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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.
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
[ ] TRANSITION REPORT UNDER 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
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(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 13-3469932
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
140 SHERMAN STREET, FAIRFIELD, CT 06430
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(203) 319-3175
(ISSUER 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
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(TITLE OF CLASS)
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 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. $3,862,594.
As of April 28, 1998 the aggregate market value of the voting stock held by
non-affiliates was $14,928,084.
Number of shares outstanding of the issuer's common stock, as of April 28,
1998 was 13,296,252.
DOCUMENTS INCORPORATED BY REFERENCE
The issuer's definitive proxy statement to be filed with the Securities and
Exchange Commission within 120 days after January 31, 1998 is incorporated by
reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes No X
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL BUSINESS
Linkon Corporation (hereafter referred to as "Linkon" or the "Company"), a
Nevada corporation, is a technology supplier to the telecommunications,
Internet, cable and data networking industries. The Company's software and
hardware products feature a "Universal Port" architecture that provides for
efficient, multimedia communications in large networked environments. Solutions
incorporating Linkon products have been created for applications such as
interactive voice response (IVR), voice activated dialing, call center
automation and Internet telephony. Linkon sells to original equipment
manufacturers ("OEMs"), system integrators, value added resellers ("VARs") and
distributors.
Linkon Software includes the Link O/S/TM/ Operating System, which manages
digital signal processing resources, memory, and software objects for telephony,
fax, modem, speech compression, recognition, verification and synthesis. Linkon
also offers a Direct Driver Interface for board-level programming, a signaling
server engine for connecting Linkon-based systems to a variety of communications
networks, as well as high-level application development tools such as
Teravox/(R)/. Software applications include the LinkNet/TM/ IP (internet
protocol) Telephony Software Suite and LinkNet/TM/ Gatekeeper Module.
Linkon Hardware includes the Maestro/TM/ System, a modular and scaleable
Digital Signal Processing ("DSP")-based platform for processing voice, fax,
voice compression, modem, speech recognition and synthesis. The Maestro/TM/
System also provides public switched telephone network connectivity, echo
cancellation for IP Telephony applications, and computer bus and computer
telephony bus connectivity.
Linkon technology-based systems include the LinkNet/TM/ IP Telephony
Gateway - a new offering for the rapidly growing Internet telephone market - and
the ESCAPE/TM/ Enhanced Services Platform for the dynamic call center automation
market. Both products leverage Linkon's award-winning Maestro/TM/ System
technology.
Linkon has formed relationships with a variety of technology suppliers.
These include Sun Microsystems, for whom Linkon is a value added reseller and
"Catalyst Partner"; IBM, for whom Linkon is an independent software vendor and
"Power Partner"; Lernout & Hauspie Speech Products, a leading provider of speech
recognition, synthesis and compression; Voxware, a compression software
provider; Syrinx Speech Products, an Australian speech recognition provider;
AumTech, a provider of application generation software; and Designer Labs, a
provider of Signaling System 7 services.
Customers to date include AT&T, BellSouth, Broken Hill Proprietary, Sequel
Communications, Frontier, Everbright Computer, Belgacom, Airtouch, US West,
Telco Solutions, West Interactive, US Department of Defense, Boeing, Southwest
Bell and TriGem Microsystems.
THE MARKET FOR IP TELEPHONY
From its humble beginnings as a hobbyist toy in early 1995, IP Telephony
has rapidly gained the potential to transform the $62 billion international
telecommunications business. During 1996, the industry reached consensus on
important interoperability standards and gained the strong backing of major
computer vendors. The remaining technical limitations are quickly being
addressed, and the stage is now set for a direct assault on the world's most
lucrative telecom markets. According to Action Information Services, a
Washington DC-based market research firm, the IP telephony industry will impact
Public Switched
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Telephone Network revenues by more than $8 billion from 1998 through 2001.
According to Frost and Sullivan, the market for IP Telephony Gateways will rise
from a projected $200 million in 1998 to $1.7 billion in 2001, which translates
into a compounded annual growth rate of 229%. The growth in revenues is being
driven mainly by toll-bypass and toll reduction capabilities, rapid product
quality improvements, the growth of the Internet and intranets, the desire or
need to conduct multimedia communications, and the integration of voice and data
into a single network.
TECHNOLOGY OVERVIEW
Linkon Hardware includes the Maestro/TM/ System, a modular and scaleable
DSP-based platform for processing voice, fax, voice compression, modem, speech
recognition and synthesis. The Maestro/TM/ System also provides public switched
telephone network connectivity, echo cancellation for IP Telephony applications,
and computer bus and computer telephony bus connectivity.
Hardware-independent Architecture
A unique feature of the Maestro/TM/ system is its bus-independent design,
which permits hardware flexibility on the part of system developers. Linkon
produces a variety of feature modules (similar in concept to PC-based "daughter
cards") about one fourth the size of a full-size PC board. The DSP module
contains the DSP and RAM resources required to perform the various voice, speech
and call processing applications. Other modules support analog signaling,
digital communications, and echo-cancellation. These modules are "plugged" into
a foundation card (similar in concept to a PC-based "motherboard") which is
computer bus specific.
This hardware architecture accomplishes the following important goals:
1. It lowers costs;
2. It provides an easy upgrade path;
3. It allows rapid product development;
4. It provides access to additional markets with the rapid growth of the
Internet; and
5. It permits an easy change in form factor.
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 EISA/ISA, Sbus and PCI bus. Compact PCI bus foundation
cards are in development. 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. The Company believes that 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 three of the dominant computer
telephony bus architectures: PEB, SCSA and MVIP. A new H.100 Card is currently
in development. The
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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's
design approach becomes the most flexible approach to system integration on the
market.
The primary advantage of Linkon's products over those of other technology
suppliers is that the same hardware, with no modification, can be used for all
applications, including speech recognition, fax, modem, text-to-speech, DTMF
(touch tone) recognition, speaker verification, voice compression, and IP
Telephony (the sending of voice and fax communications over IP-based networks).
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, connectivity to IP networks and other
features. This is in marked contrast to the historical industry "shared
resource" architecture comprised 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 speech 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. The competitor's
offerings, when fully equipped, tend to be significantly more expensive on a
per-port basis.
DSP-based Software Algorithms
Computer telephony functions are shipped on CDs with the Maestro/TM/ System
boards. Customers only pay for those algorithms (voice, for example) 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, the developer can pay
an incremental licensing fee and the additional algorithms can be delivered on
an additional diskette or downloaded via modem connection. No system hardware
changes are required. Linkon encourages third-party developers to develop
additional algorithms for its platform. The Maestro/TM/ System 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.
Application Development Software
For high-level application development, Linkon provides TeraVox/(R)/, which
is a set of UNIX extensions written in the "C" programming language.
TeraVox/(R)/ provides system developers with the tools to rapidly create any
call processing application. TeraVox/(R)/ is available and is supported under a
number of operating systems, including various versions of UNIX, such as Solaris
from Sun Microsystems.
Board-level Software
Link O/S/TM/ is a board-level operating system that, when combined with
TeraVox/(R)/, manages board and system-level resource allocation. Link O/S/TM/
supports dynamic allocation of application
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software functions to any port or channel. Each channel can support any
technology feature present in a given system, providing 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/TM/ insulates developers from the
specifics of different algorithms within each algorithm class.
Third-Party Application Generator Software
Linkon has worked with several independent software development companies
to develop third-party application generator software packages which permit
software application development to be performed at the end-user level by an
individual having little or no experience with software development. 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.
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.
LINKON TECHNOLOGY-BASED PRODUCTS
Linkon currently has the following distinct product lines: The LinkNet/TM/
Gateway System; The Escape/TM /System; the fourth-generation Maestro/TM/ System
(discussed above); and LinkNet/TM/ SS7 Server.
The LinkNet/TM/ Gateway System
The LinkNet/TM/ IP Telephony Gateway is a product designed to provide voice
and fax communications over IP-based Internet and Intranet networks.
LinkNet/TM/ utilizes the Maestro/TM/ System communications boards, Teravox/(R)/
API, LinkNet/TM/ software, a variety of licensed audio compression software, and
Sun Microsystems SPARC-based computing platforms running the Solaris operating
system. These components are all integrated into a single, functional system.
LinkNet/TM/ Platform Description
The LinkNet/TM/ IP Gateway can support from four analog ports to multiple
digital T1/E1 connections, which can provide up to 96 full-duplex digital
communications channels. Future releases of the Gateway will feature increased
system capacities in order to meet the requirements of the large corporate,
telco and ISP marketplaces. Linkon has also announced its support of the ITU
H.323 standard, which comprises data format, call control, and both audio and
video compression.
The LinkNet/TM/ IP Gateway, based on Linkon's universal port Maestro/TM/
System technology,
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is built on Sun Microsystems' SPARC-based computing platforms and runs under
Sun's Solaris Unix-based operating system. Sun's server architecture delivers a
robust, industry-standard data communications bus ideal for Internet
communications, as well as a suite of powerful RISC-based CPUs capable of
supporting the intensive processing demands of Internet Telephony. The Solaris
operating system provides the reliability and high level of performance that has
made the Unix operating system the operating system of choice for the global
telecommunications infrastructure.
The LinkNet/TM/ IP Gateway and the Maestro/TM/ System technology it employs
have been designed to address IP Telephony's most difficult technical issues,
including full-duplex communications, scaleability, echo cancellation and low
delay time (latency).
Full-Duplex Transmission. Full-Duplex Transmission, the norm over the
Public Switched Telephone Network, has been difficult to achieve over the
Internet with a number of competitors' Internet telephony gateway
implementations. These implementations have achieved full-duplex transmission
at the hardware level through a physical coupling of 2 channels, effectively
reducing line capacity by 50%. In essence, an eight-port analog board supports
only four full-duplex connections - and effectively operates as only a four-port
board.
Linkon achieves full-duplex transmission at the software level - directly
on the DSP - eliminating the need to physically bridge two channels together and
reduce system capacity. With universal port functionality, the Maestro/TM/
boards can support 2-channels per DSP. In practice, a four-port, four-DSP
analog Maestro/TM/ board can provide four full-duplex Internet phone
conversations.
Compression. Certain competing IP telephony gateway implementations
compress the voice signal on the host. This method introduces significant delay
as well as extensive CPU utilization - so much utilization in fact that some
systems can only run two-ports.
The LinkNet/TM/ IP Gateway can employ multiple compression algorithms, all
running on the DSP. This eliminates delay since switching is accomplished in
real time, and reduces CPU utilization to single digits. Additional, standards
based compression algorithms, or codecs, such as the G.7 series, can also be run
on the DSPs.
Echo Cancellation. When calls are made over the PSTN, network-installed
echo cancellers ensure echo-free conversations. Internet telephony gateways,
however, introduce echo during the HOP-On, HOP-Off portions of the transmission,
requiring the presence of Gateway-based echo-cancellation circuitry. A number of
current board vendors do not offer echo cancellation - relying on the PSTN to
perform this function. The LinkNet/TM/ IP Gateway offers telco-grade hardware-
based echo cancellation technology based on the same technology used by the
major telephony companies.
Scaleability. Due to the limiting factors described above, competitors'
IP telephony gateways are limited in scale to twenty-four ports. The LinkNet/TM/
IP Gateway can achieve capacities of up to 96 ports in a single node server
configuration.
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Tunable Polling Rate and Buffer Size. Linkon's Direct Driver Interface API
for the Maestro/TM/ boards provides tunable parameters that allow control of the
polling rate from 15 to 50 polls per second, and the buffer size from 80 to 4096
bytes. This compares to some competitive board vendors' products which provide
for a minimum transfer buffer size of 1.5K, which introduces significant delay.
Low Delay. With current implementations, the processing and conversion of
voice signals from analog to digital and back again on the host processors takes
its toll on the application by introducing extremely high delay times.
Competing vendors have experienced delays of 200-300 milliseconds in-and-out-of-
board. Linkon has tested the LinkNet/TM/ IP Gateway for delay and has achieved
a rate of 30-50 milliseconds, which is a breakthrough in terms of meeting the
demands of the PSTN.
Integrated Voice and Fax over IP. The Maestro/TM/ System's universal port
capability, which allows Linkon to offer a wide range of algorithms and codecs
"on-board" - all in a single computer slot - and available to each and every
port - also provides the core technology enabling Linkon to offer an integrated
Internet Fax and Internet Telephony Gateway platform.
LinkNet/TM/ SS7 Server
The LinkNet SS7 Server is a specialized communications system designed to
provide Signaling System 7 protocol support for LinkNet IP Telephony Gateways.
Signaling System 7 is a global standard for telecommunications defined by the
International Telecommunication Union (ITU). The standard defines the procedures
and protocol by which network elements in the public switched telephone network
(PSTN) exchange information over a digital signaling network to effect wireless
and wireline call setup, routing and control. The LinkNet SS7 Server integrates
with the LinkNet Gateway to provide a variety of capabilities for
telecommunications service providers, including basic call setup, management and
tear down, as well as enhanced call features such as call forwarding, calling
party name and number display, and three-way calling.
The ESCAPE/TM/ Platform
The Linkon ESCAPE/TM/ Voice Response Unit (IVR System) also utilizes the
Maestro/TM/ System universal-port, DSP-based CTI boards and application
generation software. This hardware/software combination, built upon a fully
open-architected, telco-grade computer platform, provides great flexibility in
integrating previously disparate systems and emerging technologies.
With ESCAPE/TM/, customers acquire a middleware system that applies not
just to current technologies, but also to emerging ones. ESCAPE/TM/ enables the
exchange of information with other systems, regardless of whether they are old,
new, in-house, or third party. This allows a business to protect its existing
investments while reducing the costs associated with expanding services.
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ESCAPE/TM/ Platform Description
The ESCAPE/TM/ Platform utilizes its Maestro/TM/ CTI architecture, which
enables the system to support either multiple channels of DTMF per DSP, or
"Universal Port" functionality supporting DTMF, Fax, Speech Recognition,
multiple voice compressions, modem, and Text-To-Speech.
Use of the Maestro/TM/ boards in these VRU's offers significant advantages
over competitive products. According to Computer Telephony Magazine,
"Maestro/TM/ delivers the best price performance while maintaining the Company's
reputation of producing the telecom market's "most powerful" board.
In addition to the Maestro/TM/ Boards and application generator software,
each ESCAPE/TM/ System is built upon a Pentium based Industrial Rack Mounted
Computer. This computer provides redundant power supplies, remote monitoring
and optional RAID disk storage capability.
ESCAPE/TM/ Platform Capabilities
The ESCAPE/TM/ Platform provides an extremely cost-effective platform for
multi-function applications. The ESCAPE/TM/ Platform's "universal port"
capability enables applications to dynamically support Voice, Fax, Text-to-
Speech, Speech Recognition, CELP voice compressions and other algorithms. Such
universal application access simplifies the engineering and administration of
application interfaces. System engineers no longer need to dedicate a fixed
percentage of the Telecom Server resources to a specific application.
In other words, it is not necessary to dedicate each incoming voice channel
to either Voice, Fax, Speech Recognition, Text-to-Speech or Modem applications.
The full range can be used in a single application without adding extra boards.
As a result, engineers only need to determine the number of channels/ports
required to handle the aggregate volume of calls to a certain application. They
will not have to engineer all the machine slots and network access points on the
basis of call types.
The Company believes that ESCAPE/TM/ Platforms will retain their value
longer than other hardware based architecture. Configuration planning is
simplified because software rather than hardware is dynamically altered when
capacity limits are reached.
Although "universal ports" are ideal for implementations that require
advanced speech technologies on a single port, the ESCAPE/TM/ VRU also allows
for the flexibility to provide extremely cost-effective, high-density DTMF in
cases where advanced technologies are required on a limited basis. Depending on
a customer's requirements, the ESCAPE/TM/ VRU can supply the desired feature-set
today, or sometime in the future.
RESEARCH AND DEVELOPMENT
The nature of the computer hardware and software industries is such that
research and
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development is deemed mandatory by management in order to ensure
competitiveness. The Company incurred research, development and software costs
of approximately $608,874 and $705,053 for the fiscal years ended January 31,
1998 and 1997 respectively. 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.
Linkon product strategy calls for products with an "OPEN" architecture
design. 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.
The Company's R&D strategy is to have strong in-house design and
engineering capability, but also to utilize state-of-the-art technology houses
to develop long lead-time leading edge technology. Some examples are
arrangements with Lernout & Hauspie, a algorithm development firm in the Speech
Recognition and Text to Speech areas, and Syrinx Speech Products, an Australian
firm, to port their speech recognition algorithms to the Maestro/TM/ System
Communications Boards.
TECHNOLOGY RELATIONSHIPS
The Company's strong technology and quality product design have led to
several technology relationships over the last few years. The more significant
relationships are outlined below. Given its limited size and resources, Linkon
has relied upon these and other third parties to develop technology necessary
for the Company's products.
Aumtech
AumTech is a provider of application generation software for the ESCAPE/TM/
Platform, having ported its software product to the Maestro/TM/ System's boards.
The Aumtech software is used by the Company's customers to develop interactive
voice response applications for call center environments.
Sun Microsystems Computer Company
Linkon believes that it is the only computer telephony board-level company
currently shipping a communications board for the S-bus, making it compatible
with Sun's SPARC server systems. As a result, developers of call processing
applications for Sun systems can use Linkon 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. In June of 1997, Linkon introduced
the LinkNet/TM/ System based upon the Sun hardware and software architecture.
In January of 1998, Linkon became a Sun Authorized Reseller, which enables the
Company to build and deploy complete systems based upon the Sun platform.
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Syrinx Speech Systems Pty Ltd
Syrinx, based in Sydney, Australia, is a developer and supplier of highly
advanced Speech Recognition technologies that support speaker independent
recognition of continuously spoken telephone-based speech. Syrinx has ported
their technology to the Maestro/TM/ System's boards, enabling the provision of
"0 to 9" digit recognition and well as "yes" and "no" word recognition as a
basic, standard board function - the first and only offering of "no upcharge"
speech recognition in the industry. Continuous speech recognition is also
available as an option.
IBM
Linkon supports IBM's AIX operating system, allowing the Maestro/TM/
System's boards to functionally operate in IBM's flagship RS/6000 Telecom Server
product. The marriage of the Maestro/TM/ System's Boards and the RS/6000
Telecom Server from IBM creates a powerful and highly scaleable platform for
creating computer telephony enhanced services, such as fax-on-demand and other
leading voice and fax processing applications, including voice dialing, unified
messaging, speech controlled interactive voice response, email reading, and
Internet Telephony/Fax Gateways. The IBM RS/6000 is one of the world's leading
servers with an installed base of over 500,000 units worldwide.
Designer Labs
Designer Labs is a telecommunications software company based in New
Hampshire that specializes in intelligent network, or Signaling System 7
("SS7"), solutions for switched circuit and IP-based services. SS7 is
essentially a data network that runs parallel to the network of switches that
carry voice traffic over the public switched telephony network. The SS7 network
provides for a "signaling layer" that carries information about line and phone
status conditions (busy, out of service, etc.) between switches in the network
thereby helping to make the network more efficient and intelligent. SS7 also
uses specialized databases that contain call routing information, making it
possible, for example, for a telephone switch to route a call to a secondary
phone number if the primary number is unavailable. Designer Labs has partnered
with Linkon to develop SS7 signaling services that allow SS7 to be harnessed as
a signaling mechanism for the transport of voice over IP networks. This allows
the Company's LinkNet/TM/ Gateway to offer the same intelligent network services
for IP Telephony network applications.
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, speaking engagements and
presentations by Linkon personnel at leading industry conferences and seminars,
demonstrations of Linkon technology with companies who are key prospects for
strategic relationships, and direct mail campaigns.
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Although the Company'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 Maestro/TM/ System 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.
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 Company is directly targeting the Call Center market for sales of
the ESCAPE/TM/ IVR platform. The primary sales targets for the Company's
component level products are VARs, Systems Integrators ("SI"), OEMs and
telephone companies.
In January 1998 Linkon was approved as an Authorized Sun Microsystems
Reseller, allowing the Company to resell Sun Microsystems' entire product line
to customers. As a benefit of this relationship, Sun Microsystems provides a
number of marketing programs for Linkon to leverage. Specific activities
include exhibiting in Sun partner pavilions at leading Internet, CTI and telecom
trade shows, joint email and fax blasting, direct mail campaigns, sales support,
technical support, introductions to other resellers, special events and
technology briefings, and public relations support.
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, Korea,
Philippines and Spain.
Ingram Micro. Ingram Micro Inc. is the world's leading wholesale
distributor of technology products and services. An agreement in principle has
been reached for Ingram Micro to distribute Linkon products to its reseller
customers, which agreement would provide Linkon with a world-class distribution
channel. Finalization of the relationship is currently pending.
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 usually involve training, volume
discounts and minimum purchase commitments. As of the date hereof, the Company
sells to several OEM's.
Direct Sales
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The company sells directly to a number of accounts, including AT&T. As
awareness of the technological advantages of the company's ESCAPE/TM/ IVR
Platform and Maestro/TM/ System products grow in the market, it is expected that
the percentage of direct sales versus OEM/VAR and SI sales will grow
significantly in proportion.
INTERNATIONAL SALES
During Fiscal 1998, Linkon signed an agreement with TriGem Microsystems,
Inc., a division of the $1.0 billion TriGem Computer Group, one of Korea's
leading computer manufacturers. The multi-year agreement calls for a minimum
purchase level of $2.0 million in the first two years. TriGem will import,
market, sell and support Internet Computer Telephony solutions featuring Linkon
products, including the ESCAPE/TM/ and LinkNet/TM/ systems.
Linkon is in the process of negotiating distribution agreements for the
Philippines, Spain, France and China.
KEY CUSTOMERS
Three of the Company's customers accounted for approximately 85% of
revenues for the year ended January 31, 1998. Management believes that sales
will continue to come from:
1. Sales of the LinkNet/TM/ IP Telephony Gateway Server to customers such
as competitive local exchange carriers, next generation telecom
companies and prepaid calling card companies.
2. Sales of the ESCAPE/TM/ IVR platform into the Call Center environment.
3. VARs, SIs and OEMs who will develop or private label their own
platforms using Linkon technology, and in essence, will resell the
Company's products to end users.
AT&T
The Company's largest customer is AT&T. The group within AT&T that utilizes
the Company's products provides call center operations to service AT&T's 800
number customers. AT&T's call center application consists of the ESCAPE/TM/
Platform supporting over 5000 lines of telephone service. In fiscal 1998, AT&T
purchased approximately $2,600,000 of this product from Linkon. Linkon currently
has a backlog of approximately $300,000 of this product for AT&T, which is
planned to ship during the first and second quarter of fiscal 1999.
Airtouch/ CMA
CMA (for Customer Management Automation), is a Sun Microsystems value added
reseller and system integrator based in Dallas, Texas. CMA is a pioneer in the
deployment of networked computer telephony integration applications for major
telecommunications companies including
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Cellular One and Airtouch. In December of 1996, Linkon entered into a million
volume purchase agreement with CMA which provides CMA with the right, but not
the obligation, to purchase up to $1.5 million of certain Linkon products. In
fiscal 1998, CMA purchased approximately $132,000 of this product from Linkon.
Linkon currently has no current backlog from this customer.
Bell South/ Cat Technologies
Cat Technologies is a leading developer of customer management solutions
using computer telephony integration technology. CAT is a Linkon VAR, and has
incorporated Linkon Maestro/TM/ System's boards in its enhanced telephony and
Internet/Intranet applications platform. In fiscal 1998, CAT Technologies
purchased approximately $353,000 of this product from Linkon. Linkon has no
current backlog from this customer.
Sequel Communications
Sequel Communications is a facilities-based telecommunications provider
offering a wide range of communications solutions. In the first quarter of
fiscal 1999, Sequel Communications signed a purchase order for $515,000 of the
LinkNet/TM/ Gateway product. Established in April, 1994 as a wholly-owned
subsidiary of Sequel Concepts, Sequel Communications was created to take
advantage of the growing worldwide demand for telecommunications services while
leveraging the company's expertise as a systems integrator and vertical software
developer and its strong ties with Southeast Asia. As such, it is situated to
benefit from the surging demand for telecommunication services presented by
countries in this region which will account for more than one half of all
telephones put into service worldwide over the coming decade.
BACKLOG
As of February 1, 1998, Linkon had a backlog of approximately $565,000, all
of which was for product to be shipped during the first quarter of fiscal 1999.
As of April 20, 1998, the Company had a backlog of approximately $800,000, to be
shipped during the first and second quarters of fiscal 1999.
CUSTOMER SUPPORT AND WARRANTY
The Company offers a two year warranty on all products and services.
Customers are entitled to receive telephone hotline access, field support and
periodic software updates. Customers return defective product for repair to
Linkon. Costs incurred as a result of "In Warranty" repairs and returns have
not been material in the past.
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<PAGE>
COMPETITION
The Company's markets are extremely competitive. Competitors to the
Company's various product lines include:
For the Maestro/TM/ System products, Dialogic Corporation, Rhetorex, a
division of the Octel Division of Lucent, Brooktrout Technology, Inc. and
Natural Microsystems, Inc., among others, are substantial hardware competitors
of the Company.
For the Escape/TM/ Platform products, Conversant, a division of Lucent
Technologies, Brite Voice, Intervoice, Periphonics, and Syntellect manufacture
IVR systems.
For the LinkNet/TM/ System products, Dialogic Corporation, Natural
Microsystems, Analogic Corporation and Brooktrout Technology, Inc. have
introduced competing IP telephony hardware/software components. For LinkNet/TM/
Gateway (server) products, Netspeak, Vocaltec, Inter-Tel, Vienna Systems and
other companies as well as several proprietary products companies have built
competing IP Telephony gateway products that utilize components from one or more
of the companies listed above.
Management believes that its products possess certain competitive
advantages. 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 conjunction with other modalities. The
Company's software is scaleable to a high density. In addition, the Company's
LinkNet/TM/ product is at present the only Sun Microsystems's SPARC and Solaris-
based IP Telephony Gateway on the market - a factor that provides Linkon with a
distinct competitive advantage in the telecommunications and Internet services
marketplace. 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. The Company does not presently
possess a meaningful market share in the voice processing industry and many of
the Company's competitors have greater financial and other resources and more
substantial marketing capabilities than the Company.
PATENTS, TRADEMARKS & COPYRIGHTS
The Company's computer board design and code are proprietary and a trade
secret. The Company has obtained no patents or registered any copyrights for
any of its products.
The Company has obtained a registration for its TERAVOX/(R)/ trademark from
the U.S. Patent and Trademark Office and intends to seek source code copyright
protection on its future operating systems and utilities.
On February 10, 1998 the Company entered into a TXG-NX Field Deployable
Software License Agreement, TXG-NX Lab Deployable Software License Agreement and
a USP Library
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<PAGE>
Software License Agreement with Designer Labs, llc. Each of such license
agreements are non-exclusive and permit the Company to use and sell certain
computer software in connection with the development and sale of the Company's
products. The terms of the licenses vary from approximately one year to
perpetual unless terminated by the Company or, in the event of a breach by the
Company of any the terms of the applicable license agreement, by Designer Labs,
llc.
The Company is also a party to a December 1, 1996 worldwide, non-exclusive
license agreement with Syrinx Speech Systems, Pyt. Ltd. to use or incorporate in
products sold by the Company certain computer software, patents, trademarks and
copyrights owned by such company related to speech recognition by a computer.
This license is renewable for successive one year terms upon written mutual
consent of the parties.
The Company has also entered into a world-wide, non-exclusive license
agreement to use or incorporate in products sold by the Company certain computer
software, patents, trademarks and copyrights owned by Aumtech Limited related to
applications generation and service creation for use in voice processing
systems. This license is for a two-year term ending December 1999 and is
renewable for successive one-year terms upon mutual written consent of the
parties.
In December 1996 the Company also entered into a non-transferable,
non-exclusive, worldwide software license agreement with Voxware, Inc. relating
to certain Voxware programs that are incorporated into the Maestro(TM) System.
The term of the Voxware license agreement expires in December 1998.
EMPLOYEES
As of April 28, the Company employs 30 persons: 5 executive, 11 technical,
10 sales and marketing, 1 quality assurance and 3 administrative. There is no
union contract relating to employees nor does the Company anticipate there to be
unionization of its employees. The Company believes it has a positive
relationship with its employees.
ITEM 2. PROPERTIES
The Company currently leases approximately 5,700 square feet of office and
laboratory space in Fairfield, Connecticut, pursuant to a 1 year lease extension
expiring on August 31, 1998 at an annual rental of $111,114. The facility has
capacity for expansion and is deemed sufficient for the Company's foreseeable
needs. The Company is currently negotiating with the landlord for an extension
at the same time that it is reviewing whether it wishes to attempt to extend its
lease for an additional period of time or to relocate. The Company does not
believe that it would suffer any material adverse effect if it relocated upon
the expiration of its lease.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
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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". Its stock symbol is "LKON". 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.
<TABLE>
<CAPTION>
Fiscal Year Ending January 31,
------------------------------
1998 1997
---------------- ----------------
High Low High Low
------ ------ ------- -----
<S> <C> <C> <C> <C>
1st quarter 2 5/8 1 1/16 1 5/8 5/8
2nd quarter 1 5/16 3/4 1 5/16 23/32
3rd quarter 1 1/8 5/8 3 1/8 3/4
4th quarter 15/16 1/2 2 13/16 1 3/4
</TABLE>
As of April 28, 1998, there were 604 shareholders of record of the Common
Stock of the Company. The Company estimates, based on prior shareholder
mailings, that holdings in "street name" represent approximately 4,100
additional beneficial shareholders.
The Company has not declared any dividends since its inception and, due to
its anticipated need 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. On April 6, 1998 in connection with an
equity and debt financing transaction (the "RG Financing") with RG Capital Fund,
LLC (the "RG Fund") and certain investors designated by the RG Fund, the
Company, among other things, borrowed $1,100,000 from the RG Fund and issued to
the RG Fund a Promissory Note in like principal amount plus interest at an
annual rate of 8% maturing on April 5, 2000 (the "RG Note"). The proceeds of
such borrowing were used to repay monies borrowed by the Company in October 1994
from IBJS Capital Corporation ("IBJS") pursuant to the terms of a 10% Senior
Secured Convertible Debenture in the principal amount of $1,000,000 (the "IBJS
Debenture"). Upon such repayment, the IBJS Debenture was cancelled along with
an aggregate 279,081 warrants to purchase the Company's Common Stock previously
issued to IBJS. As a result of the cancellation of the IBJS Debenture, the
Company is no longer subject to the restrictions on payment of dividends
contained in the IBJS Debenture; however, the Company is prohibited from paying
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dividends under the terms of the RG Note until the RG Note is repaid (including
accrued interest) unless it obtains the RG Fund's prior written consent. See
"Item 6. Management's Discussion and Analysis or Plan of Operations -- Liquidity
and Capital Resources" for a more detailed discussion of the RG Financing.
UNREGISTERED SALES OF THE COMPANY'S SECURITIES DURING FISCAL 1998
The following is a description of transactions in which the Company sold
its securities during the fiscal year ended January 31, 1998 and recent sales
through April 28, 1998, without registering the offer and sale under the
Securities Act of 1933, as amended (the "Securities Act").
On December 19, 1997, the Company granted options to purchase an aggregate
of 191,000 shares of the Company's Common Stock to a total of 20 employees,
officers and/or directors of the Company under the Company's 1996 Stock Option
and Performance Incentive Plan. Such options each have an exercise price of
$.5625 and terminate on December 19, 2007. The Company did not receive any
consideration from the option recipients for the options. The options (to the
extent constituting offers and sales under the Securitues Act) were granted
pursuant to the exemptions from registration afforded by Section 4(2) of, and
Regulation D under, the Securities Act. The Company intends to register the
offer and sale by it of shares of its Common Stock pursuant to such options
prior to the time that any of such options are actually exercised.
On April 6, 1998, pursuant to the terms of a Subscription and Stock
Purchase Agreement (the "RG Subscription Agreement") between the Company and the
RG Fund, the Company issued an aggregate of 1,680,000 shares of the Company's
Common Stock to the RG Fund for an aggregate consideration of $1,260,000.
Thereafter, on April 14, 1998, the Company issued an additional 720,000 shares
of its Common Stock pursuant to the RG Subscription Agreement to ten investors
designated by the RG Fund for an aggregate consideration of $540,000. The
aggregate 2,400,000 shares of the Company's Common Stock (the "RG Shares")
issued to the RG Fund and the investors designated by it were issued pursuant to
the exemptions from registration afforded by Section 4(2) of, and Regulation D
under, the Securities Act.
On April 6, 1998, the Company also issued to Roberts & Green, Inc. ("R&G")
warrants to purchase 1,000,000 shares of the Company's Common Stock at a price
of $1.50 per share in connection with its entry into an investment banking
financial advisory services agreement with R&G. The warrants were issued
pursuant to the exemptions from registration afforded by Section 4(2) of, and
Regulation D under, the Securities Act.
See "Item 6. Management's Discussion and Analysis of Plan of Operations --
Liquidity and Capital Resources" for a more detailed discussion of the RG
Financing.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
NET INCOME
The Company reported a net loss of $1,647,135 for fiscal 1998 as compared
to a net loss of
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<PAGE>
$677,526 for the prior fiscal year. This increase in the net loss reported by
the Company was primarily due to the following two factors:
1. During fiscal 1997 the Company sold its stock investment in Concentric
Network Corporation for $1,020,000 and recognized a gain of $679,909.
2. Selling, general and administrative expenses increased by
approximately $324,000 (or 13%) during fiscal 1998, primarily due to a
decision by the Company to materially increase its sales, marketing and customer
support staff.
3. Revenues for the fiscal year ended January 31, 1998 were $3,862,594 as
compared to $4,405,315 for the prior year. This represented a decrease in
revenues of 12%. This loss in revenue generated a $222,000 reduction in the
gross margin, increasing net loss by that amount.
REVENUES
For the year ended January 31, 1998, revenues decreased approximately
$542,721 from the year ended January 31, 1997, from $4,405,315 to $3,862,594, a
decrease of 12%. This decrease was due mainly to the Company's inability to
ship backlog of approximately $565,000 by the end of the fiscal year. The
failure was primarily due to the Company's working capital difficulties.
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 inquiries it is
receiving concerning its products.
COST OF GOODS SOLD
Cost of goods sold for products, consisting of parts, supplies and
manufacturing costs for the Company's hardware and software products, including
software amortization, were $2,227,528 and $2,547,505 for the years ended
January 31, 1998 and 1997 respectively. This constituted approximately 58% of
revenues for each of the years ended January 31, 1998 and 1997, respectively.
The cost of goods sold varies with each product line, with software, which
constitutes 35% of total goods sold, 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 carry
significantly 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.
While management continues to believe that its products can be sold with a
less than 50% 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
significantly lower costs than the company's hardware products, and as a result
of research and development projects aimed at increasing efficiency while
reducing cost.
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the fiscal years ended
January 31, 1998 and 1997 were $2,723,876 and $2,400,660 respectively. This
constituted approximately 71% and 54% of revenues for the fiscal years ended
January 31, 1998 and 1997, respectively. This increase for fiscal 1998 when
compared with fiscal 1997 was due primarily to increased staffing in Sales,
Marketing and Customer Support, expenditures for Marketing and Advertising
programs for the Escape/TM/ and LinkNet/TM/ products, and legal and
administrative costs associated with the Company's shareholders meeting held on
March 25, 1997 (no shareholders meeting was held in fiscal 1997). The Company
expects selling, general and administrative expenses to increase in the future
as sales volume increases.
RESEARCH, DEVELOPMENT AND SOFTWARE
The Company incurred research, development and software costs of
approximately $608,874 and $705,053 for the fiscal years ended January 31, 1998
and 1997 respectively. This decrease of approximately 14% was primarily due to
a decrease in salaries as a result of attrition. 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
The Company's primary capital requirements to date have been to fund losses
from operations. In addition, from time to time the Company has required
capital to fund increases in inventory of certain products necessary for the
Company to sell such products. The Company has funded its capital requirements
through the receipt of proceeds from private placements of convertible debt and
equity, including the exercise of warrants, interest earned from the investment
of such proceeds in interest earning assets, factoring facilities and revenues
from operations. During fiscal 1998, net cash used in operating activities was
approximately $87,000, net cash provided by financing activities (the sale of
stock upon the exercise of warrants) was $45,000, and net cash used for
investment activities (the purchase of equipment) was approximately $77,000.
This resulted in a net decrease in cash during fiscal 1998 of approximately
$119,000, reducing the Company's cash and cash equivalents from approximately
$631,000 as of January 31, 1997 to approximately $512,000 as of January 31,
1998. However, due to the fact that the Company's net loss for fiscal 1998 was
approximately $1,647,000, notwithstanding the fact that the Company's net cash
used in operations was only approximately $87,000, the Company had a working
capital deficit (current assets less current liabilities) as of January 31,
1998, of approximately $815,000 as compared to a working capital surplus of
approximately $910,000 as of January 31, 1997. Therefore, as of January 31,
1998, the Company's working capital position was severely impaired.
On March 19, 1998 the Company entered into an Agreement for Purchase of
Receivables (the "Imperial Factoring Agreement") with Imperial Bank ("Imperial")
pursuant to which the Company may sell to Imperial accounts receivable and other
general intangibles ("Purchased Receivables") that are from time to time
identified by the Company and accepted by Imperial. Upon acceptance by
Imperial, Imperial is obligated to pay the Company 85% of the face value of the
Purchased
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<PAGE>
Receivables (subject to adjustment), retaining the remaining 15% of the face
value of the Purchased Receivable as a reserve until after the Purchased
Receivables are paid by the Company's customers (i.e., the account debtors). The
Company is obligated to pay Imperial (i) a factor fee at a rate of 1.75% per
month on the face amount of each unpaid invoice relating to Purchased
Receivables and (ii) an administrative fee at a rate of 0.5% of the face amount
of each invoice for a Purchased Receivable. Imperial's purchase from the Company
of Purchased Receivables is with full recourse against the Company. The
Company's obligations under the Imperial Factoring Agreement are secured
primarily by its accounts receivable and other general intangibles and the
proceeds thereof. The term of the Imperial Agreement is one year and it will
automatically be renewed from year to year thereafter unless terminated by the
parties in accordance with the Imperial Factoring Agreement.
On March 26, 1998, the Company executed an addendum to the Imperial
Factoring Agreement that enables the Company to offer to sell to Imperial and
Imperial to elect to buy from the Company the Company's right to payment under
purchase orders given to the Company by its customers. The advance rate with
respect to purchased Company purchase orders is 20% (as opposed to the 85%
advance rate applicable to accounts receivable). The total amount of financing
to be provided to the Company with respect to the sale of purchase orders is
capped at the lesser of $400,000 or the outstanding reserve amount plus
$200,000.
After entering into the Imperial Factoring Agreement the Company terminated
its factoring arrangement with Boston Financial and Equity Corporation (the
"Boston Financial Factoring Arrangement"). The Company believes that the
Imperial Factoring Agreement represents an improvement from the Boston Financial
Factoring Arrangement. Imperial only reserves 15% of the purchase price of
Purchased Receivables as opposed to the 20% reserve required under the Boston
Financial Factoring Arrangement. The Company's borrowing power on the date of
sale of the Purchased Receivables is further enhanced under the Imperial
Factoring Agreement through the payment of the monthly factoring fee on unpaid
invoices relating to Purchased Receivables as compared to the 2% discounted sale
structure (i.e, a fee of 2% of the dollar amount of Purchased Receivables was
taken by Boston Financial upon the purchase of the Purchased Receivables) used
in the Boston Financial Factoring Arrangement. In addition, the Company's
ability under the addendum to the Imperial Factoring Agreement to obtain
financing in advance of shipment based upon customer purchase orders (as opposed
to accounts receivable) provides the Company with a new source of financing not
previously available under the Boston Financial Factoring Arrangement.
On April 6, 1998 the RG Financing, an equity and debt financing transaction
with the RG Fund, was consummated. The equity financing piece of the RG
Financing involved the sale, pursuant to the RG Subscription Agreement, to the
RG Fund and ten investors designated by the RG Fund of an aggregate of 2,400,000
shares of the Company's Common Stock for an aggregate consideration of
$1,800,000. Funding of the sale to the investors designated by the RG Fund took
place on April 14, 1998. The RG Subscription Agreement provides, among other
things, that the Company must permit a designee of the RG Fund to be an unpaid
advisor to the Board of Directors of the Company. The RG Fund's designee has
none of the voting rights conferred upon directors of the Company, but does have
the right to receive notice of and to attend meetings of the Board of Directors
of the Company and committees thereof.
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<PAGE>
The RG Subscription agreement also contains covenants by the RG Fund in
favor of the Company relating to the voting of shares, additional purchases of
common stock, and resales of shares. The RG Fund is obligated, as long as the
Company is not in default under the RG Note or certain other agreements with the
RG Fund, to vote all shares of Common Stock purchased by it in the RG Financing
in accordance with the recommendations of the Board of Directors of the Company.
The RG Fund is also prohibited from purchasing additional shares of the
Company's Common Stock on the open market or from any person or entity other
than the Company without the Company's prior written consent. The voting
agreement and restrictions on purchase remain in effect until such time as the
RG Fund and its affiliates own less than 5% of the Company's outstanding common
stock. In addition, for a period of two years the RG Fund is prohibited from
selling or otherwise transferring or disposing of its shares, except in amounts
that would otherwise be permitted under Rule 144 of the Securities Act without
giving effect to the holding period requirements thereof unless such sale,
transfer or disposition is pursuant to an underwritten public offering of such
shares.
The debt portion of the RG Financing consists of a loan to the Company by
the RG Fund in the principal amount of $1,100,000. The loan is evidenced by a
promissory note issued by the Company to the RG Fund in like principal amount
bearing interest at an annual rate of 8%. The RG Promissory Note is unsecured
and is payable in full in one lump sum payment on April 5, 2000. As long as the
Note remains unpaid, the Company is prohibited, unless it obtains the prior
written consent of the RG Fund, from, among other things, (i) issuing securities
in reliance on Regulation S of the Securities Act, (ii) issuing securities at a
price that is less than 75% of the public trading price of the Company's Common
Stock, (iii) incurring indebtedness for borrowed money other than in connection
with factoring agreements, financed purchases or leases of equipment (not to
exceed $500,000) or existing indebtedness of the Company, (iv) guarantying
obligations of its affiliates, (v) declaring dividends or redeeming capital
stock, or (vi) selling assets outside of the ordinary course of business. The
proceeds of the loan were used by the Company to pay off all amounts owed by the
Company to IBJS pursuant to the IBJS Debenture and to retire all warrants held
by IBJS, for a cash payment of $ 1,092,833.40 (which was approximately $150,000
less than the amount then due on the Debenture).
In addition to the RG Financing, the Company also entered into an
investment banking and financial advisory services relationship with R&G,
pursuant to which the Company appointed R&G as its exclusive financial advisor
and agreed to (i) pay R&G a monthly advisory fee equal to $5,000 for a period of
eighteen months and (ii) issue to R&G warrants to purchase an aggregate of
1,000,000 shares of Common Stock at an exercise price of $1.50, terminating in
eighteen months.
