<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ X / ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to _______________.
Commission File Number 0-16335
OZO DIVERSIFIED AUTOMATION, INC.
(Name of Small BusinessIssuer as Specified in its Charter)
Colorado 84-0922701
(State or other juris- (IRS Employer
diction of incorpora- Identification No.)
tion or organization)
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (303) 368-0401
Securities registered under Section 12(g) of the Exchange Act:
$0.10 Par Value Common Stock
(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months and, (2) has been subject to such filing requirements
for the past 90 days. YES /X / NO / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. / /
Revenues for fiscal year ended Dec. 31, 1996 were $2,166,763.
The aggregate market value of the Registrant's voting stock held as
of March 31, 1997 by nonaffiliates of the Registrant was $259,304.
As of March 31, 1997, Registrant had 458,164 shares of its
$0.10 par value common stock outstanding.
Total Pages _________
Exhibit Index at Page________
1
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) Business Development. OZO Diversified Automation,
Inc. ("OZO" or the "Company") was incorporated as a Colorado
corporation on October 13, 1983. Since its formation, the
Company has designed, manufactured and marketed computer
controlled equipment for electronics industry applications.
The initial products of the company were Computer Numeric
Controlled ("CNC") workstations for the fabrication of
prototype printed circuit boards ("PCBs"). The Company's
workstations are utilized in four application areas of the
electronics industry: electronics assembly companies,
product designers, printed circuit board fabricators and
test fixture fabricators. During the fiscal year ended
December 31, 1996, the Company had net sales of $2,166,763,
compared to $1,736,938 for the fiscal year ended December
31, 1995.
(b) Business of Issuer. OZO manufactures and markets
computer aided manufacturing workstations that are used by
electronics industry manufacturers. The workstations are
CNC equipment, that is, equipment controlled by computer
software. The software developed by the Company controls
the operation and function of the machinery hardware which
is also developed by the Company. OZO's hardware and
software products enable electronics assembly companies to
rout or depanel PCBs from panels that are produced on a
surface mount assembly line, product designers to produce
prototype PCBs, printed circuit board fabricators to drill
and rout PCBs, and test fixture fabricators to drill and
rout test fixtures.
(1) Products. The Company's products are packaged
to address specific market niches of the electronics
equipment market. Each workstation includes an OZO machine,
associated spindles for the machine, a computer controller
and software.
The Company's products include the
spindles for each of its workstation products. Drilling,
routing, and mechanical etch spindles are produced by the
Company. The drill spindle is an automatic tool change
spindle. The router head enables the product to depanel
PCBs from a panel or to cut printed circuit boards to final
size and shape. The mechanical etch head mills the outline
of the circuitry of a PCB board into standard copper-clad
material enabling customers to quickly fabricate
prototypes without the need for chemistry.
The Company's Model 18, Model 24, Model 16SI, Model
18 HS, and Large Format machines are marketed under the
PanelMASTER, PanelMASTER HS, PanelROUTER SI, FixtureMASTER,
Large Format FixtureMASTER, EtchMASTER, and LabMASTER
product designations. The Company's other product is the
Model 2-24, which is a two spindle drilling machine for
medium volume producers of PCBs.
The Company's Model 2-24, Large Format, Model 16SI,
and Model 18 HS products utilize a servo motor drive system
designed by the Company. The Company's Model 18 and Model
24 products utilize a stepper motor drive system designed by
the Company.
The Company manufactures depaneling equipment for
automated assembly lines that produce assembled printed
circuit boards. This is called in-line equipment, equipment
that is incorporated into an automated assembly line. The
Company offers customized solutions to in-line depaneling
equipment customers by producing customized fixturing for
machines and integrating machines into assembly lines. The
Company also manufactures stand alone depaneling equipment,
that is, the equipment is off-line and not incorporated into an
automated assembly line. The Company's Model 16 PanelROUTER SI
can be utilized as an in-line or off-line system. The Company's
PanelMASTER and PanelMASTER HS are off-line systems.
<PAGE>
Manufacturing and Assembly of Products
The Company fabricates some machined parts at its
in-house machine shop and contracts with independent machine
shops, sheet metal suppliers, paint and anodize shops, and
electronic manufacturers for various parts and services.
Off-the-shelf components are purchased from various
industrial suppliers. Final assembly, testing and
inspection of the finished systems are done by the Company's
employees at its facility. During 1996 a modified drive
motor was a long-lead time item purchased from a single
source of supply, and the Company carried an inventory of
this component. In 1997 the Company intends to replace its
drive motors with a more readily available model which can
be easily obtained from numerous sources. Accordingly, the
Company is not dependent on one or a few major suppliers.
(2) Distribution. The Company utilizes in-house
sales engineers for direct sales in the United States,
Canada, and Mexico, a limited number of manufacturer
representative organizations in the United States, and
international distributors covering Europe, the United
Kingdom, Brazil, South Korea, Taiwan, Singapore, Malaysia,
Hong Kong and the Peoples Republic of China, Australia, New
Zealand, India, Pakistan, Turkey, and United Arab Emirates.
The Company has a policy of supporting its international
distributor base, providing regular service, training
visits, individualized sales literature and support for
trade shows held within their respective territories.
(3) Status of Product. In 1996 the Company
continued the introduction of its new line of premium
routing machines, namely the Model 16 PanelROUTER SI and the
Model 18 PanelMASTER HS. During the year, both machines
continued to gain acceptance in the marketplace, with sales
of four PanelMASTER HS units and six PanelROUTER SI systems
being completed by year end. Additionally, two more of
each machine were sold and shipped in the first quarter
1997. While sales of the premium routing equipment were
slower than desired during the year, the Company anticipates
that the projected growth of the electronics industry will
sustain a strong demand for these products through 1997 and
beyond. Management is confident that the depaneling
technology represented by these machines will remain an
important aspect of the manufacture of printed circuit
boards and related electronic subsystems. The depaneling
market niche continued to be the Company's most important
United States business segment in 1996, and in 1997 it will
remain a significant part of the Company's overall sales
strategy.
While the Company remains focused on sales of its
premium depaneling equipment to facilitate its strategic
growth initiatives, the demand for its traditional drilling
and routing machines also remains strong. The Company
continues to sell its lower tier systems to test fixture
fabricators and small printed circuit board facilities in
the United States. Internationally, test fixture
fabricators, small printed circuit board facilities, and
prototype operations are a consistent market for the
Company's Model 18, Model 24, and Model 2-24 products.
(4) Competition. The Company competes in four
areas of the equipment market for the electronics industry.
The four areas are: depaneling equipment, low to medium
volume bare board drilling and routing equipment, test
fixture drilling and routing equipment, and prototyping
equipment. The Company has identified two U.S. competitors,
who are manufacturers of depaneling equipment, and two
foreign competitors. All of the competitors are divisions
of companies larger than OZO and produce revenues from
various products. The Company believes that it competes
favorably in the depaneling equipment market. The Company
believes that its ability to continue to compete will depend
upon its ability to produce competitively priced full
featured equipment for the off-line depaneling equipment
market and upon its ability to produce customized solutions
for the in-line depaneling equipment market. The Company
estimates that there are twenty competitors worldwide who
manufacture drilling and routing equipment. The Company
believes that it competes favorably only in the low to
medium volume drilling equipment market and in the test fixture drilling
application market. The Company's drilling equipment
customers are predominantly small businesses, who prefer the
Company's products over more expensive products. The Company has identified
one U.S. competitor and one foreign competitor who manufacture printed
circuit board prototyping equipment. The Company believes that it
competes favorably in this market for customers seeking full
function equipment, but cannot compete with single function
lower cost prototyping equipment.
<PAGE>
While other competitors supplying products
necessary for the development, production, and depaneling of
printed electronic circuit boards exist or may enter the
market, the Company anticipates that its specialized
products will continue to find acceptance. Presently,
however, the Company's relatively small size may give
competitors with established reputations and greater
marketing capability and financial resources an advantage in
the marketplace.
(5) Raw Materials. The Company procures parts and
raw materials from a broad base of suppliers, and does not
rely on one or a few major vendors for critical components.
Most materials purchased by the Company are of-the-shelf
items.
(6) Customer Dependence. The Company is not
dependent on one or a few major customers.
(7) Patents, Trademarks and Licenses. The Company
has not sought patent protection for the hardware it has
developed and presently considers certain aspects thereof to
be proprietary to the Company protected by its trade
secrets. The Company has made only a limited search of
existing patents to determine the extent to which such
proprietary protection may have been available or whether
the Company's products infringe on patents held by others.
A claim against the Company for possible infringement of a
patent was made in 1994 and the Company has executed a
License Agreement with the unaffiliated claimant. Royalties
were paid in 1995 under this License Agreement. The Company
is unaware of any other claims or proprietary rights of
others on which the Company's products may be deemed to
infringe. As additional developments of the Company's
products and proprietary information occur, the Company
intends to pursue the appropriate protection. Should
products of the Company be deemed to infringe on patents
held by others, the Company would be subject to the risk of
litigation, expense of licensing rights to use such
proprietary technology, or other adverse results.
Copyright protection for the Company's proprietary
software, which is a key component of the operation of the
Company's workstation systems, has been acquired by the
Company. Copyright protection for the Company's proprietary
stepper motor software was acquired on May 26, 1988.
Copyright protection for the Company's servo motor software
was acquired by the Company on October 27, 1994.
(8) Government Approval. The Company is not
subject to any government approval for its products.
(9) Government Regulation. The Company has no
knowledge of impending government regulation on its
business.
(10) Research and Development. Research and
development expenses for the fiscal years ending December
31, 1996 and December 31, 1995 were approximately $159,570
and $164,757 respectively. Ongoing projects in 1997 include
automation enhancements for the PanelMASTER HS and
PanelROUTER SI, software upgrades for all products, speed
and efficiency improvements on Model 18 and Model 24
machines, completion and refinement of an industrial vision
system, and a spindle optimization and redesign program.
The Company does not receive funding from other parties to
conduct research and development, except in specific cases
where U.S. government NSF or ARPA grants may be awarded.
The Company received no grants in 1995 or 1996.
(11) Environmental Regulation. Since its
inception, the Company has not made any material capital
expenditures for environmental control facilities and the
Company does not expect to make any such expenditures during
the current or forthcoming fiscal year. The Company believes that
it is in full compliance with all federal, state, and local
environmental regulations.
(12) Employees. As of December 31, 1996, the
Company had 18 full-time employees and one part-time
employee.
<PAGE>
ITEM 2. PROPERTIES
For the duration of 1996, the Company continued to
lease approximately 6,440 square feet of office and
production space in Denver, Colorado. The monthly lease
obligation was $3,050 per month. As of December 31, 1996,
the Company had reached an agreement in principle to acquire
an additional 3,400 square feet of contiguous space to
facilitate an expansion of its manufacturing area. This
agreement became effective on March 1, 1997, and the
combined space as of this date was approximately 9,040
square feet (approximately 400 square feet of non-contiguous
storage space was exited once the agreement to acquire the
adjacent space was executed). As of March 1, 1997, the
Company's lease obligation on all space was extended for
three years, through February 28, 2000. The current
monthly lease obligation, as of March 1, 1997, is $4,168 per
month.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to
which the Company is a party or of which any of its property
is the subject as of the date of this report and there were
no such proceedings during the fiscal year ended December
31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth
quarter of the fiscal year covered by this report to a vote
of the Company's security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
Although the Company's common stock is not listed on NASDAQ,
it is quoted on NASDAQ's OTC Bulletin Board.
The following table shows the range of high and low closing
bid quotations of the Common Stock as traded in the over-the-
counter market during the last two fiscal years.
Common Stock
High Low
Fiscal Period Bid Bid
1995
First Quarter 1 1/2
Second Quarter 1 1/2
Third Quarter 1 1/2 3/4
Fourth Quarter 1 1/2 3/4
1996
First Quarter 1 1
Second Quarter 1 1/2 1
Third Quarter 1 1/4 3/4
Fourth Quarter 3/4 1/2
The above quotations were reported by market makers in
the stock and by the National Quotation Bureau, Inc. The
quotations represent prices between dealers, do not include
retail markups, markdowns or commissions and do not
necessarily represent prices at which actual transactions
were or could have been effected.
(b) Holders.
As of December 31, 1996, the Company had approximately
710 holders of record of its $0.10 par value common stock.
(c) Dividends.
The Company has not declared cash dividends on its
common stock since its inception, and the Company does not
anticipate paying any dividends in the foreseeable future.
There are no contractual restrictions on the Company's
ability to pay dividends.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Results of Operations
For the fiscal year ended December 31, 1996, sales of the
Company's products increased to $2,166,763, a 24.7%
improvement over sales of $1,736,938 recorded in 1995. The
increase in revenues was due in part to the continued demand
for the Company's traditional multi-purpose drilling
machines, combined with increased market acceptance of the
Company's new PanelMASTER HS and PanelROUTER SI
workstations. Introduced in 1995 and 1994 respectively, the
PanelMASTER HS and PanelROUTER SI continue to gain favor in
the electronics industry, where the demand for custom
depaneling equipment continues to grow. For the fiscal year
ended December 31, 1996, the Company had sold four
PanelMASTER HS standalone units and six in-line PanelROUTER
SI systems.
While sales for fiscal year 1996 increased 24.7% over the
prior period, the cost of goods sold also increased 25.1% to
$1,314,209, from $1,050,768 in 1995. Consequently, the
gross profit margins remained substantially the same at
39.3% of total revenues in 1996 compared to 39.5% of total
revenues in 1995.
In terms of the foreign and domestic breakdown of sales, the
Company experienced growth in both sectors during 1996.
Domestic sales as of December 31, 1996 were $914,725, a
29.5% increase compared to $706,441 for the same period in
1995. International revenues also increased by 17.2%, with
exported sales accounting for $945,000 versus $806,000 in
1995. Parts and service revenue accounted for the remaining
sales of $305,167, or 14.1% of total revenues. This area
recorded sales of $224,497 in 1995, or 13% of total
revenues. International sales are an integral part of the
Company's strategic sales objective, and the Company is
reliant upon its foreign distributors to produce revenues in
these areas. In 1996, approximately 71% of International
sales were generated in the Far East (Asian and Pacific Rim
countries). International and Domestic sales on new
equipment were comprised of nearly equal proportions in
1996, with 49.2% of the revenues coming from exports and
50.8% of sales originating from Domestic sources. This is
compared to International and Domestic sales of 46% and 54%
respectively, in 1995.
As in past years, there are many factors that impair the
Company's ability to reasonably predict the future sales
potential of foreign markets. Exchange rate variations,
policies of local governments regarding import duties or
trade restrictions on U.S. produced equipment, and
fluctuations of local economies, may affect the Company's
ability to sustain revenues internationally. Similarly,
these same uncertainties limit the predictability of sales
projections in foreign markets. Nevertheless, the Company
remains equally dependent upon both the Domestic and
International sectors for maintaining its revenue base from
year to year.
Results of operations improved to a loss of $80,832 for the
fiscal year ended December 31, 1996, from a loss of
$219,848 for the same period in 1995. Although net earnings
continued to be negative in 1996, much of the unfavorable
performance can be attributed to followup service
requirements on the initial PanelROUTER SI inline systems.
Due to the complexity of the applications, and unforeseen
upgrades and enhancements which were implemented at the
Company's expense, the profitability of the initial machines
was not as predicted. Subsequently, the Company incurred
greater than anticipated warranty costs for post
installation support of several of the PanelROUTER SI's
built in 1996. While price increases effected in January
1996 helped to reduce the losses on these machines, the
equipment was still sold at a discount in order to gain
entrance to a highly competitive marketplace. During the
course of the year, as the performance and reliability of
the PanelROUTER SI improved, and as the product gained
acceptance in the marketplace, the prices that the Company
was able to charge for this equipment increased to a level
that is consistent with similar competitive products.
