<PAGE>
LINKON CORPORATION
140 SHERMAN STREET
FAIRFIELD, CONNECTICUT 06430
(203) 319-3175
______________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
______________________________________________
February 24, 1997
To the Stockholders of
Linkon Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Linkon Corporation (the "Company") will be held at the Sheraton
Stamford Hotel & Towers, located at One First Stamford Place, Stamford,
Connecticut, on Tuesday, March 25 1997, at 10:00 a.m., local time, for the
following purposes:
1. To elect five directors, each to hold office until the next Annual
Meeting of Stockholders or until his respective successor is elected
and qualified.
2. To consider and vote upon the adoption of a resolution authorizing and
approving an amendment and restatement of the Company's Articles of
Incorporation to (i) authorize for issuance 1,000,000 shares of serial
(or "blank check") preferred stock, and (ii) empower the Board of
Directors to confer upon the holders of the Company's debentures,
bonds or other debt instruments any of the rights of stockholders
under Chapter 78 of the Nevada Revised Statutes, including the power
to vote in respect of the corporate affairs and management of the
Company, as determined by resolution of the Company's Board of
Directors.
3. To consider and vote upon the adoption of the 1996 Stock Option and
Performance Incentive Plan of the Company.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on Wednesday,
February 19, 1997 as the record date for the determination of stockholders
entitled to notice of, and to vote, at the Annual Meeting. A list of
stockholders entitled to vote at the Annual Meeting will be available for
examination by any stockholder, for any purpose relevant to the Annual Meeting,
on and after March 1, 1997 during ordinary business hours at the Company's
principal executive offices located at the address first set forth above.
STOCKHOLDERS ARE URGED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY
IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE
UNITED STATES.
By Order of the Board of Directors,
Patrick J. Kane,
Secretary
<PAGE>
LINKON CORPORATION
140 SHERMAN STREET
FAIRFIELD, CONNECTICUT 06430
(203) 319-3175
______________________________
PROXY STATEMENT
______________________________
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, MARCH 25, 1997
______________________________
INTRODUCTION
______________________________
This proxy statement ("Proxy Statement") is being furnished to holders
of shares of common stock, par value $0.001 per share ("Common Stock"), of
Linkon Corporation, a Nevada corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Stockholders (the "Annual Meeting"), to be held at the
Sheraton Stamford Hotel & Towers, located at One First Stamford Place, Stamford,
Connecticut, on Tuesday, March 25, 1997 at 10:00 a.m., local time, and at any
adjournments thereof. This Proxy Statement, the accompanying Notice of Annual
Meeting of Stockholders and the Annual and Quarterly Reports referred to below
and the enclosed form of proxy are first being mailed to stockholders on or
about Monday, February 24, 1997.
The Company's Annual Report on Form 10-KSB (the "Annual Report") for the
fiscal year ended January 31, 1997, as amended, and Quarterly Report on Form 10-
QSB (the "Quarterly Report") for the quarter ended October 31, 1996, both as
filed with the Securities and Exchange Commission, also accompany this Proxy
Statement. The Annual Report includes audited financial statements, a discussion
by management of the Company's financial condition and results of operations and
other information. The Quarterly Report includes unaudited financial statements
and discussions by management of the Company's financial condition and results
of operations for such period and other information.
At the Annual Meeting, stockholders will be asked to elect five directors,
each to hold office until the next Annual Meeting of Stockholders to be held in
1998 or until each of their respective successors is elected and qualified.
At the Annual Meeting, stockholders will also be asked to consider and vote
upon a resolution authorizing and approving the Amended and Restated Articles of
Incorporation of the Company (the "Restated Articles"), which, if adopted, will,
among other things, authorize for issuance 1,000,000 shares of serial (or "blank
check") preferred stock, par value $0.001 per share ("Preferred Stock"), of the
Company, to be issued in one or more series and which shall have the relative
designations, rights and preferences (including voting rights), qualifications,
limitations and restrictions as the Company's Board of Directors determines from
time to time. In addition, if adopted, the Restated Articles will empower the
Board of Directors to confer upon the holders of bonds, debentures or other debt
instruments issued
<PAGE>
or to be issued by the Company any of the rights of stockholders, including the
power to vote in respect of the corporate affairs and management of the Company,
to the fullest extent allowable under the Nevada General Corporation Law, and
which the Board determines to be advisable and in the best interests of the
Company.
At the Annual Meeting, stockholders will also be asked to consider and vote
upon the adoption of the Company's 1996 Stock Option and Performance Incentive
Plan, which plan would allow grants to directors, executive officers, other key
employees and consultants of one or more of the following: qualified and non-
qualified stock options to purchase Common Stock, stock appreciation rights,
awards of restricted Common Stock, performance shares, performance units, and
tax offset payments.
VOTING RIGHTS AND PROXY INFORMATION
Proxies in the accompanying form are solicited on behalf of, and at the
direction of the Board of Directors, which has fixed the close of business on
Wednesday, February 19, 1997, as the record date (the "Record Date") for the
determination of holders of outstanding shares of Common Stock entitled to
notice of, and to vote at the Annual Meeting or any adjournment(s) thereof. On
the Record Date, there were 10,753,252 shares of Common Stock issued and
outstanding, which were held of record on such date by 637 holders. Each
stockholder is entitled to one vote, exercisable in person or by proxy, with
respect to each share of Common Stock held of record by such stockholder on the
Record Date with respect to each matter. The election of directors will be
decided by a plurality of the votes of the shares of Common Stock cast by
stockholders present in person or represented by proxy at the Annual Meeting and
entitled to vote. In other words, the five individuals receiving the largest
number of votes will be elected. The affirmative vote of holders of a majority
of the shares of the Company's Common Stock outstanding on the Record Date is
required for the adoption of the resolution approving the Restated Articles.
Because of this voting requirement, a stockholder who abstains from voting on
the resolution authorizing and approving the Restated Articles would in effect
be voting against taking such action because his or her shares would be recorded
as having abstained, rather than being counted in determining whether the
necessary majority vote had been obtained. Likewise, broker non-votes would have
the effect of being counted as votes against the resolution authorizing and
approving the Restated Articles. The affirmative vote of the holders of a
majority of the shares of the Company's Common Stock present in person or proxy
is required for the adoption of the resolution authorizing and approving the
Option Plan. Therefore, a stockholder who attends the Annual Meeting, either in
person or by proxy, and who abstains from voting on such resolution, would in
effect be voting against the adoption of the Option Plan. Broker non-votes would
likewise have the same effect. Proxies marked as abstaining (including proxies
containing broker non-votes) on any matter to be acted upon by stockholders will
be treated as present at the meeting for purposes of determining a quorum, but
will not be counted as votes cast on such matters.
When a proxy in the form of the accompanying proxy is returned properly
dated and signed, the shares represented thereby will be voted by the person
named as proxies therein in accordance with each stockholder's directions,
unless previously revoked. To the extent that no direction is indicated, the
shares of the Company's Common Stock represented by proxy will be voted FOR the
election of all of the Company's nominees as directors, FOR the adoption of the
resolution authorizing and approving the Restated Articles and FOR the adoption
of a resolution authorizing and approving the Stock Option Plan. If any other
matters are properly presented at the Annual Meeting for action,
-2-
<PAGE>
including a question of adjourning the meeting from time to time, the persons
named in the proxies and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment.
Any stockholder who has executed and returned a proxy has the power to
revoke it at any time before it is voted. A stockholder who wishes to revoke a
proxy can do so by attending the Annual Meeting and voting in person, or by
executing a later-dated proxy relating to the same shares or a writing revoking
the proxy and, in the latter two cases, delivering such later-dated proxy or
writing to the Secretary of the Company prior to the vote at the Annual Meeting.
Any writing intended to revoke a proxy should be sent to the Company at its
principal executive offices, located at 140 Sherman Avenue, Fairfield,
Connecticut 06430, Attention: Corporate Secretary.
In addition to the use of the mail, proxies may be solicited via personal
interview and telephone or telegraph by the directors, officers and regular
employees of the Company. Such persons will receive no additional compensation
for such services. Arrangements will also be made with certain brokerage firms
and certain other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of the Common Stock held of
record by such persons, and such brokers, custodians, nominees and fiduciaries
will be reimbursed by the Company for reasonable out-of-pocket expenses incurred
by them in connection therewith.
______________
ITEM 1 - ELECTION OF DIRECTORS
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES
NOMINEES FOR ELECTION AS DIRECTORS
The Company's Board of Directors currently consists of five members. Unless
a director has been elected by the Board of Directors to fill a vacancy on the
Board, all of the directors are elected annually and hold office until the next
succeeding Annual Meeting of Stockholders or until their respective successors
are duly elected and qualified.
It is intended that the persons named as proxies in the enclosed form of
proxy will, except as noted below, vote FOR the election of the following
nominees as directors, to serve until the 1997 Annual Meeting of Stockholders,
or until their respective successors are duly elected and qualified:
Joao Manuel Da M.V. ("Jon") Carvalho
Charles Castelli
Lee W. Hill
Patrick J. Kane
Daniel Zwiren
Each of the foregoing persons currently serves as a director of the
Company. The Board of Directors of the Company does not contemplate that any of
these nominees will become unable to serve. If, however, any of them should
become unable to serve before the Annual Meeting, proxies solicited by the Board
of Directors will be voted by the persons named as proxies therein in accordance
with the best judgment of such proxies.
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<PAGE>
Information Regarding Nominees for Election as Directors and Regarding
Continuing Directors
The following table sets forth the name, age, business experience for the
past five years and other directorships of each of the Company's directors (who
are also the nominees for election as directors):
Current Positions, Period
Name and Age Served and Prior Business Experience/1/
------------ ------------------------------------
JON CARVALHO (56) Mr. Carvalho has served as a director of the
Company since June, 1990. Mr. Carvalho has been
the President of Union Commercial Services, Ltd.,
an offshore investment company with holdings in
the United States, Africa and Europe since April,
1990. He is also the President of Unicar
Industrial e Commercial, Lda. (also known as Uniao
Commercial de Automoveis, Ltd.), a distributor and
service provider for American and European
automotive, motorcycle, agricultural and
industrial machine manufacturers and finance
companies. Mr. Carvalho has held this position
since April, 1990. He is also the President of
Joao Carvalho, Lda., a real estate investment and
development company and operations management
company since 1978. For the past three years, Mr.
Carvalho has also served as President of Unicom
International of Florida, Inc.
CHARLES CASTELLI (52) Mr. Castelli founded Linkon Delaware, Inc.
("Linkon Delaware"), which was engaged in
consulting and research and development of
computer hardware and software products for the
telecommunications industry and which merged with
the Company in June, 1990. He is presently the
Company's Chief Technology Officer ("CTO") and
Chairman of the Board of Directors. He has served
as Chairman and as a Director since June, 1990. He
served as the Company's President from June, 1990
until March, 1993, when he became the CTO.
LEE W. HILL (52) Mr. Hill currently serves as the Company's
President and Chief Executive Officer, and has
served as such since March, 1993. Mr. Hill also
serves as a director of the Company, a position he
has held since September, 1996. From December,
1990 until joining the Company, Mr. Hill was the
founder and sole principal of Affluence, Inc., a
management consulting firm located in Greenwich,
Connecticut.
________________
/1/ Each director of the Company has been elected to serve until the next
Annual Meeting of Stockholders of the Company or until such director's successor
shall have been duly elected and shall have qualified.
-4-
<PAGE>
Current Positions, Period
Name and Age Served and Prior Business Experience/2/
------------ ------------------------------------
PATRICK J. KANE (46) Mr. Kane currently serves as a director and the
Corporate Secretary of the Company. Since August,
1996, he has served as a Vice President of Newnet
Corporation ("Newnet"), located in Shelton,
Connecticut. Mr. Kane also served as the Company's
Chief Operating Officer and Treasurer from 1990
through July, 1996, which positions he resigned
from upon accepting employment with Newnet. Newnet
manufactures intelligent network telecommunication
products, including software, for global computer
intelligent networks.
DANIEL ZWIREN (41) Mr. Zwiren has served as a director of the Company
since June, 1996. Since December 15, 1996, Mr.
Zwiren has served as a Senior Vice President of
Euro Bankers, an investment banking firm located
in New York City. From 1989 until December of
1996, Mr. Zwiren served as Chief Executive of
Interest Rates of Lasser Marshall & Co., an
investment banking firm located in New York City,
New York.
There is no family relationship among any of the nominees for election as
directors or any executive officers of the Company.
COMPENSATION OF DIRECTORS
Board members do not receive any fee or other compensation in connection
with their services as directors for the Company. Board members are reimbursed
for all reasonable out-of-pocket expenses, including travel expenses, incurred
in connection with their services as directors of the Company.
BOARD AND COMMITTEE MEETINGS
Based in part on the fact that until June, 1996, the Board of Directors
consisted of only three members, the Board of Directors has not heretofore
established any committees, including a standing nominating, audit or a
compensation committee. However, upon the adoption by the Company's stockholders
at its Annual Meeting of the Company's 1996 Stock Option and Performance
Incentive Plan, the Board of Directors of the Company intends to appoint a
management compensation and option committee, which shall consist of not less
than two non-employee directors. The Board of Directors intends to elect Messrs.
Carvalho and Zwiren to serve on this committee.
__________________
/2/ Each director of the Company has been elected to serve until the next Annual
Meeting of Stockholders of the Company or until such director's successor shall
have been duly elected and shall have qualified.
-5-
<PAGE>
The Board of Directors is responsible for selecting nominees for directors,
as well as the Company's independent auditors. The Board is also responsible for
the review and approval of executive officers' salary levels and adjustments,
option and other incentive compensation awards, and other financial
arrangements, and all fringe benefits. If stockholders adopt the Company's 1996
Stock Option and Performance Incentive Plan at the Annual Meeting and the Board
of Directors establishes a management compensation and option committee, as it
currently intends to do, such committee shall thereafter be responsible for the
review and approval of executive officers' salary levels and adjustments,
options and other incentive compensation awards and other financial
arrangements, including bonus awards and fringe benefits.
The Board of Directors held one regularly scheduled meeting and no special
meetings during fiscal 1996. In fiscal 1996, each director attended the
regularly scheduled meeting of the Board of Directors to the extent such person
was a director at the time such meetings were held. Prior to June 1996, the
Company had three members of its Board of Directors, two of which Board members
were also executive officers. Because of their personal knowledge of the
Company's day-to-day operations and their long-time relationships with Mr.
Carvalho, the third director, the Board communicated frequently on an informal
basis, thereby minimizing the need for regularly scheduled Board meetings.
EXECUTIVE OFFICERS
The following table sets forth the name, age and business experience for
the past five years of each of the Company's executive officers who are not
members of the Board of Directors of the Company, together with all positions
and offices such executive officers have held with the Company during such
period:
Current Positions,
Positions Served and
Name and Age Prior Business Experience
- ------------ -------------------------
THOMAS V. CERABONA (44) Mr. Cerabona has served as the Company's Vice
President, Operations since March, 1996. From 1994
through 1995, Mr. Cerabona served as the Vice
President of Operations of Paragon Networks, a data
communications equipment company located in
Southbury, Connecticut. From 1986 through 1994 Mr.
Cerabona held various management positions, including
Vice President and General Manager, with Cobotyx
Corporation, a voice processing equipment company
located in Danbury, Connecticut. Mr. Cerabona was
responsible for the financial operations of such
corporation and in such capacity, was responsible for
commencing a reorganization of Cobotyx Corporation
pursuant to Chapter 11 of the Bankruptcy Code of
1986, as amended. This bankruptcy proceeding was
commenced on May 5, 1993 and culminated in a
successful reorganization and a subsequent sale of
Cobotyx's operating assets.
JAMES E. LINLEY (43) Mr. Linley currently serves as the Company's Vice
President of Engineering, a position he has held
since March, 1991. In such capacity, he manages the
research and development, software development and
technical support areas for the Company.
-6-
<PAGE>
Current Positions,
Positions Served and
Name and Age Prior Business Experience
- ------------ -------------------------
MARK O'BRIEN (48) Mr. O'Brien currently serves as the Company's Vice
President of International Operations, a position he
has held since September, 1993. From June, 1992 until
he joined the Company, Mr. O'Brien was the President
of Universal/Univis, an optical products supplier.
From September, 1991 until June, 1992, Mr. O'Brien
was Executive Vice President and General Manager of
Hydro Systems Incorporated.
Generally, officers are appointed to serve by the Company's Board of
Directors at the Annual Meeting of the Board of Directors until the meeting of
the Board of Directors following the next Annual Meeting of Stockholders or
until their respective successors have been elected and have qualified. Mr.
Cerabona, who joined the Company in March, 1996, was appointed to serve in the
capacity set forth above by the Board of Directors at a special meeting of the
Board held in March, 1996 until the next annual meeting of the Board of
Directors or until his successor has been elected and has qualified.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management. The following table sets forth, as of
December 1, 1996, the number of outstanding shares of the Common Stock
beneficially owned by each of the nominees for director (who are also the
current directors), and each executive officer referred to in the immediately
preceding table (together, the "Executive Officers") individually, and by all
current directors and executive officers as a group without naming them. Except
as otherwise indicated, each of the following persons has sole voting and
investment power with respect to the shares beneficially owned by him.
<TABLE>
<CAPTION>
Common Stock $0.001 par value
--------------------------------------
Name and Address of Beneficial Approximate Percentage
Beneficial Owner Ownership of Class
------------------- ------------- -----------------------
<S> <C> <C>
Jon Carvalho 100,000 (1) *
R. Sapateiros 219-E-degrees E,
1100 Lisbon, Portugal
Charles Castelli 1,962,000 (2) 18.3%
141 E. Central Boulevard
Palisades Park, New Jersey
Thomas V. Cerabona 75,000 (3) *
3061 Dahlia Court
Yorktown Heights, New York
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Common Stock $0.001 par value
--------------------------------------
Name and Address of Beneficial Approximate Percentage
Beneficial Owner Ownership of Class
------------------- ------------- -----------------------
<S> <C> <C>
Lee W. Hill 400,000 (4) 3.7%
62 Arch Street
Riverside, Connecticut
Patrick J. Kane 850,000 (5) 7.9%
66 Pearl Street, Apt. 309
New York, New York
James E. Linley 609,600 (6) 5.7%
210 Banks Road
Easton, Connecticut
Mark O'Brien 100,000 (7) *
485 Camp Fuller Road
Wakefield, Rhode Island
Daniel Zwiren 171,666 (8) 1.7%
100 Warren St., Apt 1908
Jersey City, New Jersey
Executive Officers and 4,268,266 (9) 40.00%
Directors as a Group (8
persons)
</TABLE>
____________________
(1) Comprised of 100,000 shares currently acquirable upon the exercise of 50,000
options to purchase Common Stock of an exercise price equal to $0.75 per share
and 50,000 Warrants to purchase Common Stock at an exercise price equal to $1.50
per share.
(2) Includes 162,000 shares currently acquirable upon the exercise of options to
purchase Common Stock at an exercisable price equal to $0.75 per share.
(3) Comprised of 75,000 shares currently acquirable upon the exercise of options
to purchase Common Stock at an exercise price equal to $0.75 per share.
(4) Comprised of 400,000 shares currently acquirable upon the exercise of
options to purchase Common Stock at an exercise price equal to $0.75 per share.
(5) Includes 50,000 shares currently acquirable upon the exercise of options to
purchase Common Stock at an exercise price equal to $0.75 per share.
(6) Includes 9,600 shares currently acquirable upon the exercise of options to
purchase Common Stock at an exercise price equal to $0.75 per share, 3,100 of
which options are held by Anna Linley, his wife, who is also an employee of the
Company.
-8-
<PAGE>
(7) Comprised of 100,000 shares currently acquirable upon the exercise of
options to purchase Common Stock at an exercise price equal to $0.75 per share.
(8) Includes 171,666 shares currently acquirable upon the exercise of 13,333
Warrants to purchase Common Stock at an exercise price equal to $1.00 per share,
75,000 options to purchase Common Stock at an exercise price equal to $0.75 per
share and 50,000 shares of Common Stock currently acquirable upon conversion of
a Subordinated Convertible Debenture, having a conversion rate of $2.00 per
share.
(9) Includes 1,311,466 shares currently acquirable upon the exercise of warrants
or options to purchase Common Stock at an exercise price equal to $0.75 per
share and 360,000 shares currently acquirable upon the exercise of warrants or
options to purchase Common Stock at an exercise price equal to $2.00 per share.
*Represents less than one percent (1%) of the Company's issued and outstanding
Common Stock.
____________________
Security Ownership of Certain Beneficial Owners. To the knowledge of the
Company, the following table lists those parties (other than Messrs. Castelli,
Kane and Linley, each of whose beneficial ownership is disclosed in the
immediately preceding table) who beneficially owned more than 5% of the Common
Stock outstanding as of November 29, 1996:
<TABLE>
<CAPTION>
Common Stock $0.001 par value
-----------------------------
Name and Address of Amount of Beneficial Approximate Percentage
Beneficial Owner Ownership of Class
- ------------------- -------------------- ----------------------
<S> <C> <C>
IBJS Capital Corporation 880,193 (1) 8.2%
One State Street
New York, NY 10004
777,400 (2) (3) 7.2%
Mr. Piers M. MacDonald
c/o Gulfstream Partners, L.P.
Two Greenwich Plaza, Ste 100
Greenwich, CT 06830
</TABLE>
________________
(1) Includes (i) 605,693 shares of Common Stock currently acquirable upon the
conversion of a $1,000,000 Senior Secured Convertible Debenture, (ii) 214,500
shares of Common Stock currently acquirable upon the exercise of warrants to
purchase Common Stock at an exercise price equal to $1.86 per share, and (iii)
60,000 shares of Common Stock currently acquirable upon the exercise of warrants
to purchase Common Stock at an exercise price equal to $1.50 per share.
(2) Includes 300,000 shares of Common Stock owned by Gulfstream Partners, L.P.
("Gulfstream"), a limited partnership of which Mr. MacDonald is managing general
partner and 30,000 shares of Common Stock issuable upon the exercise of Warrants
owned by Gulfstream to purchase Common Stock at an exercise price equal to $3.00
owned by Gulfstream.
(3) Includes 275,000 shares of Common Stock and 27,500 shares of Common Stock
issuable upon exercise of Warrants to purchase Common Stock, at an exercise
price equal to $3.00, which are owned jointly by Mr. MacDonald and his wife,
Bonner MacDonald.
__________________
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the years ended January
31, 1996, 1995 and 1994 paid to the Company's Chief Executive Officer and the
other named executive officers whose compensation is required to be disclosed
pursuant to Item 402(a)(2) of Regulation S-B promulgated under the Securities
Exchange Act of 1934, as amended:
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Annual Compensation (1)
------------------------------------------------
Name and Fiscal Other Annual
Principal Position Year Salary($) Bonus($) Compensation ($)
- ------------------------- ------ --------- -------- -------------------
<S> <C> <C> <C> <C>
Lee W. Hill, President, 1996 $150,000 $25,000 $6,360 (2)
CEO 1995 $118,000 $25,000 $6,360 (2)
1994 $ 88,000 $ --- $6,360 (2)
Charles Castelli, 1996 $ 96,000 $ --- $8,400 (3)
Chairman, CTO 1995 $ 96,000 $ --- $8,400 (3)
1994 $ 96,000 $ --- $8,400 (3)
Mark O'Brien, 1996 $106,174 $ --- $6,000 (4)
V.P. Int'l. Operations 1995 $100,000 $ --- $6,000 (4)
1994 $ 28,125 $ --- $2,500 (4)
</TABLE>
___________________
(1) Columns entitled "Restricted Stock Award(s)", "Securities Underlying
Options/SARs", "LTIP Payouts", and "All Other Compensation" have been excluded
because they are not applicable to any fiscal year covered by this table.
(2) Mr. Hill has received an automobile allowance from the Company in each of
the last three fiscal years equal to $530 per month, or $6,360 per year.
(3) Mr. Castelli has received an automobile allowance from the Company in each
of the last three fiscal years equal to $700 per month, or $8,400 per year.
(4) Mr. O'Brien has received an automobile allowance from the Company in each of
the last two fiscal years equal to $500 per month or $6,000 per year, and $500
per month or $2,500 per year during fiscal 1994.
_________________
EMPLOYMENT AGREEMENTS
On March 1, 1993, the Company entered into an employment agreement with Mr.
Lee W. Hill. The agreement provides for an annual salary of $96,000 for the
first year of the agreement, $120,000 for the second year of the agreement and
$150,000 for the third and fourth years of the agreement. In addition, the
agreement provides for an annual bonus of not less than $25,000 for each year of
the agreement. Mr. Hill was also granted options to purchase up to 250,000
shares of Common Stock of the Company at an exercise price equal to $2.00 per
share. By letter (the "Letter Amendment") dated May
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<PAGE>
1, 1996, Mr. Hill and the Company agreed to extend his employment agreement for
two additional years, with certain modifications. The Letter Amendment provides
for an annual salary of $150,000 per year, until such time as the Company has
positive operating income for at least two consecutive fiscal quarters, at which
time Mr. Hill's annual salary will be increased to $175,000. In addition, at
such time as the Company has positive net income for at least two consecutive
fiscal quarters, Mr. Hill's annual salary will be increased to $200,000 per
year. This bonus provision of the Letter Agreement replaces the bonus
compensation provision contained in Mr. Hill's original employment agreement. In
consideration of entering into the Letter Amendment, the Company granted Mr.
Hill 75,000 options to purchase Common Stock at an exercise price equal to $0.75
per share. This exercise price was based on the market price of the Company's
Common Stock at the close of business on April 30, 1996, which was $0.75 per
share.