The 2,400,000 shares of Common Stock issued to the RG Fund and the
investors designated by it and the 1,000,000 shares of Common Stock underlying
the warrants granted to R&G are entitled to the benefit of certain registration
rights which, among other things, require the Company to file a registration
statement with respect to such shares under the Securities Act on or before May
15, 1998.
The Company believes that the combination of its working capital surplus
subsequent to the closing of the RG Financing transaction, its improved
factoring facility with Imperial and its ability to raise equity capital in the
past will be sufficient to provide it with adequate liquidity for fiscal
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1999. The Company's ability to have adequate capital for the fiscal year ending
on January 31, 2000 and periods thereafter (including the ability to repay the
$1,100,000 due to the RG Fund in April 2000) will be dependent upon the
Company's ability to gain market acceptance of its products and/or its ability
to raise additional capital.
The Company does not currently contemplate any significant capital
expenditures during fiscal 1999. The Company does not believe that, except as
stated herein, any contingencies exist which would have a material adverse
effect on the Company's financial condition, future operating results or
liquidity.
YEAR 2000 ISSUE
The "Year 2000 Issue" results from computer programs being written using
two digits, instead of four, to define a given year. Programs running time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in disruptions to various activities and
operations, miscalculations and even system failures.
The Company has designed all of its currently manufactured software and
hardware to be Year 2000 ready. The Company has commenced an investigation and
is making written inquiry to its suppliers as to whether the component parts of
certain of its products that are supplied by such third parties are Year 2000
compliant. With respect to the Company's own operating systems, the Company is
taking steps to remediate any existing Year 2000 Issues and does not expect the
costs of such efforts to be material.
Based upon preliminary data, the Company does not believe that the Year
2000 Issue will have a material adverse impact on the Company's financial
condition, results of operation or future cash flows. If, however, the Company,
its suppliers and other third parties with whom the Company maintains business
relations are unable to resolve any arising Year 2000 problems in a timely
manner, risk to the Company's financial condition could result.
FORWARD-LOOKING INFORMATION
The statements in this Annual Report on Form 10-KSB that are not statements
of historical fact constitute "forward-looking statements." Said forward-
looking statements involve risks and uncertainties which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performances or achievements, expressly predicted or
implied by such forward-looking statements. These forward-looking statements are
identified by their use of forms of such terms and phrases as "expects,"
"intends," "goals," "estimates," "projects," "plans," "anticipates," "should,"
"future," "believes," and "scheduled."
The important factors which may cause actual results to differ from the
forward-looking statements contained herein include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
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development plans; the ability to retain key management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
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.
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, 1998 and 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by this Item is incorporated herein by reference
to the sections entitled "Proposal No.1 -- Election of Directors -- Executive
Officers of the Company" and "--Section 16(a) Beneficial Ownership Reporting
Compliance" of the Company's Definitive Proxy Statement to be filed with the
Commission within 120 days after January 31, 1998.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference
to the sections entitled "Proposal No. 1 -- Election of Directors --
Compensation of Directors" and "--Executive Compensation" of the Company's
Definitive Proxy Statement to be filed with the Commission within 120 days after
January 31, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Company's Definitive Proxy Statement to be filed with the
Commission within 120 days after January 31, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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The information required by this Item is incorporated herein by reference
to the section entitled "Proposal No. 1 -- Election of Directors -- Certain
Relationships and Transactions" of the Company's Definitive Proxy Statement to
be filed with the Commission within 120 days after January 31, 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS.
The following financial statements are included in Part II, Item 7:
<TABLE>
<CAPTION>
<S> <C>
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - January 31, 1998 and 1997 F-3
Consolidated Statements of Operations - Two years ended
January 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows - Two years ended
January 31, 1998 and 1997 F-5
Consolidated Statements of Stockholders' Equity - Two years ended
January 31, 1998 and 1997 F-6
Notes to Financial Statements F-7
(B) REPORTS ON FORM 8-K None
(C) EXHIBITS
</TABLE>
Exhibit
No. Description of Document
- - ------- -----------------------
3.1 Restated Articles of Incorporation (incorporated by reference to
Exhibit A to the Company's Proxy Statement, dated February 24, 1997).
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 Linkon Corporation 1996 Stock Option and Performance Incentive Plan
(Incorporated
-24-
<PAGE>
by reference to Exhibit B to the Company's proxy statement, dated
February 24, 1997).
4.2 Promissory Note, dated April 6, 1998, by the Company in favor of RG
Capital Fund LLC, in the principal amount of $1,100,000.
4.3 Warrant Certificate, dated April 6, 1998, by the Company in favor of
Roberts & Green, Inc.
10.1 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. (Incorporated by reference to Exhibit 4.3 to the
Company's Form 10KSB for the fiscal year ended January 31, 1995).
10.2 Employment Agreement dated May 1, 1996 between the Company and Mr, Lee
W. Hill. (Incorporated by reference to Exhibit 4.4 to the Company's
Form 10KSB for the fiscal year ended January 31, 1997).
10.3 Employment Agreement dated May 1, 1996 between the Company and Mr.
Charles Castelli. (Incorporated by reference to Exhibit 4.5 to the
Company's Form 10KSB for the fiscal year ended January 31, 1997).
10.4 Employment Agreement dated March 15, 1996 between the Company and Mr.
Thomas V. Cerabona (Incorporated by reference to Exhibit 4.6 to the
Company's Form 10KSB for the fiscal year ended January 31, 1997).
10.5 Employment Agreement dated May 1, 1996 between the Company and Mr.
Mark O'Brien. (Incorporated by reference to Exhibit 4.7 to the
Company's Form 10KSB for the fiscal year ended January 31, 1997).
10.6 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).
10.7 Contract between the Company and AT&T, dated July 21, 1992, and
subsequently assigned to Lucent Technologies on February 1, 1996.
10.8 Subscription Agreement, dated April 6, 1998, between the Company and
RG Capital Fund LLC.
10.9 Form of Subscription Agreement, dated April 14, 1998, between the
Company and each of the investors party thereto that was designated by
RG Capital Fund LLC.
-25-
<PAGE>
10.10 Warrant Agreement, dated April 6, 1998, between the Company and
Roberts & Green, Inc.
10.11 Registration Rights Agreement, dated April 6, 1998, among the Company,
RG Capital Fund LLC and Roberts & Green, Inc.
10.12 Investment Banking and Financial Advisory Services Agreement, dated
April 6, 1998, between the Company and Roberts & Green, Inc.
10.13 Release and Termination Agreement, dated April 6, 1998, between the
Company and IBJS Capital Corporation.
10.14 Agreement for Purchase of Receivables, dated March 19, 1998, between
the Company and Imperial Bank.
10.15 Purchase Order Addendum to Agreement for Purchase of Receivables,
dated March 26, 1998, between the Company and Imperial Bank.
10.16 Authorized Distributor Agreement, dated May 26, 1997, between Trigem
Microsystems, Inc. and the Company.
10.17 Commercial Lease, dated June 18, 1997, by and between 140 Sherman
Street, LLC and the Company.
10.18 Form of Incentive Stock Option Agreement under the Company's 1996
Stock Option and Performance Incentive Plan.
10.19 Form of Non Qualified Stock Option Agreement under the Company's 1996
Stock Option and Performance Incentive Plan.
27.1 Financial Data Schedule.
-26-
<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 30th day of April, 1998.
LINKON CORPORATION
By:/s/ Lee W. Hill
-------------------------------------
Lee W. Hill, Chief Executive
Officer, President and Director
By:/s/ Thomas V. Cerabona
-------------------------------------
Thomas V. Cerabona, Vice President
of Operations, Chief Accounting Officer
and Secretary
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.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/Charles Castelli Chairman of the April 30, 1998
- - -------------------------- Board of Directors
Charles Castelli
- - --------------------------
Patrick Kane Director April 30, 1998
/s/Daniel Zwiren Director April 30, 1998
- - --------------------------
Daniel Zwiren
- - --------------------------
Joao Carvalho Director April 30, 1998
/s/ Lee Hill Chief Executive April 30, 1998
- - -------------------------- Officer, President
Lee W. Hill and Director
</TABLE>
-27-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
AND SCHEDULES
-------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
LINKON CORPORATION
Index to Financial Statements and Schedules F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - January 31, 1998 and 1997 F-3
Consolidated Statements of Operations - Two years ended F-4
January 31, 1998 and 1997
Consolidated Statements of Cash Flows - Two years ended F-5
January 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Two years ended F-6
January 31, 1998 and 1997
Notes to Consolidated Financial Statements F-7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors
and Stockholders
Linkon Corporation
Fairfield, Connecticut
We have audited the accompanying consolidated balance sheets of Linkon
Corporation as of January 31, 1998 and 1997 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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, 1998 and 1997 and the results of operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Radin Glass & Co., LLP
Radin Glass & Co., LLP
Certified Public Accountants
New York, New York
April 6, 1998
F-2
<PAGE>
LINKON CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 31,
1998 1997
---- ----
Current Assets
Cash and Cash Equivalents ( Note 3 ): $ 511,961 $ 630,726
Accounts Receivable ( Note 3 ): 37,135 433,498
Notes Receivable -- 51,000
Other Receivables 1,972 3,359
Inventory (Note 3 ): 400,625 628,498
Prepaid Expenses 16,773 58,513
----------- -----------
Total Current Assets 968,466 1,805,594
----------- -----------
Machinery & Equipment ( Note 3 ):
Machinery & Equipment, at cost 1,307,397 1,262,341
Equipment under Capital Leases 123,156 123,156
----------- -----------
1,430,553 1,385,497
Less: Accumulated Depreciation (1,020,066) (869,902)
----------- -----------
Machinery & Equipment, Net 410,487 515,595
----------- -----------
Other Assets
Software - Net ( Note 3 ): 957,200 990,668
Investments, at cost -- 34,613
Prepaid Financing Costs 18,300 28,756
Security Deposits 10,688 8,195
----------- -----------
986,188 1,062,232
----------- -----------
$ 2,365,141 $ 3,383,421
=========== ===========
Liabilities and Stockholders Equity
Accounts Payable $ 591,538 $ 656,127
Taxes Payable ( Notes 5, 8 ): 1,377 5,000
Interest Payable ( Notes 7, 8 ): 234,865 86,111
Customer Advances 154,679 --
Accrued Expenses 451,248 148,132
Notes Payable 350,000 --
----------- -----------
Total Current Liabilities 1,783,707 895,370
----------- -----------
Long Term Liabilities
Notes Payable ( Notes 7,10 ) : 957,328 1,291,810
----------- -----------
Commitments and Contingencies -- --
Stockholders Equity ( Notes 4,10 ) :
Common Stock. $.001 Par Value,
25,000,000 shares authorized,
10,896,252 shares issued and
outstanding (1998)
10,753,252 shares issued and
outstanding (1997) 10,897 10,867
Capital in Excess of Par Value 9,404,266 9,329,296
Retained Earnings (Accumulated Deficit) (9,791,057) (8,143,922)
----------- -----------
Total Stockholders Equity (375,894) 1,196,241
----------- -----------
$ 2,365,141 $ 3,383,421
=========== ===========
The accompanying footnotes are an integral part of these financial statements
F-3
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31,
1998 1997
---- ----
Revenues ( Note 2 ): 3,862,594 $ 4,405,315
Cost of Goods Sold
Product 1,842,064 2,210,835
Software amortization ( Notes 3, 9 ): 385,464 336,670
------------ ------------
Gross Margin On Sales 1,635,066 1,857,810
------------ ------------
Selling, General and
Administrative Expenses 2,723,876 2,400,660
Research and Development 256,877 305,864
Provision for Doubtful Accounts 33,724 271,216
------------ ------------
3,014,477 2,977,740
------------ ------------
Operating Loss (1,379,411) (1,119,930)
------------ ------------
Other Income (Expense)
Interest Income 326 6,661
Interest Expense (264,050) (233,152)
Loss on Foreign Currency
Translation -- (491)
Gain on Sale of Securities -- 679,909
------------ ------------
(263,724) 452,927
------------ ------------
Loss Before Income Taxes (1,643,135) (667,003)
Income Taxes 4,000 10,523
============ ============
Net Loss ($ 1,647,135) ($ 677,526)
============ ============
Loss Per Share ( Note 3 ): ($ 0.15) ($ 0.06)
============ ============
Weighted Average Number of Shares
Outstanding 10,896,252 10,781,502
============ ============
The accompanying footnotes are an integral part of these financial statements
F-4
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JANUARY 31,
1998 1997
---- ----
Cash Flows From Operating Activities:
Net Income (Loss) ($1,647,135) ($ 677,526)
Add : Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation & Amortization 582,983 546,019
Warrants issued for services 30,000 --
Less : Gain on Sale Marketable Securities -- (679,909)
Changes in Assets and Liabilities:
(Increase) Decrease in Certificate of Deposit -- 63,934
(Increase) Decrease in Accounts Receivable 396,363 177,889
(Increase) Decrease in Other Receivables 1,387 47,854
(Increase) Decrease in Inventory 227,873 260,157
(Increase) Decrease Prepaid Expenses 41,740 (31,107)
(Increase) Decrease in Software (351,997) (399,190)
(Increase) Decrease in Notes Receivable 51,000 --
(Increase) Decrease in Investments 34,613 --
(Increase) Decrease in Security Deposits (2,493) 11,736
Decrease in Prepaid Financing Costs 10,456 10,457
Increase (Decrease) in Accounts Payable (64,589) (347,998)
Increase (Decrease) in Interest Payable 148,754 (13,889)
Increase (Decrease) in Taxes Payable (3,623) (13,108)
Increase (Decrease) in Customer Deposits 154,679 --
Increase (Decrease) in Accrued Expenses 303,116 140,860
----------- -----------
Net Cash Used in Operating Activities ($ 86,873) ($ 903,821)
----------- -----------
Cash Flows From Investing Activities:
Cash Paid to Purchase Equipment (76,892) (147,710)
Investment in Non-Marketable Securities -- 479
Proceeds from Sale of Marketable Securities -- 1,020,000
----------- -----------
Net Cash Provided by (Used in) Investing Activities (76,892) 872,769
----------- -----------
Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock 45,000 169,439
Repayment of Bank Debt - net -- (30,230)
----------- -----------
Net Cash Provided by (Used in) Financing Activities 45,000 139,209
----------- -----------
Net Increase (Decrease) in Cash (118,765) 108,157
Cash and Cash Equivalents at Beginning of Year 630,726 522,569
----------- -----------
Cash and Cash Equivalents at End of Period $ 511,961 $ 630,726
=========== ===========
The accompanying footnotes are an integral part of these financial statements
F-5
<PAGE>
LINKON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Capital in
------------
Excess of Accumulated
Shares Amount Par Value Deficit Totals
------ ------ --------- ------- ------
<S> <C> <C> <C> <C> <C>
Balances January 31, 1996 10,753,252 $10,754 $9,129,970 ($7,466,396) $ 1,674,328
Issuance of Warrants -- -- 30,000 -- 30,000
Issuance of Common Stock, Net of Expenses 113,000 113 169,326 -- 169,439
Net Loss for Year Ended January 31, 1997 -- -- -- (677,526) (677,526)
---------- ------- ---------- ------------ -----------
Balances January 31, 1997 10,866,252 $10,867 $9,329,296 ($8,143,922) $ 1,196,241
Issuance of Warrants -- -- 30,000 -- 30,000
Issuance of Common Stock, Net of Expenses 30,000 30 44,970 -- 45,000
Net Loss for Year Ended January 31, 1997 -- -- -- (1,647,135) (1,647,135)
---------------------------------------------------------------------------
Balances January 31, 1998 10,896,252 $10,897 $9,404,266 ($9,791,057) ($375,894)
===========================================================================
</TABLE>
The accompaning footnotes are an integral part of these financial statements
F-6
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
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 Companys' customers accounted for approximately 67% and 9% of
consolidated revenues, or approximately $2,594,480 and $354,980, for the year
ended January 31, 1998. The first of these customers accounted for 70% or
approximately $ 3,084,415 of revenue for the year ended January 31, 1997.
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 uncollectible portions. At January 31, 1998 the
allowance was $39,465 and at January 31, 1997 the allowance was $ 282,298.
F-7
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 3 - (CONTINUED)
Inventory
Inventory is valued at the lower of cost or market value, using the first-in,
first-out (FIFO) method, and consists of:
Year Ending January 31, 1998 1997
---------------------- ---- ----
Raw Materials $ 213,865 $ 173,955
Work in Process 100,730 62,874
Finished Goods 261,030 641,669
Less : Allowance Account (175,000) (250,000)
========= =========
$ 400,625 $ 628,498
========= =========
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 predominantly of
computer equipment. Expenditures for maintenance and repairs are charged to
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, 1998 and 1997
was $ 182,000 and $ 193,612, 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 the
establishment of technological feasibility to produce the finished product are
generally capitalized . The Company has capitalized software costs included in
Other Assets in the Consolidated Balance Sheet. Such amounts capitalized were
$351,997 and $399,189 for the years ended January 31,1998 and 1997,
respectively. Amortization of prior years capitalized software costs are
included in the Cost of Goods Sold section of the Consolidated Statement of
Operations and amounted to $385,464 and $336,670 for the years ended January 31,
1998 and 1997, respectively.
Advertising Costs
Advertising costs are expensed as incurred.
Fair Value of Financial Instruments
Effective March 31, 1996, the Company adopted SFAS No. 107 "Disclosures About
Fair Value of Financial Instruments", that requires disclosure of fair value
information about financial instruments whether or not recognized in the balance
sheet. The carrying amounts reported in the balance sheet for cash, trade
receivables, accounts payable and accrued expenses approximate fair value based
on the short-term maturity of these instruments. In view of the lack of market
for the Notes it is not practicable to estimate their value.
F-8
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 3 - (CONTINUED)
Accounting for Long-Lived Assets
The Company reviews long-lived assets, certain identifiable assets and any
goodwill related to those assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts may
not be recoverable. At January 31, 1998, the Company believes that there has
been no impairment of its long-lived assets.
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.
Earnings per Share
Earnings per common share are computed by dividing net income by the weighted
average number of shares outstanding during the period adjusted for common stock
equivalents when such adjustment results in dilution of earnings per share. The
computation assumes that the outstanding stock options and warrants were
exercised and the proceeds used to purchase common shares of the Company.
Under SFAS No. 128, "Earnings per Share", the disclosure of Primary Earnings per
Share, giving effect to common stock equivalents, would no longer be presented.
For the two years ended January 31, 1998 and 1997, earnings per share under the
new Standard would be $(.15) and $(.06), respectively.
Stock Based Compensation
The Company accounts for stock transactions in accordance with APB Opinion No.
25, "Accounting For Stock Issued To Employees". Accordingly, no compensation is
recorded on the issuance of employee stock options at fair market value.
NOTE 4 - CAPITAL CONTRIBUTION
Accounting for Employee Stock Options
During the year ended January 31, 1997, the Board of Directors of the Company
adopted, and the stockholders approved in March 1997, the Linkon Corporation
1996 Stock Option and Performance Incentive Plan (the "Option Plan"). This plan
provides for awards of up to 1,000,000 options to purchase Common Stock of the
Company to employees of the Company and its subsidiaries during the term of the
Option Plan. These shares have been reserved by the Board of Directors from the
Company's authorized but unissued shares of Common Stock.
On December 19, 1997, and May 31, 1996 the Company granted, under the above
"Option Plan", 191,000 and 682,400 incentive stock options to employees and
directors. These options are exercisable at $.56 and $0.75 per share until April
30, 2006 and will qualify for incentive stock option treatment under the
Internal Revenue Code of 1986. 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 and the stock price at the time of the grant was $0.56 and $0.75
per share.
The Company also issued 100,000 warrants during the year ending January 31, 1998
to two outside financial consultants in connection with investment and financial
advisory services being provided to the Company. These options have been valued
at $30,000.
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, 1998 has been reduced in its entirety by
the valuation allowance. For the period ending January 31, 1998, the provision
for taxes is comprised only of appropriate state income taxes.
Reconciliation of income taxes shown in the financial statements and amounts
computed by applying the Federal income tax rate of 35% for the years ended
January 31, 1998 and 1997, respectively is as follows:
1998 1997
---- ----
Loss Before Income Taxes ($1,527,522) ($667,003)
=========== =========
Computed expected tax credit 534,633 233,451
Operating loss for which no benefits were provided (534,633) (233,451)
State and local tax provision (4,000) (10,523)
----------- ---------
Provision for income taxes ($ 4,000) ($ 10,523)
=========== =========
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated for approximately 5,700 square feet of office space
under non-cancelable operating leases. The office lease expires August 31, 1998
F-9
<PAGE>
and is currently being re-negotiated by the Company. Minimum lease payments
remaining under the lease total $64,817. Rent expense charged to operations was
$94,791 and $106,975 for the years ending January 31, 1998 and 1997,
respectively.
Royalty Agreements
The Company acquires the rights to certain software algorithims from various
developers under renewable contracts of varying terms. Royalties are based on a
per unit charge based on sales of products utilizing such algorithims.
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 two years
from the date of shipment. The Company's' expenses in connection with such
warranties have been minimal.
F-10
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 7 - NOTES PAYABLE
During the year ended January 31, 1995, the Company issued $1,350,000 in
principal amount of convertible debentures. 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 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 Company's rights to issue dividends are
restricted under this agreement.
At January 31, 1998 interest amounting to $234,865 has been accrued on these
liabilities.
The following table shows the maturities, at January 31, 1998, of the remaining
principal less the discount still to be amortized in future periods.
Year ending January 31, 2000 1,000,000
Less Unamortized Discount @ January 31, 1998 (42,672)
------------
Total $ 957,328
============
NOTE 8 - SUPPLEMENTAL CASH FLOWS DISCLOSURES
Cash flows from operating activities for the year ended January 31, 1998
reflects interest paid of $ 99,779, interest earned of $326 and taxes paid of $
8,207. The year ended January 31, 1997 reflected interest paid of $217,635,
interest earned of $6,661 and taxes paid of $5,523.
During the year ended January 31, 1998, 30,000 options were exercised to
purchase the Common Stock of the Company. These options had an exercise price of
$1.50 per option.
NOTE 9 - RECLASSIFICATION OF THE AMORTIZATION OF CAPITALIZED SOFTWARE COSTS:
During the year ended January 31, 1997 the Company reclassified the amortization
of capitalized software costs from the Research and Development category of
expenses to the 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 years. This reclassification had no effect on the
results of of operations or net loss being reported on the income statements
being presented.
NOTE 10 - SUBSEQUENT EVENTS:
On April 6, 1998 the Company entered into three transactions with RG Capital
Fund, LLC and Roberts and Green, Inc.
1) Subscription and Stock Purchase Agreement with RG Capital Fund, LLC.
Under this agreement the Company issued an aggregate of 1,680,000
shares of common stock to the RG Fund for an aggregate of $1,260,000
($0.75 per share). Thereafter, on April 14, 1998, the Company issued
an additional 720,000 shares of common stock pursuant to the RG
Subscription Agreement to ten investors designated by the RG Fund
for an aggregate consideration of $540,000. The aggregate 2,400,000
shares of common stock issued to the RG Fund and the investors
designated by it were issued pusuant to the exemptions from
registration afforded by Section 4(2) of the Securities Act. The
holders of the RG shares, however, have registration rights that
require the Company to file a registration statement under the
Securities Act with the Securities and Exchange Commission covering
the RG shares on or before May 15, 1998.
F-11
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED):
2) Promissory Note with RG Capital Fund, LLC.
Under this agreement RG Capital Fund, LLC advanced the Company
$1,100,000. This is a two year note payable with interest due on a
quarterly basis commencing April 30, 1998 at a rate of eight percent
(8%). The proceeds from this note were used to repay monies borrowed
by the Company in October 1994 from IBJS Capital Corporation
pursuant to the terms of a 10% Senior Secured Convertible Debenture
in the principal amount of $1,000,000( plus the accued interest owed
on this debenture). Upon such repayment, the IBJS Debenture was
cancelled along with 279,081 warrants to purchase the Company's
common stock previously issued to IBJS pusuant to the terms of a
Securities Purchase Agreement, dated October 27, 1994, between the
Company and IBJS. As a result of the cancellation of the IBJS
Debenture, the Company is no longer subject to the restrictions on
payment of dividends contained in the IBJS Debenture; however, the
Company is prohibited from paying dividends under the terms of the
RG note until the note is repaid (including accrued interest) unless
the Company obtains prior written consent from the RG Fund, LLC.
3) Warrant Certificate with Roberts and Green, Inc.
The Company issued to Roberts and Green, Inc. warrants to purchase
1,000,000 shares of the Company's common stock in connection with
its entry into an investment banking financial advisory services
agreement with Roberts and Green, Inc. The warrants were issued
pursuant to the exemptions from registration afforded by Section
4(2) of the Securities Act and the shares of the common stock
issuable upon the exercise of such warrants will be included in the
registration statement covering the RG shares.
During the year ended January 31, 1997 the Company retired 340,000 options at an
exercise price of $2.00 per share held by various employees of the Company, and
reissued these options to the same employees on May 31, 1996 at an exercise
price of $0.75 per share. No compensation was recorded on the reissuance of
these options as the exercise price granted on May 31, 1996 was equal to the
common stock market price.
Options and warrants to purchase 2,379,358 shares of the Company's common stock
were exercisable at prices ranging from $0.56 to $3.50 per share at January 31,
1998. Outstanding options and warrants expire at various dates through April
2006.
F-12
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 4 - CAPITAL CONTRIBUTION (CONTINUED)
The following table summarizes the changes in options and warrants outstanding
and the related price ranges for shares of the Company's common stock.
Stock Options and Warrants
--------------------------
Shares Price
Outstanding at
January 31, 1996 2,009,384 $0.75 to $3.50
Granted 1,152,298 $0.75 to $1.50
Exercised (113,000) $1.50
Expired (140,000) $0.75 to $2.05
Retired (340,000) $2.00
----------
Outstanding at
January 31, 1997 2,568,682
Granted 291,000 $0.56
Exercised (30,000) $1.50
Expired (450,324) $0.75 to $1.50
Retired --
----------
Outstanding at
January 31, 1998 2,379,358 $0.56 to $3.50
==========
The Company accounts for its stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees", under which no compensation expense
is recognized. In fiscal 1997, the Company adopted SFAS No. 123 "Accounting for
Stock-Based Compensation" for disclosure purposes; accordingly, no compensation
expense has been recognized in the results of operations for its stock option
plan as required by APB Opinion No. 25.
For disclosure purposes the fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option- pricing model with the
following weighted-average assumptions used for stock options granted during the
years ended January 31,1998 and 1997, respectively: annual dividends of $0.00
and expected volatility of 40.0 for both years, risk free interest of 5.60% and
5.70% and expected life of five years for all grants. The weighted-average fair
value of the stock options granted during the years ended January 31, 1998 and
1997 was $0.25 and $0.33, respectively.
If the Company recognized compensation cost for the employee stock option plan
in accordance with SFAS No. 123, the Company's pro forma net loss and loss per
share would have been $1.7 million and $ 0.16 for the year ending January
31,1998 and $ 0.8 million and $ 0.07 in 1997. The SFAS No.123 method of
accounting does not apply to options granted prior to January 31, 1995 and,
accordingly, the resulting pro forma compensation cost may not be representative
of that to be expected in future years.
F-13
<PAGE>
LINKON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 5 - INCOME TAXES
As at January 31, 1998, the Company had net operating loss carryforwards of
approximately $9,400,000, for both book and tax purposes, expiring from 2005 to
2013. 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 carryfoward. These carryfowards 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 more than a 50% point
change in ownership.
F-14
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit
- - ------- ----------------------
4.2 Promissory Note, dated April 6, 1998, by the Company in favor of RG
Capital Fund LLC, in the principal amount of $1,100,000.
4.3 Warrant Certificate, dated April 6, 1998, by the Company in favor of
Roberts & Green, Inc.
10.8 Subscription Agreement, dated April 6, 1998, between the Company and
RG Capital Fund LLC.
10.9 Form of Subscription Agreement, dated April 14, 1998, between the
Company and each of the investors party thereto that was designated by
RG Capital Fund LLC.
10.10 Warrant Agreement, dated April 6, 1998, between the Company and
Roberts Green, Inc.
10.11 Registration Rights Agreement, dated April 6, 1998, among the Company,
RG Capital Fund LLC and Roberts & Green, Inc.
10.12 Investment Banking and Financial Advisory Services Agreement, dated
April 6, 1998, between the Company and Roberts & Green, Inc.
10.13 Release and Termination Agreement, dated April 6, 1998, between the
Company and IBJS Capital Corporation.
10.14 Agreement for Purchase of Receivables, dated March 19, 1998, between
the Company and Imperial Bank.
10.15 Purchase Order Addendum to Agreement for Purchase of Receivables,
dated March 26, 1998, between the Company and Imperial Bank.
<PAGE>
10.16 Authorized Distributor Agreement, dated May 26, 1997, between Trigem
Microsystems, Inc. and the Company.
10.17 Commercial Lease, dated June 18, 1997, by and between 140 Sherman
Street, LLC and the Company.
10.18 Form of Incentive Stock Option Agreement under the Company's 1996
Stock Option and Performance Incentive Plan.
10.19 Form of Non Qualified Stock Option Agreement under the Company's 1996
Stock Option and Performance Incentive Plan.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 4.2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL
(I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (II) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY THAT SUCH NOTE MAY BE
PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE SECURITIES LAWS.
LINKON CORPORATION
------------------
PROMISSORY NOTE
---------------
$1,100,000.00 New York, New York
April 6, 1998
FOR VALUE RECEIVED, the undersigned, Linkon Corporation (hereinafter
referred to as "Maker"), a Nevada corporation, having offices at 140 Sherman
Avenue, Fairfield, CT 06430, hereby promises to pay to the order of RG CAPITAL
FUND, LLC, a New York limited liability corporation, having offices at One
Hollow Lane, Suite 208, Lake Success, NY 11040, or registered assigns, (the
"Holder"), the principal amount of One Million One Hundred Thousand Dollars
($1,100,000.00), in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public or private
debts, together with interest on the unpaid balance of said principal amount
from time to time outstanding at the rate of eight percent (8%) per annum from
the date hereof until the Maturity Date (as defined below), in like coin and
currency; provided, however, that if this Note is not paid in full on or before
the Maturity Date, interest shall accrue on the outstanding principal of and
interest on this Note from the Maturity Date up to and including the date of
payment at a rate of fifteen percent (15%) per annum (the "Default Rate").
Payment of principal shall be made two years from the date of this Note (the
"Maturity Date"). Payment of interest accrued on the unpaid principal balance
hereof shall be payable on each April 30, July 31, October 31 and January 31,
during the term hereof, commencing with the first such payment on April 30,
1998. Payments of principal and interest are to be made at the address of the
Holder designated above or at such other place as the Holder shall have notified
the Company in writing at leave five (5) days before such payment is due.
1. Maker shall have the right to prepay in part or in full, without penalty,
this promissory note (together with accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or from
time to time.
2. Except as set forth herein, Maker waives presentment, demand and
presentation for payment, notices of nonpayment and dishonor, protest and
notice of protest and expressly agrees that this promissory note or any
payment hereunder may be extended from time to time without in any way
affecting the liability of the Maker.
3. Events of Default:
a) Any of the following events shall constitute an Event of Default:
i) Maker shall fail to make any payment of principal or interest due
under this Note on (i) the applicable payment date therefor or
(ii) at the Maturity Date; and in each such case such failure
shall not be remedied within five (5) days; or
ii) Maker shall: (i) make an assignment for the benefit of
creditors; or (ii) commence (as the debtor) a case in bankruptcy
or any proceedings under any other insolvency law; or
1
<PAGE>
iii) A case in bankruptcy or any proceedings under any other
insolvency law shall be commenced against Maker (as the debtor)
and: (i) a court having jurisdiction in the premises enters an
order for relief against Maker (as the debtor); (ii) the case or
proceeding remains undismissed for ninety days; or (iii) Maker
admits or consents to the material allegations against it in any
such case or proceeding;
iv) A trustee, receiver, agent or custodian (however named) is
appointed or authorized to take charge of substantially all of
the property of Maker for purposes of enforcing a lien against
such property or for the purpose of general administration of
such property; or
v) The Maker shall be in default of its obligations under Section 4
hereof.
vi) The Maker shall be in default of any of its obligations under the
Documents (as defined in the Subscription and Stock Purchase
Agreement, dated as of the date hereof, between Maker and Holder)
and/or under the Investment Banking and Financial Services
Advisory Agreement, dated as of the date hereof between Roberts &
Green, Inc. and Holder, the Indemnification Agreement, dated as
of the date hereof between Roberts & Green, Inc. and Holder, the
Warrant Purchase Agreement, dated as of the date hereof between
Maker and Holder, or the Warrants to purchase 1,000,000 shares of
Common Stock (as defined herein), dated as of the date hereof
held by the Roberts & Green, Inc., and such default shall
continue for a period of 15 days after the occurrence thereof.
b) Maker immediately shall give Holder notice of the occurrence of any
matter referred to in Section 3(a)(ii), 3(a)(iii), 3(a)(iv) or 3(a)(v)
hereof, but the failure to give such notice shall not affect in any
manner Holder's rights hereunder. At any time while a default or an
Event of Default is continuing, Holder may declare the principal amount
of and interest accrued on this Note in connection with an Event of
Default, if any, to be forthwith immediately due and payable, without
diligence, notice, presentment, demand or protest, all of which are
hereby expressly waived by the Maker ("Acceleration of Payment").
4. For so long as this Note shall remain unpaid, Maker shall not, without
Holder's prior written consent:
a) Issue any securities in reliance upon Regulation S promulgated under
the Securities Act of 1933, as amended;
b) Issue any securities in an "offshore transaction", in a private
placement or public offering, in any such case at a price (or having a
conversion or exercise price for other securities of Maker) less than
seventy-five percent (75%) of the public trading price of the common
stock of the Company, par value $0.001 per share (the "Common Stock")
on any exchange or over the counter market on which the Common Stock is
traded;
c) Directly or indirectly incur or suffer to exist indebtedness for
borrowed money other than (i) indebtedness incurred in connection with
sales of accounts receivable in customary factoring agreements or other
accounts receivable financing on ordinary commercial terms to entities
engaged in factoring as a principal component of their ordinary
business, (ii) indebtedness in an amount not to exceed $500,000
incurred in connection with financed purchases or leases of equipment,
and (iii) Permitted Existing Indebtedness as set forth in the
Subscription and Stock Purchase Agreement of even date herewith between
Maker and Holder;
d) Guaranty or otherwise in any way become or be responsible for
indebtedness for borrowed money or obligations of any of Maker's
subsidiaries, officers, directors or principal
2
<PAGE>
stockholders or any of their affiliates, contingently or otherwise,
except in respect of indebtedness permitted in Section 4(c) hereof;
e) Declare or pay cash dividends (other than dividends paid by Maker's
subsidiaries to Maker);
f) Sell, transfer or dispose of, any of Maker's assets other than in the
ordinary course of business and for fair value;
g) Purchase, redeem, retire or otherwise acquire for cash any of Maker's
capital stock or securities convertible into capital stock now or
hereafter outstanding or honor any right to require Maker to purchase
any securities for cash; or
h) Fail to comply with any statute, law, ordinance, order, judgment,
decree, injunction, rule, regulation, permit, license, authorization or
requirement ("Requirement(s)") of any governmental body, department,
commission, board, company or association insuring Maker or its
property, court, authority, official, or officer, which are or may be
applicable to Maker or its properties and of which Maker has knowledge
if such failure to comply continues for a period of 15 days after the
occurrence thereof; except wherein the failure to comply would not have
a material adverse effect on Maker or its property; provided that
nothing contained herein shall prevent Maker from contesting the
validity or the application of any Requirement.
5. Change of Control:
a) Upon the occurrence of any of the following events (herein called
"Change of Control"):
i) Any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all
of the assets of Maker or any of its subsidiaries to any person
or related group of persons (a "Group") for purposes of Section
13(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), together with any affiliates thereof (whether or
not otherwise in compliance with the provisions of this Note);
ii) The shareholders of Maker shall approve any plan or proposal for
the liquidation or dissolution of Maker (whether or not otherwise
in compliance with the provisions of this Note); or
iii) The Acquisition in one or more transactions of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange
Act) by (i) any person or entity or (ii) any Group, in either
case, of any capital stock of Maker such that, as a result of
such acquisition, such person, entity or Group beneficially owns
(within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, at least 50% of Maker's then outstanding
voting capital stock entitled to vote on a regular basis for a
majority of the Board of Directors;
Holder shall have the right, at Holder's option, to require Maker to
immediately repurchase this Note at a purchase price equal to the
principal amount hereof, plus accrued and unpaid interest, if any, to
the date of purchase, in accordance with the terms contemplated in
subsection (b) below.
b) Within 10 business days following any Change of Control, Maker shall
mail a notice (a "Change of Control Offer") to Holder, stating:
3
<PAGE>
i) that a Change of Control has occurred and that Holder has the
right, at Holder's option, to require Maker to repurchase this
Note at the applicable purchase price;
ii) the circumstances and relevant facts regarding such Change of
Control (including, but not limited to, information with respect
to pro forma historical income, cash flow and capitalization
--- -----
after giving effect to such Change of Control and whether the
transaction giving rise to such Change of Control was approved by
a majority of the Board of Directors);
iii) the purchase date (which shall be no earlier than 10 days nor
later than 20 days from the date such notice is mailed); and
iv) the instructions determined by Maker, consistent with this
Section 5, that Holder must follow in order to have this Note
repurchased.
6. Suits for Enforcement and Remedies: If there shall be any Acceleration of
Payment, or if Maker otherwise shall fail to pay the unpaid principal
amount hereof or interest thereon, Holder may proceed to enforce the
payment of this Note, or to enforce any other legal or equitable right of
Holder. No right or remedy herein or in any other agreement or instrument
conferred upon Holder is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and
shall be in addition to every other right and remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
7. Miscellaneous:
a) Maker represents that it has full power, authority and legal right to
execute and deliver this Note and that the obligation to make the
payment provided for in this Note is absolute and unconditional.
b) Upon the occurrence of an Event of Default, Maker agrees to pay all
costs of collection of any amount due hereunder when incurred,
including, without limitation, reasonable attorney's fees and expenses.
Such costs shall be added to the principal balance then due. No
forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor shall any single or partial exercise
thereof or the exercise of any other right or remedy.
c) This Note may not be modified, changed, terminated or discharged
orally, but only in writing duly executed by Holder.
d) The headings of the various paragraphs of this Note are for convenience
or reference only and shall in no way modify any of the terms or
provisions of this Note.
e) Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given when personally
delivered or two days after being mailed certified or registered mail,
to the address of the parties as set forth in the preamble to this Note
or at such other address as the intended recipient shall have given to
the other party pursuant to the provisions hereof.
f) This Note and the obligations of Maker and the rights of Holder
hereunder, shall be governed by and construed in accordance with the
laws of the State of New York, applicable to contracts made and to be
performed entirely within such State. The Maker hereby irrevocably
consents to the jurisdiction of the courts of the State of New York and
of any Federal courts located in such state in connection with any
action or proceeding arising out
4
<PAGE>
of or relating to this Note.
g) This Note shall be binding upon the successors and permitted assigns of
the Maker, and shall inure to the benefit of the successors and assigns
of Holder. If any term of this Note shall be held invalid or
unenforceable, the validity of the other terms and provisions hereof
shall in no way be affected thereby.
IN WITNESS WHEREOF, Maker has executed this promissory note on this 6th day of
April 1998.
LINKON CORPORATION
By:____________________________________
Thomas V. Cerabona
Vice President
5
<PAGE>
Exhibit 4.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ISSUED PURSUANT TO AND ARE
SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING RESTRICTIONS ON TRANSFER) OF A
WARRANT PURCHASE AGREEMENT DATED AS OF APRIL 3, 1998 BETWEEN LINKON CORPORATION
(THE "COMPANY") AND THE PURCHASERS NAMED THEREIN (A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE COMPANY) AND ARE ENTITLED TO THE BENEFITS THEREOF.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THERE IS IN EFFECT A REGISTRATION
STATEMENT UNDER SUCH ACT WITH RESPECT TO THE SECURITIES AND SUCH SALE, OFFER FOR
SALE, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS MADE IN ACCORDANCE WITH SUCH
REGISTRATION STATEMENT OR BOTH (1) THE NOTIFICATION AND STATEMENT REQUIRED UNDER
SECTION 8.1 OF SUCH STOCK PURCHASE AGREEMENT SHALL HAVE BEEN GIVEN AND FURNISHED
TO THE COMPANY AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IN
FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, THAT SUCH SALE, OFFER FOR SALE,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION DOES NOT VIOLATE THE PROVISIONS OF
SUCH ACT SHALL HAVE BEEN FURNISHED TO THE COMPANY.
Date: April 6, 1998
No. 98-1 1,000,000 Warrants
WARRANT CERTIFICATE
To Subscribe for and Purchase Common Stock, Par Value $0.001 Per Share, of
LINKON CORPORATION
1. THIS CERTIFIES that, for value received, Roberts & Green, Inc.,
with an address of One Hollow Lane, Suite 208, Lake Success, New York 11040, or
permitted assigns (the "Holder") is the owner of the number of Warrants set
forth above, each of which entitles the Holder to purchase from Linkon
Corporation, a Nevada corporation (herein called the "Company"), at any time
during the period commencing on April 6, 1998 through the close of business on
October 6, 1999 (the "Exercise Period") one share of common stock, par value
$0.001 per share, of the Company ("Common Stock"), at a price of $1.50 (the
"Initial Exercise Price"), subject to the adjustments and conditions hereinafter
set forth.
<PAGE>
- 2 -
2. The Warrants evidenced hereby may be exercised by the Holder, in
whole or in part, by the surrender of this Warrant Certificate, duly endorsed
(unless endorsement is waived by the Company), at the principal office of the
Company, 140 Sherman Street, Fairfield, Connecticut 06430 (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at its last address appearing on the books of the Company) and upon payment to
it of the Exercise Price (as defined below) for the Warrants so exercised. The
Company agrees that the shares of Common Stock purchased upon the exercise of
the Warrants shall be deemed to be issued to the Holder on the date on which
this Warrant Certificate shall have been surrendered and the Exercise Price paid
as aforesaid; provided, however, that no such surrender on any date when the
stock transfer books of the Company shall be closed shall be effective to
constitute the person entitled to receive such shares as the record holder
thereon on such date, but such surrender shall be effective to constitute the
person entitled to receive such shares as the record holder thereof for all
purposes immediately after the opening of business on the next succeeding day on
which such stock transfer books are open. The certificates for such shares
shall be delivered to the Holder within a reasonable time, not exceeding ten
days, after Warrants evidenced hereby shall have been so exercised and a new
Warrant Certificate evidencing the number of Warrants, if any, remaining
unexercised shall also be issued to the Holder within such time unless such
Warrants shall have expired. No fractional shares of capital stock of the
Company, or scrip for any such fractional shares, shall be issued upon the
exercise of any Warrants.