<PAGE>
In the area of operating expenses, general and
administrative costs remained nearly even at $231,127 in
1996, compared to $232,536 for the same period in 1995. As
a percentage of sales, the general and administrative costs
accounted for 10.7% of total revenues in 1996, compared to
13.4% in 1995. The Company continues to focus on expense
control as a requisite to facilitating a profitable recovery
in 1997.
Marketing and sales costs remained comparable to the
previous period, up only 3% to $497,575 in 1996 versus
$482,849 as recorded in 1995. On a percentage basis,
marketing and sales costs declined to 23.0% of total sales
in 1996, compared to 27.8% of total sales in 1995. The
slight improvement can be attributed to the mix of
commission payments associated with products being sold by
geographical region (i.e., commission rates for
international distributors being different than those for
manufacturer's representatives who sell, but do not service,
equipment in the United States).
Research and Development costs decreased slightly in 1996 to
$159,570, down 3.1% from $164,757 in 1995. The research and
development activities in 1996 focused primarily on
refinements related to the new PanelMASTER HS and the
PanelROUTER SI. This included design enhancements on inline
fixturing and automation, as well as software upgrades to
improve control of the automated assemblies. Other R&D
projects included the upgrade of spindle driver electronics,
servo driver and amplifier reliability improvements, and
software enhancements for the Company's earlier generation
of drilling and routing machines.
On balance, the improvement in expense control in 1996
occurred in all three major operating expense categories:
general and administrative expense, marketing expense, and
research and development expense. Table 1 below illustrates
the breakdown of the major expense categories as a
percentage of net sales.
<TABLE>
<CAPTION>
Table 1
1996 % 1995 %
<S> <C> <C> <C> <C>
Net Sales $2,166,763 100.0% $1,736,938 100.0%
Cost of Sales $1,314,209 60.7% $1,050,768 60.5%
---------- ------ ---------- ------
Gross Profit $ 852,554 39.3% $ 686,170 39.5%
G & A Expense $ 231,127 10.7% $ 232,536 13.4%
Marketing $ 497,575 23.0% $ 482,849 27.8%
R & D Expense $ 159,570 7.4% $ 164,757 9.5%
---------- ------ ---------- ------
Total $ 888,272 41.0% $ 880,142 50.7%
EBIT $ (35,718) (1.6%) $ (193,972) (11.2%)
Interest Expense $ (45,114) (2.1%) $ (25,876) (1.5%)
Net Loss $ (80,832) (3.7%) $ (219,848) (12.7%)
</TABLE>
Liquidity and Capital Resources
In April 1996 the Company borrowed $100,000 in short term
debt from affiliates of the investment banking firm of Barber and Bronson
Incorporated (The"April 1996 Loan"). The April 1996 Loan was secured in an
effort to provide working
capital needed to facilitate an expansion of the Company's
business base, and to provide the funding necessary to build
larger automated inline depaneling systems. The funding was
an important element of the Company's efforts to increase
sales, as demonstrated by an actual gain in revenues of
24.7%. The April 1996 Loan for $100,000 was secured at an
interest rate of 12%, and was scheduled to mature on
September 30, 1996. There were also 100,000 warrants
attached to the debt offering which are exercisable at $1.00
per share. As a result of the Company's cash constrained
operating condition in third quarter, the Company was unable
to repay the April 1996 Loan in a timely manner, and the repayment date
was renegotiated. Actual repayment of the $100,000 and all
accrued interest occurred on October 28, 1996. As a late
payment penalty, and as part of the overall resolution, the
Company agreed to pay interest at 12% for the duration of
the delinquency period, and conveyed an additional 15,000
warrants (exercisable at $0.75 per share) to the holders of the
April 1996 Loan.
<PAGE>
In June 1996 the Company secured a second short term loan from an
an affiliate of Barber and Bronson Incorporated for $40,000. The purpose of
this loan was to provide interim financing in lieu of
payment from a customer who failed to remit funds within the
terms allowed under the purchase agreement. The customer
did remit funds shortly thereafter, and the loan was repaid
(principal and interest) in July 1996. This loan carried an
interest rate of 12%, with a maturity date not to exceed
September 23, 1996. No warrants were attached to this
particular debt offering.
For short term cash and credit requirements, the Company
continues to use the credit revolver established in July
1995 through its local bank. The revolving line of credit
continues to be used to cover short term cash needs, and the
maximum credit available remains at $30,000. The credit
facility remains in force at the time of this filing.
Efforts will be made in 1997 to expand the credit limit
available to the Company.
Also, as disclosed in Item 12 and elsewhere, in fourth quarter 1996
the President and Chief Executive Officer made a series of loans to the
Company in an effort to provide short term working capital for projects
and to stabilize cash flow. The outstanding loan balance at the end
of 1996 was $84,500. In early January 1997, this balance was
subsequently reduced to below $25,000. Refer to Note 11 (Related Party
Transactions) for additonal details of this loan.
The Company retired three significant debt obligations in
fourth quarter of 1996. In addition to retiring the
April 1996 Loan (as described
above), the Company also retired a $50,000 short term loan
from its local bank, as well as a $45,000 loan from a
customer. The Company will continue its efforts to
remediate, consolidate, and retire its debt obligations into
the next fiscal year.
The Company's cash position remained substantially the same
at the end of 1996 compared to 1995. Cash as of December
31,1996 was at $3,111, down 1.6% from $3,162 as recorded at
the end of 1995. Inventories decreased by $117,971 as of
December 31, 1996. The year end inventory for 1996 was at
$388,425, down 23.3% from the year end inventory noted on
December 31, 1995. The change in inventory is a result of
machine builds and the timing of orders undergoing assembly
at the end of each fourth quarter. The comparison does not
necessarily reflect any material change in the operating
performance of the Company.
Total Assets increased 14.4% or $109,282 in 1996. The
increase was primarily in two accounts, new Equipment Leased
and Accounts Receivable. Accounts Receivable increased a
substantial 44.2%, however the sales to receivable
collection ratio actually declined. In 1996, the days
collection period for average receivables was 36.8 days. In
1995 it was 38.3 days. The new equipment dollar increase of
$180,626 was for new production equipment to increase
production capacity.
Total Liabilities increased 22.3% or $183,114 in 1996. The
increased financing was again primarily from two accounts,
Long Term Capitalized Leases and a Note Payable to a related
party. Because of the 1996 operating losses, liability
financing was more than asset growth by $73,832. In terms
of Current Liabilities, Accounts Payable increased 11.5% to
$243,246 on December 31, 1996.
The Company made significant progress in 1996 with the
continued introduction of its upper tier products, namely
the PanelMASTER HS and the PanelROUTER SI. During the
course of the year, the Company sold four PanelMASTER HS's
and six PanelROUTER SI's, with two more of each model being
shipped in the first quarter of 1997. Management believes
that the market acceptance phase has progressed
satisfactorily, and the prospects for receiving additional
orders for the premium depaneling equipment is favorable at
this time. In addition to the positive forecast, Management
also believes that various re-engineering activities
undertaken in the manufacturing area in fourth quarter 1996,
will begin to show benefits in 1997. These re-engineering
activities include: reductions in cycle times for equipment
fabrication, substantial equipment upgrades in the machine
shop, rapid response procurement and inventory procedures,
quality defect reduction programs, performance enhancement
projects for mechanical assemblies, electronics, and
software, and cost containment /waste reduction projects
throughout all levels of production. In addition,
significant re-engineering projects have also been
implemented within the administrative groups. As a result
of these strategic initiatives, the favorable forecast for
1997, and a strong backlog through second quarter 1997,
Management believes that the Company can continue as a going concern.
Looking forward, the Company intends to fund its current operations from
a combination of cash on hand, cash generated from operations, existing
lines of credit, potential new lines of credit or equity financing.
Although these sources of capital are expected to fund the Company's
current operations through December 31, 1997, unless the Company returns
to profitability, or develops these additional equity or debt sources of
financing, there would be a material adverse effect on the financial
condition, operations and business prospects of the Company. The Company
has no arrangements in place for such equity or debt financing and no
assurance can be given that such financing will be available at all or on
terms acceptable to the Company. Any additional equity or debt financing
may involve substantial dilution to the interests of the Company's
shareholders as well as warrantholders. If the Company is unable to
obtain sufficient funds to satisfy its cash requirements, it will be
forced to curtail operations, dispose of assets or seek extended payment
terms from its vendors. There can be no assurances that the Company
would be able to reduce expenses or successfully complete other steps
necessary to continue as a going concern. Such events would materially
and adversely affect the value of the Company's equity securities.
<PAGE>
Backlog
As of March 28, 1997, the Company's backlog of orders was
$693,000, compared to $630,000 as of March 29,1996. The
previous backlog was $380,000 on March 21, 1995.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements on pages F-1 through F-17.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Identification of Directors and Executive Officers
Name and Position
in the Company Age Director Since
Alvin L. Katz 67 October 1996
(Chairman of the Board
since October 1996, Director)
David J. Wolenski 35 September 1996
(President since
September 1996, Director)
David W. Orthman 46 February 1992
(Secretary-Treasurer,
Director)
Scott E. Salpeter 38 October 1996
(Director)
The present term of office of each director will expire
at the next annual meeting of shareholders. The executive
officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each
Annual Meeting of Shareholders. Each executive officer
holds office until his successor is duly elected and
qualified or until his resignation or until he shall be
removed in the manner provided by the Company's Bylaws.
See Item 12 for a description of understandings pursuant
to which individuals were selected as a director of the Company.
<PAGE>
Business Experience. The following is a brief
account of the business experience during the past five
years of each director and executive officer:
<TABLE>
<CAPTION>
<S> <C>
Name of Director Principal Occupation During the Last Five Years
Alvin L. Katz Chairman of the Board since October 1996; Currently serving on the
Board of Directors of Amtech Systems, Inc., a public company
engaged in the manufacture of capital equipment in the chip
manufacturing business; Blimpie International, a publicly
held fast food franchise; Nastech Pharmaceutical Company, Inc., a
public company engaged in the development of pharmaceuticals;
Foremost Industries, a public company engaged in the distribution and
repair of commercial refrigeration; and Miller Industries, a publicly
held real estate holding company; Also, from 1991 until the company
sold in September 1992, Chief Executive Officer of Odessa
Engineering Corp., a company engaged in the manufacture of pollution
monitoring equipment; and, since 1981, an adjunct professor of business
management at Florida Atlantic University.
David J. Wolenski President and Chief Executive Officer since September 1996;
Previously with Schuller International, Inc., a public company
engaged in the manufacture of building materials (formerly Manville
Corporation) from July 1983 through July 1996; Manufacturing
Manager at Schuller's Corona, California facility, September
1994 through July 1996; Manager Quality Assurance for Manville
Corporation's Performance Materials Division, March 1991
through September 1994.
David W. Orthman Director of Research and Development since April 1, 1992; Director
of Special Projects from June 6, 1990 to March 31, 1992;
Vice President of the Company from January 1989 to June 1990; Chairman
of the Board of Directors of the Company from March 1988 to
December 1988; President of the Company from October 1983 to
March 1988; Mr. Orthman developed the Model 18 and related
products and technology, as well as the Models 24, 2-20 and 2-24;
also developed the PanelMASTER HS and PanelROUTER SI high speed
depaneling systems and related products and technology.
Scott E. Salpeter Senior Associate of Barber and Bronson Inc. since September 1996;
From 1993 until August 1996, Chief Financial Officer,
Treasurer, Vice President, and a Director of ECOS Group, Inc.
(formerly Evans Environmental Corp.), a public company engaged in
environmental consulting and laboratory services; From 1988 through
1992, Chief Financial Officer of Alco International Group, Inc., a
public company engaged in marine transportation.
</TABLE>
Directorships
Except as described above, no director of the Company
is a director of any other Company with a class of securities
registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or subject to the requirements of
Section 15(d) of such Act, or any company registered as an
investment company under the Investment Company Act of 1940,
as amended.
(b) Identification of Certain Significant Employees
N/A
(c) Family Relationships
David W. Orthman and Marjorie Zimdars-Orthman are
husband and wife. Ms Zimdars-Orthman was President and a
director of the Company until September 1996. There are no
other family relationships between any director, executive
officer or person nominated or chosen by the Company to
become a director or executive officer.
(d) Involvement in Legal Proceedings
N/A
(e) Compliance with Section 16(a) of the Exchange Act
Based solely on its review of the copies of the reports
it received from persons required to file, the Company
believes that during the 1996 fiscal year and subsequently,
all filing requirements applicable to its officers,
directors, and greater than ten-percent shareholders were in
compliance, with one exception involving late filings of
Form 3's. Specifically the Form 3's for the new directors
who joined the Board in September 1996 and October 1996,
were filed in April 1997.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table.
The following table shows information regarding
compensation paid to the chief executive officers of the
Registrant for the three years ending December 31, 1996:
<TABLE>
<CAPTION>
Annual COMPENSATION Long Term Compensation
Name and Principal Other Annual Restricted Stock
Position Year Salary($) Bonus Compensation Awards($) Other
<S> <C> <C> <C> <C> <C> <C>
M. Zimdars-Orthman
CEO 1996 26,300(1) 0 0 None None
CEO 1995 39,500 0 0 None None
CEO 1994 32,760 0 0 7500 None
David J. Wolenski
CEO 1996 13,000(2) 0 0 5000 None
</TABLE>
Note(1): Marjorie Zimdars-Orthman was CEO through September 22, 1996;
the salary is prorated accordingly.
Note(2): David J. Wolenski became CEO on September 23, 1996;
the salary shown is for the balance of the year.
Other Plans.
There are no other bonus, profit sharing, pension, retirement, stock
option, stock purchase, or other renumeration or incentive plans in effect.
Long Term Incentive Plan.
The Company has no long term incentive plans.
Compensation of Directors.
No compensation is currently being paid to members of the Board of
Directors for their services as directors, execept for their salaries as
reported above under executive officer compensation.
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
The Company has no employment contracts with any
executive officer. The Company has no compensation plan or
arrangement with respect to any executive officer which plan
or arrangement results or will result from the resignation,
retirement or any other termination of such individual's
employment with the Company. The Company has no plan or
arrangement with respect to any such persons which will
result from a change in control of the Company or a change
in the individual's responsibilities following a change in
control.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management.
The following table sets forth, as of March 31, 1997,
the number of shares of the Company's Common Stock
beneficially owned by owner's of more than five percent of
the Company's outstanding Common Stock who are known to the
Company and the Directors of the Company, individually, and
the Officers and Directors of the Company as a group, and
the percentage of ownership of the outstanding Common Stock
represented by such shares.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Position With Company Ownership of Class
<S> <C> <C> <C>
David W. Orthman Director,Director of 94,710(2) 20.1%
Marjorie A. Zimdars-Orthman(1) Research & Development
7450 E. Jewell Ave., #A
Denver, Colorado 80231
David J. Wolenski Director, President, 5,000 1.1%
7450 E. Jewell Ave., #A Chief Executive Officer
Denver, Colorado 80231
Ron C. Carpenter Chief Financial Officer 8,750 1.9%
7450 E. Jewell Ave., #A
Denver, Colorado 80231
Scott E. Salpeter
201 S. Biscayne Blvd. #2950 Director 0 0
Miami, Florida 33131
Alvin L. Katz Director, Chairman 36,250(3) 7.4%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
All Officers and Directors
as a Group (5 Persons) 144,710 29.7%
_________________
Steven N. Bronson 111,650(4) 22.9%
201 S. Biscayne Blvd. #2950 None
Miami, Florida 33131
James S. Cassel None 28,750(5) 5.9%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
</TABLE>
Note (1): Marjorie A. Zimdars-Orthman was President and Chief Executive
Officer of the Company until September 22, 1996.