On May 1, 1996, the Company and Mr. Charles Castelli, the Company's
Chairman and CTO, entered into an employment agreement. This agreement provides
for an annual salary of $102,000 during each of the two years of the term
thereof, unless as the Company has positive operating income for two consecutive
fiscal quarters, in which case Mr. Castelli's annual salary is increased to
$120,000 per year. In addition, at such time as the Company has positive net
income for at least two consecutive fiscal quarters, Mr. Castelli's annual
salary will be increased to $200,000 per year. Mr. Castelli is also entitled to
an annual performance bonus, which is determined by the Company's Board of
Directors based on certain performance criteria. Moreover, Mr. Castelli was
granted 100,000 options to purchase Common Stock at an exercise price equal to
$0.75 per share as further consideration for entering into his employment
agreement. This exercise price was based on the market price of the Company's
Common Stock at the close of business on April 30, 1996, which was $0.75 per
share.
On May 1, 1996, the Company and Mr. Mark O'Brien, the Company's Vice
President of International Operations, entered into an employment agreement.
This Agreement provides for an annual salary of $84,000 per year during each of
the two years of the term thereof. In addition, Mr. O'Brien is entitled to
receive a sales commission of two percent (2%) of sales of product from certain
designated accounts, paid quarterly. Mr. O'Brien is also entitled to an annual
performance bonus, which is determined by the Company based on certain
performance criteria. Mr. O'Brien was granted 62,500 options to purchase Common
Stock at an exercise price of $0.75 per share were granted to Mr. O'Brien as
further consideration for entering into his employment agreement. This exercise
price was based on the market price of the Company's Common Stock at the close
of business on April 30, 1996, which was $0.75 per share. In addition, if during
the term of his employment agreement the Company has positive net income for at
least two consecutive fiscal quarters, Mr. O'Brien will receive an additional
25,000 options to purchase Common Stock at the then existing fair market value
of the Company's Common Stock.
OMISSION OF CERTAIN TABLES
Information that would be provided in tabular form with respect to grants
or repricings of options or SAR's or awards under long-term incentive plans has
been omitted since it is not applicable with respect to the fiscal years covered
in the table.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
On October 27, 1994, the Company and IBJS Capital Corporation ("IBJS")
entered into a Securities Purchase Agreement (the "IBJS Agreement") pursuant to
which the Company sold to IBJS (i) a $1,000,000 10% Senior Secured Convertible
Debenture due October 27, 2000 (the "Debenture"), and (ii) warrants ("IBJS
Warrants") to subscribe for an additional 200,000 shares of the Company's Common
Stock at an initial exercise price of $2.00 per share, in consideration of $1
million/3/. The Debenture was also convertible into Common Stock at an initial
rate of $1.75 of principal amount of the Debenture per share of the Company's
Common Stock being acquired, such that the Debenture was convertible into
571,428 shares of the Company's Common Stock. Both the conversion rate of the
Debenture and the exercise price of the IBJS Warrants were set by negotiation
between the Company and IBJS and are subject to adjustment in the event of
certain future actual or deemed issuances of the Company's Common Stock at
prices below the then applicable conversion rate and/or exercise price,
respectively, on a weighted average basis.
In connection with the IBJS Agreement, the Company and Messrs. Charles
Castelli, Patrick J. Kane and James E. Linley, each of whom is an executive
officer of the Company, and IBJS entered into a Stockholders' Agreement,
whereby, among other things, the Company agreed to use its best efforts to cause
a Certificate of Amendment to the Company's Articles of Incorporation to be
filed with the Secretary of the State of Nevada granting IBJS (or its assigns)
the right to elect at least one person to the Board of Directors at all times
and up to three persons to the Board of Directors in certain events. For a
detailed discussion of these voting rights, see the section entitled "RESTATED
ARTICLES OF INCORPORATION -- Debtholder Rights" discussed below.
On May 26, 1995, the Company entered into a Stock Purchase Agreement with
Gulfstream Partners, L.P. ("Gulfstream") and the other "Purchasers" named
therein, pursuant to which the Company sold to Gulfstream and such Purchasers
(i) 600,000 shares of Common Stock, and (ii) warrants (the "Gulfstream
Warrants") to subscribe for an additional 60,000 shares of the Company's Common
Stock at an initial exercise price of $3.00 per share/4/, in consideration of
$600,000 or $1.00 per share. Both the price at which such Common Stock was sold
to Gulfstream and the exercise price for the Gulfstream Warrants were the result
of negotiations between Gulfstream and the Company. The exercise price of the
Gulfstream Warrants is subject to adjustment upon the occurrence of a (i)
subdivision or Common Stock dividend on the outstanding Common Stock, a (ii)
combination of outstanding Common Stock or (iii) a reclassification,
reorganization or consolidation of the outstanding Common Stock or in certain
instances, the merger or consolidation of the Company with or into another
person or a sale of all or substantially all of the assets of the Corporation.
The Gulfstream transaction caused the initial conversion rate of the Debenture
to be adjusted to $1.711, thereby increasing the number of shares of the
Company's Common Stock into which the Debenture may be converted to 584,454.
Likewise the initial exercise price of the IBJS Warrant was decreased to $1.948,
thereby increasing the number of shares of the
____________________
/3/The market price of the Company's Common Stock on the close of business
of October 27, 1994 was $1.22 per share.
/4/The market price of the Company's Common Stock at the close of business
on May 26, 1995 was $1.31 per share.
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Company's Common Stock issuable upon exercise of the IBJS Warrant to 205,339. No
adjustment to the exercise price of the Gulfstream Warrants has occurred.
During the summer of 1995, the Company offered and sold 70 "Units" to
accredited investors in a private placement, each Unit consisting of 18,500
shares of Common Stock and 4,625 warrants to purchase Common Stock at an
exercise price equal to $3.50 per share, and having a term of five years. All
Units were sold to accredited investors for an aggregate purchase price equal to
$1,424,500. The consummation of this transaction caused the then effective
conversion rate of the Debenture to be decreased to $1.651, thereby increasing
the number of shares of Common Stock into which the Debenture may be converted
to 605,693 shares. The exercise price of the IBJS Warrant was also decreased to
$1.865, thereby increasing the number of shares of the Company's Common Stock
issuable upon exercise of the IBJS Warrant to 214,500 shares of Common Stock.
On August 10, 1995, the Company consummated a transaction with existing
securities holders of the Company, whereby such persons exercised all or a
portion of their then outstanding warrants to purchase Common Stock at a
discounted exercise price equal to $1.00. The then current exercise price of the
Warrants was $3.00 per share. In addition, the Company issued to each such
security holder new Warrants to purchase Common Stock equal to the number of
Warrants that were then exercised by such security holder. Two of the security
holders in this transaction were Messrs. Zwiren and Carvalho, both current
directors of the Company. Mr. Zwiren exercised 33,333 Warrants (and received
33,333 new Warrants) and Mr. Carvalho exercised 20,000 Warrants (and received
20,000 new Warrants).
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the directors and executive officers of the Company and holders of more than 10%
of the Company's Common Stock to file reports regarding beneficial ownership and
changes in beneficial ownership with the Securities and Exchange Commission and
the New York Stock Exchange. The Company believes that during the fiscal year
ended January 31, 1996, its directors, executive officers and beneficial owners
of ten percent of any class of equity securities of the registrant complied with
all applicable Section 16(a) filing requirements.
_____________________
ITEM NO. 2 - RESTATED ARTICLES OF INCORPORATION
GENERAL
On September 27, 1996, the Board of Directors of the Company unanimously
approved a resolution authorizing the Company to amend and restate its Articles
of Incorporation and recommending that the Company present the following
resolution to its stockholders for approval:
RESOLVED, that the form, terms and provisions of the
Company's Restated Articles of Incorporation (the "Restated
Articles") be, and they hereby are, authorized, adopted and
approved in all respects, and that the appropriate officers
of the Company be, and they hereby are, authorized,
empowered and directed to execute and file with the Nevada
Secretary of State the Restated Articles, in substantially
the form
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presented to the stockholders of the Company at its annual
meeting of stockholders.
A copy of the Restated Articles are attached hereto as Exhibit A. Other than the
amendments to the Restated Articles discussed in this Item No. 2 and certain
immaterial technical changes which have no substantive effect on the rights of
shareholders (such as the deletion of the names of the Company's Incorporators
and initial Board of Directors being deleted from Restated Articles as permitted
under Nevada Law), no other changes are proposed to be made to the Company's
Articles of Incorporation as currently in effect.
The amendments contained in the Restated Articles would empower the Board
of Directors, without the necessity of further action or authorization of the
Company's stockholders (unless required by Chapter 78 of the Nevada Revised
Statutes or the rules and regulations of any securities exchange or quotation
system on which the Company's securities are then traded or listed for
quotation, respectively), (i) to authorize the issuance of Preferred Stock from
time to time in one or more series, and to fix by resolution the designations,
preferences, limitations, restrictions and relative rights of each such series
of Preferred Stock, and (ii) to confer upon the holders of any bonds, notes,
debentures or other obligations (collectively, being sometimes referred to
herein as "Debtholders") of the Company issued or to be issued, any of the
rights of a stockholder under Chapter 78 of the Nevada Revised Statutes, by
resolution of the Board of Directors of the Company, including the power to vote
in respect of corporate affairs and the management of the Company, as the Board
of Directors determines to be advisable and in the best interests of the
Company. Other than these two amendments, the Company's Articles of
Incorporation, as in effect on the date hereof, would remain unmodified. If
adopted by the Company's stockholders, the proposed new Article FOURTH of the
Restated Articles, and the proposed revised text of Article SIXTH, the full text
of which are as follows, would give effect to clauses (i) and (ii) above,
respectively.
FOURTH. Section 1. The Corporation is authorized to issue two
(2) classes of capital stock, to be designated, respectively,
Preferred Stock ("Preferred Stock") and Common Stock ("Common Stock").
The total number of shares of capital stock which the Corporation
shall have the authority to issue is twenty-five million nine hundred
thousand (25,900,000). The total number of shares of Preferred Stock
which the Corporation shall have the authority to issue is one million
(1,000,000). The total number of shares of Common Stock which the
Corporation shall have the authority to issue is twenty four million
nine hundred thousand (24,900,000). The Preferred Stock shall have a
par value of $0.001 per share and the Common Stock shall have a par
value of $0.001 per share.
Section 2. The Preferred Stock shall be divided into one or
more series as may be issued from time to time. The Board of Directors
of the Corporation is authorized, subject to limitations prescribed by
law, to provide for the issuance of all or any of the Preferred Stock
in one or more series, and by filing a certificate pursuant to the
applicable law of the State of Nevada, to establish from time to time
the number of shares to be included in each such series, and to fix
the designations, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
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(a) The number of shares constituting that series and the
distinctive designation thereof;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the
date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment
of shares of that series;
(h) Any other relative rights, preferences and limitations of
that series.
* * * * *
SIXTH. Section 1. The capital stock after the amount of the
subscription price, or par value, has been paid in shall not be subject to
assessment to pay the debts of the Corporation. No stockholder of the
Corporation shall have any preemptive or other right, by reason of his or
her status as a stockholder, to acquire any unissued shares, treasury
shares, or securities convertible into shares of the capital stock of the
Corporation. This denial of preemptive rights shall, and is intended to,
negate any rights which would otherwise be given to stockholders pursuant
to NRS (S)78.265 or successor statute.
Section 2. Pursuant to NRS (S)78.197, the Board of Directors of
the Corporation may, by resolution duly adopted, grant to the holders of
any bond, debenture or other debt obligation of the Corporation any of the
rights of a stockholder, including without limitation the right to vote,
the right to receive dividends, or the right to receive notice of corporate
proceedings when and as declared by the Board of Directors in the
resolution or resolutions approving the issuance of bonds, debentures or
other debt obligations of the Corporation and may adopt such additional
resolutions from time to
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time, as the Board of Directors may in good faith determine for purposes of
amending, modifying or altering such rights.
The Board of Directors of the Company recommends the adoption of the
Restated Articles which, if approved, would provide the Company with the
increased financial flexibility afforded by the authorization of serial
Preferred Stock and the ability to provide Debtholders with any or all of the
rights of a stockholder. This latter provision is also being recommended in
connection with the Company's covenant to the holder of the Debentures contained
in a certain Stockholders' Agreement, among the Company, IBJS Capital
Corporation and Messrs. Castelli, Kane and Linley, which requires the Company to
use its best efforts to cause the provisions set forth in Section 2 of Article
Sixth of the Restated Articles to be filed with the Secretary of the State of
Nevada. This covenant is discussed more fully below in the section entitled
"Debtholder Rights."
SERIAL PREFERRED STOCK
The proposed provisions of the Restated Articles relating to the
authorization of serial Preferred Stock would, if adopted, authorize and empower
the Board of Directors to establish one or more series of Preferred Stock from
time to time without the further authorization of stockholders. The terms of
any such series of Preferred Stock might include provisions relating to any of
the following: (i) the distinctive designation and number of shares constituting
each such series; (ii) the dividend rates, if any, on the shares of that series
and whether dividends would be payable in cash, property, rights or securities
or any combination thereof; (iii) whether dividends would be non-cumulative,
cumulative to the extent earned or declared, partially cumulative or fully
cumulative, and if cumulative, the date from which such dividends within such
series would accumulate; (iv) whether, and upon what terms and conditions, the
shares of that series would be convertible into or exchangeable for other
securities or cash or other property or rights (or any combination thereof); (v)
whether, and upon what terms and conditions, the shares of that series would be
redeemable; (vi) the rights and preferences, if any, to which the shares of that
series would be entitled in the event of the liquidation or dissolution of the
Company; (vii) whether a sinking fund would be provided with respect to the
redemption of the series and, if so, the terms and amounts payable into such
sinking fund; and (viii) whether the holders of such securities would have
voting rights and the extent of any such voting rights.
The issuance of Preferred Stock by the Board of Directors upon adoption of
the Restated Articles could adversely affect the rights of holders of Common
Stock. It is not possible to state the precise effects of the authorization of
the Preferred Stock upon the rights of the holders of the Company's Common Stock
until such time as the Board of Directors determines the respective relative
designations, rights and preferences of one or more series of any such Preferred
Stock. Such effects, however, might include: (i) a reduction in the amount of
funds otherwise available for the payment of dividends on the Common Stock (to
the extent that dividends are payable on any issued shares of Preferred Stock),
and restrictions on dividends on Common Stock if dividends on Preferred Stock
are in arrears; (ii) dilution of the voting power of the Common Stock to the
extent that one or more series of Preferred Stock is granted voting rights; and
(iii) the holders of the Common Stock not being entitled to share in the
Company's assets upon liquidation or dissolution until the satisfaction of any
liquidation preference granted to the holders of one or more series of Preferred
Stock.
If the Restated Articles are adopted, the authority to issue Preferred
Stock proposed to be vested in the Board of Directors could potentially be used
to discourage attempts by others to obtain control of
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the Company through merger, tender offer, proxy, consent solicitation or
otherwise making such attempts more difficult and/or more costly to achieve.
Article FOURTH of the proposed Restated Articles would empower the Company's
Board of Directors to issue conversion rights which could adversely affect the
voting power of holders of Common Stock. However, there are no agreements or
understandings for the issuance of any such Preferred Stock, and the Board of
Directors has no present plans or intention to issue any Preferred Stock if the
Restated Articles are adopted. There are no other provisions of the Company
Articles of Incorporation or By-laws (as each is currently in effect) which have
or could potentially discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy, consent solicitation or other
means. Moreover, the adoption of the provisions of the proposed Restated
Articles is not part of a plan by management to adopt a series of such
amendments. The Company's management is not aware of any efforts by, or current
desire of, any party or group to acquire control of the Company.
The Board believes that the adoption of the provisions of the proposed
Restated Articles relating to the authorization of serial Preferred Stock are in
the best interests of the Company. These provisions would increase the
Company's financial flexibility in obtaining additional sources of capital. The
Board believes that the complexity of modern business financing and acquisition
transactions requires greater flexibility in the Company's capital structure
than presently exists. If the Restated Articles become effective, Preferred
Stock would be available for issuance from time to time as determined by the
Board for any proper corporate purpose. Such purpose could include, without
limitation, issuance in sales for cash as a means of obtaining capital for use
in the Company's business and operations, issuance as part or all of the
consideration required to be paid by the Company for acquisitions of other
businesses or properties, and issuance under employee benefit plans.
DEBTHOLDER RIGHTS
The Company and its Board of Directors believe that the adoption of the
provision of the Restated Articles empowering the Board to confer upon
Debtholders any or all of the rights of stockholders is advisable and in the
best interests of the Company and its stockholders. In connection with the IBJS
Agreement and the transactions relating thereto, the Company, IBJS and three
members of management (Messrs. Castelli, Kane and Linley) entered into a
Stockholders' Agreement, dated October 27, 1994, whereby, among other things,
the Company agreed to use its best efforts to cause the provisions set forth in
Section 2. of Article Sixth of the Restated Articles to be filed with the
Secretary of the State of Nevada. In addition, Messrs. Castelli, Kane and
Linley have agreed to vote their respective shares of Common Stock in favor of
such amendment. The Company's Board of Directors concluded that agreeing to
this provision was necessary in order to cause IBJS to consummate its $1,000,000
investment in the Company described above in the section of this Proxy Statement
entitled "Certain Relationships and Related Transactions -- Certain
Transactions".
At the Annual Meeting of the Company's Board of Directors (to be held
immediately following the Company's Annual Meeting of Stockholders), the Board
intends to adopt resolutions which would, effective immediately upon the filing
of the Restated Articles with the Nevada Secretary of State, grant to IBJS the
right to elect (i) at least one person to the Board of Directors at all times
during which the Debenture remains outstanding, (ii) two directors at all times
during which the Company elects to defer the payment of eight or more quarterly
interest payments under the Debenture, and (iii) three directors at all times
during which the Company defers the payment of twelve quarterly interest
payments under
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the Debenture. The resolution intended to be adopted by the Company's Board of
Directors at its annual meeting is as follows:
RESOLVED, that pursuant to Section 2 of Article 6 of the Company's
Restated Articles, the holders ("Holders") of the Company's 10%
Senior Secured Convertible Debentures, dated October 27, 1994
("Debenture"), shall collectively and voting separately as one (1)
class, on an as-converted basis, have the exclusive and special right
to: (i) elect one (1) director at all times prior to the satisfaction
in full of the Debentures; (ii) elect one (1) additional director
(two (2) directors in total) at all times during a Penalty Deferral
Period (as such term is defined in the Debenture) and (iii) elect an
additional director (three (3) directors in total) at all times
during a Default Penalty Period (as such term is defined in the
Debenture); provided, however, that notwithstanding any provision to
the contrary (but subject in all respects to the paragraph next
following), upon the occurrence of a Penalty Deferral Period, the
number of directors constituting the Board of Directors shall be
automatically increased by one (1). Upon the occurrence of a Default
Penalty Period, the number of directors constituting the Board of
Directors shall be automatically increased by an additional one (1).
Notwithstanding any provision to the contrary, if at any time after
the occurrence of a Penalty Deferral Period or a Default Penalty
Period, the events or conditions having given rise to such Penalty
Deferral Period or Default Penalty Period, as the case may be, shall
have been cured, then the Holders shall be divested of the special
voting rights relating to such Penalty Deferral Period or Default
Penalty Period, as the case may be, upon the later to occur of the
condition causing the same or the first anniversary of the
commencement of the same. Upon the termination of any special voting
rights as hereinabove provided, the number and membership of the
Board of Directors shall automatically and without any director or
shareholder action revert to the number in effect immediately prior
to the increase in the size of the Board of Directors pursuant to the
foregoing paragraph and the election of directors by the Holders to
fill the vacancies created by such increase in size.
The immediate effect of the granting of these voting rights to the holder
of the Debenture would be to limit the current rights of the holders of the
Company's Common Stock to elect all of the Company's directors. The percentage
of the total outstanding voting stock represented by the Debentures assuming
their conversion into Common Stock on the date of this Proxy Statement is
approximately 5.6%.
In order for the Company to satisfy its obligations to IBJS, the Company is
only obligated to use its best efforts to provide IBJS with the specific voting
rights to elect directors upon the occurrence of certain events as more fully
contained in the resolution of the Board of Directors of the Company set forth
immediately above. Such obligations do not require the Company to grant to its
Board of Directors the power to grant any other holders of the Company's
indebtedness any or all of the rights of stockholders or to grant the Holders
any rights other than those specifically enumerated in the resolution set forth
above. However, the Board believes that the ability to grant Debtholders with
any or all of the rights of stockholders, like the ability to issue serial
Preferred Stock, would increase the Company's financial flexibility in obtaining
additional sources of capital. The Board believes that the complexity of modern
business financing and acquisition transactions requires greater flexibility in
the Company's capital structure than currently exists. Debt instruments,
including debentures, bonds and other obligations of the Company would, upon the
adoption of the Restated Articles, enable the Board of Directors, by resolution
duly adopted, to confer upon the holders of the Company's debt instruments all
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of the rights of a stockholder of the Company, as determined by the Board of
Directors from time to time without further stockholder approval for any proper
corporate purpose. Such purpose could include, without limitation, issuance in
sales for cash as a means of obtaining capital for use in the Company's business
and operations, and issuance as part or all of the consideration required to be
paid by the Company for acquisitions of other businesses or properties. The
Company has no present intention of pursuing any of these avenues. Moreover,
other than the voting powers being granted to the holder of the Debenture, the
Company does not presently have any plans, agreements, understandings or
arrangements that will or could result in the granting to any Debtholder of any
of the rights of stockholders of the Company. As such, the Board of Directors
believes that the adoption of the provisions of the Restated Articles empowering
the Board of Directors to confer upon the Debtholders any of the rights of
stockholders is in the best interests of the Company.
If adopted, the provisions of the Restated Articles which would empower the
Board by resolution to confer upon Debtholders any or all of the rights of
stockholders could adversely affect the rights of the holders of the Common
Stock and the holders of any other equity securities of the Company which it may
issue in the future. Other than the effects of the voting rights which would be
conferred upon the holders of the Debenture, if the proposed Restated Articles
are adopted, it is not possible to state the precise future effects of this
provision upon the rights of the holders of the Company's Common Stock, or upon
any holders of the Company's Preferred Stock which may be issued in the future,
until the Board confers any other such rights upon the Debtholders. If the
proposed Restated Articles are adopted, the immediate effect of the voting
rights conferred upon the holder of the Debenture would be the dilution of the
voting power of the Common Stock holders caused by the Debenture holder's
ability to elect one member of the Board of Directors at all times and possibly
two additional directors upon the occurrence of the interest payment deferrals
discussed above. The future effects on the holders of the Company's Common
Stock in the event the Board of Directors confers rights of stockholders to any
other holders of the Company's debt instruments could include any and all of the
potential effects referred to above with respect to the issuance of the Board's
designation of serial Preferred Stock. The Company is not currently in default
of any of its obligations to the Holder under the Debenture.
If the proposed Restated Articles are approved by the stockholders at the
Annual Meeting, the Restated Articles would promptly be filed with the Secretary
of the State of Nevada, and would become effective immediately upon the filing
thereof. It is expected that such filing would take place immediately following
the annual meeting of stockholders.
Given that Messrs. Castelli, Kane and Linley in the aggregate beneficially
own approximately 25% of the Company's Common Stock, and that such individuals
are required to vote in favor of the Restated Articles by the terms of the
aforesaid Stockholders' Agreement, the Company expects that the proposed
Restated Articles will be adopted.
For the foregoing reasons, the Board of Directors recommends a vote FOR
approval of the Restated Articles.
_______________
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ITEM 3 - ADOPTION OF 1996 STOCK OPTION AND
PERFORMANCE INCENTIVE PLAN
GENERAL
On September 20, 1996, the Board of Directors of the Company adopted,
subject to stockholder approval, the Linkon Corporation 1996 Stock Option and
Performance Incentive Plan (the "Option Plan"). As noted below, the approval of
the Option Plan will require the affirmative vote of the holders of a majority
of the shares of Common Stock present, in person or by proxy, at the Annual
Meeting. If the Option Plan is not approved at the Annual Meeting, it will
terminate. For the foregoing reasons, the Board of Directors recommends a vote
FOR approval of the Option Plan.
The following is a summary of the terms of the Option Plan, which is
nevertheless qualified in its entirety by reference to the complete text of the
Option Plan attached to this Proxy Statement as Exhibit B.
PURPOSE OF PLAN
The purpose of the Option Plan is to attract and retain the best available
employees for the Company and its subsidiaries and to encourage the highest
level of performance by such directors, executive officers, other key employees
and consultants of the Company and its subsidiaries (for purposes of this Item
3, such persons are hereinafter sometimes collectively referred to as
"employees"), thereby enhancing the value of the Company for the benefit of its
stockholders. The Option Plan is also intended to motivate employees to
contribute to the Company's future growth and profitability and to reward their
performance in a manner that provides them with a means to increase their
holding of the Common Stock of the Company and aligns their interests with the
interests of the stockholders of the Company.
NUMBER OF AUTHORIZED SHARES
The Option Plan provides for awards of up to 1,000,000 shares of Common
Stock to employees of the Company and its subsidiaries during the term of the
Option Plan. These shares were reserved by the Company's Board of Directors
from the Company's authorized but unissued shares of Common Stock.
Corresponding Tax Offset Payments (as hereinafter defined) also may be awarded
at the discretion of the Committee. Awards are subject to adjustment in certain
circumstances as hereinafter described.
ADMINISTRATION OF THE OPTION PLAN
The Board of Directors of the Company will designate a committee of two or
more of its members to administer the Option Plan (the "Committee"). The
Committee must be composed of non-employee directors. The Committee has the
full power in its discretion to grant awards under the Option Plan, to determine
the terms thereof, to interpret the provisions of the Option Plan and to take
such action as it deems necessary or advisable for the administration of the
Option Plan.
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ELIGIBILITY AND PARTICIPATION
Directors, executive officers, other key employees and consultants the
Company and its subsidiaries (if any), may participate in the Option Plan.
Approximately 20 employees of the Company and its subsidiaries are eligible to
participate in the Option Plan. Unless otherwise indicated, references herein
to employees include all of the foregoing eligible participants. Participation
in the Option Plan is at the discretion of the Committee and shall be based upon
the employee's present and potential contributions to the success of the Company
and its subsidiaries and such other factors as the Committee deems relevant.