The above provisions are, however, subject to the following:
(a) Exercise Price. The Initial Exercise Price of $1.50 per share
shall be subject to adjustment from time to time as hereinafter provided (such
price or price as last adjusted being herein called the "Exercise Price").
(b) Subdivision of Stock. If, at any time after the Date of Issuance,
the number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock, or by a subdivision or split-up,
then, concurrently with the effectiveness of such event, the number of shares of
Common Stock issuable on exercise of each Warrant shall be increased in
proportion to such increase in outstanding shares and the Exercise Price in
effect immediately prior to such event shall be decreased by multiplying such
Exercise Price by a fraction, the numerator of which shall be the number of
shares issuable upon exercise of each Warrant immediately prior to such increase
and the denominator of which shall be the number of shares issuable on exercise
of each Warrant immediately after such increase.
(c) Combination of Stock. If, at any time after the Date of Issuance,
the number of shares of Common Stock outstanding is decreased by a combination
of the outstanding shares of Common Stock, then, concurrently with the
effectiveness of such event, the number of shares of Common Stock issuable on
exercise of each Warrant shall be decreased in proportion to such decrease in
outstanding shares and the Exercise Price in effect immediately prior to
such event shall be increased by multiplying such Exercise Price by a fraction,
the numerator of which shall be the number of
<PAGE>
- 3 -
shares issuable upon exercise of each Warrant immediately prior to such decrease
and the denominator of which shall be the number of shares issuable on exercise
of each Warrant immediately after such decrease.
(d) Reorganization, Reclassification, Consolidation, Merger or
Sale. In the event, at any time after the Date of Issuance, of any capital
reorganization, or any reclassification of the capital stock of the Company
(other than a change in par value from par value to no par value or from no par
value to par value or as a result of a stock dividend or subdivision, split-up
or combination of shares), or the consolidation or merger of the Company with or
into another person (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any change in the
Common Stock, other than as a result of the issuance thereof in connection with
such merger or consolidation) or of the sale or other disposition of
substantially all the properties and assets of the Company as an entirety to any
other person, each Warrant shall after such reorganization, reclassification,
consolidation, merger, sale or other disposition be exercisable into the kind
and number of shares of stock or other securities or property of the Company or
of the corporation resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold or otherwise disposed
to which the holder of the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization, reclassification,
consolidation, merger, sale or other disposition) upon exercise of such Warrant
would have been entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions of this
paragraph 2(d) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(e) Notice of Adjustment. Upon any adjustment of the Exercise
Price, then and in each such case the Company shall give written notice thereof,
by first class mail, postage prepaid, addressed to the Holder at the address of
the Holder as shown on the books of the Company, which notice shall be signed by
the chief financial officer of the Company and shall state the Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this Warrant
Certificate, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
(f) Other Notices. In case at any time:
(1) the Company shall declare any cash dividend upon its Common
Stock payable at a rate in excess of the last regular cash dividend
theretofore paid;
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution
(other than regular cash dividends) to the holders of its Common
Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any
class or other rights;
<PAGE>
- 4 -
(4) there shall be any capital reorganization or reclassification
of the capital stock of the Company or any consolidation or merger of
the Company with, or sale of all or substantially all of its assets
to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder at the address of the Holder as
shown on the books of the Company, (a) at least 20 days' prior written notice of
the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights, or (b) for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least 20 days' prior written notice of the date on which any
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be. The
failure to give or receive the notice required by paragraph 2(e) or 2(f) hereof
or any defect therein shall not affect the legality or validity of any such
dividend, distribution, right or warrant or other action.
(g) Taxes on Exercise. The issuance of stock certificates on
exercise of the Warrants represented hereby shall be made without charge to the
Holder for any issue tax in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of stock in a name other than
that of the Holder, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of any such tax or
shall have established to the satisfaction of the Company that such tax has been
paid.
(h) Company to Provide Stock. The Company shall at all times
reserve and keep available out of the aggregate of its authorized but unissued
stock or its issued stock held in its treasury, or both, for the purpose of
effecting the conversion of the Warrants represented hereby, such number of its
duly authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of these Warrants; and if at any time such number of
shares of Common Stock shall not be sufficient to effect the conversion of these
Warrants, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued Common Stock
to, or otherwise acquire, such number of shares as shall be sufficient for such
purpose.
<PAGE>
- 5 -
3. Cashless Exercise.
(a) At any time during the Exercise Period, the Holder may, at its
option, exchange the Warrants represented by this Warrant
Certificate, in whole or in part (a "Warrant Exchange"), into the
number of fully paid and non-assessable shares of Common Stock
determined in accordance with this paragraph 3, by surrendering
such Warrant Certificate at the principal office of the Company
or at the office of its transfer agent, accompanied by a notice
stating such Holder's intent to effect such exchange, the number
of shares of Common Stock to be exchanged and the date on which
the Holder requested such Warrant Exchange occur (the "Notice of
Exchange"). The Warrant Exchange shall take place on or, as soon
as practicable after, the date specified in the Notice of
Exchange or, if later, the date the Notice of Exchange is
received by the Company or, as soon as practicable thereafter
(the "Exchange Date"). Certificates for the shares of Common
Stock issuable upon such Warrant Exchange and, if applicable, a
new Warrant of like tenor evidencing the number of Warrants, if
any, remaining unexercised shall be issued as of the Exchange
Date or, as soon as practicable thereafter, and delivered to the
Holder within three days following the Exchange Date. In
connection with any Warrant Exchange, the Holder's Warrant
Certificate shall represent the right to subscribe for and
acquire the number of shares of Common Stock (rounded to the next
highest integer) equal to (x) the number of shares of Common
Stock specified by the Holder in its Notice of Exchange (the
"Total Share Number") less (y) the number of shares of Common
Stock equal to the quotient obtained by dividing (i) the product
of the Total Share Number and the existing Exercise Price per
share by (ii) the Current Market Price (as hereinafter defined)
of a share of Common Stock.
(b) As used herein, the phrase "Current Market Price" at any date
shall be the average of the last reported sale prices for the 20
trading days, as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to
trading or as reported in the Nasdaq SmallCap System, or, if the
Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on the Nasdaq SmallCap System, the
last reported sale price as furnished by the National Association
of Securities Dealers, Inc. through Nasdaq or similar
organization if Nasdaq is no longer reporting such information,
or if the Common Stock is not quoted on Nasdaq, as determined in
good faith by resolution of the Board of Directors of the
Company, ending two days immediately preceding the date of the
Notice of Exchange.
4. Rights of Holder. This Warrant Certificate shall not entitle the
holder hereof any voting rights or other right as a shareholder of the Company.
5. Non-transferability of this Warrant Certificate. This Warrant
Certificate, the Warrants evidenced hereby and any shares of Common Stock of the
Company issued upon any exercise hereof
<PAGE>
- 6 -
may not be assigned or transferred except as expressly provided in the Warrant
Purchase Agreement, dated as of April 6, 1998, between the Company and the
purchasers named therein.
6. Lost, Stolen or Mutilated Certificates. Upon receipt of any evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate, and in case of any such loss, theft or destruction,
upon delivery of an indemnity agreement satisfactory to the Company, or in case
of any such mutilation, upon surrender and cancellation of such certificate, the
Company at its expense will issue and deliver to the Holder a new Warrant
Certificate of like tenor, in lieu of such lost, stolen or mutilated
certificate.
7. Law Governing. This Warrant is delivered in the State of New York and
shall be construed and enforced in accordance with, and governed by, the laws of
the State of New York, without giving effect to conflicts of law principles.
8. Entire Agreement; Modification. This Agreement and the Warrant
Purchase Agreement and Registration Rights Agreement contain the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except in a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
IN WITNESS WHEREOF, LINKON CORPORATION has caused this Warrant Certificate
to be signed by a duly authorized officer under its corporate seal, and this
Warrant Certificate to be dated the date first above written.
LINKON CORPORATION
Attest: By: /s/ Thomas V. Cerabona
---------------------------------------------
Its: Vice President
/s/ Louis Bevilacqua
- - ----------------------------
<PAGE>
EXHIBIT 10.8
SUBSCRIPTION AND STOCK PURCHASE AGREEMENT
SUBSCRIPTION AND STOCK PURCHASE AGREEMENT, dated as of April 6, 1998
("Agreement"), between LINKON CORPORATION, a Nevada corporation (the "Company")
and RG CAPITAL FUND, LLC, a New York limited liability company (the "Investor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Investor wishes to subscribe to purchase 2,400,000 shares (the
"Shares") of the Company's common stock, $0.001 par value per share (the "Common
Stock") from the Company and the Company wishes to issue the Shares to the
Investor for the subscription price and upon the terms set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. ISSUANCE AND SUBSCRIPTION OF SHARES.
-----------------------------------
1.1 Issuance and Subscription of Shares. In reliance upon the
-----------------------------------
representations and warranties made herein and subject to the terms and
conditions set forth herein, the Company hereby agrees to issue to the Investor,
and the Investor hereby agrees to subscribe to purchase, the Shares, for a
subscription price of $0.75 per share, or an aggregate subscription price of
$1,800,000 (the "Subscription Price").
1.2 Use of Proceeds. The net proceeds from the Investor's
---------------
subscription to the Shares shall be used by the Company to pay concurrently with
the Second Closing (defined below) that certain promissory note in aggregate
principal amount of $300,000 to James Scibelli, dated March 11, 1998, together
with interest thereon, and the balance shall be used by the Company for working
capital; payment shall be made concurrently with the Second Closing by wire
transfer to EAB for the account of James Scibelli, as follows: ABA # 021001486,
Account # 130155781.
SECTION 2. CLOSINGS; DELIVERIES
--------------------
2.1 Closings; Delivery. (a) The issuance of and subscription to the
------------------
Shares hereunder shall take place at two closings (the "First Closing" and the
"Second Closing", collectively referred to herein as the "Closings"), to be held
on the date hereof (the "First Closing Date") and one week thereafter (the
"Second Closing Date"), at the offices of Rosenman & Colin, 575 Madison Avenue,
New York, New York 10022, or at such other places or on such other dates as the
parties hereto may agree.
(b) On the First Closing Date, the Company shall deliver to the
Investor certificates representing seventy percent (70%) of the Shares
(1,680,000 shares of Common
1
<PAGE>
Stock) against payment of seventy percent (70%) of the Subscription Price
($1,260,000) by wire transfer to the following:
(i) $1,093,833 to IBJ Schroder Bank & Trust Company, ABA #
026007825, Attention Bill Reyes, Loan Department, Ref: Linkon
Corporation; and
(ii) $1,266,167 to Bank of New York for the account of the
Company, ABA # 021000018, Account # 6300319422.
(c) On the Second Closing Date, the Company shall deliver to the
Investor or its designee certificates representing the remaining thirty percent
(30%) of the Shares (720,000) against payment of the balance of the Subscription
Price ($540,000) by wire transfer to Bank of New York for the account of the
Company, as follows: ABA # 021000018, Account # 6300319422. The Second Closing
shall be subject to and conditioned upon (i) the representations and warranties
of the Company being true and accurate in all material respects at that time as
though made as of and at such time, and the delivery to the Investor or its
designee of a certificate of the President of the Company to such effect and
(ii) the designee of the Investor being made a party to the Registration Rights
Agreement attached as Exhibit A hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to the Investor as follows:
3.1 Organization and Good Standing. The Company is a corporation
------------------------------
duly organized, validly existing, and in good standing under the laws of the
state of its incorporation and has full corporate power and authority to enter
into and perform its obligations under this Agreement and to own, lease, license
and use its properties and to carry on its business as presently conducted. The
Company is duly qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which the failure to so qualify would have
a material adverse effect upon the Company.
3.2 Capitalization. (a) Prior to the consummation of the
--------------
transactions contemplated hereby, the authorized capital stock of the Company
consisted of 24,900,000 shares of Common Stock, of which 10,896,252 shares are
issued and outstanding (13,169,157 shares issued and outstanding including
shares subject to issuance upon exercise of outstanding stock options and
warrants but excluding shares subject to issuance upon the conversion of certain
convertible debentures), and 1,000,000 shares of Preferred Stock, par value
$0.001 per share, of which 0 shares are issued and outstanding. All of the
issued and outstanding shares of Common Stock, including the Shares, have been
duly authorized and validly issued and are fully paid and nonassessable, free of
preemptive or similar rights. Except as set forth in Schedule 3.2 annexed hereto
or in the "SEC Reports" (defined below), there are no outstanding, nor is the
Company subject to any agreement under which there may become outstanding, any
right to purchase, or any
2
<PAGE>
security convertible into, or exercisable for, or exchangeable for, any capital
stock of the Company, including, but not limited to, options, warrants, or
rights. Except as set forth in Schedule 3.2 annexed hereto or in the SEC
Reports, there are no agreements, understandings, plans or arrangements in
existence which pertain to the dividend rights, voting, sale or transfer of any
capital stock of the Company.
3.3 Subsidiaries. Except as set forth on Schedule 3.3 annexed
------------
hereto, the Company does not own, directly or indirectly, any equity or debt
securities of any corporation, partnership, or other entity.
3.4 Books and Records. The minute books, stock ledgers and other
-----------------
books and records of the Company have been made available for inspection, are
complete and accurate and all signatures therein are genuine signatures of the
persons whose signatures appear thereon.
3.5 Financial Statements. The financial statements of the Company
--------------------
for each of the fiscal years ended January 31, 1997, 1996 and 1995 (the
"Financial Statements"), true and complete copies of which have heretofore been
delivered to the Investor, fairly present with respect to the Company the
financial position, the results of operations, and the other information
purported to be shown therein at the respective dates and for the respective
periods to which they apply. Such Financial Statements and schedules (including
the related notes) have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
("GAAP"), are correct and complete in all material respects, and are in
accordance with the books and records of the Company.
3.6 Proceedings. There is no material litigation, arbitration,
-----------
claim, governmental or other proceeding (formal or informal), or investigation
by any governmental authority or agency, pending or, to the Company's knowledge,
threatened with respect to the Company or any of its operations, businesses,
properties or assets except as may be properly described in Schedule 3.6 annexed
hereto.
3.7 No Violation; Compliance. (a) The Company is not in violation of
------------------------
its Certificate of Incorporation or Bylaws. The Company is not in default or
breach with respect to any agreement or instrument to which it is a party or by
which it or any of its properties is subject, or, to the best of the Company's
knowledge, any statute or any order, rule, regulation, judgment or decree of any
court or governmental agency or body having jurisdiction over the Company or any
of its properties except as may be properly described in Schedule 3.7 annexed
hereto or in the SEC Reports or such as in the aggregate do not now have and
could not in the future have a material adverse effect upon the financial
position, results of operations, properties, business or prospects of the
Company; nor is the Company required to take any action in order to avoid any
such breach or default.
(b) The Company has properly filed all reports and other documents
required to be filed with any federal, state, local and foreign government or
3
<PAGE>
subdivision or agency thereof with respect to which the failure to file could
have a material adverse effect on the Company. The Company has not received any
notice not heretofore complied with in all material respects from any federal,
state or local authority or any insurance or inspection body that any of its
assets or business procedures or practices fails to comply with any applicable
law, ordinance, regulation, building or zoning law or requirement of any public
authority or body.
3.8 Authorization. The Company has all requisite power and authority
-------------
to (i) execute, deliver, and perform its obligations under each of this
Agreement, the Registration Rights Agreement attached as Exhibit A hereto, the
Promissory Note attached as Exhibit B hereto and the Release and Termination
Agreement (the "Release") between the Company and IBJS Capital Corporation
("IBJS") attached as Exhibit C hereto (collectively, the "Documents") and (ii)
to issue, sell, and deliver the Shares. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution, delivery, and
performance of the Documents. Concurrently with execution hereof and as a
condition to consummation of the transactions contemplated hereby the Company
has executed and delivered each of the Documents. Each Document has been duly
authorized by the Company and constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
3.9 No Consent. (a) No consent, authorization, approval, order,
----------
license, certificate or permit of or from, or declaration or filing with, any
federal, state, local or other governmental authority or any court or any other
tribunal is required by the Company in connection with the execution, delivery
or performance by the Company of the Documents or the issuance, sale, and
delivery of the Shares (except such filings and consents as may be required and
have been or at the Closings or within the appropriate time thereafter will have
been made or obtained under federal and state securities laws).
(b) Except as described in Schedule 3.9 annexed hereto, no consent of
any party to any contract, agreement, instrument, lease, license, arrangement or
under standing to which the Company is a party or to which any of its properties
or assets are subject is required for the execution, delivery, or performance by
the Company of any of the Documents or the issuance or delivery of the Shares.
3.10 No Conflict. The execution, delivery and performance of this
-----------
Agreement and the other Documents and the consummation of the transactions
herein and therein contemplated, including the issuance of the Shares, will not
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any agreement or instrument to
which the Company is a party or by which it is bound or to which any of the
property of the Company is subject, the Certificate of Incorporation or By-laws
of the Company, or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
properties, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company.
4
<PAGE>
3.11 No Misstatements or Omissions. This Agreement and all other
-----------------------------
documents or instruments furnished by the Company to the Investor in connection
with the transaction contemplated hereby do not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or herein or necessary to make the statements therein or herein not misleading.
Without limiting the generality of the foregoing, there has been no material
adverse change, and the Company is aware of no fact which might result in a
material adverse change, in the financial condition, results of operations,
business, properties, assets, liabilities or prospects of the Company from the
latest information set forth in the Financial Statements other than losses
occurring in the ordinary course of business that have either been disclosed in
the SEC Reports or incurred since October 31, 1997.
3.12 IBJS. Concurrently with the First Closing of the transaction
----
contemplated hereby, and as a condition thereto, the Company has used the
proceeds of the Promissory Note to repay in full that certain 10% Senior Secured
Convertible Debenture (the "Debenture") dated October 27, 1994, as amended, in
principal amount of $1,000,000 issued by the Company to IBJS, and has obtained
the surrender and cancellation of the Debenture and those certain warrants for
IBJS to acquire an additional 200,000 shares, subject to adjustment, of Common
Stock at an initial exercise price of $2.00 per share and those certain warrants
for IBJS to acquire 60,000 shares of Common Stock at an initial exercise price
of $1.50 per share. The foregoing shall be accomplished pursuant to the Release
and such other documentation reasonably acceptable to the Investor. The Company
has no further obligations, arrangements or relationship of any kind with IBJS
or any of its affiliates.
3.13 Securityholders Voting Rights. Except as set forth in Schedule
-----------------------------
3.13, neither the Company nor to the Company's knowledge any of its shareholders
are a party to any voting trust, agreement or arrangement affecting the exercise
of voting rights of the outstanding common stock of the Company.
3.14 Registration Rights. Except as set forth in the Registration
-------------------
Rights Agreement or in Schedule 3.14 annexed hereto or in the SEC Reports,
neither the Company nor its shareholders are a party to any agreement pursuant
to which any other person or entity has the right to require the Company to
register any securities of the Company under any federal or state securities
laws.
3.15 Employees. Except as set forth in the SEC Reports or in
---------
Schedule 3.15 annexed hereto or in the SEC Reports, the Company is not a party
to any existing employment agreement with executive officers of the Company,
deferred compensation, stock option, bonus, consulting, or retirement agreements
or plans, or other employee benefit plans of any kind including without
limitation any pension or welfare benefit plans. The Company does not maintain,
or ever has maintained, an Employee Pension Benefit Plan as defined in Section
3(a) of the ERISA or a multiemployer plan as defined in Section 3(37) of ERISA.
No employee of the Company is represented by any labor union or
5
<PAGE>
collective bargaining agreement, nor is any union organization effort pending or
threatened against the Company.
3.16 Brokers. No broker's, finder's or similar fees will be payable
-------
by the Company in connection with the transactions contemplated by this
Agreement.
3.17 Properties. The Company has good and marketable title to its
----------
material properties and assets. Such properties and assets are not subject to
any liens, mortgages, pledges, encumbrances or charges of any kind except liens
for current taxes and assessments not delinquent or those which are not material
in scope or amount and do not interfere with the conduct of the Company's
business and except those described in Schedule 3.17 annexed hereto or in the
SEC Reports. All leases pursuant to which the Company leases real or personal
property are in good standing and are valid and effective in accordance with
their respective terms and there exists no default or occurrence or condition
which could result in a default or termination of any such leases. The
Company's equipment and other tangible assets are in good operating condition
and are usable in the ordinary course of business, and the Company owns, or has
a valid leasehold interest in, all assets necessary for the conduct of its
business as presently conducted.
3.18 Environmental Health and Safety. Except as set forth in
-------------------------------
Schedule 3.18 annexed hereto, the Company has, to the best of the Company's
knowledge, complied with all applicable federal, state, local and foreign
statutes, laws and regulations, ordinances, rules, judgements, orders, decrees,
permits, licenses or codes that are currently in effect and that relate to the
environment (hereinafter collectively referred to as the "Environmental Health
and Safety Laws") and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
the Company alleging any failure to comply. Without limiting the generality of
the preceding sentence, except as set forth in Schedule 3.18 or in the SEC
Reports, the Company has obtained and been in compliance with all of the terms
and conditions of all permits, licenses, and other authorizations which are
required under and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
time tables which are contained in the Environmental Health and Safety Laws. To
the best of the Company's knowledge, the Company has no liability or has not
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition or owned or operated any property or facility in any manner that could
form the basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company giving
rise to any liability for damage to any site, location or body of water (surface
or subsurface) for any illness of or personal injury to any employee or other
individual or for any reason under any Environmental Health and Safety Law. To
the best of the Company's knowledge, all properties and equipment used in the
business of the Company have been free of asbestos, PCB'S, methylene chloride,
trichloroethylene, dioxin, dibenzofurans or any other extremely hazardous
substance.
6
<PAGE>
3.19 Material Contracts. Annexed hereto as Schedule 3.19 is a true
------------------
and complete list of all material contracts, agreements, instruments, leases,
licenses, arrangements or understandings, written or oral, to which the Company
is a party or to which any of its properties or assets are subject (collectively
with the documents listed in the SEC Reports, the "Material Contracts"), which
are not already listed as exhibits to the SEC Reports. All of the Material
Contracts are valid, binding and enforceable and in full force and effect and
the Company has substantially performed all of its current obligations
thereunder. No party to a Material Contract has made a claim to the effect that
the Company has failed to perform an obligation thereunder. Except as set forth
on Schedule 3.19, there is no known plan, intention or indication of any
contracting party to a Material Contract to cause the termination, cancellation
or modification of such Material Contract or to reduce or otherwise change its
activity thereunder so as to adversely affect the Company.
3.20 Loan Obligations and Commitments. Except for accounts payable
--------------------------------
incurred in the ordinary course of business and except as set forth in Schedule
3.20 annexed hereto or in the SEC Reports, the Company is not a party to any
loan agreement, promissory note or other evidence of indebtedness and the
Company does not have any obligation for borrowed money. Neither the execution
nor consummation of this Agreement requires the consent of any lender or other
party.
3.21 Tax Returns and Payments. All federal, state and other tax
------------------------
returns and reports of the Company required by law to be filed have been duly
filed, and all federal, state and other taxes, assessments, fees and other
governmental charges imposed upon the Company or any of its properties, assets,
income or franchises which are due and payable, or claimed by the taxing
authority to be due and payable, have been paid. Without limiting the
foregoing, the Company has paid all applicable income, withholding, excise,
unemployment, social security, occupation, transfer, franchise, property, sales
and use taxes, import duties and all penalties and interest in respect thereof.
3.22 Licenses, Patents, Trademarks.
-----------------------------
(a) Ownership. The Company's Annual Report on Form 10-K
---------
(Item 1 - Description of Business) contains a narrative description of the
status of the Company's licenses, patents, copyrights, trade names and
trademarks (including applications therefor) owned by the Company or any
employee of the Company except for those owned by employees which are unrelated
to the business of the Company, other than any of the foregoing already
described in the SEC Reports. The Company owns, free and clear of all liens and
encumbrances, all the licenses, patents, copyrights, trade names, trademarks,
trade secrets and processes necessary for the conduct of its business as
presently conducted and as presently proposed to be conducted and has the
unrestricted right to use the foregoing without the payment of any royalty
except as described in Schedule 3.22 or in the SEC Reports. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of its trade secrets and other technical information.
7
<PAGE>
(b) No Infringement. Except as set forth in Schedule 3.22 or in the
---------------
SEC Reports, no person has asserted a claim that the Company has infringed any
patent, trade secret, copyright, trade name or trademark and the Company has not
made any claim that, and is unaware that, any third party is infringing any
license, patent, copyright, trademark, tradename, trade secret or other
intellectual property owned by or used by the Company. The Company does not,
and will not under its proposed plan of business, operate to conflict with,
infringe, override or interfere with the rights of any other person in any
license, patent, copyright, trade name, trademark, trade secret or process or
rights pertaining thereto and the Company has full right and authority to
utilize the processes, systems and techniques which it presently utilizes or
which it expects to utilize in the future.
(c) Assignment. All rights to processes, systems, patents, copyrights
----------
and techniques used by the Company which were developed by any employee of or
consultant to the Company have been duly and validly assigned to the Company.
3.23 Securities Laws Compliance; Registration Rights. Based in part
-----------------------------------------------
upon the representations of the Investor contained in Section 4 hereof (and with
respect to the Second Closing, of the designee of the Investor, if applicable,
pursuant to documentation substantially in the form hereof), the offer and sale
of the Shares has complied with all applicable federal and state securities
laws. The Company has complied with all applicable federal and state securities
laws in connection with all offers and sales of securities prior to the date of
this Agreement.
3.24 No Anti-Dilution Adjustments. Except as described in Schedule
----------------------------
3.24 annexed hereto, the issuance and sale of the Shares pursuant to this
Agreement will not result in an adjustment to the conversion price or exercise
price or in any other adjustment under any preferred stock, warrant, option,
note, debenture or other security of the Company.
3.25 SEC Reports. The Company has filed all reports, registration
-----------
statements, definitive proxy statements and other document and all amendments
thereto and supplements thereof (the "SEC Reports") required to be filed by it
with the Securities and Exchange Commission (the "Commission") since April 30,
1995, all of which have complied in all material respects with all applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated thereunder. As of the respective dates of
filing in final or definitive form (or, if amended or superseded by a subsequent
filing, then on the date of such subsequent filing), none of the Company's SEC
Reports, including, without limitation, any financial statements or schedules
included therein, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading. The balance sheets (including the related notes) in the
Company's SEC Reports fairly present the financial position of the Company as of
the respective dates thereof, and the other related financial statements
8
<PAGE>
(including the related notes) included therein fairly presented the results of
operations and changes in financial position of the Company for the periods
indicated, except, in the case of interim financial statements, for year-end
audit adjustments, consisting only of normal recurring accruals. The financial
statements (including the related notes) included in the Company's SEC Reports
have been prepared in accordance with GAAP, except as otherwise noted therein
or, in the case of unaudited financial statements, as permitted by the
applicable rules and regulations of the Commission.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
----------------------------------------------
The Investor hereby represents and warrants to the Company as follows:
4.1 Organization and Good Standing. The Investor is a limited
------------------------------
liability company duly formed, validly existing, and in good standing under the
laws of the state of its formation and has full power and authority to enter
into and perform its obligations under this Agreement.
4.2 Authorization. The Investor has all requisite power and
-------------
authority to (i) execute, deliver, and perform its obligations under each of the
Documents and (ii) to subscribe for the Shares. All necessary corporate
proceedings of the Investor have been duly taken to authorize the execution,
delivery, and performance of the Documents. Each Document has been duly
authorized by the Investor and, when executed and delivered by the Investor,
will constitute the legal, valid and binding obligations of the Investor
enforceable against the Investor in accordance with their respective terms.
4.3 No Consent. No consent, authorization, approval, order, license,
----------
certificate or permit of or from, or declaration or filing with, any federal,
state, local or other governmental authority or any court or any other tribunal
is required by the Investor in connection with the execution, delivery or
performance by the Investor of the Documents or subscription for the Shares
(except such filings and consents as may be required and have been or at the
Closings or within the appropriate time thereafter will have been made or
obtained under federal and state securities laws).
4.4 The Investor is an "Accredited Investor" as that term is defined
in Section 501(a) of Regulation D promulgated under the Securities Act.
4.5 The Investor represents that: (i) the Company has made available
to it all information which it deemed material to making an informed investment
decision in connection with its purchase of the Shares or (ii) the Investor is
in a position regarding the Company which has enabled the Investor to obtain
information from the Company necessary to evaluate the merits and risks of an
investment in the Shares.
4.6 The Investor has such knowledge and experience in finance,
securities, investments and other business matters so as to be able to protect
its interests in connection
9
<PAGE>
with this transaction, and the Investor's investment in the Company hereunder is
not material when compared to the Investor's total financial capacity.
4.7 The Investor understands the various risks of an investment in
the Company as proposed herein and can afford to bear such risks, including, but
not limited to, the risks of losing the entire investment.
4.8 The Investor has been advised by the Company that the Shares have
not been registered under the Securities Act, that the Securities will be issued
on the basis of the statutory exemption provided by Section 4(2) of the Act or
Regulation D promulgated thereunder, or both, relating to transactions by an
issuer not involving any public offering and under similar exemptions under
certain state securities laws. In particular, the Investor agrees that no sale,
assignment, or transfer of any of the Shares shall be valid or effective, and
the Company shall not be required to give any effect to any such sale,
assignment or transfer, unless (i) the sale, assignment or transfer of the
Shares is registered under the Act, it being understood that the Shares are not
currently registered for sale and that the Company has no obligation or
intention to so register the Shares except as contemplated in the Registration
Rights Agreement or (ii) such Shares are sold, assigned or transferred in
accordance with all the requirements and limitations of Rule 144 under the Act,
or (iii) such sale, assignment or transfer is otherwise exempt from registration
under the Act. The Investor acknowledges that the Shares shall be subject to a
stop transfer order and the certificate or certificates evidencing the Shares
shall bear the following or a substantially similar legend and such other
legends as may be required by state blue sky laws:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
or any state securities laws and neither such securities nor any
interest therein may be offered, sold, pledged, assigned, or otherwise
transferred unless (1) a registration statement with respect thereto
is effective under the Act and any applicable state securities laws or
(2) the Company receives an opinion of counsel to the holder of such
securities, which counsel and opinion are reasonably satisfactory to
the Company, that such securities may be offered, sold, pledged,
assigned, or transferred in the manner contemplated without an
effective registration statement under the Act or applicable state
securities laws."
4.9 The Investor is acquiring the Shares for the Investor's own
account for investment and not with a view to the sale or distribution thereof
or the granting of any participation therein, and has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
10
<PAGE>
4.10 Concurrently with the execution hereof and as a condition to the
consummation of the transactions contemplated hereby, the Investor has executed
and delivered each of the Documents to which it is a party and has transferred
to the Company the funds contemplated by the Promissory Note.
4.11 Accuracy of Representations and Warranties. No representation
------------------------------------------
or warranty of the Investor in this Agreement or the schedules or exhibits
hereto contains any untrue statement of material fact or omits to state any
material fact necessary to make the statements made not misleading.
SECTION 5. COVENANTS BY THE COMPANY.
------------------------
5.1 Board of Directors. From and after the date hereof and for a
------------------
period of five years, the Company shall permit a designee of the Investor (the
"Designee") to be an unpaid advisor to the Board of Directors of the Company
(the "Board"), provided that notwithstanding anything to the contrary contained
--------
herein or in the By-Laws or any other document affecting the governance of the
Company, such Designee shall have no voting rights otherwise conferred upon
directors of the Company but shall have all rights of a director with respect to
receiving notice of and attending meetings of the Board and any committees
thereof. The initial Designee shall be James Scibelli.
5.2 Access to Information. From and after the date hereof and until
---------------------
the fifth anniversary of the date hereof, the Company will furnish the following
to the Investor or its Designee:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 90 days thereafter, and as soon as practicable
after the end of each fiscal quarter of the Company and in any event within 45
days thereafter, consolidated balance sheets of the Company as of the end of
such fiscal period, and the related statements of income, cash flow and
shareholders' equity of the Company for such period, prepared in accordance with
GAAP and setting forth in each case in comparative form the figures for the
previous fiscal period, all in reasonable detail and certified with respect to
annual financial statements, if any, by independent public accountants of nation
ally recognized standing, it being agreed that the Company's current accountants
are acceptable to the Investor.
(b) As soon as practicable, but in any event not less than 3 days
after filing, copies of any documents or reports filed by the Company with the
Commission.
(c) Such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or the
Designee may from time to time reasonably request.
SECTION 6. COVENANTS BY THE INVESTOR.
-------------------------
11
<PAGE>
6.1 Voting of Shares. From and after the date hereof, provided that
----------------
the Company is not in default of its obligations hereunder or under any other
Document, which default has continued for a period of 15 days after the
occurrence thereof, and/or that no Event of Default, as such term is defined in
the Promissory Note has occurred and is continuing, the Investor shall vote all
of the Shares in accordance with the recommendations of the Board. Subject to
any such breach, the covenants of the Investor set forth in this paragraph 6.1
shall survive and continue until such time as the Investor and its affiliates
own less than 5% of the Company's Common Stock calculated in accordance with the
provisions of Section 13(d) of the Exchange Act.
6.2 Purchase of Common Stock. The Investor agrees not to purchase
------------------------
any additional shares of Common Stock on the open market or from any person or
entity other than the Company without the prior written consent of the Company.
The covenants of the Investor set forth in this paragraph 6.2 shall survive and
continue until such time as the Investor and its affiliates own less than 5% of
the Company's Common Stock calculated in accordance with the provisions of
Section 13(d) of the Exchange Act.
6.3 Resales of Shares. Until the second anniversary of the date
-----------------
hereof, the Investor shall not in any way sell, assign or otherwise transfer any
interest in the Shares (other than a distribution to the members of the
Investor, provided that the restrictions of this Section 6 shall continue to be
applicable to the Shares and such transferees shall agree in writing to be bound
by the provisions of this Agreement affecting the Shares so transferred);
provided, however, that the foregoing restriction shall not apply to any
- - -------- -------
transfer by the Investor in connection with an underwritten offering of shares
of Common Stock which has been registered with the Commission and provided,
--------
further that during such two year period the Investor shall be permitted to
- - -------
transfer shares of Common Stock in a privately negotiated transaction and/or
pursuant to registration of the Shares under the Registration Rights Agreement
in a non-underwritten offering in amounts that would otherwise be permitted
under Rule 144 of the Securities Act but without giving effect to the holding
period requirements thereof.
SECTION 7. INDEMNIFICATION.
---------------
7.1 Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold the Investor, its officers, directors, employees and agents harmless
against and in respect of any loss, cost, expense, liability or damage
(including, without limitation, attorneys' fees, expenses and disbursements)
suffered or incurred by the Investor arising from (a) any breach or failure to
perform by the Company of any of its respective covenants, agreements or other
obligations hereunder or under any Document, (b) any breach of any
representation or warranty of the Company contained herein in any exhibit,
certificate or document furnished or required to be furnished pursuant to this
Agreement by the Company to the Investor, or if any documents furnished to the
Investor in connection with the Closings hereunder shall be false or misleading
in any material respect, and (c) the allegation by a third party of a claim
based upon a state of facts which, if true, would
12
<PAGE>
constitute a breach of a representation, warranty or covenant of the Company
contained herein or in any exhibit, certificate or document furnished or
required to be furnished pursuant to this Agreement by the Company to the
Investor.
7.2 Indemnification by the Investor. The Investor agrees to
-------------------------------
indemnify and hold the Company, its officers, directors, employees and agents
harmless against and in respect of any loss, cost, expense, liability or damage
(including, without limitation, attorneys' fees, expenses and disbursements)
suffered or incurred by the Company arising from (a) any breach or failure to
perform by the Investor of any of its respective covenants, agreements or other
obligations hereunder or under any Document, (b) any breach of any
representation or warranty of the Investor contained herein, in any exhibit,
certificate or document furnished or required to be furnished pursuant to this
Agreement by the Investor or if any documents furnished to the Company in
connection with the Closings shall be false or misleading in any material
respect, and (c) the allegation by a third party of a claim based upon a state
of facts which, if true, would constitute a breach of a representation, warranty
or covenant of the Purchaser contained herein or in any exhibit, certificate or
document furnished or required to be furnished pursuant to this Agreement by the
Investor to the Company.
7.3 Notice. If any event shall occur which may result in
------
indemnification hereunder, the indemnified party or parties agree to give the
indemnifying party or parties prompt written notice thereof. If such event
involves a claim by a third party, the indemnifying party or parties shall have
the right at its or their sole expense to control and assume the defense of the
matter giving rise to such indemnification with counsel reasonably satisfactory
to the indemnified party or parties and to compromise or settle any such matter,
provided that such compromise or settlement entirely and unconditionally
- - --------
releases the indemnified party or parties from all liability with respect
thereto. If the indemnifying party or parties shall assume the defense of the
indemnified party or parties, the indemnified party or parties shall have the
right to participate in such defense but only at its or their own expense and
the indemnifying party or parties shall not be obligated to pay the fees of
counsel to the indemnified party or parties incurred after such assumption. If
the indemnifying party or parties do not assume the defense of such matter
within a reasonable time after notice thereof, the indemnified party or parties
may defend, settle or compromise such matter for the account and at the expense
of the indemnifying party or parties.
7.4 No Limitation of Remedies. The indemnification provided herein
-------------------------
shall not be the exclusive remedy of the indemnified party or parties and in no
manner shall limit any other remedy available to such party or parties under
this Agreement whether at law, in equity or otherwise.
SECTION 8. MISCELLANEOUS.
-------------
13
<PAGE>
8.1 Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties, covenants, indemnities and agreements of the
parties hereto contained in this Agreement and in any agreement delivered or to
be delivered pursuant to this Agreement shall remain operative and in full force
and effect for a period of two years after the date hereof (unless, with respect
to the covenants of the parties, any covenant expressly indicates that it shall
remain operative and in full force and effect for a longer period) regardless of
any investigation made by or on behalf any party hereto notwithstanding
knowledge or notice of a breach thereof.
8.2 Notices. All notices and other communications given under this
-------
Agreement shall be in writing and shall be deemed to have been given (i) on the
date delivered, if delivered personally or (ii) on the date deposited in the
United States mail, if sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the parties as follows:
(a) if to the Company:
Linkon Corporation
140 Sherman Avenue
Fairfield, CT 06430
Attention: Lee W. Hill, President
Copy to:
Finn Dixon & Herling LLP
One Landmark Square
Stamford, CT 06901
Attention: David I. Albin, Esq.
(b) if to the Investor:
RG Capital Fund LLC
One Hollow Lane, Suite 208
Lake Success, NY 11040
Attention: James Scibelli
Copy to:
Rosenman & Colin LLP
575 Madison Avenue
14
<PAGE>
New York, NY 10022
Attention: Eric M. Lerner, Esq.
or to such other address as any party shall have specified by notice in writing
to the others in compliance with this Section 8.2, except that any notice
specifying a change in address shall only be deemed given when actually
received.
8.3 Agreement Binding on Successors. This Agreement shall be binding
-------------------------------
upon and inure to the benefit of the parties hereto, the successors and assigns
of the Com pany, and the permitted successors, assigns, heirs and personal
representatives of the Investor.
8.4 Expenses. The Company shall pay the fees and expenses of its
--------
counsel, accountants and other experts, and all other expenses incurred by it
incident to the negotiation, preparation, execution and delivery of this
Agreement and consummation of the transactions contemplated hereby. In
addition, the Company shall pay the fees and expenses of the Investor's counsel,
accountants and other experts, and all other expenses incurred by the Investor
incident to the negotiation, preparation, execution and delivery of this
Agreement and consummation of the transactions contemplated hereby, in an amount
not to exceed $15,000.
8.5 Headings. The headings in this Agreement are solely for
--------
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
8.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 Governing Law. This Agreement has been negotiated and shall be
-------------
consummated in the State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
8.8 Consent to Jurisdiction. The parties hereto irrevocably consent
-----------------------
to the jurisdiction of the courts of the State of New York and of any federal
court located in such State in connection with any action or proceeding arising
out of or relating to this Agreement, any document or instrument delivered
pursuant to, in connection with or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, each party hereto waives personal service of any summons,
complaint or other process and agrees that service thereof may be made in
accordance with Section 8.2. Within 30 days after such service, or such other
time as may be mutually agreed upon in writing by the attorneys for the parties
to such action or proceeding, the party so served shall appear or answer such
summons, complaint, or other process. Should the party so served fail to appear
or answer within such 30-day period or
15
<PAGE>
such extended period, as the case may be, such party shall be deemed in default
and judgment may be entered against such party for the amount as demanded in any
summons, complaint or other process so served.
8.9 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable laws, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
8.10 Transferability. Neither this Agreement, nor any interest of
---------------
the undersigned herein, shall be assignable or transferable by the undersigned
in whole or in part except by operation of law.
8.11 Entire Agreement. This Agreement and the exhibits hereto set
----------------
forth the entire understanding of the parties with respect to the subject matter
hereof, supersede all existing agreements among them concerning such subject
matter and may be modified only by a written instrument duly executed by the
party to be charged.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first set forth above.
LINKON CORPORATION
By:______________________________________
Name: Thomas V. Cerabona
Title: Vice President
RG CAPITAL FUND LLC
By: SG Capital Corp.,
its Managing Director
By:______________________________________
Name: James Scibelli
Title: President
17
<PAGE>
SCHEDULES
Schedule 3.2 - Outstanding Options, Warrants, Rights, etc.
Schedule 3.3 -Subsidiaries
Schedule 3.6 - Litigation
Schedule 3.7 - Violations; Compliance
Schedule 3.9 - Consents
Schedule 3.13 - Securityholders Voting Rights
Schedule 3.14 - Registration Rights
Schedule 3.15 - Employees
Schedule 3.17 - Liens, etc.
Schedule 3.18 - Environmental Health and Safety
Schedule 3.19 - Material Contracts
Schedule 3.20 - Loan Obligations and Commitments
Schedule 3.22 - Licenses, Patents, Trademarks
Schedule 3.24 - Anti-Dilution Adjustments
Schedule 5.3 - Permitted Existing Indebtedness
18
<PAGE>
EXHIBIT 10.9
SUBSCRIPTION AND STOCK PURCHASE AGREEMENT
SUBSCRIPTION AND STOCK PURCHASE AGREEMENT, dated as of April ___, 1998
("Agreement"), between LINKON CORPORATION, a Nevada corporation (the "Company")
and ____________________, an individual residing at ___________________ (the
"Investor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Investor is one of the designees of RG Capital Fund, LLC, a
New York limited liability company ("RG Capital") under Section 2.1(c) of that
certain Subscription and Stock Purchase Agreement, dated as of April 6, 1998,
between the Company and RG Capital (the "First Subscription"); and
WHEREAS, the First Closing, as defined in the First Subscription, occurred
on April 6, 1998; and
WHEREAS, the Investor wishes to subscribe to purchase ____________ shares
(the "Shares") of the Company's common stock, $0.001 par value per share (the
"Common Stock") as contemplated by the First Subscription, from the Company, and
the Company wishes to issue the Shares to the Investor, for the subscription
price and upon the terms set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. ISSUANCE AND SUBSCRIPTION OF SHARES.