Note (2): Of the 94,710 shares beneficially owned by David W. Orthman and
Marjorie A. Zimdars-Orthman, 79,090 shares are jointly held; another
10,000 shares are held by Marjorie A. Zimdars-Orthman and 5,620 shares
are held by David W. Orthman.
Note (3): Of the 36,250 shares beneficially owned by Alvin L. Katz, 5,000
shares are in the name of his wife, Lenore Katz; 2,500 shares are held in
general partnership (the partnership consists of 5,000 shares of common stock,
with Alvin L. Katz maintaining a 1% ownership interest and Lenore Katz
maintaining a 49% ownership interest in said partnership); 25,000 shares
are in the form of warrants, exercisable at $1.00 per share through
April 1, 2001; and 3,750 shares are in the form of warrants exercisable
at $0.75 per share through October 10, 2001. Not included in this
calculation are 8,772 shares due upon conversion of debentures, December 30,
1998.
Note (4): Of the 111,650 shares beneficially owned by Steven N. Bronson,
82,900 are in the form of common stock obtained through various transactions
and previous exercise of warrants; 25,000 shares are in the form of warrants,
exercisable at $1.00 per share through April 1, 2001, and 3,750 shares
are in the form of warrants, exercisable at $0.75 per share through
October 10, 2001. Not included in this calculation are 8,772 shares due
upon conversion of debentures, December 30, 1998.
Note (5): All of the 28,750 shares beneficially owned by James S. Cassel are
in the form of warrants, 25,000 of which are exercisable at $1.00 per share
through April 1, 2001, and 3,750 of which are exercisable at $0.75 per share
through October 10, 2001.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management and Others and Certain
Business Relationships.
On September 23, 1996 the Company initiated a significant
change in management by installing David J. Wolenski as
President and Chief Executive Officer. Mr. Wolenski joined
the Company following a fourteen year career with Schuller
International, Inc. (formerly Manville Corp.) where he held
positions in research, engineering, business development,
quality assurance, and manufacturing. He succeeds Marjorie
Zimdars-Orthman, who held the position of President and CEO
since 1992. Ms. Zimdars-Orthman resigned from the position
in order to assume a technical role within the Company and
to address operational improvements needed within the
Company's manufacturing division. Ron. C. Carpenter assumed
the position of Chief Financial Officer.
Concurrent with Mr. Wolenski assuming the position of
President and CEO, he was also appointed Director following
the expansion of the OZO Board to four members. On
September 23, 1996, the OZO Board of Directors consisted of
Marjorie Zimdars-Orthman, Chairman of the Board; Ron C.
Carpenter, Secretary-Treasurer; David W. Orthman, and David
J. Wolenski.
Following his appointment as President, Mr. Wolenski
negotiated the resolution of the April 1996 Loan which was
secured through affiliates of Barber and Bronson
Incorporated. The resolution involved the repayment of
$100,000 in short term debt which was due October 1, 1996.
The renegotiated terms provided for a lump sum payment of
the principal in its entirety, as well as all accrued
interest, on or before November 1, 1996. This transaction
was completed on October 28, 1996, and the April 1996 Loan was
subsequently retired. Following those negotiations, and as
a part of the overall resolution reached with holders of the April
1996 Loan, Marjorie Zimdars-Orthman and Ron C. Carpenter
resigned from the Board. Their resignations were effective
immediately. At that time, the remaining directors, Messrs.
Wolenski and David Orthman, elected Scott E. Salpeter and
Alvin L. Katz, to fill the resulting vacancies. Both Mr.
Salpeter and Mr. Katz are affiliated with Barber and
Bronson Incorporated. As of those actions, the Board of Directors
consist of Alvin L. Katz, Chairman, David W. Orthman,
Secretary-Treasurer, Scott E. Salpeter, and David J.
Wolenski, President.
Also, in fourth quarter 1996, the President and Chief
Executive Officer made a series of loans to the Company in
an effort to provide short term working capital for projects
and to stabilize cash flow. The unsecured loans were made
to the Company at a financing rate that was comparable to
that which could have been obtained through outside sources.
This action was undertaken with the approval and concurrence
of the Board of Directors. As a result of this
transaction, the outstanding loan balance at the end of 1996
was $84,500. This balance was subsequently reduced to
below $25,000 in January 1997.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements:
Independent Auditors' Report
Balance Sheet--As of December 31, 1996
Statements of Operations--Years Ended December 31, 1996, and 1995
Statements of Stockholders' Deficiency--Years Ended December 31, 1995,
and 1996
Statements of Cash Flows for the Years Ended December 31, 1996, and 1995
Notes to Financial Statements
(b) 8-K Reports:
No 8-K reports were filed in the fourth quarter of 1996.
(c) Exhibits:
3.1 Articles of Incorporation incorporated by reference to
Registration Statement No. 33-13074-D as Exhibit 3.1.
3.2 Amended Bylaws adopted June 1, 1987, incorporated by reference
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 as Exhibit 3.2.
3.4 Articles of Amendment to Restated Articles of Incorporation
dated March 7, 1991. Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended December 31, 1990 as
Exhibit 3.4.
10.1 OEM Purchase Agreement dated January 15, 1990, between the
Company and Ariel Electronics, Inc. incorporated by reference to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 as Exhibit 10.16.
10.2 Form of Convertible Promissory Note, 12/30/93 Private Placement
incorporated by reference to Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993 as Exhibit 10.2.
10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private
Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993 as
Exhibit 10.3.
10.4 Form of Note Purchaser Warrant Agreement and Warrant, 12/30/93
Private Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993 as
Exhibit 10.4.
10.5 Form of Promissory Note, 4/1/96, filed herewith.
10.6 Form of Security Agreement, 4/1/96, filed herewith.
10.7 Form of Common Stock Purchase Warrant, 4/1/96 filed herewith.
10.8 Form of Promissory Note, 7/1/96, filed herewith.
10.9 Form of 4/1/96 Promissory Note Extension, 10/17/96,
filed herewith.
10.10 Form of Common Stock Purchase Warrant, 10/10/96, filed herewith.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: April 15, 1997.
OZO DIVERSIFIED AUTOMATION, INC.,
a Colorado corporation
By: David J. Wolenski
David J. Wolenski
President
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Date Name and Title Signature
<S> <C> <C>
April 15, 1997 David J. Wolenski David J. Wolenski
Principal Executive Officer
Principal Financial Officer
Director
April 15, 1997 David W. Orthman David W. Orthman
Secretary-Treasurer
Director
April 15, 1997 Alvin L. Katz Alvin L. Katz
Chairman of the Board
Director
April 15, 1997 Scott E. Salpeter Scott E. Salpeter
Director
April 15, 1997 Ron C. Carpenter Ron C. Carpenter
Principal Accounting Officer
Chief Financial Officer
</TABLE>
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report F-2
Balance Sheet
December 31, 1996 F-3 - F-4
Statements of Operations
Years Ended December 31, 1996 and 1995 F-5
Statements of Stockholders' Deficiency
Years Ended December 31, 1995 and 1996 F-6
Statements of Cash Flows
Years Ended December 31, 1996 and 1995 F-7 - F-8
Notes to Financial Statements F-9 - F-17
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
OZO DIVERSIFIED AUTOMATION, INC.
We have audited the accompanying balance sheet of Ozo Diversified
Automation, Inc. as of December 31, 1996 and the related statements
of operations, stockholders' deficiency, and cash flows for each of
the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ozo
Diversified Automation, Inc. as of December 31, 1996 and the results
of its operations and its cash flows for each of the two years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring
losses from operations. This factor, and others discussed in Note
2, raises substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
WHEELER WASOFF, P.C.
Denver, Colorado
March 7, 1997
F - 2
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
<S>
CURRENT ASSETS <C>
Cash $ 3,111
Accounts receivable, (net of allowance
for doubtful accounts of $6,500) 257,775
Inventories (Note 3) 388,425
Prepaid expenses 11,385
----------
Total Current Assets 660,696
PROPERTY AND EQUIPMENT, at cost (Note 5)
Manufacturing 149,328
Furniture and fixtures 156,958
Assets under capitalized lease 195,246
Vehicle 10,820
----------
512,352
Less accumulated depreciation and
amortization 326,199
----------
186,153
----------
OTHER ASSETS
Deferred financing costs, net 16,254
----------
$ 863,103
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Note payable - bank $ 28,000
Note payable - officer 84,500
Accounts payable - trade 243,246
Commissions payable 51,027
Due to shareholders 54,545
Accrued expenses 76,387
Customer deposits 45,000
Current portion of long term debt and
capitalized lease obligations (Note 5) 34,607
-----------
Total Current Liabilities 617,312
-----------
LONG TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS (Note 5) 387,387
-----------
COMMITMENTS (Note 7)
STOCKHOLDERS' DEFICIENCY, (Note 6)
Preferred stock - $.10 par value
authorized - 1,000,000 shares
issued - none -
Common stock - $.10 par value
authorized - 5,000,000 shares
issued and outstanding - 458,164 shares 45,816
Capital in excess of par value 1,176,254
Accumulated deficit (1,363,666)
------------
(141,596)
------------
$ 863,103
------------
------------
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
NET SALES $2,166,763 $1,736,938
COST OF SALES 1,314,209 1,050,768
---------- ----------
Gross profit 852,554 686,170
---------- ----------
OPERATING EXPENSES
General and administrative 231,127 232,536
Marketing and sales 497,575 482,849
Research and development 159,570 164,757
---------- ----------
888,272 880,142
---------- ----------
OTHER (EXPENSE) ITEMS
Interest expense (45,114) (25,876)
---------- ----------
NET (LOSS) $ (80,832) $ (219,848)
---------- ----------
NET (LOSS) PER COMMON SHARE $ (.18) $ (.49)
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 454,497 452,664
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F - 5
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
CAPITAL IN
EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 452,664 $45,266 $1,169,804 $(1,062,986)
Net Loss - - - (219,848)
------- ------- ---------- -----------
BALANCE, DECEMBER 31, 1995 452,664 45,266 1,169,804 (1,282,834)
Issuance of common stock to
officer and employee 5,500 550 6,450 -
Net Loss - - - (80,832)
------- ------- ---------- -----------
BALANCE, DECEMBER 31, 1996 458,164 $45,816 $1,176,254 $(1,363,666)
------- ------- ---------- -----------
------- ------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F - 6
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (80,832) $(219,848)
Adjustments to reconcile net (loss)
to net cash (used) by operating
activities
Depreciation and amortization 38,863 24,593
Stock issuance 7,000 -
Other (4,522) 6,022
Changes in assets and liabilities
(Increase) decrease in accounts and
notes receivable (72,293) 13,142
Decrease (increase) in inventories 117,972 (252,305)
Decrease in prepaids 3,759 2,241
Increase in accounts payable and
accrued expenses 60,542 214,049
(Decrease) increase in deferred
income and customer deposits (113,118) 158,118
--------- ---------
Net cash (used) by operating activities (42,629) (53,988)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (12,485) (642)
--------- ---------
Net cash (used) by investing activities (12,485) (642)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt and capital
lease obligations (29,937) (16,819)
Proceeds from short-term borrowings 375,500 199,500
Payment of short-term borrowings (375,000) (172,000)
Proceeds from officer loan 168,800 -
Payment of officer loan (84,300) -
--------- ---------
Net cash provided by financing
activities 55,063 10,681
--------- ---------
NET (DECREASE) IN CASH (51) (43,949)
CASH, BEGINNING OF YEAR 3,162 47,111
--------- ---------
CASH, END OF YEAR $ 3,111 $ 3,162
--------- ---------
--------- ---------
See accompanying notes to financial statements.
F - 7
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid cash for interest on long-term debt of $41,568
and $19,501 during the years ended December 31, 1996 and 1995,
respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
In 1996 and 1995, the Company acquired equipment by entering into
lease obligations of $180,626 and $14,620, respectively.
In 1996 the Company issued 5,500 shares of common stock, valued
at $7,000, to an officer and employee of the Company. See Note 6 for
additional details.
See accompanying notes to financial statements.
F - 8
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Ozo Diversified Automation, Inc. (the Company) was
incorporated under the laws of the State of Colorado on
October 13, 1983. The Company is engaged in the
design, manufacture, and marketing of computer controlled
manufacturing and machining equipment predominately
to entities in North America and the Pacific Rim.
INVENTORIES
Inventories are stated at the lower of cost or
market, with cost determined on a first-in, first-out
basis.
WARRANTY COSTS
The Company provides a warranty on products sold
for a period of one year from the date of sale. Estimated
warranty costs are charged to cost of sales at the time
of sale.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation
and amortization of assets under capital lease is provided
by use of the straight-line method over the estimated
useful lives of the related assets of three to five years.
Expenditures for replacements, renewals and
betterments are capitalized. Maintenance and repairs
are charged to operations as incurred.
Depreciation expense and amortization of assets
under capital lease was $30,737 and $16,466 for the
years ended December 31, 1996 and 1995, respectively.
RESEARCH AND DEVELOPMENT
Expenditures for the research and development of
new products are charged to operations as they are
incurred.
F - 9
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs include fees and costs
incurred in conjunction with the Company's sale of 9%
convertible notes (Note 5). These fees and costs are
being amortized over the term of the respective loans
on a basis which approximates the interest method.
Accumulated amorti-zation of deferred financing costs
was $24,380 at December 31, 1996. Unamortized deferred
financing fees are written-off when debt is retired
before the maturity date.
INCOME TAXES
The Company has adopted the provisions of
Statement of Financial Accounting Standards 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109
requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of
events that have been included in the financial
statements or tax returns. Under this method, the
deferred tax liabilities and assets are determined
based on the difference between the financial statement
and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the
differences are expected to reverse.
LOSS PER SHARE
Loss per common share is computed based on the
weighted average number of common shares outstanding
during each period. Common stock equivalents,
consisting of warrants and convertible debt, are not
considered in the calcula-tion of net loss per share as
their inclusion would be antidilutive.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company
considers as cash equivalents all highly liquid
investments with a maturity of three months or less at
the time of purchase.
F - 10
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates.
SHARE BASED COMPENSATION
In October 1995, Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation" was issued. This new standard defines a
fair value based method of accounting for an employee
stock option or similar equity instrument. This
statement gives entities a choice of recognizing
related compensation expense by adopting the new fair
value method or to continue to measure compensation
using the intrinsic value approach under Accounting
Principles Board (APB) Opinion No. 25. The Company has
elected to Utilize APB No. 25 for measurement; and
will, pursuant to SFAS No. 123, disclose supplementally
the pro forma effects on net income and earnings per
share of using the new measurement criteria.
NOTE 2 - BASIS OF ACCOUNTING
The accompanying financial statements have been
prepared on the basis of accounting principles
applicable to a going concern which contemplates the
realization of assets and extinguishment of liabilities
in the normal course of business. As shown in the
accompanying financial statements, the Company has
incurred a net loss of $80,832 for 1996 and has
accumulated a deficit of $1,363,666 through December
31, 1996. These factors, among others, may indicate
that the Company may be unable to continue in
existence. The Company's financial statements do not include
any adjustments related to the carrying value of assets or the
F - 11
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - BASIS OF ACCOUNTING (CONTINUED)
amount and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
The Company's ability to establish itself as a going
concern is dependent on its ability to meet its
financing require-ments and ultimately to achieve
profitable operations.
