
counterparts, set forth in SCHEDULE A, for a photographic package
containing pre-exposed film. Licensee is desirous of manufacturing and
selling photographic packages containing pre-exposed film throughout
the world. Polaroid is willing to grant a non-exclusive license to
Licensee under Polaroid's patents to manufacture and sell photographic
packages containing pre-exposed film throughout the world. The Parties
have agreed to reduce their understandings relevant to the subject of
this license to this Agreement. Each of the Parties hereto represents
that it has the right, authority, capability and capacity to enter into
this Agreement and to perform each of its obligations and
responsibilities as set forth herein.
ARTICLE 3: LICENSE PATENT - LICENSE PRODUCT DEFINITIONS
3.1 "Licensed Patents" shall mean the U.S. Patent as set forth in SCHEDULE
A, and the foreign counterparts thereof which either have been issued
or which in the future may be issued in any country of the world, and
all continuations, extensions, reissues or renewals of such patents
relating to photographic packages containing pre-exposed film.
3.2 "Licensed Product" shall mean single use camera photographic packages
containing pre-exposed film made by or for Licensee, under the grant of
rights provided by this license utilizing one or more of the claim(s)
of the Licensed Patents.
<PAGE>
ARTICLE 4: GRANT OF LICENSE
Polaroid hereby grants to Licensee during the term of this Agreement a
nonexclusive, non-transferable license, without the right to grant
sub-licenses to third parties, to make, have made, use, sell and
otherwise dispose of Licensed Product under the Licensed Patents upon
the terms and conditions hereinafter set forth.
ARTICLE 5: DURATION
5.1 This Agreement shall become effective as of the 1st day of November
1997 and continue in full force and effect until the expiration date of
the last to expire of the Licensed Patents unless it is earlier
terminated in accordance with Articles 5.2 or 5.3 below.
5.2 Licensee may terminate this Agreement at any time by sixty (60) days
prior written notice to Polaroid.
5.3 In the event Licensee fails or becomes unable to substantially perform
the obligations or undertakings to be performed by it hereunder and
such default or inability is not cured within sixty (60) days after
written notice from Polaroid specifying in reasonable detail the
alleged non-performance, then Polaroid may terminate this Agreement
forthwith by giving written notice.
5.4 Upon termination or expiration of this Agreement, all rights granted to
Licensee shall terminate forthwith.
ARTICLE 6: COMPENSATION/ACCOUNTING
6.1 In consideration of the license granted under this Article Licensee
shall pay to Polaroid for each Licensed Product sold or otherwise
disposed of for consideration on or after November 1, 1997 a royalty
rate of $.30 or five percent (5%) of the net selling price of the
Licensed Product whichever is greater. In consideration of the royalty
specified in this Article, Polaroid agrees not to assert any of the
Licensed Patents against Licensee for any Licensed Product which
Licensee sold or otherwise disposed of for consideration prior to
November 1,1997.
6.2 For the purposes of this Agreement the term net selling price is to
mean the invoice amount billed to Licensee's customers less discounts
and allowances actually allowed customers and shown on the invoice or
any other writing forwarded to Licensee's customers and net of all
returns actually made or allowed as supported by credit memos issued to
customers. For the purpose of this Agreement, the Licensed Product
shall be considered to be sold when billed out and collected; or
otherwise disposed of, when leased, loaned, bartered or exchanged for
goods or services or otherwise transferred for consideration to a third
party.
2
<PAGE>
6.3 (a) Licensee shall provide to Polaroid on or before the 20th of each
month a written report specifying the number and net selling price of
the Licensed Product sold or disposed of by Licensee during ft prior
month. The written report due in the month of December shall be
submitted on or before the 10th of said month.
(b) Licensee further agrees to provide Polaroid with a similar written
report within thirty (30) days following the expiration or termination
of this Agreement, covering all Licensed Product made and placed in
inventory, sold or otherwise disposed of by Licensee prior to such
expiration or termination date, but which were not previously reported
to Polaroid. Concurrently with the making of such report, Licensee
shall pay to Polaroid the amount of royalties due on such Licensed
Product identified in such report which was sold or otherwise disposed
of by Licensee prior to such expiration or termination date. For such
Licensed Product made and placed in inventory but not sold or otherwise
disposed of prior to such expiration or termination date, Licensee "I
have a period of twelve (12) months to sell or otherwise dispose of
such Licensed Product and pay to Polaroid the amount of royalties due
and during said twelve (12) month period Licensee shall make the
reports specified in Article 6.3(a) and the payments required in
Article 6.3(c).
(c) On or before the 25th of each month Licensee shall provide to
Polaroid a payment of royalties due upon collections made from the sale
or disposition of Licensed Products in the prior month.
6.4 All payments made hereunder shall be in United States dollars and shall
be paid by Licensee without deduction of any taxes, duties or other
charges except as required by law.
6.5 Licensee shall keep true and accurate records, files and account books
containing all of the data reasonably required for the full computation
and verification of the royalties payable hereunder. Such records,
files and account books shall be maintained by Licensee for a period of
five (5) years from the royalty reporting period, as specified in
Article 6.3(a), to which such records, files and account books are
applicable. Upon written request from Polaroid no more than once per
calendar year, Licensee agrees to permit the aforesaid records, files
and account books to be examined to the extent necessary to verify the
correctness of the royalties payable hereunder. Such examination shall
be conducted at Polaroid's' expense by an independent certified public
accountant designated by Polaroid. Polaroid agrees to hold all
information derived from such examination in confidence. If any
examination reveals that Licensee owed Polaroid any additional
royalties, the additional royalties shall be paid within thirty (30)
days following completion of the respective examination plus interest
on such royalties at the rate specified in this Article. If any such
examination or any other examination reveals that Polaroid owes
Licensee any amounts because of incorrect over-payments by Licensee the
over-payment amounts shall be paid within thirty (30) days following
the completion of any such examination. If such overpayment amount
could have been determined by Polaroid from reports supplied to
Polaroid by Licensee than Polaroid shall pay on such amounts the
interest as specified in this Article.
3
<PAGE>
6.6 In the event that any amount payable hereunder by either Party is not
paid by the date payment is due, the paying Party shall also pay
interest on such amount at a per annum rate equal to the prime rate for
U.S. dollars on the date payment was due calculated from the date
payment was due to the date payment is actually made.
ARTICLE 7. INVENTIONS, DISCOVERIES, OR IMPROVEMENTS
7.1 In the event of any action by the Licensee during the term of this
Agreement as a result of information obtained under this License
Agreement that results in an invention, discovery, or improvement of
the Licensed Patents regarding photographic packages containing
pre-exposed film or methods or processes for the assembly thereof,
whether or not patentable, Polaroid or any company controlled by,
controlling, or under common control with Polaroid a license with
respect to such invention, discovery, or improvement on the same
royalty terms as set forth in this Agreement.
7.2 In the event Polaroid, during the term of this Agreement, makes an
invention, discovery or improvement of the Licensed Patents regarding
photographic packages containing pre-exposed film or methods or
processes for the assembly thereof, whether or not patentable, Polaroid
agrees to make such inventions, discoveries or improvements available
to Licensee subject to the provisions of this Agreement. In the event a
United States patent is issued with Polaroid named as the assignee for
any such invention, discovery or improvement, such patent,' including
any foreign counterparts, shall be included in SCHEDULE A and become a
part of this Agreement.
ARTICLE 8. REPRESENTATIONS; DISCLAIMER; INFRINGEMENT
8.1 Except as set forth herein, Polaroid makes no express or implied
warranty or representation with respect to the Licensed Patents,
including without limitation any warranty or representation regarding
the usefulness, merchantability, functional effectiveness, safety,
performance or fitness for any particular use of any Licensed Products
manufactured under the license granted hereunder. In no event shall
Polaroid or Licensee be liable for any incidental, indirect, special or
consequential damages, suffered or incurred in connection with the
licenses granted hereunder. Furthermore, no representation or warranty
is made by Polaroid that any Licensed product manufactured, used, sold
or otherwise disposed of by Licensee under this Agreement will not
infringe patents owned or controlled by any third patty and Polaroid
shall not be liable either directly or as an indemnitor of Licensee as
a consequence of any infringement of any such third party patents.
8.3 Polaroid makes no express or implied warranty or representation as to
the scope or validity of the Licensed Patents, other than as set forth
herein.
4
<PAGE>
8.4 Licensee represents and warrants: (a) that it has the full power to
enter into this Agreement; (b) that it has entered into and shall enter
into no agreement with another party which is inconsistent or in
conflict with this Agreement in any respect; (c) shall disclose to
Polaroid any and all modifications or improvements on the Licensed
Products that are based upon information received from Polaroid, and
(d) that Licensee has no reason to believe that the Licensed Products
infringe on any patents, patent rights or trademarks of any other
person, firm, corporation or other entity.
8.5 Polaroid represents and warrants: (a) that it is the sole exclusive
owner of the Licensed Patents; (b) that it has the full power to enter
into this Agreement; (e) that it has entered into and shall enter into
no agreement with another party which is inconsistent or in conflict
with this Agreement in any respect; (d) that is has no reason to
believe that the Licensed Products infringe upon any patent rights, or
other proprietary rights of any other person, firm, corporation or
other entity and (e) that it has no reason to believe that the Licensed
Patents are invalid. Polaroid agrees to indemnify and hold harmless
Licensee against and from any and all claims, suits, damages, costs and
expenses (including reasonable attorney fees) based upon or resulting
from any claim by any other person, firm, corporation or other entity
arising out of the breach by Polaroid of any of the foregoing
warranties and representations as recited in this Article provided
however, such indemnification shall be limited to the sum of all
royalties or revenues previously paid or due to Polaroid at the time
such claim is asserted, Polaroid shall be provided written notice of
such claim or suit, sole authority to defend or settle any third party
claim or suit and Licensee shall fully cooperate with Polaroid in the
defense or settlement of such third party claim or suit Licensee shall
have the right to withhold all such amounts due Polaroid from the date
such claim is asserted in order to apply same to satisfy Polaroid's
obligation under this Article. The foregoing representations and
warranties shall survive the termination of this Agreement.
8.6 Licensee shall promptly notify Polaroid in writing of any infringement
or suspected infringement, by any other person, firm, corporation or
other entity relating to the Licensed Patents. Polaroid may, at its own
discretion institute and prosecute an action or proceeding against any
third party for or by reason of any unlawful infringing of the rights
granted to Licensee by this Agreement.
ARTICLE 9: PATENT MARKING
Licensee shall observe any statutory requirement that a patent marking
of the kind specified in the applicable statutes of any country where
the Licensed Products are used, sold or otherwise disposed of shall be
applied to Licensed Products which are made, used, sold or otherwise
disposed of under the license granted herein. Further, Licensee shall
have the option, at its discretion, in any country where such Licensed
Products are used, sold or otherwise disposed of and where there is no
statutory requirement for patent marking. to apply a patent marking to
such Licensed Products. Any patent marking in which Polaroid is
mentioned and which is applied in accordance with this Article to any
Licensed Product which is made, used, sold or otherwise disposed of
shall be approved in writing by Polaroid prior to being applied to any
5
<PAGE>
Licensed Product; provided, however, that Polaroid agrees that
Licensee, notwithstanding anything to the contrary herein, shall have
the right to apply the following patent marking-. "This camera was
manufactured under license from Polaroid Corporation under United
States Patent No. 5,187,512" (or whichever Licensed Patent listed in
SCHEDULE A may be appropriate).
ARTICLE 10: CONFIDENTIAL INFORMATION
Unless compelled by law neither Party shall disclose the terms and
conditions of this Agreement to any other person or entity provided
however that it is agreed that the Parties are permitted to identify
the terms and conditions of this Agreement to counsel, consultants, and
auditors as necessary in the ordinary course of business. If either
Party receives any subpoena, court order, or legal process requiring
the disclosure of this Agreement or any terms of this Agreement such
Party shall immediately notify, in writing, the other Party.
ARTICLE 1L. MOST FAVORED LICENSEE
If under otherwise similar or substantially the same conditions as
contained in this Agreement Polaroid shall accord, at any time on or
after the Effective Date of this Agreement a license, for all or
substantially all, the Licensed Patents on royalty or payment terms
more favorable to a third party licensee than the royalty or payment
terms then applicable to Licensee under this Agreement then Polaroid
shall promptly notify Licensee of any license so accorded and describe
in the notice the more favorable royalty or payment terms provided to
the third party licensee; and Licensee shall be entitled to have the
royalty rate or payment terms modified to such extent that for future
royalties the same shall be as favorable as that available to such
third party, provided that such obligation shall not apply in respect
of cross-license agreements and other agreements in which the
consideration for such licenses shall not be wholly expressed in
payment of royalties and shall not apply to licenses or other
arrangements made pursuant to a settlement of a dispute or court
decision.
ARTICLE 12. DISPUTE RESOLUTION
Except as provided herein, no civil action with respect to any dispute,
claim or controversy arising out of or relating to this Agreement may
be commenced unless the Parties have first attempted in good faith to
resolve such dispute claim or controversy through non-binding
mediation. Either Party may initiate the mediation process by providing
written notice in letter form to the other party (the "Dispute,
Notice"). The Dispute Notice shall (i) signal the formal commencement
of this dispute resolution provision and the dates, deadlines and time
frames set forth herein; (ii) make specific reference to this Article
and (iii) set forth the subject of the dispute and the specific relief
requested. The recipient of such notice will respond in writing within
five (5) days with a statement of its position and recommended solution
6
<PAGE>
to the dispute. If the dispute is not resolved by this exchange of
correspondence, then each Party shall designate one or more senior
executives with full settlement authority to meet at a mutually
agreeable time and place within twenty (20) days of the Dispute Notice
in order to exchange relevant information and perspectives, and to
attempt to resolve the dispute. If the dispute is not resolved within
two (2) days of the commencement of such meeting, unless otherwise
mutually extended, each Party shall have the right to institute legal
action, provided however that if each party agrees, the Parties may
proceed to non binding mediation with a mediator to be picked through
the American Arbitration Association and with mediation to occur in the
Commonwealth of Massachusetts. Each Party will bear its own costs
relevant to the mediation process. All offers, promises, conduct and
statements, whether oral or written, made in the course of the
mediation process by either of the PARTIES, their agents, employees,
experts or attorneys, are confidential privileged and inadmissible for
any purpose, including impeachment, in any litigation or other
proceeding involving the Parties, provided that evidence that is
otherwise admissible or discoverable shall not be rendered inadmissible
or non-discoverable as a result of its we in the mediation. Anything to
the contrary notwithstanding either Party may, at any time, seek
equitable or injunctive relief with respect to any emergent matter or
to preserve the status quo. In the event of the institution of any
civil proceeding at any time the prevailing Party shall be entitled to
recover its reasonable attorney fees and costs in such civil
litigation.
ARTICLE 13. FORCE MAJEURE
If performance of any pan of this Agreement by Licensee or Polaroid is
prevented or delayed by reason of any cause beyond the control of, and
without the fault of, the party affected, and which cannot be overcome
by diligence (including, without limitation, acts of nature, strikes,
energy or material shortages, acts of civil or military authority,
fires, floods, epidemics, wars and riots), the party affected shall be
excused from such performance to the extent that it is necessarily
prevented or delayed thereby, during the continuance of any such
happening or event, and this Agreement shall be deemed suspended in
part so long as and to the extent that any such cause prevents or
delays its performance; provided, however, that after ninety (90)
cumulative days of such suspension on the part of one Party, the other
Party may, at its discretion, terminate without liability its
obligations under this Agreement. In order to obtain a suspension under
this Article 13, the Party delayed shall send written notice of the
delay and the reason therefor to the other Party within a reasonable
time after the Party delayed knew or should have known that performance
would be delayed or prevented due to the Force Majeure in question.
ARTICLE 14. MISCELLANEOUS
14.1 RELATIONSHIP OF PARTIES. No Party is an agent of the other Party nor
has authority to bind the other Party, transact any business in the
other Party's name or on its behalf, or make any promises or
representations on behalf of the other Party. Each Party makes this
Agreement and will perform all of its respective obligations under this
Agreement as an independent contractor, and no partnership or other
relationship shall be created or implied by this Agreement.
7
<PAGE>
14.2 CHOICE OF LAW/CHOICE OF FORUM. This Agreement and any questions,
claims, disputes or litigation concerning or arising from this
Agreement shall be governed by the laws of the Commonwealth of
Massachusetts and any litigation shall be brought within the state or
federal courts of Massachusetts.
14,3 WAIVER JURY TRIAL. The Parties each irrevocably waive any right to a
jury trial with respect to any claims or disputes arising out of or
related to this Agreement or the negotiation of this Agreement.
14.4 ASSIGNMENTS. Neither Licensee nor Polaroid shall assign rights or
delegate its duties under this Agreement without the prior written
approval of the other Party. Any assignment or transfer of this
Agreement or any interest therein without such written consent is void
and cause for termination of this Agreement.
14.5 SEVERABILITY. Any term, condition or provision of this Agreement
determined to be illegal, invalid or void under applicable state or
federal law, shall be deemed severable, and the remaining provisions,
terms and conditions shall not be impaired thereby, such, that the
remaining Agreement shall be interpreted and given effect as far as
possible to accomplish its stated purpose.
14.6 NON-WAIVER. Any failure of either Party at any time, or from time to
time, to require or enforce the strict keeping and performance by any
Party of any of the terms and conditions of this Agreement shall not
constitute a waiver by any Party of a breach of any such terms or
conditions in the future and shall not affect or impair such terms or
conditions in any way, or the right of either Party at any time to
avail itself of such remedies as it may have for any such breach of any
term or condition. No waiver of any right or remedy hereunder shall be
effective unless expressly stated in writing by the waiving party.
14.7 NOTICES. Any written notice or report to be made hereunder shall be
addressed as follows:
If to Polaroid:
Polaroid Corporation
549 Technology Square
Cambridge, MA 02139
U.S.A.
Attention: Edward S. Roman, Esq.
Patent Counsel and Assistant S
8
<PAGE>
If to licensee:
Dominick M. Seminara
Chairman and CEO
PSI Industries, Inc.
1160-B South Rogers Circle,
Boca Raton, Florida 33487-2709
Either party may, by written notice to the other party, change the
address to which written notices or reports shall be given.
14.8 SURVIVAL. As the circumstances require, the rights and obligations of
the Parties hereto, express or implied, shall survive any termination,
cancellation or expiration of this Agreement.
14.9 ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the Parties relevant to the license granted herein. This
Agreement may not be modified except by further written agreements
executed by the Parties.
14.10 PARAGRAPH READINGS. The title and headings of the various paragraphs of
this Agreement are inserted for convenience or reference only and shall
not be construed to affect the construction of interpretation of any of
its provisions.
In Witness Whereof, the Parties hereto intending to be legally bound have
executed this Agreement.
POLAROID CORPORATION PSI INDUSTRIES, INC.
By: Serafino M. Posa By: Dominick M. Seminara
Title: President Consumer Imaging Group Title: Chairman and CEO
Date: 12/16/97 Date:
------------------------------ -----------------------
Signature: /S/ Signature:/S/
----------------------------- -------------------
9
<PAGE>
SCHEDULE A
U.S. PATENT AND FOREIGN COUNTERPARTS
I. United States Patent 5,187,512
II. Foreign Counterparts
Canadian Patent Application No. 2074009
European Patent Application No. 92114678.3 (designates France, United
Kingdom and Germany)
Japanese Patent Registration No. 2507221
EMPLOYMENT AGREEMENT
Agreement, dated as of January 1, 1997, by and between PSI INDUSTRIES,
INC., a Florida corporation, having its principal place of business at 1160-B
South Rogers Circle, Boca Raton, Florida 33487 (the "Corporation"), and BEN
COHEN, residing at 6727 Newport Lake Circle, Boca Raton, Florida 33496 (the
"Executive").
W I T N E S S E T H:
--------------------
WHEREAS, the Corporation desires to employ Executive as an executive
officer, and Executive is willing to accept such employment, all subject to the
terms and conditions set forth herein:
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the terms and conditions hereof, the
-------------------
Corporation hereby employs Executive, and Executive hereby accepts employment by
the Corporation, for a period of five years commencing on the date hereof.
2. DUTIES. Executive shall serve the Corporation as its President and
------
Chief Operating Officer and, in such capacity, subject to the direction of the
Corporation's Board of Directors, he shall supervise, manage and administer the
Corporation's business and shall perform such other executive duties and
exercise such other power and authority as are incidental to the offices he
holds and as may from time to time be assigned to him by the Corporation's Board
of Directors. In addition, the Executive shall be a member of the Board of
Directors. Executive agrees to serve as an officer or director of any parent,
subsidiary or affiliate of the Corporation at the Corporation's request, with no
additional compensation beyond that set forth in Paragraph 3 below. At no time
will Executive be requested to perform duties inconsistent with the duties
normally performed by the president of a publicly-traded corporation. Without
Executive's consent, Executive shall not be assigned to a location outside of
the continental United States.
3. COMPENSATION.
------------
(a) BASE SALARY. As base compensation for the services to be
-----------
rendered by the Executive hereunder, the Corporation agrees to pay Executive an
annual base salary in the amount of $180,000, commencing on January 1, 1997,
such salary to be paid in equal, bi-weekly installments. In the event that, and
at such time as, the Corporation has completed an underwritten public offering
of its securities, then effective upon the closing of the offering, Executive's
base salary shall be increased to $250,000.
(b) BASE SALARY INCREASES; BONUS PAYMENTS. It is contemplated
-------------------------------------
that the Corporation will have a Compensation Committee of the Board of
Directors at some point during 1997. The Compensation Committee will review
Executive's compensation on an annual basis to determine appropriate increases
in Executive's base salary and Executive's entitlement to receive annual bonuses
<PAGE>
in such amounts, if any, up to 100% of Executive's base salary. In its review,
the Compensation Committee shall consider the Corporation's financial
performance for the year, its progress in achieving projected financial goals
and objections, as well as Executive's performance. Executive shall be entitled
to receive such annual salary increases and annual bonus payments, if any, as
determined by the Compensation Committee. In the event that the Corporation
achieves its financial goals, it is anticipated that the minimum base salary of
Executive shall be determined pursuant to the following schedule:
1998 $275,000
1999 $300,000
2000 $350,000
2001 $400,000
Until a Compensation Committee has been appointed, the determinations under this
paragraph 3(b) shall be made by the Board of Directors. Bonuses for a particular
year will be paid by March 31 of the following year.
4. GRANT OF RESTRICTED STOCK...Effective as of the date hereof,
-------------------------
Executive shall receive 1,164,470 shares of the Corporation's Common Stock (the
"Shares"). 388,156 shares shall "vest" (as hereinafter defined) upon the date
hereof. The remaining shares shall vest pro rata on a monthly basis over the
period from February 1, 1997 through January 1, 1999. "Vesting" shall mean the
time when the forfeiture restrictions set forth in Paragraph 4(a) shall lapse.
The Shares shall be granted upon and subject to the following conditions:
(a) Those Shares that are unvested shall be immediately
forfeited to the Corporation and canceled in the event of any of the following
occurrences: (i) termination of Executive's employment for cause as defined in
Paragraph 8 below; (ii) the death of Executive; and (iii) Executive's Disability
as defined in Paragraph 7 below.
b) Subject to the provisions of this Paragraph 4, Executive
shall be a stockholder with respect to all of the Shares and shall have the
rights of a stockholder, including the right to vote the Shares and to receive
dividends and other distributions made with respect to such Shares. While the
forfeiture restrictions are in effect with respect to the above Shares, the
certificate or certificates representing the Shares shall be held by the
Secretary of the Corporation, properly endorsed for transfer, until such time as
the restrictions lapse, at which time the certificates will be delivered to the
Executive.
(c) Executive acknowledges that the Shares have not been
registered under the Securities Act of 1933, as amended, and that he is
acquiring the Shares for investment and not with a view to, or for sale in
connection with, the distribution with any such Shares. Executive also
acknowledges that the Shares shall contain a legend to the following effect:
"The Shares represented by this certificate have been acquired
for investment and may not be sold or otherwise transferred by
any person, including a pledgee, in the absence of a
registration of the shares under the Securities Act of 1933,
as amended, or an opinion of counsel satisfactory to the
Corporation that an exemption from registration is then
available."
2
<PAGE>
5. EXPENSE REIMBURSEMENT. Executive shall be entitled, on a basis
---------------------
consistent with the Corporation's policy applicable to its executives, to
reimbursement for all normal and reasonable travel, entertainment and other
expenses necessarily incurred by him in the performance of his obligations
hereunder. The Corporation shall reimburse Executive for such expenses upon
presentation to the Corporation, within a reasonable time after such expenses
are incurred, of an itemized account of such expenses, together with such
vouchers or receipts for individual expense items as the Corporation may from
time to time require under its established policies and procedures.
6. OTHER BENEFITS.
--------------
(a) RELOCATION EXPENSES. The Corporation shall pay the Executive
-------------------
all of his expenses in connection with relocation from California to Florida,
including search trip expenses, hotel expenses, packing, moving and unpacking
expenses.
(b) LEASE OF HOME. The Corporation shall also reimburse Executive for
-------------
rental payments on a home in Florida for a period of two years from the date
hereof, with such reimbursement payments not to exceed $45,000 per year.
(c) CAR ALLOWANCE. The Corporation shall also pay the executive an
-------------
allowance to cover the cost of leasing an automobile of his choice, with such
allowance not to exceed $1,000 per month.
(d) CLUB MEMBERSHIP. The Corporation shall reimburse Executive for
---------------
the cost of a country club membership for Executive and his family.
(e) LIFE INSURANCE. Subject to Executive's insurability, the
--------------
Corporation agrees to obtain a life insurance policy covering Executive's life
for a beneficiary to be named by Executive, in an amount at least four times
Executive's base salary.
(f) PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled to
------------------------------
participate in or benefit from, in accordance with the eligibility and other
provisions thereof, any such medical insurance, pension, retirement, life
insurance, bonus, profit-sharing, or other fringe benefit plans or policies as
the Corporation may make available to, or have in effect for, its executive
personnel from time to time, including, without limitation, those plans set
forth on Schedule "A". Plans and benefits may be modified or eliminated by the
Corporation from time to time as it determines in its sole discretion. The
Corporation agrees that Executive's participation in any benefit plan or program
shall be no less than equal to that of the Corporation's Chief Executive
Officer, Dominick Seminara.
3
<PAGE>
(g) VACATION. The Executive shall be entitled to a period of vacation
--------
that is at least equal to that accorded the Corporation's Chief Executive
Officer, Dominick Seminara. In all events, Executive shall be entitled to a
minimum of four (4) weeks of paid vacation each calendar year.