TYPE OF AWARDS UNDER THE OPTION PLAN
If approved by the stockholders, the Option Plan provides that the
Committee may grant awards to eligible employees in any of the following forms,
subject to such terms, conditions and provisions as the Committee may determine
to be necessary or desirable: (i) incentive stock options ("ISOs"), (ii)
nonstatutory stock options ("NSOs"); (iii) stock appreciation rights ("SARs");
(iv) shares of Common Stock of the Company subject to certain restrictions
("Restricted Shares"); (v) units representing shares of Common Stock
("Performance Shares"); (vi) units which do not represent shares of Common Stock
but which may be paid in Common Stock ("Performance Units"); (vii) shares of
unrestricted Common Stock ("Unrestricted Shares"); and (viii) tax offset
payments ("Tax Offset Payments"), which may consist of cash and/or Unrestricted
Shares.
GRANT OF OPTIONS AND SARS
The Committee may award ISOs and/or NSOs to eligible employees
(collectively, "Options"). SARs may be awarded either in tandem with Options
("Tandem SARs") or on a stand-alone basis ("Nontandem SARs").
EXERCISE PRICE
The exercise price of each NSO is determined by the Committee at the time
of grant, while the exercise price of each ISO shall be not less than the fair
market value of the Common Stock on the date of grant. The exercise price
determined with respect to an Option shall also be applicable in connection with
the exercise of any Tandem SAR granted with respect to such Option. At the time
of grant of a Nontandem SAR, the Committee will specify the base price of the
shares of Common Stock to be used for determining the amount of cash or number
of shares of Common Stock to be distributed upon the exercise of such Nontandem
SAR. The base price of Nontandem SARs will not be less than 100% of the fair
market value of the Common Stock on the date of such grant.
VESTING
The Committee will determine at the time of grant the terms under which
Options and SARs shall vest and become exercisable.
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<PAGE>
SPECIAL LIMITATIONS ON ISOS
No ISO may be granted to an employee who owns, at the time of the grant,
stock representing more than 10% of the total voting power of all classes of
stock of the Company or its subsidiaries (a "10% Stockholder") unless the
exercise price for the shares subject to such ISO is at least 110% of the fair
market value on the date of grant and such ISO award is not exercisable more
than five (5) years after its date of grant. In addition, the total fair market
value of shares subject to ISOs which are exercisable for the first time by an
eligible employee in a given calendar year shall not exceed $100,000, valued as
of the date of the ISO's grant. ISOs may not be granted more than ten (10)
years after the date of adoption of the Option Plan by the Board of Directors.
EXERCISE OF OPTIONS AND SARS
An option may be exercised by written notice to the Committee stating the
number of shares of Common Stock with respect to which the Option is being
exercised and tendering payment therefor. The Committee may, at its discretion,
accept shares of Common Stock as payment (valued at the fair market value on the
date of exercise).
Tandem SARs are exercisable only to the extent that the related Option is
exercisable and only for the period determined by the Committee. Upon exercise
of all or a portion of Tandem SARs, the related Option shall be cancelled with
respect to an equal number of shares of Common Stock. Similarly, upon exercise
of all or a portion of an Option, the related Tandem SARs shall be cancelled
with respect to an equal number of shares of Common Stock. Nontandem SARs shall
be exercisable for the period determined by the Committee.
SURRENDER OR EXCHANGE OF SARS
Upon surrender of a Tandem SAR and the related unexercised Option, the
employee will be entitled to receive shares of Common Stock having an aggregate
fair market value equal to (i) the fair market value of the shares subject to
the unexercised Option at the time of exercise, less (i) the aggregate exercise
price specified in the Option. Upon surrender of a Nontandem SAR, the employee
will be entitled to receive shares of Common Stock having an aggregate fair
market value equal to (i) the fair market value of the shares covered by the
Nontandem SAR at the time of exercise, less (ii) the aggregate base price of
such shares specified by the Committee. The Committee, at its discretion, shall
cause all or any portion of the payment to be made in cash in lieu of Common
Stock. Any fractional share resulting from the exercise of an SAR will be paid
in cash.
NONTRANSFERABILITY OF OPTIONS AND SARS
Options and SARs are not transferable except by will or applicable laws of
descent and distribution.
EXPIRATION OF OPTIONS
Options will expire at such time as the Committee determines; provided,
2however, that an ISO may not be exercised more than ten (10) years from the
date of grant, unless held by a 10% Stockholder, in which case such ISO may not
be exercised more than five (5) years from the date of its grant.
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<PAGE>
EFFECT OF TERMINATION OF EMPLOYMENT AND SIMILAR EVENTS ON OPTIONS AND SARS
Options and SARs generally may be exercised during the three month period
following a recipient's termination of employment to the extent exercisable on
the date of termination. However, the period during which Options and SARs may
be exercised may be extended, and the extent to which they are exercisable may
be increased, if such termination is due to the death or disability of the
recipient or to certain other circumstances. Conversely, the Committee may
cause any Options or SARs to be immediately forfeited in the event that the
recipient is terminated for a breach of fiduciary duty to the Company, a serious
violation of Company policy or certain other cases.
RESTRICTED SHARES
Restricted Shares granted under the Option Plan may not be sold,
transferred, pledged or otherwise encumbered or disposed of during the
restricted period established by the Committee. The Committee may also impose
additional restrictions on the employee's right to dispose of or encumber
Restricted Shares.
Holders of Restricted Shares may not exercise the rights of a stockholder,
such as the right to vote the shares or receive dividends and other
distributions, unless and until the restrictions on such shares lapse.
Upon termination of the employee's employment, Restricted Shares granted to
such employee shall be forfeited; provided, however, that in the event of such
employee's death or total disability, the Committee shall have the discretion to
determine otherwise.
PERFORMANCE SHARES AND PERFORMANCE UNITS
The Committee may award Performance Shares equivalent to one share of
Common Stock and Performance Units which will have a specified value or formula-
based value at the end of a performance period. The Committee shall determine
performance periods and performance objectives in connection with each grant of
Performance Shares or Performance Units.
Vesting of awards of Performance Shares and Performance Units will occur
upon achievement of the applicable objectives within the applicable performance
period. The Committee may, at its discretion, permit vesting in the event
performance objectives are partially met or grant additional vested Performance
Shares or Performance Units in the event performance objectives are surpassed.
Payment for vested Performance Shares and Performance Units may be in cash,
Common Stock or any combination thereof, as determined by the Committee.
No voting or dividend rights attach to the Performance Shares prior to
vesting; however, the Committee may credit an employee's Performance Share
account with additional shares equivalent to the fair market value of any
dividends on an equivalent number of shares of Common Stock.
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<PAGE>
UNRESTRICTED SHARES
Unrestricted Shares may also be granted at the discretion of the Committee.
No payment shall be required for Unrestricted Shares. The recipient of a grant
of Unrestricted Shares will have and may exercise all of the rights of an owner
of Common Stock with respect to such shares.
TAX OFFSET PAYMENTS
If and to the extent that Tax Offset Payments are made in Unrestricted
Shares, rather than in cash, no payment shall be required by the recipient of
such grant and such recipient will have and may exercise all of the rights of an
owner of Common Stock with respect to such shares.
LAPSED AWARDS AND ADJUSTMENTS
Shares of Common Stock attributable to (i) unexercised Options which expire
or are terminated, surrendered or cancelled (other than in connection with the
exercise of an SAR), (ii) Restricted Shares which are forfeited to the Company,
(iii) Performance Shares and Performance Units which are not earned and paid and
(iv) awards settled in cash in lieu of shares of Common Stock may become
available for subsequent award under the Option Plan at the Committee's
discretion.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
The number and class of shares available under the Option Plan may be
adjusted by the Committee to prevent dilution or enlargement of rights in the
event of various changes in the capitalization of the Company.
AMENDMENT AND TERMINATION
The Board of Directors may suspend, amend, modify or terminate the Option
Plan; provided, however, that the Company's stockholders shall be required to
approve any amendment that would (i) materially increase the aggregate number of
shares issuable under the Option Plan, (ii) materially increase the benefits
accruing to employees under the Option Plan, or (iii) materially modify the
requirements for eligibility to participate in the Option Plan.
Awards granted prior to a termination of the Option Plan shall continue in
accordance with their terms following such termination. No amendment,
suspension or termination of the Option Plan shall adversely affect the rights
of an employee in awards previously granted without such employee's consent.
GRANTS BY THE COMPANY'S BOARD OF DIRECTORS
On May 1, 1996 the Company granted a total of 697,400 incentive stock
options to purchase Common Stock to four directors, six executive officers (of
which three are directors), and 13 employees. All of these Options are
exercisable at an exercise price equal to $0.75 per share, the market price of
the Company's Common Stock on April 30, 1996, the business day immediately
preceding the date on which these Options were granted. All of these options
are subject to the approval of the Option Plan at the Annual Meeting. If
Stockholders fail to approve the Option Plan, these options to purchase
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<PAGE>
Common Stock will be converted into non-statutory stock options. The Company's
Board of Directors has made no determinations as to the distribution of the
remaining 443,000 options which would be available upon stockholder approval of
the Option Plan.
The following table sets forth the number of options which, subject to
stockholder approval, will have been granted under the Option Plan to (i) the
"Named Executive Officers" individually, (ii) all current executive officers, as
a group, (iii) all directors who are not executive officers, as a group, and
(iv) employees who are not executive officers, as a group.
NEW PLAN BENEFITS
Linkon Corporation 1996 Stock Option and
Performance Incentive Plan
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE (1) NUMBER OF UNITS
- ----------------- ---------------- ---------------
<S> <C> <C>
Lee W. Hill, President, $225,000 150,000
CEO (2)
Charles Castelli, $243,000 162,000
Chairman, CTO (2)
Mark O'Brien $120,000 80,000
V.P. - Int'l. Operations
All current executive $785,250 523,500
officers as a group
Non-executive Officer $187,500 125,000
Directors as a group
Non-executive Officer $ 73,350 48,900
employees as a group
</TABLE>
__________________
(1) The "Dollar Value" column represents the aggregate dollar value of the
product of (i) the number of options set forth in the "Number of Units" column,
multiplied by (ii) the difference between (A) $2.25 per share of Common Stock,
representing the market price of the Company's Common Stock at the close of
business on December 31, 1996, and (B) $0.75 per share of Common Stock,
representing the market price of the Company's Common Stock at the close of
business on April 30, 1996, the business day immediately preceding the date on
which all of the aforesaid options were granted.
(2) The options to purchase Common Stock set forth in this table were granted to
Messrs. Hill, Castelli and O'Brien on May 1, 1996 in connection with grants by
the Company to certain of its employees, directors, officers and consultants of
options to purchase an additional 305,400 shares of Common Stock. The market
price of the Company's Common Stock at the close of business on April 30, 1996,
the business day immediately preceding the date on which the options covered by
this table were granted, was $0.75 per share.
______________
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Stock Options
There will be no Federal income tax consequences to the employee or the
Company upon the grant of either an ISO or an NSO under the Option Plan. Upon
exercise of an NSO, an employee will generally recognize ordinary income in an
amount equal to (i) the fair market value, on the date of exercise, of the
acquired shares of Common Stock, less (ii) the exercise price of the NSO. The
Company will be entitled to a tax deduction in the same amount.
Upon the exercise of an ISO, an employee recognizes no immediate taxable
income. Income recognition is deferred until the employee sells the shares of
Common Stock. If the Option is exercised no later than three (3) months after
the termination of the employee's employment, and the employee does not dispose
of the shares acquired pursuant to the exercise of the Option within two (2)
years from the date the Option was granted and within one (1) year after the
exercise of the Option, the gain on the sale will be treated as long term
capital gain. Certain of these holding periods and employment requirements are
liberalized in the event of an employee's death or disability while employed by
the Company. Upon exercise of the ISO, the excess of the fair market value of
the Common Stock at exercise over the exercise price will be considered as part
of alternative minimum taxable income. Such excess will be added to basis for
purposes of determining alternative minimum taxable income in the year the
Common Stock is sold. The Company is not entitled to any tax deduction, except
that if the Common Stock is not held for the full term of the holding period
outlined above, a portion of the gain on the sale of such Common Stock being the
lesser of (i) the fair market value of the Common Stock on the date of exercise
minus the exercise price, or (ii) the amount realized on disposition minus the
exercise price, will be taxed to the employee as ordinary income and the Company
will be entitled to a deduction in the same amount. The excess, if any, of the
amount realized on disposition over the fair market value of the Common Stock on
the date of exercise will be taxed to the employee as capital gain.
Stock Appreciation Rights
There will be no Federal income tax consequences to either the employee or
the Company upon the grant of an SAR. However, the employee generally will
recognize ordinary income upon the exercise of an SAR in an amount equal to the
aggregate amount of cash and the fair market value of the shares of Common Stock
received upon exercise. The Company will be entitled to a deduction equal to
the amount includable in the employee's income.
Restricted Shares
Unless the election referred to below is made, there will be no Federal
income tax consequences to either the employee or the Company upon the grant of
Restricted Shares until expiration of the restricted period and the satisfaction
of any other conditions applicable to the Restricted Shares. At that time, the
employee will recognize taxable income equal to the then fair market value of
the Common Stock and the Company will be entitled to a corresponding deduction.
However, the employee may elect, within thirty (30) days after the date of the
grant, to recognize ordinary income equal to the fair market value of the
Restricted Shares as of the date of grant and the Company will be entitled to a
corresponding deduction at that time.
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<PAGE>
Performance Shares and Units
There will be no Federal income tax consequences to the employee or the
Company upon the grant of Performance Shares or Performance Units. Employees
will recognize taxable income at the time when payment for the Performance
Shares and Performance Units is received in an amount equal to the aggregate
amount of cash and the fair market value of shares of Common Stock acquired.
The Company will be entitled to a deduction equal to the amount includable in
the employee's income.
Unrestricted Shares
Employees will recognize taxable income at the time Unrestricted Shares are
received. The Company will be entitled to a deduction equal to the amount
includable in the employee's income.
Tax Withholding and Tax Offset Payments
The Committee may require payment, or withhold payments made by the Option
Plan, in order to satisfy applicable withholding tax requirements. The
Committee may make Tax Offset Payments to assist employees in paying income
taxes incurred as a result of their participation in the Option Plan. The
number of shares with respect to which Tax Offset Payments may be awarded will
not exceed the number of shares available for issuance under the Option Plan.
The amount of the Tax Offset Payments shall be determined by multiplying a
percentage (established by the Committee) by all or a portion of the taxable
income recognized by an employee upon (i) the exercise of an NSO or SAR, (ii)
the disposition of shares received upon exercise of an ISO, (iii) the lapse of
restrictions on Restricted Shares, (iv) the award of Unrestricted Shares or (v)
payments for Performance Shares or Performance Units. Employees will recognize
taxable income at the time that Tax Offset Payments are received, whether such
Tax Offset Payments are made in cash, Unrestricted Shares or a combination
thereof. The Company will be entitled to a deduction equal to the amount
includable in the employee's income.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the Company's 1997 Annual
Meeting of Stockholders must be received at the Company's principal executive
offices located at 140 Sherman Avenue, Fairfield, Connecticut 06430 on or before
March 31, 1997 for meeting in October of 1997 for consideration for inclusion in
the Company's Proxy Statement and form of proxy relating to that meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Company's management does not
know of any business, other than that mentioned above, which will be presented
for consideration at the Annual Meeting. However, if any other matters should
properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying form of proxy to vote the proxies in accordance with
their best judgment on such matters.
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<PAGE>
INDEPENDENT ACCOUNTANTS
The Company's (i) audited consolidated balance sheet as at January 31, 1996
and 1995, and Consolidated Statements of Operations, Statements of Cash Flows
and Statements of Stockholders' Equity for the periods ended January 31, 1996,
1995 and 1994, and (ii) unaudited consolidated balance sheet as of October 31,
1996 and 1995, unaudited consolidated statement of operations for the
comparative six-month periods ended October 31, 1996 and 1995, and unaudited
statement of cash flows for the comparative six-month periods ended October 31,
1996 and 1995, are included as part of the Annual Report which accompanies this
Proxy Statement. These audited financial statements were prepared by Feldman
Radin & Co., P.C. independent public accounts, which firm was selected by
the Company's Board of Directors. This firm has served as the Company's
independent auditors since 1993. A representative of Feldman Radin & Co.,
P.C. will be present at the Annual Meeting to respond to appropriate
questions of stockholders and to make a statement if he or she so desires.
By Order of the Board of Directors,
Patrick J. Kane, Secretary
February 24, 1997
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<PAGE>
APPENDIX A
PRELIMINARY COPIES
LINKON CORPORATION
PROXY FOR ANNUAL MEETING
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby appoints Lee W. Hill
and Thomas V. Cerabona, or either of them (the "Proxies"), as attorneys and
proxies, each with full power of substitution and all of the powers which the
undersigned would possess, if present in person, to represent and vote, as
designated on the reverse side of this proxy, all of the shares of Common Stock
of Linkon Corporation (the "Company") registered in the name of the undersigned
at the Annual Meeting of Stockholders of the Company to be held on
March 25, 1997, and at any adjournment thereof.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THIS PROXY. IF
NO DIRECTION IS MADE, THE PROXIES WILL VOTE SUCH SHARES FOR THE ELECTION OF ALL
NOMINEES FOR DIRECTOR LISTED UNDER PROPOSAL 1, FOR THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION DESCRIBED IN PROPOSAL 2 AND FOR THE ADOPTION OF THE
1996 LINKON CORPORATION STOCK OPTION AND PERFORMANCE INCENTIVE PLAN DESCRIBED IN
PROPOSAL 3, AND SUCH PROXIES WILL VOTE IN ACCORDANCE WITH THEIR DISCRETION ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(IMPORTANT - TO BE MARKED, SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
1. ELECTION OF DIRECTORS
NOMINEES: Joao Manuel Da M. V. Carvalho, Charles Castelli, Lee W. Hill,
Patrick J. Kane, Daniel Zwiren
[_] FOR all nominees [_] WITHHELD from all nominees
FOR, except vote withheld from the following nominee(s): [_]______________
2. Proposal to amend the Company's Articles of Incorporation to authorize
1,000,000 shares of serial preferred stock and empower the Company's Board
of Directors to confer upon holders of the Company's debt instruments
stockholders right under Nevada law.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to adopt the 1996 Linkon Corporation Stock Option and Performance
Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
____________________________
Signature of Stockholder
____________________________
Signature if held jointly
Date: _______________, 1997
Note: Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. Executors, administrators,
trustees and other fiduciaries should so
indicate when signing. If a corporation,
please sign in full corporate name by
president, or other authorized officer. If a
partnership, please sign in partnership name
by authorized person. This proxy may be
mailed, postage-free, in the enclosed
envelope.
<PAGE>
EXHIBIT A TO
1996 PROXY STATEMENT
--------------------
RESTATED ARTICLES
OF INCORPORATION
OF
LINKON CORPORATION
FIRST. The name of the corporation is LINKON CORPORATION.
SECOND. Its principal office in the State of Nevada is located at c/o
Lionel Sayer & Collins, 1700 Bank of America Plaza, 300 South Fourth Street, Las
Vegas, Nevada 89101. The name of its registered agent is Lionel, Sawyer &
Collins.
THIRD. The nature of the business, or objects or purposes proposed to be
transacted, promoted or carried on are:
To engage in any lawful activity and to manufacture, purchase or otherwise
acquire, invest in, own, mortgage, pledge, sell, assign and transfer or
otherwise dispose of, trade, deal in and deal with goods, wares and merchandise
and personal property of every class and description.
To hold, purchase and convey real and personal estate and to mortgage or
lease any such real and personal estate with its franchises and to take the same
by devise or bequest.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and property, and to undertake or
assume the whole or any part of the obligation or liabilities of any person,
firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage, or otherwise dispose of letters patent of the United States or any
foreign country, patent rights,
<PAGE>
licenses and privileges, inventions, improvements and processes, copyrights,
trademarks and trade names, relating to or useful in connection with any
business of this corporation.
To guarantee, hold, sell, assign, transfer, mortgage, pledge or otherwise
dispose of the shares of the capital stock of or any bond, securities or
evidence of the indebtedness created by any other corporation or corporations of
this state, or any other state or government, and while owner of such stock,
bonds, securities or evidence of indebtedness, to exercise all the rights,
powers and privileges of ownership, including the right to vote, if any.
To borrow money and contract debts when necessary for the transaction of
its business, or for the exercise of its corporate rights, privileges or
franchises, or for any other lawful purpose of its incorporation; to issue
bonds, promissory notes, bills of exchange, debentures, and other obligations
and evidences of indebtedness, payable at specified time or times, or payable
upon the happening of a specified event or events, whether secured by mortgage,
pledge or otherwise, or unsecured, for money borrowed, or in payment for
property purchased, or acquired, or for any other lawful objects.
To purchase, hold, sell and transfer shares of its own capital stock, and
use therefor its capital, capital surplus, surplus, or other property or funds;
provided it shall not use its funds or property for the purchase of its own
shares of capital stock when such use would cause any impairment of its capital;
and provided further, that shares of its own capital stock belonging to it shall
not be voted upon, directly or indirectly, not counted as outstanding, for the
purpose of computing any stockholders' quorum or vote.
To conduct business, have one or more offices, and hold, purchase, mortgage
and convey real and personal property in this state, and in any of the several
states, territories,
-2-
<PAGE>
possessions and dependencies of the United States, the District of Columbia, and
in any foreign countries.
To do all and everything necessary and proper for the accomplishment of the
objects hereinbefore enumerated or necessary or incidental to the protection and
benefit of the corporation, and, in general, to carry on any lawful business
necessary or incidental to the attainment of the objects of the corporation,
whether or not such business is similar in nature to the objects hereinbefore
set forth.
The objects and purposes specified in the foregoing clauses shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference from, the terms of any other clause in these articles of
incorporation, but the objects and purposes specified in each of the foregoing
clauses of this article shall be regarded as independent objects and purposes.
FOURTH. Section 1. This corporation is authorized to issue two (2)
classes of capital stock, to be designated, respectively, Preferred Stock
("Preferred Stock") and Common Stock ("Common Stock"). The total number of
shares of capital stock which this corporation shall have the authority to issue
is twenty-five million nine hundred thousand (25,900,000). The total number of
shares of Preferred Stock which this corporation shall have the authority to
issue is one million (1,000,000). The total number of shares of Common Stock
which this corporation shall have the authority to issue is twenty four million
nine hundred thousand (24,900,000). The Preferred Stock shall have a par value
of $0.001 per share and the Common Stock shall have a par value of $0.001 per
share.
-3-
<PAGE>
Section 2. The Preferred Stock shall be divided into one or more
series as may be issued from time to time. The Board of Directors of this
corporation is authorized, subject to limitations prescribed by law, to provide
for the issuance of all or any of the Preferred Stock in one or more series, and
by filing a certificate pursuant to Nevada Revised Statutes ("NRS") Section
78.195, to establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation thereof;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion privileges, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of
-4-
<PAGE>
redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of this corporation,
and the relative rights of priority, if any, of payment of shares of that
series;
(h) Any other relative rights, preferences and limitations of that
series.
FIFTH. The governing board of the Corporation shall be known as directors,
and the number of directors may from time to time be increased or decreased in
such manner as shall be provided by the by-laws of this corporation.
The names and post-office addresses of the board of directors as of the
date of the filing of these Restated Articles, which shall be five (5) in
number, are as follows:
NAME ADDRESS
---- -------
Joao Manuel Da M.V. Carvalho R. Sapateiros 219-E-degrees E
1100 Lisbon, Portugal
Charles Castelli 141 East Central Boulevard
Palisades Park, New Jersey
Lee W. Hill 62 Arch Street
Riverside, Connecticut
Patrick J. Kane 60 Pearl Street, Apt. 509
New York, New York
Daniel Zwiren 100 Warren Street, Apt. 1908
Jersey City, New Jersey
-5-
<PAGE>
SIXTH. Section 1. The capital stock after the amount of the subscription
price, or par value, has been paid in shall not be subject to assessment to pay
the debts of the corporation. No stockholder of the corporation shall have any
preemptive or other right, by reason of his status as a stockholder, to acquire
any unissued shares, treasury shares, or securities convertible into shares of
the capital stock of the corporation. This denial of preemptive rights shall,
and is intended to, negate any rights which would otherwise be given to
stockholders pursuant to NRS Section 78.265 or successor statute.
Section 2. Pursuant to NRS Section 78.197, the Board of Directors of
this corporation may, by resolution duly adopted, grant to the holders of a
bond, debenture or other debt obligation of this corporation any of the rights
of a stockholder, including without limitation the right to vote, the right to
receive dividends, or the right to receive notice of corporate proceedings, when
and as declared by the Board of Directors in the resolution approving the
issuance of bonds, debentures or other obligations of this corporation.
SEVENTH. The corporation is to have perpetual existence.
EIGHTH. In furtherance, and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
Subject to the by-laws, if any, adopted by the stockholders, to make, alter
or amend the by-laws of the corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed mortgages and liens
upon the real and personal property of this corporation.
-6-
<PAGE>
By resolution passed by a majority of the whole board, to designate one (1)
or more committees, each committee to consist of one (1) or more of the
directors of the corporation, which, to the extent provided in the resolution or
in the by-laws of the corporation, shall have and may exercise the powers of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be stated in the by-laws of the corporation or as may be
determined from time to time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a stockholders' meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the board of directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions as its board of directors deem expedient and for the best
interests of the corporation.
NINTH. Section 1. Pursuant to the provisions of NRS Section 78.751 the
corporation will indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative except an
action by or in the right of the corporation, by reason of the fact that he was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including
-7-
<PAGE>
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit or proceeding if
he acted in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent, does not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and that, with respect of any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
Section 2. The corporation will indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after extension
of all appeals therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and
-8-
<PAGE>
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determined upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court will deem proper.
Section 3. To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
Section 4. Any indemnification under Sections 1 and 2, unless ordered
by a court or advanced pursuant to Section 5 herein, must be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the act, suit or
proceeding;
(c) If a majority vote of a quorum consisting of directors who were
not parties to the act, suit or proceeding so ordered by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal counsel in
a written opinion.