Management is continuing its programs of cost
control and containment; installing new production and
budgetary controls in all aspects of operations;
expanding its marketing efforts, especially on new
products, and pursuing additional financing from
outside sources. Management believes that these
actions presently being taken to revise the Company's
operating and financial requirements provide the
opportunity to continue as a going concern.
NOTE 3 - INVENTORIES
Inventories at December 31, 1996 consist of the
following:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Raw materials $311,989
Work in process and components 76,436
Finished goods -
--------
$388,425
--------
--------
</TABLE>
NOTE 4 - NOTE PAYABLE - BANK
Note payable - bank consists of the balance due on
a revolving line of credit from a commercial bank. The
note matures in July 2000, and is repayable monthly at
the rate of a 2% principal reduction and interest
thereon. Interest on the note is 2% above the prime
interest rate. The note is secured by substantially
all assets of the Company including receivables,
inventory and equipment and is personally guaranteed by
certain present and/or former officers/directors of the
Company.
F - 12
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTE PAYABLE - BANK (CONTINUED)
At December 31, 1996, the Company had $2,000
available to be drawn upon under the line of credit.
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION
Long term debt and capitalized lease obligations
consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
9% unsecured convertible notes,
due December 30, 1998,
interest payable quarterly $120,000
9% unsecured non-convertible
notes, due December 30, 1998,
interest payable quarterly 120,000
Capitalized lease obligations
with interest at 8.76% to 10.1%,
repayable in monthly install-
ments of an aggregate $4,278;
collateralized by the under-
lying equipment 181,994
--------
421,994
Less current portion 34,607
--------
$387,387
--------
--------
</TABLE>
The aggregate maturities of long term debt,
including capitalized lease obligations, over the next
five years are as follows: 1997 - $34,607; 1998 - $276,949;
1999 - $36,673; 2000 - $40,555; 2001 - $33,210.
F - 13
<PAGE>
OZO DIVERSIFED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION
(CONTINUED)
Future minimum payments on capitalized leases are
as follows:
Year ending December 31,
1997 $ 51,337
1998 50,081
1999 46,164
2000 46,164
2001 34,623
228,369
Less amount representing interest 46,375
Present value of net minimum lease
payments including current
maturity $181,994
The 9% notes represent gross proceeds from a
private placement of $240,000 of units completed in
December 1993. In conjunction with the offering,
warrants to purchase 110,000 shares of common stock at
$2.00 per share were issued. In 1994, warrants were
exercised at a reduced price of $1.00 per share for
100,000 shares. At December 31, 1996 10,000 warrants,
exercisable at $2.00 per share through December 30,
1998, are out-standing. The convertible notes are
convertible into shares of the Company's common stock
at $1.14 per share through December 30, 1998.
NOTE 6 - STOCKHOLDERS' EQUITY
COMMON STOCK
In 1996 the Company issued 5,000 shares of its
common stock to its President, valued at $6,250 ($1.25
per share); and 500 shares to an employee, valued at
$750 ($1.50 per share).
F - 14
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
At December 31, 1996 the Company had warrants
outstanding to purchase shares of the Company's common
stock as follows:
- 10,000 shares at $2.00 per share
expiring December 30, 1998; issued in conjunction
with 9% notes.
- 100,000 shares at $1.00 per share,
expiring April 1, 2001; issued in 1996 in
conjunction with short-term borrowings.
- 15,000 shares at $.75 per share,
expiring October 1, 2001; issued in conjunction
with granting an extension on the due date of
short-term borrowings.
NOTE 7 - COMMITMENTS
The Company has entered into a non-cancelable
lease for office and production facilities. Minimum
payments due under this lease are as follows:
Year ending December 31,
<TABLE>
<CAPTION>
<S> <C>
1997 $ 47,755
1998 50,618
1999 51,456
2000 8,600
</TABLE>
Rent expense was $38,340 and $43,408 for 1996 and
1995, respectively.
F - 15
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - SEGMENT INFORMATION
Foreign sales represent export sales, and were
approximately 47% and 46% of net sales revenue for the
years ended December 31, 1996 and 1995, respectively.
Export sales of systems, by geographic region, are
as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Pacific Rim $ 535,000 $ 666,000
South America 155,000 95,000
Asia 140,000 45,000
Europe 115,000 -
--------- ---------
$ 945,000 $ 806,000
</TABLE>
Sales by two distributors in the Pacific Rim
represented 13% and 8% for 1996, and 21% and 15% for
1995, of total Company sales in each of those years.
NOTE 9 - INCOME TAXES
At December 31, 1996, the Company has net
operating loss carryforwards totaling approximately
$1,165,000 that may be offset against future taxable
income through 2011 and research and development
credits of approximately $51,000 expiring through 2011.
The Company has fully reserved the tax benefits of
these operating losses and credits because the
likelihood of realization of the tax benefits cannot be
determined. These carryforwards and credits are
subject to review by the Internal Revenue Service.
The $287,000 tax benefit of the loss carryforward
and tax credits has been offset by a valuation
allowance of the same amount. Of the total tax
benefit, $21,000 is attributable to 1996.
F - 16
<PAGE>
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
Temporary differences between the time of
reporting certain items for financial and tax reporting
purposes, primarily from using different methods of
reporting depreciation costs and warranty and vacation
accruals, are not considered significant by management
of the Company.
NOTE 10 - FINANCIAL INSTRUMENTS
FAIR VALUE
The carrying amount reported in the balance sheets
for cash, accounts receivable, accounts payable and
accrued liabilities approximates fair value because of
the immediate or short-term maturity of these financial
instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject
the Company to concentrations of credit risk consist
principally of trade accounts receivable. Credit risk
with respect to these receivables is generally diver-
sified due to the number of entities comprising the
Company's customer base and their dispersion across
many different industries and geographies.
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1996 the President of the Company loaned
the Company an aggregate $168,800 under an unsecured
line of credit note, due November 16, 1996 with
interest at prime plus 2.5%. The President has not
made demand for payment under the note, and at December
31, 1996 $84,500 was outstanding under the loan
agreement.
At December 31, 1996 and 1995 the former President
of the Company had accrued wages and advances due of
$54,545 and $32,795, respectively.
F - 17
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Document No.
3.1 Articles of Incorporation incorporated by reference to N/A
Registration Statement No. 33-13074-D as Exhibit 3.1.
3.2 Amended Bylaws adopted June 1, 1987, incorporated by reference N/A
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 as Exhibit 3.2.
3.4 Articles of Amendment to Restated Articles of Incorporation N/A
dated March 7, 1991. Incorporated by reference to Annual
Report on Form 10-K for fiscal year ended December 31, 1990
as Exhibit 3.4.
10.1 OEM Purchase Agreement dated January 15, 1990, between the N/A
Company and Ariel Electronics, Inc. incorporated by reference
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 as Exhibit 10.16.
10.2 Form of Convertible Promissory Note, 12/30/93 Private Placement N/A
incorporated by reference to Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993 as Exhibit 10.2.
10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private N/A
Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993 as
Exhibit 10.3.
10.4 Form of Note Purchaser Warrant Agreement and Warrant, 12/30/93 N/A
Private Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993 as
Exhibit 10.4.
10.5 Form of Promissory Note, 4/1/96, filed herewith.
10.6 Form of Security Agreement, 4/1/96, filed herewith.
10.7 Form of Common Stock Purchase Warrant, 4/1/96 filed herewith.
10.8 Form of Promissory Note, 7/1/96, filed herewith.
10.9 Form of 4/1/96 Promissory Note Extension, 10/17/96,
filed herewith.
10.10 Form of Common Stock Purchase Warrant, 10/10/96, filed
herewith.
<PAGE>
Dated: April 1, 1996 $_________
THE UNDERSIGNED, Ozo Diversified Automation, Inc.
(the "Maker"), promises to pay to ____________ ("Payee") the
principal sum of __________ (the "Principal Sum"), in such
coin or currency of the United States which shall be
legal tender in payment of all debts and dues, public and
private, at the time of payment, together with interest on
so much thereof as is from time to time unpaid, from the
date hereof until paid.
The Principal Sum shall bear interest, on the amount
due and owing on a daily basis, at an annual rate equal to
twelve percent (12%). If the Principal Sum is not paid in
accordance with this Note, the Principal Sum shall bear
interest beginning on the date of default and continuing
thereafter until paid in full, at the highest rate
permitted by law ("Default Rate"). The acceptance of such
payment at the Default Rate shall not constitute a waiver of
such default. Interest chargeable under this Promissory Note (the "Note")
shall be computed on the basis of a 360-day year for
actual days elapsed.
The entire Principal Sum with all accrued interest
shall be due on September 30, 1996. This Note is secured
pursuant to the Security Agreement from Maker to Payee of
even date herewith and attached hereto as Exhibit A
("Security Agreement").
This Note is one of a series of Promissory Notes. The
terms and conditions of all of the Promissory Notes shall
be identical in all respects, except that the principal
sum of each of the Promissory Notes (and, as such, the
amount of interest payable) may differ. All Promissory
Notes of this series rank equally and ratably without
priority over one another.
All payments of interest, principal, or both, are
payable at 2101 West Commercial Boulevard, Suite 1500,
Fort Lauderdale, Florida 33309, or at such other place as
the Payee may designate in writing, in lawful money of
the United States of America, which shall be legal tender
in payment for all debts, public and private, at the time
of payment.
The privilege is reserved and given to prepay
without penalty the indebtedness evidenced hereby, in whole
or in part, at any time without notice. All such partial
prepayments shall be applied first against the payment of
all interest accrued and unpaid to the date of such
prepayment, and then against the Principal Sum.
The failure of the Maker to pay when due any
installment of principal or interest on this Note shall
constitute a default under this Note, whereupon the owner
or holder hereof may, at its option, exercise any or all
rights, powers, remedies afforded, including the right to
declare the unpaid balance of Principal Sum and accrued
interest on this Note at once mature and payable.
If this Note is placed in the hands of an attorney
for collection, by suit or otherwise, or to protect any
security for its payment, the undersigned will pay all
costs of collection and litigation, together with reasonable
attorneys' fees incurred at both trial and appellate
levels. The laws of the State of Florida shall govern
and the proper venue and jurisdiction shall be Dade County,
Florida.
Payor expressly waives protest, demand, presentment
and notice of dishonor, and agrees that this Note may be
extended, in whole or in part, without limit as to the
number of such extensions or the number of periods thereof
and without affecting the liability thereon.
Each of the provisions of this Note is and shall be
deemed to be severable; and in the event that any
provision hereof be deemed to be invalid for any reason of
the operation of any law or by reason of the
interpretation placed thereon by any court, said provision
shall be deemed to be stricken herefrom, and this Note
shall be construed as not containing such provision. The
validity or lack thereof of such provision shall not effect
the validity of any other provision hereof, and any and
all other provisions which are otherwise lawful and valid
shall remain in full force and effect.
This Note may be assigned or transferred by Payee but
shall not be assigned or transferred by Maker without
the written consent of Payee.
The word undersigned as used herein shall be
considered to mean and include all makers and endorsers
hereof. Words used in the plural herein shall include the
singular, as the context may require.
IN WITNESS WHEREOF, the undersigned Maker has duly
executed this Note as of the day and year above first
written.
OZO DIVERSIFIED AUTOMATION, INC.,
a Colorado corporation
By:
Name: Marjorie Zimdars-Orthman
Title: President
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") made as of the
1st day of April, 1996 is given by Ozo Diversified Automation,
Inc., a Colorado corporation ("Debtor"), to Steven N. Bronson,
Lenore Katz, James S. Cassel, Bruce C. Barber and Eric Elliott
(collectively, the "Secured Parties").
R E C I T A L S:
A. Debtor has borrowed the principal amount of One Hundred
Thousand Dollars ($100,000.00) in the aggregate from Secured
Parties, which is evidenced by a series of Promissory Notes of
even date herewith from Debtor to each of Secured Parties
(collectively, the "Notes").
B. In order to induce Secured Parties to make said loan to
Debtor, Debtor has agreed to grant to each of Secured Parties a
security interest in any and all of Debtor's right, title and
interest in and to any and all Accounts as defined in the Uniform
Commercial Code as in effect from time to time in the State of
Florida including but not limited to any and all accounts
receivable now or hereafter existing (the "Collateral").
NOW, THEREFORE, with reference to the above recitals, and in
reliance thereon, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Creation of Security Interest. Debtor hereby grants to
each of Secured Parties a security interest in, and does hereby
collaterally assign, hypothecate, pledge, mortgage, convey and
set over unto Secured Parties, the Collateral and all of Debtor's
present and hereafter acquired right, title and interest in and
to the Collateral, for the purpose of securing payment of the
principal of and interest on and all other amounts and payments
due on account of the Notes (the "Indebtedness") and the
performance of all agreements, covenants, terms and conditions
contained in the Notes and this Security Agreement. The security
interest of each of the Secured Parties ranks equally and ratably
without priority over one another.
2. Warranties, Representations and Covenants of Debtor.
Debtor hereby warrants, represents and covenants to Secured
Parties as follows:
(a) Debtor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Colorado. Debtor has full corporate power and authority to
conduct its business as it is currently conducted or proposed to
be conducted, to own all of its properties and to execute,
deliver and perform this Agreement and the Notes and to perform
its obligations hereunder and thereunder.
<PAGE>
(b) The execution and delivery of this Agreement and the
Notes and the performance of Debtor's obligations hereunder and
thereunder have been duly authorized by all requisite corporate
action on the part of Debtor. This Agreement and the Notes have
been duly executed and delivered by Debtor and constitute the
legal and valid obligations of Debtor, enforceable against Debtor
in accordance with their respective terms. The execution,
delivery and performance of this Agreement and the Notes, and the
taking of any and all actions contemplated thereby, will not
constitute a breach or default under, or be in conflict with, any
contractual or other obligations to which Debtor or by which the
Collateral is bound.
(c) Except for the security interest granted hereby, a
security interest granted to Ariel Electronics, Inc. (for which a
Subordination Agreement has been signed), and a security interest
granted to Professional Bank, Debtor is and will be the sole
owner of the Collateral, free and clear from any lien, security
interest, encumbrance or adverse claim of any kind. Debtor will
not permit any financing statement (other than the financing
statement filed by Professional Bank) to be filed with respect to
the Collateral or any portion thereof except in favor of Secured
Parties. Debtor will notify Secured Parties of, and will defend
the Collateral against, all claims and demands of all persons at
any time claiming the same or any interest therein.
(d) The security interest granted to Professional Bank was
granted to secure a line of credit pursuant to which the Company
may borrow up to $30,000. As of the date of this Agreement, the
Company had borrowed under the line of credit a total of $30,000.
In addition, the Company has executed a short term note in favor
of Professional Bank in the amount of $50,000. The Company
covenants and agrees that until the Notes have been paid in full,
the Company will not borrow in excess of $30,000 under the line
of credit and will not increase the amount available to the
Company pursuant to the line of credit. The Company covenants
and agrees that it will pay in full the short term note to
Professional Bank by May 8, 1996. Moreover, until the Notes have
been paid in full, the Company will not borrow any additional
monies from Professional Bank.
(e) The chief executive offices of Debtor are at 7450 East
Jewell Avenue, Suite A, Denver, Colorado 80231. Debtor will not
change the address of its chief executive offices without at
least thirty (30) days' advance notice to Secured Parties.