(h) DISABILITY PAYMENTS. In the event that Executive, due to physical
-------------------
or mental disability or incapacity, is unable to substantially perform his
duties hereunder for a period of six successive months ("Disability"), the
Corporation or Executive shall have the right to declare the Executive
"Disabled". The party claiming that the Executive is Disabled shall notify the
other party, in writing, of such a declaration. Thirty days after receipt of
such written notice the amounts payable to Executive and the benefits provided
to Executive hereunder shall be modified to provide solely for the payment of 80
percent of the wages paid to Executive for the last completed calendar year
(payable on a bi-weekly basis) ("Disability Payments"). The Disability Payments
shall be reduced by disability benefits received by the Executive by reason of
(i) any Federal or State disability law or (ii) any group disability insurance
program paid for by the Corporation. Such Disability Payments shall continue for
the remaining term of this Agreement.
7. TERMINATION ON DISABILITY OR DEATH.
-----------------------------------
(a) In the event that Executive is declared "Disabled" in accordance
with the provisions of Paragraph 6(h), then his employment shall terminate
immediately and he shall be entitled to the benefits set forth in Paragraph
6(h). Executive's employment shall terminate immediately upon his death.
(b) Upon termination of Executive's employment by reason of his death
or disability as aforesaid, Executive, in addition to the payments pursuant to
Paragraph 6(h), or in the case of Executive's death, Executive's personal
representatives, shall be entitled to receive all base compensation earned or
accrued to the date of such termination and not theretofore paid.
8. TERMINATION FOR CERTAIN CAUSES AND OTHER REASONS.
------------------------------------------------
(a) In the event of (i) the conviction of the Executive of any felony
under federal or state law involving fraud or dishonesty, or (ii) the willful
gross misconduct of Executive causing material harm to the Company, this
Agreement and Executive's employment hereunder may be terminated immediately by
the Corporation. This Agreement may also be terminated by the Corporation in the
event that there has been a material failure of performance by Executive of his
duties hereunder and such failure has not been cured by the Executive within a
period of sixty (60) days of his receipt from the Corporation of a written
notice of proposed termination specifying the particular failure(s) of
performance, upon which the proposed termination will be based, if not cured.
Any termination of Executive's employment pursuant to this Section 8(a) shall be
a termination for "cause".
(b) The Corporation may also terminate this Agreement for any reason
other than the reasons set forth in Paragraph 8(a), above. However, in the event
4
<PAGE>
that the Corporation elects to terminate this Agreement under this Paragraph
8(b), as a severance allowance, the Executive shall continue to receive his base
salary (at the base rate in effect at the time of termination) and all benefits
described in Paragraph 6 hereof, for the duration of the remaining term of this
Agreement, payable to or provided to Executive in the same manner as before the
termination.
9. CHANGE OF CONTROL. In order to protect the Executive against the
-----------------
possible consequences and uncertainties of a Change of Control of the
Corporation (as hereinafter defined) and thereby induce the Executive to enter
into the employ of the Corporation, the Corporation agrees that:
(a) If, during the term of this Agreement, the Executive's employment
is terminated by the Corporation at any time subsequent to a Change of Control
other than for the causes set forth in Paragraph 8(a), then in such event, the
Corporation shall pay the Executive all amounts due to Executive pursuant to
this Agreement, for the entire term of this Agreement. The base salary of the
Executive in effect at the time of termination pursuant to this Paragraph 9(a)
shall remain in effect for the remaining term of this Agreement. All benefits
provided to Executive pursuant to this Agreement shall continue to be provided
to Executive for the entire term of this Agreement.
(b) For purposes of this Paragraph 9, in the event, following a
Change of Control, the Executive shall resign from his employment with the
Corporation within thirty (30) calendar days after he has obtained actual
knowledge of any significant change or proposed change in his title, nature of
duties, employee benefits or working conditions, in each instance without his
prior consent, such resignation shall be deemed to be a termination of
employment by the Corporation for purposes of Paragraph 9(a) of this Agreement.
(c) As used in this Paragraph 9, a "Change of Control" shall be
deemed to have occurred if (i) any "person" or "group of persons" (as such terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the 1934 Act), directly or indirectly, of securities of
the Corporation representing more than thirty-five percent (35%) of the
Corporation's then outstanding securities having the right to vote on the
election of directors or (ii) if directors constituting a majority of the Board
of Directors are elected to the Board of Directors without the recommendation or
approval of the incumbent Board of Directors.
(d) Anything in this Paragraph 9 to the contrary notwithstanding, in
the event that the Corporation's auditors determine that the payment by the
Corporation to or for the benefit of the Executive, whether paid or payable
pursuant to the terms of this Agreement, would be non-deductible by the
Corporation for federal income tax purposes because of Section 280(G) of the
Internal Revenue Code of 1986, as amended (the "Code"), then the amount payable
to or for the benefit of the Executive pursuant to this Agreement shall be
reduced to such amount which maximizes the amount payable without causing the
payment to be non-deductible by the Corporation because of Section 280(G) of the
Code. The manner in which such payments or benefits shall be reduced shall be
determined by the Executive, utilizing the valuation for the various benefits
reasonably determined by the Corporation's independent public accountants.
5
<PAGE>
10. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES.
----------------------------------------
(a) Executive hereby covenants and agrees to disclose promptly and
fully, in writing, whenever possible, to the Corporation and its attorneys and
designated representatives, without additional compensation, all ideas,
formulae, programs, systems, devices, inventions, processes, business concepts,
discoveries, improvements, developments, works of authorship, product marks and
designations, technical information and know-how, whether or not patentable,
copyrightable or otherwise protectable relating to the business and products of
the Corporation (together, the "Developments"), which he may conceive, develop,
reduce to practice, acquire or make, along or jointly with others:
(i) during the term of his employment with the Corporation,
whether during or outside of the usual hours of work;
(ii) within a period of two years after termination of his
employment with the Corporation; and
(iii) at any time after termination of his employment with the
Corporation, if such Developments arise out of any work done or concepts
developed by Executive, alone or with others, during his employment by the
Corporation.
Executive hereby agrees that all of his right, title, and interest in and to
such Developments shall be deemed as held by him in a fiduciary capacity solely
for the benefit of the Corporation, shall be the sole and exclusive property of
the Corporation and shall be subject to the confidentiality provisions of
Paragraph 11 as confidential information of the Corporation.
(b) Executive, when required to do so, either during or after the
term of his employment with the Corporation, shall:
(i) assign and convey to the Corporation his entire right, title
and interest in and to the Developments to the extent not owned by the
Corporation as a matter of law from the time of their creation and execute,
acknowledge and deliver all such further instruments and documents, in form and
substance satisfactory to the Corporation, as it shall deem reasonably necessary
or advisable to evidence the vesting in the Corporation of all right, title and
interest of Executive in and to the Developments;
(ii) assist the Corporation and its agents in preparing patent
applications, domestic and foreign, covering the Developments;
(iii) sign and deliver all such applications and assignments of
the same to the Corporation; and
(iv) generally give all information and testimony, sign all
papers and do all things which may be needed or requested by the Corporation to
the end that the Corporation may obtain, extend, reissue, maintain and enforce
United States and foreign patents covering the Developments.
6
<PAGE>
(c) Executive hereby irrevocably nominates and appoints the
Corporation his attorney-in-fact to sign and deliver all such papers, and
perform all such acts, mentioned in Paragraph 10(b), in the event of Executive's
absence, unavailability, refusal, or death, such nomination and appoint hereby
being granted with full authority in the premises, and such authority to be
deemed coupled with an interest vested in the Corporation.
(d) The Corporation agrees to bear all expenses which it causes to be
incurred in obtaining, extending, issuing, maintaining and enforcing such
patents and in investing and perfecting title thereto in the Corporation, and
agrees further to pay Executive for any time which it may require of him
therefore, and for any services that may be required of him pursuant to
Paragraph 10(b), subsequent to the termination of his employment with the
Corporation, such payment to be at an hourly rate equivalent to that at which
Executive is paid at the time of the termination of his employment by the
Corporation.
(e) In the event of the unenforceability of all or part of the
foregoing provisions in this Paragraph 10, as determined by a court of competent
jurisdiction, Executive hereby transfers and assigns to the Corporation such
lesser interests in the Developments, including without limitation, any and all
United States and foreign patent rights therein and renewals thereof, as may be
determined by such a court to be a reasonable grant of interests under the
circumstances, but, in any event, and without limitation, Executive shall be
deemed to have granted to the Corporation not less than an irrevocable,
non-exclusive license, with the right to sublicense others, to manufacture, use,
lease and sell the Developments which have not been assigned to the Corporation
under the provisions of Paragraph 10(b), without payment of any royalty.
11. CONFIDENTIALITY.
----------------
(a) Executive understands and hereby acknowledges that as a result of
his employment with the Corporation, he will necessarily become informed of, and
have access to, certain valuable and confidential information of the Corporation
and any of its subsidiaries, joint ventures and affiliates, including, without
limitation, inventions, trade secrets, technical information, know-how, plans,
specifications, identity of customers and suppliers, and that such information,
even though it may be developed or otherwise acquired by Executive, is the
exclusive property of the Corporation to be held by Executive in trust and
solely for the Corporation's benefit. Accordingly, Executive hereby agrees that
he shall not, at any time, either during or subsequent to his employment
hereunder, use, reveal, report, publish, transfer or otherwise disclose to any
person, corporation or other entity, any of the Corporation's confidential
information without the prior written consent of the Corporation, except to
responsible officers and employees of the Corporation and other responsible
persons who are in contractual or fiduciary relationship with the Corporation or
who have a need for such information for purposes in the interest of the
Corporation, and except for such information for purposes in the interest of the
Corporation, and except for such information which legally and legitimately is
or becomes of general public knowledge from authorized sources other than
Executive.
7
<PAGE>
(b) Upon the termination of his employment with the Corporation for
any reason whatsoever, Executive shall promptly deliver to the Corporation all
drawings, manuals, letters, notes, notebooks, reports and copies thereof, and
all other materials, including, without limitation, those of a secret and
confidential nature, relating to the Corporation's business which are in
Executive's possession or control.
12. NON-COMPETITION. Executive agrees that, during the term of this
---------------
Agreement and for a period of two years after the termination for any cause of
his employment with the Corporation, he shall not, anywhere in the United States
of America or elsewhere in the world (or in such small area or for such lesser
period as may be determined by a court of competent jurisdiction to be a
reasonable limitation on the competitive activity of Executive), directly or
indirectly:
(i) engage in a competitive line of business to the business
carried on by the Corporation, either for his own account or with or for anyone
else;
(ii) solicit or attempt to solicit business of any customers of
the Corporation for products or services the same or similar to those offered,
sold, produced or under development by the Corporation;
(iii) otherwise divert or attempt to divert from the Corporation
any business whatsoever;
(iv) solicit or attempt to solicit for any business endeavor any
employee of the Corporation;
(v) interfere with any business relationship between the
Corporation and any other person; or
(vi) render any services as an officer, director, employee,
partner, consultant or otherwise to, or have any interest as a stockholder,
partner, lender or otherwise in, any person which is so engaged.
Notwithstanding anything to the contrary contained in this Paragraph 12, the
provisions hereof shall not prevent the Executive from purchasing or owning up
to 5% of the voting securities of any corporation, the stock of which is
publicly traded.
13. REMEDIES. Because the Corporation does not have an adequate remedy
--------
at law to protect its business from Executive's competition or to protect its
interests in its trade secrets, privileged, proprietary or confidential
information and similar commercial assets, the Corporation shall be entitled to
injunctive relief, in addition to such other remedies and relief that would, in
the event of a breach of the provisions of Paragraphs 10, 11 and 12, be
available to the Corporation. In the event of such a breach, in addition to any
other remedies, the Corporation shall be entitled to receive from Executive
payment of, or reimbursement for, its reasonable attorneys' fees and
disbursements incurred in enforcing any such provision.
8
<PAGE>
14. SURVIVAL. The provisions of Paragraphs 10, 11 and 12 shall survive
--------
termination of this Agreement for any reason.
15. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
----------------
of the parties and merges and supersedes any prior or contemporaneous agreements
between the parties pertaining to the subject matter hereof. This Agreement may
not be changed or terminated orally, and no change, termination or attempted
waiver of any of the provisions hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be enforced; PROVIDED,
HOWEVER, that Executive's compensation may be increased at any time by the
Corporation without in any way affecting any of the other terms and conditions
of this Agreement, which in all other respects shall remain in full force and
effect. Failure of a party to enforce one or more of the provisions of this
Agreement or to require at any time performance of any of the obligations hereof
shall not be construed to be a waiver of such provisions by such party nor to in
any way affect the validity of this Agreement of such party's right thereafter
to enforce any provision of this Agreement, nor to preclude such party from
taking any other action at any time which it would legally be entitled to take.
16. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign
----------------------
this personal Agreement, or any rights or obligations hereunder, without the
consent of the other party; PROVIDED, HOWEVER, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both Executive and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. Subject to the foregoing, this Agreement shall
inure to the benefit of, and bind, the parties hereto and their legal
representatives, heirs, successors and assigns.
17. ADDITIONAL ACTS. Executive and the Corporation each agrees that he
---------------
or it shall, as often as requested to do so, execute, acknowledge and deliver
and file, or cause to be executed, acknowledged and delivered and filed, any and
all further instruments, agreements or documents as may be necessary or
expedient in order to consummate the transactions provided for in this Agreement
and do any and all further acts and things as may be necessary or expedient in
order to carry out the purpose and intent of this Agreement.
18. COMMUNICATIONS. All notices, requests, demands and other
--------------
communications under this Agreement shall be in writing and shall be deemed to
have been given at the time when mailed in any United States post office
enclosed in a registered or certified postage prepaid envelope and addressed to
the addresses set forth at the beginning of this Agreement, or to such other
address as any party may specify by notice to the other party; PROVIDED,
HOWEVER, that any notice of change of address shall be effective only upon
receipt.
9
<PAGE>
19. CONSTRUCTION. The headings of the paragraphs of this Agreement have
------------
been inserted for convenience of reference only and shall in no way restrict or
otherwise affect the construction of the terms or provisions hereof. References
in this Agreement to Paragraphs are to the paragraphs of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
21. SEVERABILITY. If any provision of this Agreement is held to be
------------
invalid or unenforceable by a court or tribunal of competent jurisdiction, such
invalidity or unenforceability shall not affect the validity and enforceability
of the other provisions of this Agreement and the provision held to be invalid
or unenforceable shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or unenforceability.
22. GOVERNING LAW. This Agreement is made and executed and shall be
-------------
governed by the laws of the State of Florida (excluding rules relating to
conflict of laws).
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first set forth above.
PSI INDUSTRIES, INC.
_____________________________ By:_______________________________
BEN COHEN, Executive DOMINICK M. SEMINARA,
Chief Executive Officer
10
<PAGE>
SCHEDULE A
----------
1. Deferred Compensation Plan
2. Major Medical and Dental Insurance Plan
EMPLOYMENT AGREEMENT
Agreement, dated as of July 1, 1997, by and between PSI INDUSTRIES,
INC., a Florida corporation, having its principal place of business at 1160-B
South Rogers Circle, Boca Raton, Florida 33487 (the "Corporation"), and GEORGE
ERFURT, residing at 4772 North Citation Drive, Apartment 201, Delray Beach,
Florida 33445 (the "Executive").
W I T N E S S E T H:
--------------------
WHEREAS, the Corporation desires to employ Executive as an executive
officer, and Executive is willing to accept such employment, all subject to the
terms and conditions set forth herein:
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the terms and conditions hereof, the
-------------------
Corporation hereby employs Executive, and Executive hereby accepts employment by
the Corporation, for a period of three (3) years commencing on the date hereof.
2. DUTIES. Executive shall serve the Corporation as its Vice-President
------
of Sales and, in such capacity, subject to the direction of the Corporation's
President, Chief Executive Officer and Board of Directors, he shall be
responsible for the Company's sales efforts.
3. COMPENSATION.
------------
(a) BASE SALARY. As base compensation for the services to be rendered
-----------
by the Executive hereunder, the Corporation agrees to pay Executive an annual
base salary in the amount of $100,000, such salary to be paid in equal weekly
installments.
(b) SALES COMMISSIONS ON PERSONAL SALES. As additional compensation,
-----------------------------------
the Corporation agrees to pay Executive sales commissions of 1.5% of the Net
Wholesale Selling Price on all of the Executive's "Personal Sales", which shall
mean any sales of one-time use cameras (or any other products that the
Corporation and Executive mutually agree shall be covered by this paragraph)
based on an authorized sales program, directly handled as a house account from
start to finish by Executive. "Net Wholesale Selling Price" is the price billed
to the customer less credits, claims, allowances, adjustments and freight.
(c) OVERRIDE ON SALES OF ONE-TIME USE CAMERAS. The Corporation shall
-----------------------------------------
also pay the Executive an override commission of 1% of the Net Wholesale Selling
Price (as defined in Paragraph 3(b)) on all sales of one-time use cameras or any
other products that the Corporation and Executive mutually agree shall be
covered by this paragraph, based on an authorized sales program to new accounts
generated by external Corporation sales representatives.
<PAGE>
(d) PAYMENT OF COMMISSIONS. All commissions earned in accordance with
----------------------
the foregoing Paragraphs 3(b) and 3(c) shall be paid on a calendar quarterly
basis, with the first payment to be made within ten days after the end of the
September 30, 1997 quarter and each subsequent commission to be paid within ten
days after the end of each subsequent quarter. The commissions earned shall be
payable in cash or in equivalent stock options, at Executive's election. Any
options granted to Executive under this provision shall be immediately
exercisable from the date of grant for a period of five years at an exercise
price equivalent to 50% of the closing market price of the Corporation's common
stock as of the date of grant.
(e) PERFORMANCE BONUS. The Corporation also agrees to pay Executive
-----------------
the following performance bonus for each year (with each year ending on June 30)
of employment hereunder on all sales of one-time use cameras, or any other
products that the Corporation and Executive mutually agree shall be covered by
this paragraph. The performance bonus will be paid in the form of the
Corporation's stock options based on the following:
FOR YEAR 1:
-----------
MINIMUM NUMBER OF
NUMBER OF UNITS SOLD OPTIONS AWARDED
-------------------- ---------------
1,000,000 21,500
2,000,000 30,000
3,000,000 42,800
FOR YEAR 2:
-----------
MINIMUM NUMBER OF
NUMBER OF UNITS SOLD OPTIONS AWARDED
-------------------- ---------------
1,000,000 21,500
2,000,000 30,000
3,000,000 42,800
FOR YEAR 3:
-----------
MINIMUM NUMBER OF
NUMBER OF UNITS SOLD OPTIONS AWARDED
-------------------- ---------------
1,000,000 21,500
2,000,000 30,000
3,000,000 42,800
The option awards shall not be prorated but shall be granted when the
indicated number of minimum units are sold. Thus, for example, in Year 1, if
less than 1,000,000 units are sold, no options shall be earned and if more than
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<PAGE>
1,000,000 but less than 2,000,000 units are sold, 21,500 options shall be
earned. Any options to be awarded under this Subparagraph shall be awarded as of
the end of the year (June 30) at an exercise price equivalent to 50% of the
closing market price of the Corporation's Common Stock as of that date and shall
be immediately exercisable from the date of grant for a period of five (5)
years.
(f) All cash compensation payable under this Paragraph 3 shall be
reduced by social security and federal withholding taxes as required by law.
4. INITIAL GRANT OF OPTIONS. As a signing bonus, the Corporation shall
------------------------
grant to Executive as of the date hereof and pursuant to a separate Stock Option
Agreement, 15,000 stock options. The options shall be immediately exercisable
for a period of three years from the date hereof at an exercise price of $.15
per share.
5. EXPENSE REIMBURSEMENT. Executive shall be entitled, on a basis
---------------------
consistent with the Corporation's policy applicable to its executives, to
reimbursement for all normal and reasonable travel, entertainment and other
expenses necessarily incurred by him in the performance of his obligations
hereunder. The Corporation shall reimburse Executive for such expenses upon
presentation to the Corporation, within a reasonable time after such expenses
are incurred, of an itemized account of such expenses, together with such
vouchers or receipts for individual expense items as the Corporation may from
time to time require under its established policies and procedures.
6. OTHER BENEFITS.
--------------
(a) CAR ALLOWANCE. The Corporation shall also pay the executive an
-------------
allowance to cover the cost of leasing an automobile of his choice, with such
allowance not to exceed $600 per month, and shall also pay for the cost of
automobile insurance.
(b) PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled to
------------------------------
participate in or benefit from, in accordance with the eligibility and other
provisions thereof, any such medical insurance, pension, retirement, life
insurance, bonus, profit-sharing, or other fringe benefit plans or policies as
the Corporation may make available to, or have in effect for, its executive
personnel from time to time, including, without limitation, those plans set
forth on Schedule "A". Plans and benefits may be modified or eliminated by the
Corporation from time to time as it determines in its sole discretion.
(c) VACATION. Executive shall be entitled to a minimum of three (3)
--------
weeks of paid vacation each calendar year.
7. TERMINATION ON DISABILITY OR DEATH.
-----------------------------------
(a) In the event that Executive is unable to perform his services to
the Corporation by reason of physical or mental disability or incapacity for a
period of more than three successive months, the Corporation may terminate this
Agreement. Periods of disability shall not be counted as successive if Executive
3
<PAGE>
has returned to work for at least one month between such periods of disability.
To the extent that the Corporation maintains disability insurance for the
benefit of Executive, any compensation paid to Executive by the Corporation
during the term of Executive's disability shall be repaid to the Corporation to
the extent that the Executive receives disability benefits for the same time
period. Once disability benefits have begun, any compensation due under this
Agreement shall be reduced by the same amount received by Executive. Executive's
employment shall terminate immediately upon his death.
(b) Upon termination of Executive's employment by reason of his death
or disability as aforesaid, Executive, or in the case of Executive's death,
Executive's personal representatives, shall be entitled to receive all base
compensation earned or accrued to the date of such termination and not
theretofore paid.
8. TERMINATION FOR CERTAIN CAUSES. In the event of (i) the conviction of
------------------------------
the Executive of any felony under federal or state law, or (ii) willful gross
misconduct of Executive in the performance of his duties hereunder; (iii) a
material breach of any of the provisions of this Agreement, where such breach
has not been cured by Executive within a period of ten days of receipt of
written notice from the Corporation of proposed termination specifying the
particular breach; (iv) Executive's abuse of alcohol or illegal drugs, unless,
in the sole discretion of the Corporation, the Executive shall successfully
complete a qualified rehabilitation program; (v) any act of theft or fraud by
the Executive against the Corporation.
9. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES.
----------------------------------------
(a) Executive hereby covenants and agrees to disclose promptly and
fully, in writing, whenever possible, to the Corporation and its attorneys and
designated representatives, without additional compensation, all ideas,
formulae, programs, systems, devices, inventions, processes, business concepts,
discoveries, improvements, developments, works of authorship, product marks and
designations, technical information and know-how, whether or not patentable,
copyrightable or otherwise protectable relating to the business and products of
the Corporation (together, the "Developments"), which he may conceive, develop,
reduce to practice, acquire or make, along or jointly with others:
(i) during the term of his employment with the Corporation,
whether during or outside of the usual hours of work;
(ii) within a period of two years after termination of his
employment with the Corporation; and
(iii) at any time after termination of his employment with the
Corporation, if such Developments arise out of any work done or concepts
developed by Executive, alone or with others, during his employment by the
Corporation.
Executive hereby agrees that all of his right, title, and interest in and to
such Developments shall be deemed as held by him in a fiduciary capacity solely
4
<PAGE>
for the benefit of the Corporation, shall be the sole and exclusive property of
the Corporation and shall be subject to the confidentiality provisions of
Paragraph 11 as confidential information of the Corporation.
(b) Executive, when required to do so, either during or after the
term of his employment with the Corporation, shall:
(i) assign and convey to the Corporation his entire right, title
and interest in and to the Developments to the extent not owned by the
Corporation as a matter of law from the time of their creation and execute,
acknowledge and deliver all such further instruments and documents, in form and
substance satisfactory to the Corporation, as it shall deem reasonably necessary
or advisable to evidence the vesting in the Corporation of all right, title and
interest of Executive in and to the Developments;
(ii) assist the Corporation and its agents in preparing patent
applications, domestic and foreign, covering the Developments;
(iii) sign and deliver all such applications and assignments of
the same to the Corporation; and
(iv) generally give all information and testimony, sign all
papers and do all things which may be needed or requested by the Corporation to
the end that the Corporation may obtain, extend, reissue, maintain and enforce
United States and foreign patents covering the Developments.
(c) Executive hereby irrevocably nominates and appoints the
Corporation his attorney-in-fact to sign and deliver all such papers, and
perform all such acts, mentioned in Paragraph 9(b), in the event of Executive's
absence, unavailability, refusal, or death, such nomination and appoint hereby
being granted with full authority in the premises, and such authority to be
deemed coupled with an interest vested in the Corporation.
(d) The Corporation agrees to bear all expenses which it causes to be
incurred in obtaining, extending, issuing, maintaining and enforcing such
patents and in investing and perfecting title thereto in the Corporation, and
agrees further to pay Executive for any time which it may require of him
therefore, and for any services that may be required of him pursuant to
Paragraph 9(b), subsequent to the termination of his employment with the
Corporation, such payment to be at an hourly rate equivalent to that at which
Executive is paid at the time of the termination of his employment by the
Corporation.
(e) In the event of the unenforceability of all or part of the
foregoing provisions in this Paragraph 9, as determined by a court of competent
jurisdiction, Executive hereby transfers and assigns to the Corporation such
lesser interests in the Developments, including without limitation, any and all
United States and foreign patent rights therein and renewals thereof, as may be
determined by such a court to be a reasonable grant of interests under the
circumstances, but, in any event, and without limitation, Executive shall be
deemed to have granted to the Corporation not less than an irrevocable,
non-exclusive license, with the right to sublicense others, to manufacture, use,
5
<PAGE>
lease and sell the Developments which have not been assigned to the Corporation
under the provisions of Paragraph 9(b), without payment of any royalty.
10. CONFIDENTIALITY.
---------------
(a) Executive understands and hereby acknowledges that as a result of
his employment with the Corporation, he will necessarily become informed of, and
have access to, certain valuable and confidential information of the Corporation
and any of its subsidiaries, joint ventures and affiliates, including, without
limitation, inventions, trade secrets, technical information, know-how, plans,
specifications, identity of customers and suppliers, and that such information,
even though it may be developed or otherwise acquired by Executive, is the
exclusive property of the Corporation to be held by Executive in trust and
solely for the Corporation's benefit. Accordingly, Executive hereby agrees that
he shall not, at any time, either during or subsequent to his employment
hereunder, use, reveal, report, publish, transfer or otherwise disclose to any
person, corporation or other entity, any of the Corporation's confidential
information without the prior written consent of the Corporation, except to
responsible officers and employees of the Corporation and other responsible
persons who are in contractual or fiduciary relationship with the Corporation or
who have a need for such information for purposes in the interest of the
Corporation, and except for such information for purposes in the interest of the
Corporation, and except for such information which legally and legitimately is
or becomes of general public knowledge from authorized sources other than
Executive.