-9-
<PAGE>
Section 5. The expenses of officers and director incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this Section 5 do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
Section 6. The indemnification and advancement of expenses authorized
in or ordered by a court pursuant to this Section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action
in his official capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court pursuant to
Section 2 or for the advancement of expenses made pursuant to Section 5,
may not be made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heir, executors and
administrators of such a person.
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<PAGE>
TENTH. Section 1. The corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against him and liability and expenses incurred by him in
his capacity as a director, officer, employee or agent, or arising out of his
status as such, whether or not the corporation has the authority to indemnify
him against such liability and expenses.
Section 2. The other financial arrangements made by the corporation
pursuant to Section 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation.
(d) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this Section may provide
protection for a person adjudged by a court of competent jurisdiction on, after
exhaustion of all appeals therefore, to be liable for international misconduct,
fraud or a knowing violations of law, except with respect to the advancement of
expenses or indemnification ordered by the court.
Section 3. Any insurance or other financial arrangement made on
behalf of a person pursuant to this Section may be provided by the corporation
or any other person
-11-
<PAGE>
approved by the board of directors, even if all of the other person's stock or
other securities is owned by the corporation.
Section 4. In the absence of fraud:
(a) The decision of the board of directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement made
pursuant to this Section and the choice of the person to provide the
insurance or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement;
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal
liability for his action, even if a director approving the insurance
or other financial arrangement is a beneficiary of the insurance or
other financial arrangement.
ELEVENTH. No director or officer of the corporation shall be personally
liable to the corporation or its stockholders for damages for his act or
omissions resulting in his breach of fiduciary duty as a director or officer,
except if such acts or omissions involve (a) intentional misconduct, fraud or a
knowing violation of the law, or (b) the payment of dividend in violation of NRS
Section 78.300.
TWELFTH. Meetings of stockholders may be held outside the State of Nevada,
if the by-laws so provide. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Nevada at such
place or places as may be designated from time to time by the board of directors
or in the by-laws of the corporation.
-12-
<PAGE>
THIRTEENTH. This corporation reserves the right to amend, alter, change or
repeal any provision contained in the articles of incorporation, in the manner
now or hereafter prescribed by statute, or by the articles of incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
-13-
<PAGE>
EXHIBIT B TO
PROXY STATEMENT
---------------
LINKON CORPORATION
1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
<PAGE>
LINKON CORPORATION
1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
ARTICLE 1.....................................................- 1 -
ESTABLISHMENT AND PURPOSE.....................................- 1 -
1.1 Establishment and Effective Date.................- 1 -
--------------------------------
1.2 Purpose..........................................- 1 -
-------
ARTICLE 2.....................................................- 1 -
AWARDS........................................................- 1 -
2.1 Form of Awards...................................- 1 -
--------------
2.2 Maximum Shares Available.........................- 2 -
------------------------
2.3 Return of Prior Awards...........................- 2 -
----------------------
ARTICLE 3.....................................................- 2 -
ADMINISTRATION................................................- 2 -
3.1 Committee........................................- 2 -
---------
3.2 Powers of Committee..............................- 3 -
-------------------
3.3 Delegation.......................................- 3 -
----------
3.4 Interpretations..................................- 3 -
---------------
3.5 Liability; Indemnification.......................- 3 -
--------------------------
ARTICLE 4.....................................................- 4 -
ELIGIBILITY...................................................- 4 -
ARTICLE 5.....................................................- 4 -
STOCK OPTIONS.................................................- 4 -
5.1 Grant of Options.................................- 4 -
----------------
5.2 Designation as Non-qualified Stock Option or
--------------------------------------------
Incentive Stock Option...........................- 4 -
----------------------
5.3 Option Price.....................................- 4 -
------------
5.4 Limitation on Amount of Incentive Stock Options..- 5 -
-----------------------------------------------
5.5 Limitation on Time of Grant......................- 5 -
---------------------------
5.6 Exercise and Payment.............................- 5 -
--------------------
5.7 Term.............................................- 6 -
----
5.8 Rights as a Stockholder..........................- 6 -
-----------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
5.9 General Restrictions.............................- 6 -
-----------------------------------------------
5.10 Cancellation of Stock Appreciation Rights........- 6 -
-----------------------------------------------
ARTICLE 6.....................................................- 7 -
STOCK APPRECIATION RIGHTS.....................................- 7 -
6.1 Grants of Stock Appreciation Rights..............- 7 -
-----------------------------------
6.2 Limitations on Exercise - 7 -
-----------------------
6.3 Surrender or Exchange of Tandem Stock
-------------------------------------
Appreciation Rights..............................- 7 -
-------------------
6.4 Exercise of Nontandem Stock Appreciation Rights..- 7 -
-----------------------------------------------
6.5 Settlement of Stock Appreciation Rights..........- 8 -
---------------------------------------
6.6 Cash Settlement..................................- 8 -
---------------
ARTICLE 7.....................................................- 8 -
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS...- 8 -
ARTICLE 8.....................................................- 9 -
EFFECT OF TERMINATION OF EMPLOYMENT, RELOCATION EVENT,
DISABILITY, RETIREMENT, DEATH OR SPECIAL EVENT...........- 9 -
ARTICLE 9.....................................................- 12 -
RESTRICTED SHARES.............................................- 12 -
9.1 Grant of Restricted Shares.......................- 12 -
--------------------------
9.2 Restrictions.....................................- 12 -
------------
9.3 Restricted Stock Certificates....................- 12 -
-----------------------------
9.4 Rights of Holders of Restricted Shares...........- 12 -
--------------------------------------
9.5 Forfeiture.......................................- 12 -
----------
9.6 Delivery of Restricted Shares....................- 13 -
-----------------------------
ARTICLE 10....................................................- 13 -
PERFORMANCE SHARES............................................- 13 -
10.1 Award of Performance Shares......................- 13 -
---------------------------
10.2 Performance Period...............................- 13 -
------------------
10.3 Right to Payment of Performance Shares...........- 13 -
--------------------------------------
10.4 Payment for Performance Shares...................- 13 -
------------------------------
10.5 Voting and Dividend Rights.......................- 14 -
--------------------------
ARTICLE 11....................................................- 14 -
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
PERFORMANCE UNITS
11.1 Award of Performance Units.......................- 14 -
--------------------------
11.2 Right to Payment of Performance Units............- 14 -
-------------------------------------
11.3 Payment for Performance Units....................- 15 -
-----------------------------
ARTICLE 12....................................................- 15 -
UNRESTRICTED SHARES...........................................- 15 -
12.1 Award of Unrestricted Shares.....................- 15 -
----------------------------
12.2 Delivery of Unrestricted Shares..................- 15 -
-------------------------------
ARTICLE 13....................................................- 16 -
TAX OFFSET PAYMENTS...........................................- 16 -
ARTICLE 14....................................................- 16 -
ADJUSTMENT UPON CHANGES IN CAPITALIZATION.....................- 16 -
ARTICLE 15....................................................- 16 -
AMENDMENT AND TERMINATION.....................................- 16 -
ARTICLE 16....................................................- 17 -
WRITTEN AGREEMENT.............................................- 17 -
ARTICLE 17....................................................- 17 -
MISCELLANEOUS PROVISIONS......................................- 17 -
17.1 Tax Withholding....................................- 17 -
---------------
17.2 Compliance With Section 16(b)......................- 17 -
-----------------------------
17.3 Successors.........................................- 18 -
----------
17.4 General Creditor Status............................- 18 -
-----------------------
17.5 No Right to Employment.............................- 18 -
----------------------
17.6 Notices............................................- 18 -
-------
17.7 Severability.......................................- 18 -
------------
17.8 Governing Law......................................- 18 -
-------------
</TABLE>
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<PAGE>
LINKON CORPORATION
1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
ARTICLE 1.
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date. Linkon Corporation, a Nevada
--------------------------------
corporation (the "Corporation"), hereby establishes a stock incentive plan to be
known as the "Linkon Corporation 1996 Stock Option and Performance Incentive
Plan" (the "Plan"). The Plan shall become effective as of December 1, 1996,
subject to the approval of the Corporation's stockholders at the 1996 Annual
Meeting of Stockholders. In the event that such stockholder approval is not
obtained, any awards made hereunder shall be cancelled and all rights with
respect to such awards shall thereupon cease. Upon approval by the Board of
Directors of the Corporation (the "Board") and the Board's Management
Compensation and Stock Option Committee (the "Committee"), awards may be made as
provided herein.
1.2 Purpose. The purpose of the Plan is to encourage and enable
-------
selected employees, officers, directors and independent contractors (subject to
such requirements as may be prescribed by the Committee) of the Corporation and
its subsidiaries to acquire a proprietary interest in the Corporation through
the ownership of the Corporation's common stock, par value $0.001 per share
("Common Stock"), and other rights with respect to the Common Stock. Such
ownership will provide such persons with a more direct stake in the future
welfare of the Corporation and encourage them to exert their best efforts for
the Corporation and its subsidiaries. It is also expected that the Plan will
encourage qualified persons to seek and accept employment with or provide
services to the Corporation and its subsidiaries.
ARTICLE 2.
AWARDS
2.1 Form of Awards. Awards under the Plan may be granted in any one
--------------
or all of the following forms: (i) incentive stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) non-qualified stock options ("Non-
qualified Stock Options") (unless otherwise indicated, references in the Plan to
"Options" shall include both Incentive Stock Options and Non-qualified Stock
Options); (iii) stock appreciation rights ("Stock Appreciation Rights"), as
described in Article 6 hereof, which may be awarded either in tandem with
Options ("Tandem Stock Appreciation Rights") or on a stand-alone basis
("Nontandem Stock Appreciation Rights"); (iv) shares of Common Stock which are
restricted as provided in Article 9 hereof ("Restricted Shares"); (v) units
representing shares of Common Stock, as described in Article 10 hereof
<PAGE>
("Performance Shares"); (vi) units which do not represent shares of Common Stock
but which may be paid in the form of Common Stock, as described in Article 11
hereof ("Performance Units"); (vii) shares of Common Stock that are not subject
to any conditions to vesting ("Unrestricted Shares"); and (viii) tax offset
payments ("Tax Offset Payments"), as described in Article 13 hereof.
2.2 Maximum Shares Available. The maximum aggregate number of shares
------------------------
of Common Stock available for award under the Plan is 1,000,000 subject to
adjustment pursuant to Article 14 hereof. In addition, Tax Offset Payments
which may be awarded under the Plan will not exceed the number of shares
available for issuance under the Plan. Shares of Common Stock issued pursuant
to the Plan may be either authorized but unissued shares or issued shares
reacquired by the Corporation. In the event that prior to the end of the period
during which Options may be granted under the Plan, any Option or any Nontandem
Stock Appreciation Rights under the Plan expires unexercised or is terminated,
surrendered or cancelled (other than in connection with the exercise of Stock
Appreciation Rights) without being exercised in whole or in part for any reason,
or any Restricted Shares, Performance Shares or Performance Units are forfeited,
or if such awards are settled in cash in lieu of shares of Common Stock, then
such shares or units shall be available for subsequent awards under the Plan,
upon such terms as the Committee may determine.
2.3 Return of Prior Awards. As a condition to any subsequent award,
----------------------
the Committee shall have the right, at its discretion, to require recipients of
awards previously granted under the Plan to return to the Corporation any such
awards. Subject to the provisions of the Plan, such new award shall be upon
such terms and conditions as are specified by the Committee at the time the new
award is granted.
ARTICLE 3.
ADMINISTRATION
3.1 Committee. Awards shall be determined, and the Plan shall be
---------
administered, by the Committee as appointed from time to time by the Board,
which Committee shall consist of not less than two (2) members of the Board.
Except as permitted by Rule 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Act"), and by Section 162(m) of the Code (or Regulations
promulgated thereunder), no member of the Board may serve on the Committee if
such member: (i) is or has been granted or awarded stock, stock options, stock
appreciation rights or any other equity security or derivative security of the
Corporation or any of its affiliates pursuant to the Plan or any other plan of
the Corporation or its affiliates either while serving on the Committee or
during the one year period prior to being appointed to the Committee; (ii) is an
employee or former employee of the Corporation; or (iii) receives remuneration
from the Corporation, either directly or indirectly, in any capacity other than
as a director.
- 2 -
<PAGE>
3.2 Powers of Committee. Subject to the express provisions of the
-------------------
Plan, the Committee shall have the power and authority (i) to grant Options and
to determine the purchase price of the Common Stock covered by each Option, the
term of each Option, the number of shares of Common Stock to be covered by each
Option and any performance objectives or vesting standards applicable to each
Option; (ii) to designate Options as Incentive Stock Options or Non-qualified
Stock Options and to determine which Options, if any, shall be accompanied by
Tandem Stock Appreciation Rights, (iii) to grant Tandem Stock Appreciation
Rights and Nontandem Stock Appreciation Rights and to determine the terms and
conditions of such rights; (iv) to grant Restricted Shares and to determine the
term of the restricted period and other conditions and restrictions applicable
to such shares; (v) to grant Performance Shares and Performance Units and to
determine the performance objectives, performance periods and other conditions
applicable to such shares or units; (vi) to grant Unrestricted Shares; (vii) to
determine the amount of, and to make, Tax Offset Payments; and (viii) to
determine the persons to whom, and the time or times at which, Options, Stock
Appreciation Rights, Restricted Shares, Performance Shares, Performance Units
and Unrestricted Shares shall be granted.
3.3 Delegation. The Committee may delegate to one or more of its
----------
members or to any other person or persons such ministerial duties as it may deem
advisable; provided, however, that the Committee may not delegate any of its
responsibilities hereunder if such delegation would cause the Plan to fail to
comply with the "disinterested administration" rules under Section 16 of the
Act. The Committee may also employ attorneys, consultants, accountants or other
professional advisors and shall be entitled to rely upon the advice, opinions or
valuations of any such advisors.
3.4 Interpretations. The Committee shall have sole discretionary
---------------
authority to interpret the terms of the Plan, to adopt and revise rules,
regulations and policies to administer the Plan and to make any other factual
determinations which it believes to be necessary or advisable for the
administration of the Plan. All actions taken and interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Corporation, all employees who have received awards under the Plan and
all other interested persons.
3.5 Liability; Indemnification. No member of the Committee, nor any
--------------------------
person to whom ministerial duties have been delegated, shall be personally
liable for any action, interpretation or determination made with respect to the
Plan or awards made thereunder, and each member of the Committee shall be fully
indemnified and protected by the Corporation with respect to any liability he or
she may incur with respect to any such action, interpretation or determination,
to the extent permitted by applicable law and to the extent provided in the
Corporation's Certificate of Incorporation and Bylaws, as amended from time to
time, or under any agreement between any such member and the Corporation.
- 3 -
<PAGE>
ARTICLE 4.
ELIGIBILITY
Awards may be made to all employees, officers, directors and
independent contractors of the Corporation or any of its subsidiaries (subject
to such requirements as may be prescribed by the Committee); provided, however,
-------- -------
that no person may receive awards of or relating to more than 100,000 shares of
Common Stock in the aggregate in any fiscal year of the Corporation. Awards may
be made to an officer, director or independent contractor of the Corporation,
whether or not such person is also an employee of the Corporation, provided that
no award may be granted to a director who is a member of the Committee. In
determining the persons to whom awards shall be granted and the number of shares
to be covered by each award, the Committee shall take into account the nature of
the services rendered by such persons, their present and potential contributions
to the success of the Corporation and its subsidiaries and such other factors as
the Committee in its sole discretion shall deem relevant.
As used herein, the term "subsidiary" shall mean any present or future
corporation, partnership or joint venture in which the Corporation owns,
directly or indirectly, 40% or more of the economic interests. Notwithstanding
the foregoing, only employees of the Corporation and any present or future
corporation which is or may be a "subsidiary corporation" of the Corporation (as
such term is defined in Section 424 (f) of the Code) shall be eligible to
receive Incentive Stock Options.
ARTICLE 5.
STOCK OPTIONS
5.1 Grant of Options. Options may be granted under the Plan for the
----------------
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards, as the Committee
shall from time to time determine.
5.2 Designation as Non-qualified Stock Option or Incentive Stock
------------------------------------------------------------
Option. In connection with any grant of Options, the Committee shall designate
- ------
in the written agreement required pursuant to Article 16 hereof whether the
Options granted shall be Incentive Stock Options or Non-qualified Stock Options,
or in the case both are granted, the number of shares of each.
5.3 Option Price. The purchase price per share under each Incentive
------------
Stock Option shall be the Market Price (as hereinafter defined) of the Common
Stock on the date the Incentive Stock Option is granted. The purchase price per
share under each Non-qualified Stock Option shall be specified by the Committee.
In no case, however, shall the purchase price per share of either an Incentive
Stock Option or Non-qualified Stock Option be less than the par
- 4 -
<PAGE>
value of the Common Stock ($.001). Notwithstanding the foregoing, to the extent
required by the Code, the purchase price per share under each Non-qualified
Stock Option granted to an employee who is treated as a "covered employee" (as
defined in Section 162(m)(3) of the Code) on the date such Non-Qualified Option
is exercised shall not be less than 100% of the Market Price of the Common Stock
on the date of grant. In the case of an Incentive Stock Option granted to an
employee owning (actually or constructively under Section 424(d) of the Code),
more than 10% of the total combined voting power of all classes of stock of the
Corporation or of a subsidiary (a "10% Stockholder"), the option price shall not
be less than 110% of the Market Price of the Common Stock on the date of grant.
The "Market Price" of the Common Stock on any day shall be determined
as follows: (i) if the Common Stock is listed on a national securities exchange
or quoted through the NASDAQ National Market System, the Market Price on any day
shall be the average of the high and low reported Consolidated Trading sales
prices, or if no such sale is made on such day, the average of the closing bid
and asked prices reported on the Consolidated Trading listing for such day; (ii)
if the Common Stock is quoted on the NASDAQ inter-dealer quotation system, the
Market Price on any day shall be the average of the representative bid and asked
prices at the close of business for such day; or (iii) if the Common Stock is
not listed on a national stock exchange or quoted on NASDAQ, the Market Price on
any day shall be the average of the high bid and low asked prices reported by
the National Quotation Bureau, Inc. for such day. In no event shall the Market
Price of a share of Common Stock subject to an Incentive Stock Option be less
than the fair market value as determined for purposes of Section 422(b)(4) of
the Code.
The Option price so determined shall also be applicable in connection
with the exercise of any Tandem Stock Appreciation Rights granted with respect
to such Option.
5.4 Limitation on Amount of Incentive Stock Options. In the case of
-----------------------------------------------
Incentive Stock Options, the aggregate Market Price (determined at the time the
Incentive Stock Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any optionee
during any calendar year (under all plans of the Corporation and any subsidiary)
shall not exceed $100,000.
5.5 Limitation on Time of Grant. No grant of an Incentive Stock
---------------------------
Option shall be made under the Plan more than ten (10) years after the date the
Plan is approved by stockholders of the Corporation.
5.6 Exercise and Payment. Options may be exercised in whole or in
--------------------
part. Common Stock purchased upon the exercise of Options shall be paid for in
full at the time of purchase. Such payment shall be made in cash or, in the
discretion of the Committee, through delivery of shares of Common Stock or
surrender of Options (or a portion of an Option) held by the optionee (provided
that the then-Market Price of Common Stock exceeds the exercise price of such
Options) or a combination of the foregoing, to the extent permitted in
accordance with procedures to be established by the Committee. Any shares of
Common Stock so delivered shall be valued at their Market Price on the date of
exercise. Any Option (or portion of an
- 5 -
<PAGE>
Option) so surrendered shall be valued at the product of (a) the difference
between (i) the Market Price of one (1) share of Common Stock on the date of
exercise and (ii) the exercise price under such Option, multiplied by (b) the
number of shares of Common Stock covered by such Option (or the portion of such
Option which is surrendered). Upon receipt of notice of exercise and payment in
accordance with procedures to be established by the Committee, the Corporation
or its agent shall deliver to the person exercising the Option (or his or her
designee) a certificate for such shares.
5.7 Term. The term of each Option granted hereunder shall be
----
determined by the Committee; provided, however, that, notwithstanding any other
-------- -------
provision of the Plan, in no event shall an Incentive Stock Option be
exercisable after ten (10) years from the date it is granted, or in the case of
an Incentive Stock Option granted to a 10% Stockholder, five (5) years from the
date it is granted.
5.8 Rights as a Stockholder. A recipient of Options shall have no
-----------------------
rights as a stockholder with respect to any shares issuable or transferable upon
exercise thereof until the date on which a recipient shall have exercised his or
her Option in accordance herewith. Except as otherwise expressly provided in
the Plan, no adjustment shall be made for cash dividends or other rights for
which the record date is prior to the date such stock certificate is issued.
5.9 General Restrictions. Each Option granted under the Plan shall
--------------------
be subject to the requirement that, if at any time the Board shall determine, in
its discretion, that the listing, registration or qualification of the shares
issuable or transferable upon exercise thereof upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the issue, transfer, or purchase of shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.
The Board or the Committee may, in connection with the granting of any
Option, require the person to whom the Option is to be granted to enter into an
agreement with the Corporation stating that as a condition precedent to each
exercise of the Option, in whole or in part, such person shall if then required
by the Corporation represent to the Corporation in writing that such exercise is
for investment only and not with a view to distribution, and also setting forth
such other terms and conditions as the Board or the Committee may prescribe.
5.10 Cancellation of Stock Appreciation Rights. Upon exercise of all
-----------------------------------------
or a portion of an Option, the related Tandem Stock Appreciation Rights shall be
cancelled with respect to an equal number of shares of Common Stock as are
issuable upon exercise of such Option.
- 6 -
<PAGE>
ARTICLE 6.
STOCK APPRECIATION RIGHTS
6.1 Grants of Stock Appreciation Rights. Tandem Stock Appreciation
-----------------------------------
Rights may be awarded by the Committee in connection with any Option granted
under the Plan, either at the time the Option is granted or thereafter at any
time prior to the exercise, termination or expiration of the Option. Nontandem
Stock Appreciation Rights may also be granted by the Committee at any time. At
the time of grant of Nontandem Stock Appreciation Rights, the Committee shall
specify the number of shares of Common Stock covered by such right and the base
price of shares of Common Stock to be used in connection with the calculation
described in Section 6.4 below. The base price of any Nontandem Stock
Appreciation Rights shall be not less than 100% of the Market Price of a share
of Common Stock on the date of grant. Stock Appreciation Rights shall be
subject to such terms and conditions not inconsistent with the other provisions
of the Plan as the Committee shall determine.
6.2 Limitations on Exercise. Tandem Stock Appreciation Rights shall
-----------------------
be exercisable only to the extent that the related Option is exercisable and
shall be exercisable only for such period as the Committee may determine (which
period may expire prior to the expiration date of the related Option). Upon the
exercise of all or a portion of Tandem Stock Appreciation Rights, the related
Option shall be cancelled with respect to an equal number of shares of Common
Stock. Shares of Common Stock subject to Options, or portions thereof,
surrendered upon exercise of Tandem Stock Appreciation Rights shall not be
available for subsequent awards under the Plan. Nontandem Stock Appreciation
Rights shall be exercisable during such period as the Committee shall determine.
6.3 Surrender or Exchange of Tandem Stock Appreciation Rights.
---------------------------------------------------------
Tandem Stock Appreciation Rights shall entitle the recipient to surrender to the
Corporation unexercised the related Option, or any portion thereof, and to
receive from the Corporation in exchange therefor that number of shares of
Common Stock having an aggregate Market Price equal to (A) the excess of (i) the
Market Price of one (1) share of Common Stock as of the date the Tandem Stock
Appreciation Rights are exercised over (ii) the option price per share specified
in such Option, multiplied by (B) the number of shares of Common Stock subject
to the Option, or portion thereof, which is surrendered. Cash shall be
delivered in lieu of any fractional shares.
6.4 Exercise of Nontandem Stock Appreciation Rights. The exercise of
-----------------------------------------------
Nontandem Stock Appreciation Rights shall entitle the recipient to receive from
the Corporation that number of shares of Common Stock having an aggregate Market
Price equal to (A) the excess of (i) the Market Price of one (1) share of Common
Stock as of the date on which the Nontandem Stock Appreciation Rights are
exercised over (ii) the base price of the shares covered by the Nontandem Stock
Appreciation Rights, multiplied by (B) the number of shares of Common Stock
covered by the Nontandem Stock Appreciation Rights, or the portion thereof being
exercised. Cash shall be delivered in lieu of any fractional shares.
- 7 -
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6.5 Settlement of Stock Appreciation Rights. As soon as is
---------------------------------------
reasonably practicable after the exercise of any Stock Appreciation Rights, the
Corporation shall (i) issue, in the name of the recipient, stock certificates
representing the total number of full shares of Common Stock to which the
recipient is entitled pursuant to Section 6.3 or 6.4 hereof and cash in an
amount equal to the Market Price, as of the date of exercise, of any resulting
fractional shares, and (ii) if the Committee causes the Corporation to elect to
settle all or part of its obligations arising out of the exercise of the Stock
Appreciation Rights in cash pursuant to Section 6.6 hereof, deliver to the
recipient an amount in cash equal to the Market Price, as of the date of
exercise, of the shares of Common Stock it would otherwise be obligated to
deliver.
6.6 Cash Settlement. The Committee, in its discretion, may cause
---------------
the Corporation to settle all or any part of its obligation arising out of the
exercise of Stock Appreciation Rights by the payment of cash in lieu of all or
part of the shares of Common Stock it would otherwise be obligated to deliver in
an amount equal to the Market Price of such shares on the date of exercise.
ARTICLE 7.
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
No Option or Stock Appreciation Rights may be transferred, assigned,
pledged or hypothecated (whether by operation of law or otherwise), except as
provided by will or the applicable laws of descent and distribution, and no
Option or Stock Appreciation Rights shall be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of an Option or Stock Appreciation Rights not specifically
permitted herein shall be null and void and without effect. An Option or Stock
Appreciation Rights granted to an individual may be exercised by the recipient
only during his or her lifetime, or following his or her death pursuant to
Section 8.4 hereof.