(f) A financing statement covering certain of the
Collateral is on file with the State of Colorado for Professional
Bank. Debtor will at its own cost and expense, upon demand,
furnish to Secured Parties such further information and will
execute and deliver to Secured Parties such financing statements
and other documents in form satisfactory to Secured Parties and
will do all such acts as Secured Parties may at any time or from
time to time request or as may be necessary or appropriate to
establish and maintain a perfected security interest in the
Collateral as security for the Notes, subject to no other liens
or encumbrances, other than liens or encumbrances benefiting
Professional Bank; and Debtor will pay the cost of filing or
<PAGE>
recording such financing statements or other documents, in all
public offices wherever filing or recording is deemed desirable
by Secured Parties.
(g) Debtor shall furnish promptly to Secured Parties such
information concerning the Collateral as Secured Parties may from
time to time reasonably request. Debtor shall permit and hereby
authorizes Secured Parties to examine and inspect the Collateral
and any portion thereof wherever the same may be located. Debtor
shall, at the request of Secured Parties, assemble the Collateral
or such portion thereof as may be designated by Secured Parties,
together with all documents and records pertaining thereto, at
such place as Secured Parties may designate.
3. Default. If any one or more of the following events
("Events of Default") shall occur:
(a) Debtor shall fail to pay the principal or interest under the
Notes when due;
(b) Debtor fails to observe or perform any covenant, condition
or agreement required to be observed or performed by Debtor
hereunder;
(c) any representation or warranty made by Debtor herein is
false or incorrect in any material respect; or
(d) any breach, violation or failure to perform any covenant,
condition or agreement contained in the Subordination Agreement.
then Steven N. Bronson, as representative of the Secured Parties,
may, in addition to exercising the remedies specified in the
Notes and otherwise available to Secured Parties at law or in
equity, exercise the rights and remedies provided in this
Agreement.
4. Remedies upon Default. Upon the occurrence of an Event
of Default, Steven N. Bronson, as representative of the Secured
Parties, may, without further notice, and to the extent permitted
by law, pursue any one or more of the following remedies
concurrently or successively, it being the intent hereof that
none of such remedies shall be to the exclusion of any others:
(a) make such payments and do such acts as Steven N. Bronson may
deem necessary to protect the security interest of the Secured
Parties in the Collateral, including without limitation, paying,
purchasing, contesting or compromising any encumbrance, charge,
claim or lien which is prior to or superior to the security
interest granted hereunder and, in exercising any such powers or
authority, pay all expenses incurred in connection therewith, and
all funds expended by Secured Parties in protecting its security
interest shall be deemed additional indebtedness secured by this
Agreement;
(b) require Debtor to assemble the Collateral, or any portion
thereof, at any place or places designated by Steven N. Bronson,
and promptly to deliver such Collateral to Steven N. Bronson, or
another agent or representative designated by them;
<PAGE>
(c) publicly or privately sell, or otherwise dispose of the
Collateral, upon terms and in such manner as Secured Parties may
determine. Secured Parties may be a purchaser of the Collateral
at any public sale. Steven N. Bronson will give Debtor
reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other
intended disposition thereof is to be made, and such notice, if
given to Debtor pursuant to the provisions of Section 6 hereof at
least five (5) days prior to the date of any public sale or
disposition or the date after which any private sale or
disposition may occur, shall constitute reasonable notice of such
sale, lease or other disposition. Steven N. Bronson, on behalf
of the Secured Parties, may postpone or adjourn any such sale of
the Collateral from time to time by an announcement at the time
and place of sale or by announcement at the time and place of
such postponed or adjourned sale, without being required to give
a new notice of sale. Further, Debtor waives and releases any
cause of action and claim against Secured Parties as a result of
Secured Parties' possession, collection or sale of the
Collateral, any liability or penalty for failure of Secured
Parties to comply with any requirement imposed on Secured Parties
relating to notice of sale, holding of sale or reporting of sale
of the Collateral, and, to the extent permitted by law, any right
of redemption from such sale;
(d) notify any account debtor or any other party obligated on or
with respect to any of the Collateral to make payment to Secured
Parties or its nominee of any amounts due or to become due
thereunder or with respect thereto and otherwise perform its
obligations with respect to the Collateral on behalf of and for
the benefit of the Secured Parties. Steven N. Bronson, as
representative of the Secured Parties, may enforce collection and
performance with respect to any of the Collateral by suit or
otherwise, in its own name or in the name of Debtor or a nominee,
and surrender, release, or exchange all or any part thereof; and
compromise, extend or renew (whether or not for longer than the
original period) or transfer, assign or endorse for collection or
otherwise, any indebtedness or obligation with respect to the
Collateral, or evidence thereof, and upon request of Steven N.
Bronson, as representative of the Secured Parties, Debtor will,
at its own expense, notify any person obligated on or with
respect to any of the Collateral to make payment and performance
directly to, in the name of, and on behalf of Secured Parties of
any amounts or performance due or to become due thereunder or
with respect thereto; and
(e) exercise any remedies of a secured party under the Uniform
Commercial Code or any other applicable law.
To effectuate the foregoing, Debtor hereby agrees that if
Steven N. Bronson, as representative of the Secured Parties,
demands or attempts to take possession of the Collateral or any
portion thereof in exercise of its rights and remedies hereunder,
Debtor will immediately turn over and deliver possession thereof
to Secured Parties, and Debtor authorizes, to the extent Debtor
may now or hereafter lawfully grant such authority, Secured
Parties, their employees and agents, and potential bidders or
purchasers to enter upon any or all of the premises where the
<PAGE>
Collateral or any portion thereof may at the time be located (or
believed to be located) and Steven N. Bronson, on behalf of the
Secured Parties, may (i) remove the same therefrom, (ii) manage
the Collateral or any portion thereof, (iii) maintain the
Collateral or any portion thereof, (iv) view, inspect and prepare
for sale, the Collateral or any portion thereof, (v) sell,
dispose of or consume the same or bid thereon. In the event
Steven N. Bronson, as representative of the Secured Parties,
seeks possession of the Collateral through replevin or other
court process, Debtor hereby irrevocably waives (a) any bond,
surety or security required as an incident to such possession,
and (b) any demand for possession of the Collateral prior to
commencement of any suit or action to recover possession thereof.
Debtor hereby indemnifies, defends, protects and holds
harmless Secured Parties from and against any and all damages,
liabilities, claims and obligations which may be incurred,
asserted or imposed upon Secured Parties as a result of or in
connection with any of the Collateral or as a result of Secured
Parties' seeking to obtain performance of any of the obligations
due with respect to the Collateral, except from such damages,
liabilities, claims or obligations as result from gross
negligence or intentional misconduct of Secured Parties.
Steven N. Bronson, as representative of the Secured Parties,
shall have the right to enforce one or more remedies hereunder,
successively or concurrently, and such action shall not operate
to estop or prevent the Secured Parties from pursuing any further
remedy which it may have, and any repossession or retaking or
sale of the Collateral pursuant to the terms hereof shall not
operate to release Debtor until full payment of any deficiency
has been made in cash.
5. Application of Proceeds. The proceeds of disposition
of the Collateral shall be applied in the following order to:
(a) the reasonable expenses of retaking, holding, preparing for
sale, selling and the like, including reasonable attorneys' fees
and legal expenses incurred by Secured Parties; and
(b) the Notes.
Secured Parties shall account to Debtor for any surplus, and
Debtor shall remain liable for any deficiency.
6. Notices. Any notice, demand or other communication
which Debtor or Secured Parties may desire or may be required to
give to the other shall be in writing, and shall be deemed given
if and when personally delivered, or on the first business day
following delivery to a nationally recognized courier service for
next business day delivery, charges billed to or prepaid by
shipper, or the second business day after being deposited in
United States registered or certified mail, postage prepaid,
addressed to the party for whom it is intended at its or his
address set forth below, or to such other address as Debtor or
Secured Parties may have designated by written notice given in
accordance herewith:
<PAGE>
If to the Secured Parties:
c/o Barber & Bronson Incorporated
2101 West Commercial Boulevard
Suite 1500
Fort Lauderdale, Florida 33309
If to Debtor: Ozo Diversified Automation, Inc.
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
Attention: Ms. Marjorie Zimdars-Orthman,
President
Except as otherwise specifically required herein, notice of the
exercise of any right, option or power granted to Secured Parties
by this Agreement is not required to be given.
7. Waiver. By exercising or failing to exercise any of
its rights, options or elections hereunder, Secured Parties shall
not be deemed to have waived any breach or default on the part of
Debtor or to have released Debtor from any of its obligations
hereunder, unless such waiver or release is in writing and signed
by Secured Parties. In addition, the waiver by Secured Parties
of any breach hereof or default in payment of any amounts due
under the Notes shall not be deemed to constitute a waiver of any
succeeding breach or default.
8. Binding Agreement. This Agreement and all provisions
hereof shall be binding upon Debtor, its successors and assigns
and all other persons or entities claiming under or through
Debtor, and the word "Debtor," when used herein, shall include
all such persons or entities and any others liable for the
payment of the indebtedness secured hereby or any part thereof,
whether or not they have executed this Agreement. The word
"Secured Parties," when used herein, shall include the
successors, endorsees and assigns of Secured Parties.
9. Governing Law; Interpretation. This Agreement shall be
governed by the laws of the State of Florida, without application
of the principles of conflicts of law; except that the perfection
of the security interest granted by Debtor to Secured Parties
pursuant to this Agreement shall be governed by the laws of the
State of Colorado. Wherever possible each provision of this
Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of
this Agreement shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Time is of the essence in this Agreement.
<PAGE>
10. Miscellaneous. Neither this Agreement nor any
provision hereof may be amended, modified, waived, discharged or
terminated nor may any of the Collateral be released, except by
an instrument in writing duly signed by or on behalf of Secured
Parties hereunder. The section headings are used herein for
convenience of reference only and shall not define or limit the
provisions of this Agreement. As used in this Agreement, the
singular shall include the plural, and the plural shall include
the singular, and masculine, feminine, and neuter pronouns shall
be fully interchangeable, where the context so requires.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be
executed by its officers thereunto duly authorized as of the day
and year first above written.
DEBTOR:
OZO DIVERSIFIED AUTOMATION,
INC., a Colorado corporation
By:
Marjorie Zimdars-Orthman,
President
Steven N. Bronson
Lenore Katz
James S. Cassel
Bruce C. Barber
Eric Elliott
<PAGE>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART,
UNLESS ANY SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS UNDER SAID ACT IS AVAILABLE, AND THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE COMPANY.
OZO DIVERSIFIED AUTOMATION, INC.
COMMON STOCK PURCHASE WARRANT
1. Number and Price of Shares of Common Stock Subject to
Common Stock Purchase Warrant. Subject to the terms and
conditions hereinafter set forth, --------- (the "Holder"), is entitled
to purchase from Ozo Diversified Automation, Inc., a Colorado
corporation (the "Company"), at any time and from time to time
during the period from April 1, 1996 (the "Commencement Date")
until 5:00 p.m., Miami, Florida Time, on April 1, 2001 (the
"Expiration Date"), at which time this Common Stock Purchase
Warrant (the "Warrant") shall expire and become void, an
aggregate of twenty-five thousand (25,000) shares (the "Warrant
Shares") of the Company's common stock, $.10 par value per share
(the "Common Stock"), which number of Warrant Shares is subject
to adjustment from time to time, as described below, upon payment
therefor of the exercise price of $1.00 per Warrant Share in
lawful funds of the United States of America, such amounts (the
"Basic Exercise Price") being subject to adjustment in the cir
cumstances set forth hereinbelow. This applicable Basic Exercise
Price, until such adjustment is made and thereafter as adjusted
from time to time, is called the "Exercise Price."
2. Exercise of Warrant. This Warrant may be exercised in
whole or in part at any time from and after the Commencement Date
and on or before the Expiration Date, provided however, if such
Expiration Date is a day on which Federal or State chartered
banking institutions located in the State of Florida are
authorized by law to close, then the Expiration Date shall be
deemed to be the next succeeding day which shall not be such a
day, by presentation and surrender to the Company at its
principal office, or at the office of any transfer agent for the
Warrants ("Transfer Agent"), designated by the Company, of this
Warrant accompanied by the form of election to purchase on the
last page hereof signed by the Holder and upon payment of the
Exercise Price for the Warrant Shares purchased thereby, by
cashier's check or by wire transfer of immediately available
funds. If this Warrant is exercised in part only, the Company or
Transfer Agent shall, promptly after presentation of this Warrant
upon such exercise, execute and deliver a new Warrant, dated the
date hereof, evidencing the rights of the Holder to purchase the
balance of the Warrant Shares purchasable hereunder upon the same
<PAGE>
terms and conditions herein set forth. This Warrant shall be
deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided
above, and the person entitled to receive the Warrant Shares or
other securities issuable upon such exercise shall be treated for
all purposes as the holder of such shares of record as of the
close of business on such date. As promptly as practicable, the
Company shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number
of full Warrant Shares issuable upon such exercise, together with
cash in lieu of any fraction of a share as provided below.
3. Demand Registration Rights. If, at any time prior to
the Expiration Date, the Holders of a majority of the Warrants or
the shares of Common Stock acquired upon the exercise of the
Warrants shall give notice to the Company requesting that the
Company file with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Common
Stock underlying such Warrants issued or issuable upon exercise
thereof (the "Registration Statement"), the Company shall
promptly give written notice of such proposed Registration
Statement to the Holders of such Warrants or Common Stock, and to
any subsequent permissible transferee of any of the Warrants or
Common Stock (at the address of such persons appearing on the
books of the Company or its transfer agent) which notice shall
offer to include the Common Stock underlying such Warrants
issuable or issued upon exercise thereof in the requested
Registration Statement. The Company shall, as expeditiously as
possible, file and use its best efforts to cause to become
effective under the Securities Act of 1933, as amended (the
"Securities Act"), the Registration Statement covering such of
the Common Stock underlying the Warrants issuable or issued on
exercise of the Warrants as the Company has been requested to
register for disposition by the Holders thereof, to the extent
required to permit the public sale or other public disposition
thereof by the Holders. The Company shall cause the Registration
Statement to remain effective for a period of twelve (12) months
from the effective date of the Registration Statement or such
earlier date as all of the Common Stock underlying the Warrants
issuable or issued upon exercise thereof have been sold or the
Warrants expire (the "Effective Period"). The Company shall pay
all costs, expenses, disbursements, and fees, including fees and
expenses of counsel and accountants for the Company, and the
expenses of preparing, printing and filing under the Act and of
furnishing copies of the prospectus, in connection with the
Registration Statement and also including all costs, expenses,
disbursements, and fees required to keep such Registration
Statement current for the Effective Period, but excluding costs
or expenses of the Holders' counsel, accountants or other
professionals retained by the Holders and underwriting discounts
and expenses attributable to the Company's securities held by the
Holders.
4. Reservation of Common Stock. The Company covenants
that, during the period this Warrant is exercisable, the Company
will reserve from its authorized and unissued Common Stock a
sufficient number of shares of Common Stock to provide for the
issuance of the Warrant Shares upon the exercise of this Warrant.
This Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with
<PAGE>
the duty of executing stock certificates to execute and issue the
necessary certificates for Warrant Shares upon the exercise of
this Warrant.
5. No Stockholder Rights. This Warrant, as such, shall
not entitle the Holder to any rights of a stockholder of the
Company, until the Holder has exercised this Warrant in
accordance with Section 2 hereof.
6. Adjustment of Exercise Price and Number of Warrant
Shares.