(b) Upon the termination of his employment with the Corporation for
any reason whatsoever, Executive shall promptly deliver to the Corporation all
drawings, manuals, letters, notes, notebooks, reports and copies thereof, and
all other materials, including, without limitation, those of a secret and
confidential nature, relating to the Corporation's business which are in
Executive's possession or control.
11. NON-COMPETITION. Executive agrees that, during the term of this
---------------
Agreement and for a period of one year after the expiration or termination of
his employment with the Corporation, he shall not, anywhere in the United States
of America or elsewhere in the world (or in such small area or for such lesser
period as may be determined by a court of competent jurisdiction to be a
reasonable limitation on the competitive activity of Executive), directly or
indirectly:
(i) engage in a competitive line of business to the business
carried on by the Corporation, either for his own account or with or for anyone
else;
(ii) solicit or attempt to solicit business of any customers of
the Corporation for products or services the same or similar to those offered,
sold, produced or under development by the Corporation;
6
<PAGE>
(iii) otherwise divert or attempt to divert from the Corporation
any business whatsoever;
(iv) solicit or attempt to solicit for any business endeavor any
employee of the Corporation;
(v) interfere with any business relationship between the
Corporation and any other person; or
(vi) render any services as an officer, director, employee,
partner, consultant or otherwise to, or have any interest as a partner, lender
or otherwise in, any person which is so engaged.
For purposes of subparagraph 11(i) and (ii) it shall not be deemed a violation
of these subparagraphs if after the expiration or termination of this Agreement,
Executive, either for his own account or with or for anyone else engages in the
sale, manufacture, distribution or marketing of products or services that are
not at that time sold, manufactured distributed or marketed by the Corporation.
12. REMEDIES. Because the Corporation does not have an adequate remedy
--------
at law to protect its business from Executive's competition or to protect its
interests in its trade secrets, privileged, proprietary or confidential
information and similar commercial assets, the Corporation shall be entitled to
injunctive relief, in addition to such other remedies and relief that would, in
the event of a breach of the provisions of Paragraphs 9, 10, and 11, be
available to the Corporation. In the event of such a breach, in addition to any
other remedies, the Corporation shall be entitled to receive from Executive
payment of, or reimbursement for, its reasonable attorneys' fees and
disbursements incurred in enforcing any such provision.
13. SURVIVAL. The provisions of Paragraphs 9, 10, and 11 shall survive
--------
termination of this Agreement for any reason.
14. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
----------------
of the parties and merges and supersedes any prior or contemporaneous agreements
between the parties pertaining to the subject matter hereof. This Agreement may
not be changed or terminated orally, and no change, termination or attempted
waiver of any of the provisions hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be enforced; PROVIDED,
HOWEVER, that Executive's compensation may be increased at any time by the
Corporation without in any way affecting any of the other terms and conditions
of this Agreement, which in all other respects shall remain in full force and
effect. Failure of a party to enforce one or more of the provisions of this
Agreement or to require at any time performance of any of the obligations hereof
shall not be construed to be a waiver of such provisions by such party nor to in
any way affect the validity of this Agreement of such party's right thereafter
to enforce any provision of this Agreement, nor to preclude such party from
taking any other action at any time which it would legally be entitled to take.
7
<PAGE>
15. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign
----------------------
this personal Agreement, or any rights or obligations hereunder, without the
consent of the other party; PROVIDED, HOWEVER, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both Executive and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. Subject to the foregoing, this Agreement shall
inure to the benefit of, and bind, the parties hereto and their legal
representatives, heirs, successors and assigns.
16. ADDITIONAL ACTS. Executive and the Corporation each agrees that he
---------------
or it shall, as often as requested to do so, execute, acknowledge and deliver
and file, or cause to be executed, acknowledged and delivered and filed, any and
all further instruments, agreements or documents as may be necessary or
expedient in order to consummate the transactions provided for in this Agreement
and do any and all further acts and things as may be necessary or expedient in
order to carry out the purpose and intent of this Agreement.
17. COMMUNICATIONS. All notices, requests, demands and other
--------------
communications under this Agreement shall be in writing and shall be deemed to
have been given at the time when mailed in any United States post office
enclosed in a registered or certified postage prepaid envelope and addressed to
the addresses set forth at the beginning of this Agreement, or to such other
address as any party may specify by notice to the other party; PROVIDED,
HOWEVER, that any notice of change of address shall be effective only upon
receipt.
18. CONSTRUCTION. The headings of the paragraphs of this Agreement have
------------
been inserted for convenience of reference only and shall in no way restrict or
otherwise affect the construction of the terms or provisions hereof. References
in this Agreement to Paragraphs are to the paragraphs of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
20. SEVERABILITY. If any provision of this Agreement is held to be
------------
invalid or unenforceable by a court or tribunal of competent jurisdiction, such
invalidity or unenforceability shall not affect the validity and enforceability
of the other provisions of this Agreement and the provision held to be invalid
or unenforceable shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or unenforceability.
21. GOVERNING LAW. This Agreement is made and executed and shall be
-------------
governed by the laws of the State of Florida (excluding rules relating to
conflict of laws).
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first set forth above.
PSI INDUSTRIES, INC.
_____________________________ By:_______________________________
GEORGE ERFURT, Executive BEN COHEN, President
9
<PAGE>
SCHEDULE A
----------
1. Deferred Compensation Plan
2. Major Medical and Dental Insurance Plan
3. 401(k) Plan, if and when implemented.
4. 1996 Stock Option Plan.
ADOPTION AGREEMENT FOR
FINANCIAL NETWORK CORPORATION REGIONAL PROTOTYPE
STANDARDIZED PROFIT SHARING
PLAN AND TRUST
(WITH PAIRING PROVISIONS)
The undersigned Employer adopts the Financial Network Corporation
Standardized Profit Sharing Plan for those Employees who shall qualify as
Participants hereunder, to be known as the
A1 PHOTOLINE SUPPLIES, INC. PROFIT SHARING PLAN
--------------------------------------------
(Enter Plan Name)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
B1 Name of Employer PHOTOLINE SUPPLIES, INC.
--------------------------------------------------
B2 Address 404 COMMERCE WAY, FLORIDA CENTRAL COMMERCE PARK
-----------------------------------------------
LONGWOOD FLORIDA 32750
--------------------------------------------------
City State Zip
Telephone (407) 830-6222
B3 Employer Identification Number 59 - 2736501
----------- --------
B4 Date Business Commenced OCTOBER 1, 1986
---------------
Copyright 1990-R Financial Network Corporation
1
<PAGE>
B5 TYPE OF ENTITY
a (X) S Corporation
b. ( ) Professional Service Corporation
c. ( ) Corporation
d. ( ) Sole Proprietorship
e. ( ) Partnership
f. ( ) Other
AND, is the Employer a member of . . .
g. a controlled group? ( ) Yes (X) No
h. an affiliated service group? ( ) Yes (X) No
B6 NAME(S) OF TRUSTEE(S) a. DOMINICK SEMINARA
-------------------
b. CAROL J. SEMINARA
-------------------
c.
B7 TRUSTEES' ADDRESS a. (X) Use Employer Address
b. ( )
--------------------------------------------------------------
Street
----------------------------, ----------------------------
City State Zip
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. (X) state b. ( ) commonwealth of c. FLORIDA
and this Plan and Trust shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing on a. JANUARY 1ST (e.g., January lst) and
-----------
month day
ending on b. DECEMBER 31ST
-------------
month day
2
<PAGE>
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the Financial Network Corporation
Standardized Profit Sharing Plan and Trust shall:
a. ( ) establish a new Plan effective as of
------------------------ (hereinafter called the
"Effective Date").
b. (X) constitute an amendment and restatement in its entirety of
a previously established qualified Plan of the Employer
which was effective JANUARY 1, 1987 (hereinafter
called the "Effective DATE"). Except as specifically
provided in the Plan, the effective date of this
amendment and restatement is JANUARY 1, 1989 (For TRA
'86 amendments, enter the first day of the first Plan
Year beginning in 1989).
C2 PLAN YEAR means the 12 consecutive month period:
Commencing on a. JANUARY 1ST (e.g., January lst)
and ending on b. DECEMBER 31ST .
IS THERE A SHORT PLAN YEAR?
c. (X) No
d. ( ) Yes, beginning
and ending
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a. DECEMBER 31ST
month day
C4 PLAN NUMBER assigned by the Employer (select one)
a. (x) 001 b. ( ) 002 c.( ) 003 d.( ) Other _____.
3
<PAGE>
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to
appoint an Administrator. If none is named, the Employer will become
the Administrator.)
a. (X) Employer (Use Employer Address)
b. ( ) Name______________________________________________
Address___________________________________________
City___________________, State____________ Zip____
Telephone_________________________________________
Administrator's I.D. Number______________-________
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. (X) Employer (Use Employer Address)
b. ( ) Name______________________________________________
Address___________________________________________
City___________________, State____________ Zip____
4
<PAGE>
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean all Employees who
have satisfied the eligibility requirements except those checked
below:
a. ( ) N/A. No exclusions.
b. (X) Employees whose employment is governed by a collective
bargaining agreement between the Employer and "employee
representatives" under which retirement benefits were the subject of
good faith bargaining. For this purpose, the term "employee
representatives" does not include any organization more than half of
whose members are employees who are owners, officers, or executives
of the Employer.
c. (X) Employees who are nonresident aliens who received no earned
income (within the meaning of Code Section 911(d)(2)) from the
Employer which constitutes income from sources within the United
States (within the meaning of Code Section 861(a)(3)).
NOTE: For purposes of this section, the term Employee shall include
all Employees of this Employer, any Affiliated Employer, and any
leased employees deemed to be Employees under Code Section 414(n)
or 414(o).
D2 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis
of the method selected below. Only one method may be selected. The
method selected will be applied to all Employees covered under the
Plan.
a. (X) On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. ( ) On the basis of days worked. An Employee will be credited
with ten (10) Hours of Service if under the Plan such Employee would
be credited with at least one (1) Hour of Service during the day.
c. ( ) On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service during the
week.
d. ( ) On the basis of semi-monthly payroll periods. An Employee
will be credited with ninety-five (95) Hours of Service if under the
Plan such Employee would be credited with at least one (1) Hour of
Service during the semi-monthly payroll period.
e. ( ) On the basis of months worked. An Employee will be credited
with one hundred ninety (190) Hours of Service if under the Plan
such Employee would be credited with at least one (1) Hour of
Service during the month.
5
<PAGE>
D3 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) Check either a OR b and
c, and if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if
such Eligible Employee has satisfied the service and age
requirements, if any, specified below:
a. ( ) NO AGE OR SERVICE REQUIRED.
b. ( X ) SERVICE REQUIREMENT. (may not exceed 2 years. If more than
one Year of service is required, 100% immediate vesting is
mandatory)
1. ( ) None
2. ( ) 1/2 Year of Service
3. (X) 1 Year of Service
4. ( ) 1 1/2 Years of Service
5. ( ) 2 Years of Service
6. ( ) Other
NOTE: If the Year(s) of Service selected is or includes a fractional
year, an Employee will not be required to complete any specified
number of Hours of Service to receive credit for such fractional
year. If expressed in Months of Service, an Employee will not be
required to complete any specified number of Hours of Service in
a particular month.
c. (X) AGE REQUIREMENT (may not exceed 21)
1. ( ) N/A - No Age Requirement.
2. ( ) 20 1/2
3. (X) 21
4. ( ) Other
d. ( ) FOR NEW PLANS ONLY - Regardless of any of the above age or
service requirements, any Eligible Employee who was employed on
the Effective Date of the Plan shall be eligible to participate
hereunder and shall enter the Plan as of such date. (This option
may not be selected if more than one (1) Year of Service is
required above.)
6
<PAGE>
D4 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible
Employee shall become a Participant as of:
a. ( ) the first day of the Plan Year in which he met the
requirements.
b. ( ) the first day of the Plan Year in which he met the
requirements, if he met the requirements in the first 6 months of
the Plan Year, or as of the first day of the next succeeding Plan
Year if he met the requirements in the last 6 months of the Plan
Year.
c. (X) the earlier of the first day of the seventh month or the
first day of the Plan Year coinciding with or next following the
date on which he met the requirements.
d. ( ) the first day of the Plan Year next following the date on
which he met the requirements. (Eligibility must be 1/2 Year of
Service or less or 1 1/2 Years of Service or less if 100% immediate
vesting is selected and age 20 1/2 or less.
e. ( ) the first day of the month coinciding with or next following
the date on which he met the requirements.
f. ( ) Other:______________________________ , provided that an
Employee who has satisfied the maximum age and service requirements
that are permissible in Section D3 above and who is otherwise
entitled to participate, shall commence participation no later than
the earlier of (a) 6 months after such requirements are satisfied,
or (b) the first day of the first Plan year after such requirements
are satisfied, unless the Employee separates from service before
such participation date.
7
<PAGE>
D5 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b)
The vesting schedule, based on number of Years of Service, shall be
as follows:
a. ( ) 100% upon entering Plan. (Required if eligibility
requirement is greater than one (1) Year of Service.)
b. ( ) 0-2 years 0% c. ( ) 0-4 years 0%
3 years 100% 5 years 100%
d. (X) 0-1 year 0% e. ( ) 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. ( ) 1 year 20% g. ( ) 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
h. ( ) Other - Must be at least as liberal as either c or g above.
Years of Service Percentage
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
8
<PAGE>
D6 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has
been amended to a less favorable schedule, enter the pre-amended
schedule below:
a. (X) Vesting schedule has not been amended or amended schedule is
more favorable in all years.
b. ( ) Years of Service Percentage
---------------- ---------------
---------------- ---------------
---------------- ---------------
---------------- ---------------
D7 TOP-HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top
Heavy Plan, the following vesting schedule, based on number of Years
of Service, for such Plan Year and each succeeding Plan Year,
whether or not the Plan is a Top Heavy Plan, shall apply and shall
be treated as a Plan amendment pursuant to this Plan. Once
effective, this schedule shall also apply to any contributions made
prior to the effective date of Code Section 416 and/or before the
Plan became a Top Heavy Plan.
a. (X) N/A (D5a, b, d, e or f was selected)
b. ( ) 0-1 year 0% c. ( ) 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
NOTE: This section does not-apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan
has initially become top heavy. Such Participant's Account
balance attributable to Employer contributions and Forfeitures
will be determined without regard to this section.
9
<PAGE>
D8 VESTING (Plan Section 6.4(h)) In determining Years of Service for
vesting purposes, Years of Service attributable to the following
shall be EXCLUDED:
a. (X) Service prior to the Effective Date of the Plan or a
predecessor plan.
b. ( ) N/A
c. (X) Service prior to the time an Employee attained age 18.
d. ( ) N/A
D9 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. (X) No.
b. ( ) Yes: Years of Service with
shall be recognized for the purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan,
then Years of Service with such predecessor Employer shall be
recognized pursuant to Section 1.74 and b. must be marked.
D10 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.42) means:
a. (X) the date a Participant attains his 65TH birthday.
(not to exceed 65th)
b. ( ) the later of the date a Participant attains his _____
birthday (not to exceed 65th) or the
c. _____ (not to exceed 5th) anniversary of the first day of the
Plan Year in which participation in the Plan commenced.
D11 NORMAL RETIREMENT DATE (Plan Section 1.43) shall commence:
a. ( ) as of the Participant's "NRA"
OR (must select b. or c. AND 1. or 2.)
b. ( ) as of the first day of the month...
c. (X) as of the Anniversary Date...
1. (X) coinciding with or next following the Participant's
"NRA".
2. ( ) nearest the Participant's "NRA".
10
<PAGE>
D12 EARLY RETIREMENT DATE (Plan Section 1.12) means the:
a. ( ) No Early Retirement provision provided.
b. ( ) date on which a Participant...
c. ( ) first day of the month coinciding with or next following
the date on which a Participant...
d. (X) Anniversary Date coinciding with or next following the date
on which a Participant...
AND,if b, c or d was selected...
1. (X) attains his 55TH birthday and has
2. (X) completed at least 10 Years of Service.
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
E1 a. COMPENSATION (Plan Section 1.9) with respect to any
Participant means:
1. (X) "415 Compensation."
2. ( ) Compensation reportable as wages on Form W-2.
b. COMPENSATION shall be
1. (X) actually paid (must be selected if Plan is integrated)
2. ( ) accrued
c. FOR PURPOSES OF THIS SECTION El, Compensation shall be based on:
1. ( ) the Plan Year.
2. ( ) the Fiscal Year coinciding with or ending
within the Plan Year.
3. (X) the Calendar Year coinciding with or ending within the
Plan Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
d. HOWEVER, for an Employee's first year of participation,
Compensation shall be recognized as of:
1. (X) the first day of the Plan Year.
2. ( ) the date the Participant entered the Plan.
e. IN ADDITION, COMPENSATION and "414(s) Compensation" 1. (X) shall
2. ( ) shall not include compensation which is not currently
includible in the Participant's gross income by reason of the
application of Code Sections 125, 402(a)(8), 402(h)(1)(B), or
403(b).
11
<PAGE>
E2 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION (Plan Section 4.1)
a. ( ) Discretionary, out of current or accumulated Net Profits,
to be determined by the Employer.
b. (X) Discretionary, not limited to Net Profits, to be
determined by the Employer.
E3 CONTRIBUTION ALLOCATIONS (Plan Section 4.3)
a. (X) FOR A NON-INTEGRATED PLAN
The Employer contribution for the Plan Year shall be allocated to
all Participant's eligible to share in the allocations in the same
proportion that each Participant's Compensation bears to the total
Compensation of all Participants for such year.
b. ( ) FOR AN INTEGRATED PLAN
The total Employer contribution for the Plan Year shall be allocated
in accordance with Plan Section 4.3(b)(2) based on a Participant's
Compensation in excess of:
c. ( ) The Taxable Wage Base.
d. ( ) The greater of $10,000 or 20% of the Taxable Wage Base.
e. ( ) % of the Taxable Wage Base. (see Note below)
f. ( ) $________________. (see Note below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if e. or f. above is more than 20% and less
than or equal to 80% of the Taxable Wage Base.
2. 5.4% if e. or f. above is less than 100% and more
than 80% of the Taxable Wage Base.
E4 FORFEITURES (Plan Section 4.3(e))
a. ( ) Forfeitures shall be added to the Employer's contribution
under the Plan.
b. ( ) Forfeitures shall be allocated to all Participants eligible
to share in the allocations in the same proportion that
each Participant's Compensation for the year bears to the
Compensation of all Participants for such year.
12
<PAGE>
E5 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k))
With respect to Plan Years beginning prior to 1990, any Participant
who terminated employment during the Plan year for reasons other
than death, Total and Permanent Disability or retirement:
a. ( ) shall share in the allocations of Contributions and
Forfeitures provided such Participant completed a Year of
Service.
b. (X) shall not share in the allocations of Contributions and
Forfeitures regardless of Hours of Service.
NOTE: The Plan provides that with respect to Plan years beginning
after 1989, a terminated Participant shall share in allocations
provided such Participant completed more than 500 Hours of
Service.
E6 ALLOCATIONS OF EARNINGS (Plan Section 4.3(c))
Allocations of earnings with respect to amounts contributed to the
Plan after the previous Anniversary Date or other valuation date
shall be determined...
a. ( ) by using a weighted average.
b. ( ) by treating one-half of all such contributions as being a
part of the
Participant's nonsegregated account balance as of the
previous
Anniversary Date or valuation date.
c. (X) by using the method specified in Section 4.3(c).
d. ( ) other
------------------------------------------------------
13
<PAGE>
E7 LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
a. If any Participant is or was covered under another qualified
defined contribution plan maintained by the Employer, or if the
Employer maintains a welfare benefit fund as defined in Code
Section 419(e), or an individual medical account, as defined in
Code Section 415(1)(2), under which amounts are treated as
Annual Additions with respect to any Participant in this Plan:
1. ( ) N/A.
2. (X) The provisions of Section 4.4(b) of the Plan will
apply.
3. ( ) Provide the method under which the Plan will
limit total Annual
Additions to the Maximum Permissible Amount,
and will properly reduce any Excess Amounts,
in a manner that precludes Employer
discretion.
NOTE: If a.3 above is selected, an Employer may not rely on the
opinion letter issued by the Internal Revenue Service that this
Plan is qualified under Code Section 401.
14
<PAGE>
b. If the Participant is or ever has been a Participant in a
defined benefit plan maintained by the Employer:
1. (X) N/A.
2. ( ) In any Limitation Year, the Annual Additions credited
to the Participant under this Plan may not cause
the sum of the Defined Benefit Plan Fraction
and the Defined Contribution Fraction to
exceed 1.0. If the Employer's contribution
that would otherwise be made on the
Participant's behalf during the limitation
year would cause the 1.0 limitation to be
exceeded, the rate of contribution under
this Plan will be reduced so that the sum of
the fractions equals 1.0. If the 1.0
limitation is exceeded because of an Excess
Amount, such Excess Amount will be reduced
in accordance with Section 4.4(a)(4) of the
Plan.
3. ( ) Provide the method under which the Plans involved will
satisfy the 1.0 limitation in a manner that precludes
Employer discretion.
-----------------------------------------------------
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15
<PAGE>
E8 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h))
Distributions upon the death of a Participant prior to receiving any
benefits shall...
a. (X) be made pursuant to the election of the Participant or
beneficiary.
b. ( ) begin within 1 year of death for a designated beneficiary
and be payable over the life (or over a period not
exceeding the life expectancy) of such beneficiary, except
that if the beneficiary is the Participant's spouse, begin
within the time the Participant would have attained
age 70 1/2.
c. ( ) be made within 5 years of death for all beneficiaries.
d. ( ) other
E9 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions
required pursuant to Code Section 401(a)(9) shall...
a. (X) be recalculated at the Participant's election.
b. ( ) be recalculated.
c. ( ) not be recalculated.
E10 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION Distributions upon
termination of employment pursuant to Section 6.4(a) of the Plan
shall not be made unless the following conditions have been
satisfied:
a. (X) N/A. Immediate distributions may be made at Participant's
election.
b. ( ) The Participant has incurred _____ 1-Year Break(s) in
Service.
c. ( ) The Participant has reached his or her Early or Normal
Retirement Age.
d. ( ) Distributions may be made at the Participant's election on
or after the
Anniversary Date following termination of employment.
e. ( ) Other
16
<PAGE>
El1 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6)
Distributions under the Plan may be made...
a. 1. ( ) in lump sums.
2. (X) in lump sums or installments.
b. AND, pursuant to Plan Section 6.13,
1. (x) no annuities are allowed (avoids Joint and Survivor
rules).
2. ( ) annuities are allowed (Plan Section 6.13 shall not
apply).
NOTE: b.1. above may not be elected if this is an amendment to a
plan which permitted annuities as a form of distribution or if this
Plan has accepted a plan to plan transfer of assets from a plan
which permitted annuities as a form of distribution.
c. AND may be made in...
1. ( ) cash only (except for insurance or annuity contracts).
2. (X) cash or property.
17
<PAGE>
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.3(i)): When a Non-Key
Employee is a Participant in this Plan and a Defined Benefit Plan
maintained by the Employer, indicate which method shall be utilized
to avoid duplication of top heavy minimum benefits.
a. (X) The Employer does not maintained a Defined Benefit
Plan.
b. ( ) A minimum, non-integrated contribution of 5% of each
Non-Key Employee's total Compensation shall be provided
in this Plan, as specified in Section 4.3(i). (The
Defined Benefit and Defined Contribution Fractions
will be computed using 100% if this choice is
selected.)
c. ( ) A minimum, non-integrated contribution of 71/2% of each
Non-Key Employee's total Compensation shall be provided
in this Plan, as specified in Section 4.3(i). (If this
choice is selected, the Defined Benefit and Defined
Contribution Fractions will be computed using 125%
for all Plan Years in which the Plan is Top Heavy,
but not Super Top Heavy.)
d. ( ) Specify the method under which the Plans will provide
top heavy minimum benefits for Non-Key Employees that
will preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under
Code Section 415(e).
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
18
<PAGE>
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy
purposes where the Employer maintains a Defined
Benefit Plan in addition to this Plan, shall be based on...
a. (X) N/A. The Employer does not maintain a defined benefit
plan.
b. ( ) Interest Rate:____________________________________
Mortality Table:__________________________________
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (23 or more Defined
Contribution Plans (other than paired plans).
a. (X) N/A.
b. ( ) A minimum, non-integrated contribution of 3% of each
Non-Key Employee's total Compensation shall be provided
in the Money Purchase Plan (or other plan subject to
Code Section 412), where the Employer maintains two
(2) or more non-paired Defined Contribution Plans.
c. ( ) Specify the method under which the Plans will provide
top heavy minimum benefits for Non-Key Employees that
will preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under
Code Section 415(e).
F4 IS THIS A PAIRED PLAN?
a. (X) Yes. Name the Plan(s) with which this is paired.
PHOTOLINE SUPPLIES, INC. PENSION PLAN
b. ( ) No or N/A.
19
<PAGE>
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 7.4)
a. ( ) Yes, loans may be made up to 550,000 or 1/2 Vested
interest.
b. (X) No, loans may not be made.
If YES, (check all that apply)...
c. ( ) loans shall be treated as a Directed Investment.
d. ( ) loans shall only be made for hardship or financial
necessity.
e. ( ) the minimum loan shall be $1,000.
f. ( ) $10,000 de minimis loans may be made regardless
of Vested interest. (If selected, plan may need
security in addition to Vested interest)
NOTE: Department of Labor Regulations require the adoption of a
separate written loan program setting forth the requirements
outlined in Plan Section 7.4.
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.8) are permitted for
the interest in any one or more accounts.
a. ( ) Yes, regardless of the Participant's Vested interest in
the Plan.
b. ( ) Yes, but only with respect to the Participant's Vested
interest in the Plan.
c. ( ) Yes, but only with respect to those accounts which are
100% Vested.
d. (X) No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)
a. ( ) Yes, transfers from qualified plans (and rollovers)
will be allowed.
b. (X) No, transfers from qualified plans (and rollovers)
will not be allowed.
AND, transfers shall be permitted...
c. ( ) from any Employee, even if not a Participant.
d. ( ) from Participants only.
20
<PAGE>
G4 HARDSHIP DISTRIBUTIONS (Plan Section 6.11)
a. (X) Yes, hardship distributions may be made from any
accounts which are 100% Vested.
b. ( ) No hardship distributions are permitted.
G5 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. ( ) If a Participant has reached the age of _____,
distributions may be made,
at the Participant's election, from any accounts which
are 100% Vested without requiring the Participant to
terminate employment.
b. (X) No pre-retirement distribution may be made.