-----------------------------------
1.1 Issuance and Subscription of Shares. In reliance upon the
-----------------------------------
representations and warranties made herein and subject to the terms and
conditions set forth herein, the Company hereby agrees to issue to the Investor,
and the Investor hereby agrees to subscribe to purchase, the Shares, for a
subscription price of $0.75 per share, or an aggregate subscription price of
$_________ (the "Subscription Price").
1.2 Use of Proceeds. All or a portion of the net proceeds from the
---------------
Investor's subscription to the Shares, as contemplated by Section 2.1(b) hereof,
shall be used by the Company to pay concurrently with the Second Closing
(defined below) that certain promissory note in aggregate principal amount of
$300,000 to James Scibelli, dated March 11, 1998, together with interest thereon
(the "Loan"), and the balance, if any, shall be used by the Company for working
capital; payment shall be made concurrently with the Second Closing by wire
transfer to the account set forth in Section 2.1(b) below.
SECTION 2. CLOSINGS; DELIVERIES
--------------------
1
<PAGE>
2.1 Closings; Delivery. (a) The issuance of and subscription to the
------------------
Shares hereunder shall take place on April 13, 1998 (the "Second Closing Date"),
at the offices of Rosenman & Colin, 575 Madison Avenue, New York, New York
10022, or at such other place or on such other date as the parties hereto may
agree.
(b) On the Second Closing Date, the Company shall deliver to the
Investor certificates representing __________ Shares against payment of the
Subscription Price ($_________) by wire transfer to Bank of New York for the
account of the Company, as follows: ABA # 021000018, Account # 6300319422. The
Second Closing shall be subject to and conditioned upon (i) the Investor being
made a party to the Registration Rights Agreement attached as Exhibit A hereto
and (ii) the Loan being repaid with the proceeds of the sale of the Shares and
such additional proceeds of the sales of shares of Common Stock effected
concurrently herewith (the "Other Closings") as shall be necessary to retire the
Loan.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to the Investor as follows:
3.1 Organization and Good Standing. The Company is a corporation
------------------------------
duly organized, validly existing, and in good standing under the laws of the
state of its incorporation and has full corporate power and authority to enter
into and perform its obligations under this Agreement and to own, lease, license
and use its properties and to carry on its business as presently conducted. The
Company is duly qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which the failure to so qualify would have
a material adverse effect upon the Company.
3.2 Capitalization. (a) Prior to the consummation of the
--------------
transactions contemplated hereby, and the transactions effected at the First
Closing and the Other Closings, the authorized capital stock of the Company
consisted of 24,900,000 shares of Common Stock, of which 10,896,252 shares are
issued and outstanding (13,169,157 shares issued and outstanding including
shares subject to issuance upon exercise of outstanding stock options and
warrants, but excluding shares subject to issuance upon the conversion of
certain convertible debentures, which were cancelled at the First Closing, and
the warrants referred to below), and 1,000,000 shares of Preferred Stock, par
value $0.001 per share, of which 0 shares are issued and outstanding. All of
the issued and outstanding shares of Common Stock, including the Shares, have
been duly authorized and validly issued and are fully paid and nonassessable,
free of preemptive or similar rights. Except as set forth in Schedule 3.2
annexed hereto or in the "SEC Reports" (defined below) other than warrants
issued to Roberts & Green, Inc. at the First Closing, there are no outstanding,
nor is the Company subject to any agreement under which there may become
outstanding, any right to purchase, or any security convertible into, or
exercisable for, or exchangeable for, any capital stock of the Company,
including, but not limited to, options, warrants, or rights. Except as set
forth in Schedule 3.2 annexed hereto or in the SEC Reports or in the
2
<PAGE>
Registration Rights Agreement, there are no agreements, understandings, plans or
arrangements in existence which pertain to the dividend rights, voting, sale or
transfer of any capital stock of the Company.
3.3 Subsidiaries. Except as set forth on Schedule 3.3 annexed
------------
hereto, the Company does not own, directly or indirectly, any equity or debt
securities of any corporation, partnership, or other entity.
3.4 Books and Records. The minute books, stock ledgers and other
-----------------
books and records of the Company have been made available for inspection, are
complete and accurate and all signatures therein are genuine signatures of the
persons whose signatures appear thereon.
3.5 Financial Statements. The financial statements of the Company
--------------------
for each of the fiscal years ended January 31, 1997, 1996 and 1995 (the
"Financial Statements"), true and complete copies of which have heretofore been
delivered to the Investor, fairly present with respect to the Company the
financial position, the results of operations, and the other information
purported to be shown therein at the respective dates and for the respective
periods to which they apply. Such Financial Statements and schedules (including
the related notes) have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
("GAAP"), are correct and complete in all material respects, and are in
accordance with the books and records of the Company.
3.6 Proceedings. There is no material litigation, arbitration,
-----------
claim, governmental or other proceeding (formal or informal), or investigation
by any governmental authority or agency, pending or, to the Company's knowledge,
threatened with respect to the Company or any of its operations, businesses,
properties or assets except as may be properly described in Schedule 3.6 annexed
hereto.
3.7 No Violation; Compliance. (a) The Company is not in violation of
------------------------
its Certificate of Incorporation or Bylaws. The Company is not in default or
breach with respect to any agreement or instrument to which it is a party or by
which it or any of its properties is subject, or, to the best of the Company's
knowledge, any statute or any order, rule, regulation, judgment or decree of any
court or governmental agency or body having jurisdiction over the Company or any
of its properties except as may be properly described in Schedule 3.7 annexed
hereto or in the SEC Reports or such as in the aggregate do not now have and
could not in the future have a material adverse effect upon the financial
position, results of operations, properties, business or prospects of the
Company; nor is the Company required to take any action in order to avoid any
such breach or default.
(b) The Company has properly filed all reports and other documents
required to be filed with any federal, state, local and foreign government or
subdivision or agency thereof with respect to which the failure to file could
have a material
3
<PAGE>
adverse effect on the Company. The Company has not received any notice not
heretofore complied with in all material respects from any federal, state or
local authority or any insurance or inspection body that any of its assets or
business procedures or practices fails to comply with any applicable law,
ordinance, regulation, building or zoning law or requirement of any public
authority or body.
3.8 Authorization. The Company has all requisite power and authority
-------------
to (i) execute, deliver, and perform its obligations under each of this
Agreement and the Registration Rights Agreement attached as Exhibit A hereto
(collectively, the "Documents") and (ii) to issue, sell, and deliver the Shares.
All necessary corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance of the Documents.
Concurrently with execution hereof and as a condition to consummation of the
transactions contemplated hereby the Company has executed and delivered each of
the Documents. Each Document has been duly authorized by the Company and
constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms.
3.9 No Consent. (a) No consent, authorization, approval, order,
----------
license, certificate or permit of or from, or declaration or filing with, any
federal, state, local or other governmental authority or any court or any other
tribunal is required by the Company in connection with the execution, delivery
or performance by the Company of the Documents or the issuance, sale, and
delivery of the Shares (except such filings and consents as may be required and
have been or at the Closings or within the appropriate time thereafter will have
been made or obtained under federal and state securities laws).
(b) Except as described in Schedule 3.9 annexed hereto, no consent of
any party to any contract, agreement, instrument, lease, license, arrangement or
under standing to which the Company is a party or to which any of its properties
or assets are subject is required for the execution, delivery, or performance by
the Company of any of the Documents or the issuance or delivery of the Shares.
3.10 No Conflict. The execution, delivery and performance of this
-----------
Agreement and the other Documents and the consummation of the transactions
herein and therein contemplated, including the issuance of the Shares, will not
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any agreement or instrument to
which the Company is a party or by which it is bound or to which any of the
property of the Company is subject, the Certificate of Incorporation or By-laws
of the Company, or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
properties, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company.
3.11 No Misstatements or Omissions. This Agreement and all other
-----------------------------
documents or instruments furnished by the Company to the Investor in connection
with the
4
<PAGE>
transaction contemplated hereby do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or herein or necessary to make the statements therein or herein not misleading.
Without limiting the generality of the foregoing, there has been no material
adverse change, and the Company is aware of no fact which might result in a
material adverse change, in the financial condition, results of operations,
business, properties, assets, liabilities or prospects of the Company from the
latest information set forth in the Financial Statements other than losses
occurring in the ordinary course of business that have either been disclosed in
the SEC Reports or incurred since October 31, 1997.
3.12 Securityholders Voting Rights. Except as set forth in Schedule
-----------------------------
3.12 or as set forth in Section 6 of the First Subscription, neither the Company
nor to the Company's knowledge any of its shareholders are a party to any voting
trust, agreement or arrangement affecting the exercise of voting rights of the
outstanding common stock of the Company.
3.13 Registration Rights. Except as set forth in the Registration
-------------------
Rights Agreement or in Schedule 3.13 annexed hereto or in the SEC Reports,
neither the Company nor its shareholders are a party to any agreement pursuant
to which any other person or entity has the right to require the Company to
register any securities of the Company under any federal or state securities
laws.
3.14 Employees. Except as set forth in the SEC Reports or in
---------
Schedule 3.14 annexed hereto or in the SEC Reports, the Company is not a party
to any existing employment agreement with executive officers of the Company,
deferred compensation, stock option, bonus, consulting, or retirement agreements
or plans, or other employee benefit plans of any kind including without
limitation any pension or welfare benefit plans. The Company does not maintain,
or ever has maintained, an Employee Pension Benefit Plan as defined in Section
3(a) of the ERISA or a multiemployer plan as defined in Section 3(37) of ERISA.
No employee of the Company is represented by any labor union or collective
bargaining agreement, nor is any union organization effort pending or threatened
against the Company.
3.15 Brokers. No broker's, finder's or similar fees will be payable
-------
by the Company in connection with the transactions contemplated by this
Agreement.
3.16 Properties. The Company has good and marketable title to its
----------
material properties and assets. Such properties and assets are not subject to
any liens, mortgages, pledges, encumbrances or charges of any kind except liens
for current taxes and assessments not delinquent or those which are not material
in scope or amount and do not interfere with the conduct of the Company's
business and except those described in Schedule 3.16 annexed hereto or in the
SEC Reports. All leases pursuant to which the Company leases real or personal
property are in good standing and are valid and effective in accordance with
their respective terms and there exists no default or occurrence or
5
<PAGE>
condition which could result in a default or termination of any such leases.
The Company's equipment and other tangible assets are in good operating
condition and are usable in the ordinary course of business, and the Company
owns, or has a valid leasehold interest in, all assets necessary for the conduct
of its business as presently conducted.
3.17 Environmental Health and Safety. Except as set forth in
-------------------------------
Schedule 3.17 annexed hereto, the Company has, to the best of the Company's
knowledge, complied with all applicable federal, state, local and foreign
statutes, laws and regulations, ordinances, rules, judgements, orders, decrees,
permits, licenses or codes that are currently in effect and that relate to the
environment (hereinafter collectively referred to as the "Environmental Health
and Safety Laws") and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
the Company alleging any failure to comply. Without limiting the generality of
the preceding sentence, except as set forth in Schedule 3.17 or in the SEC
Reports, the Company has obtained and been in compliance with all of the terms
and conditions of all permits, licenses, and other authorizations which are
required under and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
time tables which are contained in the Environmental Health and Safety Laws. To
the best of the Company's knowledge, the Company has no liability or has not
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition or owned or operated any property or facility in any manner that could
form the basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company giving
rise to any liability for damage to any site, location or body of water (surface
or subsurface) for any illness of or personal injury to any employee or other
individual or for any reason under any Environmental Health and Safety Law. To
the best of the Company's knowledge, all properties and equipment used in the
business of the Company have been free of asbestos, PCB'S, methylene chloride,
trichloroethylene, dioxin, dibenzofurans or any other extremely hazardous
substance.
3.18 Material Contracts. Annexed hereto as Schedule 3.18 is a true
------------------
and complete list of all material contracts, agreements, instruments, leases,
licenses, arrangements or understandings, written or oral, to which the Company
is a party or to which any of its properties or assets are subject (collectively
with the documents listed in the SEC Reports, the "Material Contracts"), which
are not already listed as exhibits to the SEC Reports. All of the Material
Contracts are valid, binding and enforceable and in full force and effect and
the Company has substantially performed all of its current obligations
thereunder. No party to a Material Contract has made a claim to the effect that
the Company has failed to perform an obligation thereunder. Except as set forth
on Schedule 3.18, there is no known plan, intention or indication of any
contracting party to a Material Contract to cause the termination, cancellation
or modification of such Material Contract or to reduce or otherwise change its
activity thereunder so as to adversely affect the Company.
6
<PAGE>
3.19 Loan Obligations and Commitments. Except for accounts payable
--------------------------------
incurred in the ordinary course of business and except as set forth in Schedule
3.19 annexed hereto or in the SEC Reports, the Company is not a party to any
loan agreement, promissory note or other evidence of indebtedness and the
Company does not have any obligation for borrowed money. Neither the execution
nor consummation of this Agreement requires the consent of any lender or other
party.
3.20 Tax Returns and Payments. All federal, state and other tax
------------------------
returns and reports of the Company required by law to be filed have been duly
filed, and all federal, state and other taxes, assessments, fees and other
governmental charges imposed upon the Company or any of its properties, assets,
income or franchises which are due and payable, or claimed by the taxing
authority to be due and payable, have been paid. Without limiting the
foregoing, the Company has paid all applicable income, withholding, excise,
unemployment, social security, occupation, transfer, franchise, property, sales
and use taxes, import duties and all penalties and interest in respect thereof.
3.21 Licenses, Patents, Trademarks.
-----------------------------
(a) Ownership. The Company's Annual Report on Form 10-K
---------
(Item 1 - Description of Business) contains a narrative description of the
status of the Company's licenses, patents, copyrights, trade names and
trademarks (including applications therefor) owned by the Company or any
employee of the Company except for those owned by employees which are unrelated
to the business of the Company, other than any of the foregoing already
described in the SEC Reports. The Company owns, free and clear of all liens and
encumbrances, all the licenses, patents, copyrights, trade names, trademarks,
trade secrets and processes necessary for the conduct of its business as
presently conducted and as presently proposed to be conducted and has the
unrestricted right to use the foregoing without the payment of any royalty
except as described in Schedule 3.21 or in the SEC Reports. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of its trade secrets and other technical information.
(b) No Infringement. Except as set forth in Schedule 3.21 or in the
---------------
SEC Reports, no person has asserted a claim that the Company has infringed any
patent, trade secret, copyright, trade name or trademark and the Company has not
made any claim that, and is unaware that, any third party is infringing any
license, patent, copyright, trademark, tradename, trade secret or other
intellectual property owned by or used by the Company. The Company does not,
and will not under its proposed plan of business, operate to conflict with,
infringe, override or interfere with the rights of any other person in any
license, patent, copyright, trade name, trademark, trade secret or process or
rights pertaining thereto and the Company has full right and authority to
utilize the processes, systems and techniques which it presently utilizes or
which it expects to utilize in the future.
7
<PAGE>
(c) Assignment. All rights to processes, systems, patents, copyrights
----------
and techniques used by the Company which were developed by any employee of or
consultant to the Company have been duly and validly assigned to the Company.
3.22 Securities Laws Compliance; Registration Rights. Based in part
-----------------------------------------------
upon the representations of the Investor contained in Section 4 hereof, the
offer and sale of the Shares has complied with all applicable federal and state
securities laws. The Company has complied with all applicable federal and state
securities laws in connection with all offers and sales of securities prior to
the date of this Agreement.
3.23 No Anti-Dilution Adjustments. Except as described in Schedule
----------------------------
3.23 annexed hereto, the issuance and sale of the Shares pursuant to this
Agreement will not result in an adjustment to the conversion price or exercise
price or in any other adjustment under any preferred stock, warrant, option,
note, debenture or other security of the Company.
3.24 SEC Reports. The Company has filed all reports, registration
-----------
statements, definitive proxy statements and other document and all amendments
thereto and supplements thereof (the "SEC Reports") required to be filed by it
with the Securities and Exchange Commission (the "Commission") since April 30,
1995, all of which have complied in all material respects with all applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated thereunder. As of the respective dates of
filing in final or definitive form (or, if amended or superseded by a subsequent
filing, then on the date of such subsequent filing), none of the Company's SEC
Reports, including, without limitation, any financial statements or schedules
included therein, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading. The balance sheets (including the related notes) in the
Company's SEC Reports fairly present the financial position of the Company as of
the respective dates thereof, and the other related financial statements
(including the related notes) included therein fairly presented the results of
operations and changes in financial position of the Company for the periods
indicated, except, in the case of interim financial statements, for year-end
audit adjustments, consisting only of normal recurring accruals. The financial
statements (including the related notes) included in the Company's SEC Reports
have been prepared in accordance with GAAP, except as otherwise noted therein
or, in the case of unaudited financial statements, as permitted by the
applicable rules and regulations of the Commission.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
----------------------------------------------
The Investor hereby represents and warrants to the Company as follows:
8
<PAGE>
4.1 The Investor is an "Accredited Investor" as that term is defined
in Section 501(a) of Regulation D promulgated under the Securities Act.
4.2 The Investor represents that: (i) the Company has made available
to him all information which he deemed material to making an informed investment
decision in connection with its purchase of the Shares or (ii) the Investor is
in a position regarding the Company which has enabled the Investor to obtain
information from the Company necessary to evaluate the merits and risks of an
investment in the Shares.
4.3 The Investor has such knowledge and experience in finance,
securities, investments and other business matters so as to be able to protect
his interests in connection with this transaction, and the Investor's investment
in the Company hereunder is not material when compared to the Investor's total
financial capacity.
4.4 The Investor understands the various risks of an investment in
the Company as proposed herein and can afford to bear such risks, including, but
not limited to, the risks of losing the entire investment.
4.5 The Investor has been advised by the Company that the Shares have
not been registered under the Securities Act, that the Securities will be issued
on the basis of the statutory exemption provided by Section 4(2) of the Act or
Regulation D promulgated thereunder, or both, relating to transactions by an
issuer not involving any public offering and under similar exemptions under
certain state securities laws. In particular, the Investor agrees that no sale,
assignment, or transfer of any of the Shares shall be valid or effective, and
the Company shall not be required to give any effect to any such sale,
assignment or transfer, unless (i) the sale, assignment or transfer of the
Shares is registered under the Act, it being understood that the Shares are not
currently registered for sale and that the Company has no obligation or
intention to so register the Shares except as contemplated in the Registration
Rights Agreement or (ii) such Shares are sold, assigned or transferred in
accordance with all the requirements and limitations of Rule 144 under the Act,
or (iii) such sale, assignment or transfer is otherwise exempt from registration
under the Act. The Investor acknowledges that the Shares shall be subject to a
stop transfer order and the certificate or certificates evidencing the Shares
shall bear the following or a substantially similar legend and such other
legends as may be required by state blue sky laws:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
or any state securities laws and neither such securities nor any
interest therein may be offered, sold, pledged, assigned, or otherwise
transferred unless (1) a registration statement with respect thereto
is effective under the Act and any applicable state securities laws or
(2) the Company receives an opinion of counsel to the holder of such
securities, which counsel and
9
<PAGE>
opinion are reasonably satisfactory to the Company, that such
securities may be offered, sold, pledged, assigned, or transferred in
the manner contemplated without an effective registration statement
under the Act or applicable state securities laws."
4.6 The Investor is acquiring the Shares for the Investor's own
account for investment and not with a view to the sale or distribution thereof
or the granting of any participation therein, and has no present intention of
distributing or selling to others any of such interest or granting any
participation therein.
4.7 Accuracy of Representations and Warranties. No representation or
------------------------------------------
warranty of the Investor in this Agreement or the schedules or exhibits hereto
contains any untrue statement of material fact or omits to state any material
fact necessary to make the statements made not misleading.
SECTION 5. COVENANTS BY THE INVESTOR.
-------------------------
5.1 Voting of Shares. From and after the date hereof, provided that
----------------
the Company is not in default of its obligations hereunder, under any of the
documents delivered at the First Closing or under any other Document, which
default has continued for a period of 15 days after the occurrence thereof,
and/or that no Event of Default, as such term is defined in the Promissory Note
dated April 6, 1998 issued to RG Capital Fund LLC has occurred and is
continuing, the Investor shall vote all of the Shares in accordance with the
recommendations of the Board. Subject to any such breach, the covenants of the
Investor set forth in this paragraph 5.1 shall survive and continue until the
first anniversary hereof.
5.2 Purchase of Common Stock. The Investor agrees not to purchase
------------------------
any additional shares of Common Stock on the open market or from any person or
entity other than the Company without the prior written consent of the Company.
The covenants of the Investor set forth in this paragraph 5.2 shall survive and
continue until the first anniversary hereof.
5.3 Resales of Shares. Until the second anniversary of the date
-----------------
hereof, the Investor shall not in any way sell, assign or otherwise transfer any
interest in the Shares (other than a distribution to the members of the
Investor, provided that the restrictions of this Section 6 shall continue to be
applicable to the Shares and such transferees shall agree in writing to be bound
by the provisions of this Agreement affecting the Shares so transferred);
provided, however, that the foregoing restriction shall not apply to any
- - -------- -------
transfer by the Investor in connection with an underwritten offering of shares
of Common Stock which has been registered with the Commission and provided,
--------
further that during such two year period the Investor shall be permitted to
- - -------
transfer shares of Common Stock in a privately negotiated transaction and/or
pursuant to registration of the Shares under the
10
<PAGE>
Registration Rights Agreement in a non-underwritten offering in amounts that
would otherwise be permitted under Rule 144 of the Securities Act but without
giving effect to the holding period requirements thereof.
SECTION 6. INDEMNIFICATION.
---------------
6.1 Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold the Investor harmless against and in respect of any loss, cost,
expense, liability or damage (including, without limitation, attorneys' fees,
expenses and disbursements) suffered or incurred by the Investor arising from
(a) any breach or failure to perform by the Company of any of its respective
covenants, agreements or other obligations hereunder or under any Document, (b)
any breach of any representation or warranty of the Company contained herein in
any exhibit, certificate or document furnished or required to be furnished
pursuant to this Agreement by the Company to the Investor, or if any documents
furnished to the Investor in connection with the Closing hereunder shall be
false or misleading in any material respect, and (c) the allegation by a third
party of a claim based upon a state of facts which, if true, would constitute a
breach of a representation, warranty or covenant of the Company contained herein
or in any exhibit, certificate or document furnished or required to be furnished
pursuant to this Agreement by the Company to the Investor.
6.2 Indemnification by the Investor. The Investor agrees to
-------------------------------
indemnify and hold the Company, its officers, directors, employees and agents
harmless against and in respect of any loss, cost, expense, liability or damage
(including, without limitation, attorneys' fees, expenses and disbursements)
suffered or incurred by the Company arising from (a) any breach or failure to
perform by the Investor of any of his respective covenants, agreements or other
obligations hereunder or under any Document, (b) any breach of any
representation or warranty of the Investor contained herein, in any exhibit,
certificate or document furnished or required to be furnished pursuant to this
Agreement by the Investor or if any documents furnished to the Company in
connection with the Closing shall be false or misleading in any material
respect, and (c) the allegation by a third party of a claim based upon a state
of facts which, if true, would constitute a breach of a representation, warranty
or covenant of the Purchaser contained herein or in any exhibit, certificate or
document furnished or required to be furnished pursuant to this Agreement by the
Investor to the Company.
6.3 Notice. If any event shall occur which may result in
------
indemnification hereunder, the indemnified party or parties agree to give the
indemnifying party or parties prompt written notice thereof. If such event
involves a claim by a third party, the indemnifying party or parties shall have
the right at its or their sole expense to control and assume the defense of the
matter giving rise to such indemnification with counsel reasonably satisfactory
to the indemnified party or parties and to compromise or settle any such matter,
provided that such compromise or settlement entirely and unconditionally
- - --------
11
<PAGE>
releases the indemnified party or parties from all liability with respect
thereto. If the indemnifying party or parties shall assume the defense of the
indemnified party or parties, the indemnified party or parties shall have the
right to participate in such defense but only at its or their own expense and
the indemnifying party or parties shall not be obligated to pay the fees of
counsel to the indemnified party or parties incurred after such assumption. If
the indemnifying party or parties do not assume the defense of such matter
within a reasonable time after notice thereof, the indemnified party or parties
may defend, settle or compromise such matter for the account and at the expense
of the indemnifying party or parties.
6.4 No Limitation of Remedies. The indemnification provided herein
-------------------------
shall not be the exclusive remedy of the indemnified party or parties and in no
manner shall limit any other remedy available to such party or parties under
this Agreement whether at law, in equity or otherwise.
12
<PAGE>
SECTION 7. MISCELLANEOUS.
-------------
7.1 Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties, covenants, indemnities and agreements of the
parties hereto contained in this Agreement and in any agreement delivered or to
be delivered pursuant to this Agreement shall remain operative and in full force
and effect for a period of two years after the date hereof (unless, with respect
to the covenants of the parties, any covenant expressly indicates that it shall
remain operative and in full force and effect for a longer period) regardless of
any investigation made by or on behalf any party hereto notwithstanding
knowledge or notice of a breach thereof.
7.2 Notices. All notices and other communications given under this
-------
Agreement shall be in writing and shall be deemed to have been given (i) on the
date delivered, if delivered personally or (ii) on the date deposited in the
United States mail, if sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the parties as follows:
(a) if to the Company:
Linkon Corporation
140 Sherman Avenue
Fairfield, CT 06430
Attention: Lee W. Hill, President
Copy to:
Finn Dixon & Herling LLP
One Landmark Square
Stamford, CT 06901
Attention: David I. Albin, Esq.
(b) if to the Investor:
13
<PAGE>
Copies to:
RG Capital Fund LLC
One Hollow Lane, Suite 208
Lake Success, NY 11040
Attention: James Scibelli
and
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: Eric M. Lerner, Esq.
or to such other address as any party shall have specified by notice in writing
to the others in compliance with this Section 7.2, except that any notice
specifying a change in address shall only be deemed given when actually
received.
7.3 Agreement Binding on Successors. This Agreement shall be binding
-------------------------------
upon and inure to the benefit of the parties hereto, the successors and assigns
of the Com pany, and the permitted successors, assigns, heirs and personal
representatives of the Investor.
7.4 Headings. The headings in this Agreement are solely for
--------
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
7.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Governing Law. This Agreement has been negotiated and shall be
-------------
consummated in the State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws.
7.7 Consent to Jurisdiction. The parties hereto irrevocably consent
-----------------------
to the jurisdiction of the courts of the State of New York and of any federal
court located in such State in connection with any action or proceeding arising
out of or relating to this Agreement, any document or instrument delivered
pursuant to, in connection with or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, each party hereto waives personal service
14
<PAGE>
of any summons, complaint or other process and agrees that service thereof may
be made in accordance with Section 8.2. Within 30 days after such service, or
such other time as may be mutually agreed upon in writing by the attorneys for
the parties to such action or proceeding, the party so served shall appear or
answer such summons, complaint, or other process. Should the party so served
fail to appear or answer within such 30-day period or such extended period, as
the case may be, such party shall be deemed in default and judgment may be
entered against such party for the amount as demanded in any summons, complaint
or other process so served.
7.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable laws, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.9 Transferability. Neither this Agreement, nor any interest of the
---------------
undersigned herein, shall be assignable or transferable by the undersigned in
whole or in part except by operation of law.
7.10 Entire Agreement. This Agreement and the exhibits hereto set
----------------
forth the entire understanding of the parties with respect to the subject matter
hereof, supersede all existing agreements among them concerning such subject
matter and may be modified only by a written instrument duly executed by the
party to be charged.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first set forth above.
LINKON CORPORATION
By:______________________________________
Name: Thomas V. Cerabona
Title: Vice President
-----------------------------------------
16
<PAGE>
SCHEDULES
Schedule 3.2 -Outstanding Options, Warrants, Rights, etc.
Schedule 3.3 -Subsidiaries
Schedule 3.6 -Litigation
Schedule 3.7 -Violations; Compliance
Schedule 3.9 -Consents
Schedule 3.12 -Securityholders Voting Rights
Schedule 3.13 -Registration Rights
Schedule 3.14 -Employees
Schedule 3.16 -Liens, etc.
Schedule 3.17 -Environmental Health and Safety
Schedule 3.18 -Material Contracts
Schedule 3.19 -Loan Obligations and Commitments
Schedule 3.21 -Licenses, Patents, Trademarks
Schedule 3.23 -Anti-Dilution Adjustments
Schedule 5.3 -Permitted Existing Indebtedness
17
<PAGE>
EXHIBIT 10.10
WARRANT PURCHASE AGREEMENT
--------------------------
WARRANT PURCHASE AGREEMENT, dated as of April 6, 1998, between LINKON
CORPORATION, a Nevada corporation, having its principal offices at 140 Sherman
Avenue, Fairfield, CT 06430 (the "Company"), and ROBERTS & GREEN, INC., a New
York corporation, having its principal offices at One Hollow Lane, Suite 208,
Lake Success, NY 11040 (the "Investor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Investor are entering into that certain
Investment Banking and Financial Advisory Services Agreement, dated as of the
date hereof (the "Investment Banking Agreement"); and
WHEREAS, pursuant to the Investment Banking Agreement the Company is
obligated to issue to the Investor Warrants (the "Warrants") to purchase
1,000,000 shares (the "Warrant Shares") of the common stock, $.001 par value per
share of the Company (the "Common Stock");
NOW, THEREFORE, in consideration of the premises and of the mutual promises
set forth herein, the Investor and the Company, intending to be legally bound,
hereby agree as follows:
1. Issuance of Warrants. Subject to the terms and conditions set forth
--------------------
herein and in the Investment Banking Agreement, the Investor hereby purchases
from the Company, and the Company hereby sells to the Investor, the Warrants for
the consideration set forth in the Investment Banking Agreement.
2. Delivery. Simultaneously with the execution of this Agreement, the
--------
Company shall deliver to the Investor a certificate representing the Warrants in
the form of Exhibit A hereto.
---------
3. Representations and Warranties of Company. The Company represents and
-----------------------------------------
warrants that:
3.1 No Violation; Compliance. (a) The Company is not in violation of its
------------------------
Articles of Incorporation or Bylaws. The Company is not in default or breach
with respect to any agreement or instrument to which it is a party or by which
it or any of its properties is subject or, to the best of the Company's
knowledge, any statute or any order, rule, regulation, judgment or decree of any
court or governmental agency or body having jurisdiction over the Company or any
of its properties except as may be properly described in Schedule 3.7 to the
Subscription and Stock Purchase Agreement, dated as of the date hereof, between
the parties hereto (the "Subscription Agreement") or in the SEC Reports (as
defined in the Subscription Agreement) or such as in the aggregate do not now
have and could not in the future have a material adverse effect upon the
financial position, results of operations,
<PAGE>
properties, business or prospects of the Company; nor is the Company required to
take any action in order to avoid any such breach or default.
(b) The Company has properly filed all reports and other documents
required to be filed with any federal, state, local and foreign government or
subdivision or agency thereof with respect to which the failure to file could
have a material adverse effect on the Company. The Company has not received any
notice not heretofore complied with in all material respects from any federal,
state or local authority or any insurance or inspection body that any of its
assets or business procedures or practices fails to comply with any applicable
law, ordinance, regulation, building or zoning law or requirement of any public
authority or body.
3.2 Authorization. The Company has all requisite power and authority to
-------------
(i) execute, deliver, and perform its obligations under each of this Agreement,
the Investment Banking Agreement and the Indemnification Agreement, dated as of
the date hereof, between the parties hereto (collectively, the "Documents") and
(ii) to issue, sell and deliver the Warrants to the Investor, and upon due
exercise of the Warrants in accordance with the terms thereof, to issue, sell
and deliver the Warrant Shares to the Investor. All necessary corporate
proceedings of the Company have been duly taken to authorize the execution,
delivery, and performance of the Documents. Concurrently with the execution
hereof and as a condition to the consummation of the transactions contemplated
hereby the Company has executed and delivered each of the Documents. Each
Document has been duly authorized by the Company and constitutes the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with its terms.
3.3 No Consent. (a) No consent, authorization, approval, order, license,
----------
certificate or permit of or from, or declaration or filing with, any federal,
date, local or other governmental authority or any court or any other tribunal
is required by the Company in connection with the execution delivery or
performance by the Company of the Documents or the issuance, sale and delivery
of the Warrants, and upon the due exercise of the Warrants in accordance with
the terms thereof, the Warrant Shares (except, with respect to the issuance of
the Warrants and the Warrant Shares, such filing and consents as may be required
and have been or at the Closing or within the appropriate time thereafter will
have been made or obtained under federal and state securities laws).
(b) Except as described in Schedule 3.19 to the Subscription Agreement, no
consent of any party to any contract, agreement, instrument, lease, license,
arrangement or understanding to which the Company is a party or to which any of
its properties or assets are subject is required for the execution, delivery, or
performance by the Company of any of the Documents or the issuance or delivery
of the Warrants and upon the due exercise of the Warrants in accordance with the
terms thereof, the Warrant Shares.
3.4 No Conflict. The execution, delivery and performance of this
-----------
Agreement and the other Documents and the consummation of the transactions
herein and
2
<PAGE>
therein contemplated, including the issuance of the Warrants, and upon the due
exercise of the Warrants in accordance with the terms thereof, the Warrant
Shares, will not conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any agreement or
instrument to which the Company is a party or by which it is bound or to which
any of the property of the Company is subject, the Articles of Incorporation or
Bylaws of the Company, or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company or any
of its properties, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company.
4. Representations and Warranties of the Investor. The Investor
----------------------------------------------
represents and warrants that:
4.1 Authorization. The Investor has all requisite power and authority to
-------------
(i) execute, deliver, and perform its obligations under each of the Documents.
All necessary corporate proceedings of the Investor have been duly taken to
authorize the execution, delivery, and performance of the Documents.
Concurrently with the execution hereof and as a condition to the consummation of
the transactions contemplated hereby the Investor has executed and delivered
each of the Documents. Each Document has been duly authorized by the Investor
and constitutes the legal, valid and binding obligations of the Investor,
enforceable against the Investor in accordance with its terms.
4.2 Investment Representations.
--------------------------
4.2.1 The Investor is an "Accredited Investor" as that term is defined in
Section 501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
4.2.2 The Company has made available to the Investor all information which
it deemed material to making an informed investment decision in connection with
its acquisition of the Warrants and the Warrant Shares or the Investor is in a
position regarding the Company which has enabled the Investor to obtain
information from the Company necessary to evaluate the merits and risks of an
investment in the Warrants and the Warrant Shares.
4.2.3 The Investor has such knowledge and experience in finance,
securities, investments and other business matters so as to be able to protect
its interests in connection with the transactions contemplated by the Agreement,
and the Investor's investment in the Company thereunder is not material when
compared to the Investor's total financial capacity.
4.2.4 The Investor understands the various risks of an investment in the
Company as proposed under the Documents and can afford to bear such risks,
including, but not limited to, the risks of losing the entire investment.
3
<PAGE>
4.2.5 The Investor has been advised by the Company that the Warrants and
the Warrant Shares have not been registered under the Securities Act, that the
Securities will be issued on the basis of the statutory exemption provided by
Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering
and under similar exemptions under certain state securities laws. In
particular, the Investor agrees that no sale, assignment, or transfer of any of
the Warrants or the Warrant Shares shall be valid or effective, and the Company
shall not be required to give any effect to any such sale, assignment or
transfer, unless (i) the sale, assignment or transfer of the Warrants or the
Warrant Shares is registered under the Securities Act, it being understood that
the Warrants and the Warrant Shares are not currently registered for sale and
that the Company has no obligation or intention to so register the Warrants or
the Warrant Shares except as contemplated in the Registration Rights Agreement,
dated as of the date hereof, between the Investor and the Company or (ii) such
Warrants or Warrant Shares are sold, assigned or transferred in accordance with
all the requirements and limitations of Rule 144 under the Securities Act, or
(iii) such sale, assignment or transfer is otherwise exempt from registration
under the Securities Act. The Investor acknowledges that the Warrants and the
Warrant Shares shall be subject to stop transfer orders and the certificates
evidencing the Warrants and the Warrant Shares shall bear the following or a
substantially similar legend and such other legends as may be required by state
blue sky laws:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws and neither such
securities nor any interest therein may be offered, sold, pledged,
assigned, or otherwise transferred unless (1) a registration statement
with respect thereto is effective under the Securities Act and any
applicable state securities laws or (2) the Company receives an
opinion of counsel to the holder of such securities, which counsel and
opinion are reasonably satisfactory to the Company, that such
securities may be offered, sold, pledged, assigned, or transferred in
the manner contemplated without an effective registration statement
under the Securities Act or applicable state securities laws."
4.2.6 The Investor is acquiring the Warrants and the Warrant Shares
for the Investor's own account for investment and not with a view to the sale or
distribution thereof or the granting of any participation therein, and has no
present intention of distributing or selling to others any of such interest or
granting any participation therein.
4.2.7 The Investor is acquiring the Shares for its own account for
investment and not with a view to the distribution or resale thereof.
4
<PAGE>
5. Reservation of Warrant Shares. The Company covenants that it will
-----------------------------
at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issuance upon the exercises of the Warrants, such
number of shares of Common Stock as shall then be issuable upon the exercise of
the Warrants.
6. Additional Action. Each party shall, upon the request of the
-----------------
other, from time to time, execute and deliver promptly to such other party all
instruments and documents and will do any and all such acts and things as may be
reasonably required to carry out the obligations of such party hereunder and to
consummate the transactions contemplated hereby.
7. Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the parties hereto and their respective successors and
assigns.
8. Governing Law. This Agreement shall in all respects be governed
-------------
by the laws of the State of New York without giving effect to the principles of
conflicts of law thereof.
9. Entire Agreement. This Agreement and the Documents constitute the
----------------
entire arrangement between the parties with respect to the subject matter hereof
and cannot be changed, modified, discharged or terminated except by a writing
signed by the party against whom enforcement of any change, modification,
discharge or termination is sought.
10. Waiver. No waiver shall be deemed to be made by any party of any
------
of its rights hereunder unless the same shall be in writing, and each waiver, if
any, shall be a waiver only with respect to the specific instance involved and
shall in no way impair the rights of the waiving party or the obligations of the
other party in any other respect at any other time.
11. Notices. Any notice, demand or other communication to be given
-------
hereunder by either party to the other shall be in writing and shall be mailed
by certified or registered mail, return receipt requested, or personally
delivered to the party to whom it is to be given at the address of such party
set forth in the preamble to this Agreement (or to such other address as the
party shall have furnished in accordance with the provisions of this Section
10).
12. Captions. The captions used in this Agreement are for
--------
convenience only and shall not be deemed as, or construed as, a part of this
Agreement.
12. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
* * * *
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
COMPANY:
LINKON CORPORATION
By: __________________________________
Name:
Title:
INVESTOR:
ROBERTS & GREEN, INC.
By: __________________________________
Name:
Title:
6
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
<PAGE>
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of April 6, 1998,
among RG Capital Fund LLC, a New York limited liability company ("RG Capital"),
Roberts & Green, Inc., a New York corporation ("R&G") and Linkon Corporation, a
Nevada corporation (the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, RG Capital has agreed to subscribe to shares (the "Shares") of
common stock, par value $0.001 per share, of the Company (the "Common Stock")
pursuant to a Subscription and Stock Purchase Agreement (the "Subscription
Agreement") between the Company and RG Capital of even date herewith;
WHEREAS, pursuant to an Investment Banking and Financial Advisory Services
Agreement between R&G and the Company of even date herewith, R&G has been issued
warrants ("Warrants") to purchase additional shares of Common Stock (the
"Warrant Shares") pursuant to that certain Warrant Purchase Agreement dated of
even date herewith; and
WHEREAS, as additional consideration for the Shares and the Warrant Shares,
the Company desires to grant to RG Capital and R&G registration rights with
respect to the Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
1. (a) Demand Registration. Promptly upon the
-------------------
execution of this Agreement, and in any event prior to May 15, 1998 the Company
shall, at the Company's sole cost and expense (other than the fees and
disbursements of counsel for RG Capital) prepare and file with the Securities
and Exchange Commission (the "Commission") a registration statement sufficient
to permit the resale of all or part of the Shares and will use its good faith
best efforts through its officers, directors, auditors, and counsel to cause
such registration statement to become effective as promptly as practicable.
(b) Piggyback Registration. In addition to the Company's obligations
----------------------
under Section 1(a) of this Agreement and not in limitation thereof, the Company
shall give RG Capital and R&G at least 30 days' prior written notice of each
filing by the Company of a registration statement (other than a registration
statement on Form S-4 or Form S-8 or on any successor forms thereto) with the
Commission. If requested by RG Capital or R&G in writing within 20 days after
receipt of any such notice, the Company shall, at the Company's sole expense
(other than the fees and disbursements of counsel for RG Capital or R&G, and the
underwriting discounts, if any, payable in respect of the Shares or Warrant
1
<PAGE>
Shares sold by RG Capital or R&G, respectively), register all or, at RG
Capital's or R&G's option, any portion of the Shares or the Warrant Shares
concurrently with the registration of such other securities, all to the extent
requisite to permit the public offering and sale of the Shares or the Warrant
Shares through the facilities of the Nasdaq National Market or any other
securities exchange, if any, on which the Common Stock is being sold or on the
over-the-counter market, and will use its reasonable best efforts through its
officers, directors, auditors, and counsel to cause such registration statement
to become effective as promptly as practicable. If the managing underwriter of
any such offering shall determine and advise the Company that, in its opinion,
the distribution of all or a portion of the Shares or the Warrant Shares
requested to be included in the registration concurrently with the securities
being registered by the Company would materially adversely affect the
distribution of such securities by the Company then the Company will include in
such registration first, the securities that the Company proposes to sell,
second, any shares of Common Stock required to be registered by the terms of a
registration rights agreement listed on Schedule 3.14 to the Subscription
Agreement and third, the Shares or Warrant Shares requested to be included in
such registration, to the extent permitted by the managing underwriter.
(c) In the event of a registration pursuant to the provisions of this
Agreement, the Company shall use its reasonable best efforts to cause the Shares
or Warrant Shares so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as RG Capital or R&G may
reasonably request; provided, however, that the Company shall not be required to
-------- -------
qualify to do business in any state by reason of this Section 1(c) in which it
is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or qualification
contemplated by this Section 1 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document and communication for such period of time as
shall be required to permit RG Capital or R&G to complete the offer and sale of
the Shares or Warrant Shares covered thereby.