6.1 The number and kind of securities issuable upon the
exercise of this Warrant shall be subject to adjustment from time
to time, and the Company agrees to provide notice upon the
happening of certain events, as follows:
a. If the Company is recapitalized through the subdivision
or combination of its outstanding shares of Common Stock into a
larger or smaller number of shares of Common Stock, the number of
shares of Common Stock for which this Warrant may be exercised
shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or
decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount
payable for the purchase of all of the Warrant Shares issuable
hereunder immediately after the record date for such
recapitalization shall equal the aggregate amount so payable
immediately before such record date.
b. If the Company declares a dividend on its Common Stock
payable in shares of its Common Stock or securities convertible
into shares of its Common Stock, the number of shares of Common
Stock for which this Warrant may be exercised shall be increased
as of the record date for determining which holders of Common
Stock shall be entitled to receive such dividend, in proportion
to the increase in the number of outstanding shares of Common
Stock (and shares of Common Stock issuable upon conversion of all
such securities convertible into shares of Common Stock) as a
result of such dividend, and the Exercise Price shall be adjusted
so that the aggregate amount payable for the purchase of all the
Warrant Shares issuable hereunder immediately after the record
date for such dividend shall equal the aggregate amount so
payable immediately before such record date.
c. If the Company effects a general distribution to
holders of its Common Stock, other than as part of the Company's
dissolution or liquidation or the winding up of its affairs, of
any shares of its capital stock, any evidence of indebtedness or
any of its assets (other than cash, shares of Common Stock or
securities convertible into shares of Common Stock), the Company
shall give written notice to the Holder of any such general
distribution at least fifteen (15) days prior to the proposed
record date in order to permit the Holder to exercise this
Warrant on or before the record date. There shall be no
adjustment in the number of shares of Common Stock for which this
Warrant may be exercised, or in the Exercise Price, by virtue of
any such general distribution, except as otherwise provided
herein.
<PAGE>
d. If the Company offers rights or warrants (other than
the Warrant) to all holders of its Common Stock which entitle
them to subscribe to or purchase additional shares of Common
Stock or securities convertible into shares of Common Stock, the
Company shall give written notice of any such proposed offering
to the Holder at least fifteen (15) days prior to the proposed
record date in order to permit the Holder to exercise this
Warrant on or before such record date.
e. In the event an adjustment in the Exercise Price or the
number of Warrant Shares issuable hereunder is made under
subsection a. or b. above, and such an event does not occur, then
any adjustments in the Exercise Price or number of Warrant Shares
issuable upon exercise of this Warrant that were made in
accordance with such subsection a. or b. shall be re-adjusted to
the Exercise Price and number of Warrant Shares as were in effect
immediately prior to the record date for such an event.
f. If and whenever the Company issues or sells, or in
accordance with Subsection 6.1 is deemed to have issued or sold,
any shares of its Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to the time
of such issuance or sale (except for the issuance or deemed
issuance of securities in a transaction described in paragraph g.
of this Subsection 6.1), then immediately upon such issuance or
sale the Exercise Price will be reduced to an Exercise Price
determined by multiplying the Exercise Price in effect
immediately prior to the issuance or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding prior to the issuance or sale plus
(ii) the number of Warrant Shares issuable hereunder that the
maximum aggregate amount of consideration receivable by the
Company upon such issuance or sale would purchase at the Exercise
Price in effect immediately prior to the issuance or sale, and
the denominator of which shall be the number of shares of Common
Stock deemed outstanding, as hereinafter determined, immediately
after such issuance or sale.
g. The following securities or transactions shall be
excluded from the operation of paragraph f. of this Subsection
6.1:
(i) The existence and any exercise of any option,
convertible promissory note, warrant, or other right to purchase
Common Stock, that is outstanding on the date hereof; and
(ii) Any grant or exercise of options for Common
Stock granted under the Company's stock option plans, in
existence as of the date hereof, provided said grant or exercise
is not effectuated as a result of any amendment to such plans
subsequent to the date hereof, with an exercise price equal to at
least the fair market value of the shares of Common Stock on the
date of grant; and
(iii) Any shares issued to Advanced Controls
in connection with the proposed stock exchange agreement between
the Company and Advanced Controls.
<PAGE>
h. If the Company in any manner grants any rights or
options to subscribe for or to purchase Common Stock or any stock
or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Rights" and
such convertible or exchangeable stock or securities being herein
called "Convertible Securities"), and the price per share for
which Common Stock is issuable upon the exercise of such Rights
or upon conversion or exchange of such Convertible Securities is
less than the Exercise Price in effect immediately prior to the
time of the granting of such Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of
such Rights or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise
of such Rights will be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For
purposes of this Section, the "price per share for which Common
Stock is issuable upon exercise of such Rights or upon conversion
or exchange of such Convertible Securities" will be determined by
dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Rights,
plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Rights, plus, in
the case of Rights that relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock then
issuable upon the exercise of such Rights or upon the conversion
or exchange of all Convertible Securities issuable upon the
exercise of such Rights. Except as otherwise provided in
Subsections j. and k. below, no adjustment of the Exercise Price
will be made when Convertible Securities are actually issued upon
the exercise of such Rights or when Common Stock is actually
issued upon the exercise of such Rights or the conversion or
exchange of such Convertible Securities.
i. If the Company in any manner issues or sells any
Convertible Securities, and the price per share for which Common
Stock is issuable upon such conversion or exchange is less than
the Exercise Price in effect immediately prior to the time of
such issuance or sale, then the maximum number of shares of
Common Stock then issuable upon conversion or exchange of all
such Convertible Securities will be deemed to be outstanding and
to have been issued and sold by the Company for such price per
share, as determined below. For the purposes of this Section,
the "price per share for which Common Stock is issuable upon such
conversion or exchange" will be determined by dividing (i) the
total amount received or receivable by the Company as
consideration for the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (ii) the total maximum number of shares
of Common Stock then issuable upon the conversion or exchange of
all such Convertible Securities. Except as otherwise provided in
Subsections j. and k. below, no adjustment of the Exercise Price
will be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any
such issuance or sale of such Convertible Securities is made upon
exercise of any Convertible Securities for which adjustments of
the Exercise Price had been or are to be made pursuant to other
provisions of this Section 6, no further adjustment of the
Exercise Price will be made by reason of such issuance or sale.
<PAGE>
j. If (a) the purchase price provided for in any Rights,
(b) the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities, or (c) the
rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock, changes at any time (other than
under or by reason of provisions that are designed to protect
against dilution of the type set forth in this Section 6 and are
no more favorable to the holders of such Rights or Convertible
Securities than this Section 6 would have if this Section 6 were
included in such Rights or Convertible Securities), then the
Exercise Price in effect at the time of such change will be re-
adjusted to the Exercise Price that would have been in effect at
such time had such Rights or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration, or changed conversion rate, as the case may be, at
the time initially granted, issued, or sold; and such adjustment
of the Exercise Price will be made whether the result thereof is
to increase or reduce the Exercise Price then in effect under
this Warrant, provided that no such adjustment shall increase the
Exercise Price above the initial Exercise Price hereof and that
such adjustments shall be made by the Board of Directors of the
Company who shall promptly provide notice of the new Exercise
Price to the Holder.
k. Upon the expiration of any Right, or the termination of
any right to convert or exchange any Convertible Security,
without the exercise of such Right, or the conversion of such
Convertible Security, the Exercise Price then in effect hereunder
will be adjusted to the Exercise Price that would have been in
effect at the time of such expiration or termination had such
Right or Convertible Security never been issued, but such
subsequent adjustment shall not affect the number of shares of
Common Stock issued upon any exercise of this Warrant prior to
the date such adjustment is made.
l. If any shares of Common Stock, Rights, or Convertible
Securities are issued or sold or deemed to have been issued or
sold for consideration that includes cash, then the amount of
cash consideration actually received by the Company will be
deemed to be the cash portion thereof. If any shares of Common
Stock, Rights, or Convertible Securities are issued or sold or
deemed to have been issued or sold for a consideration part or
all of which is other than cash, then the amount of the
consideration other than cash received by the Company will be the
fair value of such consideration as determined by the Board of
Directors of the Company, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company will be the market value thereof as of
the date of receipt. If any shares of Common Stock, Rights, or
Convertible Securities are issued in connection with any merger
or consolidation in which the Company is the surviving
corporation, then the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to
such Common Stock, Rights, or Convertible Securities, as the case
may be.
<PAGE>
m. If any Right is issued in connection with the issuance
or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is
allocated to such Right by the parties thereto, the Right will be
deemed to have been issued without consideration.
n. The number of shares of Common Stock deemed outstanding
at any given time shall include the number of shares of Common
Stock outstanding, as adjusted as provided herein, but shall not
include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held will
be considered an issuance or sale of Common Stock hereunder.
o. No adjustment of the Exercise Price shall be made if
the amount of such adjustment would be less than one cent per
Warrant Share, but in such case any adjustment that otherwise
would be required to be made shall be carried forward and shall
be made at the time and together with the next subsequent
adjustment that, together with any adjustment or adjustments so
carried forward, shall amount to not less than one cent per
Warrant Share.
6.2 In the event of any reorganization or reclassification
of the outstanding shares of Common Stock (other than a change in
par value, or from no par value to par value, or from par value
to no par value, or as a result of a subdivision or combination)
or in the event of any consolidation or merger of the Company
with another entity at any time prior to the expiration of this
Warrant, the Holder shall have the right to exercise this
Warrant. Upon such exercise, the Holder shall have the right to
receive the same kind and number of shares of capital stock and
other securities, cash or other property as would have been
distributed to the Holder upon such reorganization,
reclassification, consolidation or merger. The Holder shall pay
upon such exercise the Exercise Price that otherwise would have
been payable pursuant to the terms of this Warrant. If any such
reorganization, reclassification, consolidation or merger results
in a cash distribution in excess of the then applicable Exercise
Price, the Holder may, at the Holder's option, exercise this
Warrant without making payment of the Exercise Price, and in such
case the Company shall, upon distribution to the Holder, consider
the Exercise Price to have been paid in full, and in making
settlement to the Holder, shall deduct an amount equal to the
Exercise Price from the amount payable to the Holder. In the
event of any such reorganization, merger or consolidation, the
corporation formed by such reorganization, consolidation or
merger or the corporation which shall have acquired the assets of
the Company shall execute and deliver a supplement hereto to the
foregoing effect, which supplement shall also provide, if
applicable, for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments required pursuant to
this Warrant.
6.3 If the Company shall, at any time before the expiration
of this Warrant, dissolve, liquidate or wind up its affairs, the
Holder shall have the right to exercise this Warrant. Upon such
exercise the Holder shall have the right to receive, in lieu of
the shares of Common Stock of the Company that the Holder
otherwise would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid
<PAGE>
to the Holder upon any such dissolution, liquidation or winding
up with respect to such stock receivable upon exercise of this
Warrant on the date for determining those entitled to receive any
such distribution. If any such dissolution, liquidation or
winding up results in any cash distribution in excess of the
Exercise Price provided by this Warrant, the Holder may, at the
Holder's option, exercise this Warrant without making payment of
the Exercise Price and, in such case, the Company shall, upon
distribution to the Holder, consider the Exercise Price to have
been paid in full and, in making settlement to the Holder, shall
deduct an amount equal to the Exercise Price from the amount
payable to the Holder.
6.4 Upon each adjustment of the Exercise Price pursuant to
Section 6 hereof, the Holder shall thereafter (until another such
adjustment) be entitled to purchase, at the adjusted Exercise
Price in effect on the date this Warrant is exercised, the number
of Warrant Shares, calculated to the nearest number of Warrant
Shares, determined by (a) multiplying the number of Warrant
Shares purchasable hereunder immediately prior to the adjustment
of the Exercise Price by the Exercise Price in effect immediately
prior to such adjustment, and (b) dividing the product so
obtained by the adjusted Exercise Price in effect on the date of
such exercise. The provisions of Section 9 shall apply, however,
so that no fractional share of Common Stock or fractional Warrant
shall be issued upon exercise of this Warrant.
6.5 The Company may retain a firm of independent public
accounts of recognized standing (who may be any such firm
regularly employed by the Company) to make any computation
required under this Section 6, and a certificate signed by such
firm shall be conclusive evidence of the correctness of any
computation made under this Section 6.
7. Notice to Holder. So long as this Warrant shall be
outstanding (a) if the Company shall pay any dividends or make
any distribution upon the Common Stock otherwise than in cash or
(b) if the Company shall offer generally to the holders of Common
Stock the right to subscribe to or purchase any shares of any
class of capital stock or securities convertible into capital
stock or any similar rights or (c) if there shall be any capital
reorganization of the Company in which the Company is not the
surviving entity, recapitalization of the capital stock of the
Company, consolidation or merger of the Company with or into
another corporation, sale, lease or other transfer of all or
substantially all of the property and assets of the Company, or
voluntary or involuntary dissolution, liquidation or winding up
of the Company, then in such event, the Company shall cause to be
mailed by registered or certified mail to the Holder, at least
thirty (30) days prior to the relevant date described below (or
such shorter period as is reasonably possible if thirty (30) days
is not reasonably possible), a notice containing a description of
the proposed action and stating the date or expected date on
which a record of the Company's shareholders is to be taken for
the purpose of any such dividend, distribution of rights, or such
reclassification, reorganization, consolidation, merger,
conveyance, lease or transfer, dissolution, liquidation or
winding up is to take place and the date or expected date, if any
is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
<PAGE>
8. Certificate of Adjustment. Whenever the Exercise Price
or number or type of securities issuable upon exercise of this
Warrant is adjusted, as herein provided, the Company shall
promptly deliver to the Holder of this Warrant a certificate of
an officer of the Company setting forth the nature of such
adjustment and a brief statement of the facts requiring such
adjustment.
9. No Fractional Shares. No fractional shares of Common
Stock will be issued in connection with any subscription
hereunder. In lieu of any fractional shares which would
otherwise be issuable, the Company shall pay cash equal to the
product of such fraction multiplied by the fair market value of
one share of Common Stock on the date of exercise, as determined
in good faith by the Company's Board of Directors.
10. Transfer or Loss of Warrant.
10.1 Prior to any proposed transfer of this Warrant or the
Warrant Shares received on the exercise of this Warrant (the
"Securities"), unless there is in effect a registration statement
under the Securities Act, covering the proposed transfer, the
Holder thereof shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed
transfer in sufficient detail, and shall, if the Company so
requests, be accompanied by an unqualified written opinion of
legal counsel who shall be reasonably satisfactory to the Company
addressed to the Company and reasonably satisfactory in form and
substance to the Company's counsel, to the effect that the
proposed transfer of the Securities may be effected without
registration under the Securities Act, whereupon the Holder of
the Securities shall be entitled to transfer the Securities in
accordance with the terms of the notice delivered by the Holder
to the Company. Each certificate evidencing the Securities
transferred as above provided shall not bear such restrictive
legends if in the opinion of counsel for the Company such legends
are not required in order to establish compliance with any
provisions of the Securities Act.
10.2 Upon receipt by the Company of evidence satisfactory to
it of loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, or, in the case of mutilation, upon
surrender of this Warrant, the Company will execute and deliver,
or instruct the Transfer Agent to execute and deliver, a new
Warrant of like tenor and date and any such lost, stolen or
destroyed Warrant thereupon shall become void.