G6 LIFE INSURANCE (Plan Section 7.2(d)) may be purchased with Plan
contributions.
a. (X) No life insurance may be purchased.
b. ( ) Yes, at the option of the Administrator.
c. ( ) Yes, at the option of the Participant.
AND, the purchase of initial or additional life insurance shall be
subject to the following limitations: (select all that apply)
d. ( ) N/A, no limitations
e. ( ) each initial Contract shall have a minimum face amount
of $__________.
f. ( ) each additional Contract shall have a minimum face
amount of $----------.
g. ( ) the Participant has completed _____ Years of Service.
h. ( ) the Participant has completed _____ Years of
Service while a Participant in the Plan.
i. ( ) the Participant is under age _____ on the Contract
issue date.
j. ( ) the maximum amount of all Contracts on behalf of a
Participant shall not exceed $__________.
k. ( ) the maximum face amount of life insurance shall be
$__________.
21
<PAGE>
An Employer who has ever maintained or who later adopts any plan in addition to
this Plan (including a welfare benefit fund, as defined in Code Section 419(e),
which provides post-retirement medical benefits allocated to separate accounts
for Key Employees, as defined in Code Section 415(1)(2) (other than paired plan
#01-004, #01-006) may not rely on the opinion letter issued by the National
Office of the Internal Revenue Service as evidence that this Plan is qualified
under code Section 401. If the Employer who adopts or maintains multiple plans
wishes to obtain reliance that the Employer's plan(s) are qualified, application
for a determination letter should be made to the appropriate key district
director of Internal Revenue.
This Adoption Agreement may be used only in conjunction with basic Plan document
#01. This Adoption Agreement and the basic Plan document shall together be known
as Financial Network Corporation Standardized Profit Sharing Plan #01-002.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
Financial Network Corporation will notify the Employer of any amendments made to
the Plan or of the discontinuance or abandonment of the Plan provided this Plan
has been acknowledged by Financial Network Corporation or its authorized
representative. Furthermore, in order to be eligible to receive such
notification, we agree to notify Financial Network Corporation of any change in
address.
22
<PAGE>
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on this 24 day of DECEMBER , 1991. Furthermore, this Plan may not be
used unless acknowledged by Financial Network Corporation or its authorized
representative.
EMPLOYER:
PHOTOLINE SUPPLIES, INC. /S/
- - ---------------------------- -------------------------
(enter name) TRUSTEE DOMINICK SEMINARA
By: /S/ /S/
------------------------ --------------------------
DOMINICK SEMINARA TRUSTEE CAROL J. SEMINARA
PARTICIPATING EMPLOYER: --------------------------
TRUSTEE
(NOT APPLICABLE)
- - -----------------------------
(enter name)
By:
--------------------------
This Plan may not be used, and shall not be deemed to be a Regional Prototype
Plan, unless an authorized representative of Financial Network Corporation has
acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
Financial Network Corporation
By: /S/
------------------------------------
Ann J. Wyly, Authorized Representative
23
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") made this 15 day of
September, 1998 by and between LASALLE NATIONAL BANK, a national banking
association ("Bank"), 135 South LaSalle Street, Chicago, Illinois 60603-4105,
and
PSI INDUSTRIES, INC.
1160-B SOUTH ROGERS CIRCLE
BOCA RATON, FLORIDA 33487-2709 ("Borrower")
[insert entity designation(s) and address(es)of principal place of business].
WITNESSETH:
WHEREAS, Borrower may, from time to time, request Loans from Bank. and the
parties wish to provide for the terms and conditions upon which such Loans, if
made by Bank, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal or
extension) hereafter made to Borrower by Bank, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Borrower, the parties agree as follows:
1. DEFINITIONS.
(a) "Account," "Account Debtor," "Chattel Paper," "Documents," "Equipment,"
"General Intangibles," "Goods," "Instruments," 'Inventory," and 'Investment
Property" shall have the respective meanings assigned to such terms, as of the
date of this Agreement in the Illinois Uniform Commercial Code.
(b) "Affiliate" shall mean any Person directly or indirectly controlling,
controlled by or under common control with Borrower.
(c) "Collateral" shall mean al of the property of Borrower described in
paragraph 4 hereof, together with all other real or personal property of any
Obligor or any other Person now or hereafter pledged to Bank to secure, either
directly or indirectly, repayment of any of the Liabilities.
(d) "Eligible Account" shall mean an Account owing to Borrower which is
acceptable to Bank in its sole discretion for lending purposes. Without limiting
Bank's discretion, Bank shall, in general, consider an Account to be an Eligible
Account if it meets, and so long as it continues to meet, the following
requirements:
(i) it is genuine and in all respects what ft purports to be;
(ii) it is owned by Borrower, Borrower has the right to subject it to a
security interest in favor of Bank or assign it to Bank and ft is subject to a
first priority perfected security interest in favor of Bank and to no other
claim, lien, security interest or encumbrance whatsoever, other than Permitted
Liens;
(iii) it arises from (A) the performance of services by Borrower and
such services have been fully performed and acknowledged and accepted by the
Account Debtor thereunder, or (B) the sale or lease of Goods by Borrower, and
such Goods have been completed in accordance with the Account Debtor's
specification (if any) and delivered to and accepted by the Account Debtor, such
Account Debtor has not refused to accept any of the Goods, returned or offered
to return any of the Goods which are the subject of such Account and Borrower
has possession of, or Borrower has delivered to Bank (at Bank's request),
shipping and delivery receipts evidencing delivery of such Goods;
(iv) it is evidenced by an invoice rendered to the Account Debtor
thereunder, is due and payable within ninety (90) days after the date of the
invoice and does not remain unpaid ninety (90) days past the invoice date
thereof, provided, however, that if more than fifty percent (50%) of the
aggregate dollar amount of invoices owing by a particular Account Debtor remain
unpaid ninety (90) days after the respective invoice dates thereof, then all
Accounts owing by that Account Debtor shall be deemed ineligible;
(v) it is a valid, legally enforceable and unconditional obligation of
the Account Debtor thereunder. arid is not subject to setoff, counterclaim,
credit, allowance or adjustment by such Account Debtor, or to any claim by such
Account Debtor denying liability thereunder in whole or in part;
(vi) it does not arise out of a contract or order which fails in any
material respect to comply with the requirements of applicable law,
(vii) the Account Debtor thereunder is not a director, officer,
employee or agent of Borrower, or a Subsidiary, Parent or Affiliate;
(viii) it is not an Account with respect to which the Account Debtor is
the United States of America or any department agency or instrumentality
thereof. unless Borrower assigns its right to payment of such Account to Bank
pursuant to, and in full compliance with, the Assignment of Claims Act of 1940,
as amended;
-1-
<PAGE>
(ix) it is not an Account with respect to which the Account Debtor is
located in a state which requires Borrower, as a precondition to commencing or
maintaining an action in the courts of that state. either to (A) receive a
certificate of authority to do business and be in good standing in such state;
or (B) file a notice of business activities report or similar report with such
state's taxing authority, unless (x) Borrower has taken one of the actions
described in clauses (A) or (B); (y) the failure to take one of the actions
described in either clause (A) or (B) may be cured retroactively by Borrower at
its election; or (z) Borrower has proven, to Bank's satisfaction, that ft is
exempt from any such requirements under any such state's laws;
(x) it is an Account which arises out of a sale made in the ordinary
course of Borrower's business;
(xi) the Account Debtor is a resident or citizen of, and is located
within, the United States of America;
(xii) it is not an Account with respect to which the Account Debtors
obligation to pay is conditional upon the Account Debtor's approval of the Goods
or services or is otherwise subject to any repurchase obligation or return right
as with sales made on a bill-and-hold, guaranteed sale, sale on approval, sale
or return or consignment basis;
(xiii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue; or (B) which
violates any of the covenants of Borrower contained in this Agreement;
(xiv) it is not an Account which, when added to a particular Account
Debtor's other indebtedness to Borrower, exceeds a credit limit determined by
Bank, in its sole discretion, for that Account Debtor (except that Accounts
excluded from Eligible Accounts solely by reason of this subparagraph 1 (d)(xiv)
shall be Eligible Accounts to the extent of such credit limit); and
(xv) it is not an Account with respect to which the prospect of payment
or performance by the Account Debtor is or will be impaired, as determined by
Bank in its sole discretion.
(e) "Eligible Inventory" shall mean Inventory of Borrower which is
acceptable to Bank in its sole discretion for lending purposes. Without limiting
Bank's discretion, Bank shall, in general, consider Inventory to be Eligible
Inventory if it meets, and so long as it continues to meet, the following
requirements:
(i) it is owned by Borrower, Borrower has the right to subject it to a
security interest in favor of Bank and it is subject to a first priority
perfected security interest in favor of Bank and to no other claim, lien,
security interest or encumbrance whatsoever, other than Permitted Liens;
(ii) it is located on the premises listed on Exhibit B and is not in
transit;
(iii) if held for sale or lease or furnishing under contracts of
service, it is (except as Bank may otherwise consent in writing) new and unused
and free from defects which would, in Bank's sole determination, affect its
market value;
(iv) it is not stored with a bailee, consignee, warehouseman, processor
or similar party unless Bank has given its prior written approval and Borrower
has caused any such bailee, consignee, warehouseman, processor or similar party
to issue and deliver to Bank, in form and substance acceptable to Bank, such
Uniform Commercial Code financing statements, warehouse receipts, waivers and
other documents as Bank shall require;
(v) Bank has determined in accordance with Bank's customary business
practices that it is not unacceptable due to age, type, category or quantity,
and
(vi) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue; or (B)
which violates any of the covenants of Borrower contained in this Agreement.
(f) "Environmental Law" shall mean all federal. state, district local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect applicable to the Borrower's business or
facilities owned or operated by Borrower, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal. transport or handling of Hazardous Materials.
(g) "Event of Default" shall have the meaning specified in paragraph 12
hereof.
(h) "Exhibit A" shall mean the exhibit entitled Exhibit A - Special
Provisions which is attached hereto and made a part hereof.
(i) "Exhibit B" shall mean the exhibit entitled Exhibit B - Business and
Collateral Locations which is attached hereto and made a part hereof.
(j) "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substance, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides.
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation, any that are or become classified as hazardous or toxic under any
Environmental Law).
-2-
<PAGE>
(k) "Indemnified Party" shall have the meaning specified in paragraph 14
hereof.
(l) "Letter of Credit" shall mean any letter of credit issued by Bank on
behalf of Borrower.
(m) "Liabilities" shall mean any and all obligations, liabilities and
indebtedness of Borrower to Bank or to any parent, affiliate or subsidiary of
Bank of any and every kind and nature, howsoever created, arising or evidenced
and howsoever owned, held or acquired, whether now or hereafter existing,
whether now due or to become due, whether primary, secondary, direct indirect
absolute, contingent or otherwise (including, without limitation, obligations of
performance), whether several, joint or joint and several, and whether arising
or existing under written or oral agreement or by operation of law.
(n) "Loans" shall mean all loans and advances made by Bank to or on behalf
of Borrower hereunder.
(o) "Loan Limit" shall have the meaning specified in paragraph 1 of Exhibit
A.
(p) "Lock Box" and "Lock Box Account" shall have the meanings specified in
paragraph 7 hereof.
(q) "Obligor" shall mean Borrower and each other Person who is or shall
become primarily or secondarily liable for any of the Liabilities.
(r) "Original Term" shall have the meaning specified in paragraph 9 hereof.
(s) "Other Agreements" shall mean all agreements, instruments and
documents. other than this Agreement including, without Imitation, guaranties,
mortgages, trust deeds, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements and all
other writings heretofore, now or from time to time hereafter executed by or on
behalf of Borrower or any other Person and delivered to Bank or to any parent
affiliate or subsidiary of Bank in connection with the Liabilities or the
transactions contemplated hereby.
(t) "Parent" shall mean any Person now or at any time or times hereafter
owning or controlling (alone or with any other Person) at least a majority of
the issued and outstanding equity of Borrower and, if Borrower is a partnership,
the general partner of Borrower.
(u) "Permitted Liens" shall mean (i) statutory liens of landlords, carriers,
warehousemen. processors, mechanics, materialmen or suppliers incurred in the
ordinary course of business and securing amounts not yet due or declared to be
due by the claimant thereunder or amounts which are being contested in good
faith and by appropriate proceedings and for which Borrower has maintained
adequate reserves; (ii) liens or security interests in favor of Bank; (iii)
zoning restrictions and easements, licenses, covenants and other restrictions
affecting the use of real property that do not individually or in the aggregate
have a material adverse effect on Borrower's ability to use such real property
for its intended purpose in connection with Borrower's business; (iv) liens
specifically permitted by Bank in writing; and (v) liens arising in connection
with financing or refinancing of the acquisition of the Equipment, provided that
such borrowings are permitted by this Agreement, and further provided that such
liens are limited to the Equipment being financed or refinanced;
(v) "Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, entity, party or foreign or United States government (whether
federal, state, county, city, municipal, or otherwise), including, without
limitation. any instrumentality, division, agency, body or department thereof.
(w) "Renewal Term" shall have the meaning specified in paragraph 9 hereof.
(x) "Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time stock of any other class of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned by Borrower or any partnership or joint
venture or limited liability company of which more than fifty percent (50%) of
the outstanding equity interests are at the time, directly or indirectly, owned
by Borrower or of which Borrower is a general partner.
(y) "Tangible Net Worth" shall have the meaning specified in subparagraph
11 (o) hereof.
(z) "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or
(i) with respect to all matters, determinations, fundings and payments in
connection with LIBOR Rate Loans, any day on which banks in London, England or
Chicago, Illinois are required or permitted to close, and (ii) with respect to
all other matters, any day that banks in Chicago, Illinois are permitted or
required to close.
(aa) "INTEREST PERIOD" shall have the meaning specified in Paragraph
(5)(b) of Exhibit A of the Agreement hereto.
(bb) "LIBOR RATE LOANS" shall mean the Loans bearing interest at the
rate set forth in Paragraph (5)(b) of Exhibit A of the Agreement.
(cc) "PRIME RATE LOANS" shall mean the Loans bearing interest at the
rates set forth in Paragraph (5)(a) of Exhibit A of the Agreement.
2. LOANS. Subject to the terms and conditions of this Agreement (including
Exhibit A) and the Other Agreements, during the Original Term and any Renewal
Term, Bank may, in its sole discretion, make such Loans to Borrower as Borrower
shall from time to time request The aggregate unpaid principal of all Loans
outstanding at any one time shall not exceed the Loan Limit set forth in Exhibit
A and shall bear interest at the rates set forth in Exhibit A. ALL LOANS SHALL
BE REPAID BY BORROWER UPON DEMAND BY BANK. Prior to Bank making such demand,
Loans shall be repaid as provided elsewhere in this Agreement If at any time the
outstanding principal balance of the Loans exceeds the Loan Limit or any portion
of the Loans exceeds any applicable sublimit set forth in Exhibit A, Borrower
shall immediately, and without the necessity o! a demand by Bank, pay to Bank
such amount as may be necessary to eliminate such excess and Bank shag apply
such payment to the Liabilities in such order as Bank shall determine in its
sole discretion. Borrower hereby authorizes Bank, in its sole discretion, to
charge any of Borrower's accounts or advance Loans to make any payments of
principal, interest fees, costs and expenses required by this agreement All
loans shall, in Bank's sole discretion, be evidenced by one or more promissory
notes in form and substance satisfactory to Bank. However, if such Loans are not
so evidenced, such Loans may be evidenced solely by entries upon the books and
records maintained by Bank.
-3-
<PAGE>
3. FEES AND CHARGES. Borrower shall pay to Bank, in addition to all other
amounts payable hereunder, the fees and charges se forth in Exhibit A. R is the
intent of the parties that the rate of interest and the other charges to
Borrower under this Agreement shall be lawful; therefore, if for any reason the
interest or other charges payable under this Agreement are found by a court of
competent jurisdiction, in a final determination, to exceed the limit which Bank
may lawfully charge Borrower, then the obligation to pay interest and other
charges shall automatically be reduced to such limit and, if any amount in
excess of such limit shall have been paid, then such amount shall be refunded to
Borrower.
4. GRANT OF SECURITY INTEREST TO BANK. As security for the payment of all Loans
now or in the future made by Bank to Borrower hereunder and for the payment or
other satisfaction of all other Liabilities, Borrower hereby assigns to Bank and
grants to Bank a continuing security interest in the following property of
Borrower, whether now or hereafter owned. existing, acquired or arising and
wherever now or hereafter located: (a) all Accounts (whether or not Eligible
Accounts) and all Goods whose sale, lease or other disposition by Borrower has
given rise to Accounts and that have been returned to, or repossessed or stopped
in transit by, Borrower; (b) all Chattel Paper, Instruments, Documents and
General Intangibles (including, without limitation, all patents, patent
applications, trademarks, trademark applications, trade-names, trade secrets,
goodwill, copyrights, copyright applications, registrations, licenses,
franchises, customer lists, tax refund claims, claims against carriers and
shippers, guarantee claims, contracts rights, security interests, security
deposits and any rights to indemnification); (c) all Inventory (whether or not
Eligible Inventory); (d) all Goods (other than Inventory), including. without
limitation, Equipment, vehicles and fixtures; (e) all Investment Property; (all
deposits and cash; (g) any other property of Borrower now or hereafter in the
possession, custody or control of Bank or any agent or any parent affiliate or
subsidiary of Bank or any participant with Bank in the Loans for any purpose
(whether for safekeeping, deposit collection, custody, pledge, transmission or
otherwise), and (h) all additions and accessions to, substitutions for, and
replacements, products and proceeds of the foregoing property, including,
without limitation, proceeds of all insurance policies insuring the foregoing
property, and all of Borrower's books and records relating to any of the
foregoing and to Borrowers business.
5. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN.
Borrower shall, at Bank's request, at anytime and from time to time, execute and
deliver to Bank such financing statements, documents and other agreements and
instruments (and pay the cost of filing or recording the same in all pubic
offices deemed necessary or desirable by Bank) and do such other acts and things
as Bank may deem necessary or desirable in its sole discretion in order to
establish and maintain a valid, attached and perfected security interest in the
Collateral in favor of Bank (free and clear of all other lens, claims,
encumbrances and rights of third parties whatsoever, whether voluntarily or
involuntarily created, except Permitted Liens) to secure payment of the
liabilities, and in order to facilitate the collection of the Collateral.
Borrower irrevocably hereby makes, constitutes and appoints Bank (and all
Persons designated by Bank for that purpose) as Borrower's true and lawful
attorney and agent-in-fact to execute such financing statements, documents and
other agreements and instruments and do such other acts and things as may be
necessary to preserve and perfect Bank's security interest in the Collateral.
Borrower further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
6. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until otherwise notified by
Bank following the occurrence of an Event of Default, Borrower shall have the
right, except as otherwise provided in this Agreement, in the ordinary course of
Borrower's business, to (a) sell, lease or furnish under contracts of service
any of Borrower's Inventory normally held by Borrower for any such purpose: and
(b) use and consume any raw materials, work in process or other materials
normally held by Borrower for such purpose; provided, however, that a sale in
the ordinary course of business shall not include any transfer or sale in
satisfaction, partial or complete of a debt owed by Borrower, provided further
that a sale of Inventory to a creditor of Borrower resulting in a valid Account
owing to the Borrower by such creditor shall not constitute a transfer or sale
in satisfaction, partial, or complete, of a debt owed by Borrower.
; provided, that so long as no Event of Default has occurred, payments received
by Bank shall not be applied to the unmatured portion of the LIBOR Rate Loans,
but shall be held in an interest bearing cash collateral account maintained by
Bank until the earlier of (i) the last day of the Interest Period applicable to
such LIBOR Rate Loan and (ii) the occurrence of an Event of Default; provided
further, that so long as no Event of Default has occurred, the immediately
available funds held in such interest bearing cash collateral account may be
disbursed, at Borrower's discretion, to Borrower so long as after giving effect
to such disbursement, Borrower's availability under Paragraph 1 hereto, at such
time equals or exceeds the outstanding Liabilities at such time.
(a) Borrower shall direct all of its Account Debtors to make all payments
on the Accounts directly to a post office box (the "Lock Box") designated by.
and under the exclusive control of, Bank or another financial institution
acceptable to Bank. Borrower shall establish an account (the "Lock Box Account')
in Bank's name with Bank or such other financial institution acceptable to Bank,
into which all payments received in the Lock Box shall be deposited, and into
which Borrower will immediately deposit all payments received by Borrower for
Inventory or services in the identical form in which such payments were
received, whether by cash or check. If Borrower. any Affiliate or Subsidiary, or
any shareholder, officer. director. employee or agent of Borrower or any
Affiliate or Subsidiary, or any other Person acting for or in concert with
Borrower shall receive any monies, checks, notes, drafts or other payments
relating to or as proceeds of Accounts or other Collateral, Borrower and each
such Person shall receive all such items in trust for, and as the sole and
exclusive property of, Bank and, immediately upon receipt thereof, shall remit
the same (or cause the same to be remitted) in kind to the Lock Box Account. If
the Lock Box Account is not established with Bank, the financial institution
with which the Lock Box Account is established shall acknowledge and agree, in a
manner satisfactory to Bank, that the amounts on deposit in such Lock Box
Account are the sole and exclusive property of Bank, that such financial
institution has no right to setoff against the Lock Box Account or against any
other account maintained by such financial institution into which the contents
of the Lock Box Account are transferred, and that such financial institution
shall wire, or otherwise transfer in immediately available funds in a manner
satisfactory to Bank, funds deposited in the Lock Box Account on a daily basis
as such funds are collected. Borrower agrees that all payments made to such Lock
Box Account or otherwise received by Bank, whether in respect of the Accounts or
as proceeds of other Collateral or otherwise, will be applied on account of the
liabilities in accordance with the terms of this Agreement. /If the Lock Box
Account is established with Bank, Borrower agrees to pay all fees, costs and
expenses in connection with opening and maintaining the Lock Box Account and
depositing for collection by Bank any check or other item of payment received by
Bank on account of the Liabilities. All of such fees, costs and expenses shall
constitute Loans hereunder, shall be payable to Bank by Borrower upon demand,
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder. AD checks, drafts, instruments and other items of payment or
proceeds of Collateral shall be endorsed by Borrower to Bank, and, if that
endorsement of any such item shall not be made for any reason, Bank is hereby
irrevocably authorized to endorse the same on Borrowers behalf. For the purpose
of this paragraph, Borrower irrevocably hereby makes, constitutes and appoints
Bank (and al Persons designated by Bank for that purpose) as Borrower's true and
lawful attorney and agent-in-fact (i) to endorse Borrowers name upon said items
of payment and/or proceeds of Collateral and upon any Chattel Paper, Document,
Instrument, invoice or similar document or agreement relating to any Account of
Borrower or Goods pertaining thereto; (ii) to take control in any manner of any
item of payment or proceeds thereof and (i) to have access to any lock box or
postal box into which any of Borrower's mail is deposited, and open and process
all mail addressed to Borrower and deposited therein.
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<PAGE>
(b) Bank may, at any time and from time to time after the occurrence of an
Event of Default, whether before or after notification to any Account Debtor and
whether before or after the maturity of any of the Liabilities, (i) enforce
collection of any of Borrowers Accounts or other amounts owed to Borrower by
suit or otherwise: (ii) exercise all of Borrowers rights and remedies with
respect to proceedings brought to collect any Accounts or other amounts -owed to
Borrower; (iii) surrender, release or exchange all or any part of any Accounts
or other amounts owed to Borrower, or compromise or extend or renew for any
period (whether or not longer than the original period) any indebtedness
thereunder; (iv) sell or assign any Account of Borrower or other amount owed to
Borrower upon such terms, for such amount and at such time or times as Bank
deems advisable; (v) prepare. file and sign Borrowers name on any proof of claim
in bankruptcy or other similar document against any Account Debtor or other
Person obligated to Borrower and (vi) do all other acts and things which are
necessary, in Bank's sole discretion, to fulfill Borrowers obligations under
this Agreement and to allow Bank to collect the Accounts or other amounts owed
to Borrower. In addition to any other provision hereof, Bank may at any time,
after the occurrence of an Event of Default. at Borrower's expense, notify any
parties obligated on any of the Accounts to make payment directly to Bank of any
amounts due or to become due thereunder.
(c) For purposes of calculating interest, Bank shall, within two ( 2 )
business days after receipt by Bank at its office in Chicago, Illinois of (i)
checks; and (ii) cash or other immediately available funds from collections of
items of payment and proceeds of any Collateral, apply the whole or any part of
such collections or proceeds against the Liabilities in such order as Bank shall
determine in its sole discretion. For purposes of determining the amount of
Loans available for borrowing purposes, (i) checks: and (ii) cash or other
immediately available funds from collections of items of payment and proceeds of
any Collateral shall be applied in whole or in part against the Liabilities, in
such order as Bank shall determine in ft sole discretion, on the day of receipt,
subject to actual collection.
(d) Bank in its sole discretion, without waiving or releasing any
obligation, liability or duty of Borrower under this Agreement or the Other
Agreements or any Event of Default, may at any time or times hereafter, but
shall not be obligated to, pay, acquire or accept an assignment of any security
interest lien, encumbrance or claim asserted by any Person in, upon or against
the Collateral. All sums paid by Bank in respect thereof and all costs, fees and
expenses including, without limitation, reasonable attorney fees. all court
costs and all other charges relating thereto incurred by Bank shall constitute
Loans, payable by Borrower to Bank on demand and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder.
(e) Promptly upon Borrowers receipt of any portion of the Collateral
evidenced by an agreement, Instrument or Document including, without limitation,
any Chattel Paper, Borrower shall deliver the original thereof to Bank together
with an appropriate endorsement or other specific evidence of assignment thereof
to Bank (in form and substance acceptable to Bank). If an endorsement or
assignment of any such items shall not be made for any reason, Bank is hereby
irrevocably authorized, as Borrowers attorney and agent-in-fact, to endorse or
assign the same on Borrowers behalf.
8. SCHEDULES AND REPORTS.
(a) Within ten (10) days after the close of each calendar month, and at
such other times as may be requested by Bank from time to time hereafter,
Borrower shall deliver to Bank (i) a schedule identifying each Account and which
Accounts constitute Eligible Accounts together with copies of the invoices when
requested by Bank (with evidence of shipment attached) pertaining to each such
Account for the month (or other applicable period) immediately preceding: and
(ii) such additional schedules, certificates, reports and information with
respect to the Collateral as Bank may from time to time require. Bank, through
its officers, employees or agents, shall have the fight, at any time and from
time to time in Bank's name, in the name of a nominee of Bank or in Borrowers
name, to verify the validity, amount or any other matter relating to any of
Borrowers Accounts, by mail, telephone, telegraph or otherwise. Borrower shall
reimburse Bank, on demand, for all costs, fees and expenses incurred by Bank in
this regard.