(e) In the event of a registration pursuant to the provisions of this
Agreement, the Company shall furnish to RG Capital and R&G such reasonable
number of copies of the registration statement and of each amendment and
supplement thereto (in each case, including all exhibits), of each prospectus
contained in such registration statement and each supplement or amendment
thereto (including each preliminary prospectus), all of which shall conform to
the requirements of the Securities Act of 1933, as amended (the "Securities
Act") and the rules and regulations thereunder, and such other documents, as RG
Capital or R&G may reasonably request to facilitate the disposition of the
Shares or Warrant Shares included in such registration.
(f) The Company shall notify RG Capital and R&G promptly when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed.
2
<PAGE>
(g) The Company shall advise RG Capital and R&G, promptly after it
shall receive notice or obtain knowledge of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement, or
the initiation or threatening of any proceeding for that purpose and promptly
use its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
(h) The Company shall promptly notify RG Capital and R&G at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, would include an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing, and at the reasonable request
of RG Capital or R&G prepare and furnish to it such number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Shares, Warrant Shares or
securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made. RG Capital and R&G shall suspend all sales of the
Shares and the Warrant Shares, respectively, upon receipt of such notice from
the Company and shall not re-commence sales until they receive copies of any
necessary amendment or supplement to such prospectus, which shall be delivered
to RG Capital and R&G within 15 days of the date of such notice from the
Company.
(i) If requested by the underwriter for any underwritten offering of
Shares or Warrant Shares, the Company and RG Capital or R&G, as the case may be,
will enter into an underwriting agreement with such underwriter for such
offering, which shall be reasonably satisfactory in substance and form to the
Company, the Company's counsel, RG Capital and RG Capital's counsel or R&G and
R&G's counsel, as the case may be, and the underwriter, and such agreement shall
contain such representations and warranties by the Company and RG Capital or R&G
and such other terms and provisions as are customarily contained in an
underwriting agreement with respect to secondary distributions solely by selling
stockholders, including, without limitation, indemnities substantially to the
effect and to the extent provided in Section 2 of this Agreement.
(j) The Company agrees that until all the Shares or Warrant Shares
have been sold under a registration statement or pursuant to Rule 144
promulgated under the Securities Act, it shall use its reasonable best efforts
to keep current in filing all reports, statements and other materials required
to be filed with the Commission to permit the Company to maintain its
eligibility to use a Form S-2 registration statement and to permit RG Capital
and R&G to sell the Shares or Warrant Shares, respectively, under Rule 144.
(k) The Company shall furnish to RG Capital and R&G and to each
underwriter, if any, a signed counterpart, addressed to RG Capital and R&G or
each
3
<PAGE>
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities provided, however,
that the terms of this Section 1(k) shall not apply if the Shares or Warrant
Shares are registered in a "piggyback" registration in which the party seeking
registration does not receive an opinion of counsel or a "cold comfort letter."
2. Indemnification.
---------------
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless RG Capital and R&G, their officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") from and against any and all loss, liability, charge, claim,
damage, and expense whatsoever (which shall include, for all purposes of this
Section 2, but not be limited to, attorneys' fees and any and all reasonable
expenses whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation) as and when incurred,
arising out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented) or any amendment or supplement thereto, relating to
the sale of any of the Shares or Warrant Shares or (B) in any application or
other document or communication (in this Section 2 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Shares or Warrant Shares under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements made
therein not misleading, unless (x) such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company with respect to RG Capital or R&G by or on behalf of RG Capital or R&G
expressly for inclusion in any registration statement, preliminary prospectus,
or final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (y) such loss, liability, charge, claim,
damage or expense arises out of RG Capital's or R&G's failure to comply with the
terms and provisions of this Agreement, or (ii) any breach of any
representation, warranty,
4
<PAGE>
covenant, or agreement of the Company contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.
If any action is brought against RG Capital or R&G or any of their
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 2(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) provided that the indemnified party shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to such indemnified party or
parties to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this Section 2 to the contrary not
withstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto) unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
to notify RG Capital and R&G of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the sale of any Shares or Warrant Shares or any preliminary
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Shares or Warrant
Shares.
(b) RG Capital and R&G agree to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Shares or Warrant Shares held by
RG Capital or R&G, respectively, each other person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, and its or their respective counsel, to the same extent as
the foregoing indemnity from the Company to RG Capital and R&G in Section 2(a)
but only with respect to statements or omissions, if any, made in any
registration statement, preliminary prospectus, or final pro-
5
<PAGE>
spectus (as from time to time amended and supplemented) or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with written information furnished to the Company with respect to RG Capital or
R&G by or on behalf of RG Capital or R&G, expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against RG Capital or R&G
pursuant to this Section 2(b), RG Capital or R&G shall have the rights and
duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 2(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 2(a) or
2(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act or other wise,
then the Company (including for this purpose any contribution made by or on
behalf of any director of the Company, any officer of the Company who signed any
such registration statement, any controlling person of the Company, and its or
their respective counsel) as one entity, and RG Capital or R&G (including for
this purpose any contribution by or on behalf of an indemnified party) as a
second entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
RG Capital or R&G in connection with the facts which resulted in such losses,
liabilities, claims, damages, and expenses. The relative fault, in the case of
an untrue statement, alleged untrue statement, omission, or alleged omission
shall be determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information supplied by the
Company or by RG Capital or R&G, and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such statement,
alleged statement, omission, or alleged omission. The Company, RG Capital and
R&G agree that it would be unjust and inequitable if the respective obligations
of the Company, RG Capital and R&G for contribution were determined by pro rata
or per capita allocation of the aggregate losses, liabilities, claims, damages,
and expenses (even if RG Capital or R&G and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
2(c). No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this Section 2(c) each person, if any, who controls RG Capital or R&G within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
and each officer, director, partner, employee, agent, and counsel of RG Capital
or R&G or control person shall have the same rights to contribution as RG
Capital
6
<PAGE>
or R&G or control person and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed any such
registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject to each case to the provisions of this Section 2(c). Anything in this
Section 2(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 2(c) is intended to supersede any
right to contribution under the Securities Act, the Exchange Act or otherwise.
3. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company of its
--------
obligations under this Agreement, RG Capital and R&G, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of their rights under this Agreement.
(b) Agreements and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, unless such amendment, modification or supplement is in writing
and signed by the parties hereto.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, or telecopies, initially to the address set forth below, and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 3(c):
if to the Company:
Linkon Corporation
140 Sherman Avenue
Fairfield, CT 06430
Attention: Lee W. Hill, President
Copy to:
Finn Dixon & Herling LLP
One Landmark Square
Stamford, CT 06901
Attention: David I. Albin, Esq.
if to RG Capital:
RG Capital Fund LLC
One Hollow Lane, Suite 208
7
<PAGE>
Lake Success, NY 11040
Attention: James Scibelli
<PAGE>
Copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: Eric M. Lerner, Esq.
if to R&G:
Roberts & Green, Inc.
One Hollow Lane, Suite 208
Lake Success, NY 11040
Attention: James Scibelli, President
Copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Attention: Eric M. Lerner, Esq.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; two business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; and when receipt is acknowledged, if telecopied.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
references only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without reference to its
conflicts of law provisions.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application hereof in any circumstance is held invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provisions in every other
8
<PAGE>
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby.
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of this agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
concerning the registration rights granted by the Company pursuant to this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
RG CAPITAL FUND LLC
By: SG Capital Corp.,
its Managing Director
By:____________________________________
Name: James Scibelli
Title: President
ROBERTS & GREEN, INC.
By:____________________________________
Name: James Scibelli
Title: President
LINKON CORPORATION
By:____________________________________
Name: Thomas V. Cerabona
Title: Vice President
10
<PAGE>
EXHIBIT 10.12
Roberts & Green
One Hollow Lane, Suite 208, Lake Success, NY 11040
516-627-3600 FAX 516-627-8443
EMAIL [email protected]
April 6, 1998
Mr. Lee W. Hill
Linkon Corporation
140 Sherman Street
Fairfield, CT 06430
Dear Mr. Hill:
Roberts & Green ("R&G") is pleased to offer investment banking and financial
advisory services to Linkon Corporation ("Linkon" or "the Company"). The
general nature of R&G's services will be to assist the Company in (i)
strengthening its capital structure, (ii) enhancing its corporate outlook, (iii)
establishing and executing the Company's business plan; and (iv) assisting in
the negotiation of any acquisitions, joint ventures, and mergers.
1. Retention: With the acceptance of this Letter Agreement ("Agreement") the
Company hereby retains Roberts & Green, Inc. as the exclusive financial
advisor for the Company from the date hereof (the "Engagement Period").
2. Services: R&G will perform such other services as are required by the
Company and are customarily performed by investment bankers and financial
advisors; including locating and negotiating acquisitions.
3. Compensation: R&G's compensation for its role as investment banker will be
determined as follows:
a) R&G shall receive a fee of $5,000 per month, plus disbursements
that it incurs on behalf of the Company. Such disbursements
shall include, but not be limited to travel, production costs,
entertainment, and postage and delivery services. The monthly
fee will be limited to eighteen (18) months and is not subject to
early termination.
b) R&G, or its designees, shall be issued a Stock Purchase Warrant
("Warrant") for 1,000,000 shares of the Company's common stock at
$1.50 per share. The
<PAGE>
Warrant shall be issued concurrent with the acceptance of this
Agreement and expire eighteen (18) months from the date hereof.
The common stock of the Company underlying this option shall
carry "piggy-back" registration rights which shall be subject to
underwriter's cutback provisions, allow R&G, or its designees, to
include the common stock underlying the Warrant in any
registration statement filed by the Company with the Securities
and Exchange Commission.
c) With respect to additional financial transactions such as mergers
or acquisitions, R&G will render financial consulting and
investment banking services as requested by the Company. If R&G
locates a merger or acquisition candidate or acts as lead bank in
a transaction, a separate fee will be negotiated at the time of
transaction.
R&G's engagement hereunder may be terminated at any time with or without cause
by either R&G or the Company upon ten days' written notice thereof to the other
party on the third month anniversary of the effective date of this engagement
letter, provided, however, that R&G will continue to be entitled to the full
amount of the fees set forth in paragraph (c) above in the event that at any
time prior to the expiration of six months after such termination occurs which
involves (x) an investor identified in writing to the Company by R&G during the
Engagement Period hereunder, or (y) an investor that proposed or to whom the
Company proposed or with whom the Company held discussions regarding a
Transaction during the Engagement Period hereunder whether or not such
discussions were initiated by R&G, and provided, further, that any termination
of R&G's engagement by the Company hereunder shall not affect the Company's
obligation to pay the fees and expenses to the extent provided in paragraphs (a)
and (b) above, and to indemnify R&G and certain related entities with respect to
actions and omissions prior to such termination as provided in the separate
letter agreement referred to below.
No advice rendered by R&G, whether formal or informal, may be disclosed in whole
or in part, or summarized, excerpted from or otherwise publicly referred to,
without R&G's prior written consent, provided that this shall not apply to
business or offering materials prepared by the Company upon which R&G has
commented or provided input. In addition, R&G, in its role as financial
advisor, may not be otherwise publicly referred to without its prior written
consent.
This Agreement constitutes the final, complete and exclusive agreement between
the parties and supersedes all prior agreements and understandings, written or
oral, related to the subject matter hereto. This Agreement can not be amended
or modified except with the written consent of both parties. This Agreement may
not be assigned or rights or obligations delegated, except in conjunction with
the merger, consolidation or sale of assets of a party. This Agreement shall be
governed by New York law, excluding the choice of law provisions thereof, and
each party consents to the judicial jurisdiction of the courts of the State of
New York, New York County.
<PAGE>
We are delighted to accept this engagement and look forward to working with you
on this assignment. Please confirm that the foregoing is in accordance with
your understanding by signing and returning to us the enclosed duplicate of this
Agreement.
Very truly yours,
ROBERTS & GREEN, INC.
By: /s/ James Scibelli
--------------------------
James Scibelli
President
Accepted and Agreed;
LINKON CORPORATION
By: /s/ Thomas V. Cerabona
----------------------------
Thomas V. Cerabona
<PAGE>
EXHIBIT 10.13
RELEASE AND TERMINATION AGREEMENT
RELEASE AND TERMINATION AGREEMENT, dated as of April 6, 1998, between
Linkon Corporation, a Nevada corporation (the "Company") and IBJS Capital
Corporation, a Delaware corporation ("IBJS").
WHEREAS, the Company and IBJS are parties to that certain Securities
Purchase Agreement, as amended and the related 10% Senior Secured Convertible
Debenture, as amended (the "Debenture"); Warrant to Subscribe for 200,000 shares
of Common Stock (the "First Warrant"); Security Agreement (the "Security
Agreement"); and Conditional Assignment of and Grant of Security Interest in
Intellectual Property Rights (the "Conditional Assignment"), each of which are
dated as of October 27, 1994; Warrant to Subscribe for 60,000 shares of Common
Stock, dated as of November 14, 1996 (the "Second Warrant" and together with the
First Warrant, the "Warrants"); and all other financing statements and other
agreements instruments and documents executed, delivered and/or filed in
connection with the foregoing or otherwise related thereto (collectively, the
"Financing Documents");
WHEREAS, pursuant to the Financing Documents IBJS has extended credit
to the Company in the principal amount of $1,000,000 (the "Indebtedness"), which
Indebtedness is scheduled to mature on October 27, 2000;
WHEREAS, the Company desires to prepay the Indebtedness by making a
payment to IBJS in the amount of $850,000 plus accrued interest (which accrued
interest amounts to $241,888.90 as of April 1, 1998) plus a per diem interest
charge of $388.90 thereafter plus IBJS's unpaid legal fees relating to the
Indebtedness (in the aggregate amount of $7,500) (collectively, the "Payment")
and IBJS is willing to accept the Payment in full satisfaction of the
Indebtedness;
WHEREAS, the parties hereto also desire to cancel all other
obligations of each party under and to otherwise terminate the Financing
Documents;
NOW, THEREFORE, in consideration of the foregoing and such other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Repayment of Indebtedness and Termination of Financing Documents.
1.1 On or before April 6, 1998 the Company shall make the Payment by
wire transfer of immediately available funds to one or more accounts
designated by IBJS at least one day prior to the date of the Payment.
1.2 IBJS hereby acknowledges that the Payment when made to it shall
constitute full satisfaction of the Indebtedness. Upon receipt of the
Payment IBJS shall be deemed to have waived any requirement under the
Financing Documents for written notice from the Company relating to the
repayment or prepayment of the Indebtedness.
<PAGE>
-2-
1.3 Upon receipt by IBJS of the Payment, the Financing Documents and
any obligations of either party thereunder shall automatically be
terminated, including, without limitation, the obligation of the Company
pursuant to Section 4(b) of the Debenture to issue warrants to IBJS in the
event of the prepayment of the Indebtedness.
2. Release of Liens.
----------------
2.1 Subject to the prior receipt by IBJS of the Payment, all liens,
and security interests held by IBJS, in respect of any assets or property
of the Company shall automatically be terminated and released, and all
collateral subject to such liens and security interests shall automatically
be released therefrom and IBJS shall otherwise convey, assign, transfer and
deliver to the Company all of its interest in the Collateral (as defined in
the Security Agreement), including, without limitation, the Patent Rights
(as defined in the Conditional Assignment).
2.2 Subject to the prior receipt by IBJS of the Payment it shall, in
furtherance of the foregoing, promptly deliver to the Company, for filing,
executed UCC-3 statements and other similar documents as requested by
Company, terminating the aforementioned liens and security interests
against the Company in favor of IBJS.
3. Return of Cancelled Debenture and Warrants. Upon receipt by IBJS of
------------------------------------------
the Payment, IBJS shall promptly return to the Company the Debenture and each of
the Warrants.
4. Further Assurances. From time to time after receipt by IBJS of the
------------------
Payment, upon request by the Company (or any lender to the Company), IBJS shall,
without further consideration other than reimbursement for any reasonable and
necessary costs and expenses, execute, deliver and acknowledge all such further
documents, agreements, certificates and instruments and take such further acts
as the Company (or any such lender) may reasonably require to more effectively
evidence or effectuate the transactions contemplated by this Agreement,
including, without limitation, the release of the Indebtedness, the termination
of the Financing Documents and the release and discharge of all security
interests and all other rights and interests that IBJS has or may have had in
the Collateral (as defined in the Security Agreement), including, without
limitation, the Patent Rights (as defined in the Conditional Assignment).
5. Miscellaneous. This Agreement may not be amended, modified or waived
-------------
except in a writing signed by the party against whom enforcement of such
amendment, modification or waiver is sought. This agreement shall be governed
by and construed and interpreted in accordance with the laws of the State of New
York, without giving effect to the conflict of laws principles thereof. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which, when taken together, shall constitute one
and the
<PAGE>
-3-
same instrument. Facsimile execution of this Agreement shall be deemed valid
and legal execution hereof for all purposes.
6. Termination. The obligations of the parties to this Agreement shall
-----------
terminate if the Payment is not made on or before April 6, 1998.
* * * *
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
LINKON CORPORATION
By: _______________________________________
Name:
Title:
IBJS CAPITAL CORPORATION
By: _______________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.14
IMPERIAL BANK
AGREEMENT FOR PURCHASE OF RECEIVABLES
-------------------------------------
(Full Recourse)
THIS AGREEMENT is made on March 19, 1998 by and between Linkon Corporation
------------------
having its principal place of business at 140 Sherman St., Fairfield, County of
Fairfield State of CT, 06430, (the "Seller") and Financial Accounts Management
Services, a division of Imperial Bank, having a place of business at 226 Airport
Parkway, San Jose, California 95110 (the "Purchaser").
1. Definitions. The following terms shall have the meanings stated:
-----------
1.1 "Account Balance" - on any given day, the gross amount of all
---------------
Purchased Receivables and other Obligations unpaid on that day.
1.2 "Account Debtor" - the Obligor on a Purchased Receivable.
--------------
1.3 "Adjustments" - all discounts, allowances, returns, disputes,
-----------
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments asserted by or on behalf of any Account
Debtor with respect to any Purchased Receivable.
1.4 "Advance" - the dollar amount computed with respect to each Purchased
-------
Receivable, equal to the Advance Rate multiplied by the face amount of the
Purchased Receivable.
1.5 "Advance Rate" - 85%
------------
1.6 "Collateral" -
----------
1.6.1 (a) All Seller's present and future accounts, contract
rights, instruments, documents, chattel paper and general intangibles consisting
or rights to payment; All Seller's (b) intellectual property of all forms
(including without limitation trademarks, patents and copyrights); provided,
however, that such intellectual property is collateral hereunder (and the
Purchaser has a security interest therein) only if and to the extent necessary
to give (and for the limited purpose of giving) the Purchaser a perfected
security interest in the collateral described in the immediately preceding
paragraph (a) which arise from the sale, lease or license of Seller's
intellectual property); provided, however, that as to such intellectual
property, the Purchaser's security interest therein is junior and subordinate to
the security interest therein granted by the Seller in the Security Agreement,
dated October 27, 1994, between the Purchaser and IBJS Capital Corporation, (b)
returned and repossessed goods and all Seller's rights as a seller of goods; (c)
all collateral securing any of the foregoing; (d) all deposit accounts, special
and general, whether on deposit with Purchaser or others; (e) to the extent (and
only to the extent) that they relate to the rights of
<PAGE>
Seller payment for goods sold and leased or for services rendered, all Seller's
now owned and hereafter acquired inventory, including raw materials, work-in-
process, and finished goods wherever located; (f) all shipping and packing
supplies used or usable in connection with the sale of inventory; (g) all
Seller's present and future claims against any supplier of any of the foregoing,
including claims for defective goods or overpayments to or undershipments by
suppliers; (h) all proceeds arising from the lease or rental of any of the
foregoing; (i) equipment, including furniture and fixtures; (j) warranty and
other claims which Seller may have against any vendor or lessor of any of the
foregoing; (k) cash and non-cash proceeds of any of the foregoing, in whatever
form (including proceeds in the form of inventory, equipment, or any other form
of personal property), including proceeds of proceeds; and (l) All books and
records relating to the any of the foregoing collateral, and all computers and
other equipment (and computer software used in connection therewith) used in
connection with the record-keeping for the collateral.
1.7 "Customer Payments" - all good funds received by Purchaser from or on
-----------------
behalf of an Account Debtor with respect to Purchased Receivables.
1.8 "Face Amount of Purchased Receivables" - the gross amount due from
------------------------------------
the Account Debtor, less all discounts allowed to the Account Debtor, computed
on the shortest selling terms stated in the invoice evidencing the Purchased
Account.
1.9 "Factor Fee" - rate of 1.75% per month on the face amount of each
----------
outstanding unpaid invoice on a daily basis.
1.10 "Administrative Fee" - rate of 0.5% of the face amount of each
------------------
invoice accessed on the date of purchase. The minimum monthly fee is $0.00.
1.11 "Obligations" - all obligations now or hereafter owed by the Seller
-----------
to the Purchaser, including but not limited to the obligations created
hereunder.
1.12 "Obligor" - the Seller and all guarantors and other entities who may
-------
be obligated to pay the Obligations.
1.13 "Purchased Receivables" - all those accounts, chattel paper,
---------------------
instruments, contract rights, documents, general intangibles, and rights to
payment, and proceeds thereof, arising out of the invoices and other agreements
identified on or delivered with any Transmittal Sheet provided by Seller to
Purchaser.
1.14 "Receivables" - all present and future accounts and general
-----------
intangibles of the Seller.
1.15 "Remittance" - the amount, if any, which Purchaser owes to Seller at
----------
each Settlement Date, according to the accounting prepared by Purchaser, equal
to:
1.15.1 The sum of:
1.15.1.1 The Reserve as of the beginning of the last Settlement
Date, Plus
----
<PAGE>
1.15.1.1.1 The Reserve created for each Purchased Receivable
purchased during the period since the last Settlement Date, minus
1.15.2 The total since the last Settlement Date of:
1.15.2.1 The Administrative Fees on paid Purchased Receivables;
1.15.2.2 Factor Fee on paid Purchased Receivables;
1.15.2.3 Adjustments;
1.15.2.4 Repurchase Amounts (to the extent Purchaser has agreed
to accept payment thereof by deduction from the Remittance); and
1.15.2.5 The Reserve based on the Purchased Receivables as of
the Settlement Date.
1.16 "Repurchase Amount" - see 4.1 below.
-----------------
1.17 "Reserve" - a percentage of the Account Balance, computed as the
-------
difference between the Face Amount of Purchased Receivables and the Advance,
which shall be determined by Purchaser in its reasonable sole discretion, based
on the nature and quality of the Purchased Receivables, and which shall not be
less than 15% less all fees on unpaid Purchased Receivables. The Reserve shall
be the book balance maintained in the records of Purchaser and shall not be a
segregated fund.
1.18 "Settlement Date" - the day that remittance is calculated.
---------------
1.19 "Transmittal Sheet" - the forms supplied by Purchaser to Seller which
-----------------
identify the receivables of Seller which it requests that Purchaser purchase.
2. Purchase of Receivables.
-----------------------
2.1 Seller for and in consideration of the Advances and other valuable
consideration, does hereby absolutely sell, assign and transfer to Purchaser,
its successors and assigns, all of Seller's right, title and interest in and to
the Purchased Receivables and all moneys due or which may become due upon such
Purchased Receivables.
2.2 Purchaser is not obligated to purchase any Receivables from Seller.
2.3 Purchaser may exercise its sole discretion in approving the credit of
each Account Debtor before buying any Receivables.
2.4 Purchaser shall have with respect to the Purchased Receivables, all
the rights and remedies of an unpaid seller under the Uniform Commercial Code
and other applicable law, including the rights of replevin, claim and delivery,
reclamation, and stoppage in transit.
3. Terms of Purchase.
-----------------
3.1 Each Transmittal Sheet shall reasonably identify the Receivables that
Seller desires to become Purchased Receivables, correctly state the amount owed
by the Account Debtor, and shall be signed by an authorized signatory of Seller.
<PAGE>
3.2 Seller hereby authorizes Purchaser to insert in the Transmittal Sheet
information to describe the Purchased Receivables.
3.3 Purchaser is entitled to rely on the contents of any Transmittal
Sheet delivered by Seller, to treat the Receivables described therein as
Purchased Receivables, and to rely on the signature as an authorized signatory
of Seller.
3.4 Upon acceptance and purchase by Purchaser of the Receivables
described on each Transmittal Sheet, Purchaser shall pay the Advance to Seller.
3.5 Should Purchaser determine at any time in the reasonable exercise of
its discretion that the nature and quality of the Purchased Receivables had
deteriorated, Purchaser may change the Advance Rate with respect to all future
purchases of Receivables.
3.6 As Purchaser collects Customer Payments from or on behalf of Account
Debtors, Purchaser shall promptly credit the Customer Payments to the Account
Balance on a daily basis as funds clear, as determined by Purchaser in its
reasonable discretion.
3.7 If Seller is in default under this Agreement, all Customer Payments
will be applied to any Obligations in such order and manner as Purchaser shall
determine, irrespective of contrary instructions which may be received from
Seller or the payor.
3.8 Purchaser shall charge and be entitled to, and Seller shall pay on
each Settlement Date the Administrative Fee and the Factor Fee on all paid
Purchased Receivables.
3.9 Purchaser shall prepare and send to Seller, within ten days after
close of business each month, an accounting of the transactions for that month.
The accounting shall be deemed correct and conclusive, and shall constitute an
account stated between the parties unless Seller makes written objection to
Purchaser within 30 days after mailing of the accounting to the Seller.
3.10 Purchaser shall pay the Remittance to Seller within ten days after
the Settlement Date.
3.11 In the event the calculation of the Remittance results in an amount
due to Purchaser from Seller, Seller shall make such payment in the same manner
as set forth in Section 4.2
4. Repurchase and Recourse. Purchaser's purchase of Purchased Receivables
-----------------------
from Seller shall be with FULL RECOURSE.
-------------
4.1 Purchaser may increase the Reserve, and Seller agrees to pay to
Purchaser on demand, the full amount or any unpaid portion thereof, of any
Purchased Receivable (the "Repurchase Amount"):
4.1.1 Which remains unpaid ninety (90) calendar days after invoice date;
4.1.2 Which is owed by an Account Debtor which has filed, or has had filed
against it, any bankruptcy case or insolvency proceeding or who has become
insolvent (as defined in the Federal Bankruptcy Code) or who is generally not
paying its debts as such debts become due;
<PAGE>
4.1.3 With respect to which there has been any breach of warranty set
forth in Section 6 hereof or any breach of any covenant contained in this
Agreement; or
4.1.4 With respect to which the account debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right of recoupment,
right of return, warranty claim, or short payment, together with all reasonable
attorneys' and professional fees and expenses and all court costs incurred by
Purchaser in collecting the Purchased Receivables and/or enforcing its rights
under this Agreement.
4.2 Purchaser may, in its sole discretion, demand that the Repurchase
Amount be paid by Seller (A) in cash immediately upon demand therefor; (B) by
delivery of substitute invoices acceptable to Purchaser which shall thereupon
become Purchased Receivables; or (C) by deduction from the Remittance which
would otherwise be due to Seller, or by any combination of the foregoing as
Purchaser may from time to time choose.
5. Power of Attorney. Seller hereby irrevocably appoints Purchaser and its
-----------------
successors and assigns as Seller's true and lawful attorney in fact, to, with
respect to Purchased Receivables and with respect to the Collateral at any time
after an Event of Default hereunder (subject to any prior liens in any of the
Collateral held by IBJS Capital Corporation, regardless of the perfection
there), (A) sell, assign, transfer, pledge, compromise, or discharge the whole
or any part of such Receivables; (B) demand, collect, receive, sue, and give
releases for moneys due or which many become due upon such receivables and to
compromise, prosecute, or defend any action, claim, case, or proceeding relating
to such receivables, including the filing of a claim or the voting of such
claims in any bankruptcy case, all in Purchaser's name or Seller's name, as
Purchaser may choose; (C) prepare, file and sign Seller's name on any notice,
claim, assignment, or satisfaction of lien or mechanics' lien or similar
document; (D) notify all account debtors to pay Purchaser directly; (E) receive,
open, and dispose of all mail addressed to Seller for the purpose of collecting
such Receivables; (F) endorse Seller's name on any checks or other forms of
payment on receivables; (G) sign Seller's name to any form UCC-1 or other
document necessary to perfect any security interest granted by Seller to
Purchaser; (H) complete, execute and file any franchise tax return or other
documents necessary to qualify Seller to do business in any state which
Purchaser deems necessary to enforce collection of Receivables, and to pay, on
Seller's behalf any taxes or fees which may be due by Seller in connection
therewith (all such fees and taxes shall be added to the Account Balance) and
(I) do all acts and things necessary or expedient, in furtherance of any such
purpose.
6. Representations, Warranties, & Covenants. To induce Purchaser to render
----------------------------------------
its services to Seller, and with full knowledge that the truth and accuracy of
the following are being relied upon by the Purchaser in determining whether to
accept purchased Receivables
<PAGE>
the Seller represents, warrants, covenants and agrees, with respect to each
Transmittal Sheet delivered to Purchaser that.
6.1 The Seller is the absolute owner of each receivable set forth in
each Transmittal Sheet and has full legal right to make said sale, assignment
and transfer thereof;
6.2 The correct amount of each Receivable is as set forth in the
Transmittal Sheet and is not is dispute;
6.3 The payment of each receivable is not contingent upon the
fulfillment off any obligation or contract, past or future, and any and all
obligations required of the Seller have been fulfilled as of the date of each
Transmittal Sheet;
6.4 Each Receivable set forth in a Transmittal Sheet is based on an
actual sale and delivery of goods and/or services actually rendered, is
presently due and owing to Seller, is not past due or in default, has not been
previously sold, assigned, transferred, or pledged, and is free of any
encumbrance or lien except to Purchaser;
6.5 There are no defenses, offsets or counterclaims against any of the
Receivables, and no agreement has been made under which the Account Debtor may
claim any deduction or discount, except as otherwise stated on each invoice
submitted to Purchaser which is listed on the Transmittal Sheet;
6.6 Each Purchased Receivable shall be the property of the Purchaser and
shall be paid directly to Purchaser, but if for any reason it should be paid to
Seller, Seller shall promptly notify Purchaser of such payment, shall hold any
checks, drafts, or moneys so received in trust for the benefit of Purchaser, and
shall promptly transfer and deliver the same to the Purchaser;
6.7 Purchaser shall have the right to endorse, and also the right to
require endorsement by Seller, on all payments received in connection with each
Purchased Receivable and any proceeds of Collateral;
6.8 The Seller, and to Seller's best knowledge, each Account Debtor set
forth in the Transmittal Sheet, are and shall remain solvent as that term is
defined in the Federal Bankruptcy Code;
6.9 Each Account Debtor named in the Transmittal Sheet will not object
to the payment for or the quality or the quantity of the subject matter of the
Receivable and is liable for the amount set forth on the Transmittal Sheet;
6.10 Each Account Debtor shall be promptly notified after acceptance by
Purchaser that the Purchased Receivable has been transferred to and is payable
to Purchaser, and Seller shall not take or permit any action to countermand such
notification;
6.11 The Seller's place of business, and the place where records
concerning all Receivables herein referred to are kept, is the one set forth at
the beginning of this Agreement, and Seller will promptly advise Purchaser in
writing if such place of business or record keeping is changed or a new place of
business or record keeping is added;
<PAGE>
6.12 Seller is not and will not hold any letter of credit or negotiable
instrument as support for or in payment of any Purchased Receivable, and any
such documentation received by Seller will be immediately turned over to
Purchase, with any necessary assignment or endorsement;
6.13 Seller will not assign, transfer, sell, or grant any lien or
security interest in the Collateral to any other party without Purchaser's prior
written consent;
6.14 No Account Debtor is affiliated with Seller, either by common
ownership or family relationship.
6.15 All Receivables forwarded to and accepted by Purchaser after the
date hereof, and thereby becoming Purchased Receivables, shall comply with each
and every one of the foregoing representations, warranties, covenants and
agreements referred to above in this section 6;
7. Adjustments. In the event of a breach of any of the representations,
-----------
warranties, or covenants set forth in Section 6, or in the event any Adjustment
or dispute is asserted by any Account Debtor, Seller shall promptly advise
Purchaser and shall, subject to the Purchaser's approval, resolve such disputes
and advise Purchaser of any adjustment. Unless reassigned to Seller, Purchaser
shall remain the absolute owner of any Purchased Receivable, which is subject to
Adjustment or Repurchase under Sections 1.3 or 4 hereof, and any rejected,
returned, or recovered personal property, with the right to take possession
thereof at any time. If such possession is not taken by Purchaser, Seller is to
resell it for Purchaser's account at Seller's expense with the proceeds made
payable to Purchaser. While Seller retains possession of said returned goods,
Seller shall segregate said goods and mark them "property of Financial Accounts
Management Services."
8. Security Interest.
-----------------
8.1 This Agreement for Purchase of Receivables is the security agreement
referred to in the Transmittal Sheet.
8.2 In order to secure the Obligations Seller hereby grants to Purchaser
a continuing lien upon and security interest in all Seller's now existing or
hereafter arising rights and interest in the Collateral.
8.3 Seller is not authorized to sell, transfer or otherwise convey any
Collateral without Purchaser's consent, except for the sale of finished goods
inventory in the Seller's ordinary course of business.
8.4 Seller agrees to sign all UCC financing statements reasonably
required by and in a form satisfactory to Purchaser.
8.5 Purchaser shall have the right at any time upon the occurrence and
during the continuance of an event of default to notify Seller's Account Debtors
of its security interest. Prior to such an Event of Default, Purchaser may
notify the Account Debtor of any Purchased receivables to pay said receivables
directly into
<PAGE>
a lock-box, such notification to be in the form of Exhibit A hereto.
9. Default.
-------
9.1 The following shall constitute Events of Default:
9.1.1 Seller fails to pay as when due any Obligations owed to Purchaser.
9.1.2 There shall be commenced by or against any Obligor any voluntary or
involuntary case under the Federal Bankruptcy Code, or any assignment for the
benefit of creditors, or appointment of a receiver or custodian for a
substantial portion of its assets;
9.1.3 Any Obligor shall become insolvent, in that its debts are greater
than the fair value of its assets, or such entity is generally not paying its
debts as they become due;
9.1.4 Any involuntary lien, levy, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or the Collateral and
the same is not released within ten (10) days; or
9.1.5 Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Purchaser's
satisfaction within the (10) days after Purchaser has given Seller oral or
written notice thereof.
9.2 Upon the occurrence of an Event of Default
9.2.1 Without implying the existence of any obligation to Purchaser to buy
receivables, which implication is specifically negated by the terms hereof,
Purchaser may cease buying Receivables;
9.2.2 Purchaser may immediately exercise its rights and remedies with
respect to the Purchased Receivables and the Collateral, as a secured party
under this Agreement, the Uniform Commercial Code, and applicable law;
9.2.3 Purchaser shall have the rights as set forth in Section 8 hereof.
10. Nonpayment of Obligations. If any Obligation is not paid when due
-------------------------
(including amounts due under section 3.11, Repurchase Amounts due under section
4, or professional fees and expenses under section 11), such amount may be added
to the Account Balance and shall be subject to the Factor Fee rate until payment
in full.
11. Professional Fees. The Seller will pay all reasonable fees and expenses of
-----------------
attorneys and other professionals that Purchaser incurs in negotiating,
amending, and enforcing this Agreement and protecting or enforcing its interest
in the Purchased Receivables or the Collateral, in collecting Purchased
Receivables, or in the representation of Purchaser in connection with any
bankruptcy case or insolvency proceeding involving Seller, the Collateral, any
Account Debtor, or any Purchased Receivable.
12. Severability and Choice of Law. In the event that any provision of this
------------------------------
Agreement is deemed invalid by reason of law, this Agreement will be construed
as not containing such provision and the remainder of the Agreement shall remain
in full force and effect. This Agreement has been transmitted by Seller to
Purchaser
<PAGE>
at Purchaser's office in the State of California. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of
California without reference to choice of law.
13. Account Collection Service. In the event that Purchaser (in accordance
--------------------------
with the terms hereof) requires that all of Seller's Receivables be paid to
Purchaser, subject to Purchaser's rights in the Collateral, Purchaser agrees to
remit the amount of collections on the Receivables it receives and does not own
to Seller after deducting a handling fee of 0% of such amount received. It is
--
understood and agreed by Seller that this Section does not impose any
affirmative duty on Purchaser to do any act other than to turn over such
amounts. All such Receivables and collections are Collateral and in the event
of Seller's Default hereunder, Purchaser shall have no duty to remit collections
of Collateral and may apply same to the Obligations until said Default is cured.
14. Term and Termination. The term of this Agreement shall be for one (1) year
--------------------
from the date hereof, and from year to year thereafter unless terminated in
writing by Purchaser or Seller. Seller and Purchaser each have the right to
terminate at any time provided that there is no outstanding Account Balance and
no fees, charges or other obligations owed to Purchaser at the time of
termination. Any termination of this Agreement shall not affect Purchaser's
security interest in the Collateral and Purchaser's ownership of the Purchased
Receivables, and this Agreement shall continue to be effective, until all
transactions entered into and Obligations incurred hereunder have been completed
and satisfied in full.
<PAGE>
IN WITNESS WHEREOF, the Seller has executed this Agreement on the day and
year above written, and the Purchaser has accepted by its authorized
representative.
SELLER: Linkon Corporation
BY: __________________________________
ACCEPTED AT SAN JOSE, CALIFORNIA
FINANCIAL ACCOUNTS MANAGEMENT SERVICES,
a division of Imperial Bank
BY: __________________________________
Gary Hanson, President
<PAGE>
RIDER TO FORM UCC-1
-------------------
DEBTOR: LINKON CORPORATION PURCHASER: IMPERIAL BANK
As collateral securing all present and future obligations of Seller to
Purchaser, Seller hereby grants to Purchaser a security interest in:
All Seller's present and future accounts, contract rights, instruments,
documents, chattel paper and general intangibles consisting of rights to
payment; All Seller's (a) intellectual property of all forms (including without
limitation trademarks, patents and copyrights); provided, however, that such
intellectual property is collateral hereunder (and the Purchaser has a security
interest therein) only if an to the extent necessary to give (and for the
limited purpose of giving) the Purchaser a perfected security interest in the
collateral described in the immediately preceding paragraph (b) which arise from
the sale, lease or license of Seller's intellectual property); provided,
however, that as to such intellectual property the Purchaser's security interest
therein is junior and subordinate to the security interest therein granted by
the Seller in the Security Agreement, dated October 27, 1994, between the
Purchaser and IBJS Capital Corporation, (c) returned and repossessed goods and
all Seller's rights as a seller of goods; (d) all collateral securing any of the
foregoing; (e) all deposit accounts, special and general, whether on deposit
with Purchaser or others; (f) to the extent (and only to the extent) that they
relate to the rights of Seller payment for goods sold and leased or for services
rendered, all Seller's now owned and hereafter acquired inventory, including raw
materials, work-in-process, and finished goods wherever located; (g) all
shipping and packing supplies used or usable in connection with the sale of
inventory; (h) all Seller's present and future claims against any supplier of
any of the foregoing, including claims for defective goods or overpayments to or
undershipments by suppliers; (i) all proceeds arising from the lease or rental
of any of the foregoing; (j) equipment, including furniture and fixtures; (k)
warranty and other claims which Seller may have against any vendor or lessor of
any of the foregoing; (l) cash and non-cash proceeds of any of the foregoing, in
whatever form (including proceeds in the form of inventory, equipment, or any
other form (including proceeds of proceeds; and (m) All books and records
relating to the any of the foregoing collateral, and all computers and other
equipment (and computer software used in connection therewith) used in
connection with the record-keeping for the collateral.
NOTICE - PURSUANT TO AN AGREEMENT BETWEEN SELLER AND PURCHASER, SELLER HAS
AGREED NOT TO FURTHER ENCUMBER THE COLLATERAL DESCRIBED IN THE SECOND PARAGRAPH
ABOVE.
<PAGE>
Seller: LINKON CORPORATION
By: ____________________________ Title
<PAGE>
SIGNATURE AUTHORIZATION
Date: January 22 1988
Each person whose specimen signature appears below if hereby authorized and
empowered to transact any and all business with the Financial Accounts
Management Services division of Imperial Bank, San Jose, California, which the
undersigned could in any way transact and is further authorized to execute,
acknowledge and/or deliver on behalf of the undersigned any and all assignments,
documents, instruments and agreements which he may deem necessary or convenient
in transaction of such business of the undersigned.
Signatures and titles are as follows:
Name (print or typewrite) Title Specimen of Signature
- - ------------------------- ----------- ----------------------------------
- - ------------------------- ----------- ----------------------------------
- - ------------------------- ----------- ----------------------------------
- - ------------------------- ----------- ----------------------------------
- - ------------------------- ----------- ----------------------------------
Linkon Corporation
<PAGE>
By: ______________________
CERTIFICATION OF OFFICERS
The undersigned, being all Officers of LINKON CORPORATION, a NE corporation, the
------------------- --
"Corporation") hereby certify to Financial Accounts Management Services that:
1. The correct name of the Corporation is as set forth in the Articles of
Incorporation
2. The Corporation was incorporated on 1990 under the laws of the State of NE
----- --
and is in good standing under such laws.
3. The chief place of the Corporation, being the place at which the
Corporation maintains its books and records pertaining to accounts, accounts
receivable, contract rights, chattel paper, general intangibles, instruments,
documents, inventory, and equipment, is located at:
140 SHERMAN ST.
FAIRFIELD, CT 6430
4. The Corporation has other places of business at the following addresses:
5. There is no provision in the Certificate of Incorporation, Articles of
Incorporation, or Bylaws of the Corporation, or in the laws of the state of its
incorporation, requiring any vote or consent of shareholders to authorize the
sale of accounts receivable or the grant of security interest in any assets of
the Corporation. Such power is vested exclusively in the Corporation's Board of
Directors.
6. The officers of the Corporation, and their respective titles are as
follows:
PRESIDENT: CHARLES CASTELLI Other:
VICE PRESIDENT: LEE HILL Other:
SECRETARY: THOMAS CERABONA Other:
Other: Other:
7. Except as indicated in this paragraph 7, each of the officers listed in
paragraph six has signatory powers with respect to all the Corporation's
transactions with Financial Accounts Management Services, a division of Imperial
Bank.
8. The undersigned shall give Imperial Bank Financial Accounts Management
Services prompt written notice of any change or amendments with respect to any
of the foregoing. Until further notice is received by Financial Accounts
Management Services, it shall be entitled to rely upon the foregoing in all
respects.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certification of Officers
on 1/22/98.
- - ------------------------------- -------------------------------------------
PRESIDENT CHARLES CASTELLI Other
- - ------------------------------- -------------------------------------------
VICE PRESIDENT LEE HILL Other
- - ------------------------------- -------------------------------------------
SECRETARY THOMAS CERABONA Other
<PAGE>
Exhibit 10.15
PURCHASE ORDER ADDENDUM
TO
AGREEMENT FOR PURCHASE OF RECEIVABLE
------------------------------------
This is an addendum to the Agreement, dated as of March 19, 1998 (the
"Agreement"), between LINKON CORPORATION and FINANCIAL ACCOUNTS MANAGEMENT
SERVICES, A DIVISION OF IMPERIAL BANK. Capitalized terms used herein and not
otherwise defined have the meanings set forth in the Agreement.