Notwithstanding anything to the contrary in the preceding paragraph,
the Committee may, in its sole discretion, cause the written agreement relating
to any Non-qualified Stock Options or Stock Appreciation Rights granted
hereunder to provide that the recipient of such Non-qualified Stock Options or
Stock Appreciation Rights may transfer any of such Non-qualified Stock Options
or Stock Appreciation Rights other than by will or the laws of descent and
distribution in any manner authorized under applicable law; provided, however,
-------- -------
that in no event may the Committee permit any transfers which would cause this
Plan to fail to satisfy the applicable requirements of Rule 16b-3 under the Act,
or would cause any recipient of awards hereunder to fail to be entitled to the
benefits Rule 16b-3 or other exemptive rules under Section 16 of the Act or be
subject to liability thereunder.
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<PAGE>
ARTICLE 8.
EFFECT OF TERMINATION OF EMPLOYMENT, RELOCATION EVENT,
DISABILITY, RETIREMENT, DEATH OR SPECIAL EVENT
8.1 General Rule. Except as expressly determined by the Committee
------------
in its sole discretion, no Option or Stock Appreciation Rights shall be
exercisable after three months following the recipient's termination of
employment with or, in the case of a nonemployee recipient, cessation of
providing services to the Corporation or a subsidiary, unless such termination
or cessation occurs by reason of (i) a Relocation Event (as defined in Section
8.2), (ii) Retirement (as defined in Section 8.3), (iii) death, or (iv) a
Special Event (as defined in Section 8.5), provided that, in the case of a
Special Event, the Committee shall have modified such Option or Stock
Appreciation Rights to remain exercisable as provided in Section 8.5.
Options and Stock Appreciation Rights shall not be affected by any
change of duties so long as the recipient continues to be employed by or provide
services to either the Corporation or a subsidiary. The Committee may, in its
sole discretion, cause any Option or Stock Appreciation Rights to be forfeited
upon an award recipient's termination of employment or other arrangement for the
provision of services if the recipient was terminated for one (or more) of the
following reasons: (i) the conviction of, or plea of guilty or nolo contendere
---- ----------
to, the commission of a felony, (ii) the commission of any fraud,
misappropriation or misconduct which causes demonstrable injury to the
Corporation or a subsidiary, (iii) an act of dishonesty by the recipient
resulting or intended to result, directly or indirectly, in gain or personal
enrichment at the expense of the Corporation or a subsidiary, (iv) any breach of
the recipient's fiduciary duties to the Corporation, or (v) a serious violation
by the recipient of a Corporation policy. It shall be within the sole discretion
of the Committee to determine whether the recipient's termination was for one of
the foregoing reasons, and the decision of the Committee shall be final and
conclusive.
8.2 Relocation Event. Options and Stock Appreciation Rights granted
----------------
to a recipient shall remain outstanding after termination of such recipient's
employment with or, in the case of a nonemployee recipient, cessation of
providing services to the Corporation or a subsidiary, if such termination or
cessation solely occurs by reason of a "Relocation Event," which shall be deemed
to occur if (i) a husband and wife are both current employees, officers,
directors or independent contractors of or to the Corporation, (ii) the
Corporation transfers one spouse to a new location, (iii) the Corporation is
unable to offer the other spouse a position that is substantially comparable to
his or her current position, and (iv) as a result, the other spouse's employment
with or other arrangement for the provision of services to the Corporation is
terminated and the other spouse, as recipient, holds outstanding Options or
Stock Appreciation Rights.
In case of a Relocation Event, the Options or Stock Appreciation
Rights held by a terminated recipient shall be exercisable for a period equal to
the lesser of (i) the period such Options or Stock Appreciation Rights would be
exercisable absent such termination, and (ii) the
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period such Options or Stock Appreciation Rights would be exercisable if granted
to the spouse continuing as an employee, officer, director or independent
contractor of the Corporation on the date originally granted to the terminated
spouse.
8.3 Disability or Retirement. Except as expressly provided
------------------------
otherwise in the written agreement relating to any Option or Stock Appreciation
Rights granted under the Plan, in the event of the Disability or Retirement of
an employee, officer or director who is the recipient of Options or Stock
Appreciation Rights, the Options or Stock Appreciation Rights which are held by
such recipient on the date of such Disability or Retirement, whether or not
otherwise exercisable on such date, shall be exercisable at any time until the
expiration date of the Options or Stock Appreciation Rights; provided, however,
-------- -------
that any Incentive Stock Option of such recipient shall no longer be treated as
an Incentive Stock Option unless exercised within three (3) months of the date
of such Disability or Retirement (or within one (1) year in the case of an
employee who is "disabled" within the meaning of Section 22(e)(3) of the Code).
"Disability" shall mean any termination of employment with or, in the
case of a nonemployee officer or director, status as an officer or director of
the Corporation or a subsidiary because of a long-term or total disability, as
determined by the Committee in its sole discretion. "Retirement" shall mean a
termination of employment with or, in the case of a nonemployee officer or
director, status as an officer or director of the Corporation or a subsidiary
either (i) on a voluntary basis by a recipient who is at least 60 years of age
and has at least 15 years of service with the Corporation or a subsidiary or
(ii) otherwise with the written consent of the Committee in its sole discretion.
The decision of the Committee shall be final and conclusive.
8.4 Death. Except as expressly provided otherwise in the written
-----
agreement relating to any Option or Stock Appreciation Rights granted under the
Plan, in the event of the death of a recipient of Options or Stock Appreciation
Rights while an employee, officer or director of the Corporation or any
subsidiary, Options or Stock Appreciation Rights which are held by such
recipient at the date of death, whether or not otherwise exercisable on the date
of death, shall be exercisable by the beneficiary designated by such recipient
for such purpose (the "Designated Beneficiary") or if no Designated Beneficiary
shall be appointed or if the Designated Beneficiary shall predecease such
recipient, by such recipient's personal representatives, heirs or legatees at
any time within three (3) years from the date of death (subject to the
limitation in Section 5.7 hereof), at which time such Options or Stock
Appreciation Rights shall terminate; provided, however, that any Incentive Stock
-------- -------
Option of such recipient shall no longer be treated as an Incentive Stock Option
unless exercised within three (3) months of the date of the recipient's death.
In the event of the death of a recipient of Options or Stock
Appreciation Rights following a termination of employment or, in the case of an
a nonemployee officer or director, status as an officer or director due to
Retirement, Disability or a Special Event (as defined in Section 8.5 hereof), if
such death occurs before the Options or Stock Appreciation Rights are exercised,
the Options or Stock Appreciation Rights which are held by such recipient on the
date
-10-
<PAGE>
of termination shall be exercisable by such recipient's Designated Beneficiary,
or if no Designated Beneficiary shall be appointed or if the Designated
Beneficiary shall predecease such recipient, by such recipient's personal
representatives, heirs or legatees to the same extent such Options or Stock
Appreciation Rights were exercisable by the recipient following such termination
of employment.
8.5 Special Event. In the case of a Special Event, the Committee in
-------------
its sole discretion may elect to modify all or any lesser number of any Options
or Stock Appreciation Rights held by a recipient terminated as a result of a
Special Event which are or are not exercisable on the date of termination, to
provide that any of such Options or Stock Appreciation Rights may continue to be
exercisable for the term and in the manner specified therein or for such other
term and subject to such other provisions and conditions (including, without
limitation, acceleration of the time or times at which any such Options or Stock
Appreciation Rights may be exercised) as the Committee shall specify. The
Committee shall have the sole discretion to determine the recipients to whom and
in the manner in which any such modification shall be made. If the Committee
does not elect to modify an Option or Stock Appreciation Rights, then only
Options and Stock Appreciation Rights currently exercisable at the date of
termination shall be exercisable as provided in the first sentence of Section
8.1 hereof.
A "Special Event" shall mean (i) the sale or other disposition of a
subsidiary or division of the Corporation; (ii) the closing or discontinuation
of a specific operation of the Corporation or any subsidiary; (iii) the
elimination of job categories; or (iv) a limited program of terminations in
connection with a personnel reorganization or restructuring of the Corporation
or any subsidiary of the Corporation scheduled to be completed on a date
certain, provided, however, that only those recipients who meet the terms and
conditions as established by the Board or the Committee in its discretion shall
be eligible to receive accelerated vesting of Options and Stock Appreciation
Rights.
8.6 Leave of Absence. In the case of an employee, officer or
----------------
director on an approved leave of absence, the Options and Stock Appreciation
Rights of such person shall not be affected unless such leave is longer than 13
weeks. The date of exercisability of any Options or Stock Appreciation Rights of
an employee, officer or director which are unexercisable at the beginning of an
approved leave of absence lasting longer than 13 weeks shall be postponed for a
period equal to the length of such leave of absence. Notwithstanding the
foregoing, the Committee may, in its sole discretion, waive in writing any such
postponement of the date of exercisability of any Options or Stock Appreciation
Rights due to a leave of absence.
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<PAGE>
ARTICLE 9.
RESTRICTED SHARES
9.1 Grant of Restricted Shares. The Committee may from time to time
--------------------------
cause the Corporation to grant Restricted Shares under the Plan to employees,
officers, directors or independent contractors of the Corporation, subject to
such restrictions, conditions and other terms as the Committee may determine.
9.2 Restrictions. At the time a grant of Restricted Shares is made,
------------
the Committee shall establish a period of time (the "Restricted Period")
applicable to such Restricted Shares. Each grant of Restricted Shares may be
subject to a different Restricted Period. The Committee may, in its sole
discretion, at the time a grant is made, prescribe restrictions in addition to
or other than the expiration of the Restricted Period, including the
satisfaction of corporate or individual performance objectives, which shall be
applicable to all or any portion of the Restricted Shares. The Committee may
also, in its sole discretion, shorten or terminate the Restricted Period or
waive any other restrictions applicable to all or a portion of such Restricted
Shares. None of the Restricted Shares may be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of during the Restricted Period or
prior to the satisfaction of any other restrictions prescribed by the Committee
with respect to such Restricted Shares.
9.3 Restricted Stock Certificates. The Corporation shall issue, in
-----------------------------
the name of each person to whom Restricted Shares have been granted, stock
certificates representing the total number of Restricted Shares granted to the
recipient, as soon as reasonably practicable after the grant. The Corporation,
at the direction of the Committee, shall hold such certificates, properly
endorsed for transfer, for the recipient's benefit until such time as the
Restricted Shares are forfeited to the Corporation, or the restrictions lapse.
9.4 Rights of Holders of Restricted Shares. Holders of Restricted
--------------------------------------
Shares shall not have the right to vote such shares or the right to receive any
cash dividends with respect to such shares. All distributions, if any, received
by a recipient with respect to Restricted Shares as a result of any stock split,
stock distribution, a combination of shares, or other similar transaction shall
be subject to the restrictions of this Article 9.
9.5 Forfeiture. Any Restricted Shares granted pursuant to the Plan
----------
shall be forfeited if the recipient terminates employment with or, in the case
of a nonemployee recipient, the cessation of providing services to the
Corporation or its subsidiaries prior to the expiration or termination of the
Restricted Period and the satisfaction of any other conditions applicable to
such Restricted Shares. Upon such forfeiture, the Restricted Shares that are
forfeited shall be retained in the treasury of the Corporation and available for
subsequent awards under the Plan, unless the Committee directs that such
Restricted Shares be cancelled upon forfeiture. If the recipient's employment or
other arrangement for the provision of services terminates as a result of
Disability, Retirement or death, or a Relocation Event or Special Event, all
Restricted Shares
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<PAGE>
of such recipient shall be forfeited, unless the Committee, in its sole
discretion, shall determine otherwise.
9.6 Delivery of Restricted Shares. Upon the expiration or
-----------------------------
termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee, the restrictions applicable to the
Restricted Shares shall lapse and a stock certificate for the number of
Restricted Shares with respect to which the restrictions have lapsed shall be
delivered, free of all such restrictions, to the recipient or the recipient's
beneficiary or estate, as the case may be.
ARTICLE 10.
PERFORMANCE SHARES
10.1 Award of Performance Shares. For each Performance Period (as
---------------------------
defined in Section 10.2), Performance Shares may be granted under the Plan to
such employees, officers, directors and independent contractors of the
Corporation and its subsidiaries as the Committee shall determine in its sole
discretion. Each Performance Share shall be deemed to be equivalent to one (1)
share of Common Stock. Performance Shares granted to such a recipient shall be
credited to an account (a "Performance Share Account") established and
maintained for such recipient.
10.2 Performance Period. "Performance Period" shall mean such period
------------------
of time as shall be determined by the Committee in its sole discretion.
Different Performance Periods may be established for different recipients
receiving Performance Shares. Performance Periods may run consecutively or
concurrently.
10.3 Right to Payment of Performance Shares. With respect to each
--------------------------------------
award of Performance Shares under the Plan, the Committee shall specify
performance objectives (the "Performance Objectives") which must be satisfied in
order for the recipient to vest in the Performance Shares which have been
awarded to such recipient for the Performance Period. If the Performance
Objectives established for a recipient for the Performance Period are partially
but not fully met, the Committee may, nonetheless, in its sole discretion,
determine that all or a portion of the Performance Shares have vested. If the
Performance Objectives for a Performance Period are exceeded, the Committee may,
in its sole discretion, grant additional, fully vested Performance Shares to the
recipient. The Committee may also determine, in its sole discretion, that
Performance Shares awarded to a recipient shall become partially or fully vested
upon the recipient's Disability, Retirement or death, or upon a Relocation Event
or Special Event, or upon the termination of the recipient's employment or other
arrangement for the provision of services to the Corporation prior to the end of
the Performance Period.
10.4 Payment for Performance Shares. As soon as practicable
------------------------------
following the end of a Performance Period, the Committee shall determine whether
the Performance Objectives
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<PAGE>
for the Performance Period have been achieved (or partially achieved to the
extent necessary to permit partial vesting at the discretion of the Committee
pursuant to Section 10.3). If the Performance Objectives for the Performance
Period have been exceeded, the Committee shall determine whether additional
Performance Shares shall be granted to the recipient pursuant to Section 10.3.
As soon as reasonably practicable after such determinations, or at such later
date as the Committee shall determine at the time of grant, the Corporation
shall pay to the recipient an amount with respect to each vested Performance
Share equal to the Market Price of a share of Common Stock on such payment date
or, if the Committee shall so specify at the time of grant, an amount equal to
(i) the Market Price of a share of Common Stock on the payment date less (ii)
the Market Price of a share of Common Stock on the date of grant of the
Performance Share. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine in its sole discretion.
10.5 Voting and Dividend Rights. Except as provided in Article 14
--------------------------
hereof, no recipient of Performance Shares shall be entitled to any voting
rights, to receive any cash dividends, or to have such recipient's Performance
Share Account credited or increased as a result of any cash dividends or other
distribution with respect to Common Stock. Notwithstanding the foregoing, within
sixty (60) days from the date of payment of a cash dividend by the Corporation
on its shares of Common Stock, the Committee, in its sole discretion, may credit
a recipient's Performance Share Account with additional Performance Shares
having an aggregate Market Price equal to the cash dividend per share paid on
the Common Stock multiplied by the number of Performance Shares credited to such
recipient's account at the time the cash dividend was declared.
ARTICLE 11.
PERFORMANCE UNITS
11.1 Award of Performance Units. For each Performance Period (as
--------------------------
defined in Section 10.2), Performance Units may be granted under the Plan to
such employees, officers, directors and independent contractors of the
Corporation and its subsidiaries as the Committee shall determine in its sole
discretion. The award agreement covering such Performance Units shall specify a
value for each Performance Unit or shall set forth a formula for determining the
value of each Performance Unit at the time of payment (the "Ending Value"). If
necessary to make the calculation of the amount to be paid to the recipient
pursuant to Section 11.3, the Committee shall also state in the award agreement
the initial value of each Performance Unit (the "Initial Value"). Performance
Units granted to a recipient shall be credited to an account (a "Performance
Unit Account") established and maintained for such recipient.
11.2 Right to Payment of Performance Units. With respect to each
-------------------------------------
award of Performance Units under the Plan, the Committee shall specify
Performance Objectives which must be satisfied in order for the recipient to
vest in the Performance Units which have been
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<PAGE>
awarded to such recipient for the Performance Period. If the Performance
Objectives established for a recipient for the Performance Period are partially
but not fully met, the Committee may, nonetheless, in its sole discretion,
determine that all or a portion of the Performance Units have vested. If the
Performance Objectives for a Performance Period are exceeded, the Committee may,
in its sole discretion, grant additional, fully vested Performance Units to the
recipient. The Committee may, in its sole discretion, adjust the Performance
Objectives or the Initial Value or Ending Value of any Performance Units to
reflect extraordinary events, such as stock splits, recapitalizations, mergers,
combinations, divestitures, spin-offs and the like. The Committee may also
determine, in its sole discretion, that Performance Units awarded to a recipient
shall become partially or fully vested upon the recipient's termination of
employment or other arrangement for the provision of services to the Corporation
due to Disability, Retirement, death or otherwise, or upon a Relocation Event or
Special Event.
11.3 Payment for Performance Units. As soon as practicable following
-----------------------------
the end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 11.2). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Units shall be granted to the recipient
pursuant to Section 11.2. As soon as reasonably practicable after such
determinations, or at such later date as the Committee shall determine at the
time of grant, the Corporation shall pay to the recipient an amount with respect
to each vested Performance Unit equal to the Ending Value of the Performance
Unit or, if the Committee shall so specify at the time of grant, an amount equal
to (i) the Ending Value of the Performance Unit less (ii) the Initial Value of
the Performance Unit. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine in its sole discretion.
ARTICLE 12.
UNRESTRICTED SHARES
12.1 Award of Unrestricted Shares. The Committee may cause the
----------------------------
Corporation to grant Unrestricted Shares to employees, officers, directors or
independent contractors of the Corporation at such time or times, in such
amounts and for such reasons as the Committee, in its sole discretion, shall
determine. No payment shall be required for Unrestricted Shares.
12.2 Delivery of Unrestricted Shares. The Corporation shall issue,
-------------------------------
in the name of each person to whom Unrestricted Shares have been granted, stock
certificates representing the total number of Unrestricted Shares granted to the
recipient, and shall deliver such certificates to the recipient as soon as
reasonably practicable after the date of grant or on such later date as the
Committee shall determine at the time of grant.
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<PAGE>
ARTICLE 13.
TAX OFFSET PAYMENTS
The Committee shall have the authority at the time of any award under
the Plan or anytime thereafter to make Tax Offset Payments, in cash or
Unrestricted Shares, to assist recipients in paying income taxes incurred as a
result of their participation in the Plan. The Tax Offset Payments shall be
determined by multiplying a percentage established by the Committee by all or a
portion (as the Committee shall determine) of the taxable income recognized by a
recipient upon (i) the exercise of Non-qualified Stock Options or Stock
Appreciation Rights, (ii) the disposition of shares received upon exercise of
Incentive Stock Options, (iii) the lapse of restrictions on Restricted Shares,
(iv) the award of Unrestricted Shares, or (v) payments for Performance Shares or
Performance Units. The percentage shall be established, from time to time, by
the Committee at that rate which the Committee, in its sole discretion,
determines to be appropriate and in the best interests of the Corporation to
assist recipients in paying income taxes incurred as a result of the events
described in the preceding sentence.
ARTICLE 14.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee may:
(i) at any time, make or provide for such adjustments to the Plan or to the
number and class of shares available thereunder or (ii) at the time of grant of
any Options, Stock Appreciation Rights, Restricted Shares or Performance Shares,
provide for such adjustments to such Options, Stock Appreciation Rights,
Restricted Shares or Performance Shares, in each case, as the Committee shall
deem appropriate to prevent dilution or enlargement of rights, including,
without limitation, adjustments in the event of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
separations, spin-offs, reorganizations, liquidations and the like.
ARTICLE 15.
AMENDMENT AND TERMINATION
The Board may suspend, terminate, modify or amend the Plan, provided
that any amendment that would (i) materially increase the aggregate number of
shares which may be issued under the Plan, (ii) materially increase the benefits
accruing to persons eligible to receive awards under the Plan, or (iii)
materially modify the requirements as to eligibility for participation in the
Plan, shall be subject to the approval of the Corporation's stockholders, except
that any such increase or modification that may result from adjustments
authorized by Article 14 hereof shall not require such stockholder approval. If
the Plan is terminated, the
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<PAGE>
terms of the Plan shall, notwithstanding such termination, continue to apply to
awards granted prior to such termination. No suspension, termination,
modification or amendment of the Plan may, without the consent of the recipient
to whom an award shall theretofore have been granted, adversely affect the
rights of such recipient under such award.
ARTICLE 16.
WRITTEN AGREEMENT
Each award of Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units, Unrestricted Shares and Tax Offset
Payments shall be evidenced by a written agreement containing such restrictions,
terms and conditions, if any, as the Committee may require. In the event of any
conflict between a written agreement and the Plan, the terms of the Plan shall
govern.
ARTICLE 17.
MISCELLANEOUS PROVISIONS
17.1 Tax Withholding. The Corporation shall have the right to
---------------
require recipients or their beneficiaries or legal representatives to remit to
the Corporation an amount sufficient to satisfy Federal, state and local
withholding tax requirements, or to deduct from all payments under the Plan,
including Tax Offset Payments, amounts sufficient to satisfy all withholding tax
requirements. Whenever payments under the Plan are to be made to a recipient in
cash, such payments shall be net of any amounts sufficient to satisfy all
Federal, state and local withholding tax requirements. The Committee may, in its
sole discretion, permit a recipient to satisfy his or her tax withholding
obligation either by (i) surrendering shares of Common Stock owned by the
recipient or (ii) having the Corporation withhold from shares of Common Stock
otherwise deliverable to the employee. Shares surrendered or withheld shall be
valued at their Market Price as of the date on which income is required to be
recognized for income tax purposes.
17.2 Compliance With Section 16(b). In the case of recipients of
-----------------------------
awards under the Plan who are or may be subject to Section 16 of the Act, it is
the intent of the Corporation that the Plan and any award granted hereunder
satisfy and be interpreted in a manner that satisfies the applicable
requirements of Rule 16b-3, so that such persons will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Act and
will not be subjected to liability thereunder. If any provision of the Plan or
any award would otherwise conflict with the intent expressed herein, that
provision, to the extent possible, shall be interpreted and deemed amended so as
to avoid such conflict. To the extent of any remaining irreconcilable conflict
with such intent, such provision shall be deemed void as applicable to
recipients who are or may be subject to Section 16 of the Act.
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<PAGE>
17.3 Successors. The obligations of the Corporation under the Plan
----------
shall be binding upon any successor corporation or organization resulting from
the merger, consolidation or other reorganization of the Corporation, or upon
any successor corporation or organization succeeding to all or substantially all
of the assets and business of the Corporation. In the event of any of the
foregoing, the Committee may, at its discretion prior to the consummation of the
transaction and subject to Article 15 hereof, cancel, offer to purchase,
exchange, adjust or modify any outstanding awards, at such time and in such
manner as the Committee deems appropriate and in accordance with applicable law.
17.4 General Creditor Status. Recipients of awards under the Plan
-----------------------
shall have no right, title, or interest whatsoever in or to any investments
which the Corporation may make to aid it in meeting its obligations under the
Plan. Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Corporation and any recipient of an award
under the Plan or any beneficiary or legal representative of such a recipient.
To the extent that any person acquires a right to receive payments from the
Corporation under the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Corporation. All payments to be made hereunder
shall be paid from the general funds of the Corporation and no special or
separate fund shall be established and no segregation of assets shall be made to
assure payment of such amounts except as expressly set forth in the Plan.
17.5 No Right to Employment. Nothing in the Plan or in any written
----------------------
agreement entered into pursuant to Article 16 hereof, nor the grant of any
award, shall confer upon any person any right to continue in the employ of or be
retained in any capacity by the Corporation or a subsidiary or to be entitled to
any remuneration or benefits not set forth in the Plan or such written agreement
or interfere with or limit the right of the Corporation or a subsidiary to
modify the terms of or terminate at any time such person's employment or other
arrangement for the provision of services to the Corporation.
17.6 Notices. Notices required or permitted to be made under the
-------
Plan shall be sufficiently made if personally delivered to a recipient of an
award under the Plan or sent by regular mail addressed (a) to the recipient at
the recipient's address as set forth in the books and records of the Corporation
or its subsidiaries, or (b) to the Corporation or the Committee at the principal
office of the Corporation clearly marked "Attention: Stock Option Committee."
17.7 Severability. In the event that any provision of the Plan shall
------------
be held illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
17.8 Governing Law. To the extent not preempted by Federal law, the
-------------
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Nevada.