(b) Without limiting the generality of the foregoing, Borrower shall
deliver to Bank, at least once a month (or more frequently when requested by
Bank), a report with respect to Borrower's Inventory. Borrower shall immediately
notify Bank of any event causing loss or depreciation in value of Borrowers
Inventory (other than normal depreciation occurring in the ordinary course of
business) and which exceeds $50,000.00.
(c) All schedules, certificates, reports and other items delivered by
Borrower to Bank hereunder shall be executed by an authorized representative of
Borrower and shall be in such form and contain such information as Bank shall
specify.
9. TERMINATION. This Agreement shall be in effect from the date hereof until
September 15, 2001 (the "Original Term") and shall automatically renew itself
from year to year thereafter (each such one-year renewal 8eing'ref'erred to
herein as a "Renewal Term") unless (a) Bank makes demand for repayment prior to
the end of the Original Term or the then current Renewal Term; (b) the due date
of the Liabilities is accelerated pursuant to paragraph 13 hereof or (c)
Borrower elects to terminate this Agreement at the end of the Original Term or
at the end of any Renewal Term by giving Bank written notice of such election at
least ninety (90) days prior to the end of the Original Term or the then current
Renewal Term and by paying all of the Liabilities in full on the last day of
such term. Absent an Event of Default, Bank will give at least ninety (90) days
notice of its intention to demand the Loan or terminate this Agreement prior to
the end of the Original Term or any Renewal Term. If one-or more of the events
specified in clauses (a), (b) and (c) occurs, then (i) Bank shall not make any
additional Loans on or after the date identified as the date on which the
Liabilities are to be repaid; and (i) this Agreement shall terminate on the date
thereafter that the Liabilities are paid in full. At such time as Borrower has
repaid all of the Liabilities and this Agreement has terminated, Borrower shall
deliver to Bank a release, in form and substance satisfactory to Bank of all
obligations and liabilities of Bank and its officers, directors, employees,
agents, parents, subsidiaries and affiliates to Borrower, and Borrower is
obtaining new financing from another lender, Borrower shall deliver such
lender's indemnification of Bank, in form and substance satisfactory to Bank,
for checks which Bank has credited to Borrower's account, but which subsequently
are dishonored for any reason. If, during the term of this Agreement, Borrower
prepays all or any portion of the Liabilities from any source other than income
from the ordinary course of operations of Borrower's business, Borrower agrees
to pay to Bank, as a prepayment fee, in addition to the payment of all other
Liabilities, an amount equal to the product of (i) fifty percent (50%) of the
average monthly interest earned by Bank on the Loans made hereunder preceding
the date of prepayment, multiplied by(ii)the number of full and partial months
remaining from the date of prepayment to the end of the Original Term or the
then current Renewal Term.
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<PAGE>
10. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower hereby represents,
warrants and covenants that
(a) the financial statements delivered or to be delivered by Borrower to
Bank at or prior to the date of this Agreement and at all times subsequent
thereto accurately reflect in all material respects the financial condition of
Borrower, and there has been no material adverse change in the financial
condition, the operations or any other status of Borrower since the date of the
financial statements delivered to Bank most recently prior to the date of this
Agreement;
(b) (i) the office where Borrower keeps its books, records and accounts (or
copies thereof) concerning the Collateral, Borrowers principal place of business
and all of Borrowers other places of business, locations of Collateral and post
office boxes are as set forth in Exhibit B; and (ii) Borrower shall promptly
(but in no event less than ten (10) days prior thereto) advise Bank in writing
of the proposed opening of any new place of business or new location of
Collateral, the closing of any existing place of business or location of
Collateral, any change in the location of Borrowers books, records and accounts
(or copies thereof or the opening or closing of any post office box of Borrower;
(c) the Collateral, including, without limitation, the Equipment (except
any part thereof which Borrower shall have advised Bank in writing consists of
Collateral normally used in more than one state) is and shall be kept or, in the
case of vehicles, based. only at the addresses set forth on Exhibit B, and at
other locations within the continental United States of which Bank has been
advised by Borrower in writing;
(d) if any of the Collateral consists of Goods of a type normally used in
more than one state, whether or not actually so used, (i) Borrower shall
immediately give written notice to Bank of any use of any such Goods in any
state other than a state in which Borrower has previously advised Bank such
Goods shall be used; and (ii) such Goods shall not, unless Bank shall otherwise
consent in writing, be used outside of the continental United States;
(e) Borrower has not made, and shall not make. any loans or advances to any
Affiliate or other Person except for advances to employees, officers and
directors of Borrower for travel and other expenses arising in the ordinary
course of Borrowers business;
(f) each Account or item of Inventory which Borrower shall, expressly or by
implication, request Bank to classify as an Eligible Account or as Eligible
Inventory, respectively, shall. as of the time when such request is made,
conform in all respects to the requirements of such classification as set forth
in the respective definitions of "Eligible Account" and "Eligible Inventory" as
set forth herein and as otherwise established by Bank from time to time, and
Borrower shall promptly notify Bank in writing if any such Eligible Account or
Eligible Inventory shall subsequently become ineligible:
(g) Borrower is and shall at all times during the Original Term or any
Renewal Term be the lawful owner of all Collateral now purportedly owned or
hereafter purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens;
(h) Borrower has the right and power and is duly authorized and empowered
to enter into, execute and deliver this Agreement and the Other Agreements and
perform its obligations hereunder and thereunder. Borrowers execution, delivery
and performance of this Agreement and the Other Agreements does not and shall
not conflict with the provisions of any statute, regulation, ordinance or rule
of taw, or any agreement contract or other document which may now or hereafter
be binding on Borrower where such conflict would have a material adverse effect
on its business, property, assets, operations or condition, financial or
otherwise and Borrowers execution, delivery and performance of this Agreement
and the Other Agreements shall not result in the imposition of any lien or other
encumbrance upon any of Borrowers property under any existing indenture,
mortgage, deed of trust loan or credit agreement or other agreement or
instrument by which Borrower or any of its property may be bound or affected;
(i) there are no actions or proceecings which are pending or to the best
of Borrower's knowledge threatened against Borrower which might result in any
material adverse change in its financial condition or materially adversely
affect the Collateral and Borrower shall, promptly upon becoming aware of any
such pending or threatened action or proceeding, give written notice thereof to
Bank;
(j) (i) Borrower has obtained and shall maintain all licenses,
authorizations, approvals and permits, the lack of which would have a material
adverse effect on the operation of its business; and (ii) Borrower is and shall
remain in compliance in all material respects with all applicable federal,
state, local and foreign statutes, orders, regulations, rules and ordinances
(including, without limitation, Environmental Laws and statutes, orders,
regulations, rules and ordinances relating to taxes, employer and employee
contributions and similar items, securities, ERISA (as hereinafter defined) or
employee health and safety) the failure to comply with which would have a
material adverse effect on its business, property, assets, operations or
condition, financial or otherwise;
(k) all written information now, heretofore or hereafter furnished by
Borrower to Bank is and shall be true and correct in all material respects as of
the date with respect to which such information was or is furnished;
(l) Borrower is not conducting, permitting or suffering to be conducted,
nor shall ft conduct, permit or suffer to be conducted any activities pursuant
to or in connection with which any of the Collateral is now, or will (while any
Liabilities remain outstanding) be owned by any Affiliate; provided, however,
that Borrower may enter into transactions with Affiliates for the purchase or
sale of Inventory or services in the ordinary course of business pursuant to
terms that are no less favorable to Borrower than the terms upon which such
transfers or transactions would have been made had they been made to or with a
Person that is not an Affiliate and, in connection therewith, may transfer cash
or property to Affiliates for fair value;
(m) Borrower's name has always been as set forth on the first page of this
Agreement and Borrower uses no trade names or division names in the operation of
its business, except as otherwise disclosed in writing to Bank; Borrower shall
notify Bank in writing within ten (10) days of the change of its name or the use
of any trade names or division names not previously disclosed to Bank in
writing;
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<PAGE>
(n) with respect to Borrowers Equipment (i) Borrower has good and
indefeasible and merchantable tide to and ownership of all equipment (ii)
Borrower shall keep and maintain the Equipment in good operating condition and
repair and shall make all necessary replacements thereof and repairs thereto so
that the value and operating efficiency thereof shall at al times be preserved
and maintained; (iii) Borrower shall not, permit any such items to become a
fixture to real estate or an accession to other personal property; and (iv)
Borrower, immediately on demand by Bank, shall deliver to Bank any and all
evidence of ownership of, including, without limitation, certificates of tide
and applications of tide to, any of the Equipment;
(o) this Agreement and the Other Agreements to which Borrower is a party
are the legal, valid and binding obligations of Borrower and are enforceable
against Borrower in accordance with their respective terms;
(p) Borrower is and shall remain solvent is and shall be able to pay its
debts as they become due, has and shall continue to have capital sufficient to
carry on its business, now owns and shag continue to own property having a value
both at fair valuation and at present fair saleable value greater than the
amount required to pay its debts, and will not be rendered insolvent by the
execution and delivery of this Agreement or any of the Other Agreements or by
completion of the transactions contemplated hereunder or thereunder;
(q) Borrower is not now obligated, nor shad R create, incur, assume or
become obligated (directly or indirectly), for any loans or other indebtedness
for borrowed money other than the Loans, except that Borrower may (i) borrow
money from a Person other than Bank on an unsecured and subordinated basis d a
subordination agreement in favor of Bank and in form and substance satisfactory
to Bank is executed and delivered to Bank relative thereto; (ii) maintain any
present indebtedness to any Person which has been disclosed to Bank in writing
and consented to in writing by Bank; (iii) incur unsecured indebtedness to trade
creditors in the ordinary course of Borrowers business; (iv) incur purchase
money indebtedness or capitalized lease obligations in connection with capital
expenditures pursuant to subparagraph 11 (q) of this Agreement; and (v) incur
other lease obligations requiring payments not to exceed $100,000.00 during any
fiscal year of Borrower;
(r) Borrower does not own any margin securities, and none of the proceeds
of the Loans hereunder shall be used for the purpose of purchasing or carrying
any margin securities or for the purpose of. reducing or ret6ng any indebtedness
which was originally incurred to purchase any margin securities or for any other
purpose not permitted by Regulation G or Regulation U of the Board of Governors
of the Federal Reserve System as in effect from time to time;
(s) except as otherwise disclosed in writing to Bank, Borrower has no
Parents, Subsidiaries or other Affiliates or divisions, nor is Borrower engaged
in any joint venture or partnership with any other Person;
(t) if Borrower is a corporation, limited liability company or partnership,
Borrower is duly organized, validly existing and in good standing in its state
of organization and Borrower is duty qualified and in good standing in all
states where the nature and extent of the business transacted by ft or the
ownership of ft assets makes such qualification necessary or if Borrower is not
so qualified, Borrower may cure any such failure without losing any of its
rights or affecting Bank's rights;
(u) Borrower is not in default under any material contract, lease or
commitment to which it is a party or by which it is bound. nor does Borrower
know of any dispute regarding any contract lease or commitment which is material
to the continued financial success and well-being of Borrower;
(v) there are no controversies pending or, to the best of Borrower's
knowledge, threatened between Borrower and any of its employees, other than
employee grievances arising in the ordinary course of business which are not, in
the aggregate, material to the continued financial success and well-being of
Borrower, and Borrower is in compliance in all material respects with all
federal and state laws respecting employment and employment terms, conditions
and practices;
(w) Borrower possesses, and shall continue to possess, adequate licenses,
patents, patent applications, copyrights, service marks, trademarks, trademark
applications, trade styles and trade names to continue to conduct its business
as heretofore conducted by it
(x) (i) Borrower has not generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by ft) in any manner which at any time
violates in any material respect any Environmental Law or any license, permit,
certificate, approval or similar authorization thereunder and the operations of
the Borrower comply in all material respects with all Environmental Laws and all
licenses, permits, certificates, approvals and similar authorizations thereunder
(ii) there has been no investigation, proceeding, complaint order, directive,
claim. citation or notice by any governmental authority or any other Person, nor
is any pending or to the best of the Borrower's knowledge threatened, and
Borrower shall immediately notify Bank upon becoming aware of any such
investigation, proceeding, complaint, order, directive, claim, citation or
notice and take prompt and appropriate actions to respond thereto, with respect
to any non-compliance with or violation of the requirements of any Environmental
Law by the Borrower or the release, spill or discharge, threatened or actual, of
any Hazardous Material or the generation, use. storage, treatment
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects the
Borrower, or its business, operations or assets, or any properties at which the
Borrower has transported, stored or disposed of any Hazardous Materials, unless
the foregoing shall not reasonably be expected to have a material adverse effect
on Borrower (iii) Borrower has no material liability, (contingent or otherwise)
in connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment transportation,
manufacture, handling, production or disposal of any Hazardous Materials; and
(iv) without limiting the generality of the foregoing, Borrower shall, following
the determination by Bank that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any
non-compliance, with any Environmental Law, at Borrowers expense, cause an
independent environmental engineer acceptable to Bank to conduct such tests of
the relevant site as are appropriate and prepare and deliver a report setting
forth the result of such tests, a proposed plan for remediation and an estimate
of the costs thereof; and
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<PAGE>
(y) Borrower has paid and discharged, and shall at al times hereafter
promptly pay and discharge all obligations and liabilities under the Employee
Retirement Income Security Act of 1974 (as amended, modified or restated from
time to time, "ERISA") of a character which if unpaid or unperformed might
result in the imposition of a lien against any of its properties or assets and
will promptly notify the Bank of (i) the occurrence of any "reportable event"
(as defined in ERISA) which might result in the termination by the Pension
Benefit Guaranty Corporation ("PBGC") of any employee benefit plan ("Plan")
covering any officers or employees of the Borrower, any benefits of which are,
or are required to be, guaranteed by PBGC; the receipt of any notice from PBGC
of its intention to seek termination of any Plan or appointment of a trustee
therefor and (iii) its intention to terminate or withdraw from any Plan;
provided, that Borrower shall not terminate any Plan or withdraw therefrom if
such withdrawal or termination shall result in any liability to Borrower.
Borrower represents, warrants and covenants, to Bank that all
representations and warranties of Borrower contained in this Agreement (whether
appearing in paragraphs 10 or 11 hereof or elsewhere) shall be true at the time
of Borrower's execution of this Agreement, shall survive the execution, delivery
and acceptance hereof by the parties hereto and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full and satisfaction of al of the Liabilities and termination of this
Agreement, and shall be remade by Borrower at the time each Loan is made
pursuant to this Agreement, provided, that representations and warranties made
as of a particular date shall be true and correct as of such date.
11. ADDITIONAL COVENANTS OF BORROWER. Until payment and satisfaction in full of
all Liabilities and termination of this Agreement unless Borrower obtains Bank's
prior written consent waiving or modifying any of Borrowers covenants hereunder
in any specific instance, Borrower agrees as follows:
(a) Borrower shall at al times keep accurate and complete books, records
and accounts with respect to all of Borrower's business activities, in
accordance with sound accounting practices and generally accepted accounting
principles consistently applied, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for such
purpose on Exhibit B;
(b) Borrower agrees to deliver to Bank the following financial information,
all of which shall be prepared in accordance with generally accepted accounting
principles consistently applied: (i) no later than twenty (20) days after-each
calendar month, copies of internally prepared financial statements, including,
without limitation, balance sheets and statements of income, retained earnings
and cash flow of Borrower, certified by the Chief Financial Officer of Borrower,
(ii) no later than thirty (30) days after the end of each of the first three
quarters of Borrower's fiscal year a balance sheet operating statement and
reconciliation of surplus of Borrower, which quarterly financial statements may
be unaudited but shall be certified by the Chief Financial Officer of Borrower,
and (iii) no later than seventy-five (75) days after the end of each of
Borrower's fiscal years, audited annual financial statements with an unqualified
opinion by independent certified public accountants selected by Borrower and
reasonably satisfactory to Bank, which financial statements shall be accompanied
by a letter from such accountants acknowledging that they are aware that a
primary intent of Borrower in obtaining such financial statements is to
influence Bank and that Bank is relying upon such financial statements in
connection with the exercise of its rights hereunder and copies of any
management letters sent to the Borrower by such accountants;
(c) Borrower shall promptly advise Bank in writing of any material adverse
change in the business, assets or condition, financial or otherwise, of
Borrower, the occurrence of any Event of Default hereunder or the occurrence of
any event which, d uncured, will become an Event of Default hereunder after
notice or lapse of time (or both);
(d) Bank or any Persons designated by it shall have the right at any time,
to call at Borrowers places of business at any reasonable times, and, without
hindrance or delay, to inspect the Collateral and to inspect audit check and
make extracts from Borrowers books, records, journals, orders, receipts and any
correspondence and other data relating to Borrowers business, the Collateral or
any transactions between the parties hereto. and shall have the right to make
such verification concerning Borrowers business as Bank may consider reasonable
under the circumstances. Borrower shall furnish to Bank such information
relevant to Bank's rights under this Agreement as Bank shall at any time and
from time to time request Borrower authorizes Bank to discuss the affairs,
finances and business of Borrower with any officers, employees or directors of
Borrower or with any Affiliate or the officers, employees or directors of any
Affiliate, and to discuss the financial condition of Borrower with Borrowers
independent pubic accountants. Any such discussions shall be without liability
to Bank or to Borrower's independent public accountants. Borrower shall pay to
Bank all customary fees and out-of-pocket expenses incurred by Bank in the
exercise of Its rights hereunder, and al of such fees and expenses shall
constitute Loans hereunder, shall be payable on demand and, until paid, shall
bear interest at the highest rate then applicable to Loans hereunder
(e) Borrower shall:
(i) keep the Collateral property housed and insured for the full
insurable value thereof against loss or damage by fire, theft explosion,
sprinklers, collision (in the case of motor vehicles) and such other risks as
are customarily insured against by Persons engaged in businesses similar to that
of Borrower, with such companies, in such amounts, with such deductions, and
under policies in such form as shall be satisfactory to Bank Original (or
certified) copies of such policies of insurance have been or shall be delivered
to Bank within ninety (90) days after the date hereof, together with evidence of
payment of all premiums therefor, and shall contain an endorsement in form and
substance acceptable to Bank, showing loss under such insurance policies payable
to Bank. Such endorsement, or an independent instrument furnished to Bank, shall
provide that the insurance company shall give Bank at least thirty (30) days
written notice before any such policy of insurance is altered or canceled and
that no act, whether willful or negligent, or default of Borrower or any other
Person shall affect the fight of Bank to recover under such policy of insurance
in case of loss or damage. In addition, Borrower shall cause to be executed and
delivered to Bank an assignment of proceeds of its business interruption
insurance policies. Borrower hereby directs all insurers under al policies of
insurance to pay all proceeds payable thereunder directly to Bank. Borrower
irrevocably makes, constitutes and appoints Bank (and all officers, employees or
agents designated by Bank) as Borrower's true and lawful attorney (and
agent-in-fact) for the purpose of making, setting and adjusting claims under
such policies of insurance, endorsing the name of Borrower on any check, draft
instrument or other item of payment for the proceeds of such policies of
insurance and making all determinations and decisions with respect to such
policies of insurance, provided, however, that if no Event of Default shall have
occurred, Borrower may make, settle and adjust claims involving less than the
$50,000.00 in the aggregate without Bank's consent; and (ii) maintain, at its
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<PAGE>
expense, such public liability and third party property damage insurance as is
customary for Persons engaged in businesses similar to that of Borrower with
such companies and in such amounts, with such deductibles and under policies in
such form as shag be satisfactory to Bank and original (or certified) copies of
such policies have been or shall be delivered to Bank within ninety (90) days
after the date hereof, together with evidence of payment of all premiums
therefor; each such policy shall contain an endorsement showing Bank as
additional insured thereunder and providing that the insurance company shall
give Bank at least thirty (30) days written notice before any such policy shall
be altered or canceled.
If Borrower at any time or times hereafter shall fail to obtain or maintain
any of the policies of insurance required above or to pay any premium relating
thereto, then Bank without waiving or releasing any obligation or default by
Borrower hereunder, may (but shall be under no obligation to) obtain and
maintain such policies of insurance and pay such premiums and take such other
actions with respect thereto as Bank deems advisable. Any sums disbursed by Bank
in connection with any such actions, including, without limitation. court costs,
expenses, other charges relating thereto and reasonable attorneys' fees, shall
constitute Loans hereunder, shall be payable on demand by Borrower to Bank and,
until paid, shall bear interest at the highest rate then applicable to Loans
hereunder
(f) Borrower shall not use the Collateral, or any part thereof, in any
unlawful business or for any unlawful purpose or use or maintain any of the
Collateral in any manner that does or could result in material damage to the
environment or a violation of any applicable environmental laws, rules or
regulations; shall keep the Collateral in good condition, repair and order,
ordinary wear and tear excepted, shall permit Bank to examine any of the
Collateral at any time and wherever the Collateral may be located; shall not
permit the Collateral, or any part thereof, to be levied upon under execution,
attachment distraint or other legal process; shall not sell, lease, grant a
security interest in or otherwise dispose of any of the Collateral except as
expressly permitted by this Agreement; shall not settle or adjust any Account
identified by Borrower as an Eligible Account or with respect to which the
Account Debtor is an Affiliate without the consent of Bank, provided. that
following the occurrence of an Event of Default Borrower shall not settle or
adjust any Account without the consent of Bank: and shall not secrete or abandon
any of the Collateral, or remove or permit removal of any of the Collateral from
any of the locations listed on Exhibit 8, except for the removal of Inventory
sold in the ordinary course of Borrower's business as permitted herein;
(g) all monies and other property obtained by Borrower from Bank pursuant
to this Agreement shall be used solely for business purposes of Borrower;
(h) Borrower shall, at the request of Bank, indicate on its records
concerning the Collateral a notation, in form satisfactory to Bank, of the
security interest of Bank hereunder; subject to an extensions granted by the
applicable taxing authority.
(i) Borrower shall file all required tax returns and pay all of its taxes
when due including, without limitation, taxes imposed by federal, state or
municipal agencies, and shall cause any liens for taxes to be promptly released;
provided, that Borrower shall have the right to contest the payment of such
taxes in good faith by appropriate proceedings so long as (i) the amount so
contested is shown on Borrowers financial statements; (ii) the contesting of any
such payment does not give rise to a lien for taxes; (iii) Borrower keeps on
deposit with Bank (such deposit to be held without interest) an amount of money
which, in the sole judgment of Bank, is sufficient to pay such taxes and any
interest or penalties that may accrue thereon, or, the Borrower maintains
adequate reserves on its balance sheet in accordance with generally accepted
accounting principals and (iv) if Borrower fails to prosecute such contest with
reasonable diligence, Bank may apply the money so deposited t of such taxes. if
Borrower fails to pay any such taxes and in the absence of any such contest by
Borrower. Bank may (but shall be under no obligation to) advance and pay any
sums required to pay any such taxes and/or to secure the release of any lien
therefor, and any sums so advanced by Bank shall constitute Loans hereunder,
shall be payable by Borrower to Bank on demand, and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder;
(j) Borrower shall not assume, guarantee or endorse, or otherwise become
liable in connection with, the obligations of any Person, except by endorsement
of instruments for deposit or collection or similar transactions in the ordinary
course of business;
(k) Borrower shall not (i) enter into any merger or consolidation: (ii)
sell, lease or otherwise dispose of any of its assets other than in the ordinary
course of business; (ii) purchase all or substantially all of the assets of any
Person or division of such Person; or (iv) enter into any other transaction
outside the ordinary course of Borrower's business, including, without
limitation, any purchase, redemption or retirement of any shares of any class of
its stock or any other equity interest and any issuance of any shares of, or
warrants or other fights to receive or purchase any shares of, any class of its
stock or any other equity interest;
(l) Borrower shall not declare or pay any dividend or other distribution
(whether in cash or in kind) on any class of its stock (K Borrower is a
corporation) or on account of any equity interest in Borrower (if Borrower is a
partnership, limited liability company or other type of entity);
(m) Borrower shag not purchase or otherwise acquire, or contract to
purchase or otherwise acquire, the obligations or stock of any Person, other
than direct obligations of the United States;
(n) Borrower shall not amend its organizational documents or change its
fiscal year/or enter into a new line of business materially different from
Borrowers current business;
(o) See Exhibit A unless such actions would not have an adverse effect on
Borrower's business, property, assets, operations or condition, financial or
otherwise, as determined by Bank in its sole discretion, and Bank has received
ten (10) days prior written notice of such amendment of change, and "TANGIBLE
NET WORTH" being defined for purposes of this subparagraph as Borrowers
shareholders' equity (including retained earnings) LESS the book value of all
intangible assets as determined solely by Bank on a consistent basis plus the
amount of any LIFO reserve plus the amount of any debt subordinated to Bank, all
as determined under generally accepted accounting principles applied on a basis
consistent with the financial statement dated July 31, 1998 except as set forth
herein;
-9-
<PAGE>
(p) Borrower shag reimburse Bank for all costs and expenses, including,
without limitation, legal expenses and reasonable attorney's fees, incurred by
Bank in connection with the (i) documentation and consummation of this
transaction and any other transactions between Borrower and Bank, including,
without limitation, Uniform Commercial Code and other public record searches and
flings, overnight courier or other express or messenger delivery, appraisal
costs, surveys, title insurance and environmental audit or review costs; (ii)
collection, protection or enforcement of any rights in or to the Collateral;
(iii) collection of any Liabilities; and (iv) administration and enforcement of
any of Bank's rights under this Agreement Borrower shall also pay all normal
service charges with respect to all accounts maintained by Borrower with Bank
and any additional services requested by Borrower from Bank. All such costs,
expenses and charges shall constitute Loans hereunder, shall be payable by
Borrower to Bank on demand, and, until paid, shall bear interest at the highest
rate then applicable to Loans hereunder,
(q) Borrower shall not purchase or otherwise acquire (including, without
limitation, acquisition by way of capitalized lease), or commit to purchase or
acquire, any fixed asset if, after giving effect to such purchase or other
acquisition, the aggregate cost of all such fixed assets purchased or otherwise
acquired would exceed $100,000.00 during any fiscal year of Borrower; and
(r) Neither Borrower nor any Affiliate shall use any portion of the
proceeds of the Loans, either directly or indirectly, for the purpose of (i)
purchasing any securities underwritten or privately placed by ABN AMRO
Securities (USA) Inc. ("AASI"), an affiliate of Bank; or (ii) purchasing from
AASI any securities in which AASI makes a market or (iii) refinancing or making
payments of principal, interest or dividends on any securities issued by
Borrower or any Affiliate, and underwritten, privately placed or dealt in by
AASI.