In addition to the purchase of Receivables under the Agreement, Seller may
from time to time offer to sell to Purchaser, and Purchaser in its sole and
absolute discretion, may from time to time elect to buy from Seller, Seller's
right to payment (whether or not earned or unearned, and including any resulting
Receivables) with respect to one or more purchase orders (each a "Purchase
Order") given by prospective Account Debtors to Seller; such purchase to be
subject to the following terms and conditions:
1. The Advance Rate with respect to such Purchase Orders shall not exceed
20%.
2. The face amount of such Purchase Order shall become part of the Account
Balance and shall be subject to the maintenance of the Reserve pursuant to
the provisions of the Agreement.
3. The total unrepaid amount of funding to be provided by Purchaser to
Seller with respect to such Purchase Orders shall not exceed the lesser of:
(a) $400,000 or (b) the outstanding amount of the Reserve plus $200,000.
4. In connection with any purchase by Purchaser of any Purchase Order,
seller shall provide to Purchaser such confirmations, acknowledgments, or
other undertakings from the prospective Account Debtor under such Purchaser
Order as Purchaser may request.
5. Except as specifically modified hereby, the purchase by Purchaser of
such Purchase Order shall be otherwise treated as the Purchase by Purchaser
of a Purchased Receivable pursuant to the provisions of the Agreement and
shall be subject to the terms and conditions of the Agreement.
Dated: 3/26/98 LINKON CORPORATION
--------------------
<PAGE>
By /s/ Thomas V. Cerabona
---------------------------------
Title Vice President
------------------------------
<PAGE>
EXHIBIT 10.16
Authorized Distributor Agreement
Table of Contents
Article/
Section Subject Page
1.0 Definitions 1
2.0 Distributorship 2
2.1 Appointment. 2
2.2 Acceptance. 2
3.0 Territory 2
3.1 Territory-Exclusive. 2
3.2 Out of Territory Sales. 2
4.0 (Omitted) 2
5.0 Purchase Order Submission, Acceptance/Rejection, Delivery 3
5.1 Submission of Purchase Orders. 3
5.2 Acceptance of Purchase Orders. 3
5.3 Delivery. 3
5.4 Title and Risk of Loss. 4
5.5 Software License. 4
6.0 Prices, Payment and Credit 4
6.1 Purchase Price and Other Charges. 4
6.2 Payment. 4
6.3 Special Payment Terms; Rebates/Discounts. 5
6.4 (OMITTED) 5
6.5 Packaging and Shipment. 5
7.0 Term 5
8.0 Termination 5
8.1 Right to Terminate. 5
8.2 Effect of Termination. 6
9.0 Warranties; Limitation of Liability 7
9.1 LINKON's Limited Warranties. 7
9.2 Distributor Warranties. 8
9.3 Limitation Of Liability. 8
10.0 Minimum Purchase Obligation 8
10.1 Purchase Obligation. 8
i
<PAGE>
Table of Contents (cont'd)
Article/Section Subject
10.2 Carry Forward of Excess Qualifying Purchases. 8
11.0 Competitive Products 9
11.1 Definition. 9
11.2 Prohibition Against Competitive Products. 9
11.3 Other Issues. 10
12.0 Additions to and Enhancement of the Products 10
12.1 Additions, Enhancements and New Products. 10
12.2 Distributor's Obligations. 10
13.0 Training and Promotional Activities 10
13.1 Training. 10
13.2 Promotion by Distributor. 11
13.3 Promotional Materials. 11
14.0 Service, Support and Spare Parts 11
14.1 End User Service and Support 11
14.2 Spares Parts, Repairs. 12
15.0 End User Information and Support 12
15.1 Information to be Provided by Distributor. 12
15.2 End User Surveys and Distributor Service Level. 12
16.0 (Omitted) 13
17.0 Trademarks 13
17.1 Use of Trademarks. 13
17.2 Approval of Trademark Usage. 13
17.3 Protection of Trademarks. 13
17.4 Use of Other Trademarks. 13
17.5 New or Modified Trademarks. 14
17.6 Infringement. 14
18.0 Patents and Copyrights 14
18.1 Infringement. 14
18.2 Limitation of Liability. 14
18.3 Other. 14
19.0 Confidentiality 14
19.1 Confidentiality of LINKON's Information. 14
19.2 Confidentiality of Distributor's Information. 14
ii
<PAGE>
Table of Contents (cont'd)
Article/Section Subject
20.0 Miscellaneous. 15
20.1 No Assignments. 15
20.2 Notices. 15
20.3 Relationships of Parties. 15
20.4 Nonwaiver. 16
20.5 Severability. 16
20.6 Choice of Laws. 16
20.7 Entire Agreement. 16
20.8 Exhibits. 16
20.9 Headings and Titles. 16
20.10 Use of Plurals. 16
Exhibit A Territory 17
Exhibit B Products 18
Exhibit C Special Payment Terms 19
Exhibit D Recommended Spares Inventory and Repair Prices 20
Exhibit E Linkon Suggested List Price Schedule 21
Exhibit F Software License Agreement 22
Exhibit G Technical Support Plan 23
iii
<PAGE>
AUTHORIZED DISTRIBUTOR AGREEMENT
This Agreement is entered into effective as of the 26th day of May, 1997, by and
between LINKON Corporation, a Nevada corporation, having its principal place of
business located at 140 Sherman Street, Fairfield, CT 06430 ("LINKON"); and
Trigem Microsystems, Inc. ("Trigem") having its principal place of business
located at 9 FL, New Eunkyung Bldg., 141-26, Samsung-Dong, Kangnam-Ku, Seoul,
135-090, Korea ("Distributor").
RECITALS:
WHEREAS, LINKON develops, manufactures and sells communications equipment and
software and is developing a worldwide network of independent distributors to
market, sell, service, and maintain such equipment;
WHEREAS, Distributor represents that it is skilled and capable of marketing,
selling, servicing, and maintaining communications equipment of the variety
manufactured by LINKON and wishes to market, sell, service, and maintain such
equipment;
NOW, THEREFORE, the parties agree as follows:
1.0 DEFINITIONS
For purposes of this Agreement, the following terms shall have the indicated
meanings:
1.1 "Competitive Products" shall have the meaning set forth in Section 11.1.
1.2 "Defaulting Party" shall have the meaning set forth in Subsection 8.1.1.
1.3 "Equipment" shall mean the products listed in Exhibit B.
1.4 "Minimum Purchase Obligation" means the total dollar value of Qualifying
Purchases (as provided in Section 10.1) which Distributor is obligated to make
or exceed each calendar quarter while this Agreement is in effect.
1.5 "Products" refer to the call processing and related equipment (including
Software and spare parts) listed and described in Exhibit B, attached.
1.6 "Purchase Order" means a formal written order issued by Distributor and
received and accepted by LINKON all in accordance with the provisions of Article
5.0. A Purchase Order is a "Standard Purchase Order" if it includes no unusual
terms (or terms in conflict with the terms of this Agreement) and requests
normal (based on Distributor's credit line with LINKON) quantities and delivery
dates.
1.7 "Qualifying Purchases" means irrevocable purchases of Products for
installation in the Territory (as hereinafter defined) with respect to which i)
the Products were actually delivered during the specified measurement period; or
ii) the Products were not delivered but Standard Purchase Orders were submitted
to LINKON at least forty-five (45) days prior to the requested delivery date and
the requested delivery date was within the specified measurement period. The
amount of any Qualifying Purchase shall be determined utilizing the actual
prices paid or payable by Distributor, as determined in accordance with the
provisions of Subsection 6.1.1.
<PAGE>
1.8 "Software" means computer programs supplied by LINKON as part of or for use
with the Products (whether developed by LINKON or acquired or licensed from
third parties) on magnetic tape, floppy disk, hard disk, semiconductor device or
other memory device, or system memory, including hardwired logic instructions,
micro code, and documentation used to describe, maintain and use the programs.
1.9 "Territory" refers to the geographical area(s) identified in Exhibit A,
attached, in which Distributor is authorized to sell and install the Product.
1.10 "Trademarks" means all trademarks, trade names and service marks owned by
LINKON at any time while this Agreement is in effect, including but not limited
to the "Faxpeak/TM/", "Link-Engine/TM/", and "TeraVox/(R)/" marks.
2.0 DISTRIBUTORSHIP
2.1 Appointment.
LINKON appoints Distributor, on the terms and conditions of this Agreement, as
an exclusive Authorized Distributor for the sale of the Products for
installation in the Territory and agrees to provide Products and support
services in accordance with the terms of this Agreement.
2.2 Acceptance.
Distributor accepts, on the terms and conditions of this Agreement, the
appointment as an exclusive Authorized Distributor and agrees to develop demand
for, sell, install, support and service the Products in the Territory in
accordance with this Agreement.
3.0 TERRITORY
3.1 Territory-Exclusive.
Distributor has the exclusive right to sell the Products in the Territory. In
the event that the Distributor fails to maintain the minimum purchase obligation
in section 10.1, this agreement will revert to a "Non-Exclusive" distribution
agreement.
While this Agreement is in effect and at all times thereafter, LINKON shall have
the unrestricted right to appoint other distributors to sell the Products for
installation outside the Territory or any portion thereof and/or to attempt to
-------
sell and actually sell the Products directly to customers for installation
outside the Territory or any portion thereof.
3.2 Out of Territory Sales.
Distributor agrees not to promote, offer to sell or actually sell the Products
for installation outside of the Territory unless otherwise agreed upon by LINKON
in writing.
4.0 INTERNATIONAL PRICING; LAW AND CUSTOMS
4.1 In negotiating and concluding agreements with sub-distributors in the
Distributors Territories, the Distributor shall respect the local laws and
customs in such Territories.
5
<PAGE>
5.0 PURCHASE ORDER SUBMISSION, ACCEPTANCE/REJECTION, DELIVERY
5.1 Submission of Purchase Orders.
5.1.1 Distributor shall from time to time submit to LINKON Purchase Orders for
Products which Distributor desires to purchase from LINKON during the term of
this Agreement. Each Purchase Order shall set forth in appropriate detail the
Products that are being ordered (including, in the case of Linkon product units,
the model, number of ports, Software options, and quantity) and the requested
delivery date(s).
5.1.2 From time to time, LINKON shall advise Distributor of the requested order
lead time, expressed in the number of days prior to the shipment date requested
by Distributor that Distributor's Purchase Order should be received by LINKON.
Distributor agrees to use its best efforts to comply with the requested order
lead time whenever practicable. The requested order lead time at the inception
of this Agreement is sixty (60) days.
5.2 Acceptance of Purchase Orders.
5.2.1 LINKON may accept or reject each Purchase Order submitted by Distributor
(or LINKON may offer to accept any Purchase Order, subject to revised delivery
schedules and/or quantities). Acceptance shall be made by an Order
Acknowledgement. The terms and conditions of each sale shall be as set forth in
this Agreement and in the Order Acknowledgement (excluding any terms and
conditions printed on the back of the Order Acknowledgement). Each Purchase
Order submitted to LINKON shall be deemed to have been rejected by LINKON if not
accepted by an Order Acknowledgement within fifteen (15) days of its receipt by
LINKON. Rejected Purchase Orders shall be of no force and effect.
5.2.2 Distributor's Purchase Orders are for the purpose of requesting and
specifying Products and delivery dates but have no legal force and effect and
shall not bind Distributor or LINKON until accepted by LINKON, and then only in
accordance with the terms of LINKON's acceptance. Printed terms appearing on
Distributor's purchase order form are inapplicable unless accepted by LINKON by
specific reference in its Order Acknowledgement.
5.3 Delivery.
5.3.1 LINKON shall make reasonable efforts to deliver the Products to a common
carrier at the FOB point specified in Subsection 6.1.3 by the delivery date
accepted by LINKON in its Order Acknowledgements.
5.3.2 In the event LINKON's production is curtailed for any reason beyond
LINKON's control so that LINKON is unable to deliver the full amount of Products
ordered by all of its customers, LINKON may allocate its available production
among its various customers then under contract. The allocation will be made in
a commercially fair and reasonable manner (including giving differential
treatment to different distribution channels) and LINKON will notify Distributor
of the quantity of Products allocated to Distributor.
5.3.3 LINKON shall have no liability or obligation to compensate Distributor on
account of delays or failure to deliver Products on a timely basis.
5.4 Forecasting
6
<PAGE>
Distributor will provide a 1 year forecast, within 30 days of the date of this
agreement, showing monthly usage for each product type. Distributor will update
the forecast on a monthly basis.
5.5 Title and Risk of Loss.
Title to the Products (excluding Software, title to which does not transfer to
Distributor) shall pass from LINKON to Distributor upon receipt by LINKON of
payment in full by Distributor. Risk of loss for the Products shall pass form
LINKON to Distributor upon delivery of the Products to a common carrier at the
F.O.B. point specified in Subsection 6.1.3.
5.6 Software License.
Distributor is hereby granted a non-exclusive, fully paid, perpetual license to
use Software but only in conjunction with the specific Products (as determined
by the serial number) for which the Software is acquired. Distributor is
authorized to sublicense Software to end users who purchase Products from
Distributor but only in conjunction with the specific Products (as determined by
the serial number) for which the Software is acquired. The foregoing rights and
any sublicenses issued pursuant thereto are subject to all conditions,
limitations and exclusions on any license agreements between LINKON and third
party suppliers of Software (Exhibit F).
6.0 PRICES, PAYMENT AND CREDIT
6.1 Purchase Price and Other Charges.
6.1.1 The purchase price for Products ordered by the Distributor shall be set
forth in the Order Acknowledgement and shall be determined by LINKON in
accordance with the prices set forth in the then current schedule of Linkon
Products Suggested List Prices and any discounts or other special payment terms
in accordance with Exhibit C hereto.
6.1.2 The schedule of Linkon Suggested List Prices in effect at the inception
of this Agreement is attached as Exhibit E. LINKON may change prices at any
time and from time to time by providing written notice and a new schedule of
Linkon Suggested List Prices to Distributor and all other Authorized
Distributors. Changes shall be effective sixty (60) days from the date of such
notice to Distributor.
6.1.3 All prices shall be F.O.B. LINKON's U.S. manufacturing facility. All
freight, crating, insurance, handling, forwarding agent's fees, taxes and
storage, and all other charges applicable to the Products from the time they are
placed in the possession of a carrier at the F.O.B. point shall be borne by
Distributor.
6.1.4 The amount of any present or future sales, revenue, excise, use or other
taxes, fees, or other charges of any nature, imposed by any public authority
(national, state, local or other) applicable to the Products, or the manufacture
or sale thereof, shall be added to the purchase price and shall be paid by
Distributor, or, in lieu thereof, Distributor shall provide LINKON with a tax
exemption certificate acceptable to the taxing authority.
6.1.5 In the event LINKON agrees to reconfigure or change Products, delay
delivery, or cancel a Purchase Order for the Products at Distributor's request,
LINKON shall be entitled to impose reasonable reconfiguration, change, delay or
restocking charges in accordance with LINKON's standard practices.
7
<PAGE>
6.2 Payment.
Subject to the provisions of Section 6.3, the Distributor shall pay the full
amount of the purchase price (and any other charges Distributor is obligated to
pay under Section 6.1) appearing on LINKON's Order Acknowledgement of each
order. Payment may be made by wire transfer to Linkon's designated bank account
prior to LINKON's shipment of that order.
6.3 Special Payment Terms; Rebates/Discounts.
6.3.1 LINKON may from time to time offer Distributor special payment terms,
and/or other special discounts or rebates. Payment in accordance with such
special payment terms shall not constitute a violation of Section 6.2 by
Distributor. The special payment terms, and/or other special discounts or
rebates available to Distributor at the inception of this Agreement are set
forth in Exhibit C. LINKON may discontinue, modify, reduce or add to such
special payment terms, and/or other special discounts or rebates at any time
upon thirty (30) days prior written notice to Distributor.
6.3.2 The Discount Schedule (EXHIBIT C) is based upon the Distributor's stated
intention to buy products of LINKON at a specific total yearly dollar volume
(PURCHASE OBLIGATION - Section 10.1). Buyer shall submit, at the time of
execution of this agreement, a purchase order for at least 5% of the PURCHASE
OBLIGATION. Further ordering of product shall proceed in accordance with the
following schedule:
QUARTER ENDING % OF PURCHASE OBLIGATION
-------------- ------------------------
July 31, 1997 10%
October 31, 1997 30%
January 31, 1998 60%
April 30, 1998 100%
6.3.2 The discount will be re-calculated, reviewed and adjusted at 3 month
intervals, based on performance to the above schedule. Volume prices granted
are subject to forfeiture if 1) Orders are delayed by Distributor by more than
30 days; or 2) Seller has not received payment within 45 days of shipment.
6.4 (OMITTED)
6.5
6.5.1 Linkon shall furnish packing of all Linkon hardware and Software in
accordance with standard commercial practices for domestic and international
shipments. The costs of export packaging and all export duties, licenses, fees
and related costs will be payable by the distributor. In the event of a mis-
delivery, loss or damage, the Distributor shall assume full responsibility for
negotiating with the carrier or insurer or both.
7.0 TERM
The term of this Agreement shall commence on June 1, 1997, and shall continue in
effect for a period of two (2) years thereafter unless terminated earlier as
provided in Section 8.1, or extended by mutual written agreement.
8
<PAGE>
8.0 TERMINATION
8.1 Right to Terminate.
This Agreement may be terminated at any time by mutual, written agreement of the
parties. Termination of this Agreement other than by mutual agreement shall be
in accordance with the provisions of one or more of the following Subsections.
8.1.1 If either party fails to comply with any provision of this Agreement or
perform any obligation to be performed by it under this Agreement ("Defaulting
Party"), and such failure is capable of cure, the other party may notify the
Defaulting Party in writing of the default and the Defaulting Party shall have a
period of thirty (30) days from receipt of notice to cure the default. If, at
the end of said thirty (30) day period the Defaulting Party has not cured the
default, the other party may immediately terminate this Agreement by giving
written notice to that effect to the Defaulting Party. If the failure is not
capable of cure, the party not in default may terminate this Agreement
immediately by giving written notice of termination to the Defaulting Party.
8.1.2 This Agreement may be terminated by either party, upon written notice of
termination to the other party, in the event any bankruptcy, reorganization, or
insolvency proceeding governed by any federal or state law is initiated against
the other party and not dismissed within thirty (30) days thereafter, or in the
event any such proceeding is initiated by the other party, or in the event a
receiver is appointed for the other party, or if any substantial part of the
business assets of the other party are the subject of an attachment,
sequestration or other related judicial proceeding.
8.1.3 This Agreement may be terminated by LINKON by giving thirty (30) days
written notice of termination to Distributor in the event LINKON, in its sole
discretion, determines within ninety (90) days following any change in the
ownership or change in the executive level management of Distributor that such
change will adversely affect Distributor's ability to fulfill its obligations
under this Agreement. For purposes of this Agreement, "change in the ownership"
refers to a sale or transfer involving more than 25% of the voting control of
Distributor. A "change in the executive level management" means a termination,
replacement or reassignment involving one or more of the Chairman of the Board,
President, Chief Executive Officer, Chief Operating Officer, General Manager or
Vice President of Sales/Marketing responsible for the Products.
8.1.4 This Agreement may be terminated by LINKON by giving thirty (30) days
written notice of termination to Distributor in the event LINKON, in its sole
discretion, determines
8.2 Effect of Termination.
8.2.1 In the event this Agreement is terminated by Distributor pursuant to
Subsection 8.1.1, Distributor may, by written notice given to LINKON within
thirty (30) days of termination retain any Products in Distributor's inventory
and:
i. take delivery and pay for Products covered by previously issued and
accepted Purchase Orders and sell such Products; or
9
<PAGE>
ii. cancel delivery of Products covered by previously issued and accepted
Purchase Orders, scheduled for delivery 60 days or more beyond Termination, if
such Products have not already been delivered to a common carrier at the FOB
point specified in Subsection 6.1.3.
Failure of Distributor to elect either of the foregoing options within the
thirty (30) day period specified shall constitute a waiver of Distributor's
rights under this Subsection 8.2.1 in which case the terms of Subsection 8.2.2
shall control.
8.2.2 Except as provided in Subsection 8.2.1, all Purchase Orders, whether not
accepted by LINKON shall be of no force and effect upon termination of this
Agreement. LINKON may, but shall not be required to, repurchase Products in
Distributor's inventory at the price paid by Distributor less a reasonable
allowance determined by LINKON for damage, obsolescence, administration,
restocking charges and other reasonable costs.
8.2.3 Immediately upon the termination of this Agreement for any reason, all
amounts owing by either party to the other shall become immediately due and
payable notwithstanding prior terms of sale, whereupon the owing party shall
remit immediately to the other party all sums due and owing to such party.
8.2.4 Termination of this Agreement for any reason shall not release either
party from any Liability which at the time of termination has already accrued to
the other party hereto or which thereafter may accrue in respect of any act or
omission prior to termination, or from any obligation which is expressly stated
herein to survive termination: provided, however, that LINKON may, without
liability, cancel previously accepted Purchase Orders if this Agreement is
terminated other than by Distributor pursuant to Subsection 8.1.1.
8.2.5 The parties recognize that termination of this Agreement in accordance
with its terms may result in loss or damage to either party but hereby agree
that except as expressly set forth in this Agreement, neither party will be
liable to the other for any loss or damage resulting from such termination
(including, without limitation, special, consequential or indirect loss or any
loss of prospective profits or any damages occasioned by loss of goodwill) or by
reason of expenditures, investments, leases or commitments made in anticipation
of the continuation of this Agreement. The foregoing, however, will not in any
way relieve either party from liability to the other for damages arising out of
any violation or breach of this Agreement.
8.2.6 Upon the termination of this Agreement, for any reason whatever:
i. Distributor shall cease and thereafter refrain from any activity which
might imply or represent that it is a distributor of LINKON products;
ii. Distributor shall not, in any manner, use LINKON's name, or the
Trademarks (except in connection with sales contracted for prior to the
effective date of termination), and shall take all reasonable steps to
discontinue all listings of LINKON's name, and the Trademarks placed by
Distributor in any telephone book, directory, public record, or elsewhere; and
iii. Distributor shall immediately return to LINKON all service manuals,
Product reference materials, signs or advertising materials illustrating or
involving the Products or the Trademarks and all similar materials supplied by
or pertaining to LINKON or the Products.
8.2.7 In the event this Agreement is terminated by LINKON pursuant to
Subsection 8.1.1, Distributor may, upon LINKON's written acceptance, and shall
upon LINKON's written request, assign any or all
10
<PAGE>
service/maintenance agreements with end users covering the Products to LINKON or
its designee. Any service/maintenance agreements not assumed by LINKON or its
designee will remain the obligation of Distributor and will survive termination.
9.0 WARRANTIES; LIMITATION OF LIABILITY
9.1 LINKON's Limited Warranties.
9.1.1 LINKON warrants the Products to be free from defects in material and
workmanship under normal use and service for a period of twelve (24) months
after delivery to a common carrier at the F.O.B. point specified in Subsection
6.1.3. Distributor's sole and exclusive remedy under this warranty shall be to
return defective Products to LINKON's factory of origin (transportation charges
prepaid) during said twelve (24) month period, and to obtain at LINKON's option,
replacement, repair or credit for any of said Products which are, after
examination by LINKON, determined to be defective. This warranty shall not
apply to any Product which shall have been repaired or altered by anyone other
than LINKON, which shall not have been maintained in accordance with any
handling or operating instructions supplied by LINKON, or which shall have been
subjected to unusual physical or electrical stress, misuse, abuse, negligence or
accidents.
9.1.2 LINKON warrants to Distributor that LINKON has good and marketable title
to the Products and that they are free and clear of all liens and encumbrances.
9.1.3 THE WARRANTIES STATED IN SUBSECTIONS 9.1.1 AND 9.1.2 ARE IN LIEU OF ALL
OTHER WARRANTIES, EXPRESSED, STATUTORY OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS
EXPRESSLY PROVIDED IN SUBSECTION 9.1.1, LINKON SHALL HAVE NO LIABILITY TO
DISTRIBUTOR ON ACCOUNT OF DEFECTS OR DEFICIENCIES IN THE PRODUCTS.
9.2 Distributor Warranties.
9.2.1 Distributor shall make no representations to third parties regarding the
performance or functional capabilities or characteristics of the products beyond
those stated in LINKON's then current printed literature and brochures.
9.2.2 LINKON shall not under any circumstances be responsible for any warranty
offered by Distributor to its customers in excess of the warranties set forth in
Section 9.1.
9.2.3 Distributor shall indemnify and hold LINKON harmless from and against any
claims, losses, costs, damages or liabilities which result from or are based on
any negligent or fraudulent acts or emissions of Distributor or which result
from Distributor's failure to comply with the provisions of Subsection 9.2.1 or
which are based on warranties provided by Distributor to its customers with
respect to the Producers to any extent in excess of the warranties set forth in
Section 9.1.
9.3 LIMITATION OF LIABILITY.
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES, LOSS OF USE OR OTHER COMMERCIAL LOSS OF WHATEVER NATURE ARISING OUT OF
OR CONNECTED WITH THIS AGREEMENT OR ITS PERFORMANCE, PARTIAL PERFORMANCE OR
NONPERFORMANCE.
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10.0 MINIMUM PURCHASE OBLIGATION
10.1 Purchase Obligation.
Distributor shall make total Qualifying Purchases during each calendar quarter
in an amount equal to or exceeding one hundred thousand dollars ($100,000) (the
"Minimum Purchase Obligation"), and yearly purchases in an amount equal to or
exceeding one half million dollars ($500,000) (First Year Purchase Obligation)
and one and one half million dollars ($1,500,000) (Second Year Purchase
Obligation). In the event Distributor fails to comply with the requirements of
this Section 10.1, LINKON's remedy shall consist of either termination of the
Agreement pursuant to Subsection 8.1.1, or reversion of this Agreement to "Non-
Exclusive" as outlined in section 3.1.
10.2 Carry Forward of Excess Qualifying Purchases.
If Distributor makes Qualifying Purchases in excess of the amount required under
Section 10.1 during any calendar quarter, the excess shall be carried forward
and added to Qualifying Purchases made during the next calendar quarter for
purposes of measuring performance against the Section 10.1 purchase requirement
applicable to such next quarter.
11.0 COMPETITIVE PRODUCTS
11.1 Definition.
As used in this Agreement, the term "Competitive Product(s)" means any product
not offered by LINKON which includes combinations of functional capabilities
identical or substantially similar to those offered by the Products. Without
limiting the generality of the foregoing, such functional capabilities include
voice, fax, speech recognition, text to speech, and voice data compression
(other than single port, cassette tape based, answering machines).
11.2 Prohibition Against Competitive Products.
11.2.1 In order to prevent any conflict of interest and/or inadvertent transfer
of competitive information, at all times while this Agreement is in effect,
unless otherwise approved in writing by LINKON, Distributor shall be prohibited
from promoting, offering to sell or selling Competitive Products for
installation in the Territory.
11.2.2 Distributor shall not be prohibited by the provisions of Subsection
11.2.1 from continuing to service, maintain and upgrade Competitive Products if
Distributor has discontinued promoting, offering to sell and selling such
products for new installations in the Territory prior to the inception of this
Agreement or prior to a later date approved in writing by LINKON.
11.2.3 Violation of the provisions of Section 11.2 by Distributor shall
constitute a failure which is not capable of cure for purposes of Subsection
8.1.1.
11.3 Other Issues.
In the event Distributor is uncertain regarding whether or not a particular
product falls within the definition of Competitive Products, Distributor may
request in writing that LINKON inform Distributor of the status
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of such product. LINKON shall, within thirty (30) days after receipt of such a
request, advise Distributor in writing whether or not, in LINKON's judgment, the
product in question is a Competitive Product. LINKON's written advice shall be
conclusive on the subject for purposes of this Agreement.
12.0 ADDITIONS TO AND ENHANCEMENT OF THE PRODUCTS
12.1 Additions, Enhancements and New Products.
12.1.1 LINKON is continuously developing enhancements and/or additions to its
products as well as new products. LINKON, in its sole discretion, shall
determine if and when any such additions, enhancements or new products will be
added to the definition of Products (through an amendment to Exhibit B). LINKON
has no obligation to include any addition, enhancement or new product as part of
the Products.
12.1.2 Distributor may, but is not obligated to accept enhancements, additions
and new products which LINKON offers in writing to add to the definition of
Products. Such acceptance shall be in writing within thirty (30) days after
LINKON's offer.
12.2 Distributor's Obligations.
Effective the date of acceptance by Distributor of the enhancement, addition or
new product in accordance with the provisions of Subsection 12.1.2, Distributor
shall take all actions necessary to develop demand for, sell, install, support
and service the enhancement, addition or new product in the Territory as part of
the Products in accordance with this Agreement.
13.0 TRAINING AND PROMOTIONAL ACTIVITIES
13.1 Training.
13.1.1 LINKON shall periodically provide training classes for Distributor's
personnel (and personnel of other distributors) in the installation,
configuration and service of the Products. Distributor's employees shall be
entitled to attend such classes on a first come first served basis in accordance
with rules and procedures established by LINKON. All expenses for Distributor's
personnel attending LINKON training classes, including travel, salary and
accommodations, shall be borne by Distributor. The first training class for up
to 3 personnel will be given to the Distributor free of charge. In addition,
Distributor agrees to pay LINKON's standard charges for attending additional
classes.
13.1.2 In the event Distributor desires that LINKON provide training for
Distributor's personnel at a location other than LINKON's headquarters,
Distributor shall so advise LINKON and LINKON shall make reaonsable efforts to
accommodate Distributor's needs (subject to mutual agreement on timing, location
and on how related costs and expenses will be borne by each of them).
13.2 Promotion by Distributor.
13.2.1 Distributor shall be primarily responsible for promoting demand for and
selling the Products in the Territory. As part of its promotion efforts, the
Distributor shall purchase at lease one complete Linkon system for use at its
principal place of business or such other location as is designated by the
Distributor and approved in writing by LINKON. Such system shall be used for
handling Distributor's call processing needs as well as for demonstrations and
to familiarize and train Distributor's employees with the Products.
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13.2.2 LINKON shall permit Distributor to promote the Products through
advertising and public relations programs conducted and paid for by Distributor
provided that the contents thereof are approved in writing by LINKON and no
claims or representations are made about the Products in excess of those made by
LINKON.
13.3 Promotional Materials.
LINKON shall supply Distributor with reasonable quantities of promotional
materials for the Products. Such material shall include data sheets, catalogs,
brochures, and reprints of its advertising art. Such material shall be made
available at LINKON's then current published prices for such materials.
14.0 SERVICE, SUPPORT AND SPARE PARTS
14.1 End User Service and Support
14.1.1 Distributor acknowledges that high quality service and support to end
users of the Products is an essential purpose of this Agreement. Distributor
agrees to provide the highest quality service and support on a consistent basis
to all end users of Products purchased from Distributor in accordance with
instructions issued from time to time by LINKON. Distributor shall at all times
while this Agreement is in effect employ sufficient numbers of qualified and
experienced systems engineers and customer support personnel to provide high
quality configuration, installation, maintenance, repair and support services
for Distributor's customer base of Products.
14.1.2 At all times while this Agreement is in effect, Distributor shall employ
at least one full-time sales engineer or systems engineer who has successfully
completed LINKON systems engineering training (or is otherwise certified by
LINKON as qualified to install, configure, maintain, service and support the
Products in the Territory.)
14.1.3 LINKON shall provide the Distributor with documentation suitable for the
management, installation, maintenance, and configuration of the Products and,
when needed, centralized technical and application consultation via telephone or
other electronic means.
14.2 Spares Parts, Repairs.
14.2.1 Distributor shall purchase at prices determined in accordance with the
provisions of Subsection 6.1.1 and carry in stock the quantity of repair and
replacement parts set forth in Exhibit D. The quantity of parts to be carried
in stock shall be governed by the quantity of Products in Distributor's customer
base to be serviced. LINKON shall repair Products which are out of warranty at
the prices set out in Exhibit D, provided Distributor complies with LINKON's
then current standard parts repair procedures. Parts shall be marked with
serial numbers in accordance with LINKON's standard practices.
14.2.2 LINKON shall continue to repair Products sold by Distributor and sell to
Distributor spare parts for each Product sold to Distributor under this
Agreement strictly for the purpose of maintaining previously sold and installed
Products for a seven (7) year period after termination or expiration of this
Agreement. Prices shall be at LINKON's then current prices for spare parts and
repairs.
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14.2.3 LINKON may at any time and from time to time increase the charges for
repairs, prices for spare parts, or the required level of spare parts. Changes
shall be effective sixty (60) days after written notice to Distributor.
15.0 END USER INFORMATION AND SUPPORT
15.1 Information to be Provided by Distributor.
15.1.1 As requested by LINKON, Distributor shall inform LINKON of projected
sales on a quarterly basis including the names of potential customers and the
contact party. LINKON shall keep such information strictly confidential and may
not divulge such information to third parties without Distributor's prior
written permission.
15.1.2 To the extent known to it when ordering Products, Distributor shall upon
request inform LINKON of the intended end user for each system being ordered and
the installation address.
15.1.3 Promptly after a system is installed, Distributor shall provide LINKON
with the name of the customer/end user, the installation address, the telephone
number and such other information as LINKON may reasonably request.
15.1.4 From time to time as requested by LINKON, Distributor shall assist
LINKON to update and correct LINKON's data base of information regarding end
users of Products in the Territory.
15.2 End User Surveys and Distributor Service Level.
LINKON intends to conduct regular surveys of end users in the Territory to
determine their level of satisfaction with the Products as well as with
Distributor's and LINKON's service/support. LINKON shall report the results of
such surveys of Distributor's customers to Distributor. If Distributor's level
of service is not satisfactory (i.e. the survey results for Distributor's
customers are substantially less favorable than for the majority of other LINKON
distributors), LINKON shall make suggestions as to how service can be improved.
Thereafter, Distributor shall have one hundred twenty (120) days or until the
next end user survey, whichever is longer, to improve its service to a
satisfactory level as established by LINKON. Distributor's failure to improve
its service to a satisfactory level as provided above within the cure period
provided for herein shall be deemed to be a failure that is not capable of cure
for purposes of Subsection 8.1.1.
16.0 (OMITTED)
17.0 TRADEMARKS
17.1 Use of Trademarks.
Distributor may, with LINKON's prior written consent, use certain of the
Trademarks in connection with the business of marketing and selling the Products
for installation in the Territory, subject to the terms and conditions set forth
in this Article 17.0, and may not use the Trademarks in any other manner without
the express written consent of LINKON. In no event shall Distributor use the
"Linkon PRO" mark or any other marks LINKON intends to restrict for use only by
Linkon PRO distributors. The use of the Trademarks
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required or permitted pursuant hereto shall immediately terminate upon
expiration of this Agreement or its earlier termination as provided for in
Article 8.0.
17.2 Approval of Trademark Usage.
Distributor shall submit to LINKON for the prior written approval of LINKON in
each case, all proposed advertising and other promotional literature or material
in which Distributor desires to use any of the Trademarks or LINKON's name.
Without limitation to the foregoing, all advertising and other material
utilizing any Trademarks, shall clearly indicate the /(R)/ or /TM/ symbols after
the trademarked name and shall include the following statement:
"(name of products(s)) is a trademark of LINKON Corporation"
or such other statement as may be requested, from time to time, by LINKON.
17.3 Protection of Trademarks.
Distributor recognizes the right, title, and interest of LINKON in and to all
the Trademarks in connection with the marketing and sale of Products by LINKON
and agrees not to engage in any activities or commit any acts, directly or
indirectly, which may contest, dispute, or otherwise impair such right, title,
or interest of LINKON therein. Distributor shall neither acquire, nor claim any
right, title or interest in or to, Trademarks advertise to the rights of LINKON
whether by virtue of this Agreement or through any use by Distributor of the
Trademarks which may be permitted by LINKON through advertising and sale of the
Products or otherwise. The parties agree that any and all uses of such
Trademarks by Distributor as may be permitted by LINKON herein or in writing
from time to time shall be in such manner as to inure at all times to the
benefit of LINKON.
17.4 Use of Other Trademarks.
Distributor shall not utilize, in connection with any of the Products, including
the promotion, distribution, and sale of any of the Products, any trademark
other than the Trademarks without in each case first obtaining the prior written
authorization of such use from LINKON.
17.5 New or Modified Trademarks.
If any trademarks, trade names or service marks of Distributor are used by
Distributor in combination with the Trademarks in such manner as to be
distinctive, such distinctive features and associated goodwill thereof shall
become the property of and inure to the benefit of LINKON, and Distributor
shall, without any payment or other consideration, execute such documents as are
necessary to assign all rights thereto to LINKON.
17.6 Infringement.
If Distributor learns of any infringing use of the Trademarks, Distributor shall
promptly report the details thereof to LINKON and shall cooperate with LINKON in
pursuing any remedies available to LINKON or Distributor.
18.0 PATENTS AND COPYRIGHTS
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18.1 Infringement.
Except as otherwise provided in Section 18.3, LINKON shall defend any suit or
proceeding brought against Distributor based on a claim that the use, possession
or sale of the Products in accordance with the terms of this Agreement
constitutes an infringement of any United States patent or copyright provided
LINKON is notified promptly in writing by Distributor of the claim and is given
authority, information and assistance (at LINKON's expense) by Distributor for
defense of the matter and, subject to the provisions of Section 18.2, LINKON
shall pay all damages and costs awarded therein against Distributor. In the
event the Products are held in such matter to be infringing and as a result the
use of the Products is enjoined, LINKON shall, at its expense and option, either
procure for Distributor the right to continue using the Products, replace the
same with a non infringing product, modify them so they become non-infringing,
or remove the infringing Products and refund the purchase price thereof to
Distributor.
18.2 Limitation of Liability.
In no event shall LINKON's total liability to Distributor under or as a result
of compliance with the provisions of Section 18.1 exceed the aggregate sum paid
by Distributor for the infringing or allegedly infringing Products. Section
18.1 and this Section 18.2 state the entire liability of LINKON for patent or
copyright infringement by the Products and the provisions thereof are IN LIEU OF
ANY OTHER EXPRESSED, IMPLIED OR STATUTORY WARRANTY AGAINST INFRINGEMENT AND
SHALL BE THE SOLE AND EXCLUSIVE REMEDY FOR PATENT OR COPYRIGHT INFRINGEMENT OF
ANY KIND.
18.3 Other.
Distributor shall indemnify and hold LINKON harmless against any expense or loss
resulting from any claim, action or proceeding resulting from Distributor's
actions, omissions or negligence in connection with its appointment as a non-
exclusive Distributor under this Agreement including, without limitation,
infringement of patents, copyrights, trademarks or unfair competition arising
from compliance with Distributor's designs, specifications or instructions.
Sale of the Products by LINKON does not convey any license, by implication,
estoppel or otherwise, under patent claims covering combinations of the Products
with other devices or elements.
19.0 CONFIDENTIALITY
19.1 Confidentiality of LINKON's Information.
19.1.1 Distributor shall not, at any time prior to five (5) years after
termination or expiration of this Agreement, use or disclose to others (except
for the purposes required by or directly incidental to the sale, installation,
and maintenance of Products pursuant to this Agreement) any information or
materials provided to Distributor and marked CONFIDENTIAL. Nor shall
Distributor disclose to others any other information pertaining to LINKON's
trade secrets (including software), manufacturing process, customers, marketing
practices, or other information of a confidential nature.
19.1.2 Distributor agrees to limit access to LINKON's confidential information
to only those employees of Distributor who have signed confidentiality
agreements approved by LINKON. Distributor shall enforce such agreements as
necessary to prevent improper use or dissemination of LINKON's confidential
information.
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19.2 Confidentiality of Distributor's Information.
LINKON shall not, at any time prior to five (5) years after termination or
expiration of this Agreement, use or disclose to others (except as may be
required or directly incidental to LINKON's performance of this Agreement) any
information provided by Distributor and marked CONFIDENTIAL pertaining to
Distributor's trade secrets, customer lists, pricing, and marketing practices
and other information of a confidential nature.
20.0 MISCELLANEOUS.
20.1 No Assignments.
This Agreement is not assignable or transferable in whole or in part by
Distributor without the prior written consent of LINKON.
20.2 Notices.
Any notices given with respect to or required by this Agreement shall be in
writing and sent by first class postage prepaid registered or Certified mail or
by facsimile transmission to LINKON or Distributor as the case may be, at the
address indicated on the first page of this Agreement, or to such other
addresses as either party may have last designated in writing in the manner
herein provided. Notices shall be deemed received three (3) days after deposit
in the U.S. mail or immediately in the case of facsimile transmission.
20.3 Relationships of Parties.
The relationship of the parties is that of buyer and seller. No partnership,
joint venture, franchise, or other similar relationship is created by this
Agreement. Distributor shall, at all times, operate as an independent
contractor and not as an agent or employee of LINKON. Distributor has no
express or implied authority to incur any obligation for or in any manner
otherwise make any commitments on behalf of LINKON. Distributor shall employ
its own personnel and shall be responsible for them and their acts and in no way
shall LINKON be liable to Distributor, its employees, or third parties for any
losses, injuries, damages, or the like occasioned by Distributor's activities in
connection with this Agreement, except as expressly provided herein.
Distributor shall be solely responsible for, and shall indemnify and hold LINKON
harmless from any and all claims, damages, or lawsuits arising out of the acts
or omissions of Distributor, its employees, servants, or agents. In addition,
Distributor shall carry adequate liability and property insurance at its own
expense to cover such risks.
20.4 Nonwaiver.
Any failure by either party to enforce at any time any of the provisions,
including without limitation, the termination provisions of this Agreement,
shall not be construed to be a waiver of such provision or of the right of
either party thereafter to enforce such provision.
20.5 Severability.
All provisions of this Agreement shall be considered as separate terms and
conditions, and in the event any one shall be held illegal, invalid, or
unenforceable, all the other provisions hereof shall remain in full force and
effect, as if the illegal, invalid, or unenforceable provision were not a part
hereof.
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20.6 Choice of Laws.
This Agreement is made in, and shall be governed by and construed in accordance
with the laws of the State of Connecticut and the United States of America
without regard to conflict of law principles.
20.7 Entire Agreement.
This Agreement contains the entire agreement between the parties with respect to
the subject matter herein and supersedes and replaces all prior and
contemporaneous agreements relating thereto. Any alteration or amendment of
this Agreement must be in writing and signed by both parties, provided that
LINKON may change the contents of certain of the Exhibits as expressly permitted
under the terms of this Agreement and such changes shall be binding on
Distributor.
20.8 Exhibits.
The exhibits appended hereto are an integral part of this Agreement and shall be
referred to in construing and interpreting this Agreement.