-18-
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 1996
----------------
[ ] 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 0-19705
LINKON CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 13-3469932
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 Sherman Street,
Fairfield, Connecticut 06430
----------------------------
(Address of principal executive offices)
(203) 319-3175
--------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No ________ [_]
-------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class [_] Outstanding at November 8, 1996
- -------------------------------- -------------------------------
Common Stock, Par Value $.001 Per Share 10,753,252
==========
Transitional (Small Business Disclosure Format Check one):
Yes ________; No x
-----
<PAGE>
LINKON CORPORATION
FORM 10-QSB
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
Page to Page
------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet - October 31, 1996 and 1995
and January 31, 1996 3 - 4
Statements of Operations - Nine Months
Ended October 31, 1996 and 1995 5
Statements of Operations - Three Months
Ended October 31, 1996 and 1995 6
Statements of Cash Flows - Nine Months
Ended October 31, 1996 and 1995 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations 9 - 10
Exhibit I - Calculation of Earnings per Share 11
PART II. Other Information 12 - 13
Signatures 14
Financial Data Schedule 15
</TABLE>
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
A S S E T S
-----------
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, JANUARY 31,
1996 1995 1996
------ ------ ------
<S> <C> <C> <C>
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 133,064 $ 569,664 $ 522,569
Certificate of Deposit 66,808 62,993 63,934
Accounts Receivable (Net of Allowance) 900,129 1,113,871 611,387
Notes Receivable 51,000 51,000 51,000
Other Receivables 29,019 63,475 51,213
Inventory 1,090,218 840,997 888,655
Prepaid Expenses 54,200 61,253 27,406
---------- ---------- ----------
Total Current Assets 2,324,438 2,763,253 2,216,164
---------- ---------- ----------
MACHINERY & EQUIPMENT
- ---------------------
Machinery & Equipment, at cost 1,061,500 941,935 1,046,008
Equipment under Capital Leases 156,965 156,965 156,965
---------- ---------- ----------
1,218,465 1,098,900 1,202,973
Less: Accumulated Depreciation 818,006 654,278 696,283
---------- ---------- ----------
Machinery & Equipment, Net 400,459 444,622 506,690
---------- ---------- ----------
OTHER ASSETS
- ------------
Software (Net of Amortization) 989,885 891,669 928,148
Investments, at cost 34,613 375,182 375,182
Prepaid Financing Costs 31,371 41,828 39,213
Deferred Offering Costs -- -- --
Security Deposits 7,696 32,811 19,931
Organization Costs (Net of
Amortization) -- -- --
Total Other Assets 1,063,565 1,341,490 1,362,474
---------- ---------- ----------
$3,788,462 $4,549,365 $4,085,328
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
-3-
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, JANUARY 31,
1996 1995 1996 []
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 962,274 $ 409,060 $1,004,125
Bank Loan Payable 45,229 -- 30,230
Taxes Payable 14,928 17,306 18,108
Capital Leases Payable -
Current Portion -- 338 --
Interest Payable 133,750 76,639 100,000
Accrued Expenses 59,757 7,272 7,272
----------- ----------- -----------
Total Current Liabilities 1,215,938 510,615 1,159,735
----------- ----------- -----------
LONG TERM LIABILITIES
- ---------------------
Notes Payable, Net 1,262,903 1,310,367 1,251,265
----------- ----------- -----------
Total Long Term Liabilities 1,262,903 1,310,367 1,251,265
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES -- -- --
- -----------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, $.001 Par Value,
25,000,000 shares authorized,
10,753,252 shares issued and
outstanding 10,754 10,753 10,754
Capital in Excess of Par Value 9,129,970 9,129,970 9,129,970
Retained Earnings (Accumulated Deficit) (7,831,103) (6,412,340) (7,466,396)
----------- ----------- -----------
Total Stockholders' Equity 1,309,621 2,728,383 1,674,328
----------- ----------- -----------
$ 3,788,462 $4,549,365 $4,085,328
=========== ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
- 4 -
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
1996 1995
-------------- -------------
<S> <C> <C>
Gross Revenues $ 2,117,127 $ 1,181,010
----------- -----------
Cost of Goods Sold - Product 1,049,999 572,155
- Software amortization 170,649 142,380
----------- -----------
1,220,648 714,535
----------- -----------
Gross Margin On Sales 896,479 466,475
----------- -----------
Selling, General and
Administrative Expenses 1,341,009 1,577,118
Research and Development 409,858 522,365
----------- -----------
1,750,867 2,099,483
----------- -----------
Operating Loss ( 854,388) (1,633,008)
----------- -----------
OTHER INCOME (EXPENSE)
- ----------------------
Interest Income 5,938 10,318
Recovery of Bad Debt 22,400 --
Gain (Loss) on Foreign Currency
Translation ( 445) 635
Gain on Sale of Securities 679,909 --
Interest Expense ( 212,598) (118,806)
----------- -----------
495,204 (107,853)
----------- -----------
Loss Before Income Taxes ( 359,184) (1,740,861)
Income Taxes 5,523 1,571
----------- -----------
Net Loss $ ( 364,707) $(1,742,432)
=========== ===========
Loss Per Share $ (.03) $ (.19)
=========== ===========
Weighted Average Number of Shares
Outstanding 10,753,252 9,037,797
=========== ===========
Fully Diluted Loss Per Share $ (.03) $ (.19)
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
- 5 -
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
1996 1995
-------------- -------------
<S> <C> <C>
Gross Revenues $ 1,252,146 $ 200,113
----------- ----------
Cost of Goods Sold - Product 672,916 94,403
- Software amortization 56,883 47,460
----------- ----------
729,799 141,863
----------- ----------
Gross Margin On Sales 522,347 58,250
----------- ----------
Selling, General and
Administrative Expenses 487,056 460,650
Research and Development 134,883 176,886
----------- ----------
621,939 637,536
----------- ----------
Operating Loss ( 99,592) (579,286)
----------- ----------
OTHER INCOME (EXPENSE)
- ----------------------
Interest Income 1,775 5,677
Gain (Loss) on Foreign Currency
Translation 0 ( 337)
Interest Expense ( 93,772) ( 39,031)
----------- ----------
( 91,997) ( 33,691)
----------- ----------
Loss Before Income Taxes ( 191,589) (612,977)
Income Taxes -- 1,571
----------- ----------
Net Income (Loss) $ ( 191,589) $ (614,548)
=========== ==========
Income (Loss) Per Share $(.02) $(.06)
=========== ==========
Weighted Average Number of Shares
Outstanding 10,753,252 9,466,146
=========== ==========
Fully Diluted Income (Loss) Per Share $ (.02) $ (.06)
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
- 6 -
<PAGE>
LINKON CORPORATION AND SUBSIDIARY
---------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
Net Income (Loss) $( 364,707) $(1,742,432)
Add: Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 304,009 268,392
Gain on Sale of Securities ( 679,909) --
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable ( 288,742) ( 186,804)
(Increase) Decrease in Other Receivables 22,194 33,784
(Increase) Decrease in Inventory ( 201,563) 273,212
(Increase) Decrease in Prepaid Expense ( 26,794) ( 49,807)
Increase in Software ( 232,386) ( 314,285)
Increase in Deferred Offering Costs 7,842 29,019
(Increase) Decrease in Security Deposits 12,235 ( 7,131)
Increase (Decrease) in Accounts Payable ( 41,851) ( 391,169)
Increase (Decrease) in Accrued Expenses
Payable 52,485 ( 60)
Increase in Interest Payable 33,750 32,928
Increase (Decrease) in Taxes Payable ( 3,180) 5,111
----------- -----------
Net Cash Used in Operating Activities (1,406,617) (2,049,242)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Cash Paid to Purchase Equipment ( 15,492) ( 112,360)
Proceeds from Sale of Securities 1,020,000 --
Investment in Non-Marketable Securities 479 ( 357)
----------- -----------
Net Cash Provided by (Used in) Investing Activities 1,004,987 ( 112,717)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Proceeds from Sale of Common Stock -- 2,148,401
Borrowings(Payments) on Bank Debt 14,999 --
Principal Payments Under Capital Lease Obligations -- ( 6,245)
----------- -----------
Net Cash Provided by (Used in) Financing Activities 14,999 2,142,156
----------- -----------
Net Increase (Decrease) in Cash ( 386,631) ( 19,803)
Cash and Cash Equivalents at Beginning of Period 586,503 652,460
----------- -----------
Cash and Cash Equivalents at End of Period $ 199,872 $ 632,657
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
-7-
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
OCTOBER 31, 1996
----------------
1) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments, (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of October 31,
1996 and 1995, and January 31, 1996, and the results of operations for the nine
month and three month periods ended October 31, 1996 and 1995 and cash flows for
the nine month periods ended October 31, 1996 and 1995.
The accounting policies followed by the Company are set forth in Note 3 to
the Company's financial statements in the Linkon Corporation. Annual Report -
January 31, 1996.
2) ANALYSIS OF STOCKHOLDERS' EQUITY:
---------------------------------
<TABLE>
<CAPTION>
Capital
Outstanding in Excess Accumulated
Shares Amount of Par Value Deficit
----------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance January 31, 1996 10,753,252 $10,754 $9,129,970 $(7,466,396)
Loss for Nine Months
Ended October 31, 1996 -- -- -- ( 364,707)
----------- ------- ------------ -----------
Balance - October 31, 1996 10,753,252 $10,754 $9,129,970 $(7,831,103)
=========== ======= ============ ===========
</TABLE>
3) RECLASSIFICATION OF THE AMORTIZATION OF CAPITALIZED SOFTWARE COSTS:
--------------------------------------------------------------------
During the quarter ending October 31,1996 the Company reclassified the
amortization of capitalized software costs from the Research & Development
category to Cost of Goods Sold. Due to this reclassification the Company has
restated all financial statements being presented to take account of this
reclassification for prior periods. This reclassification had no effect on the
results of operations or net loss being reported on the income statements being
presented. All information provided in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations is being presented
after taking into consideration this reclassification.
4) EMPLOYEE STOCK OPTIONS:
-----------------------
On May 1, 1996 the Company granted 697,400 incentive stock options to employees
and directors. These options are exerciseable at $0.75 per share until April 30,
2006. The options will qualify for incentive stock option treatment under the
Internal Revenue Code of 1986 if the Company's 1996 Stock Option and Performance
Incentive Plan is approved by the Company's stockholders at the next annual
meeting of stockholders; if stockholders fail to approve the option plan, these
options will be treated as non- statutory stock options. There is no
compensation recorded as a result of the grant of these options as the Company
is following accounting prescribed in APB Opinion # 25 since the stock price at
the time of the grant was $0.75 per share.
5) FINANCING OF OPERATIONS:
------------------------
See Management's Discussion and Analysis- Liquidity and Capital Resources as to
the Company's need for additional capital and any plans for the future financing
of its operations.
-8-
<PAGE>
LINKON CORPORATION
------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
NET INCOME (LOSS)
- -----------------
The Company reported a net loss of $364,707 for the first nine months of fiscal
1997 as compared to a net loss of $1,742,432 for the same period during the
prior year. This improvement in the net loss reported by the Company was due to
several factors.
During the quarter ending July 31, 1996 the Company sold its stock investment in
Concentric Network Corporation for $1,020,000 and recognized a gain of $679,909,
which has been included in net income.
Revenues for the nine months ended October 31,1996 were $2,117,127 as compared
to $1,181,010 for the same nine months in the prior year. This represented a 79%
increase in revenues for that period. Gross margins increased from 39.5% to
42.34% for the nine month periods. The additional revenue generated a $430,004
contribution to the gross margin.
Selling, general and administrative expenses decreased from $1,577,118 in the
first nine months of fiscal year 1996 to $1,341,009 in the same nine months of
fiscal year 1997. This represented a 15% decrease from period to period, as
discussed more fully under the section entitled "Selling, General and
Administrative Expenses" below.
For the three months ended October 31,1996 the Company reported a net loss of
$191,589 as compared to a net loss of $614,548 for the three months ending
October 31,1995. This decrease in net loss was due primarily to a 525% increase
in revenues for the quarter ending October 31,1996, as discussed more fully
below.
REVENUES
- --------
For the nine months ended October 31, 1996 revenues increased $936,117 from the
nine month period ended October 31, 1995, an increase of 79%. This increase was
due mainly to increased shipments to AT&T and CAT Technologies. The Company
received a $2.4M contract from AT&T for product to be shipped by December
31,1996. Shipments to AT&T for October 1996 totalled $741,987 with $874,020 and
$790,920 of product to be shipped in November and December, respectively.
Revenues for the three month period ended October 31,1996 increased $1,052,033
from the three month period ended October 31,1995, an increase of 525%. This
increase was due mainly to increased shipments to AT&T and CAT Technologies.
The Company continues to concentrate on developing and expanding its customer
base and is currently working on several new projects for other major customers
which it anticipates will diversify its customer base and increase revenues in
the near and long-term. While the certainty of these new projects becoming
future revenues for the Company cannot be measured at this point in time, the
management of the Company is encouraged by the enquiries it is receiving
concerning its products. Order backlog for the period ended 10/31/96 was
$1,777,324, representing products scheduled to be shipped during the fourth
fiscal quarter.
During the Company's third fiscal quarter, the Company secured a $2.4M contract
with AT&T. While this contract will be completed by December 31, 1996, the
Company will continue to work towards maintaining a positive and continuing
relationship with AT&T, as well as its other current customers.
-9-
<PAGE>
The Company is also currently developing new strategies to promote and market
its products in the computer and telecommunications industries. These new
strategies are still under development and discussion. It is envisioned that as
they are implemented over the next few quarters they will give greater exposure
to the Company's products in the marketplace and lead to additional
opportunities to generate additional revenues for the Company.
During the first fiscal quarter, the Company added a new Vice President of
Operations. As the Company grows and as finances permit, additional sales,
administrative, technical and customer service staff will be hired for the
purpose of increasing revenues. Programs have been designed and implemented to
maintain a streamlined operation utilizing external support resources where
practicable or necessary.
COST OF GOODS SOLD
- ------------------
Cost of goods sold, consisting of parts, supplies and manufacturing costs for
the Company's hardware and software products, constituted approximately 57.66%
and 60.50% of revenues for the nine months ended October 31, 1996 and 1995
respectively. Cost of goods sold for the three months ended October 31,1996 and
1995 constituted approximately 58.28% and 70.89%, respectively.
The primary costs incurred by the Company included in cost of goods sold are
materials and equipment relating to its hardware products, which carry lower
profit margins than the Company's software products. The Company manufactures
and assembles all hardware through contracted third party suppliers under the
direct supervision of the Company's management.
Management attributes the change in cost of goods sold to the changes in the
mixture of its hardware and software products sold, and to highly competitive
pricing associated with the $2.4M AT&T purchase order.
While management continues to believe that its products can be sold with a less
than 45% cost of goods sold, management also realizes the need to gain market
share for its products and will, for the near term, be aggressive in its pricing
policy. However, management also believes that the cost of sales will go down as
customers begin to order enhanced software features which carry higher gross
margins than the company's hardware products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses decreased $236,109 or 15% for the
nine months ended October 31, 1996 compared to the same period in the prior
fiscal year. Management attributes this decrease in selling, general and
administrative expenses to planned reductions in operating expenses including
the closing of the Company's New York City office. Selling, general and
administrative expenses for the nine months ended October 31, 1996 and 1995
constituted approximately 63% and 134% of sales for such periods, respectively.
For the three months ended October 31, 1996 and 1995 selling, general and
administrative expenses constituted 39% and 230% of sales for such periods,
respectively. This decrease for the first 3 months of fiscal year 1997 when
compared with the first 3 months of fiscal year 1996 was due primarily to the
planned reduction of expenses.
RESEARCH, DEVELOPMENT AND SOFTWARE
- ----------------------------------
The Company incurred research, development and software costs of approximately
$642,244 and $836,650 for the nine month periods ended October 31, 1996 and 1995
respectively. Management attributes this decrease in cost to planned
restructuring of research, development and software resources. These amounts
consist of internal salaries, outside consulting services, equipment and fixed
overhead costs. The Company expects research, development and software costs to
increase in future periods as finances permit.
-10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has historically funded operations from cash flow generated
principally from the receipt of the proceeds from private placements of debt and
equity, including the exercise of warrants, interest earned from the investment
of proceeds in interest earning assets, and revenues from operations. On June 6,
1996, the Company sold its investment in Concentric Network Corporation for
$1,020,000, resulting in cash proceeds of such an amount and a capital gain in
the Company's second quarter of approximately $680,000. The sale of this
investment provided the Company with additional liquidity during the current
fiscal quarter from which to fund its operations.
During the second half of its 1996 fiscal year and the first half of its fiscal
year 1997, the Company's cash flow and liquidity was severely impaired due
primarily to a delay in the release of the Company's Maestro/TM/ System. This
product, which was expected to be ready for general commercial distribution
during the early part of fiscal year 1996, was in fact unavailable until
October, 1995. This delay caused the company to generate lower than anticipated
earnings during the first two quarters of fiscal 1997, thereby adversely
affecting the Company's cash flow and liquidity. Upon production, distribution
and customer acceptance of these products in the market, revenues have
substantially increased in the third quarter. While the Company is still being
adversely affected by the Maestro's delay, the Company's management believes
that in the immediate future, the Company will be cash flow positive from its
operations as the Maestro System's products continue to gain acceptance and
popularity in the marketplace.
Management believes that it has sufficient resources available to meet its
liquidity needs over the next twelve months. Based primarily on the strength of
its purchase orders with AT&T and other major customers, the Company has begun
to be able to finance its operations through receivables financing, secured by
purchase orders from creditworthy customers. As discussed below, the Company
was able to consummate a receivables debt financing with IBJS Financial
Corporation, secured by the Company's rights under the above mentioned purchase
orders from AT&T. Provided the Company's Maestro System continues to gain
market acceptance, the Company believes that it will be able to rely for its
long-term liquidity needs less on private equity financing and the exercise of
warrants by existing warrant holders and more on cash flow generated from
revenues from increased hardware and software sales to fund its continued
operations.
Management continues to believe, however, that the Company's long-term cash flow
and liquidity needs will also have to be met through debt and equity private
placements, the exercise of outstanding warrants or borrowings from financial
institutions, including factors and other asset based lenders. Due to the
planned introduction of new and improved products, and the anticipated growth
due to, among other things, the manufacturing of hardware and software products
and the expansion of operations, management anticipates that there will be a
continued need for cash resources to meet, among other things, anticipated
commitments for raw materials, increased marketing activities, and personnel.
The Company does not currently contemplate any significant capital expenditures
during fiscal 1997. The Company does not believe that there are any
contingencies which would have a material adverse effect on the Company's
financial condition, future operating results or liquidity.
Statements throughout this quarterly report that state the Company's or its
management's intentions, beliefs, expectations or predictions of the future are
forward looking statements. It is important to note that the Company's actual
results could differ materially from those projected in such forward looking
statements.
-11-
<PAGE>
PART 1. FINANCIAL INFORMATION EXHIBIT I
-------------------------------
LINKON CORPORATION
------------------
CALCULATION OF EARNINGS PER SHARE
---------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Loss for the Period $( 364,707) $(1,742,432)
========== ===========
Weighted Number of Shares Outstanding 10,753,252 9,037,797
========== ===========
Loss Per Share: $ (.03) $ (.19)
========== ===========
</TABLE>
-12-
<PAGE>
LINKON CORPORATION
------------------
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
On September 30, 1996, the Company's then CFO, Kenneth S. Weiner, resigned from
such position. The Company's Vice President of Operations, Thomas V. Cerabona,
had supervisory responsibility for the CFO's principal duties prior to Mr.
Weiner's resignation. Mr. Weiner's responsibilities have been assumed by Mr.
Cerabona.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibit - Calculation of Earnings per Share - Exhibit I.
b. Reports on Form 8-K - There were no reports on Form 8-K
filed for the three months ended October 31, 1996.
c. Exhibits
INDEX TO EXHIBITS
Exhibit
No. Description of Document
---- -----------------------
27 Financial Data Schedule for the period ended
October 31, 1996
-13-
<PAGE>
LINKON CORPORATION
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LINKON CORPORATION
------------------
Registrant
DATED: December 12, 1996 /s/ Lee W. Hill
----------------
BY: LEE W. HILL
CHIEF EXECUTIVE OFFICER
DATED: December 12, 1996 /s/ Thomas V. Cerabona
-----------------------
BY: THOMAS V. CERABONA
VICE PRESIDENT OF OPERATIONS
-14-
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ................TO.............
COMMISSION FILE NUMBER 0-19705
LINKON CORPORATION
------------------
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 13-3469932
------ ------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
140 SHERMAN STREET, FAIRFIELD, CT 06430
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(203) 319-3175
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, $.001 PAR VALUE
-------------------------------------------
(TITLE OF CLASS)
<PAGE>
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934 DURING THE PAST 12 MONTHS (OR
FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),
AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES
X NO ___
- --
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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.
State issuer's revenues for its most recent fiscal year $1,418,432.
----------
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked price of
such stock, as of a specified date within the past 60 days. $7,503,252.
Number of shares outstanding of the registrant's common stock, as of April
22, 1996 was 10,753,252.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
---
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
General Business
- ----------------
Linkon Corporation, a Nevada corporation ("Linkon" or the "Company")
designs, assembles and markets modular computer hardware and software components
primarily for the call processing industry. The call processing industry
encompasses the hardware and software that allow remote communications to be
initiated, answered, routed or otherwise processed by a machine rather than a
person. Technologies that assist people in using telephones, such as voice
activation in cellular phones, are a part of this industry.
Call processing applications generally fall into one of the following
categories: voice mail, call centers (including automated call distributors, or
"ACDs"); interactive voice response ("IVR"), audiotext, and fax. Increasingly,
the distinctions between these segments are being blurred. IVR systems are
offering return fax (merger of fax and IVR) and are also being integrated with
ACDs in call centers (merger of call centers, fax and IVR). Mailboxes are
becoming universal, accepting fax, e-mail as well as voice correspondence.
Perhaps more importantly, applications are integrating new features such as
voice recognition and text-to-speech and are interacting with multiple media (e-
mail, fax, video, voice, speaker verification for cellular fraud detection, and
the Internet). Though not a large share of the overall market today,
applications using multiple resources (as opposed to 100% fax or 100% voice
recognition etc.) are growing significantly faster than the overall market and
are being adopted in products of most existing companies. In a few years, most
applications will allow for a blend of several types of applications and
interact with multiple media. Linkon's products are specifically designed to
meet the diverse needs of application developers targeting this high-end,
multifunction segment of the market.
Products
- --------
Linkon currently has two board level products; the 3000 series
Communications Boards, which Linkon continues to ship because they have been
designed into a number of existing systems, and the fourth generation
Maestro (TM) 4000 (TM) system, which began shipping in October 1995. The 4000
series is a DSP board which requires only software additions to run any
telephony function and gives true universal port availability (supporting any
technology feature present in the system) to each call session. The board level
products are supported by comprehensive applications development software tools,
TeraVox (R) and Link O/S (TM). TeraVox (R) is a set of UNIX (R) extensions which
simplifies application development. Link O/S (TM) is a board level operating
system which removes the complexity of dealing with board level resource
allocation, control and management during system development.
Linkon believes in creating an open architecture and, together with
TeraVox (R), it permits this for system developers. In addition, Linkon's boards
can operate on virtually any standard system bus and are designed to work with
both of the major communications buses, MVIP and SCSA. This allows Linkon's
products to be utilized in virtually any system environment.
3
<PAGE>
Linkon's architecture differentiates it from other system component
manufacturers and allows it to address the fastest growing segment of the market
- - high density multimedia applications.
Design overview
---------------
The primary difference between Linkon's products and those of other
component suppliers is that the same hardware, with no modification, can be used
for voice recognition, fax, modem, text-to-speech, speech recognition, DTMF
recognition, speaker verification, voice compression, etc. Each of these
features is enabled by loading the appropriate algorithm into the board level
memory. Because no specialized hardware is required for the different
algorithms, system resources can be dynamically reallocated as required to allow
the board to adapt to changing user demands for voice, fax and other features. A
channel that on a previous session was running voice only can run a combination
of voice recognition and fax on its next session. A single board that is
responding to 48 simultaneous voice only channels in one moment may be handling
a combination of voice only, fax, TTS and voice recognition in the next moment
giving unparalleled flexibility with a single board. In an S-bus expansion
chassis, up to 120 channels of call processing can potentially be achieved on a
single Sparc computer, thereby providing the industry's highest density.
This is in marked contrast to the historical industry architecture of
individual, specialized boards for each capability. For example, using one
competitor's basic architecture to design a system of four ports of fax and
voice mail, utilizing voice recognition and text to speech requires four
separate boards and four PC computer slots. Linkon can provide this system on
one computer board in one PC slot. Some competitors products need as many as 10
boards to perform the same tasks as one Linkon board. Confirming the appeal of
this type of architecture, a competitor recently introduced a new board which
allows a few algorithms to run on a single board. Although the concept is
similar to Linkon's, this competitor offers relatively few algorithms compared
to Linkon. This new product is the competitor's first product allowing multiple
applications on a single board and does not provide the hardware flexibility,
bus independence or other improvements that Linkon has developed and implemented
on its 4000 series through customer feedback and subsequent redesign of its
earlier products. With fewer components, the 4000 series design lowers costs for
the end-user and competitors' offerings, when fully equipped, tend to be
significantly more expensive on a per-port basis.
Hardware independent architecture
---------------------------------
Another unique feature of the FC-4000 (TM) system is its bus-independent
design which permits hardware flexibility on the part of system developers.
Linkon produces feature modules about one fourth the size of a PC board - which
contains the DSP and RAM resources required to perform call processing
applications. These modules are "plugged" into a foundation card which is bus
specific. This hardware architecture accomplishes several important goals.
4
<PAGE>
Lower costs - by having all the complex elements in a single standardized
module Linkon does not have to inventory a variety of application or bus
specific cards to meet changing customer needs. In addition, manufacturing costs
are lower because of higher unit volumes of a standardized part.
Easy Upgrade Path - Future upgrades to algorithms (changes and retrofit of
existing systems) are accomplished with software only. ROM swap outs or board
redesign are not required.
Rapid Product Development - To take advantage of advances in DSPs and
memory, Linkon only has to redesign its modules as opposed to its competitors
who have to do a redesign of their entire product line (more than 30 boards in
the case of the competitor mentioned above). This is a profound competitive
advantage because it allows Linkon to dramatically shorten its product life
cycle.
Access to Additional Markets - Linkon's customer base is expanded to
alternative bus markets, most notably Sun MicroSystems. Interest in using Sun
based platforms for call processing applications has expanded dramatically with
the rapid growth of the Internet.
Easy Change in Form Factor - Producing a prototype of a new foundation card
to accomodate a different bus - compact PCI, for example - is mainly a function
of some CAD/CAM work and takes only a few weeks.
Platform flexibility
--------------------
The bus specific foundation card contains the bus interface logic for both
the system bus as well as the communications bus. Linkon currently offers
foundation cards for the EISA/ISA and SBus. VME Bus, PCI bus, and compact PCI
bus foundation cards are planned. New foundation cards are relatively simple
because the processing and telephony electronics reside on the modules described
above. This allows Linkon to address proprietary bus systems seeking to develop
or augment call processing capabilities on a custom basis. Other third-party
component suppliers have all their capability designed and built specifically
for standard buses and thus do not generally provide capabilities for
proprietary systems.