12. DEFAULT. The occurrence of any one or more of the following events
shall constitute an "EVENT OF DEFAULT' by Borrower hereunder:
(a) the failure of any Obligor to pay when due, declared due, or demanded
by Bank, any of the Liabilities;
(b) the failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
this Agreement or any of the Other Agreements; provided that any such failure by
Borrower under subparagraphs 10(b) (ii), 10(g) (but only with respect to
involuntarily created liens, claims, security interests and encumbrances) and
10( ) (i) and 10 (j) (ii) of this Agreement shall constitute an Event of Default
hereunder until the fifteenth (15th) day following the occurrence thereof; any
of the Collateral in an amount in excess of $50,000.00 in the aggregate for all
such events during any year of the Original term or and any Renewal term as
determined by Bank in its sole discretion.
(c) the failure of any Obligor to perform, keep or observe (after any
applicable notice and cure period, if any) any of the covenants, conditions,
promises, agreements or obligations of such Obligor under any other agreement
with any Person if such failure may have a material adverse effect on such
Obligor's business, property, assets, operations or condition, financial or
otherwise;
(d) the making or furnishing by any Obligor to Bank of any representation,
warranty, certificate, schedule, report or other communication within or in
connection with this Agreement or the Other Agreements or in connection with any
other agreement between such Obligor and Bank, which is untrue or misleading in
any material respect as of the date made;
(e) the loss, theft, damage or destruction of any of the Collateral in an
amount in excess of $50,000 in the aggregate for all such events during any year
of the Original Term or any Renewal Term as determined by Bank in its sole
discretion (except as permitted hereby) sale, lease or furnishing under a
contract of service of, any of the collateral;
(f) the creation (whether voluntary or involuntary) of, or any attempt to
create, any lien or other encumbrance upon any of the Collateral, other than the
Permitted Liens and involuntary liens securing amounts less than Fifty Thousand
Dollars ($50,000.00) and which a bond acceptable to Bank in its sole discretion
has been posted within ten (10) days of its creation, or the making or any
attempt to make any levy, seizure or attachment thereof; provided that with
respect to states in which creditors obtain a prejudgment attachment without
notice, such attachment shall be an Event of Default only if the attachment
remains in effect for ten (10) days;
(g) the commencement of any proceedings in bankruptcy by or against any
Obligor or for the liquidation or reorganization of any Obligor, or alleging
that such Obligor is insolvent or unable to pay its debts as they mature, or for
the readjustment or arrangement of any Obligors debts, whether under the United
States Bankruptcy Code or under any other law, whether state or federal, now or
hereafter existing for the relief of debtor, or the commencement of any
analogous statutory or non-statutory proceedings involving any Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such action shag not constitute an Event of Default unless such
proceedings are not dismissed within thirty (30) days after the commencement of
such proceedings;
(h) the appointment of a receiver or trustee for any Obligor, for any of
the Collateral or for any substantial part of any Obligor's assets or the
institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation, limited liability company or a partnership; provided, however, that
if such appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed within thirty
(30) days after the commencement of such proceedings;
(i) the entry of any judgment or order against any Obligor which remains
unsatisfied or undischarged and in effect for thirty (30) days after such entry
without a stay of enforcement or execution to the extent such judgments exceed
$50,000.00;
(j) the death of any Obligor who is a natural Person, or of any general
partner of any Obligor which is a partnership, or any member of a limited
liability company or the dissolution of any Obligor which is a partnership,
limited liability company or corporation;
(k) the occurrence of an event of default under, or the revocation or
termination of, any agreement, instrument or document executed and delivered by
any Person to Bank pursuant to which such Person has guaranteed to Bank the
payment of all or any of the Liabilities or has granted Bank a security interest
in or lien upon some or all of such Person's real and/or personal property to
secure the payment of all or any of the Liabilities;
(l) the institution in any court of a criminal proceeding against any
Obligor which would have a material adverse effect on such Obligor's business,
property, assets operation or condition, financial or otherwise, or the
indictment of any Obligor for any crime other than traffic and boating tickets
and misdemeanors not punishable by jail terms; and
(m) Bank shall reasonably feel insecure for any material reason whatsoever,
including, without limitation, fear of removal or waste of the Collateral, or
any part thereof.
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<PAGE>
13. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in subparagraph
12(g) hereof, all of Borrower's Liabilities shall immediately and automatically
become due and payable, without notice of any kind. Upon the occurrence of any
other Event of Default, all Liabilities may, at the option of Bank, and without
demand, notice or legal process of any kind, be declared, and immediately shall
become, due and payable.
(b) Upon the occurrence of an Event of Default Bank may exercise from time
to time any rights and remedies available to it under the Uniform Commercial
Code and any other applicable law in addition to, and not in lieu of, any rights
and remedies expressly granted in this Agreement or in any of the Other
Agreements and all of Bank's rights and remedies shall be cumulative and
non-exclusive to the extent permitted by law. In particular, but not by way of
limitation of the foregoing, Bank may, without notice, demand or legal process
of any kind, take possession of any or all of the Collateral (in addition to
Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
onto any of Borrowers premises where any of the Collateral may be, and search
for, take possession of, remove, keep and store any of the Collateral until the
same shall be sold or otherwise disposed of, and Bank shall have the right to
store the same at any of Borrower's premises without cost to Bank. At Bank's
request, Borrower shall, at Borrower's expense. assemble the Collateral and make
it available to Bank at one or more places to be designated by Bank and
reasonably convenient to Bank and Borrower. Borrower recognizes that if Borrower
fails to perform, observe or discharge any of its Liabilities under this
Agreement or the Other Agreements, no remedy at law will provide adequate relief
to Bank, and agrees that Bank shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages. Any notification of intended disposition of any of the Collateral
required by law will be deemed reasonably and property given if given at least
five (5) calendar days before such disposition. Any proceeds of any disposition
by Bank of any of the Collateral may be applied by Bank to the payment of
expenses in connection with the Collateral, including, without limitation, legal
expenses and reasonable aftorneys' fees, and any balance of such proceeds may be
applied by Bank toward the payment of such of the Liabilities, and in such order
of application, as Bank may from time to time elect
14. INDEMNIFICATION. Borrower agrees to defend (with counsel satisfactory to
Bank), protect, indemnify and hold harmless Bank each affiliate or subsidiary of
Bank, and each of their respective officers, directors, employees, attorneys and
agents (each an "Indemnified Party") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature (including, without
limitation. the disbursements and the reasonable fees of counsel for each
Indemnified Party in connection with any investigative, administrative or
judicial proceeding, whether or not the Indemnified Party shall be designated a
party thereto), which may be imposed on, incurred by, or asserted against, any
Indemnified Party (whether direct indirect or consequential and whether based on
any federal, state or local laws or regulations, including, without limitation,
securities, Environmental Laws and commercial laws and regulations, under common
law or in equity, or based on contract or otherwise) in any manner relating to
or arising out of this Agreement or any Other Agreement or any act event or
transaction related or attendant thereto, the making or issuance and the
management of the Loans or any Letter of Credit or the use or intended use of
the proceeds of the Loans or any Letter of Credit; provided, however, that
Borrower shall not have any obligation hereunder to any Indemnified Party with
respect to matters caused by or resulting from the willful misconduct or gross
negligence of such Indemnified Party. To the extent that the undertaking to
indemnify set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall satisfy such undertaking
to the maximum extent permitted by applicable law. Any liability, obligation,
loss, damage, penalty, cost or expense covered by this indemnity shall be paid
to each Indemnified Party on demand, and, failing prompt payment shall, together
with interest thereon at the highest rate then applicable to Loans hereunder
from the date incurred by each Indemnified Party until paid by Borrower, be
added to the Liabilities of Borrower and be secured by the Collateral. The
provisions of this paragraph 14 shall survive the satisfaction and payment of
the other Liabilities and the termination of this Agreement.
15. NOTICE. All written notices and other written communications with respect to
this Agreement shall be sent by ordinary, certified or overnight mail, by
telecopy or delivered in person, and in the case of Bank shall be sent to it at
135 South LaSalle Street Chicago, Illinois 60603-4105, Attention: Asset Based
Lending Division, and in the case of Borrower shall be sent to ft at its
principal place of business set forth on the first page of this Agreement or as
otherwise directed by Borrower in writing.
16. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This Agreement and
the Other Agreements are submitted by Borrower to Bank for Bank's acceptance or
rejection at Bank's principal place of business as an offer by Borrower to
borrow monies from Bank now and from time to time hereafter, and shall not be
binding upon Bank or become effective until accepted by Bank in writing, at said
place of business. If so accepted by Bank, this Agreement and the Other
Agreements shall be deemed to have been made at said place of business. THIS
AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND CONTROLLED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT,
VALIDITY, CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS, INCLUDING, WITHOUT
LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING
PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL LOCATED OUTSIDE OF THE STATE
OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT
JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. 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 remaining
provisions of this Agreement
To induce Bank to accept this Agreement, Borrower irrevocably agrees that,
subject to Bank's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE
OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE. Borrower hereby irrevocably appoints and designates the
Secretary of State of Illinois, whose address is Springfield, Illinois (or any
other person having and maintaining a place of business in such state whom
Borrower may from time to time hereafter designate upon ten (10) days written
notice to Bank and whom Bank has agreed, in its sole discretion, in writing is
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<PAGE>
satisfactory and who has executed an agreement in form and substance
satisfactory to Bank agreeing to act as such attorney and agent), as Borrower's
true and lawful attorney and duty authorized agent for acceptance of service of
legal process. Borrower agrees that service of such process upon such person
shall constitute personal service of such process upon Borrower. Bank agrees to
endeavor to provide a copy of such process to the law firm of Nason, Yeager,
Gerson, White & Lioce, P.A., Attn: Mark A. Pachman, Esq. by mail at the address
of 1645 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33401 or by
facsimile transmission at facsimile number (561) 686-5442. Failure of Bank to
provide a copy of such process shall not impair Bank's rights hereunder.
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
17. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the Other
Agreements may not be modified, altered or amended except by an agreement in
writing signed by Borrower or such other person who is a party to such Other
Agreement and Bank. Borrower may not sell, assign or transfer this Agreement or
the Other Agreements or any portion thereof, including, without limitation,
Borrower's rights, titles, interest remedies, powers or duties hereunder and
thereunder. Borrower hereby consents to Bank's sale, assignment transfer or
other disposition, at any time and from time to time hereafter, of this
Agreement or the Other Agreements, or of any portion thereof, or participations
therein, including, without limitation, Bank's rights, titles, interest
remedies, powers and/or duties and agrees that it shall execute and deliver such
documents as Bank may request in connection with any such sale, assignment,
transfer or other disposition.
18. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this Agreement are
for convenience of reference only. and shall not govern the interpretation of
any of the provisions of this Agreement.
19. POWER OF ATTORNEY. Borrower acknowledges and agrees that its appointment of
Bank as its attorney and agent-in-fact for the purposes specified in this
Agreement is an appointment coupled with an interest and shall be irrevocable
until all of the Liabilities are satisfied and paid in full and this Agreement
is terminated.
20. CONFIDENTIALITY. Borrower and Bank hereby agree and acknowledge that any and
all information relating to Borrower which is (i) furnished by Borrower to Bank
(or to any affiliate of Bank); and (ii) non-public, confidential or Proprietary
in nature, shall be kept confidential by Bank or such affiliate in accordance
with applicable law; provided, however, that such information and other credit
information relating to Borrower may be distributed by Bank or such affiliate to
Bank's or such affiliate's directors, officers, employees, attorneys,
affiliates, assignees, participants, auditors and regulators, and upon the order
of a court or other governmental agency having jurisdiction over Bank or such
affiliate, to any other party. Borrower and Bank further agree that this
provision shall survive the termination of this Agreement.
21. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) BORROWER AND BANK EACH HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT,
ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED
TORTIOUS CONDUCT BY BORROWER OR BANK OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND
BANK IN NO EVENT SHALL BANK BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
(b) Borrower hereby waives demand, presentment protest and notice of
nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND
PRIOR TO THE EXERCISE BY BANK OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF
BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL; provided that in the event that Bank seeks to enforce its rights
hereunder by judicial process, Bank shall provide Borrower with such notices as
are required by law.
(d) Bank's failure, at any time or times hereafter, to require strict
performance by Borrower of any provision of this Agreement or any of the Other
Agreements shall not waive, affect or diminish any right of Bank thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Bank of an Event of Default under this Agreement or any default under any of the
Other Agreements shall not suspend, waive or affect any other Event of Default
under this Agreement or any other default under any of the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. No delay on the part of Bank in the exercise of any
right or remedy under this Agreement or any Other Agreement shall preclude other
or further exercise thereof or the exercise of any right or remedy. None of the
undertakings, agreements, warranties, covenants. and representations of Borrower
contained in this Agreement or any of the Other Agreements and no Event of
Default under this Agreement or default under any of the Other Agreements shall
be deemed to have been suspended or waived by Bank unless such suspension or
waiver is in writing, signed by a duly authorized officer of Bank and directed
to Borrower specifying such suspension or waiver.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the 15 day of SEPTEMBER, 1998.
PSI Industries, Inc. LASALLE NATIONAL BANK
By: /S/ DOMINICK SEMINARA By:/S/
------------------------- ---------------------------------
Title: CEO Title: VICE PRESIDENT
and W.M.M.
By:
-----------------------------
Title:
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EXHIBIT B - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made apart of that certain Loan and Security Agreement of even
date herewith between PSI INDUSTRIES, INC. ("Borrower") and LASALLE NATIONAL
BANK ("Bank").
A. Borrowers Business Locations (please indicate which location is the principal
place of business and at which locations originals and all copies of Borrower's
books, records and accounts are kept).
1. 1160-B South Rogers Circle
Boca Raton, Florida 33487-2709
[principal place of business/ owned property]
2.
3.
B. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of Borrower. Please indicate the relationship of such location to Borrower
(i.e. public warehouse, processor, etc.).
1. Achiever Service Corp.
2371-F M.K. King Avenue
P.O. Box 2938
Calexico, California 92231
(processor location]
2. Industrias Achiever
Boulevard Circuito Siglo XXI #1928 CyD
Parque Industrial EX-XXI
Mexicali, BC Mexico
(processor location]
3. Vastfame Investment Ltd.
20B Max Share Center
367 Kings Road North Point
Hong Kong
[processor location]
4. Mass Chance Electronics (Shenzhen) Co. Ltd.
East Back 8/F 201 Building
Chegongmiao Industrial Area
Shenzhen, China
[processor location]
-14-
PROMISSORY NOTE
Loan No. 20299
Fixed Rate 8%
Revolving Credit No
$570,000.00 December 16,1998
Each party signing this promissory note as maker (each of whom,
together with each endorser, surety or guarantor, is hereinafter included in the
term "Obligor"), jointly and severally promises to pay to the order of MELLON
UNITED NATIONAL BANK, hereinafter called "Holder", at its office at 1399 S. W.
First Avenue, Miami, Florida 33130 (or at such other place as the Holder hereof
may designate), the sum of FIVE HUNDRED SEVENTY THOUSAND AND 00/100 DOLLARS with
interest at eight per cant per annum, Interest on principal will accrue from
date of funding at the rate of 1/360th of annual interest for each day that
principal is outstanding; provided, however, in no event shall interest be due
at a rate in excess of the maximum permissible legal rate. In the event the loan
evidenced by this note constitutes a consumer credit transaction as defined
under Regulation Z of the Board of Governors of the Federal Reserve System, then
the maximum permissible legal rate referred to herein shall mean 18%, determined
on a 365-day basis, unless the loan amount exceeds $500,000, in which event the
maximum permissible legal rate referred to herein shall mean 25%, determined on
a 365-day basis. Principal and interest shall be payable as follows:
Equal monthly payments of principal and Interest of $4,809.15
shall be paid commencing on January 16th, 1999, and on the 16th
day of each month thereafter, and on December 16, 2003, the entire
remaining principal balance 4ereof, together with any accrued and
unpaid interest thereon, shall be paid.
In addition to the foregoing, Obligor shall pay to Holder an
additional sum sufficient to pay by November of each year during
the term of this note annual real property taxes on the property
encumbered by the mortgage herein described. Such additional sum
shall be paid In equal monthly Installments together with the
principal and interest payments due hereunder. Provided the Holder
has received the aggregate sum required to make payments of the
current year's property taxes, the Holder shall forward the
appropriate payments to the taxing authority for property taxes
due. Notwithstanding the foregoing, the Holder shall at all times
have the right, after a default by Obligor, to apply such funds to
the Obligations as the Holder deems appropriate.
Prepayment may be prepaid in whole or in part, but subject to the
following prepayment fees: (1) If any principal Is prepaid In
whole or in part In the first year of the loan (i.e., within 12
months after the date of this note), the prepayment fee shall be
equal to five percent of the original principal amount of the
loan; (!I) if any principal Is prepaid In whole or In part In the
second year of the loan, the prepayment fee shall be equal to four
percent of the original principal amount of the loan; (111) if any
principal Is prepaid In whole or in part In the third year of the
loan, the prepayment fee shall be equal to three percent of the
original principal amount of the loan; (iv) if any principal Is
prepaid in whole or In part in the fourth year of the loan, the
prepayment fee shall be equal to two percent of the original
principal amount of the loan; (v) if any principal is prepaid in
whole or in part during the fifth year of the loan, the prepayment
fee shall be one percent of the original principal amount of the
loan.
<PAGE>
All payments shall be applied first to accrued interest and then to
principal. In the event the Obligor has not drawn the entire principal sum of
this note, additional sums may be drawn up to the original principal sum hereof.
In the event the parties intend this note to evidence a revolving credit
arrangement (such intention being indicated in the appropriate space above), the
Obligors may draw the entire principal sum hereof, or a part thereof, from time
to time, and the outstanding balance due hereunder shall accordingly increase or
decrease, so long as the aggregate outstanding principal balance shall not at
any time exceed the original principal sum hereof.
As used in this instrument, the term "Collateral" shall refer to those
items spee4fically scheduled in this note together with all property of each
Obligor that for any purpose, whether in trust for any Obligor or for custody,
pledge, collection or otherwise, is now or hereafter in the actual or
constructive possession of, or in transit to, the Holder in any capacity, its
correspondents or agents, and the right of set-off against all deposits and
credits of each Obligor with, and all claims of each Obligor against, the Holder
at any time existing. With respect thereto, the parties understand that the
Holder is authorized at any time without prior notice to apply such Collateral
in whole or in part, and in such order as the Holder may elect, to the payment
of or as a reserve against one or more of the Obligations (as defined in this
instrument), whether other collateral therefor is deemed adequate or not.
As used in this instrument, the term "Obligations" shall refer to the
indebtedness represented by this note and all renewals and substitutions hereof
and claims of every nature and description of the Holder against the Obligors
whether present or future, contracted with or acquired by the Holder, and
whether joint, several, absolute, contingent, matured, unmatured, liquidated,
unliquidated, or direct or indirect.
As security for payment of this note and of all of the Obligations, the
Obligors jointly and severally give the Holder a continuing lien and security
interest in all of the Collateral, including without limitation any property
which may be described on the reverse side hereof or on an attached schedule;
provided, however, that in the event the Collateral includes the principal
dwelling of a consumer (as such terms are described under Regulation Z of the
Board of Governors of the Federal Reserve System), the term Obligations shall
not include borrowings subsequent hereto with respect to which Holder was
required to provide, and did not so provide, a notice of right of rescission
pursuant to applicable requirements of Regulation Z of the Board of Governors of
the Federal Reserve System.
The happening of any of the following events shall constitute a default
hereunder: (1) a failure of any Obligor to pay in full any installment payable
hereunder promptly when it becomes due; (2) failure of any Obligor to pay in
full when due any indebtedness, obligation, or liability to the Holder
whatsoever, or any installment thereof or interest thereon; (3) failure of any
Obligor to perform any agreement hereunder; (4) the Holder learns that any
warranty, representation, certificate or statement of any Obligor (whether
contained in this note or not) pertaining to )r in connection with this note or
the loan or credit evidenced by this note, may not be true; (5) any Obligor
becomes insolvent or any insolvency proceedings (as said terms "insolvent" and
"insolvency proceedings" are defined in the Uniform Commercial Code of Florida)
are instituted or made by or against any Obligor, or application is made for the
appointment of a receiver for any Obligor or for any of the assets of any
Obligor; (6) the entry of a judgment against any Obligor; (7) the issuing of any
levy, attachment or garnishment, or the filing of any lien against any property
of any Obligor; (8) the determination by the Holder that a material adverse
change has occurred in the financial condition of any Obligor (a) from the
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<PAGE>
conditions set forth in the most recent financial statement of such Obligor
heretofore furnished to the Holder, or (b) from the financial condition of such
Obligor as heretofore most recently disclosed to the Holder in any manner; (9)
failure to do all things necessary to preserve and maintain the value and
collectability of the Collateral, including but not limited to the payment of
taxes and premiums on policies of insurance on the due date without benefit of
the grace period; (10) the assignment by any Obligor of an equity in any of the
Collateral without written consent of the Holder; (11) the death of any Obligor;
(12) the dissolution, merger, consolidation, or reorganization of any Obligor;
or (13) the actual or attempted revocation of his guaranty by an Obligor who has
guarantied Obligations hereunder not yet advanced or not yet readvanced under a
revolving credit arrangement which may be herein provided.
Upon the happening of any event of default as defined herein: (1) the
entire amount of this note remaining unpaid, less the amount of any prepaid
interest or discount and any rebates required by law, shall, at the option of
the Holder and without notice or demand, become due and payable forthwith or
thereafter. In no event and under no circumstances shall the Holder be entitled
hereunder to unaccrued or unearned interest or other charges. In the event of
default, after deducting any paid and unaccrued or paid and unearned interest
from the principal balance then due, the then unpaid principal balance hereof
and any accrued and unpaid interest shall bear interest from the time of such
default at the maximum legal rate permissible, and, regardless of the payment
terms of the note, all unpaid interest from the time of such default may be
compounded on a monthly basis, the first such compounding to be made 30 days
after the default and, thereafter, on the same date of each subsequent month
until all Obligations have been paid in full. In no event and under no
circumstances shall there be due hereunder, nor shall the Holder be entitled
hereunder to receive at any time, any charges not allowed or permitted by law or
any interest or Interest rate in excess of the maximum allowed by law. In the
event that the amount of any charge or payment due hereunder shall create or
shall be deemed to create an interest charge in excess of the maximum
permissible legal rate, then the charge of any such excess amount shall be
deemed unenforceable and void and its collection shall be waived, without
affecting the remainder of the Obligations evidenced hereby, and any such excess
amount which may have been paid to the Holder shall be refunded; (2) the Holder
may at its option, thereupon or thereafter declare all other Obligations, or any
of them selected by the Holder (notwithstanding any provisions thereto,
immediately due and payable without demand or notice of any kind (but with such
adjustments, if any, with respect to any interest or other charges as may be
provided for in the promissory note or other writing evidencing such
Obligation); (3) the Holder shall have and may exercise without demand any and
all of the rights and remedies granted to a secured party upon default under the
Uniform Commercial Code of Florida, or otherwise available to the Holder
(including those available under any written instrument in addition to this note
relating to any of the Obligations or any security thereto and, without limiting
the generality of the foregoing, the Holder shall have the right, immediately
and without further action by it, to set-off against this note all money owed by
the Holder in any capacity to each or any Obligor, whether or not due, and also
to set-off against all other Obligations of each Obligor to the Holder all money
owed by the Holder in any capacity to each or any Obligor; and the Holder shall
be deemed to have exercised such right of set-off and to have made a charge
against any such money immediately upon the occurrence of such default or other
event even though such charge is made or entered on the books of the Holder
subsequent thereto.
In the event this note evidences a revolving credit arrangement,
Obligor requests and authorizes Holder, in the latter's sole discretion: (a) at
maturity, or on the business day preceding maturity, of the loan evidenced
hereby, to increase the outstanding principal balance hereunder to the stated
original principal amount of this note; and (b) on the business day next
following such maturity, to reduce the principal balance to the amount
outstanding just prior to such maturity. Obligor agrees that any such action
which the Holder in its sole discretion shall take is done so as to exempt, in
accordance with applicable regulations or opinions of the Department of Revenue
3
<PAGE>
of the State of Florida, the maturing Obligation evidenced by this note from the
imposition of documentary stamp tax with respect thereto in the event the Holder
agrees to extend the maturity of this note, and that such action by Holder shall
in no way indicate approval of a renewal of the loan evidenced by this note.
In the event that subsequent to the stated maturity hereof the Holder
makes an advance for any of the purposes provided for or permitted herein, the
provisions of this note shall be applicable with respect to such advance in all
respects as if such advance had been made prior to maturity.
In the event the Holder shall be required at any time to pay additional
documentary stamp tax, intangible tax, or other taxation with respect to any
transaction contemplated or evidenced by this note, the Obligor shall reimburse
the Holder immediately for all such costs, including any interest and penalties
with respect thereto.
The Obligor hereby authorizes the Holder, at the Holder's sole
discretion, to extend the maturity of this note to a date determined by the
Holder as set forth in a written notice mailed to the Obligor at the address
shown for the Obligor in the Holder's records, provided that the interest rate
and/or payment terms remain the same or are lower than those provided for under
the original promissory note evidencing this loan.
The Obligor represents and verifies to the Holder that the statement of
financial condition of the Obligor provided to the Holder is accurate and
correct in all material respects; understands that the Holder is relying upon
this representation and verification in extending credit to the Obligor; and
agrees to provide written notification to Holder promptly upon the occurrence of
a material adverse change in Obligor's financial condition from that reflected
on the statement of Obligor's financial condition which Obligor provided to the
Holder.
With respect to any and all Obligations, the Obligors severally waive
the following: (1) demand, presentment, protest, notice of dishonor, suit
against any party and all other requirements necessary to charge or hold any
Obligor liable on any Obligation; (2) any further receipt for or acknowledgment
of the Collateral now or hereafter deposited or statement of indebtedness; (3)
the right to interpose any set-off or counterclaim of any nature or description
in any litigation in which the Holder and any Obligor shall be adverse parties.
The Obligors severally agree that any Obligations of any Obligor may, from time
4
<PAGE>
to time, in whole or in part, be renewed, extended, modified, accelerated,
compromised, discharged or released by the Holder, and any Collateral, lien
and/or right of set-off securing any Obligations may, from time to time, in
whole or in part, be exchanged, sold, or released, all without notice to or
further reservations of rights against any Obligor and all without in any way
affecting or releasing the liability of any Obligor. The Obligors jointly and
severally agree to pay all taxes and assessments levied on or with respect to
the Obligations, this note, and any Collateral, including but not limited to
intangible and documentary stamp taxes, and all filing fees and taxes and all
costs of collecting or securing or attempting to collect or secure any
Obligations, including attorneys' fees, whether or not involving litigation
and/or appellate proceedings.