20.9 Headings and Titles.
The headings and titles used in this Agreement are for convenience only. They
are not part of this Agreement and shall not be referred to in interpreting and
construing terms and conditions hereof.
20.10 Use of Plurals.
In this Agreement, the singular shall, when the context requires, include the
plural and vice versa.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective
the day and year first above set forth.
LINKON: DISTRIBUTOR:
/s/ Thomas V. Cerabona /s/ J.K. Kary
- - --------------------------- --------------------------
Signature Signature
Thomas V. Cerabona J.K. Kary
- - --------------------------- -----------------------
Name (printed) Name (printed)
Vice President President
- - --------------------------- -----------------------
Title Title
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Authorized Distributor Agreement
EXHIBIT A
The Territory consists of the following:
Korea
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Authorized Distributor Agreement
EXHIBIT B - LINKON PRODUCTS
The Products consist of the following LINKON technology and related equipment:
Linkon "Maestro" 100% DSP based multimedia communication board.
Linkon Software Options Consisting Of:
Link-OS/TM/ operating systems
TeraVox/(R)/ Communications Software
Voice record and play
Voice Data Compression
Speech Recognition
Text to Speech
Alpha Speech Recognition
Numeric Speech Recognition
Speaker Verification
Fax Communications
Data Communications
Linkon System Enhancements, Including:
Digital T-1 Interface
Digital E-1 Interface
MVIP Interface
PEB Interface
LEB/TM/ Interface
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Authorized Distributor Agreement
EXHIBIT C
DISCOUNT SCHEDULE
YEARLY VOLUME DISCOUNTS
<TABLE>
<CAPTION>
CUMMULATIVE VOLUME GROUP 1 GROUP 2 GROUP 3 GROUP 4 GROUP 5
<S> <C> <C> <C> <C> <C>
$50,001-$100,000 10% 15% 12% 4% 3%
$100,001-$150,000 15% 20% 16% 6% 4%
$150,001-$200,000 20% 25% 20% 8% 5%
$200,001-$500,000 25% 30% 24% 10% 6%
$500,001-$750,000 30% 35% 28% 12% 8%
$750,001-$1,000,000 35% 40% 32% 16% 10%
GREATER THAN $1,000,001 40% 45% 36% 20% 12%
</TABLE>
NOTE: A FIRST TIME ORDER OF UP TO $100,000 WILL BE GIVEN THE MAXIMUM DISCOUNT
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EXHIBIT D
RECOMMENDED SPARE PARTS:
FS4FBD-01 Foundation Board - 2 Wide
FS4FB3-01 Foundation Board - 3 Wide
FS4DSP-44 FS4000 DSP Module (4DSP w/16MB)
FS4DAA-01 DAA Module
FS4KT1-01 FS4000 T1 Module
FSMVIP MVIP Cable
FST1CBL T1 Cable
FST1BB T1 Breakout Box
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EXHIBIT E - LINKON LIST PRICING
LINKON. PRICE LIST EFFECTIVE AUGUST 5, 1996
140 Sherman Street, Fairfield, CT 06430.Tel (203) 319-3175.Fax (203) 319-3150
FC-4000 MAESTRO/TM/ PC-EISA/ISA BUS GROUP 1
HIGH DENSITY* 1MB/DSP - SUPPORTS VOICE/DTMF PRICE
FC4012-D1 . 12 CHANNEL DIGITAL BOARD 2,795.00
FC4024-D1 . 24 CHANNEL DIGITAL BOARD 5,090.00
FC4036-D1 . 36 CHANNEL DIGITAL BOARD 7,385.00
HIGH PERFORMANCE* 1MB/DSP - SUPPORTS VOICE/DTMF, FAX, MODEM, CELP
FC4004-A2 . 4 CHANNEL ANALOG BOARD 3,095.00
FC4008-A2 . 8 CHANNEL ANALOG BOARD 5,690.00
FC4004-D2 . 4 CHANNEL DIGITAL BOARD 2,795.00
FC4008-D2 . 8 CHANNEL DIGITAL BOARD 5,090.00
FC4012-D3 . 12 CHANNEL DIGITAL BOARD 7,385.00
HIGH CAPACITY* 4MB/DSP - SUPPORTS VOICE/DTMF, FAX, ASR, MODEM, CELP, TTS
FC4004-A3 . 4 CHANNEL ANALOG BOARD 4,250.00
FC4008-A3 . 8 CHANNEL ANALOG BOARD 8,000.00
FC4004-D3 . 4 CHANNEL DIGITAL BOARD 3,950.00
FC4008-D3 . 8 CHANNEL DIGITAL BOARD 7,400.00
FC4012-D3 . 12 CHANNEL DIGITAL BOARD 10,850.00
FC-4K COMPONENTS*
FC4KFB-01 . FOUNDATION BOARD (ISA BUS) 500.00
FC4DAA-01 . FX4000 DAA MODULE (ANALOG/4PORT) 300.00
FC4DSP-21 . FX4000 DSP MODULE (2 DSP W/2MB)*** 1,550.00
FC4DSP-24 . FX4000 DSP MODULE (2 DSP W/8MB)*** 2,150.00
FC4DSP-41 . FX4000 DSP MODULE (4 DSP W/4MB) 2,295.00
FC4DSP-44 . FX4000 DSP MODULE (4 DSP W/16MB) 3,450.00
Note: All prices FOB Fairfield, CT and are in US Dollars. Linkon reserves the
right to amend specifications and prices without notice.
* Prices only include Voice and DTMF capabilities.
*** Special order configuration.
. LINKON CORPORATION .
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LINKON. PRICE LIST EFFECTIVE AUGUST 5, 1996
140 Sherman Street, Fairfield, CT 06430.Tel (203) 319-3175.Fax (203) 319-3150
FS-4000 MAESTRO/TM/ WORKSTATION-SBUS GROUP 1
HIGH DENSITY* 1MB/DSP - SUPPORTS VOICE/DTMF PRICE
FS4012-D1 . 12 CHANNEL DIGITAL BOARD 3,913.00
FS4024-D1 . 24 CHANNEL DIGITAL BOARD 7,126.00
HIGH PERFORMANCE* 1MB/DSP - SUPPORTS VOICE/DTMF, FAX, MODEM, CELP
FS4001-A2 . 1 CHANNEL ANALOG BOARD 1,393.00
FS4004-A2 . 4 CHANNEL ANALOG BOARD 4,333.00
FS4004-D2 . 4 CHANNEL DIGITAL BOARD 3,913.00
FS4008-D2 . 8 CHANNEL DIGITAL BOARD 7,126.00
HIGH CAPACITY* 4MB/DSP - SUPPORTS VOICE/DTMF, FAX, ASR, MODEM, CELP, TTS
FS4004-A3 . 4 CHANNEL ANALOG BOARD 5,950.00
FS4004-D3 . 4 CHANNEL DIGITAL BOARD 5,530.00
FS4008-D3 . 8 CHANNEL DIGITAL BOARD 10,360.00
FS-4K COMPONENTS*
FS4KFB-01 . FOUNDATION BOARD 700.00
FS4DAA-01 . FX4000 DAA MODULE (ANALOG/4PORTS) 420.00
FS4DSP-21 . FX4000 DSP MODULE (2 DSP W/2MB)*** 2,170.00
FS4DSP-24 . FX4000 DSP MODULE (2 DSP W/8MB)*** 3,010.00
FS4DSP-41 . FX4000 DSP MODULE (4 DSP W/4MB) 3,213.00
FS4DSP-44 . FX4000 DSP MODULE (4 DSP W/16MB) 4,830.00
Note: All prices FOB Fairfield, CT and are in US Dollars. Linkon reserves the
right to amend specifications and prices without notice.
* Prices only include Voice and DTMF capabilities.
*** Special order configuration.
. LINKON CORPORATION .
25
<PAGE>
LINKON. PRICE LIST EFFECTIVE AUGUST 5, 1996
140 Sherman Street, Fairfield, CT 06430.Tel (203) 319-3175.Fax (203) 319-3150
NETWORK INTERFACES GROUP 5
PRICE
ACR2E1-32 . 30 CHANNEL R2 SIGNALING E-1 CARD CALL FOR QUOTE
NM2121-03 . 24 CHANNEL ROB BIT SIGNALING T-1 CARD (WITHOUT CSU) 4,200.00
PRISA-48 . 48 CHANNEL ROB BIT/ISDN SIGNALING T-1 CARD 3,950.00
CHASSIS SYSTEMS GROUP 5
PRICE
IN06 . 6 SLOT SYSTEM FOR SUN SPARC (WITH CONNECTOR CARD) 1,995.00
INTERFACE ACCESSORIES NO DISCOUNT
PRICE
BREAKOUT BOX FOR RJ11 50.00
ANALOG INTERFACE CABLE FOR RJ11 65.00
MVIP CABLE 65.00
PEB CABLE 65.00
T-1 INTERFACE CABLE - SBUS 65.00
SUPPORT PROGRAMS GROUP 4
PRICE
PREMIER* 4,900.00
ENHANCED* 2,900.00
PER HOUR TECHNICAL SUPPORT - NO CONTRACT (15 MINUTE INCREMENTS) 100.00
PER HOUR ENGINEERING SUPPORT - NO CONTRACT 150.00
ENGINEERING OR TRAINING - PER DAY + EXPENSES 1,750.00
* For first year support coverage. Pricing for years 2+ will be quoted based
upon size of installed base of product to be covered.
. LINKON CORPORATION .
26
<PAGE>
LINKON. PRICE LIST EFFECTIVE AUGUST 5, 1996
140 Sherman Street, Fairfield, CT 06430.Tel (203) 319-3175.Fax (203) 319-3150
APIS (APPLICATION PROGRAMMING INTERFACES) GROUP 2
LINKVOX* PRICE
DIRECT DRIVER DEVELOPER'S LICENSE (DDI) 3,750.00
LINKOS - PER CHANNEL 100.00
PROVOX DEVELOPER'S LICENSE** 6,250.00
PROVOX RUN-TIME LICENSE - PER CHANNEL 150.00
TERAVOX DEVELOPER'S LICENSE** 6,250.00
TERAVOX RUN-TIME LICENSE - PER CHANNEL 150.00
SOFTWARE LICENSES GROUP 3
FAX PRICE
FAX GROUP III CLASS II - PER CHANNEL 250.00
DATA COMMUNICATIONS
MODEM - PER CHANNEL 100.00
VOICE COMPRESSION
CELP 9600 BITS/SECOND - PER CHANNEL 165.00
AUTOMATIC SPEECH RECOGNITION
L&H (AMERICAN ENGLISH, FLEMISH, DUTCH, FRENCH, GERMAN, SPANISH) - 300.00
PER CHANNEL
L&H ASR PVE TOOL KIT - PER COPY 1,250.00
TEXT-TO-SPEECH
L&H - PER CHANNEL 250.00
AUTOMATIC CALLER ID
CALLER ID (202) ANALOG OR DIGITAL - PER CHANNEL 100.00
* Choice of: Interactive UNIX 4.1, SCO UNIX 4.2, SPARC Solaris 2.4, UnixWare
1.1, x86 Solaris 2.4
** Includes 4 (four) channels of Run-time
. LINKON CORPORATION .
27
<PAGE>
EXHIBIT F
SOFTWARE LICENSE AGREEMENT
between
LINKON CORPORATION (Linkon)
140 Sherman Street
Fairfield, CT 06430
and
TriGem Microsystems, Inc. (DISTRIBUTOR)
9 FL, New Eunkyung Bldg., 141-26
Samsung-Dong, Kangnam-Ku, Seoul
135-090, Korea
I. SOFTWARE LICENSE
LINKON Software, including its documentation, is copyrighted by LINKON, which
owns all rights and title to the product. You are receiving a license to use
the Software, but not the title to it or any copy of it. This license is
applicable to LINKON Software only for use on the LINKON equipment with which it
is provided. Under the copyright laws and this license Agreement, the Software
and its documentation may not be duplicated or copied, in whole or in part,
without the written permission of LINKON, except for the normal use of the
Software, or to make backup archival copies. The same proprietary and copyright
notices must be affixed to any permitted copies as were affixed to the original.
This exception does not allow copies to be made for others, whether or not for
consideration, but all of the licensed material (including backup copies) may be
transferred to another person, if he agrees to be bound by the provisions of
this Agreement, and if you destroy any copies of material not transferred.
Prohibited copying includes translating into another language or format.
End-user agrees to take reasonable steps to safeguard copies of the Software
against disclosure to or use by unauthorized persons, and to take reasonable
steps to insure that the provisions of this Agreement are not violated by its
employees.
This license shall remain in effect until terminated. You may terminate the
license at any time by destroying all copies of the program and its
documentation. The license will also terminate upon your failure to comply with
the terms and conditions of this Agreement. Upon termination, you must destroy
all your copies of this program, including any modifications.
If you register the Warranty by sending in the enclosed software registration
card, LINKON will provide you with notice of significant corrections made in the
program for one year after the date of this license begins. You will also be
entitled to obtain advice and service directly from LINKON or its authorized
Distributors for problems or errors you discover in the program in accordance
with standard LINKON service policies.
28
<PAGE>
II. LIMITED SOFTWARE WARRANTY
LINKON warrants that each LINKON Software program shall conform to current
published documentation applicable to such program. For a period of two years
from the date of installation of the LINKON Software, LINKON or its authorized
Distributor will resolve or provide a solution for software faults at no charge
to you, providing you have documented the symptoms of the fault. This Warranty
will not apply to problems which cannot be replicated by LINKON or you.
LINKON'S WARRANTY OBLIGATIONS SHALL IN NO EVENT INCLUDE ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, RESPONSIBILITY FOR DAMAGE
RESULTING FROM ACCIDENT, TRANSPORTATION, NEGLECT, MISUSE, MODIFICATION WITHOUT
LINKON'S PRIOR CONSENT, UNAUTHORIZED ATTEMPTS TO REPAIR, OR FAILURE OF
ELECTRICAL POWER OR ENVIRONMENTAL CONTROL.
III. LIMITATION OF LIABILITY
IN NO EVENT WILL LINKON OR ITS DISTRIBUTORS BE LIABLE FOR ANY COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES OR FOR ANY DIRECT, INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM YOUR USE OF, OR
INABILITY TO USE THE PRODUCT, BASED UPON ANY DEFECT IN THE PRODUCT OR ITS
DOCUMENTATION, EVEN IF LINKON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN PARTICULAR, LINKON SHALL HAVE NO LIABILITY FOR THE LOSS OF ANY
INFORMATION WITHIN THE SYSTEM AT ANY TIME.
THE MAXIMUM LIABILITY FOR LINKON FOR ANY CLAIM, INCLUDING BUT NOT LIMITED TO
LINKON'S NEGLIGENCE, SHALL BE LIMITED TO RETURN OF THE CONSIDERATION ACTUALLY
PAID TO LINKON FOR THE PRODUCT, LESS REASONABLE DEPRECIATION.
The Warranty and remedies set forth above are exclusive and in lieu of all
others, oral or written, expressed or implied. No LINKON Distributor, agent, or
employee is authorized to make any modification, extension, or addition to this
Warranty.
THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE
OF ANY LIMITED WARRANTY.
LINKON: DISTRIBUTOR:
/s/ Thomas V. Cerabona /s/J.K. Kary
- - -------------------------- ------------------
Signature Signature
Thomas V. Cerabona J.K. Kary
- - ------------------------- ----------------------
Name (printed) Name (printed)
Vice President President
- - -------------------- -----------------------
Title Title
29
<PAGE>
EXHIBIT G
SUPPORT PLAN
BASIC PLAN-INCLUDED IN PURCHASE PRICE
Hardware
* For 30 days from date of shipment:
- Free overnight advance replacement of defective equipment
1. Requires RMA from technical support
2. Replacement shipped same day if RMA issued before 2:00 P.M.
Shipping method is via second day service.
3. Defective equipment must be returned by customer in original
packaging to Linkon within 5 days, or the customer will be invoiced
for the full purchase price.
4. Does not apply to custom or special order product.
* For 2 years from the date of purchase:
- Free repair of the defective equipment
1. With RMA
2. Repaired or replaced with new or reconditioned product at Linkon's
option.
3. Returns shipped within 10 working days. Shipping method is via
second day service.
4. 90 day warranty on repair, or balance of original warranty
- A "No Trouble Found" fee of $150 will be charged for product returned for
service and found to be fully functional.
Software/API's
* Temporary fixes are included at no-charge
* Maintenance Releases are included for 6 months
* Major Releases are available at 50% of list current price
Technical Support
* Telephone support during business hours (8 hours x 5 days)
* 5 application support issues per purchase order during the first 6 months
* Additional calls $100 per hour for a Technical Support Engineer, billed in 15
minute increments. Engineering Support is billed at $150 per hour.
PREMIER CARE PLAN
*Provides immediate replacement of defective equipment via overnight express
service
1. Requires RMA from technical support
2. New or reconditioned replacement shipped same day if RMA issued before
2:00PM
3. Defective equipment must be returned by customer to Linkon within five
days
4. Does not apply to custom or special order product.
*Purchased in addition to basic warranty
30
<PAGE>
*Cost is $4900 for the first year of blanket product coverage. The cost for
years 2+ will be quoted based upon the installed base of product to be covered.
Software/API's
* Temporary fixes are included at no-charge
* Maintenance Releases are included at no charge
* Free Major Software releases are included at no charge
Technical Support
* Toll free 800 number (with access code)
* Telephone support (24 hour x 7 day)
* Call back during non-business hours within 1 hour
* Unlimited support calls per year
LINKON ADVANCE REPLACEMENT SERVICE
*Provides for immediate replacement of defective equipment via overnight service
- Subject to availability.
- Requires RMA from technical support
- Replacement shipped same day if RMA issued before 2:00 PM. Shipping
method is next day service.
- Defective equipment must be returned by customer in original packaging to
Linkon within five days, or the customer will be invoiced for the full
purchase price.
*Repaired equipment warranted for 90 days or remainder of the original warranty.
*Cost-
In warranty-$250 per replaced unit, plus shipping charges.
Out of warranty-$500 plus the standard repair cost per replaced unit, plus
shipping charges.
LINKON DEPOT REPAIR SERVICE
*For equipment not covered under warranty
*Repaired units warranted for 90 days from shipment of repaired unit.
*Repairs shipped within 10 days of receipt
*Cost: 25% of the original list price per unit repaired.
LINKON ON-SITE SERVICE
*Provides on-site services of a professional Linkon technician for installation,
configuration of debug.
* Cost: $1750 per day, plus expenses
31
<PAGE>
LINKON SOFTWARE UPGRADES
*Major Releases
- Whole number releases
- Supported for up to 6 months after the next major release
- Cost is current list price less 25% discount for current customers
LINKON SOFTWARE MAINTENANCE
* Maintenance Releases
- Decimal releases in "Tenths"
- Available to registered owners of major releases
- Available via CD Rom or Data Cartridge
* Temporary Fixes
- Decimal releases in "Hundredths"
- Available to registered owners reporting problems
- Available via CD Rom, Data Cartridge, or the Internet
SHIPPING POLICY
* Customer pays the shipping charges to return the product to Linkon
*Linkon pays shipping charges to return product to the customer, except for out
of warranty repair or advanced replacement service.
32
<PAGE>
EXHIBIT 10.17
- - -----------------------------------------------------
COMMERCIAL
LEASE
- - -----------------------------------------------------
THIS LEASE is made as of this 17th day of June, 1997, by and between 140
Sherman Street, LLC (hereinafter referred to as "Landlord") and the following
party (hereinafter referred to as "Tenant"):
Linkon Corporation
IN CONSIDERATION of the mutual benefits and obligations set forth in this
Lease, Landlord and Tenant agree as follows:
ARTICLE I
LEASING DATA
1.1 LEASING DATA. This Article contains data used in other provisions of
this Lease but set forth in this Article for ease of reference. For example,
although the Monthly Base Rent is specified in this Article, Article IV is the
operative provision of the Lease regarding the payment of the Monthly Base Rent.
Whenever any item contained in this Article is more specifically described in a
subsequent Article of the Lease, the more specific description will control.
(a) The "Building is the building in which the Leased Premises is located
and is known as 140 Sherman Street, Fairfield, Connecticut
(b) The "Leased Premises" is located in the FIFTH floor of the Building,
with the floor area outline of the Leased Premises being shown on
Exhibit A, attached hereto.
(c) The "Leased Premises Square Footage" is 5,704 square feet.
(d) The "Initial Commencement Date" is September 1, 1997.
(e) The "Initial Term" is the period of time beginning with the Initial
Commencement Date and ending at the end of the 12th full calendar
month from and after the Initial Commencement Date.
(f) The "Leased Premises Use" is general administrative business offices.
(g) The "Base Rent" for the Initial Term is $5,228.67 per month.
<PAGE>
(h) The "Security Deposit is $5200 carryover from current lease.
(i) The "Notice Address" for Landlord and Tenant are:
Landlord:
Robert D. Scinto
c/o R.D. Scinto, Inc.
P.O. Box 880
Shelton, CT 06484
Tenant:
Linkon Corporation
140 Sherman Street
Fairfield, CT 06430
Attn: Mr. Thomas Cerabona
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<PAGE>
ARTICLE II - DEFINITIONS
2.01. CAPITALIZED WORDS AND PHRASES. This Lease contains many words and
phrased with initial, capitalized letters. These words and phrases are used as
specially defined terms in an effort to make the Lease easier to read. An
effort has been made to set forth some of the more common defined terms in this
Article, but other Articles may also contain defined terms. Whenever a
capitalized work or phrase is used in this Lease, it shall have the definition
specifically ascribed to it, unless the context of the usage implies otherwise.
Some of the definitions listed below may not be used in the main body of the
Lease. Some definitions which may not be used in the main body of the Lease are
nevertheless listed because in some situation, the Date Section or additional
provisions or exhibits added to the Lease may incorporate the use of such
definitions.
2.02. "ADDITIONAL RENT" means any charge, other than the Base Rent, payable by
Tenant to Landlord under any provision of this Lease.
2.03. "BUILDING" means the building in which the Leased Premises is located
and "BUILDINGS" means all of the buildings in the Project.
2.04. "COMMON AREA" means all portions of the Project other than rentable
spaces in the Buildings.
2.05. "CONSENT" OR "APPROVAL" of Landlord means only the consent or approval
given by Landlord in writing.
2.06. "CPI" means the United States Department of Labor Bureau of Labor
Statistics Consumer Price Index-All Urban Consumers-All Cities (1982-4 = 100),
or if such index is no longer published, a substitute selected by Landlord which
represents similar changes in consumer prices.
2.07. "FISCAL YEAR" means the 12 month periods comprising Landlord's Fiscal
year for the purposes of computing Monthly Additional Rent. It is contemplated
that the Fiscal Year will be the calendar year, but Landlord may choose a Fiscal
Year other than the calendar year.
2.08. "LANDLORD'S INSURANCE PREMIUMS" means the premiums for Landlord's
Insurance Coverages, Landlord's Insurance Coverages being defined in paragraph
8.02.
2.09. "LEASED PREMISES" means the rentable space leased to Tenant at the
Project, as generally described in the Data Section. A more particular
description of the Leased Premises is all space within the lateral, upper and
lower boundaries, excluding common utility lines and other similar items, as
described below. The lateral boundary of the Leased Premises is the unfinished
face of the sheet-rock and inside surface of the glass on all demising walls.
If any wall is incomplete as of the inception of the Lease, the lateral boundary
shall be the inside face of the demising wall studs until they are sheet-rocked.
For the purposes of this paragraph, a demising wall is any wall separating the
Leased Premised from any other space within its Building and any exterior
Building wall separating the Leased Premises from the outdoors. The upper
boundary of the Leased Premises is the lower surface of the suspended
acoustical ceiling, and if not, the lower surface of the roof or deck of the
next floor above the Leased Premises. The lower boundary of the Leased Premises
is the unfinished surface of the concrete floor. The Leased Premises does not
include any pipe, conduit, duct chase, wire, structural building support column,
or other similar item located within the boundary of the Leased Premises but
which represents a building component that serves portions of the Project
besides only the Leased Premises.
2.10. "LEASED PREMISES SQUARE FOOTAGE" means the square footage set forth in
Article I, which represents the agreed upon rentable square footage of the
Leased Premises, which rentable square footage is different than and in excess
of the usable square footage.
2.11. "LEASED PREMISES UTILITY CHARGES" means the charges payable by Tenant
for utility consumption by the Leased Premises, as further described in
paragraph 5.02.
2.12. "NOTICE" means only written notification given by one party to the
other. Notice may only be given by: a form of US Mail in which the recipient is
required to sign a receipt (such as certified, return receipt); a nationally
recognized courier service which requires the recipient to sign a receipt (such
as Federal Express or UPS Next Day); and, in the case of
-3-
<PAGE>
delivery to the Leased Premises, in which event the Notice will be effective as
of the date of delivery. Notice must be given to the other party at the party's
Notice Address, except in the case of Notice to Tenant, which may always be
given at the Leased Premises. The Notice Address for each party is the address
listed in the Data Section of this Lease, or to such other address designated by
a party by Notice to the other party, provided, that Landlord shall not be
required to give Notice to more than one address, and if more than one address
is specified, Landlord may choose any one address of those designated by Tenant.
2.13. "PROJECT" means the Building and the real estate associated with the
Building, the current boundary of which is described on Exhibit B.
2.14. "PROJECT OPERATING EXPENSES" means all of the reasonable expenses
incurred by Landlord in the Operation of the Project except for those expenses
which are specifically excluded in this paragraph below, as may be adjusted by
the following sentence. If during all or part of any Fiscal Year the Project
has not been fully occupied, then for the purposes of computing Project
Operating Expenses for such Fiscal Year, Project Operating Expenses shall be
those expenses which would have reasonably been incurred had the Project been
fully occupied and would otherwise qualify as proper Project Operating Expenses.
The preceding sentence shall in no event allow Landlord to receive payment or
reimbursement for more than 100% of the expenses actually incurred by Landlord
for the relevant Fiscal Year. Project Operating Expenses includes, without
limitation: (a) the cost of any personnel of Landlord directly involved in the
operation of the Project, provided such personnel are not above the grade of
building manager and provided that the cost of any personnel serving more
properties than the project is allocated to the Project only in proportion to
the time spent on the Project business; (b) the cost of equipment and supplies
used in the maintenance and operation of the Project (salt and sand in the
winter months, for example); (c) the cost of keeping the Project in good repair
(repairs & replacements); (d) the cost of utilities serving the Common Area and
utilities serving the Leased Premises other than those in Article 5 hereof
(electricity for the parking lot lighting and HVAC, for example; (e) a
reasonable management fee consistent with the operation of a first-class office
building in the local market; (f) the cost of maintenance and cleaning of the
Common Area; (g) the cost of equipment maintenance contracts; (h) landscaping
costs; (i) restriping and repairing the parking area serving the Project; (j)
Landlord's Insurance Premiums; (k) Project Taxes; and (l) any other item
reasonably expended for the maintenance, operation, repair and insurance of the
Project. Project Operating Expenses shall not include: (i) the cost of any
structural repairs or structural replacements for the Building; (ii) the cost of
any item that is not reasonable (which means no rates for any services will be
billed in excess of fair market rates - which may, for example, include a
reasonable premium for overtime, after hours services and emergency services;
(iii) and depreciation of any equipment or of any portion of the Project; (iv)
any income tax imposed upon Landlord's income or any estate or gift tax of
Landlord; (v) any payments on any mortgage debt secured by the Project; (vi) the
cost of construction for any additional rentable space in the Project; (vii) any
marketing and brokerage expenses in connection with the leasing of any space in
the Project to any tenant; and (ix) any expenses incurred by Landlord in
connection with the enforcement of a lease against any tenant.
2.15. "PROJECT TAXES" means the regularly assessed real estate tax of the
municipality in which the Project is located and any other tax or use charge
imposed upon the Project or its operation, such as, without limitation: a sewer
assessment or use charge; a fire district tax, and/or a special taxing district
tax. Project Taxes does not include any personal property tax imposed upon the
personal property or any tenant or any other tax which may be imposed directly
upon a tenant rather than the Project or its owner generally.
2.16. "RENT" means all sums payable by Tenant to Landlord under the
provisions of this Lease, including all Base Rent and Additional Rent.
2.17. "TENANT'S PERCENTAGE" means the percentage equivalent to the ratio of
the Leased Premises Square Footage divided by the Total Building Square Footage,
which may be adjusted upon any change in the Leased Premises Square Footage or
Total Building Square Footage, but will not be adjusted based upon the degree of
occupancy of the Project.
2.18. "TERM" means the period of time during which Tenant is entitled to
possession of the Leased Premises in accordance with the provisions of this
Lease, but does not include any hold over period.
-4-
<PAGE>
2.19. "TOTAL BUILDING SQUARE FOOTAGE" means the gross rentable square footage
of all of the rentable tenant spaces in the Building whether rented or not. The
Total Building Square Footage is subject to adjustment, such as an increase if
any additional rentable square footage is constructed as an addition to the
Building.
2.20. "WALL STREET PRIME" means the interest rate published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of the
nation's 30 largest banks, or a similar substitute rate selected by Landlord if
the foregoing rate is no longer published.
ARTICLE III - LEASING OF LEASED PREMISES AND TERM OF LEASE
3.01. LEASING OF LEASED PREMISES. Landlord hereby leases the Leased Premises
to Tenant for the Term, together with a right to use certain portions of the
Common Area, subject to the other provisions of this Lease.
3.02. QUIET ENJOYMENT. Upon payment by Tenant of the Rents herein provided,
and upon the observance and performance of all the covenants, provisions and
conditions on Tenant's part to be observed and performed, Tenant shall peaceably
and quietly hold and enjoy the Leased Premises for the Term without hindrance or
interruption by Landlord or any person claiming by or through Landlord, except
as expressly provided in this Lease.
3.03. COMMENCEMENT DATE. The Term will begin on the "Actual Commencement
Date". The "Actual Commencement Date" is the Initial Commencement Date set
forth in the Data Section, unless Landlord is unable to deliver possession of
the Leased Premisses on or before the Initial Commencement Date on account of
any delay caused by any existing occupant of the Leased Premises not vacation on
time or unless Landlord is delayed in completing any Landlord's "Initial Fit-Out
Work" (defined in paragraph 3.04). In the case of any such delay, the Actual
Commencement Date shall be the Initial Commencement Date extended to the date on
which Landlord tenders possession of the Leased Premises to Tenant, in
substantially the condition promised to Tenant (for example - as-is & broom
clean and/or with substantial completion of Landlord's Initial Fit-Out Work - as
may be set forth in other provisions of this Lease regarding the condition of
the Leased Premises upon delivery to Tenant).
3.04. CONDITION OF LEASED PREMISES UPON DELIVERY TO TENANT. The Leased
Premises shall be delivered to Tenant on he Actual Commencement Date in as-is
condition, broom clean and free of all personal property of others, except that
Landlord will perform any work set forth in Exhibit C, attached hereto, as
Landlord's Initial Fit-Out Work. Any Landlord's Initial Fit-Out Work shall be
performed by Landlord in a good and workmanlike manner. Landlord will commence
any Landlord's Initial Fit-Out Work on or before the date felt to be reasonably
early enough for the work to be substantially completed on or before the Initial
Commencement Date, unless Landlord is unable to begin the work on account of
being unable to obtain occupancy of the Leased Premises and begin Landlord's
Fit-Out Work promptly after possession of the Leased Premises has been obtained.
ARTICLE IV - PAYMENT OF RENT
4.01. PAYMENT OF RENT. Tenant shall pay the monthly Base Rent and the
Monthly Additional Rent on the first day of each month during the Term, in
advance. The amount of the Monthly Additional Rent and method of billing
therefore is set forth in paragraph 4.02. Any other charge shall be due in
accordance with the Lease provision governing the charge. For example, if
Tenant is to pay Landlord for any fit-out work, the charge and manner of payment
for that may be covered under the provision specifying the fit-out work.
4.02. MONTHLY ADDITIONAL RENT. The Monthly Additional Rent is: (i) Tenant's
Percentage of Project Operating Expenses; plus (ii) leased Premises Utility
Charges. At the beginning of each Fiscal Year, Landlord shall prepare a itemized
estimate (in reasonable detail) of all of the components of the Monthly
Additional Rent expected to be incurred by Tenant during the ensuing Fiscal
Year. Landlord will provide a copy of the statement of estimated Monthly
Additional Rent to Tenant and Tenant shall pay the Monthly Additional Rent based
on Landlord's estimated statement, each monthly payment to be 1/12 of the
estimated Monthly Additional Rent to be incurred for the full Fiscal Year. After
the end of each Fiscal Year, Landlord will prepare an itemized statement of the
actual Monthly Additional Rent
-5-
<PAGE>
incurred by Tenant during the prior Fiscal Year, together with a statement of
any overpayment or underpayment of actual Monthly Additional Rent based upon the
estimated payments made by Tenant. Landlord will render the statement of Monthly
Additional Rent actually incurred by Tenant within 90 days after the end of each
Fiscal Year. In the case of an underpayment, Tenant shall pay the shortage to
Landlord within 30 days after rendering the statement of actual Monthly
Additional Rent to Tenant. In the case of an overpayment, Landlord will
reimburse the amount of the overpayment to Tenant within 30 days after the
rendering of the statement. In the event it becomes apparent to Landlord during
the course of a Fiscal Year that the actual Monthly Additional Rent will be
materially different than the estimated Monthly Additional Rent (on account of
an unexpected increase in the municipal real estate tax, for example), then
Landlord may amend the statement of estimated Monthly Additional Rent and the
monthly payments will be adjusted such that all of the newly estimated Monthly
Additional Rent for the full Fiscal Year will have been paid via the Monthly
Additional Rent payments made prior to the new estimate plus payment of the
equal adjusted installments of the Monthly Additional Rent payments remaining in
the Fiscal Year. If Landlord has not provided Tenant with statement of estimated
Monthly Additional Rent prior to the beginning of a Fiscal Year, Tenant shall
make installment payments based upon the installments in effect for the prior
year until the new statement of estimated Monthly Additional Rent is rendered to
Tenant. The calculation of Monthly Additional Rent shall be in accordance with
Generally Accepted Accounting Principals (unless express provisions of this
Lease deviate). Any component of Project Taxes shall be charged to any period in
the same manner in which real estate tax is adjusted on closings for property in
the municipality in which the Project is located, but if not adjusted, then in
advance, each payment covering the period when first due until the date which a
payment is next first due (the method of adjustment for the regular municipal
real estate tax being in advance - based upon a uniform fiscal year). All
utility bills and other similar expenses shall be allocated to the period of
usage which resulted in the bill. For example, if Landlord receives a Common
Area electric bill in January 1994, which bill covers a period beginning in
November 1993 and ending in December 1993, the electric bill would be charged to
1993 Project Operating Expenses.
4.03. ADDITIONAL PROVISIONS REGARDING PAYMENT OF RENT. All Rent shall be due
and payable without any setoff or deduction to Landlord at the times specified
in this Article, above. If any installment of Rent is not paid within 10 days
of its due date, Tenant shall pay a late charge to Landlord equal to the greater
of $1000 or 5% of the overdue payment. If the outstanding balance of Rent owed
to Landlord contains any amount that has not been paid within 10 days of its due
date, then beginning on the 11th day, the entire outstanding balance of Rent
owed by Tenant shall bear interest at the "Default Rate", until the outstanding
balance no longer includes any amounts not paid within 10 days of their due
date. The "Default Rate" is the rate of interest equal to the lesser of: (i) 4%
over the "Wall Street Prime" in effect at the time the Default Rate begins to
accrue; or (ii) the maximum rate of interest permitted to be charged under law.
Any liability for unpaid Rent shall survive the termination of the Lease.
ARTICLE V - LEASED PREMISES UTILITIES
5.01. RESPONSIBILITY TO PROVIDE UTILITIES TO THE LEASED PREMISES. Landlord
shall provide electric power for the lighting and power outlets for the Leased
Premises and hearing fuel and electricity for the air conditioning system for
the Leased Premises. If Landlord is responsible to provide the Leased Premises
to Tenant with any plumbing fixtures (such as kitchen facilities with a sink or
bathroom facilities) Landlord will provide a water supply to the plumbing
fixtures and a waste line from such plumbing fixtures. Landlord will provide
Tenant with location in the Building with a local telephone line connection to
which Tenant may run Tenant's telephone lines. Landlord may provide for any
utility to be separately metered to Tenant, and, at Landlord's option, may
require Tenant to maintain Tenant's own, metered account with the utility
company providing such separately metered utility. In the case of any utility
for which Tenant is required to maintain Tenant's own separately metered
account, Landlord's responsibility to provide such utility to the Leased
Premises shall consist of being responsible to maintain all building systems
installed by Landlord for such utility system in good repair and providing the
utility up to the point of the meter. Tenant, and not Landlord, will be
responsible for maintaining the metered account and for keeping the utility on
from and after the point of the meter.
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5.02 RESPONSIBILITY TO PAY FOR LEASED PREMISES UTILITY CHARGES. Tenant shall
pay all charges for utilities used, consumed in or allocable to the Leased
Premises ("Leased Premises Utility Charges"). In the case of separately metered
utilities, Landlord may direct that Tenant maintain Tenant's own account with
the utility company providing the service to the Project, in which case, payment
to the utility company and keeping the utility turned on past the point of the
meter shall be Tenant's responsibility. If Tenant is in arrears with any
utility company for any separately metered utility service to the Project,
Landlord may pay the utility company charges, and Tenant shall forthwith owe
Landlord reimbursement, together with interest from and after the date of
Landlord's payment at the Default Rate (defined in Article IV). If any utility
consumption in the Leased Premises is not separately metered, Landlord may
allocate the shared utility consumption to the Leased Premises in any reasonable
manner. If the electricity consumed in the Leased Premises is not separately
metered, Tenant shall pay Landlord for the electric consumption at the rate of
$1.25 per square foot of Leased Premises Square Footage per annum, increased by
the amount of any rate increase imposed after the execution of this Lease by the
utility company providing service to the Building. The preceding $1.25 per
square foot per annum rate is based on normal office usage, and Landlord
reserves the right to increase the Tenant electric charges in the event that
Tenant's electric consumption shall be in excess of normal office usage (for
example, excess usage due to a computer installation with high energy
consumption). The Leased Premises Utility Charges are payable in monthly
installments, in the manner set forth in Article IV.
ARTICLE VI - USE OF LEASED PREMISES AND TENANT'S CONDUCT IN PROJECT
6.01. PERMITTED USE FOR LEASED PREMISES BY TENANT. Tenant and any permitted
assignee or sublessee shall use the Leased Premises for the sole and exclusive
purpose set forth in the Data Section and no other purpose. The use of the
Leased Premises shall also be in accordance with all laws affecting the Leased
Premises, including the municipal zoning laws. Unless the use set forth in the
Data Section expressly provides otherwise, the use of the Leased Premises shall
be limited to the operation of a general business office. Tenant will comply
with all rules and regulations reasonably established by Landlord for the
governing of conduct of tenants in general in the Project, of which Tenant is
given notice.
6.02. TENANT ALTERATIONS, TENANT'S CONTRACTORS, MECHANIC'S LIENS, ETC.
Tenant shall not cause any alteration or improvement to be made to the Leased
Premises or to any other portion of the Project unless Tenant has obtained
Landlord's prior Consent. Landlord will not unreasonably withhold Landlord's
Consent to such alterations or improvements, but prior to rendering Consent,
Landlord may require Tenant to submit building plans (in detail reasonably
required by Landlord) and the identity of the contractor or contractors and
subcontractors to perform any such alterations and the references for such
contractors and subcontractors reasonably requested by Landlord. Prior to the
commencement of any such alteration or improvement by any contractor, Landlord
will be provided with a certificate of insurance for such contractor, showing
public liability coverage, workers' compensation coverage and any other coverage
reasonably required by Landlord, which certificate names Landlord as an
additional insured and provides that the coverage will not be canceled or not
renewed without at least 15 days advance Notice to Landlord. All work performed
by or through Tenant shall be performed in full compliance with all laws, shall
be carried out in a prompt and workmanlike manner and shall not interfere with
the peaceful enjoyment of the Project by any other tenant. Tenant shall
promptly pay all contractors and materialmen hired by Tenant to furnish any
labor or materials which may give rise to the filing of a mechanic's lien
against the Project attributable to alterations and improvements done by
or through Tenant. Should any such lien be placed against the Project, Tenant
shall cause same to be discharged as against the Project within the sooner of:
(i) 10 business days after Tenant receives notice of such lien; or (ii) 10
business days after request by Landlord to remove such lien; (iii) the date on
which the lien could have been removed had Tenant used all reasonable efforts to
remove it after Notice from Landlord of it. If bond is filed and such lien is
discharged, Tenant shall not be obligated to discharge the lien by payment.
Notwithstanding any notice and grace period before default elsewhere set forth
in this Lease, if Tenant shall fail to discharge such lien within the time
period set forth in this paragraph above, and shall further fail to discharge
such lien within 10 more business days after Notice of failure to discharge the
lien is given from
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Landlord, then Tenant shall be in material default of the Lease, without any
further notice or grace period.
6.03. TENANT'S GENERAL COMPLIANCE WITH LAWS. Tenant shall, at Tenant's sole
cost and expense, comply with all of the requirements of all laws now in force
or which may hereafter be in force and not being reasonably disputed by Tenant
pertaining to Tenant's use of the Leased Premises and Project and any act
therein by Tenant. Specific reference is made to Tenant's duty to comply with
all state, federal and local laws concerning environmental protection and
Tenant's conduct at the Project. Tenant shall indemnify and hold Landlord
harmless from and against any damage, liability, cost and/or expense which
Landlord may suffer by reason of Tenant's failure to comply with the laws
governing Tenant's conduct at the Project, including all laws concerning
environmental protection. Tenant shall undertake no acts which would result in
the Leased Premises being defined as an "Establishment" under the environmental
laws of the State of Connecticut.
6.04. SIGNAGE & WINDOW TREATMENT. Tenant will not place or maintain, or
cause to be placed or maintained, on any portion of the Project exterior to the
Leased Premises or any portion of the Project (including the Leased Premises)
visible from the exterior of the Leased Premises, any sign or advertising matter
without Landlord's written consent. Tenant shall not place any object on any
portion of the Project exterior to the Leased Premises without Landlord's
written consent. Tenant shall not install or maintain any window treatment
without the prior written consent of Landlord. Landlord may require Tenant to
install window treatments with a particular exterior appearance (color, style
and quality), as viewed from the exterior of the Leased Premises.
6.05. ENVIRONMENTAL COMPLIANCE. Tenant will not under any circumstances
cause or permit the depositing, spillage or seepage of any "Hazardous or Special
Substance" in any dumpster or in any other area of the Project other than an in
an area and in a manner which is in strict compliance with all laws and which is
Approved in advance by Landlord. Tenant will not use, store, generate or
dispose of any substance in any manner which would cause the Project to be
classified as an Establishment under the laws of the State of Connecticut.