The foundation cards also work with both of the dominant call processing
bus architectures; PEB, the standard originally promoted by Dialogic which is
now migrating to SCSA or, the MVIP standard promoted by Natural MicroSystems.
The EISA/ISA PC bus configuration comes standard with both MVIP and PEB
connections on the same board. This capability allows developers to work with
other vendor's products (particularly the established industry leaders) in a
single system. The capability to work on virtually any system bus combined with
the industry standard communication buses gives Linkon a degree of hardware
independence unmatched by any other third party board supplier in the industry.
When the hardware independence is combined with the software capabilities,
Linkon becomes the most flexible approach to system integration on the market.
5
<PAGE>
Telephony applications algorithms
---------------------------------
Call processing functions are shipped on disks with the 4000 series boards.
Customers only pay for those algorithms (for example voice) which are required
for their current system application. These algorithms are loaded onto the
system hard drive and downloaded to the board's RAM on power up. Later, if the
application developer needs additional capabilities, it can pay an incremental
licensing fee and the additional algorithms can be sent on an additional
diskette or downloaded electronically. No hardware changes are required. Linkon
encourages third party developers to develop additional algorithms for its
platform.
Unlike the 4000 series, the 3000 series incorporated all the algorithms on
board at the time of shipment forcing customers to pay licensing fees for all
algorithms up front. In the early stages of market development, many customers
did not require all the capabilities available for the 3000 product line and
were unwilling to pay the premium over competing boards that provided more
limited capabilities. The Company's competitors effectively marketed against
Linkon by providing voice-only capabilities at prices below that which Linkon
could charge, even though Linkon's boards were capable of providing multiple
functionality. The 4000 series software implementation has addressed many of the
pricing issues of the 3000. The 4000 series also allows sales of high margin
software algorithms separately from hardware and provides the potential for
increasing margins if the Company can gain a sufficient installed base of its
equipment.
System level software
---------------------
On a systems level basis, Linkon provides TeraVox (R) which is a set of
UNIX (R) extensions (written in C) controlling the interaction of the host and
the 4000-series communications boards. TeraVox (R) provides developers tools to
create any call processing application rapidly. TeraVox (R) is available and is
supported under a number of operating systems including UNIX (R). The new
Version 5.0 release of TeraVox (R) will permit even easier and faster software
applications development.
Board level software
--------------------
Link O/S (TM) is a board level operating system with a powerful API that,
combined with TeraVox (R), manages board and system level resource allocation.
Link O/S (TM) supports dynamic allocation of applications software functions to
any port or channel. Each channel can support any technology feature present in
a given system, allowing a universal port for every call session. Because system
developers do not have to write low level drivers and code, development time for
implementing new features is significantly reduced. Also, Link O/S insulates
developers from the specifics of different algorithms within each algorithm
class. For example, an application written for Lernout & Hauspie's speech
recognition will also run Syrinx and all other speech recognition algorithms
with no application software modifications.
6
<PAGE>
Application development software
--------------------------------
Application software packages are programs which provide the computer with
a particular desired functionality necessary to satisfy the needs of an end
user. Linkon provides a variety of application specific software toolkits,
including LINK-Mail (TM) and LINK-Fax (TM), its high level voice mail and fax
developer tool kits. This high level software is delivered in source code form
and permits a VAR, system integrator or OEM to easily write its own custom
applications.
Third party development software
--------------------------------
In addition, several independent software development companies, such as
Voicetek and Callstream Communications, have developed application generator
software packages for the 3000 series which permit software application
development to be performed at the end-user level by an individual having
limited experience with software development. These companies are in the process
of migrating to the 4000 series product.
Custom engineering
------------------
The Company also provides customized software services for highly
specialized applications with sufficient commercial potential. Custom
engineering charges apply to all such projects. Several of the current
customers for the Company's products began their relationship with the Company
as custom engineering customers.
Research and Development
- ------------------------
The nature of the computer hardware and software industries is such that
research and development is deemed mandatory by management in order to ensure
competitiveness. The Company incurred research and development costs of
approximately $1,005,700, and $839,600 respectively in the fiscal years ended
January 31, 1996 and 1995. The Company's research and development activities
seek to maintain market competitiveness by designing and developing advanced
hardware products (communications boards) and more efficient software products
to operate them. Presently, communications processing applications that are
integrated with voice, fax and modem are forcing the creation of more complex
hardware configurations to meet increasing demand. The Company has a technical
research and development center in Fairfield, Connecticut where it is performing
research on expanding the levels of performance of its communications board
technology.
Linkon's product strategy is to design its products with an "OPEN"
architecture. This permits them to interface with all existing competitive
hardware and software and permits Linkon to market software replacement and
upgrades as new products are developed.
Linkon's R&D strategy is to have strong in-house design and engineering
capability, but to utilize state-of-the-art technology houses to develop long
lead-time leading edge technology.
7
<PAGE>
Some examples are Linkon's arrangements with Lernout & Hauspie, a Belgian
algorithm development firm in the Voice Recognition and Text to Speech areas and
Syrinx Speech Products, an Australian firm, to port their speech recognition
algorithms to the LINK-Engine(TM) Communications Board.
Prior to the fiscal year ended January 31, 1993, the Company expensed all
software development costs as research and development for new products prior to
the capitalization point under Paragraph 4 of "Statement of Financial Auditing
Standards 86". While the exact moment of transition of costs cannot be
precisely quantified, starting at approximately the beginning of the fiscal year
ended January 31, 1994, significant portions of employees' time has been spent
on coding and testing after technological feasibility has been established. As
these products were shipped in the fiscal year ended January 31, 1993, and have
been accepted by customers, it appears that both technological feasibility and
potential marketability has been established. Costs related to the conceptual
formulations and design of licensed programs are expensed as research and
development. Costs incurred subsequent to establishment of technological
feasibility to produce the finished product are generally capitalized.
Marketing
- ---------
To date the Company has marketed its products via sales to independent
distributors, original equipment manufacturers ("OEM") and value added resellers
("VAR"). In addition the Company's marketing program consists of advertising in
the trade press, exhibiting at trade shows and direct mailings.
Although Linkon's products have received wide recognition, commercial
success with previous generations has been moderate because of the high price
point (on a per port basis) for voice-only applications. Pricing issues have
been addressed with the 4000 series products. The Company's product design and
feature set were ahead of the market trend towards more complex multimedia
applications and larger systems. As the market for systems has become more
competitive, and differentiation is increasingly feature based, demand is
rapidly rising for high port count and multi-feature systems which the Company's
product line addresses.
Strategic relationships and major customers
- -------------------------------------------
Linkon's strong technology and quality product design have led to several
strategic relationships over the last few years. Some of the more significant
relationships are outlined below. Given Linkon's limited size and resources, it
has relied heavily on its strategic partners to develop sales for the Company.
Lucent and Aumtech (assigned from AT&T)
---------------------------------------
In late 1993, AT&T's Network Systems Division announced a new product
called the Information Services Platform (ISP), developed in part using hardware
and software designed and supplied by Linkon. Due to the breakup of AT&T, the
relationship and contracts Linkon has
8
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with AT&T have been assigned to Lucent Technologies. The ISP platform 2.X has
been deployed in Europe and the United States and has been turned over to
Aumtech, a technology company that has been integrally involved with AT&T in its
development of the ISP platform.
Sun Microsystems Computer Company
---------------------------------
Linkon is the only computer telephony board-level company currently
shipping a communication board for the S-bus, making it compatible with Sun's
SPARCserver systems. Thus, developers of call processing applications for Sun
systems are using Linkon's products. Sun is making an increased sales effort
into the computer telephony and call-processing industry, enlarging this
opportunity. To concentrate on these efforts, Linkon recently created a Sun
business unit with its own dedicated manager. In March 1996, Sun introduced a
CTI server utilizing Linkon technology.
Access Graphics, Inc.
---------------------
In March 1995, the Company announced an agreement with Access Graphics, a
leading distributor of open client/server solutions, to distribute Linkon
hardware and software, including the recently announced Sun Sbus hardware
product. In March 1996, Access Graphics introduced a line of call processing
solutions called Telefusions, incorporating Linkon technology.
Southwestern Bell Technology Resources, Inc. ("SWBTR")
------------------------------------------------------
In November 1993, the Company entered into an agreement with SWBTR whereby
the Company agreed to provide engineering services to SWBTR by modifying the
Company's TERAVOX(R) operating environment and producing a new operating
environment, PROVOX(TM).
Dassault Automation and Telecommunication Group
-----------------------------------------------
In October 1994, the Company announced a joint development agreement with
Paris-based Dassault A&T Group to develop an enhanced service platform targeted
to French telecommunications, computer, and system integration companies. The
strategic alliance is ultimately aimed at all of Europe, where the companies
hope to offer Europe's most advanced multi-language voice/fax system through
Dassault's existing distribution system.
Trigon Business Alliance, Inc./NEC
----------------------------------
In May 1995, Trigon Business Alliance, Inc., a Houston, TX, end user of
Linkon hardware and software, announced the creation of FAXDRAW, an interactive
voice/fax system. Drawings produced by Autodesk Corporation's AUTOCAD design
software can be retrieved over the phone from an Oracle database located on a
remote Sun Sparc workstation and printed on a NEC fax machine. Linkon has formed
a marketing alliance with Sun Microsystems, NEC, Autodesk, and Trigon Business
Alliance, Inc.
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IBM Australia/Syrinx
--------------------
IBM and Syrinx are developing a call-processing solution for the Australian
market featuring speech recognition running the Maestro(TM) system.
Bell South Intelliventures
--------------------------
Bell South Intelliventures is currently testing a Linkon S-bus platform to
provide consumer information services to Yellow Page customers, which features
Applied Language Technologies speech recognition software developed at MIT.
Voicetek
--------
Currently, Voicetek is adapting their leading-edge Generations application
development software to the Linkon S-bus platform.
TCIS-Multitel
-------------
TCIS-Multitel, a Belgium Technical Institute, which has developed speech
recognition technology utilized in a voice-dialing application running on a
Linkon platform.
Sales
- -----
Through the Company's sales force, and its analysis of the sales volume,
market specialization and financial status of potential customers, the Company
predetermines potential customers deemed qualified for its products and makes
direct telephone or written contact with the appropriate representatives
thereof. The primary sales targets for the Company's products on the component
level are VARs, Systems Integrators ("SI"), OEMs and telephone companies. The
Company anticipates its relationship with Sun Microsystems will facilitate sales
of Linkon products to existing and future owners of SPARC workstations.
Distributors
- ------------
The Company is seeking to develop relationships with independent firms to
carry the Company's products both domestically and internationally. The Company
currently has relationships with distributors in the United States, United
Kingdom and Germany. On March 7, 1995 the Company announced an agreement with
Access Graphics, Inc., a leading distributor of open client/server solutions,
whereby Access Graphics will distribute the Company's full line of products,
including the recently announced T-1 SBus telecommunications hardware product,
for use with Sun Microsystems' SPARCstations.
10
<PAGE>
OEM Sales
- ---------
The Company seeks to establish agreements with OEM companies with large
customer bases which intend to modify the Company's hardware, operating systems
and/or utilities for marketing by the OEM under their own name. It is
contemplated that these arrangements will involve training, volume discounts and
minimum purchase commitments. As of the date hereof, the Company sells to
several OEM's.
Customer Support and Warranty
- -----------------------------
The Company offers a one year warranty on all products and services.
Customers are entitled to receive telephone hotline access, field support and
periodic software updates.
Competition
- -----------
The Company has many competitors. Although the Company does not presently
possess a meaningful market share in the voice processing industry, management
believes that its products are very competitive with those in the marketplace,
and in certain instances superior to that which is available. Dialogic
Corporation, Rhetorex Corp., Brooktrout Technology, Inc. and Natural
Microsystems, Inc., among others, are substantial hardware competitors of the
Company. Management believes that its communications board and its TERAVOX(R)
operating platform are superior to similar products presently being manufactured
or sold in that the Company's products are able to run all functionality on a
single board, compared to multiple boards for the Company's competitors, the
Company's products can run compression software in conjuction with other
modalities and the Company's software is scalable to the highest density.
However, given the competitive nature of the industry, no assurance can be given
that the Company can achieve a commercially successful market for its products
or that its competitors will not develop similar or better products than the
Company's present line in the future.
Key Customers
- -------------
Two of the Company's customers accounted for approximately 33% of revenues
for the year ended January 31, 1996. Management believes that sales will
continue to come from a small customer base of VARs, SIs and OEMs who, in turn,
will resell the Company's products to end users.
Employees
- ---------
The Company employs 19 persons on a full-time basis: 5 Executive, 10
technical, 2 sales and 2 administrative. There is no union contract relating to
employees nor does the Company anticipate there to be unionization of its
employees.
11
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Patents, Trademarks & Copyrights
- --------------------------------
The Company's computer board design and code are proprietary and a trade
secret. There are currently no patents or copyrights on any of the Company's
products. The Company has obtained registration of its TERAVOX(R) trademark
from the U.S. Patent and Trademark Office and intends to seek source code
copyright protection on future operating systems and utilities.
ITEM 2. PROPERTIES
- -------
The Company leases approximately 5,000 square feet of office and laboratory
space in Fairfield, Connecticut, pursuant to a five-year lease expiring on
September 30, 1997 at an annual rental of $87,437. The Company consolidated all
its operations at this facility in December 1995. The facility has capacity for
expansion and is deemed sufficient for the Company's foreseeable needs.
The Company maintained its corporate headquarters and leased approximately
4,500 square feet of office space at 226 East 54th Street, New York, NY pursuant
to a five-year lease at an annual rental of $87,122. The lease expired March
31, 1996. The New York office was primarily utilized as the location of the
Company's sales and administrative support staff.
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ITEM 3. LEGAL PROCEEDINGS
- -------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- -------
The Company's shares are listed on the National Quotations Bureau "Bulletin
Board". Various market dealers make the market of the Company's stock and
trades are made through what is commonly known as the "pink sheets."
The following table sets forth, for the periods indicated, the quarterly
high and low representative bid quotations for the Company's Common Stock as
reported by the National Quotations Bureau. Quotations reflect inter-dealer
prices, without retail mark-ups, mark-downs, or commissions, and may not
necessarily represent actual transactions.
Fiscal Year Ending January 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C> <C>
High Low High Low
---- --- ---- ---
1st quarter 2 1/4 7/8 3 1/2 2
2nd quarter 1 5/8 1 1/8 2 7/8 1 1/4
3rd quarter 2 3/16 1 3/8 1 7/8 1
4th quarter 1 3/4 11/16 2 1/2 7/8
</TABLE>
As of April 22, 1996, there were 656 shareholders of record of the Common
Stock of the Company. The Company estimates, based on prior shareholder
mailings, that holdings in "street name" represents approximately 7,500
additional shareholders.
The Company has not declared any dividends since its inception and, due to
its anticipated needs for all revenue generated by the Company's operations to
be used to operate the Company's business, has no intention of paying any cash
dividends in the immediate future.
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<PAGE>
The Company's rights to pay dividends are also restricted pursuant to the terms
of a Securities Purchase Agreement, dated October 27, 1994, between the Company
and IBJS Capital Corporation (the "Debentureholder"), the holder of the
Company's $1,000,000 10% Senior Secured Convertible Debenture (the "Debenture").
Pursuant to such agreement, until such time as at least two thirds of the
original principal amount of the Debenture has been repaid or converted into
common stock, the Company may not, without the consent of the Debentureholder,
pay any dividends on the Common Stock, except out of earned surplus at a time
when the Company is in compliance with certain specified contractual provisions
(including being current on the payment of interest on the Debenture).
ITEM 6. Management's Discussion and Analysis or Plan of Operations.
Revenues
- --------
For the year ended January 31, 1996 revenues decreased approximately
$1,111,000 from the year ended January 31, 1995, a decrease of 44%. This was
primarily the result of a delay in the release of the Company's FC4000(TM)
Maestro(TM) System. For the year ended January 31, 1995 revenues increased
approximately $1,035,000 from the year ended January 31, 1994, an increase of
69%. This is entirely the result of increased sales of the Company's products.
Management expects sales of the Company's hardware and software products to
increase.
No expansion was made to the administrative staff during the fiscal years
ended January 31, 1996 and 1995. As the Company grows or as finances will
permit, additional sales, administrative, technical and customer service staff
will be hired. Subject to adequate financing, efforts will be made to maintain
a streamlined operation utilizing external support arrangements where
practicable or necessary.
Cost of sales
- -------------
Cost of goods sold, consisting of parts, supplies and manufacturing costs
for the Company's hardware and software products, constituted approximately 45%
and 37% of revenues for the years ended January 31, 1996 and 1995 respectively.
Management attributes the change in cost of goods sold to the changes in the
mixture of products sold. The Company anticipates that its cost of goods sold
will remain in the 30-40% of revenues range. The cost of goods sold varies with
each product line, with software having little or no material cost
(approximately 5-10%). The primary costs incurred by the Company are for
materials and equipment relating to its hardware products, which also carry
lower profit margins than the Company's software products. The Company
manufactures and assembles all hardware through contracted third party suppliers
under the direct supervision of the Company's management. Management
anticipates opportunities for increased gross profit from research and
development projects aimed at increasing efficiency while decreasing cost.
Gross profit margins for the Company's hardware and software products, currently
in the 55% - 65% range, may not, however, materially change with increased
revenues (notwithstanding anticipated lower costs of production), due to
anticipated increased market competition.
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Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the fiscal years ended
January 31, 1996 and 1995 constituted approximately 168% and 78% for such years,
respectively. This increase for fiscal 1996 when compared with fiscal 1995 was
due primarily to reduced sales volume and increased salary and related
expenditures.
Research, Development and Software
- ----------------------------------
The Company incurred research, development and software costs of
approximately $1,005,700 and $839,600 for the fiscal years ended January 31,
1996 and 1995 respectively. These amounts consist of internal salaries, outside
consulting services, equipment and fixed overhead costs. The Company expects
research, development and software costs to increase in future periods.
Liquidity and Capital Resources
- -------------------------------
To date, the Company has funded operations principally from receipt of
proceeds from the private placements of debt and equity securities, the exercise
of warrants, interest income earned from the investment of such proceeds in
interest earning assets and revenues from operations. During the fiscal year
ended January 31, 1996 the Company received $2,148,000 in net proceeds, after
payment of offering related expenses, from the sale of its common stock, which
amount was primarily used in operations. During the fiscal year ended January
31, 1995 the Company received $363,000 in net proceeds, after payment of
offering related expenses, from the sale of its common stock and $1,357,715 in
net proceeds from the issuance of long term debt. These funds were primarily
utilized to fund operations.
Management believes it has sufficient resources available to meet its
liquidity needs for the next year. Management believes that long-term liquidity
needs will be met from increased hardware and software sales as well as
additional financing from investors either through private placements of the
Company's securities, exercise of outstanding warrants, or borrowing from
outside third parties. Due to the planned introduction of new and improved
products and the anticipated growth related to, among other things, the
manufacturing of hardware and software products and the expansion of operations,
management anticipates there will be a continuing trend and need for cash
resources. Such demand on the Company's resources will require the Company, in
the long term, to obtain additional financing and increased sales volume to meet
anticipated commitments for raw materials and personnel.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -------
The financial statements are included herein following Item 14 of this
Annual Report on Form 10-KSB commencing on Page F-1.
15
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -------
FINANCIAL DISCLOSURE.
There were no changes in, or disagreements with, the Company's certified
public accountants during the fiscal years ended January 31, 1996 and 1995.
16
<PAGE>
Part III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- -------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Held Position
Name Age Office(s) Since(1) (2)
---- --- --------- -------------
<S> <C> <C> <C>
Charles Castelli 52 Chairman of the July, 1990
Board of
Directors, Chief
Technology Officer
Thomas V. Cerabona 44 Vice President March, 1996
of Operations
Lee W. Hill 52 President and March, 1993
Chief Executive
Officer
Patrick J. Kane 46 Senior Vice President July, 1990
Secretary, Treasurer
and Director
James E. Linley 43 Vice President March, 1991
of Engineering
Mark O'Brien 48 Vice President September, 1993
of International
Kenneth S. Weiner 47 Chief Financial February, 1993
Officer
Jon Carvalho 56 Director July, 1990
</TABLE>
_________________
(1) Represented only since the Company was reorganized in July, 1990.
(2) Each director of the Company has been elected to serve until the next
annual meeting of stockholders of the Company and until such director's
successor shall have been duly elected and shall have qualified. Each executive
officer of the Company has been elected to serve until the next organizational
meeting of the Company's Board of Directors and until such officer's successor
shall have been duly elected and shall have qualified.
___________________________________________________________
17
<PAGE>
CHARLES CASTELLI is the founder of Linkon Delaware, which merged with the
----------------
Company in July, 1990 and is presently the Company's Chief Technology Officer
and Chairman of the Board of Directors. He became the Company's President in
July, 1990 and the CTO in March, 1993. During the period 1984 through 1988,
Mr.Castelli was the sole proprietor of Linkon Company, a predecessor to Linkon
Delaware engaged in consulting and research and development of computer hardware
and software products for the telecommunication industry. Prior thereto he held
numerous engineering management and marketing positions in the
telecommunications and computer industries, which included positions with Q1
Corporation, Singer/Tele Signal, Data Products Corporation, Litcom Corporation
and Bell Telephone Laboratories. In these capacities Mr. Castelli was
responsible for the market introduction and sale of several computer system and
software products.
THOMAS V. CERABONA is Vice President of Operations of the Company, heading
------------------
a department including manufacturing, distribution, quality assurance, customer
support, and finance. Cerabona was previously with Paragon Networks
International, Inc., a provider of leading edge data communications products,
where he held a similar position. Prior to Paragon, Mr. Cerabona was Vice
President and General Manager of Cobotyx Corporation, a developer, manufacturer
and marketer of telecommunications voice processing systems, where he was a co-
founder.
LEE W. HILL is Linkon Corporation's President and Chief Executive Officer.
-----------
Mr. Hill joined Linkon on March 1, 1993 after Affluence, Inc., a management
consulting firm he founded, conducted a project for Linkon. From 1985 to 1990,
Hill was with Wild-Leitz U.S.A., Inc., the Swiss-German high tech equipment and
measuring instrument maker. There he served as President of the IMS Division
and as Vice President, Corporate Development. From 1971 to 1985 Hill was with
Bausch & Lomb, where his last position was Vice President of Worldwide Marketing
and Sales for a consumer products division.
PATRICK J. KANE is the Company's Senior Vice President. He functions as
---------------
Secretary and Treasurer and as a member of the Board of Directors. Mr. Kane
joined Linkon Delaware in 1988. During the year 1987, Mr. Kane was a partner
with Consulting Marketing Partners, in New York City. Prior thereto, during the
period 1983 to 1986, he was a Director of Marketing for Marine Midland Bank.
Prior positions have provided him experience in strategic corporate planning,
market research, market segmentation, market planning, direct response marketing
and business development. He has held positions at Chemical Bank and Control
Data Corporation.
JAMES E. LINLEY, Vice President of Engineering for the Company, manages the
---------------
research and development, software development and technical support areas. He
was previously employed with Citicorp POS Information Services (1988 to 1990) as
a software engineer. Prior thereto he was with Target Technologies, Norwalk,
Connecticut for more than ten years as chief engineer and partner. Target
Technologies is a firm specializing in research and development and in the
design of computer based voice processing applications. He also held
management positions in systems engineering at Texas Instruments, National CSS
and Wright Investors
18
<PAGE>
Services. He is fluent in the majority of programming languages for PC, mini-
computer and mainframe applications plus a wide array of hardware
configurations. Mr. Linley designed and developed the FC1000 (TM) Voice Board,
the FC2000 (TM) Voice Board, the AUDCOM (TM) operating system, the TERAVOX (R)
operating system and the Linkon FC3000 (TM) Communications Board .
MARK O'BRIEN, is Vice President of International for the Company. Mr.
------------
O'Brien joined the Company in September 1993. Prior to joining the Company, Mr.
O'Brien was President of Universal/Univis, an optical products supplier.
Previously he was vice president and general manager of Cuno, a water
purification company and president of Criterion Telepscope, a division of Bausch
& Lomb. Mr. O'Brien holds a BA and MBA in accounting.
KENNETH S. WEINER has been Chief Financial Officer of the Company since
-----------------
February 1, 1993. Prior to joining the Company, Mr. Weiner practiced as a
Certified Public Accountant both in his own practice and, since 1988, as a
shareholder of Greenspan & Company, P.A., the Company's former audit firm, in
charge of SEC audits, Management Advisory Services and Information Technology.
Mr. Weiner is a member of the American Institute of Certified Public Accountants
and both the New York and New Jersey State Societies of CPA's.
JON CARVALHO is a non-salaried member of the Board of Directors.
------------
Mr.Carvalho is President/Owner of several businesses located in Portugal,
Africa, Europe and Japan. The more significant of the foregoing businesses are
(a) Uniao Commercial de Automoveis, Ltd. an importer and seller of all
international automobiles in Angola; (b) Urban and Suburban Properties, Inc. a
Real Estate and Development Company in Portugal; (c) IMPORMOL, a manufacturer of
automotive springs & connectors for trucks and tractor trailers; (d) IMAUTO, a
distributor of automotive machinery in Angola; and (e) Company Vale Do Loma,
S.A.R.L., a coffee plantation in Portugal. Mr. Carvalho has been president and
a principal of the foregoing entities for a period of more than ten years. In
these capacities he has accumulated experience in all aspect of corporate
operations plus established worldwide contacts at the corporate and government
level.
19
<PAGE>
Item 10. Executive Compensation.
----------------------
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Annual Compensation (1)
---------------------------------------------
(a) (b) (c) (d)
Name and Fiscal
Principal Position Year Salary($) Bonus($)
- --------------------- ------ --------- ---------
<S> <C> <C> <C>
Lee W. Hill, 1996 $ 147,500 $ 25,000
President and Chief 1995 $ 118,000 $ 25,000
Executive Officer 1994 $ 88,000 $ ---
Mark O'Brien, 1996 $ 106,174 $ ---
Vice President 1995 $ 100,000 $ ---
of International 1994 $ 28,125 $ ---
</TABLE>
_________________
(1) Other columns have been excluded because they are not applicable to any year
covered by this table.