11. Notices. Notices and other communications to be given
to the Holder shall be deemed sufficiently given if delivered by
hand, or five (5) days after mailing by registered or certified
mail, postage prepaid, to the Holder at 2101 West Commercial
Boulevard, Suite 1500, Fort Lauderdale, Florida 33309. Notices
or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand or five days after
mailing if mailed by registered or certified mail postage
prepaid, to the Company at 7450 East Jewell Avenue, Suite A,
Denver, Colorado 80231. A party may change the address to which
notice shall be given by notice pursuant to this Section 11.
<PAGE>
12. Entire Agreement and Modification. The Company and the
Holder of this Warrant hereby represent and warrant that this
Warrant is intended to and does contain and embody all of the
understandings and agreements, both written and oral, of the
parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral agreement or
understanding, express or implied liability, whereby the
absolute, final and unconditional character and nature of this
Warrant shall be in any way invalidated, impaired or affected. A
modification or waiver of any of the terms, conditions or
provisions of this Warrant shall be effective only if made in
writing and executed with the same formality of this Warrant.
13. Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Florida,
without application of the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has executed this Warrant as
of the 1st day of April, 1996.
OZO DIVERSIFIED AUTOMATION, INC.,
a Colorado corporation
By:
Name: Marjorie Zimdars-Orthman
Title: President
<PAGE>
ELECTION TO PURCHASE
TO: Ozo Diversified Automation, Inc.
The undersigned hereby irrevocably elects to exercise
Warrants represented by this Common Stock Purchase Warrant to
purchase ____________________ shares of Common Stock issuable
upon the exercise of such Warrants and requests that certificates
for such shares be issued in the name of:
(Please insert social security or other identifying number)
(Please print name and address)
Dated: ____________________, 19__
(Signature
must conform in all respects to
name of holder as specified on the
face of the Warrant)
<PAGE>
PROMISSORY NOTE
Dated: JuLY 1, 1996 $40,000
THE UNDERSIGNED, Ozo Diversified Automation, Inc. (the
"Maker"), promises to pay to Steven N. Bronson ("Payee") the
principal sum of Forty Thousand Dollars (the "Principal Sum"), in
such coin or currency of the United States which shall be legal
tender in payment of all debts and dues, public and private, at
the time of payment, together with interest on so much thereof as
is from time to time unpaid, from the date hereof until paid.
The entire Principal Sum with all accrued interest shall be due
upon the earlier of (i) two days from the date of the Company's
receipt of payment of its accounts receivable for Chrysler Credit
Corporation, and (ii) September 23, 1996.
The Principal Sum shall bear interest, on the amount due and
owing on a daily basis, at an annual rate equal to twelve percent
(12%). If the Principal Sum is not paid in accordance with this
Note, the Principal Sum shall bear interest beginning on the date
of default and continuing thereafter until paid in full, at the
highest rate permitted by law ("Default Rate"). The acceptance
of such payment at the Default Rate shall not constitute a waiver
of such default. Interest chargeable under this Promissory Note
(the "Note") shall be computed on the basis of a 360-day year
for actual days
elapsed.
All payments of interest, principal, or both, are payable at
2101 West Commercial Boulevard, Suite 1500, Fort Lauderdale,
Florida 33309, or at such other place as the Payee may designate
in writing, in lawful money of the United States of America,
which shall be legal tender in payment for all debts, public and
private, at the time of payment.
The privilege is reserved and given to prepay without
penalty the indebtedness evidenced hereby, in whole or in part,
at any time without notice. All such partial prepayments shall
be applied first against the payment of all interest accrued and
unpaid to the date of such prepayment, and then against the
Principal Sum.
The failure of the Maker to pay when due any installment of
principal or interest on this Note shall constitute a default
under this Note, whereupon the owner or holder hereof may, at his
option, exercise any or all rights, powers, remedies afforded,
including the right to declare the unpaid balance of Principal
Sum and accrued interest on this Note at once mature and payable.
If this Note is placed in the hands of an attorney for
collection, by suit or otherwise, or to protect any security for
its payment, the undersigned will pay all costs of collection and
litigation, together with reasonable attorneys' fees incurred at
both trial and appellate levels. The laws of the State of
Florida shall govern and the proper venue and jurisdiction shall
be Dade County, Florida.
Maker expressly waives protest, demand, presentment and
notice of dishonor, and agrees that this Note may be extended, in
whole or in part, without limit as to the number of such
extensions or the number of periods thereof and without affecting
the liability thereon.
Each of the provisions of this Note is and shall be deemed
to be severable; and in the event that any provision hereof be
deemed to be invalid for any reason of the operation of any law
or by reason of the interpretation placed thereon by any court,
said provision shall be deemed to be stricken herefrom, and this
Note shall be construed as not containing such provision. The
validity or lack thereof of such provision shall not effect the
validity of any other provision hereof, and any and all other
provisions which are otherwise lawful and valid shall remain in
full force and effect.
This Note may be assigned or transferred by Payee but shall
not be assigned or transferred by Maker without the written
consent of Payee.
The word undersigned as used herein shall be considered to
mean and include all makers and endorsers hereof. Words used in
the plural herein shall include the singular, as the context may
require.
IN WITNESS WHEREOF, the undersigned Maker has duly executed
this Note as of the day and year above first written.
OZO DIVERSIFIED AUTOMATION,
INC., a Colorado corporation
By:
Name: Marjorie Zimdars-Orthman
Title: President
Mr. David J. Wolenski
October 17, 1996
Page 3
<PAGE>
PROMISSORY NOTE EXTENSION
October 17, 1996
Mr. David J. Wolenski
President and Chief Executive Officer
Ozo Diversified Automation, Inc.
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
Dear David:
As you are aware, Ozo Diversified Automation, Inc. ("Ozo")
borrowed $100,000.00, in the aggregate, from the undersigned as
evidenced by Promissory Notes dated April 1, 1996 (collectively,
the "Notes"). The principal sum of the Notes, with all accrued
interest, became due on September 30, 1996. Ozo was unable to
pay the Notes. In consideration for the undersigned not making
demand on the Notes, and exercising any and all legal rights
available to them with respect to such Notes and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Ozo and the undersigned agree as follows:
1. Ozo has, or will pay, all accrued and unpaid interest due
with respect to the Notes.
2. As of this date, the Notes will bear interest, until paid in
full, at 12% per annum.
3. The entire principal sum, with all accrued interest, on the
Notes, shall be due on or before October 30, 1996.
4. Ozo will arrange to have issued to the undersigned Common
Stock Purchase Warrants to purchase an aggregate of 15,000 shares
of the Company's common stock, $.10 par value per share (the
"Common Stock"). The Basic Exercise Price (as defined in the
Common Stock Purchase Warrants) shall be $.75 per share, the
market price of such Common Stock on October 1, 1996.
5. Ozo shall cause each of the Company's directors, other than
David W. Orthman and David J. Wolenski, to resign from the
Company's Board of Directors. The remaining directors shall
appoint as replacements Al Katz and Scott Salpeter, such that the
Board of Directors of the Company shall consist of Al Katz, Scott
Salpeter, David W. Orthman and David J. Wolenski, with Al Katz
being the Chairman of the Board of Directors. Management of Ozo
will arrange to have each of Ozo's directors, officers, and
principal shareholders who are not directors and officers of Ozo,
sign letter agreements agreeing to vote any and all shares of the
Company's Common Stock owned by them in favor of Mr. Salpeter and
Mr. Katz serving as directors of the Company, from the date
hereof until October 10, 1997. At the discretion of the Board of
Directors, a fifth director may be appointed provided the
appointment of such director is approved by three of the four
members of the Board of Directors.
Assuming this letter accurately memorializes the terms of
our Agreement, please acknowledge your agreement below. Please
return five (5) copies of the signed Agreement to the
undersigned, along with the signed Common Stock Purchase Warrants
which are attached hereto.
Sincerely yours,
James S. Cassel Steven N. Bronson
Bruce C. Barber Lenore Katz
Eric R. Elliott
ACKNOWLEDGED and AGREED as
of October 10, 1996.
OZO DIVERSIFIED AUTOMATION, INC.
By:
David J. Wolenski, President and Chief
Executive Officer
<PAGE>
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART,
UNLESS ANY SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS UNDER SAID ACT IS AVAILABLE, AND THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT, WHICH OPINION IS
REASONABLY SATISFACTORY TO THE COMPANY.
OZO DIVERSIFIED AUTOMATION, INC.
COMMON STOCK PURCHASE WARRANT
1. Number and Price of Shares of Common Stock Subject to
Common Stock Purchase Warrant. Subject to the terms and
conditions hereinafter set forth, _______ (the "Holder"), is
entitled to purchase from Ozo Diversified Automation, Inc., a
Colorado corporation (the "Company"), at any time and from time
to time during the period from October 10, 1996 (the
"Commencement Date") until 5:00 p.m., Miami, Florida Time, on
October 10, 2001 (the "Expiration Date"), at which time this
Common Stock Purchase Warrant (the "Warrant") shall expire and
become void, an aggregate of ________ shares (the "Warrant Shares")
of the Company's common stock, $.10 par value per share (the
"Common Stock"), which number of Warrant Shares is subject to
adjustment from time to time, as described below, upon payment
therefor of the exercise price of $.75 per Warrant Share in
lawful funds of the United States of America, such amounts (the
"Basic Exercise Price") being subject to adjustment in the cir
cumstances set forth hereinbelow. This applicable Basic Exercise
Price, until such adjustment is made and thereafter as adjusted
from time to time, is called the "Exercise Price."
2. Exercise of Warrant. This Warrant may be exercised in
whole or in part at any time from and after the Commencement Date
and on or before the Expiration Date, provided however, if such
Expiration Date is a day on which Federal or State chartered
banking institutions located in the State of Florida are
authorized by law to close, then the Expiration Date shall be
deemed to be the next succeeding day which shall not be such a
day, by presentation and surrender to the Company at its
principal office, or at the office of any transfer agent for the
Warrants ("Transfer Agent"), designated by the Company, of this
Warrant accompanied by the form of election to purchase on the
last page hereof signed by the Holder and upon payment of the
Exercise Price for the Warrant Shares purchased thereby, by
cashier's check or by wire transfer of immediately available
funds. If this Warrant is exercised in part only, the Company or
Transfer Agent shall, promptly after presentation of this Warrant
upon such exercise, execute and deliver a new Warrant, dated the
date hereof, evidencing the rights of the Holder to purchase the
balance of the Warrant Shares purchasable hereunder upon the same
<PAGE>
terms and conditions herein set forth. This Warrant shall be
deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided
above, and the person entitled to receive the Warrant Shares or
other securities issuable upon such exercise shall be treated for
all purposes as the holder of such shares of record as of the
close of business on such date. As promptly as practicable, the
Company shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number
of full Warrant Shares issuable upon such exercise, together with
cash in lieu of any fraction of a share as provided below.
3. Demand Registration Rights. If, at any time prior to
the Expiration Date, the Holders of a majority of the Warrants or
the shares of Common Stock acquired upon the exercise of the
Warrants shall give notice to the Company requesting that the
Company file with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Common
Stock underlying such Warrants issued or issuable upon exercise
thereof (the "Registration Statement"), the Company shall
promptly give written notice of such proposed Registration
Statement to the Holders of such Warrants or Common Stock, and to
any subsequent permissible transferee of any of the Warrants or
Common Stock (at the address of such persons appearing on the
books of the Company or its transfer agent) which notice shall
offer to include the Common Stock underlying such Warrants
issuable or issued upon exercise thereof in the requested
Registration Statement. The Company shall, as expeditiously as
possible, file and use its best efforts to cause to become
effective under the Securities Act of 1933, as amended (the
"Securities Act"), the Registration Statement covering such of
the Common Stock underlying the Warrants issuable or issued on
exercise of the Warrants as the Company has been requested to
register for disposition by the Holders thereof, to the extent
required to permit the public sale or other public disposition
thereof by the Holders. The Company shall cause the Registration
Statement to remain effective for a period of twelve (12) months
from the effective date of the Registration Statement or such
earlier date as all of the Common Stock underlying the Warrants
issuable or issued upon exercise thereof have been sold or the
Warrants expire (the "Effective Period"). The Company shall pay
all costs, expenses, disbursements, and fees, including fees and
expenses of counsel and accountants for the Company, and the
expenses of preparing, printing and filing under the Act and of
furnishing copies of the prospectus, in connection with the
Registration Statement and also including all costs, expenses,
disbursements, and fees required to keep such Registration
Statement current for the Effective Period, but excluding costs
or expenses of the Holders' counsel, accountants or other
professionals retained by the Holders and underwriting discounts
and expenses attributable to the Company's securities held by the
Holders.
4. Reservation of Common Stock. The Company covenants
that, during the period this Warrant is exercisable, the Company
will reserve from its authorized and unissued Common Stock a
sufficient number of shares of Common Stock to provide for the
issuance of the Warrant Shares upon the exercise of this Warrant.
This Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with
<PAGE>
the duty of executing stock certificates to execute and issue the
necessary certificates for Warrant Shares upon the exercise of
this Warrant.
5. No Stockholder Rights. This Warrant, as such, shall
not entitle the Holder to any rights of a stockholder of the
Company, until the Holder has exercised this Warrant in
accordance with Section 2 hereof.
6. Adjustment of Exercise Price and Number of Warrant
Shares.
6.1 The number and kind of securities issuable upon the
exercise of this Warrant shall be subject to adjustment from time
to time, and the Company agrees to provide notice upon the
happening of certain events, as follows:
a. If the Company is recapitalized through the subdivision
or combination of its outstanding shares of Common Stock into a
larger or smaller number of shares of Common Stock, the number of
shares of Common Stock for which this Warrant may be exercised
shall be increased or reduced, as of the record date for such
recapitalization, in the same proportion as the increase or
decrease in the outstanding shares of Common Stock, and the
Exercise Price shall be adjusted so that the aggregate amount
payable for the purchase of all of the Warrant Shares issuable
hereunder immediately after the record date for such
recapitalization shall equal the aggregate amount so payable
immediately before such record date.
b. If the Company declares a dividend on its Common Stock
payable in shares of its Common Stock or securities convertible
into shares of its Common Stock, the number of shares of Common
Stock for which this Warrant may be exercised shall be increased
as of the record date for determining which holders of Common
Stock shall be entitled to receive such dividend, in proportion
to the increase in the number of outstanding shares of Common
Stock (and shares of Common Stock issuable upon conversion of all
such securities convertible into shares of Common Stock) as a
result of such dividend, and the Exercise Price shall be adjusted
so that the aggregate amount payable for the purchase of all the
Warrant Shares issuable hereunder immediately after the record
date for such dividend shall equal the aggregate amount so
payable immediately before such record date.
c. If the Company effects a general distribution to
holders of its Common Stock, other than as part of the Company's
dissolution or liquidation or the winding up of its affairs, of
any shares of its capital stock, any evidence of indebtedness or
any of its assets (other than cash, shares of Common Stock or
securities convertible into shares of Common Stock), the Company
shall give written notice to the Holder of any such general
distribution at least fifteen (15) days prior to the proposed
record date in order to permit the Holder to exercise this
Warrant on or before the record date. There shall be no
adjustment in the number of shares of Common Stock for which this
Warrant may be exercised, or in the Exercise Price, by virtue of
any such general distribution, except as otherwise provided
herein.