The Holder shall not by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies, and no waiver of any kind shall be
valid, unless in writing and signed by the Holder. All rights and reme4ies of
the Holder under the terms of this note and under any statutes or rules of law
shall be cumulative and may be exercised successively or concurrently. The
Obligors jointly and severally agree that the Holder shall be entitled to all
the rights of a holder in due course of a negotiable instrument. This note shall
be governed by and construed in accordance with the laws of the State of
Florida. Any provision of this note which may be unenforceable or invalid under
any law shall be ineffective to the extent of such unenforceability or
invalidity without affecting the enforceability or validity of any other
provision hereof. Any notice required to be given to any person shall be deemed
sufficient if mailed, postage prepaid, to such person's address as it appears on
this note, or, if none appears, to any address in the Holder's files. The Holder
shall have the right unilaterally to correct patent errors In this note and to
fill in any blank spaces herein so as to conform to the terms upon which the
loan evidenced hereby is made.
The Obligors shall be jointly and severally liable for all Indebtedness
represented by this note and have subscribed their names hereto without
condition that anyone else should sign or become bound hereon and without any
other condition whatever being made. The provisions of this note are binding on
the heirs, executors, administrators, assigns and successors of each and every
Obligor and shall inure to the benefit of the Holder, its successors and
assigns. This note is executed under the seal of each of the Obligors.
This promissory note and other loan and, if applicable, collateral
documentation being executed contemporaneously herewith (collectively, the "Loan
Documentation") constitute and evidence the complete understanding between the
Holder and the Obligor. All prior and contemporaneous discussions between the
Holder and the Obligor, including all representations and promises by the
Holder, whether oral or written, are included in and merged in the Loan
Documentation. Any modification thereof hereafter which is not in writing and
signed by the Holder and the Obligor shall be void, except that the Holder may
in its sole discretion extend the maturity of the loan evidenced by this note
for a term specified in a written notification mailed to the Obligor at its
address shown on the Holder's records. The Holder may rely on the information,
instructions, or other communications (including requests for and directions
concerning loan advances) given to the Holder by any one Obligor.
Notwithstanding the fact that a default hereunder may not exist, and
without the necessity for notice to or consent of any Obligor, the Holder may
allow additions to, reductions or releases or exchanges of, or substitutions for
the Collateral or any part thereof. Surrender of this note, upon payment or
otherwise, shall not affect the right of the Holder to retain the Collateral as
security for other Obligations.
The Holder shall not be obligated to resort to any Collateral but, at
its election, may proceed to enforce any of the Obligations in default against
any or all of the Obligors.
Notwithstanding anything herein to the contrary, Holder agrees, by
acceptance of this note, to forebear acceleration of the unpaid principal
balance hereof (a) for a period of 15 days for the failure of the Obligor to
make a payment when due hereunder, and (b) for a period of 30 days in the event,
of any other default by Obligor in an Obligation hereunder. Such forbearance
shall not deny or in any way mitigate the occurrence of a default, unless the
Obligor, within the applicable forbearance period, cures such default to
Holder's satisfaction, in which event the loan shall thereupon be reinstated and
restored to good standing in all respects, including the interest rate hereon,
effective as of the date of the default.
Obligor covenants to and agrees with the Holder that for so long as any
Obligations under this promissory' note shall be outstanding, at all times from
and after the time Holder opens a branch banking facility In Boca Raton,
Florida, Holder shall be the prime depository for the personal and business
accounts of Obligor, excepting those accounts which Obligor maintains at LaSalle
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<PAGE>
Bank. Obligor recognizes that such covenant and agreement was an Important
factor and a material Inducement to the Holder in establishing the terms and
conditions, Including the Interest rate, of the loan evidenced by this note. If
Obligor violates this covenant and agreement, Holder may elect, upon written
notice to any one Obligor mailed to his address as shown on the Holder's
records, to Increase the interest rate set forth in this note to a rate
specified in such notice, which rate shall not exceed one percent per annum less
than the maximum permissible legal rate, effective from the date of such notice.
This covenant does not apply to accounts hold by Dominick M. Seminara or Carol
J. Grapski-Seminara.
THE OBLIGOR AND, BY ITS ACCEPTANCE HEREOF, THE HOLDER, EACH HEREBY WAIVES (1)
ALL RIGHTS TO RELY ON OR ENFORCE ANY ORAL STATEMENTS MADE PRIOR TO,
CONTEMPORANEOUSLY WITH OR SUBSEQUENT TO THE SIGNING OF THIS PROMISSORY NOTE; AND
(2) THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS PROMISSORY NOTE, OR WITH
RESPECT TO DEALINGS BETWEEN THE HOLDER AND THE OBLIGOR CONCERNING ANY COURSE OF
CONDUCT, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO PROVIDE CREDIT TO THE
OBLIGOR.
PSI INDUSTRIES, INC.
By: /S/
----------------------------------
Dominick M. Seminara, Chairman
Address: 1160 South Rogers Circle
Boca Raton, FL 33487-2709
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<PAGE>
SCHEDULE OF COLLATERAL
FIRST MORTGAGE executed by Obligor contemporaneously herewith encumbering the
property legally described as follows:
PARCEL
------
Unit 1, of THE 1160 BUILDING, A CONDOMINIUM, according to the
Declaration of Condominium recorded in Official Records Book 9633,
Page 75, and all exhibits and amendments thereof, of the Public
Records of Palm Beach County, Florida, including the undivided
share in the common elements appurtenant thereto.
PARCEL 2
--------
Ingress and egress easement recorded in Official Records Book
5748, Page 1805, as amended by Official Records Book 6631, Page
1881, covering the Eastern 12 feet of Lot 10, Block 3, SOUTH
CONGRESS INDUSTRIAL CENTER, according to the Plat thereof,
recorded in Plat Book 33, Page 45, of the Public Records of Palm
Beach County, Florida.
7
This instrument was prepared by:
Thomas C. Cobb, Esq.
Cobb & Ebin, P.A.
1399 S. W. 1st Ave., Third Floor
Miami., FL 33130
(305) 377-0223
MORTGAGE DEED
THIS MORTGAGE DEED, executed and delivered as of December 16,1998, by
PSI INDUSTRIES, INC., a Florida corporation, whose address is 1160 6 South
Rogers Circle, Boca Raton, FL 33487-2709, (hereinafter called "Mortgagor'), to
MELLON UNITED NATIONAL BANK, A NATIONAL BANKING ASSOCIATION, whose address is
1399 S.W. 1ST Avenue, Miami, Florida 33130 (hereinafter called "Mortgagee"),
which terms Mortgagor and Mortgagee, shall include all natural and artificial
persons described as Mortgagor and Mortgagee, and shall be deemed to extend to,
bind and benefit their respective heirs, executors, administrators, successors,
legal representatives and assigns:
W I T N E S S E T H:
--------------------
For divers good and valuable considerations, including the aggregate
sum named in the promissory note (hereinafter called the "Note"), a description
of which appears herein or a copy of which is annexed hereto, the Mortgagor does
hereby grant, bargain, sell, alien, remise, release, convey and confirm unto the
Mortgagee all that certain real property which the Mortgagor now owns, situate
in Florida and described more particularly in the schedule contained herein or
annexed hereto, and all structures and improvements now and hereafter located
thereon, the rents, issues and profits thereof, all furniture, furnishings,
fixtures and equipment now located thereon, and also all gas and electric
fixtures, heaters, air conditioning equipment, machinery, motors, bath tubs,
sinks, water closets, water basins, pipes, faucets, and other plumbing and
heating fixtures, refrigerator equipment, venetian blinds, which are now or may
hereafter pertain to or be used with, in or on said premises, and which, even
though they are detached or detachable, are and shall be deemed to be fixtures
and accessions to the freehold and a part of the realty, and all additions
thereto and replacements thereof (which real property, improvements and
personalty are hereinafter collectively called the "Property"),
TO HAVE AND TO HOLD the same, together with the tenements,
hereditaments and appurtenances, unto the Mortgagee in fee simple.
And the Mortgagor hereby covenants with the Mortgagee that the
Mortgagor is indefeasibly seized of the Property in fee simple (or such lesser
estate as may hereinafter be identified); that the Mortgagor has full power and
lawful right to convey the Property in fee simple as aforesaid; that it shall be
lawful for the Mortgagee at all times peaceably and quietly to enter upon, hold,
occupy and enjoy the Property; that the Property is free from all encumbrances
except as may herein be noted; that the Mortgagor will make such further
assurances to perfect the fee simple title to the Property in the Mortgagee as
may reasonably be required; and that the Mortgagor does hereby fully warrant the
title to the Property and will defend the same against the lawful claims of all
per-sons whomsoever.
PROVIDED ALWAYS, that if all of the payments set forth in the Note
shall be paid and each and every stipulation, agreement, condition and covenant
<PAGE>
of the Note and of this mortgage shall be promptly performed, complied with and
abided by, then this mortgage and the estate hereby created shall cease and be
null and void.
And the Mortgagor does hereby covenant and agree with the Mortgagee as
follows:
1. PAYMENT OF THE NOTE. All and singular the principal and interest and
other sums of money payable by virtue of the Note and this mortgage, or either,
shall be paid promptly on the days, respectively, the same severally become due.
2. COMPLIANCE WITH TERMS OF NOTE AND MORTGAGE. Each and every
stipulation, agreement, condition and covenant set forth in the Note and in this
mortgage shall be performed, complied with and abided by.
3. PAYMENT OF TAXES, ASSESSMENTS AND ENCUMBRANCES. The Mortgagor shall
pay all and singular the taxes, assessments, levies, liabilities, obligations,
and encumbrances of every nature on the Property, whether prior or subordinate
in lien, dignity and effect to the lien of this mortgage, each in accordance
with its respective terms, conditions and requirements, and, if the same are not
paid promptly, the Mortgagee may at any time, before or after delinquencies, pay
the same without waiving or affecting the option to foreclose or any right
hereunder, and every payment so made shall become part of the indebtedness
secured by this mortgage and shall bear interest from the date of expenditure by
the Mortgagee at the maximum rate of interest permitted by law, until paid. All
such funds, together with accrued interest, shall be paid to Mortgagee on
demand.
4. MAINTENANCE OF INSURANCE AND APPLICATION OF PROCEEDS. The Mortgagor
shall keep buildings now or hereafter constituting a portion of the Property
insured by standard fire and extended coverage policy or policies, in a sum
equal to the highest insurable value, issued by a company or companies approved
by the Mortgagee, such policy or policies to be held by and be payable to the
Mortgagee, and in the event any sum of money becomes payable under such policy
or policies, the Mortgagee shall have the option to receive and apply the same
on account of the indebtedness hereby secured or to permit the Mortgagor to
receive and use it or any part thereof for other purposes, without hereby
waiving or impairing any equity, lien or right under or by virtue of this
mortgage, and if the Mortgagor shall fail to cause such insurance to be carded
and paid for, the Mortgagee may place and pay for such insurance or any part
thereof without waiving or affecting the option to foreclose or any right
hereunder, and each and every such payment shall bear interest from date thereof
at the maximum rate of interest permitted by law.
5. WASTE. The Mortgagor shall permit, commit, or suffer no waste,
impairment or deterioration of the Property, except reasonable wear and tear,
and in the event of failure of the Mortgagor to keep the buildings constituting
a portion of the Property or improvements thereon in good repair, the Mortgagee
may make such repairs as in its discretion it may deem necessary for the proper
preservation thereof, and the full amount of each and every such payment shall
be due and payable thirty days after demand, and shall be secured by the lien of
this mortgage.
6. ACCELERATION OF MATURITY OF NOTE UPON DEFAULT. If any of the sums of
money referred to in the Note or in this mortgage be not promptly and fully paid
when the same severally become due and payable, or if each and every
stipulation, agreement, condition and covenant of the Note and this mortgage, or
either, is not promptly and fully performed, complied with and abided by, then:
(a) all obligations under the Note and under this mortgage, including but not
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<PAGE>
limited to sums advanced by the Mortgagee to protect its security or lien
position in the Property or any of its rights under this mortgage, shall
immediately and without further notice to Mortgagor bear interest at the maximum
rate of interest permitted by law; and (b) the aggregate sum mentioned in the
Note, together with all other obligations under the Note and under this
mortgage, shall become due and payable forthwith or thereafter at the option of
the Mortgagee, as fully and completely as if the full principal amount here
secured were originally stipulated to be paid on such date, anything in the Note
or herein to the contrary notwithstanding.
7. FORECLOSURE OF LIEN. If the foreclosure proceedings of any mortgage
encumbering the Property or any lien on the Property of any kind should be
instituted, the Mortgagee may, at its option, immediately or thereafter declare
this mortgage and the indebtedness secured hereby due and payable.
8. APPOINTMENT OF RECEIVER. Until default in the performance of the
covenants and agreements of this mortgage, the Mortgagor shall be entitled to
collect the rents, issues and profits from the Property, but in case of a
default in any of the terms of this mortgage or the filing of a bill to
foreclose this or any other mortgage encumbering the Property, the Mortgagee
shall immediately, and without notice and as a matter of strict right, be
entitled to the appointment of a receiver of the Property and of the rents,
issues, profits, prepaid rentals or security monies, deposits and revenues
thereof, from whatsoever source derived, with the usual powers and duties of
receivers in such cases, and such appointment shall be made by such court as a
matter of strict right to the Mortgagee and without reference to the adequacy or
inadequacy of the value of the Property, or to the solvency or insolvency of the
Mortgagor, and such rents, profits, prepaid rentals or security monies,
deposits, income and revenue shall be applied by such receiver to the payment of
this mortgage indebtedness, cost and charges, according to the order of such
court, and such receiver may* be continued in possession of the Property until
the time of the sale thereof under such foreclosure and until the confirmation
of such sale by the court.
9. CONTEST OF LIEN. If any action or proceeding shall be commenced by
any person other than the holder of this mortgage, to which. action or
proceeding the holder of this mortgage is made a party, or in which it shall
become necessary to defend or uphold the lien of this mortgage, all sums paid by
the holder of this mortgage for the expense of any litigation, including
appellate proceedings, to prosecute, or defend the rights and liens created by
this mortgage (including reasonable counsel fees), shall be paid by the
Mortgagor, together with interest thereon at the maximum rate of interest
permitted by law, and any such sum, and the interest thereon, shall be a claim
upon the Property, attaching or accruing subsequent to the lien of this
mortgage, and shall be deemed to be secured by this mortgage and by the Note. In
any action or proceedings to foreclose this mortgage or to recover or collect
the debt secured thereby, the provisions of law respecting the recovery of
costs, disbursements and allowances shall prevail, unaffected by this covenant.
10. CONDEMNATION, In the event that the Property, or any part thereof,
shall be condemned and taken for public use under the power of eminent domain,
the Mortgagee shall have the right to demand that all damages awarded for such
taking shall be paid to the Mortgagee, up to the aggregate amount then unpaid on
the Note and on this mortgage, and shall be applied to the payments last payable
thereon.
11. SUBROGATION OF MORTGAGEE. To the extent of the indebtedness of the
Mortgagor to the Mortgagee described herein or secured hereby, the Mortgagee is
hereby subrogated to the lien or liens and to the rights of the owner and
holders thereof of each and every mortgage, lien or other encumbrance on the
Property which is paid or satisfied, in whole or in part, out of the proceeds of
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<PAGE>
the Note, and the respective liens of said mortgages, liens or other
encumbrances shall be, and the same and each of them hereby is preserved and
shall pass to and be held by the Mortgagee as security for the Note, to the same
extent that it would have been preserved and would have been passed to and been
held by the Mortgagee had it been duly and regularly assigned, transferred, set
over and delivered unto the Mortgagee by separate deed of assignment,
notwithstanding the fact that the same may be satisfied and canceled of record,
it being the intention of the parties hereto that the same will be satisfied and
canceled of record by the holders thereof at or about the time of the recording
of this mortgage.
12. COSTS AND EXPENSES OF. ENFORCEMENT. The Mortgagor shall pay all and
singular costs, charges and expenses; including counsel fees (whether or not
suit is brought or appeal taken therefrom), reasonably incurred or paid at any
time by the Mortgagee because of the failure on the part of the Mortgagor to
perform, comply with and abide by each and every stipulation, agreement,
condition and covenant of the Note and this mortgage, or either, and every such
payment shall bear interest from date of such expenditure at the maximum rate of
interest permitted by law.
13. EXTENSION OF TIME AND/OR MODIFICATION OF TERMS. No extension of
time or modification of the terms of the Note and this mortgage, and no release
of any part or parts of the Property shall, without the consent of the
Mortgagee, release, relieve, or discharge the Mortgagor from the payment of any
of the sums hereby secured, but in such event the Mortgagor shall nevertheless
be liable to pay such sums according to the terms of such extension or
modifications unless specifically released and discharged in writing by the
Mortgagee; further, acceptance of part payment of any installment of principal
or interest, or both, or of part performance of any covenant or delay for any
period of time in exercising the option to mature the entire debt, shall not
operate as a waiver of the right to exercise such option or act upon such
default, partial acceptance or any subsequent default.
14. ESCROW FOR REAL ESTATE TAXES AND INSURANCE. In order more fully to
protect the security of this mortgage, the Mortgagee, at its option, may at any
time require that the Mortgagor pay to the Mortgagee in monthly payments, until
all obligations under the Note and this mortgage are fully paid, the following
sums in escrow: (a) an amount equal to 1/12th of the current years real estate
tax levy against the Property (if not available, the amount of the prior years
real estate tax levy will be used); and (b) an amount equal to 1/12th of the
insurance premiums for coverages required by the Mortgagee. Should a deficiency
exist between the escrowed amounts so paid and the amounts due, the Mortgagor
shall pay the deficiency amount to Mortgagee upon demand. Provided the Mortgagee
has received sufficient escrowed funds as herein required, the Mortgagee shall
make the real estate tax and insurance premium payments from the escrowed funds.
Notwithstanding the foregoing, the Mortgagee shall at all times have the right,
after a default by Mortgagor, to apply such funds to the obligations secured by
the Note and this mortgage as the Mortgagee deems appropriate. Such payments and
all payments to be made under the Note which this mortgage secures shall be
added together and the aggregate amount thereof shall be paid by the Mortgagor
each month in a single payment, to be applied by the Mortgagee to the following
items in the order set forth:
A. Taxes;
B. Insurance;
C. Interest on the unpaid principal sum of the Note; and
D. Amortization of said principal sum,
Any deficiency in the amount of any such aggregate monthly payment shall
constitute a default under said mortgage.
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<PAGE>
15. ADJUSTMENTS ON REAL ESTATE TAXES. If the total of the payments made
by the Mortgagor for taxes shall exceed the amount of the payments actually made
by the Mortgagee for taxes, such excess shall be credited by the Mortgagee on
subsequent payments of the same nature to be made by the Mortgagor. If, however,
said monthly payments made by the Mortgagor shall not be sufficient to pay taxes
when the same shall become due and payable, then the Mortgagor shall pay to the
Mortgagee any amount necessary to make up the deficiency, on or before the, date
when payment of such taxes shall be due. If at any time the Mortgagor shall
tender to the Mortgagee in accordance with the provisions of the Note which this
mortgage secures, full payment of the entire indebtedness, the Mortgagee shall
credit to the account of the Mortgagor any balance remaining in the funds
accumulated by the Mortgagee for the payment of taxes. If there shall be a
default under any of the provisions of the Note or this mortgage and an action
or proceeding shall be commenced to foreclose same, the Mortgagee shall be, and
hereby is, authorized and empowered to apply, at the time of the commencement of
the action or proceeding, or at any time thereafter, the balance then remaining
in the funds accumulated for taxes as a credit against the amount of principal
then remaining under the Note or this mortgage.
16. FUTURE ADVANCES. It is the intent hereof to secure payment of the
Note whether the entire amount shall have been advanced to the Mortgagor on the
date hereof or at a later date, and to secure any other amount that may be added
to the mortgage indebtedness under the terms of this instrument. This mortgage
secures the principal debt as set out in the Note, advances received by the
Mortgagor from the Mortgagee during the term hereof, all other indebtedness that
may hereafter be due, owing or existing from the Mortgagor to the Mortgagee
during the existence of this mortgage, and any renewal or renewals of the Note
or Notes for said present or future indebtedness. Notwithstanding any provision
hereof, it is the intention to secure all future advances, as defined under
Chapter 697 of the Florida Statutes, made commencing with the date hereof and
continuing through twenty years after date hereof, by the lien of this mortgage
in all respects as though such advances had been made simultaneously with the
execution hereof and secured hereby; provided, however, that all such further or
future advances shall be wholly optional with the Mortgagee and further
provided, however, that no such advance or advances shall cause the unpaid
principal obligation here secured to exceed 500% of the original principal
amount of the Note, except that there may be added to such amount interest
thereon and any and all disbursements made by the Mortgagee for the payment of
taxes, levies or insurance on the Property covered by the lien of this mortgage
with interest on such disbursements at the maximum rate of interest permitted by
law, and for reasonable attorneys' fees and court costs incurred in the
collection of any or all of such sums of money, including all such fees and
costs in connection with appellate proceedings.
17. SEPARATE AND CUMULATIVE RIGHTS. Mortgagor agrees that all rights of
the Mortgagee arising under the provisions and covenants in this mortgage shall
be separate, district and cumulative and that none shall be in exclusion of the
other, and that, further, no act of the Mortgagee shall be construed as an
election to proceed under any one provision or covenant herein to the exclusion
of any other, notwithstanding anything herein to the contrary.
18. SEVERABILITY. It is further mutually agreed between the parties
hereto and made a specific part of this instrument, that in case any word,
clause, term, phrase or paragraph used in the aforesaid Note and/or this
mortgage deed should be held to be unconstitutional or illegal by any court of
competent jurisdiction, the same shall not affect, alter or otherwise impair the
meaning of any other word, clause, term, phrase or paragraph in said Note and
mortgage deed, and the same shall stand in full force and effect and shall be
obligatory upon the assignees, heirs and legal representatives of both
respective parties hereto.
5
<PAGE>
19. PRIOR MORTGAGES. Mortgagor represents and warrants to Mortgagee
that no mortgage prior in time and/or dignity ("Prior Mortgage") is now in
default and that Mortgagor has not done or failed to do anything which, with the
giving of notice of the passage of time, would constitute a default under any
Prior Mortgage. Further, Mortgagor covenants and agrees not to borrow any
additional funds from the holder of any Prior Mortgage which might be secured by
the lien of such mortgage, nor to give such holder any lien encumbering any part
of the Property encumbered hereby which might be prior in dignity to the lien of
the mortgage given to the Mortgagee herein. In addition to the provisions of
paragraph 3 above, Mortgagor hereby authorizes Mortgagee to expend funds and to
take any other action which Mortgagee may deem necessary to cure any default
under any Prior Mortgage; all such funds and all such action taken shall be at
Mortgagor's expense and any funds so expended shall become part of the
indebtedness secured by this mortgage and shall bear interest from the date of
expenditure by the Mortgagee at the maximum rate of interest permitted by law
until paid. All such funds, together with accrued interest, shall be paid to
Mortgagee on demand.
20. GENDER. In this mortgage and the Note it secures, the singular
shall include the plural and the masculine shall include the feminine neuter.
21. ENTIRE AGREEMENT; MODIFICATIONS. This mortgage constitutes the
entire agreement between the parties hereto with respect to the Property and the
terms and provisions hereof may not be modified except by written instrument
signed by the party to be charged.
22. TIME OF THE ESSENCE. Time is of the essence of this contract and no
waiver of any obligation hereunder or of the obligation secured hereby shall at
any time thereafter be held to be a waiver of the terms hereof or of the Note
secured hereby.
23. ABANDONMENT. If at any time while this mortgage is in default, the
Property shall be abandoned, vacated or left unattended, the Mortgagee, if in
its discretion such steps are necessary for the protection of the Property,
shall have the right, power and authority at its option to enter upon the
Property and to secure same by changing locks thereon, to paint and repair such
premises, and to place signs thereon notifying that it has taken possession of
the Property, and it may also place signs thereon offering to sell the Property
subject to its acquisition of title thereto by foreclosure proceedings or
otherwise; and any such action by the Mortgagee as described above shall not be
deemed to be a trespass or trespasses or unlawful detainer upon such Property.
All sums paid or advanced by the Mortgagee in the protection of the Property as
herein provided shall be charged into the mortgage account and become an
integral part thereof, subject in all respects to the terms, conditions and
covenants of the Note and this mortgage, as fully and to the same extent as
though a part of the original indebtedness evidenced by said Note and secured by
this mortgage, excepting, however, that said sums shall be repaid to the
Mortgagee forthwith upon its demand, together with interest on such sums at the
maximum rate of interest permitted by law.
24. ASSIGNMENT OF RENTS. To further secure payment of the indebtedness
of the Mortgagor to the Mortgagee, the Mortgagor does hereby sell, assign,
transfer and set over unto the Mortgagee all of the rents, issues and profits of
the Property, which assignment shall remain in full force and effect so long as
any default continues to exist in the making of any of the payments or the
performance of any of the covenants of this mortgage or the Note secured hereby.
The Mortgagee shall have the right to enter upon the premises and collect rents,
issues and profits directly from persons in possession but shall defer exercise
of this right for so long as no default exists under the Note or this mortgage.
6
<PAGE>
25. ASSIGNMENT OF PROPERTY IN MORTGAGEE'S POSSESSION. As additional
security for the performance and payment of all of the obligations secured
hereunder, the Mortgagors jointly and severally pledge, transfer, assign and
deliver to the Mortgagee any and all property of the Mortgagors and each of
them, of every kind and description, now or hereafter in the possession, custody
or control of or in transit to or film the Mortgagee, for safekeeping or
otherwise (all remittances and property to be deemed in the possession, custody
or control of the Mortgagee as soon as put in transit to it by mail or carrier),
and the Mortgagee is hereby given a lien for the amount of liability and
indebtedness secured by this mortgage, whether or not such liability and
indebtedness are due and payable, upon, and a right of set-off against, all
property of every kind, whether tangible or intangible, including without
limitation any balances, credits, deposits, accounts, monies, collections,
drafts, bills and securities, now or hereafter in the possession, custody or
control of the Mortgagee by or for the account of any or all of the Mortgagors
or in which any or all of the Mortgagors may have any interest; and the
Mortgagee is hereby authorized and empowered at its option, without notice, to
appropriate any and all of such property and apply any and all thereof and the
proceeds thereof to the payment and extinguishment of the liability and
indebtedness hereby secured at any time after such liability and indebtedness
become payable. The Mortgagee is further hereby authorized and empowered at its
option at any time after the liability and indebtedness hereby secured become
payable, to sell, assign and deliver any and all of such property at any time in
the possession, custody or control of the Mortgagee for any or all of the
Mortgagors or in which any or all of the Mortgagors have any interest, at public
or private sale, for cash, credit or for future delivery, all at the option of
the Mortgagee, without further advertisement or notice of sale and without
notice to any or all of the Mortgagors of intention to sell, which rights of
Mortgagors are hereby expressly waived. Upon any sales at public auction or
Brokers Board the Mortgagee may bid for and purchase the whole or any part of
the property sold free of any right of redemption, which right any and all
Mortgagors hereby waive, relinquish and release. In case of any sale by the
Mortgagee of any such property on credit or for future delivery, such may be
retained by the Mortgagee until the selling price is paid by the purchaser and
the Mortgagee shall incur no liability in case of failure of the purchaser to
pay therefore; in case of any such failure, any such property may be resold. For
the purposes of this paragraph, any realty of the Mortgagors encumbered by a
mortgage in favor of the Mortgagee here, now or hereafter existing (the
"Existing Mortgage"), shall be deemed in the possession of the Mortgagee, and
the lien of the Existing Mortgage shall, by the joinder of the Mortgagors here,
be made to secure all of the obligations secured hereunder.