On March 1, 1993, the Company entered into an employment agreement with Lee
W. Hill. The agreement provides for an annual salary of $96,000 for the first
year of the agreement, $120,000 for the second year of the agreement and
$150,000 for the third and fourth years of the agreement. In addition, the
agreement provides for an annual bonus of not less than $25,000 for each year of
the agreement. Mr. Hill was also granted options to purchase up to 250,000
shares of Common Stock of the Company.
Directors are not compensated in their capacities as directors but are
reimbursed reasonable expenses in connection with attendance at meetings.
20
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- --------
The following table sets forth certain information as of April 22, 1996
with respect to any person, other than the Company's executive officers and
directors, who is known to the Company to be beneficial owner of more than 5% of
any class of its voting securities.
Common Stock $.001 par value
----------------------------
<TABLE>
<CAPTION>
Name and Address Amount of Approximate
of Beneficial Beneficial Percentage of
Owner Ownership Class
- ---------------- ---------- -------------
<S> <C> <C>
IBJS Capital Corporation 820,193(1) 7.6%
One State Street
New York, NY 10004
Piers M. MacDonald(2) 962,400(3) 9.0%
c/o Gulfstream Partners, L.P.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
Steven P. Cordovano(2) 687,400(4) 6.4%
c/o Gulfstream Partners, L.P.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
- -------------------
</TABLE>
(1) Comprised of 605,693 shares currently acquirable upon the conversion of a
$1,000,000 Senior Secured Convertible Debenture and 214,500 shares currently
acquirable upon the exercise of warrants to purchase Common Stock at $1.8648 per
share.
(2) According to Schedule 13D filed by Messrs. MacDonald and Cordovano on May
26, 1995, Mr. MacDonald is the managing general partner of Gulfstream Partners,
L.P., a Delaware limited partnership (the "Partnership") and Mr. Cordovano is a
general partner thereof.
(3) Comprised of (i) 144,900 shares of Common Stock owned by Messrs. MacDonald
and Codovano; (ii) 275,000 shares of Common Stock and 27,500 warrants to
purchase Common Stock owned by Mr. MacDonald and his spouse, Bonner D.
MacDonald, and (iii) 448,000 shares of Common Stock and 67,000 warrants to
purchase Common Stock owned by the Partnership.
(4) Comprised of (i) 144,900 shares of Common Stock owned by Messrs. Cordovano
and MacDonald; (ii) 25,000 shares of Common Stock and 2,500 warrants to purchase
Common Stock owned by Mr. Cordovano and his spouse, Sarah M. Cordovano, and
(iii) 448,000 shares of Common Stock and 67,000 warrants to purchase Common
Stock owned by the Partnership.
________________________________________________________
21
<PAGE>
The following table sets forth, as of April 22, 1996, the number of
outstanding shares of the Company's Common Stock beneficially owned by each of
the Company's current directors and executive officers named in the Summary
Compensation Table in Item 10, individually, and by all such directors and
executive officers as a group.
Common Stock $.001 par value
----------------------------
<TABLE>
<CAPTION>
Name and Address Amount of Approximate
of Beneficial Beneficial Percentage of
Owner Ownership Class
- -------------------- ---------- -------------
<S> <C> <C>
Charles Castelli 1,800,000 16.7%
Patrick Kane 800,000 7.4%
James Linley 600,000 5.6%
Lee W. Hill 250,000(1) 2.3%
Jon Carvalho 50,000 0.5%
Executive Officers 3,560,000(2) 33.1%
and Directors
As a Group (7
persons)
- -------------
</TABLE>
(1) Comprised of 250,000 shares currently acquirable upon the exercise of
warrants to purchase Common Stock at $2.00 per share.
(2) Comprised of 360,000 shares currently acquirable upon the exercise of
warrants to purchase Common Stock at $2.00 per share.
_______________________________________________________
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------
None
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
(A)(1) FINANCIAL STATEMENTS.
The following financial statements are included in Part II, Item 7:
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - January 31, 1996 and 1995 F-3
22
<PAGE>
Consolidated Statements of Operations - Three years ended F-4
January 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Three years ended F-5
January 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Three years ended F-6
January 31, 1996, 1995 and 1994
Notes to Financial Statements F-7
(B) REPORTS ON FORM 8-K None
(C) EXHIBITS
Exhibit
No. Description of Document
- ------- -----------------------
3.1 Articles of Incorporation. (Incorporated by reference to Exhibit 8 to
the Company's Registration Statement on Form S-18 (File Number 33-
22054-NY) which became effective on December 14, 1990).
3.2 By-laws. (Incorporated by reference to Exhibit 8 to the Company's
Registration Statement on Form S-18 (File Number 33-22054-NY) which
became effective on December 14, 1990).
4.1 10% Senior Secured Convertible Debenture Purchase Agreement, dated
October 27, 1994, between the Company and IBJS Capital Corporation,
including forms of the Company's Senior Debentures and Warrant
Certificates issued on October 27, 1994. (Incorporated by reference to
Exhibit 4.1 to the Company's Form 10KSB for the fiscal year ended
January 31, 1995).
4.2 Convertible Subordinated Debenture Purchase Agreement, dated July 29,
1994, between the Company and the purchasers of subordinated
debentures set forth therein, including forms of the Company's
Subordinated Debentures and Warrant Certificates issued on July 29,
1994 and the October 27, 1994 agreement between said parties amending
the same. (Incorporated by reference to Exhibit 4.2 to the Company's
Form 10KSB for the fiscal year ended January 31, 1995).
4.3 Placement Agent Agreement, dated January 14, 1994, between the Company
and Sloan Securities Corp., including forms of the Company's Warrant
Certificates, issued on January 28, 1994, February 28, 1994 and April
30, 1994 and the October 27, 1994 agreement between said parties
amending the same.
23
<PAGE>
(Incorporated by reference to Exhibit 4.3 to the Company's Form 10KSB
for the fiscal year ended January 31, 1995).
4.4 Employment Agreement dated March 1, 1993 between the Company and Lee
W. Hill. (Incorporated by reference to Exhibit 4.4 to the Company's
Form 10KSB for the fiscal year ended January 31, 1995).
4.5 Lease Agreement dated February 22, 1991 between the Company and
Danrich & Co. (Incorporated by reference to Exhibit 12 (iii) to the
Company's Registration Statement on Form S-1 (File Number 33-44506)
which became effective on August 20, 1992).
4.6 Lease Agreement dated March 19, 1991 between the Company and Sherman
Street Limited Partnership. (Incorporated by reference to Exhibit 12
(xiii) to the Company's Registration Statement on Form S-1 (File
Number 33-44506) which became effective on August 20, 1992).
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 26th day of April, 1996.
LINKON CORPORATION
By: /s/ Lee W. Hill
----------------------------------------
Lee W. Hill, Chief Executive
Officer and President
By: /s/ Kenneth S. Weiner
----------------------------------------
Kenneth S. Weiner, Chief Financial
Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/Charles Castelli Chairman of the April 26, 1996
- --------------------------
Charles Castelli Board of Directors
/s/Patrick Kane
- --------------------------
Patrick Kane Chief Operating Officer April 26, 1996
and Director
/s/Jon Carvalho Director April 26, 1996
- --------------------------
Jon Carvalho
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
AND SCHEDULES
-------------
<TABLE>
<CAPTION>
Page
----
LINKON CORPORATION
- ------------------
<S> <C>
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - January 31, 1996 and 1995 F-3
Consolidated Statements of Operations - Three years ended F-4
January 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Three years ended F-5
January 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity - Three years ended F-6
January 31, 1996, 1995 and 1994
Notes to Financial Statements F-7
</TABLE>
-F1-
<PAGE>
To the Board of Directors
and Stockholders
Linkon Corporation
Fairfield, Connecticut
We have audited the accompanying consolidated balance sheet of Linkon
Corporation as of January 31, 1996, 1995 and 1994 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
three years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 Linkon Corporation as of
January 31, 1996, 1995 and 1994 and the results of its operations and its cash
flows for the three years then ended in conformity with generally accepted
accounting principles.
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
April 11, 1996
-F2-
<PAGE>
LINKON CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
- --------------
Cash and Cash Equivalents $ 522,569 $ 592,460
Certificate of Deposit 63,934 60,000
Accounts Receivable (Net of Allowance) 611,387 927,067
Notes Receivable 51,000 51,000
Other Receivables 51,213 97,259
Inventory 888,655 1,114,209
Prepaid Expenses 27,406 11,446
---------- ----------
Total Current Assets 2,216,164 2,853,441
---------- ----------
MACHINERY & EQUIPMENT
- ---------------------
Machinery & Equipment, at cost 1,046,008 829,575
Equipment under Capital Leases 156,965 156,965
---------- ----------
1,202,973 986,540
Less: Accumulated Depreciation 696,283 528,266
---------- ----------
Machinery & Equipment, Net 506,690 458,274
---------- ----------
OTHER ASSETS
- ------------
Software (Net of Amortization) 928,148 719,764
Investments, at cost 375,182 374,825
Prepaid Financing Costs 39,213 52,285
Deferred Offering Costs -- 29,019
Security Deposits 19,931 25,680
Organization Costs (Net of Amortization) -- --
---------- ----------
Total Other Assets 1,362,474 1,201,573
---------- ----------
$4,085,328 $4,513,288
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable $1,004,125 $ 800,229
Bank Loan Payable 30,230 30,000
Taxes Payable 18,108 12,195
Capital Leases Payable - Current Portion -- 6,583
Interest Payable 100,000 43,759
Officers' Salary Payable 7,272 7,332
---------- ----------
Total Current Liabilities 1,159,735 900,098
---------- ----------
LONG TERM LIABILITIES
- ---------------------
Notes Payable, Net 1,251,265 1,290,776
---------- ----------
Total Long Term Liabilities 1,251,265 1,290,776
---------- ----------
COMMITMENTS AND CONTINGENCIES -- --
- -----------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, $.001 Par Value,
25,000,000 shares authorized,
10,753,252 shares issued and
outstanding (1996), 8,599,919
shares issued and outstanding
(1995) 10,754 8,600
Capital in Excess of Par Value 9,129,970 6,983,722
Accumulated Deficit (7,466,396) (4,669,908)
---------- ----------
Total Stockholders' Equity 1,674,328 2,322,414
---------- ----------
$4,085,328 $4,513,288
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
-F3-
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $ 1,418,432 $2,529,451 $ 1,494,236
Cost of Goods Sold 638,532 932,429 622,242
----------- ---------- -----------
Gross Margin On Sales 779,900 1,597,022 871,994
----------- ---------- -----------
Selling, General and
Administrative Expenses 2,385,255 1,984,087 2,125,502
Research and Development 653,386 497,218 226,251
Provision for Doubtful Accounts 392,000 20,000 2,000
----------- ---------- -----------
3,430,641 2,501,305 2,353,753
----------- ---------- -----------
Operating Loss (2,650,741) ( 904,283) (1,481,759)
----------- ---------- -----------
Other Income (Expense)
Interest Income 13,248 74,248 18,578
Interest Expense (157,960) (56,075) (14,055)
Gain (Loss) on Exchange
Rate Conversion 536 874 ( 1,310)
Loss on Marketable Securities -- -- --
Unrealized Gain (Loss) on
Marketable Securities -- -- --
----------- ---------- -----------
(144,176) 19,047 3,213
----------- ---------- -----------
Loss Before Income Taxes (2,794,917) ( 885,236) (1,478,546)
Income Taxes 1,571 2,280 ( 345)
----------- ---------- -----------
Net Loss $(2,796,488) $( 887,516) $(1,478,201)
=========== =========== ===========
Loss Per Share $ (.30) $ (.10) $ (.18)
=========== ========== ===========
Weighted Average Number of
Shares Outstanding 9,470,186 8,561,721 8,034,689
=========== ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
-F4-
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JANUARY 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net Loss $(2,796,488) $( 887,516) $(1,478,201)
Adjustments to Reconcile Net Loss
to Net Cash Used in Operating
Activities:
Depreciation and Amortization 168,017 157,915 132,145
Accrued Interest (Income) Expense 56,241 47,638 --
Changes in Assets and Liabilities:
Decrease in Restricted Cash -- -- 81,000
Increase in Certificate of Deposit (3,934) (60,000) --
(Increase) Decrease in Subscriptions
Receivable -- -- 825,000
(Increase) Decrease in Accounts
Receivable 315,680 (199,740) (22,825)
(Increase) Decrease in Other
Receivables 46,046 (80,679) 38,994
(Increase) Decrease in Inventory 225,554 (436,526) (333,145)
(Increase) Decrease in Prepaid
Expenses (15,960) (11,130) 4,165
Increase in Software (208,384) (226,287) (288,984)
(Increase) Decrease in Deferred
Offering Costs 29,019 (29,019) --
(Increase) Decrease in Security
Deposits 5,749 (5,432) (125)
Decrease in Prepaid Financing Costs 13,072 -- --
Increase (Decrease) in Accounts
Payable 203,896 50,704 162,337
Increase (Decrease) in Deferred
Income -- -- (364,157)
Increase (Decrease) in Officers
Salary Payable (60) (68) (23,000)
Decrease in Deferred Income Taxes -- -- (1,074)
Increase (Decrease) in Taxes
Payable 5,913 (1,764) 5,113
----------- ----------- -----------
Net Cash Used in Operating
Activities (1,955,639) (1,681,904) (1,262,757)
----------- ----------- -----------
Cash Flows From Investing Activities:
- -------------------------------------
Cash Paid to Purchase Equipment (216,433) (193,477) (181,991)
(Increase) Decrease in Notes Rec. -- 459,000 (573,800)
Increase in Investments (357) (260,025) --
----------- ----------- -----------
Net Cash Provided by (Used in)
Investing Activities (216,790) 5,498 (755,791)
----------- ----------- -----------
Cash Flows From Financing Activities:
- -------------------------------------
Net Proceeds from Issuance of Common
Stock 2,148,402 415,296 722,350
Repayments of Shareholder Loans -- -- (2,230)
Net Proceeds from Long Term Debt -- 1,357,715 --
Principal Payments on Debt (39,281) -- --
Principal Payments Under Capital
Lease Obligations (6,583) (35,632) (39,785)
----------- ----------- -----------
Net Cash Provided by
Financing Activities 2,102,538 1,737,379 680,335
----------- ----------- -----------
Net Increase (Decrease) in Cash (69,891) 60,973 (1,338,213)
Cash and Cash Equivalents at
Beginning of Year 592,460 531,487 1,869,700
----------- ----------- -----------
Cash and Cash Equivalents at
End of Year $ 522,569 $ 592,460 $ 531,487
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
-F5-
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JANUARY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT TOTALS
---------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances
January 31, 1993 7,940,716 $ 7,941 $ 5,753,632 $(2,304,191) $ 3,457,382
Issuance of Common
Stock Net of
Expenses 400,000 400 721,950 -- 722,350
Net Loss for Year
Ended January 31,
1994 -- -- -- (1,478,201) (1,478,201)
---------- -------- -------------- ------------- ------------
Balances
January 31, 1994 8,340,716 8,341 6,475,582 (3,782,392) 2,701,531
Issuance of Common
Stock Net of
Expenses 259,203 259 415,037 -- 415,296
Issuance of Warrants -- -- 93,103 -- 93,103
Net Loss for Year
Ended January 31,
1995 -- -- -- (887,516) (887,516)
---------- -------- -------------- ------------- ------------
Balances
January 31, 1995 8,599,919 8,600 6,983,722 (4,669,908) 2,322,414
Issuance of Common
Stock Net of
Expenses 2,153,333 2,154 2,146,248 -- 2,148,402
Net Loss for Year
Ended January 31,
1996 -- -- -- (2,796,488) (2,796,488)
---------- -------- -------------- -------------- ------------
Balances
January 31, 1996 10,753,252 $10,754 $ 9,129,970 $(7,466,396) $ 1,674,328
========= ======== ============== ============== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this report.
-F6-
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 1996
----------------
NOTE 1 - ORGANIZATION, CAPITALIZATION, BUSINESS DESCRIPTION
--------------------------------------------------
The Company is engaged in the business of manufacturing and marketing computer
peripheral hardware and software products for the automated voice response,
telecommunications, computer and multimedia communications industries.
NOTE 2 - ECONOMIC DEPENDENCY
-------------------
Two of the Company's customers accounted for approximately 20% and 13% or
approximately $277,000 and $188,000 of consolidated revenues for the year ended
January 31, 1996 respectively. The first of these customers accounted for
approximately 31%, or approximately $787,000 of revenue for the year ended
January 31, 1995. For the year ended January 31, 1994, this customer accounted
for approximately 27%, or approximately $409,000 of consolidated revenues.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Method of Accounting
- --------------------
The Company utilizes the accrual basis method of accounting for financial
reporting purposes.
Cash and Cash Equivalents
- -------------------------
The Company considers all short-term debt securities purchased with an original
maturity of three months or less to be cash equivalents.
Accounts Receivable
- -------------------
The Company believes all receivables are collectible unless information to the
contrary is obtained. In the event such information is received the Company
establishes an allowance for the uncollectible portions. At January 31, 1996
the allowance was $412,000 and at January 31, 1995 the allowance was $20,000.
Inventory
- ---------
Inventory is valued at the lower of cost or market value using the first-in,
first out (FIFO) method, and consists of:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Raw Materials $130,830 $ 809,530
Work in Process 241,311 46,200
Finished Goods 516,514 258,479
-------- ----------
$888,655 $1,114,209
======== ==========
</TABLE>
Machinery and Equipment and Capital Leases
- ------------------------------------------
Machinery and equipment are stated at cost. Capital leases are stated at the
lesser of the present value of the minimum lease payments or the fair market
value. Property, equipment and capital leases are comprised predominately of
computer equipment. Expenditures for maintenance and repairs are charged to
-F7-
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
JANUARY 31, 1996
----------------
NOTE 3 - (CONTINUED)
-----------
operations as incurred. Depreciation and amortization are provided for
utilizing the straight-line method over the estimated useful lives of the
property and equipment. Depreciation expense for the years ended January 31,
1996, 1995 and 1994 was $168,017, $157,855 and $132,057 respectively.
Capitalized Software Costs
- --------------------------
Costs related to the conceptual formulation and design of licensed programs are
expensed as research and development. Costs incurred subsequent to
establishment of technological feasibility to produce the finished product are
generally capitalized. The amounts charged to expense for the years ended
January 31, 1996, 1995 and 1994 were approximately $615,000, $497,000 and
$226,000, respectively. The Company has capitalized software costs included in
Other Assets which totaled approximately $437,000, $350,000 and $403,000 for the
years ended January 31, 1996, 1995 and 1994, respectively. Amortization
included in the accompanying Consolidated Statements of Operations for fiscal
years ended January 31, 1996, 1995 and 1994 was $228,000, $124,000 and $66,000,
respectively.
Income Taxes
- ------------
The Company has adopted Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach to
accounting for income taxes. Deferred income taxes are recorded for temporary
differences between taxable income and pretax financial income and the tax bases
of assets or liabilities and their reported amounts in the financial statements.
Loss Per Share
- --------------
Loss per share is based on the number of shares outstanding. No effect has been
given to outstanding warrants as the result would be antidilutive.
NOTE 4 - CAPITAL CONTRIBUTION
--------------------
Employee Stock Options
- ----------------------
The Company does not currently have an employee stock option plan but intends to
institute such a plan during the fiscal year ending January 31, 1997. The
Company intends to issue stock options to employees at no less than fair market
value at the time of issuance.
Options and warrants to purchase 2,009,384 shares of the Company's common stock
were exercisable at prices ranging from $.75 to $3.50 per share at January 31,
1996. Outstanding options and warrants expire at various dates through February
2003.
The following table summarizes the changes in options and warrants outstanding
and the related price ranges for shares of the Company's common stock.
<TABLE>
<CAPTION>
Stock Options Warrants
---------------------- ------------------------
Shares Price Shares Price
------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding at
January 31, 1993 425,000 $0.75 to 2.00 150,000 $2.00
Granted 539,000 $2.00 125,000 $3.00
Exercised -- -- (150,000) $2.00
Expired -- -- -- --
------- --------
Outstanding at
January 31, 1994 964,000 $0.75 to 2.00 125,000 $3.00
Granted -- -- 538,401 $2.00 to 3.00
Exercised -- -- (150,000) $2.00
Expired -- -- -- --
------- --------
Outstanding at
January 31, 1995 964,000 $0.75 to 2.00 663,401 $2.00 to 3.00
</TABLE>
-F8-
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------
JANUARY 31, 1996
----------------
NOTE 4 - (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Outstanding at
January 31, 1995 964,000 $0.75 to 2.00 663,401 $2.00 to 3.00
Granted 20,000 -- 620,316 $1.50 to 3.50
Exercised (50,000) $2.00 (208,333) $2.00
Expired -- -- -- --
------- ---------
Outstanding at
January 31, 1996 934,000 $0.75 to 2.00 1,075,384 $1.50 to 3.50
======= =========
</TABLE>
NOTE 5 - INCOME TAXES
------------
As at January 31, 1996, the Company had net operating loss carryforwards of
approximately $7,400,000, for both book and tax purposes, expiring from 2005 to
2011. As a result of the Tax Reform Act of 1986, the Company is obligated to
pay an alternative minimum tax on its alternative minimum taxable income, even
though it has a loss carryforward. These carryforwards are subject to possible
limitations on annual utilization if there are "equity structural shifts" or
"owner shifts" involving "5% shareholders" (as these terms are defined in
Section 382 of the Internal Revenue Code), which result in a more than 50
percentage point change in ownership.
At this time, the Company does not believe it can reliably predict profitability
beyond the current fiscal year. Accordingly, the deferred tax asset applicable
to operations subsequent to January 31, 1996 has been reduced in its entirety by
the valuation allowance. For the period ending January 31, 1996, the provision
for taxes is comprised only of appropriate state taxes.
Reconciliation of income taxes shown in the financial statements and amounts
computed by applying the Federal income tax rate of 34% for the years ended
January 31, 1996, 1995 and 1994, respectively is as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Loss Before Income Taxes $(2,796,488) $ (885,236) $(1,497,033)
=========== ========== ===========
Computed expected tax credit $ 951,000 $ 301,000 $ 509,000
Operating loss for which no benefits
were provided (951,000) (301,000) (509,000)
Benefit provided by net operating
loss carryforward -- -- --
Reduction of Deferred Federal Tax -- -- 1,074
Provision for alternative minimum tax -- -- --
State and local tax provision (1,571) (2,280) (729)
----------- ---------- -----------
Provision for income taxes $ (1,571) $ 2,280) $ 345
=========== ========== ===========
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
- ------
The Company is obligated to pay minimum annual rentals on existing non-
cancelable real estate leases as follows:
Year Ending January 31, 1997 1998 Total
----------- ---------- -----------
$ 101,957 58,291 $ 160,248
The Company leased approximately 4,500 square feet for office premises in New
York City. The lease provided for annual payments effective April 1, 1991 of
$87,122 and expired on March 31, 1996. The Company vacated the premises in
December 1995, which was subsequently re-leased by the landlord. The Company
and the landlord are presently negotiating the amount of the credit due the
Company.
-F9-
<PAGE>
LINKON CORPORATION
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
JANUARY 31, 1996
----------------
NOTE 6 - (CONTINUED)
-----------
The Company has a five year lease agreement for approximately 5,000 square feet
of office space in Fairfield, CT expiring September 30, 1997. That lease
provides for annual payments amounting to $87,437.
The Company incurred rent expense amounting to $185,899, $178,586 and $177,809
for the years ended January 31, 1996, 1995, and 1994 respectively.
Royalty Agreements
- ------------------
The Company acquires the rights to certain software algorithms from various
developers under renewable contracts of varying terms. Royalties are based on a
per unit charge based on sales of products utilizing such algorithms.
Warranties
- ----------
The Company warrants that all equipment manufactured by it will be free from
defects in material and workmanship under normal use for a period of one year
from the date of shipment. The Company's expenses in connection with such
warranties have been minimal.
NOTE 7 - NOTES PAYABLE
-------------
During the year ended January 31, 1995, the Company issued $1,350,000 in
principal amount of convertible debentures due October 27, 2000. The notes bear
interest at a rate of 10% per annum, payable quarterly. The first interest
payment was not due until October 31, 1995. The notes are accompanied by
detachable warrants to purchase 316,664 shares of the Company's common stock at
an exercise price of $2.00 per share. The warrants will expire on October 31,
2001. Such warrants were valued at $93,103. The unamortized discount is
carried as a reduction of notes payable on the balance sheet. The unamortized
expenses associated with the issuance of the debentures are carried as prepaid
financing costs on the balance sheet. The Company's rights to issue dividends
are restricted under this agreement. The Company also entered into a loan
agreement with its primary bank whereby the Company borrowed $60,000 payable in
equal monthly installments through January 3, 1997 at an interest rate of 1%
above the prime rate. At January 31, 1996 interest amounting to $100,000 has
been accrued on these liabilities. The following table shows the maturities, at
January 31, 1996, of the $1,380,000 remaining principal:
Year Ending January 31, 1997 1998 1999 2000
---- ---- ---- ----
30,000 -- -- 1,350,000
NOTE 8 - SUPPLEMENTAL CASH FLOWS DISCLOSURES
-----------------------------------
Cash flows from operating activities reflect interest paid of $101,719, interest
earned of $13,248 and taxes paid of $1,571 for the year ended January 31, 1996,
interest paid of $52,196, interest earned of $74,248 and taxes paid of $2,280
for the year ended January 31, 1995 and interest paid of $14,055, interest
earned of $18,578 and taxes paid of $729 for the year ended January 31, 1994.
There were no noncash investing or financing activities during the years ended
January 31, 1996, 1995 and 1994.
-F10-