<PAGE>
d. If the Company offers rights or warrants (other than
the Warrant) to all holders of its Common Stock which entitle
them to subscribe to or purchase additional shares of Common
Stock or securities convertible into shares of Common Stock, the
Company shall give written notice of any such proposed offering
to the Holder at least fifteen (15) days prior to the proposed
record date in order to permit the Holder to exercise this
Warrant on or before such record date.
e. In the event an adjustment in the Exercise Price or the
number of Warrant Shares issuable hereunder is made under
subsection a. or b. above, and such an event does not occur, then
any adjustments in the Exercise Price or number of Warrant Shares
issuable upon exercise of this Warrant that were made in
accordance with such subsection a. or b. shall be re-adjusted to
the Exercise Price and number of Warrant Shares as were in effect
immediately prior to the record date for such an event.
f. If and whenever the Company issues or sells, or in
accordance with Subsection 6.1 is deemed to have issued or sold,
any shares of its Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to the time
of such issuance or sale (except for the issuance or deemed
issuance of securities in a transaction described in paragraph g.
of this Subsection 6.1), then immediately upon such issuance or
sale the Exercise Price will be reduced to an Exercise Price
determined by multiplying the Exercise Price in effect
immediately prior to the issuance or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding prior to the issuance or sale plus
(ii) the number of Warrant Shares issuable hereunder that the
maximum aggregate amount of consideration receivable by the
Company upon such issuance or sale would purchase at the Exercise
Price in effect immediately prior to the issuance or sale, and
the denominator of which shall be the number of shares of Common
Stock deemed outstanding, as hereinafter determined, immediately
after such issuance or sale.
g. The following securities or transactions shall be
excluded from the operation of paragraph f. of this Subsection
6.1:
(i) The existence and any exercise of any option,
convertible promissory note, warrant, or other right to purchase
Common Stock, that is outstanding on the date hereof; and
(ii) Any grant or exercise of options for Common
Stock granted under the Company's stock option plans, in
existence as of the date hereof, provided said grant or exercise
is not effectuated as a result of any amendment to such plans
subsequent to the date hereof, with an exercise price equal to at
least the fair market value of the shares of Common Stock on the
date of grant; and
(iii) Any shares issued to Advanced Controls
in connection with the proposed stock exchange agreement between
the Company and Advanced Controls.
<PAGE<
h. If the Company in any manner grants any rights or
options to subscribe for or to purchase Common Stock or any stock
or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Rights" and
such convertible or exchangeable stock or securities being herein
called "Convertible Securities"), and the price per share for
which Common Stock is issuable upon the exercise of such Rights
or upon conversion or exchange of such Convertible Securities is
less than the Exercise Price in effect immediately prior to the
time of the granting of such Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of
such Rights or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise
of such Rights will be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For
purposes of this Section, the "price per share for which Common
Stock is issuable upon exercise of such Rights or upon conversion
or exchange of such Convertible Securities" will be determined by
dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Rights,
plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Rights, plus, in
the case of Rights that relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock then
issuable upon the exercise of such Rights or upon the conversion
or exchange of all Convertible Securities issuable upon the
exercise of such Rights. Except as otherwise provided in
Subsections j. and k. below, no adjustment of the Exercise Price
will be made when Convertible Securities are actually issued upon
the exercise of such Rights or when Common Stock is actually
issued upon the exercise of such Rights or the conversion or
exchange of such Convertible Securities.
i. If the Company in any manner issues or sells any
Convertible Securities, and the price per share for which Common
Stock is issuable upon such conversion or exchange is less than
the Exercise Price in effect immediately prior to the time of
such issuance or sale, then the maximum number of shares of
Common Stock then issuable upon conversion or exchange of all
such Convertible Securities will be deemed to be outstanding and
to have been issued and sold by the Company for such price per
share, as determined below. For the purposes of this Section,
the "price per share for which Common Stock is issuable upon such
conversion or exchange" will be determined by dividing (i) the
total amount received or receivable by the Company as
consideration for the issuance or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (ii) the total maximum number of shares
of Common Stock then issuable upon the conversion or exchange of
all such Convertible Securities. Except as otherwise provided in
Subsections j. and k. below, no adjustment of the Exercise Price
will be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any
such issuance or sale of such Convertible Securities is made upon
exercise of any Convertible Securities for which adjustments of
the Exercise Price had been or are to be made pursuant to other
provisions of this Section 6, no further adjustment of the
Exercise Price will be made by reason of such issuance or sale.
<PAGE>
j. If (a) the purchase price provided for in any Rights,
(b) the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities, or (c) the
rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock, changes at any time (other than
under or by reason of provisions that are designed to protect
against dilution of the type set forth in this Section 6 and are
no more favorable to the holders of such Rights or Convertible
Securities than this Section 6 would have if this Section 6 were
included in such Rights or Convertible Securities), then the
Exercise Price in effect at the time of such change will be re-
adjusted to the Exercise Price that would have been in effect at
such time had such Rights or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration, or changed conversion rate, as the case may be, at
the time initially granted, issued, or sold; and such adjustment
of the Exercise Price will be made whether the result thereof is
to increase or reduce the Exercise Price then in effect under
this Warrant, provided that no such adjustment shall increase the
Exercise Price above the initial Exercise Price hereof and that
such adjustments shall be made by the Board of Directors of the
Company who shall promptly provide notice of the new Exercise
Price to the Holder.
k. Upon the expiration of any Right, or the termination of
any right to convert or exchange any Convertible Security,
without the exercise of such Right, or the conversion of such
Convertible Security, the Exercise Price then in effect hereunder
will be adjusted to the Exercise Price that would have been in
effect at the time of such expiration or termination had such
Right or Convertible Security never been issued, but such
subsequent adjustment shall not affect the number of shares of
Common Stock issued upon any exercise of this Warrant prior to
the date such adjustment is made.
l. If any shares of Common Stock, Rights, or Convertible
Securities are issued or sold or deemed to have been issued or
sold for consideration that includes cash, then the amount of
cash consideration actually received by the Company will be
deemed to be the cash portion thereof. If any shares of Common
Stock, Rights, or Convertible Securities are issued or sold or
deemed to have been issued or sold for a consideration part or
all of which is other than cash, then the amount of the
consideration other than cash received by the Company will be the
fair value of such consideration as determined by the Board of
Directors of the Company, except where such consideration
consists of securities, in which case the amount of consideration
received by the Company will be the market value thereof as of
the date of receipt. If any shares of Common Stock, Rights, or
Convertible Securities are issued in connection with any merger
or consolidation in which the Company is the surviving
corporation, then the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to
such Common Stock, Rights, or Convertible Securities, as the case
may be.
<PAGE>
m. If any Right is issued in connection with the issuance
or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is
allocated to such Right by the parties thereto, the Right will be
deemed to have been issued without consideration.
n. The number of shares of Common Stock deemed outstanding
at any given time shall include the number of shares of Common
Stock outstanding, as adjusted as provided herein, but shall not
include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held will
be considered an issuance or sale of Common Stock hereunder.
o. No adjustment of the Exercise Price shall be made if
the amount of such adjustment would be less than one cent per
Warrant Share, but in such case any adjustment that otherwise
would be required to be made shall be carried forward and shall
be made at the time and together with the next subsequent
adjustment that, together with any adjustment or adjustments so
carried forward, shall amount to not less than one cent per
Warrant Share.
6.2 In the event of any reorganization or reclassification
of the outstanding shares of Common Stock (other than a change in
par value, or from no par value to par value, or from par value
to no par value, or as a result of a subdivision or combination)
or in the event of any consolidation or merger of the Company
with another entity at any time prior to the expiration of this
Warrant, the Holder shall have the right to exercise this
Warrant. Upon such exercise, the Holder shall have the right to
receive the same kind and number of shares of capital stock and
other securities, cash or other property as would have been
distributed to the Holder upon such reorganization,
reclassification, consolidation or merger. The Holder shall pay
upon such exercise the Exercise Price that otherwise would have
been payable pursuant to the terms of this Warrant. If any such
reorganization, reclassification, consolidation or merger results
in a cash distribution in excess of the then applicable Exercise
Price, the Holder may, at the Holder's option, exercise this
Warrant without making payment of the Exercise Price, and in such
case the Company shall, upon distribution to the Holder, consider
the Exercise Price to have been paid in full, and in making
settlement to the Holder, shall deduct an amount equal to the
Exercise Price from the amount payable to the Holder. In the
event of any such reorganization, merger or consolidation, the
corporation formed by such reorganization, consolidation or
merger or the corporation which shall have acquired the assets of
the Company shall execute and deliver a supplement hereto to the
foregoing effect, which supplement shall also provide, if
applicable, for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments required pursuant to
this Warrant.
6.3 If the Company shall, at any time before the expiration
of this Warrant, dissolve, liquidate or wind up its affairs, the
Holder shall have the right to exercise this Warrant. Upon such
exercise the Holder shall have the right to receive, in lieu of
the shares of Common Stock of the Company that the Holder
otherwise would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid
to the Holder upon any such dissolution, liquidation or winding
<PAGE>
up with respect to such stock receivable upon exercise of this
Warrant on the date for determining those entitled to receive any
such distribution. If any such dissolution, liquidation or
winding up results in any cash distribution in excess of the
Exercise Price provided by this Warrant, the Holder may, at the
Holder's option, exercise this Warrant without making payment of
the Exercise Price and, in such case, the Company shall, upon
distribution to the Holder, consider the Exercise Price to have
been paid in full and, in making settlement to the Holder, shall
deduct an amount equal to the Exercise Price from the amount
payable to the Holder.
6.4 Upon each adjustment of the Exercise Price pursuant to
Section 6 hereof, the Holder shall thereafter (until another such
adjustment) be entitled to purchase, at the adjusted Exercise
Price in effect on the date this Warrant is exercised, the number
of Warrant Shares, calculated to the nearest number of Warrant
Shares, determined by (a) multiplying the number of Warrant
Shares purchasable hereunder immediately prior to the adjustment
of the Exercise Price by the Exercise Price in effect immediately
prior to such adjustment, and (b) dividing the product so
obtained by the adjusted Exercise Price in effect on the date of
such exercise. The provisions of Section 9 shall apply, however,
so that no fractional share of Common Stock or fractional Warrant
shall be issued upon exercise of this Warrant.
6.5 The Company may retain a firm of independent public
accounts of recognized standing (who may be any such firm
regularly employed by the Company) to make any computation
required under this Section 6, and a certificate signed by such
firm shall be conclusive evidence of the correctness of any
computation made under this Section 6.
7. Notice to Holder. So long as this Warrant shall be
outstanding (a) if the Company shall pay any dividends or make
any distribution upon the Common Stock otherwise than in cash or
(b) if the Company shall offer generally to the holders of Common
Stock the right to subscribe to or purchase any shares of any
class of capital stock or securities convertible into capital
stock or any similar rights or (c) if there shall be any capital
reorganization of the Company in which the Company is not the
surviving entity, recapitalization of the capital stock of the
Company, consolidation or merger of the Company with or into
another corporation, sale, lease or other transfer of all or
substantially all of the property and assets of the Company, or
voluntary or involuntary dissolution, liquidation or winding up
of the Company, then in such event, the Company shall cause to be
mailed by registered or certified mail to the Holder, at least
thirty (30) days prior to the relevant date described below (or
such shorter period as is reasonably possible if thirty (30) days
is not reasonably possible), a notice containing a description of
the proposed action and stating the date or expected date on
which a record of the Company's shareholders is to be taken for
the purpose of any such dividend, distribution of rights, or such
reclassification, reorganization, consolidation, merger,
conveyance, lease or transfer, dissolution, liquidation or
winding up is to take place and the date or expected date, if any
is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
<PAGE>
8. Certificate of Adjustment. Whenever the Exercise Price
or number or type of securities issuable upon exercise of this
Warrant is adjusted, as herein provided, the Company shall
promptly deliver to the Holder of this Warrant a certificate of
an officer of the Company setting forth the nature of such
adjustment and a brief statement of the facts requiring such
adjustment.
9. No Fractional Shares. No fractional shares of Common
Stock will be issued in connection with any subscription
hereunder. In lieu of any fractional shares which would
otherwise be issuable, the Company shall pay cash equal to the
product of such fraction multiplied by the fair market value of
one share of Common Stock on the date of exercise, as determined
in good faith by the Company's Board of Directors.
10. Transfer or Loss of Warrant.
10.1 Prior to any proposed transfer of this Warrant or the
Warrant Shares received on the exercise of this Warrant (the
"Securities"), unless there is in effect a registration statement
under the Securities Act, covering the proposed transfer, the
Holder thereof shall give written notice to the Company of such
Holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed
transfer in sufficient detail, and shall, if the Company so
requests, be accompanied by an unqualified written opinion of
legal counsel who shall be reasonably satisfactory to the Company
addressed to the Company and reasonably satisfactory in form and
substance to the Company's counsel, to the effect that the
proposed transfer of the Securities may be effected without
registration under the Securities Act, whereupon the Holder of
the Securities shall be entitled to transfer the Securities in
accordance with the terms of the notice delivered by the Holder
to the Company. Each certificate evidencing the Securities
transferred as above provided shall not bear such restrictive
legends if in the opinion of counsel for the Company such legends
are not required in order to establish compliance with any
provisions of the Securities Act.
10.2 Upon receipt by the Company of evidence satisfactory to
it of loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, or, in the case of mutilation, upon
surrender of this Warrant, the Company will execute and deliver,
or instruct the Transfer Agent to execute and deliver, a new
Warrant of like tenor and date and any such lost, stolen or
destroyed Warrant thereupon shall become void.
11. Notices. Notices and other communications to be given
to the Holder shall be deemed sufficiently given if delivered by
hand, or five (5) days after mailing by registered or certified
mail, postage prepaid, to the Holder at 201 South Biscayne
Boulevard, Suite 2950, Miami, Florida 33131. Notices or other
communications to the Company shall be deemed to have been
sufficiently given if delivered by hand or five days after
mailing if mailed by registered or certified mail postage
prepaid, to the Company at 7450 East Jewell Avenue, Suite A,
Denver, Colorado 80231. A party may change the address to which
notice shall be given by notice pursuant to this Section 11.
<PAGE>
12. Entire Agreement and Modification. The Company and the
Holder of this Warrant hereby represent and warrant that this
Warrant is intended to and does contain and embody all of the
understandings and agreements, both written and oral, of the
parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral agreement or
understanding, express or implied liability, whereby the
absolute, final and unconditional character and nature of this
Warrant shall be in any way invalidated, impaired or affected. A
modification or waiver of any of the terms, conditions or
provisions of this Warrant shall be effective only if made in
writing and executed with the same formality of this Warrant.
13. Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Florida,
without application of the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has executed this Warrant as
of the 10th day of October, 1996.
OZO DIVERSIFIED AUTOMATION,
INC., a Colorado corporation
By:
David J. Wolenski,
President and Chief Executive
Officer
ELECTION TO PURCHASE
TO: Ozo Diversified Automation, Inc.
The undersigned hereby irrevocably elects to exercise
Warrants represented by this Common Stock Purchase Warrant to
purchase ____________________ shares of Common Stock issuable
upon the exercise of such Warrants and requests that certificates
for such shares be issued in the name of:
(Please insert social security or other identifying number)
(Please print name and address)
Dated: ____________________, 19__
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,111
<SECURITIES> 0
<RECEIVABLES> 257,775
<ALLOWANCES> 0
<INVENTORY> 388,425
<CURRENT-ASSETS> 660,696
<PP&E> 512,352
<DEPRECIATION> 326,199
<TOTAL-ASSETS> 863,103
<CURRENT-LIABILITIES> 617,312
<BONDS> 240,000
0
0
<COMMON> 45,816
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 863,103
<SALES> 2,166,763
<TOTAL-REVENUES> 2,166,763
<CGS> 1,314,209
<TOTAL-COSTS> 1,314,209
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,114
<INCOME-PRETAX> (80,832)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80,832)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
</TABLE>