26. ASSUMPTION OF MORTGAGE. It is a requirement hereunder that written
approval from the Mortgagee must be obtained prior to any sale, gift, exchange,
conveyance, encumbrance or other transfer of the Property. In the event such
prior written approval has not been obtained prior to any such transfer, the
entire unpaid indebtedness under the Note and this mortgage shall be due and
payable at the time of any such transfer. In the event the Mortgagee should
agree to the assumption of this mortgage by a third party, the Mortgagee shall
have the right to require complete financial information from such assuming
party and a right to charge a customary assumption fee. In the event a
conveyance should be made by the I Mortgagor of the Property herein described,
or any part thereof, and the grantee named in such conveyance fails or refuses
to assume the payment of the obligation evidenced by the Note and secured by
this mortgage, and in accordance with their respective terms, then and in that
event, at the option and upon the demand of the Mortgagee all sums of money
secured hereby shall immediately become forthwith due and payable. In the event
the ownership of said Property or any part thereof becomes vested in a person
other than the Mortgagor, the Mortgagee may, without notice to the Mortgagor,
deal with such successor or successors in interest with reference to this
mortgage and the debt hereby secured in the same manner as with the Mortgagor,
and may forbear to sue or may extend time for payment of the debt secured
hereby, without discharging or in any way affecting the liability of the
Mortgagor hereunder or upon the debt hereby secured.
7
<PAGE>
27. FINANCIAL STATEMENTS. The Mortgagor shall furnish to the Mortgagee
a signed semiannual and annual unaudited statement of financial condition and
profit and loss statement. Such statement shall be delivered to the Mortgagee
within thirty days after the close of Mortgagor's semiannual fiscal period, and
within thirty days after the close of Mortgagors fiscal year. In the event the
Note evidences a commercial or business indebtedness, the Mortgagor shall also
comply with the foregoing requirement with respect to such business, whether
same be in an individual, partnership or corporate capacity. The statements
required by this paragraph shall be prepared in form and manner as are
customarily employed by Florida certified public accountants for such purposes.
28. CONSTRUCTION LOAN. In the event this mortgage secures a
construction loan, each of the terms, covenants and conditions of the
construction loan agreement executed in connection with the execution of this
mortgage is incorporated herein as if said construction loan agreement were set
forth herein in its entirety.
29. UNIFORM COMMERCIAL CODE REQUIREMENTS. The Mortgagor hereby
authorizes the Mortgagee, for so long as any obligations under the Note or this
mortgage shall be outstanding, unilaterally to add information to this mortgage,
such as the signature of the Mortgagee and addresses of Mortgagor and/or
Mortgagee, so as to comply with any requirements of the Florida Uniform
Commercial Code necessary to constitute this mortgage as a security agreement
and/or financing statement, and Mortgagee is further authorized in its sole
discretion to file this mortgage of record containing such additional
information.
30. ENVIRONMENTAL REPRESENTATIONS. Mortgagor warrants that (a) no
asbestos, substance containing asbestos, or any other substance deemed hazardous
by federal, state or local laws, rules, regulations or orders respecting such
materials has been installed or constructed upon or in the improvements
comprising a part of the Property, and Mortgagor has not and will not install or
permit to be installed in, on or about the improvements comprising a part of the
Property, any such asbestos, substance containing asbestos or other hazardous
substance; and (b) the Property is free from all hazardous or toxic wastes and
underground storage tanks. Mortgagor shall comply with all federal, state and
local laws, regulations or ord4rs with respect to the discharge and removal of
hazardous or toxic wastes and shall keep the Property free of and from any lien
imposed against the Property pursuant to such laws, regulations and orders.
Mortgagor shall not knowingly install or knowingly permit to be installed on the
Property any underground storage tank or any substance deemed hazardous or toxic
waste by federal, state or local laws, regulations, orders and ordinances.
SCHEDULE OF REAL PROPERTY ENCUMBERED
PARCEL 1
--------
Unit 1, of THE 1160 BUILDING, A CONDOMINIUM, according to the
Declaration of Condominium recorded in Official Records Book 9633,
Page 75, and all exhibits and amendments thereof, of the Public
Records of Palm Beach County, Florida, including the undivided
share in the common elements appurtenant thereto.
PARCEL 2
--------
Ingress and egress easement recorded in Official Records Book
5748, Page 1805, as amended by Official Records Book 6631, Page
1881, covering the Eastern 12 feet of Lot 10, Block 3, SOUTH
CONGRESS INDUSTRIAL CENTER, according to the Plat thereof,
recorded in Plat Book 33, Page 45, of the Public Records of Palm
Beach County, Florida.
8
<PAGE>
NOTE
This mortgage secures a promissory note of even date herewith
given by the Mortgagor herein in favor of the Mortgagee herein in
the original principal sum of $570,000.
IN WITNESS WHEREOF, this instrument has been executed by the Mortgagor.
PSI INDUSTRIES, INC.
_____________________________________ By: __________________________________
Signature of witness Dominick M. Seminara, Chairman
Printed name of witness:
_____________________________________
_____________________________________
Signature of witness
Printed name of witness:
_____________________________________
STATE OF FLORIDA
COUNTY OF MIAMI-DADE
The foregoing instrument was acknowledged before me this 16th day of
December, 1998, by Dominick M. Seminara, as Chairman of PSI INDUSTRIES, INC., a
Florida corporation, on behalf of the corporation. He is personally known to me
or [ ] has produced Fla. Drivers License as identification.
_________________________________________________
Notary Public, State of Florida
Printed name of notary public: __________________
Commission Number: ______________________________
YOLANDA TAULE DUARTE
COMMISSION # CC 437679
EXPIRES FEB 27,1999
BONDEDTHRU
ATLANTIC BONDING CO.,
INC.
9
DABNEY FLANIGAN, LLC
--------------------------------------------------
PRIVILEGED AND CONFIDENTIAL
- - ---------------------------
October 6, 1998
Mr. Ben Cohen
President and Chief Operating Officer
PSI Industries, Inc.
1160B South Rogers Circle
Boca Raton, FL 33487
VIA FACSIMILE AND U.S. MAIL
Dear Mr. Cohen:
This letter agreement (the "Agreement") will confirm the understanding
between PSI Industries, Inc. (the "Company) and Dabney Flanigan, LLC ("DF"),
pursuant to which the Company has retained DF to act as sole placement agent, on
the terms and subject to the conditions set forth herein, in connection with the
issuance of up to ten million dollars ($10,000,000.00) of senior subordinated
debt with warrants (the "Financing"). The final terms and conditions of the
Financing will be acceptable to the Company at it's sole discretion.
1. ENGAGEMENT The Company hereby engages DF on an exclusive basis as
its placement agent and DF hereby agrees, on a reasonable best efforts basis and
subject to its satisfaction of on-going due diligence, to act as Placement Agent
for the Company in connection with the Financing. This Agreement will expire on
August 11, 1999; unless extended by mutual agreement of the Company and DF.
Subject to the terms and conditions of this Agreement, the nature and scope of
DF's efforts shall be as DF deems appropriate. The Company agrees that it shall
obtain its own legal, tax and accounting advice from appropriate third party
advisors. In general DF will assist and advise the Company in preparing the
private placement memorandum, arranging introductory meetings with institutional
investors, negotiate final terms with the lender or lenders and assist in
closing the transaction.
2. FEES AND EXPENSES As consideration for the services to be rendered
hereunder by DF, the Company shall pay to DF (or cause DF to be paid) the
following nonrefundable amounts:
11150 SANTA MONICA BOULEVARD, SUITE.800 - LOS ANGELES, CA 90025
PHONE (310) 445-1855 - FAX (310) 479-5350
<PAGE>
(a) A Cash Transaction Fee (the "Transaction Fee") payable upon
consummation of the Financing equal to six percent 6% of the "Gross Proceeds,"
as hereinafter defined, received by the Company in the Financing. For the
purposes of the Agreement, "Gross Proceeds" shall be defined as the aggregate
amount of cash receive0d (before deduction of amounts payable hereunder) by the
Company in the Financing.
(b) If DF provides any additional investment banking services, other
than as contemplated in Section 1, which lead to the consummation of a Financing
or any other type of transaction, then the Company shall pay a mutually agreed
upon fee that is customary for the services rendered.
(c) In addition, and without regard to whether any transaction is
commenced or consummated or whether this Agreement expires or is terminated, the
Company shall pay, promptly as billed, all reasonable out-of-pocket expenses of
DF in connection with the services rendered by DF pursuant to this Agreement,
including the fees and expense of counsel, messenger, overnight courier,
telephone, fax, printing, copying, database and travel related expenses. Any
amount over twenty-five thousand dollars ($25,000.00) will have to be approved
in writing by the Company and will be credited against DF's cash transaction
fee. Upon consummation of the Financing in an amount of no less than five
million dollars ($5,000,000), the Company will pay DF fifty thousand dollars
($50,000.00) and issue DF twenty-five thousand (25,000) shares of the Company's
Common Stock.
(d) The. expense of the investors' counsel, to the extent deemed
necessary by DF, shall be borne by the Company.
(e) Upon consummation of the Financing, the Company shall issue to DF
or its designees warrants to purchase shares of the Company's Common Stock, par
value $.0001 per share, in an amount that equals to three percent (3%) of the
investment arranged or committed, at an exercise price per share substantially
the same as the one issued to investors in the Financing,, and entitling the
holders thereof to the benefit of a warrant agreement containing antidilution
protection and otherwise on substantially the same terms as those purchased by
investors in such Financing if any warrants are issued to such investors in the
Financing, and, if not, upon terms mutually agreed upon by the Company and DF.
3. FURTHER SERVICES This Agreement does not constitute any agreement,
express or implied, on the part of DF or any commitment by DF to underwrite,
purchase, place, or cause that placement of any securities or, indebtedness or
to advise the Company in connection with any transaction other than as described
in Section 1. Any such commitment by DF shall be at DF's option and would, in
each case, be subject to, among other things, the satisfactory completion by DF
of an appropriate due diligence investigation of the Company, additional
compensation and the execution by DF and the Company of a customary agreement
acceptable to DF and its counsel.
4. RIGHT OF FIRST REFUSAL The Company hereby grants to DF the right of
first refusal to act as sole investment bank on any initial public offering or
2
<PAGE>
any private equity or debt placement transaction that the Company may engage in
offer from the completion of this transaction and for one year thereafter.
5. INDEMNIFICATION The Company agrees to indemnify the Indemnified
Persons (as defined in Schedule A) as set forth in Schedule A hereto, which is
incorporated herein and made a part hereof.
6. TERMINATION The term of the Agreement shall be one year from the
date hereof but may be extended by mutual written agreement of the parties
hereto. DF may resign or the Company may terminate DF's engagement hereunder at
any time upon 30 days written notice. In either event, the indemnity provisions
contained in Section 5 and Schedule A shall survive any termination of this
Agreement. If this Agreement shall expire or be terminated for any reason,
however, DF shall be entitled to receive all outstanding amounts payable
relating to expenses incurred in accordance with Section 2 hereof up to and
including the effective date of such expiration or termination.
If this Agreement expires or is terminated prior to the consummation of
a Financing and within twelve (12) months after such expiration or termination
the Company completes a Financing with a prospective investor introduced to the
Company, then the Company hereby agrees to pay DF compensation in accordance
with Section 2 of this Agreement (as if it had not expired or been terminated).
In the event of such expiration or termination, DF shall provide the Company
with a fist setting forth the names of such prospective investors, introduced to
the Company by DF. For purposes of computing the fee payable pursuant to this
Section 6, DF agrees to provide the Company with a written list within thirty
(30) business days of expiration or termination hereof of all prospective
investors with whom DF had discussion, on behalf of the Company, about the
Financing.
7. CERTAIN COVENANTS OF THE COMPANY
(a) This Agreement is a valid, legal and binding agreement of the
Company and is duly authorized and validly executed and delivered by the
Company.
(b) The Company will furnish DF and its agents and counsel with all
information concerning the Company that DF and its agents and counsel reasonably
deem appropriate and agree to provide DF and its agents and counsel with access
to the Company's officers, directors, accountants, counsel, consultants and
other appropriate agents and representatives. Such information will include an
offering memorandum, including any appendices, exhibits, amendments and
supplements thereto, various corporate reports and any other materials used in
connection with completing the Financing (collectively the "Offering Materials")
which the Company hereby authorizes and directs DF, as the Company's exclusive
agent, to transmit to prospective investors in connection with the completion of
the Financing and the performance of services hereunder. The Company
acknowledges that DF and its agents and counsel may rely upon the completeness
and accuracy of any and all Offering Materials as well as any other information
furnished to any of them by or on behalf of the Company without any independent
verification of such information or an appraisal of the Company's assets. The
3
<PAGE>
Company warrants that such information will be true and accurate and will not
contain any untrue statement of a material fact or omit to state a material fact
regarding the Company, including its businesses, assets, liabilities, financial
condition, plans and prospects, necessary to make the statements made therein
not misleading. The Company shall also promptly advise DF of any material
developments affecting the Company. ,
(c) The Company shall make such additional representations and
warranties to DF as DF shall reasonably request considering customary practices,
the nature of the Company and the proposed Financing and services to be rendered
by DF.
(d) Prior to the commencement and upon the consummation of any
Financing, the Company's outside counsel shall deliver to DF opinions reasonably
satisfactory to DF and its counsel with respect to the matters set forth in this
Section 7 and with respect to such other matters as is customary for DF in such
transactions. In addition, the Company's counsel shall deliver such other
opinions addressing matte *rs incidental to the Financing as and when DF and its
counsel shall request, including without limitation opinions concerning
litigation, patents and licensing.
(e) The Company will promptly from time to time take such action as
DF may reasonably request to qualify the offer and sale of the securities to be
sold in any Financing under the securities laws of such jurisdictions as DF may
reasonably request and to comply with such laws so as to permit such offers and
sales.
(f) The Company has not taken, and will not take, any action,
directly or indirectly, so that any Financing will not be entitled to an
exemption from the registration requirements of the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof.
8. SURVIVAL OF CERTAIN PROVISIONS The provisions contained in Sections
2, 4, and 6 of this Agreement, the indemnity and contribution agreements (and
other provisions) contained in Section 5 of this Agreement (including Schedule A
hereto), the covenants of the Company contained in Section 7 of this Agreement
and this Section 8, shall remain operative and in full force and effect
regardless of (a) any investigation made by or on behalf of DF, or by or on
behalf of any Indemnified Person (as such term is defined in Schedule A hereto),
(b) conclusion of any Financing, or (c) any termination or expiration of this
Agreement, and shall be binding upon, and shall inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, DF, and
the Indemnified Persons.
9. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS
(a) DF shall have the right to approve all disclosures that refer to
DF's efforts with respect to any transaction contemplated hereby or the services
being rendered hereunder. The Company also agrees that any reference io DF or
any affiliate of DF in any released communication to any party outside the
Company is subject to DF's approval, which approval shall not be unreasonably
4
<PAGE>
withheld or delayed. If DF resigns or is terminated prior to any release of
communication, no reference shall be made therein to DF without DF's prior
written permission which may be withheld in its sole discretion.
(b) If DF resigns or is terminated prior to the dissemination of any
offering document or other release or communication, no reference shall be made
therein to DF without DF's prior written permission.
10. CONFIDENTIALITY Except to the extent authorized by the Company or
required by any Federal or state law, rule or regulation or any decision or
order of any court of regulatory authority, DF agrees that it will refrain from
disclosing to any person, other than to any agents, attorneys, accountants,
employees, officers, and directors of DF in connection with the engagement
hereunder, any confidential information which has not become public about the
Company or its agents, attorneys or accountants in connection with the services
rendered hereunder. Any advice rendered by DF hereunder shall not be disclosed
publicly in any manner without DF's written approval and will be treated by the
Company and DF as confidential. In addition, DF's advice is not intended for,
and should not be relied upon, by other third parties.
11. NOTICES Notice given pursuant to any of the provisions of this
Agreement shall be in writing and shall be mailed or delivered (a) to the
Company, at 1160B South Rodgers, Boca Raton, FL 33487, attention: Mr. Ben Cohen,
(b) to DF at 11150 Santa Monica Blvd. #800, Los Angeles, CA 90025, attention Mr.
Carl DeRemer and (c) in the case of any notice given to DF, with a copy to the
attention of Paul S. Bernstein, Esq., Morgan, Lewis & Bockius at 300 South Grand
Ave, twenty-second floor, Los Angeles, CA 90071-3132.
12. ADVERTISEMENTS THE Company agrees that after the closing of the
Financing, DF shall have the right to place advertisements in financial and
other newspapers and journals at its own expense describing its-services to the
Company hereunder, provided that DF shall have submitted a copy of all such
proposed advertisement to the Company for its prior written approval, which
approval shall not be unreasonably withheld or delayed.
13. CONSTRUCTION This Agreement, including Schedule A hereto,
incorporates the entire understanding of the parties and supersedes all previous
agreements and shall be governed by, and construed in accordance with, the laws
of the State of California as applied to contracts made and performed in such
State, without regard to principles of conflicts of law.
14. SEVERABILITY Any determination that any provision of this
Agreement (including any provision of Schedule A hereto) may be, or is,
unenforceable shall not affect the enforceability of the remainder of this
Agreement (Including Schedule A hereto).
15. HEADINGS The section headings in this Agreement have been inserted
as a matter of convenience of reference and are not part of this Agreement.
16. COUNTERPARTS This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
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17. THIRD PARTY BENEFICIARIES This Agreement has been and is made
solely for the benefit of the Company, DF and the other Indemnified Persons
referred to in Schedule- A, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Each Indemnified Person is intended to be a third party creditor
beneficiary of this Agreement.
18. MODIFICATION This Agreement may not be modified or amended except
in writing, duly executed by the parties hereto.
19. ARBITRATION Any controversy arising out of or relating to this
Agreement in connection with Financing between DF and the Company or pursuant to
this Agreement or the breach thereof shall be settled by arbitration in Los
Angeles County, California in accordance with the rules of the National
Association of Securities Dealers, Inc. (NASD).
20. SUCCESSION This Agreement shall be binding upon, and shall inure
to the benefit of, any successors, assigns, heirs and personal representatives
of the Company, DF, the Indemnified Persons.
If the foregoing terms correctly set forth our agreement, please
confirm this by signing and returning to DF a duplicate copy of this letter by
October 9, 1998. This letter, as signed in counterpart, shall constitute our
agreement on the subject matter herein. Thereupon, the Company agrees to keep
this letter confidential and shall not "shop" it with other investment bankers
or financial advisors.
Very truly yours,
DABNEY FLANIGAN, LLC
By /S/KELLEN FLANIGAN
-------------------------------
KELLEN FLANIGAN
President
AGREED AND ACCEPTED: By /S/CARL DEREMER
------------------------------
CARL DeREMER
PSI INDUSTRIES, INC. Senior Vice President
By /S/BEN COHEN
--------------------------
BEN COHEN
President and Chief Operations Officer
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SCHEDULE A
This Schedule A is a part of and is incorporated into that certain
letter agreement (together, this "Agreement"), dated August 11, 1998, between
PSI Industries Inc., on behalf of itself and its subsidiaries and Dabney
Flanigan, LLC. Capitalized terms used herein without definition shall have the
meanings ascribed to them in such letter agreement.
The Company, on behalf of itself and its subsidiaries, jointly and
severally, agrees to indemnify and hold harmless DF, its affiliates and its
parent and its affiliates, and their respective officers, directors, partners,
employees, representatives and agents, and any other persons controlling DF and
its parent or any of their affiliates within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended, and each of their respective officers, directors, partners,
employees, representatives and agents (DF and each such other person or entity
being referred to as an "Indemnified Person"), to the fullest extent lawful,
from and against all losses, claims, damages, judgments, actions, costs,
assessments, expenses and other liabilities (collectively, "Liabilities"),
including, without limitation and as incurred, reimbursement of all costs of
investigating, preparing, pursuing, or defending against any such Liability,
including the fees and expense of counsel to the Indemnified Persons, whether or
not arising out of pending litigation or other action or proceeding or
threatened litigation or threatened other action or proceeding and whether or
not any Indemnified Person is a party thereto, directly or indirectly caused by,
related to, based upon, arising out of, or in connection with (i) actions taken
or omitted to be taken by the Company, its affiliates, employees, directors,
officers, partners, representatives, or agents in connection with any
transaction contemplated by this Agreement; (ii) actions taken or omitted to be
taken by any Indemnified Person pursuant to the terms of, or in connection with
services rendered pursuant to, this Agreement, provided, however, that, in the
case of this subsection (ii) only, the Company shall not be responsible for any
Liability arising primarily out of or based primarily upon the willful
misconduct or gross negligence (as determined by the final judgment of a court
of competent jurisdiction, no longer subject to appeal or further review) of
such Indemnified Person; or (iii) any untrue statement or alleged untrue
statement of a material fact contained in any Offering Document or any omission
or alleged omission to state a material fact necessary to make the statements
therein not misleading. The Company shall notify DF and any Indemnified Person
against whom there is instituted, threatened, or asserted any litigation,
proceeding or claim promptly of such institution, threat or assertion, which
involves the Company or any of its affiliates, assets or properties (and as to
which the Company has notice) in connection with the matters addressed by this
Agreement.
In case any action or proceeding (for all purposes of this Schedule A,
including any governmental investigation shall be brought or asserted against
any Indemnified Person in respect of which indemnity may be sought against the
Company or any of its subsidiaries, such Indemnified Person promptly shall
notify the Company in writing (provided that the failure of any Indemnified
Person to give such notice shall not relieve the Company of its obligations
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pursuant to this Agreement). Such Indemnified Person shall have the right to
employ its own counsel in any such action or proceeding and the fees and
expenses of such counsel shall be paid, as incurred, by the Company. The Company
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
fees and expenses or more than one separate firm of attorneys (in addition to
any local counsel) at any time for all such Indemnified Persons, which firm
shall be designated in writing by DF. The Company shall have the right to employ
separate counsel in, and to participate in the defense of, any action or
proceeding with respect to which it has no right to assume the defense, but the
fees and expenses of such counsel shall be at the expense of the Company. In
addition, the Company and its subsidiaries shall be liable for any settlement of
any such action or proceeding effected with the Company's prior written consent,
which consent will not be unreasonably withheld, and the Company and its
subsidiaries agree to indemnify had hold harmless any Indemnified Person from
and against any Liabilities by reason of any settlement of any action effected
with the written consent of the Company. The Company and its subsidiaries agree
to be liable for any settlement of any action or proceeding effected without its
written consent if (i) settlement is entered into more than 10 business days
after receipt by the Company of the aforesaid request for payment in respect of
an indemnification obligation pursuant hereto and (ii) the Company shall not
have reimbursed the Indemnified Person in accordance with such request prior to
the date of such settlement. The Company and its subsidiaries will not, without
the prior consent of DF, settle, compromise or consent to the entry of any
judgment or otherwise seek to terminate any pending or threatened action, claim,
litigation, or proceeding in respect of which indemnification or contribution
may be sought pursuant hereto (whether or not any Indemnified Person is a party
thereto), unless such settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Person from all Liabilities arising
out of such action, claim, litigation, or proceeding.
If the indemnification provided for herein is finally determined by a
court of competent jurisdiction to be unavailable to an Indemnified Person under
the first paragraph of this Schedule A in respect of any Liability, then the
Company and its subsidiaries, in lieu of indemnifying such Indemnified Person,
shall contribute to the amount paid or payable by such Indemnified Person as a
result of such Liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and its subsidiaries on the one
hand and by DF on the other, from the services rendered pursuant to this
Agreement, or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in cause (i) above, but also the relative fault of
the Company and its subsidiaries on the one hand and the Indemnified Person on
the other, as well as any other relevant equitable considerations. The relative
benefits received by the Company and ' its subsidiaries on the one hand and
received by DF (and its related Indemnified Persons), on the other hand, with
respect to any transaction shall be deemed to be in the same proportion as (a)
the total value of the consideration received or contemplated to- be received by
the Company and its subsidiaries in connection with such transaction bears to
(b) the fees actually paid to DF with respect to such transaction, less any
amounts paid or payable or other liabilities incurred by DF or any Indemnified
Person in respect of transactions contemplated by this Agreement. The relative
fault of the Company and its subsidiaries on the one hand and such Indemnified
Person on the other hand with respect to any restructuring transaction shall be
determined by reference to, among other things, whether any untrue or alleged
untrue statement of material fact or the omission or alleged omission to state a
material fact related to information supplied by the Company and its
subsidiaries or by such Indemnified Person (it being understood that the only
information being provided by the Indemnified Persons is that information, if
any, expressly related to DF) and the parties' relative intent, knowledge,
access to information had opportunity to correct or prevent such statement or
omission. Notwithstanding the provisions of this Agreement, the Indemnified
Persons, in the aggregate, shall not be required to contribute any amount in
8
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excess of the amount of fees actually received by DF pursuant to Section 2 of
this Agreement in connection with the Financing that gave rise to such
liability, less any amounts paid or payable or other liabilities incurred by DF
or any Indemnified Person in respect of transactions contemplated by this
Agreement. The Company and DF agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take into account the
quotably considerations referred to above. The Company also agrees that no
Indemnified Person shall have any liability to the Company for or in connection
with this Agreement and the engagement of DF hereunder, except for such
Liabilities incurred by the Company which arise from actions taken by an
Indemnified Person and then only to the extent they are determined by a court of
competent jurisdiction in a final judgment not subject to appeal or further
review to have resulted from such Indemnified Person's willful misconduct or
gross negligence.
The indemnity and contribution obligations of the Company and its
subsidiaries set forth herein shall be in addition to any liability or
obligation the Company and its subsidiaries may otherwise have to any
Indemnified Person.
9
EXHIBIT 10.9
Subsidiaries of Registrant
PSI International, Ltd., organized under the laws of the Cayman Islands.
Sharp Film Corp, organized under the laws of the State of Florida.