Tenant will indemnify Landlord from and against any loss, cost, damage, fines,
testing deemed reasonably necessary by Landlord or any other expense incurred by
Landlord as a result of any violation of any environmental law or this paragraph
by Tenant or any agent, servant, employee or contractor of Tenant. "Hazardous
or Special Substance" means any substance that may not be dumped in a land fill
as general trash, any substance listed under the laws of the State of
Connecticut or the United States as a hazardous waste, or any other substance
whose use, presence or storage at the Leased Premises requires any person to
comply with any environmental reporting or registration requirement under any
law.
6.06. OTHER DUTIES OF TENANT REGARDING MAINTENANCE, REPAIR AND CONDUCT AT THE
PROJECT. Tenant will conform Tenant's conduct to the following standards and
will perform the following duties, all in a prompt, diligent and workmanlike
manner, at Tenant's sole cost and expense:
(a) Tenant will maintain the Leased Premises in a clean and neat condition;
(b) Tenant will keep the Leased Premises in good repair, except that any repairs
to the structure of the Building which are not necessitated by any negligent
or willful act or omission of Tenant shall be performed by Landlord;
(c) Tenant will remove all trash from the Leased Premises with such frequency as
is consistent with the operation of Tenant's business in a first
class manner, which will include placing general trash in the appropriate
Project Dumpster and recyclable trash in the appropriate Project Dumpster in
order to comply with any environmental laws affecting Tenant's conduct.
(d) Tenant will comply with all laws affecting Tenant's use of the Leased
Premises and any recommendations of Landlord's fire insurance rating
organization, which laws may include, but are not limited to the municipal
zoning regulations; any environmental laws; and any licensing laws
regulating the operation of Tenant's business.
(e) Tenant will comply with all rules and regulations reasonably established by
Landlord regarding the use of the Project, which rules may be presently
existing or hereafter established and may include, for example rules
governing employee parking,
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time for rubbish removal, manner of making deliveries to the Leased Premises
and style of signage.
6.07. LIMITATIONS ON TENANT'S CONDUCT. Tenant agrees to abide by the
following limitations regarding conduct at the Project.
(a) Tenant will not cause or permit the playing of any loudspeakers,
phonographs, public address systems or similar audio devices in any manner
so as to be audible outside of the Leased Premises;
(b) Tenant will not place any trash anywhere in the Project outside of the
Leased Premises except in the Project Dumpsters of Tenant's Dumpsters, as
the case may be.
(c) Tenant will not cause or permit to emanate from the Leased Premises any
objectionable odor, as determined in Landlord's reasonable discretion.
(d) Tenant will not do anything which interferes with the use and peaceful
enjoyment of the leased premises of any other tenant;
(e) Tenant will not solicit business in the Common Area via distribution of
handbills or other advertising matter or via verbal contact with patrons of
the Project, other than personal discussions with persons known to the
person soliciting prior to such person's entry into the Common Area.
(f) Tenant will not permit the parking of any vehicles in any manner which
interferes with the drives, sidewalks and fire lanes and any other areas
desired to be kept clear by Landlord.
(g) Tenant will not permit the overnight parking of any vehicles in the parking
area.
(h) Tenant will not receive or ship merchandise or equipment outside of the
areas designated by Landlord for loading and unloading.
(i) Tenant will not place any loan on any floor in excess of its loading
capacity.
(j) To the extent that Tenant may control the temperature in the Leased
Premises, Tenant will not permit the temperature in the Leased Premises to
fall low enough to cause any pipes to freeze.
(k) Tenant will not keep, use, sell or offer for sale in or upon the Leased
Premises any article which may be prohibited by the standard form of fire
insurance policy.
(l) Tenant will not sue the Leased Premises or any portion of the Common Area
for any purpose prohibited by law or for any activity that is generally
considered inconsistent with the operation of a first class building of the
same type as the Building.
ARTICLE VII - LANDLORD'S MAINTENANCE OF PROJECT AND OTHER ACTIVITIES OF LANDLORD
IN PROJECT
7.01. LANDLORD'S MAINTENANCE DUTIES. Landlord will perform all maintenance
and repair reasonably necessary to maintain the Project in a condition
consistent with a first class property of the type constituted by the Project
(e.g., office building, R&D building, retail center, etc.) in the municipality
in which it is located. Notwithstanding the preceding sentence, Landlord's
maintenance obligations shall not extend to any maintenance duties of Tenant set
forth in Article V or the maintenance of any other portion of the Project which
is the responsibility of any other tenant under such other tenant's lease.
Landlord's maintenance duties shall be carried out in a prompt, diligent and
workmanlike manner and shall include (to the extent not required to be performed
by Tenant under Article V):
(a) keeping the Common Area, including the parking areas reasonably clean.
(b) performing snow and ice removal and sanding/salting for all portions of the
Common Area constituting parking areas, drives and walkways.
(c) keeping the exterior and structure of the Buildings in good repair, except
that to the extent not covered by Landlord's Insurance, Tenant will be
responsible for any repair necessitated by the neglect or willful misconduct
of Tenant or Tenant's agents, servants, employees or contractors.
7.02. PROJECT DUMPSTERS AND TENANT'S DUMPSTERS. "Project Dumpsters" are
those trash receptacles referred to in this paragraph. Landlord will provide a
dumpster or dumpsters for normal volumes of office trash in a location or
locations in the Project selected by Landlord. In the event Tenant's refuse
consists of other than normal volumes of
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office trash, Landlord reserves the right to require Tenant to supply a dumpster
or dumpsters for Tenant's trash ("Tenant's Dumpsters"), at Tenant's sole cost
and expense, under a contract which is subject to Landlord's prior approval,
which approval may be withheld on account of the contract not being cancelable
or not more than one month's advance notice. The cost incurred by Landlord in
providing a dumpster or dumpsters may be included as an element of Project
Operating Expenses or may be charged as a Monthly Reimbursement reasonably
allocated by Landlord among all of the tenants using any dumpster in common with
other parties.
7.03. LANDLORD'S RIGHT TO RELOCATE THE LEASED PREMISES. Landlord reserves
the right to relocate the Leased Premises to another space in the Project at any
time prior to or during the Term, subject to the following conditions. If
Landlord shall desire to relocate Tenant, Landlord shall give Tenant at least 60
days advance Notice of the relocation (the "Relocation Notice"), which shall
include the estimated effective date of the relocation and a floor area outline
and Leased Premises Square Footage of the new Leased Premises. Tenant shall
cooperate in a prompt manner after receipt of Relocation Notice, for the purpose
of developing any fit-out plans desired by Tenant for the new Leased Premises.
Landlord shall perform and bear the cost of any fit-out desired by Tenant for
the new Leased Premises, provided that Landlord shall only be required to
perform and pay for any fit-out that is specified by Tenant not later than 30
days after Landlord's Relocation Notice and provided the specified fit-out
requested to be performed by Landlord does not constitute a level of fit-out in
excess of the level of quality and quantity (on a per square foot basis) as
existed in the Leased Premise at the time of Landlord's relocation Notice.
Landlord may tender possession of the new Leased Premises to Tenant at any time
after the estimated effective date for the relocation contained in the
Relocation Notice, provided that any fit-out work required to be performed by
Landlord has been substantially completed. Landlord shall either: pay for the
reasonable cost of a moving service hired by Tenant (which cost has been
Approved by Landlord before the service is hired); or directly arrange and pay
for Tenant's move into the new Leased Premises. The date of tender of possession
of the new Leased Premises is the Relocation Commencement Date, and on such
date: the new Leased Premises shall be substituted for the previous Leased
Premises; the floor area outline given by Landlord with Relocation Notice shall
be the new proportionate change in the Leased Premises Square Footage (the
square footage being calculated in the same manner as that for the original
Leased Premises); and any other factor dependent upon the Leased Premises Square
footage shall be adjusted accordingly. Unless Tenant shall otherwise Consent,
the exercise of Landlord's right to relocate Tenant shall be limited such that
the Leased Premises Square Footage and the frontage of the new Leased Premises
shall not vary by more than 5% from the previous Leased Premises Square Footage.
Tenant shall vacate the previous Leased Premises not late r than 5 days after
the Relocation Commencement Date, leaving the previous Leased Premises in the
same condition as would be required had the Term for the previous Leased
Premises come to an end by expiration time.
7.04. LANDLORD'S RIGHT TO PERFORM WORK IN PROJECT. Landlord shall have the
right to undertake the following activities in the Project; construction of
additions to the Buildings and additional buildings; demolition of Buildings;
changing the grade and/or layout of the parking area or other Common Area;
excavation of the Common Area for the purposes of the above and/or installing or
repairing utility lines; and remodeling of the exterior of the Buildings.
Landlord's right to undertake any of the foregoing activities shall be limited
such that: there will be no unreasonable interference with Tenant's use of the
Leased Premises or access thereto; there shall be no materially adverse change
with respect to the proximity of Tenant's parking to the Leased Premises; and
Tenant's parking shall not decrease below the level required to be maintained
under the municipal zoning regulations.
7.05. LANDLORD'S RIGHT TO PIPES, ETC. Landlord shall have the right to
install, maintain and repair pipes, wires, ducts and similar items in the space
above any suspended ceiling and, in the case of an area with no suspended
ceiling, in the area of the Leased Premises reasonably close to the underside of
the roof or next floor above the Leased Premises. Landlord may enter the Leased
Premises for the purpose of performing such installation, maintenance and
repair, and for the purpose of performing any maintenance or repair of any
portion of the Project for which entry into the Leased Premises is necessary,
provided any entry by Landlord under this paragraph is accomplished in a
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manner which minimizes any disruption to Tenant's business.
ARTICLE VIII - INSURANCE, INDEMNIFICATION, WAIVERS, ETC.
8.01. TENANT'S INSURANCE COVERAGES. Tenant will maintain Tenant's Insurance
Coverages at all times during the Term. Tenant's Insurance Coverages shall be
maintained with an insurance carrier licensed to do business in Connecticut and
Approved of in advance by Landlord, Landlord's Approval not to be unreasonably
withheld and to be based on whether the insurance carrier maintains a rating
reasonably satisfactory to Landlord from a rating service such as A.M. Best.
Landlord may require Tenant to name Landlord as an additional insured on
Tenant's public liability policy and as a loss payee (to the extent of damage to
the realty) on Tenant's property insurance policy. Landlord may require Tenant
to provide Landlord with a copy of the policy or policies evidencing Tenant's
Insurance Coverages and Tenant shall provide Landlord (prior to the Actual
Commencement Date) with a certificate whereby the insurance carrier agrees not
to cancel or fail to renew its coverage unless at least 15 days advance Notice
is provided to Landlord. If Tenant shall fail to procure Tenant's Insurance
Coverages or provide Landlord with the copy of an insurance policy or a
certificate of insurance, as Landlord may request under the provisions of this
paragraph, Landlord may procure, but without any obligation to do so, any
Tenant's Insurance Coverages and Tenant will pay landlord the reasonable cost of
the same. Tenant's Insurance Coverages are the following insurance coverages, or
such lesser coverages as Landlord may approve of in advance:
(a) General public liability insurance coverage in at least the single limit
amount of $500,000, without deductible, insuring Tenant against all personal
injury and property damage claims arising out of any act or omission of
Tenant at the Project and such personal injury and property damage claims
for which Tenant is required to indemnify Landlord under the provisions of
this Lease.
(b) All-risk property insurance insuring at least the full replacement value
(less a commercially reasonable deductible not to exceed $2,000) of all of
Tenant's personal property at the Project and all fixtures and improvements
forming a part of and located within the boundaries of the Leased Premises.
8.02. LANDLORD'S INSURANCE COVERAGES. Landlord may maintain Landlord's
Insurance Coverages. Landlord's Insurance Coverages consist of any insurance
coverage reasonably maintained by Landlord in connection with the operation of
the Project, which coverages may include: a public liability insurance policy;
an all-risk property insurance policy, including coverage for rental loss on
account of property damage; and workers' compensation coverage for personnel
carrying out activities chargeable to Project Operating Expenses.
8.03. TENANT TO PAY FOR EXCESS INSURANCE PREMIUMS. Tenant will promptly pay
Landlord the amount of any insurance premium for Landlord's Insurance Coverages
which is in excess of the premium payable had Tenant's use of the Leased
Premises been a use for which the lowest premiums for Landlord's Insurance
Coverages are available. In the case where Tenant and any other tenant's use or
non use of their respective leased premises results in any insurance premium in
excess of the most favorable premiums for Landlord's Insurance Coverages, Tenant
shall be responsible to pay Landlord the portion of the excess which the Leased
Premises Square Footage bears to the total leased premises square footage of all
tenants causing the excess premium, or any other reasonable allocation made by
Landlord of the excess in premiums for Landlord's Insurance Coverages caused by
Tenant.
8.04. NO SUBROGATION - WAIVERS OF CLAIM. Landlord and Tenant, to the extent
not prohibited in their insurance policies, waive the right of subrogation
against the other party on account of any insured loss. Tenant and Landlord
each recognize that they may obtain property insurance, covering losses to
property on account of acts and/or omissions of the other, and if such coverage
is not obtained, the party failing to maintain the coverage shall bear the risk
of any insurable property loss (less a commercially reasonable deductible)
caused by any act or omission of the other party not arising to the level of
gross negligence or willful misconduct. Accordingly, in the event of any
uninsured property loss or damage of Tenant caused by any act or omission of
Landlord that does not constitute willful misconduct or gross negligence, which
loss or damage could have been insured under a standard tenant's all-risk
property insurance policy, Tenant waives any claim against Landlord on account
of the loss (except for recovery of a commercially reasonable deductible not in
excess of $2,000). Further provided, in the event of any uninsured property
loss or damage of Landlord caused by any act or omission of Tenant that does not
constitute willful misconduct or gross negligence, which loss or damage could
have been insured under a standard Landlord's all-risk property insurance
policy, Landlord waives any claim against Tenant on account of the
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loss (except for recovery of a commercially reasonable deductible).
8.05. INDEMNIFICATION AGAINST THIRD PARTY CLAIMS. In the case of third party
claims arising out of an act or omission of Tenant or an agent, servant or
employee of Tenant (a "Tenant Fault Claim") and not out of an act or omission of
Landlord or an agent, servant or employee of Landlord (a "Landlord Fault
Claim"), Tenant shall be responsible for the Tort Indemnity of Landlord. In the
event of a Landlord Fault Claim, Landlord shall be responsible for the Tort
Indemnity of Tenant. In the event of claims which are both Tenant Fault Claims
and Landlord Fault claims, Tenant shall be responsible for the claim to the
extent of the limit of public liability insurance coverage required to be
maintained by Tenant under paragraph 8.01(a), Landlord shall then be responsible
to the extent of the limit of Landlord's public liability insurance coverage,
and thereafter each party shall be responsible for the claim in the proportion
such party's fault bears to the total fault of Landlord and Tenant. Each party
shall be responsible for the Tort Indemnity of the other party for the portion
of the claim which is the responsibility of the party owing the Tort Indemnity.
Tort Indemnity shall mean that the party responsible for the indemnification
shall provide the legal defense of the claim (counsel being subject to the
approval of the indemnified party, approval not to be unreasonably withheld) and
the indemnifying party shall be responsible to pay the amount of the claim
(subject to the right to defend it) up to the limits of the indemnifications set
forth in this paragraph, above, except that in the case of claims which are both
Tenant Fault Claims and Landlord Fault Claims, each party shall be responsible
for such party's own costs of legal defense. Tort Indemnity shall not be owed to
the extent that the party owing the indemnification has been prejudiced by any
failure of the party seeking indemnification to give Notice to the other party
within a reasonable time after said party becomes aware of a claim in which the
other party may owe an indemnity obligation under this paragraph.
ARTICLE IX - ASSIGNMENT AND SUBLETTING
9.01. LANDLORD'S CONSENT REQUIRED FOR ASSIGNMENT AND SUBLETTING. Tenant will
not assign this lease in whole or in part nor sublet all or any part of the
Leased Premises without the prior written Consent of Landlord, which will not be
unreasonably withheld or delayed. Prior to any assignment or subletting for
which Landlord's Consent is required, Tenant shall give Notice to Landlord of
the proposed assignee or subtenant and the terms of the proposed assignment or
subtenancy, and upon request of landlord, Tenant will provide Landlord with any
other information reasonably requested by Landlord for the purpose of evaluating
the proposed assignee or subtenant. Landlord hereby expressly Consents to any
assignment or subletting to an entity controlled by Tenant, which controls
Tenant, or is under the control of the same entity that controls Tenant (a
"Tenant affiliated Entity"). For the purposes of the preceding sentence,
"control" means legal voting control. The Consent by Landlord to any assignment
or subletting shall not constitute a waiver of the necessity for such Consent to
subsequent assignment or subletting. Assignment or subletting shall include a
change in a majority of any ownership of Tenant (in the case of a tenant that is
not an individual) and shall include an assignment or subletting by operation of
law (attachment of Tenant's interest in the leasehold, for example). Unless
landlord shall give express Consent of the release of Tenant, no assignment or
subletting or acceptance of any rent from any party in possession of the Leased
Premises shall constitute a release of Tenant from the obligations under this
Lease. By accepting the assignment of this Lease, any assignee assumes all
obligations of Tenant to Landlord from and after the date of the assignment,
jointly and severally with Tenant. Any attempted assignment or subletting by
Tenant without the prior Consent of Landlord shall be void. No assignment or
subletting shall provide for a rental payment, or other payment for use and
occupancy or utilization, based in whole or in part on the net income or profits
derived by any person or entity from the property assigned, subleased, occupied
or utilized (other than an amount based upon a fixed percentage of sales) and
any such purported assignment or subletting based upon such payment shall be
void and any amount payable thereunder or any rental amount therefor passed to
any person or entity shall not have deducted therefrom any expenses or costs
related in any way to the leasing of such space.
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9.02. RELEASE OF TENANT ON CERTAIN ASSIGNMENTS AND SUBLETTINGS. Except for an
assignment or subletting to a Tenant Affiliated Entity, for which express
consent is given in paragraph 9.01, in the event Tenant gives Landlord any
Notice of proposed assignment of this Lease or subletting of more than 50% of
the Leased Premises, then Landlord may, by Notice to Tenant, terminate this
Lease by lapse of time, effective on the date specified in Landlord's
termination Notice. Landlord's termination Notice under this paragraph may only
be given within 30 days after Notice of the proposed assignment or subletting
from Tenant, unless within 15 days after the Notice from Tenant Landlord makes a
request to Tenant for further information with which to evaluate the proposed
assignee or subtenant, in which event the time within which Landlord may give
Notice of termination shall be extended to 30 days after Tenant has provided the
further information to Landlord. Landlord's termination Notice must specify an
effective date for the termination, and if the termination Notice is given, this
Lease shall come to an end by lapse of time as if the Term had always expired on
the effective date of the termination, and provided Tenant has vacated the
Leases Premises in accordance with the provisions of this Lease, Tenant shall be
deemed to be released from any further liability or obligations of Tenant under
this Lease arising from and after the date Tenant has vacated.
9.03. LANDLORD'S RIGHTS ON PROPOSED SUBLETTING OR ASSIGNMENT. In the event
Tenant desires to sublet or assign this Lease in whole or in part, other than to
a Tenant Affiliated Entity, for which express Consent is given in paragraph
9.01, then Landlord shall have the right of first refusal against such
subletting or assignment in accordance with the further provisions of this
paragraph. Tenant shall give Landlord Notice of the terms of any bona fide
offer to sublet or assign pursuant to which Tenant desires to consummate a
subletting or assignment, which terms shall not include consideration for the
subrent or assignment price in anything other than cash and shall not include
the subrental or assignment of any premises other than all or a portion of the
Leased Premises. Landlord shall have 15 days after the Notice from Tenant to
notify Tenant of Landlord's acceptance of said subletting or assignment terms.
If Landlord shall not exercise Landlord's right of refusal within the 15 day
time period, the subletting or assignment shall be free of Landlord's refusal
right contained in this paragraph as to a subletting or assignment on the terms
contain in the Notice from Tenant, provided that such assignment or sublease is
executed and commences within not more than 60 days after Tenant's
aforementioned Notice to Landlord. If Tenant wishes to sublet or assign at a
lower rent, more favorable terms to the assignee or subtenant or outside of said
60 day period, Tenant must again Notice to Landlord the terms of any such
bona fide offer acceptable to Tenant and the above process shall be repeated.
ARTICLE X - ESTOPPEL CERTIFICATES, SUBORDINATION, ETC.
10.01. ESTOPPEL CERTIFICATES. Upon request of Landlord or any mortgagee of
Landlord, Tenant shall execute an estoppel certificate, certifying the status of
any facts with respect to the Lease. Estoppel certification may include:
whether the Lease is in full force and effect: the rentals due under the Lease
and the degree to which same have been paid: that there are no defenses or
claims against Landlord for any alleged violation of the Lease by Landlord, or a
statement of such defenses or claims; acknowledgement of the interpretation or
meaning of any terms of the Lease, provided such acknowledgment shall not change
any term or provision hereof; and such other matters reasonably requested to be
certified in the estoppel certificate.
10.02 SUBORDINATION, ATTORNMENT, ETC. This Lease and all rights of the
Tenant under the Lease, will be, at the election of any mortgagee of the
Project, either subordinate or superior, all or in part, to the lien of the
mortgagee. Notwithstanding the foregoing or any other provision of this Lease
to the contrary, if there shall be more than one mortgage on the Project, the
rights of Tenant under this Lease shall not be treated as inferior to any
inferior mortgage without the consent of all mortgagees superior in right to the
mortgage to which Tenant's rights are sought to be subordinated. The
subordination provisions in this paragraph shall be self-operative, without the
need for any execution of any other document. In the event any proceeding is
brought for the foreclosure of the Leased Premises, Tenant agrees to attorn to
the mortgagee in the event of strict foreclosure, or to the purchaser in the
event of foreclosure by sale or deed in lieu of foreclosure, and recognize such
mortgagee or purchaser (as the case may be) as the Landlord under this Lease.
Tenant further agrees to execute any further instrument or instruments which
Landlord or Landlord's successors in title may at any time require to evidence
-13-
<PAGE>
the subordination of this Lease to the lien of any such mortgage or mortgages
and Tenant's agreement to attorn.
10.03 EXECUTION OF DOCUMENTS BY TENANT. Tenant will execute and deliver to
Landlord or the party designated by Landlord, within ten days after presentation
of the proposed form, any estoppel certificate and/or subordination, attornment
and/or non disturbance agreement requested to be executed by Tenant pursuant to
the terms of this Lease. Tenant further agrees to include in any such documents,
if requested by Landlord: an agreement not to pay Landlord rent for more than
one month in advance; an agreement to give any mortgagee a notice of any alleged
default by Landlord and a reasonable time for such mortgagee to have such
default cured before Tenant will exercise any right to terminate this Lease; and
an agreement that Tenant will not look to such mortgagee for the return of any
security deposit or other monies not actually received by such mortgagee If
Tenant shall not have delivered the executed documents, required to be executed
and delivered under this Article, within the ten day period set forth above,
Landlord may give Tenant Notice of Tenant's failure to deliver such documents
and if Tenant shall then fail to deliver said executed documents within three
business days after delivery of such Notice, notwithstanding any provision for
notice and grace period for default elsewhere contained in this Lease. Tenant
shall be in default of the Lease, and Landlord shall have all rights provided
for in the event of such default, including termination. It is acknowledged
that foreseeable damages of Landlord on account of a breach of Tenant's
obligations under this Article may include the loss of and/or additional charge
incurred by Landlord in connection with a sale of the Project or a financing of
which the Project is to serve as collateral.
ARTICLE XI - TENANT'S SECURITY DEPOSIT
11.01. TENANT'S SECURITY DEPOSIT. Tenant's Security Deposit is due and
payable to the Landlord upon execution of this Lease. The Security Deposit
shall be security for the full and faithful performance of all obligations of
Tenant under this Lease. The rights and remedies reserved to the Landlord under
this Lease are cumulative, and in the event of a default by the Tenant, the
Landlord shall not be required to resort to the Security Deposit before
exercising any other remedy available to Landlord under this Lease or by law.
The Security Deposit will be refunded without interest to the Tenant promptly
following the expiration of this Lease, except to the extent the Security
Deposit has been applied to any damages of Landlord on account of Tenant's
failure to comply with any obligation of Tenant under this Lease. In no event,
except when the Landlord elects at Landlord's sole option to do so, may the
Tenant set off or apply any part of the Security Deposit against any Rent.
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<PAGE>
IN WITNESS WHEREOF, each party has caused this Lease to be executed on the
date below written, the date of the Lease being as of the date set forth on the
face page, if different than the date of execution for either party.
Landlord Tenant
/s/ Robert D. Scinto /s/ Thomas Cerabona
- - --------------------------------- ------------------------------------------
140 Sherman St., LLC Linkon Corporation
By: Thomas V. Cerabona
Its: Vice President
Date: 6/23/97 Date: 6/18/97
--------------------------- ---------------------------------
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<PAGE>
State of Connecticut
ss: City/Town of Fairfield
County of Fairfield
Personally appeared Thomas V. Cerabona, signer and sealer of the foregoing
instrument, who acknowledged himself or herself to be the Vice President of
Linkon Corporation and the execution to be his or her free act and deed and the
duly authorized free act and deed of ______________, before me, this 18th of
June, 1997.
/s/ Jennifer R. Hogarth
------------------------------------------------
Commissioner of the Superior Court/Notary Public
State of Connecticut
ss: City/Town of Shelton
County of Fairfield
Personally appeared Robert D. Scinto, 140 Sherman St., LLC, signer and sealer
of the foregoing instrument, who acknowledged the same to be his free act and
deed, before me, this 23rd day of June, 1997.
/s/ Eleanor M. Choate
------------------------------------------------
Commissioner of the Superior Court/Notary Public
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<PAGE>
EXHIBIT B
---------
DESCRIPTION OF LAND
-------------------
All those two certain pieces, parcels or tracts of land, together with the
buildings and improvement thereon situated in the Town of Fairfield, County of
Fairfield and State of Connecticut and described as follows:
FIRST PARCEL
- - ------------
All that certain piece, parcel or tract of land known as 128-140 Sherman Street,
bounded and described as follows:
NORTHERLY 126.02 feet by land now or formerly of E. Richard Henry, land
now or formerly of Murren, Homa & Pellegrino, Inc., each
in part:
EASTERLY 11.04 feet; again
NORTHERLY 30.00 feet, all by land now or formerly of Olympia A. Crist
and George A. Crist; again
EASTERLY 178.72 feet by land now or formerly of May Y. McGarry;
SOUTHERLY 179.59 feet by Sherman Street; and
WESTERLY 190.42 feet by land now or formerly of the Town of Fairfield
and by land now or formerly of Bessie B. Sullivan, each
in part.
Together with all right, title and interest, if any, to a right of way to the
Post Road, as reserved in a certain Warranty Deed from Charles S. Fox to Thomas
F. David and Sarah E. Davis, dated October 7, 1931, and recorded in the Land
Records of the Town of Fairfield in Book 145 at Page 192.
Together with all right, title and interest, if any, to the right to use seven
parking spaces as provided in a certain instrument from Nicholas Phakias and
George A. Crist to Ralph A. Monaco et. al., dated May 3, 1974, and recorded in
said Land records in Book 597 at Page 984.
PARCEL TWO:
- - ----------
All that certain piece, parcel or tract of land containing 12,000 square feet,
shown and designated and Plat "A" on a certain may entitled "Map of Property for
Frank W. Carroll, Fairfield Connecticut, May 12, 1977" made by The Huntington
Company Engineers and Surveyors, and on file in the office of the Town Clerk of
Fairfield as Map No. 4622 and more particularly bounded and described as
follows:
NORTHERLY by Sherman Street, 124.31 feet by a bent line;
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<PAGE>
EASTERLY by other land now or formerly of Frank W. Carroll, 105.25
feet;
SOUTHERLY by land now or formerly of Carroll Brothers, 146,57 feet;
and
WESTERLY in part by land now or formerly of Robert Erika E.
Coccarelli, and in part by land now or formerly of Mary
Elizabeth Flanagan, in all 75.20 feet.
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<PAGE>
EXHIBIT 10.18
FORM FOR ISO UNDER LINKON
CORPORATION STOCK OPTION PLAN
-----------------------------
NONTRANSFERABLE INCENTIVE STOCK OPTION AGREEMENT
NONTRANSFERABLE INCENTIVE STOCK OPTION AGREEMENT, dated as of ________ __,
199_, between LINKON CORPORATION, a Nevada corporation (the "Company"), and
_______________ (the "Optionee", which term as used herein shall be deemed to
include any successor to the Optionee by will or by the laws of descent and
distribution, unless the context shall otherwise require).
Pursuant to the Company's 1996 Stock Option and Performance Incentive Plan
(the "Plan"), the Company, acting through the Management Compensation and Stock
Option Committee of its Board of Directors (the "Committee"), approved the
issuance to the Optionee, effective as of the date set forth above, of an
incentive stock option to purchase up to an aggregate of [# OF SHARES] shares
of Common Stock, $.001 par value per share, of the Company (the "Common Stock"),
at the price (the "Option Price") of [PRICE] per share, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and undertakings
hereinafter set forth, the parties hereto agree as follows:
1. OPTION; OPTION PRICE. On behalf of the Company, the Committee hereby
grants to the Optionee the option (the "Option") to purchase, subject to the
terms and conditions of this Agreement and the Plan (which are incorporated by
reference herein and which in all cases shall control in the event of any
conflict with the terms, definitions and provisions of this Agreement), [# OF
SHARES] shares of Common Stock of the Company at an exercise price per share
equal to the Option Price, which Option is intended to qualify for federal
income tax purposes as an "incentive stock option" within the meaning of Section
422 of the Internal Reve nue Code of 1986, as amended (the "Code"). A copy of
the Plan as in effect on the date hereof has been supplied to the Optionee, and
the Optionee hereby acknowledges receipt thereof.
2. TERM. The term (the "Option Term") of the Option shall commence on the
date of this Agreement and shall expire on the [INSERT YEAR - NOT TO EXCEED 10
YEARS (OR FIVE YEARS IN THE CASE OF AN ISO GRANTED TO A 10% SHAREHOLDER]
anniversary of the date of this Agreement, unless such Option shall theretofore
have been terminated in accordance with the terms hereof or of the Plan.
3. TIME OF EXERCISE. (a) Unless accelerated in the discretion of the
Committee or as otherwise provided herein, the Option shall become exercisable
as to the total number of shares of Common Stock subject to the Option in
accordance with Exhibit A attached hereto. Subject to the provisions of Sections
5 and 8 hereof, shares as to which the Option be-
<PAGE>
comes exercisable pursuant to the foregoing provisions may be purchased at any
time thereafter prior to the expiration or termination of the Option.
(b) Anything contained in this Agreement to the contrary
notwithstanding, the Option shall not be exercisable to the extent that the
aggregate Market Price (as defined in the Plan) on the date hereof of all stock
with respect to which incentive stock options are exercisable for the first time
by the Optionee during any calendar year (under the Plan and all other plans of
the Company and all other corporations which at the time the Option is granted
qualify as "subsidiary corporations" of the Company under Section 424(f) of the
Code) (any of the aforementioned, including the Company, a "Participating
Company")) exceeds $100,000. In the event that such aggregate Market Price
exceeds $100,000, such excess portion shall roll over into the next calendar
year and be counted towards the $100,000 cap in such calendar year.
4. TERMINATION OF OPTION. (a) The unexercised portion of the Option
(which portion was otherwise exercisable on the date of termination) (the
"Unexercised Portion") shall automatically terminate and shall become null and
void and be of no further force or effect upon the first to occur of the
following:
(i) the expiration of the Option Term;
(ii) the expiration of three months from the date that the
Optionee ceases to be an employee of, or in the case of a nonemployee
Optionee, from the date such Optionee ceases providing services to, a
Participating Company unless such termination or cessation occurs by reason
of (i) a Relocation Event (as defined in Section 8.2 of the Plan); (ii)
Disability or Retirement (as such terms are defined in Section 8.3 of the
Plan), (iii) death, or (iv) a Special Event (as defined in Section 8.5 of
the Plan), provided that, in the case of a Special Event, the Committee
shall have modified such Option to remain exercisable as provided in
Section 8.5 of the Plan;
(iii) with respect to a Relocation Event, the expiration of a
period equal to the lesser of (i) the period the Unexercised Portion would
be exercisable absent the Relocation Event and (ii) the period such
Unexercised Portion would be exercisable if granted to the spouse
continuing as an employee, officer, director or independent contractor of a
Participating Company on the date originally granted to the terminated
spouse;
(iv) with respect to the Disability or Retirement of the
Optionee, the expiration of the Option Term; provided, however, that the
Option 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);
-2-
<PAGE>
(v) with respect to the death of the Optionee, the expiration
of three (3) years from the date of death (subject to the limitation set
forth in Section 5.7 of the Plan and only if exercised by the Designated
Beneficiary (as defined in Section 8.4 of the Plan) of the Optionee or the
Optionee's personal representatives, heirs or legatees); provided, however,
that the Option shall no longer be treated as an incentive stock option
unless exercised within three (3) months of the date of the Optionee's
death; provided, further, that if the Optionee dies following a termination
of employment or, in the case of a nonemployee officer or director, status
as an officer or director due to Retirement, Disability or a Special Event,
if such death occurs before the Option is exercised, the Option held by the
Optionee on the date of termination shall be exercisable by the Designated
Beneficiary or the Optionee's personal representatives, heirs or legatees,
as the case may be, to the same extent such Option was exercisable by the
Optionee following such termination of employment;
(vi) with respect to a Special Event, the expiration of the
period specified by the Committee in the manner set forth in Section 8.5 of
the Plan;
(vii) with respect to the Optionee's cessation of employment
with any Participating Company resulting from a voluntary termination by
the Optionee (a "Resignation") or a termination for cause (as described in
the second paragraph of Section 8.1 of the Plan) or is otherwise
attributable to a breach by the Optionee of an employment, noncompetition
or other similar agreement with a Participating Company;
(viii) except to the extent permitted by Article 7 of the Plan,
the date on which the Option or any part thereof or right or privilege
relating thereto is transferred (otherwise than by will or the laws of
descent and distribution), assigned, pledged, hypothecated, attached or
otherwise disposed of by the Optionee.
(b) Anything contained herein to the contrary notwithstanding, the
Option shall not be affected by any change of duties or position of the Optionee
(including a transfer to or from any Participating Company), so long as the
Optionee continues to be an employee of a Participating Company.
(c) In the case of an employee, officer or director on an approved
leave of absence, the Option of such person shall not be affected unless such
leave of absence is longer than 13 weeks in which case the date of
exercisability of such Option shall be postponed for a period equal to the
length of such leave of absence unless waived by the Committee.
5. PROCEDURE FOR EXERCISE. (a) The Option may be exercised, from time to
time, in whole or in part (but for the purchase of whole shares only), by
delivery of a written notice (the "Notice") from the Optionee to the Secretary
of the Company, which Notice shall:
(i) state that the Optionee elects to exercise the Option;
-3-
<PAGE>
(ii) state the number of shares of Common Stock with respect
to which the Option is being exercised (the "Optioned Shares");
(iii) state the method of payment for the Optioned Shares
pursuant to Section 5(b) hereof;
(iv) state the date upon which the Optionee desires to
consummate the purchase of the Optioned Shares (which date must be prior to
the termination of such Option and no later than 30 days from the delivery
of such Notice);
(v) include any representations of the Optionee required
under Section 8(b) hereof; and
(vi) if the Option shall be exercised pursuant to Section 10
hereof by any person other than the Optionee, include evidence to the
satisfaction of the Committee of the right of such person to exercise the
Option.
(b) Payment of the Option Price for the Optioned Shares shall be made
(i) in cash or by personal or certified check, or at the discretion of the
Committee (ii) by delivery of stock certificates (in negotiable form)
representing shares of Common Stock that have a Market Price on the date of
exercise equal to the product of (A) the number of Optioned Shares which are
being purchased pursuant to the exercise of such Option, multiplied by (B) the
applicable Option Price, (iii) a combination of either of the methods set forth
in clauses (i) and (ii) above, (iv) (A) by arrangements which are acceptable to
the Committee and as permitted by applicable law whereby the Optionee
relinquishes a portion of the Option, or (B) in compliance with any other
cashless exercise program authorized by the Committee for use in connection with
the Plan at the time of such exercise, or (v) in such other consideration as
shall be acceptable to the Committee. For the purpose of the preceding clause
(iv)(A), the fair market value of the portion of the Option that is relinquished
shall be the Market Price at the time of exercise of the number of Optioned
Shares subject to the portion of the Option that is relinquished less the
aggregate Option Price specified in the Option with respect to such Optioned
Shares.
(c) The Company shall issue a stock certificate in the name of the
Optionee (or such other person exercising the Option in accordance with the
provisions of Section 10 hereof) for the Optioned Shares as soon as practicable
after receipt of the Notice and payment of the aggregate Option Price for such
shares.
6. NO RIGHTS AS A STOCKHOLDER. The Optionee shall not have any privileges
of a stockholder of the Company with respect to any Optioned Shares until the
date of issuance of a stock certificate pursuant to Section 5(c) hereof.
7. ADJUSTMENTS. If the outstanding shares of Common Stock of the Company
are increased, decreased, or exchanged for a different number or kind of shares
or other securities,
-4-
<PAGE>
or if additional shares or new or different shares or other securities are
distributed with respect to such shares of Common Stock or other securities,
through merger, consolidation, sale of all of substantially all of the property
of the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other distribution with respect to
such shares of Common Stock or other securities, then an appropriate and
proportionate adjustment shall be made in (i) the number and kind of shares or
other securities subject to the Option and (ii) the price for each share or
other unit of any other securities subject to the Option without change in the
aggregate purchase price or value as to which such Option remains exercisable or
subject to restrictions. Any adjustment under this Section 7 shall be made by
the Company's Board of Directors, whose determination as to what adjustments
shall be made and the extent thereof will be final, binding and conclusive. No
fractional interests will be issued under the Plan resulting from any such
adjustment.
8. ADDITIONAL PROVISIONS RELATED TO EXERCISE. (a) The Option shall be
exercisable only on such date or dates and during such period and for such
number of shares of Common Stock as are set forth in this Agreement.
(b) To exercise the Option, the Optionee shall follow the procedures
set forth in Section 5 hereof. Unless at the time of exercise of the Option
there shall be, in the opinion of counsel for the Company, a valid and effective
registration statement under the Securities Act of 1933 (the "'33 Act") and
appropriate qualification and registration under applicable state securities
laws relating to the Optioned Shares being acquired pursuant to the Option, the
Optionee shall be required, upon exercise of the Option, to give to the Company
a written representation, in a form reasonably satisfactory to the Company, that
he or she is acquiring the Optioned Shares for his or her own account for
investment and not with a view to, or for sale in connection with, the resale or
distribution of any such shares. The Optionee shall be further required to
agree that he or she will not sell or transfer any Optioned Shares acquired
pursuant to exercise of the Option until he or she requests and receives an
opinion of the Company's counsel to the effect that such proposed sale or
transfer will not result in a violation of the '33 Act, or a registration
statement covering the sale or transfer of the shares has been declared
effective by the Securities and Exchange Commission, or he or she obtains a no-
action letter from the Securities and Exchange Commission with respect to the
proposed transfer.
(c) Stock certificates representing shares of Common Stock acquired
upon the exercise of the Option that have not been registered under the
Securities Act shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT OR AN OPINION OF COUNSEL IN FORM
-5-
<PAGE>
AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH SALE, OFFER FOR SALE,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION DOES NOT VIOLATE THE PROVISIONS
OF SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
9. NO EVIDENCE OF EMPLOYMENT OR SERVICE. Nothing contained in the Plan or
this Agreement shall confer upon the Optionee any right to continue in the
employ of a Participating Company or interfere in any way with the right of a
Participating Company (subject to the terms of any separate agreement to the
contrary) to terminate the Optionee's employment or to increase or decrease the
Optionee's compensation at any time.
10. RESTRICTION ON TRANSFER. The Option may not be transferred, pledged,
assigned, hypothecated or otherwise disposed of in any way by the Optionee,
except by will or by the laws of descent and distribution or as may otherwise be
required by law, and may be exercised during the lifetime of the Optionee only
by the Optionee. If the Optionee dies, the Option shall thereafter be
exercisable, during the period specified in Section 4(a)(ii) hereof, by his or
her Designated Beneficiary or personal representatives, heirs or legatees, as
the case may be, to the full extent to which the Option was exercisable by the
Optionee at the time of his or her death. The Option shall not be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
11. DISQUALIFYING DISPOSITIONS; TAXES. (a) If Optioned Shares are disposed
of within two years following the date of this Agreement or one year following
the issuance thereof to the Optionee (a "Disqualifying Disposition"), the
Optionee shall, immediately prior to such Disqualifying Disposition, notify the
Company in writing of the date and terms of such Disqualifying Disposition and
provide such other information regarding the Disqualifying Disposition as the
Company may reasonably require.
(b) At the time of a Disqualifying Disposition, the Optionee shall
remit to the Company in cash the amount of any applicable Federal, state and
local withholding taxes and employment taxes; provided, however, if such funds
are not so remitted to the Company and at such time the Optionee is an Employee
of a Participating Company, the Company may withhold such portion of the
Optionee's salary as is equal to the amount of such taxes.
12. NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if (i) personally
delivered, (ii) sent by nationally-recognized overnight courier or (iii) sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Optionee, to the address set forth on the signature
page hereto; and
-6-
<PAGE>
If to the Company, to:
Linkon Corporation
140 Sherman Street
Fairfield, Connecticut 06430
Attention: Secretary;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered, if
personally delivered or if sent by nationally-recognized overnight courier, and
(ii) on the third Business Day (as hereinafter defined) following the date on
which the piece of mail containing such communication is posted, if sent by
mail. As used herein, "Business Day" means a day that is not a Saturday, Sunday
or a day on which banking institutions in the city to which the notice or
communication is to be sent are not required to be open.
13. NO WAIVER. No waiver of any breach or condition of this Agreement
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
14. OPTIONEE UNDERTAKING. The Optionee hereby agrees to take whatever
additional actions and execute whatever additional documents the Company may in
its reasonable judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on the Optionee
pursuant to the express provisions of this Agreement.
15. MODIFICATION OF RIGHTS. The rights of the Optionee are subject to
modification and termination in certain events as provided in this Agreement and
the Plan.
16. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Connecticut applicable to contracts
made and to be wholly performed therein.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
18. ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
agreement between the parties with respect to the subject matter hereof, and
supersede all previously written or oral negotiations, commitments,
representations and agreements with respect thereto.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Nontransferable Incentive Stock Option Agreement as of the date first written
above.
LINKON CORPORATION
By:___________________________
Name:
Title:
OPTIONEE:
------------------------------
Name:
-----------------------
Address:
--------------------
--------------------
--------------------
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<PAGE>
EXHIBIT A
---------
[description of terms regarding exercise to be inserted]
-9-
<PAGE>
EXHIBIT 10.19
FORM OF NON QUALIFIED STOCK OPTION AGREEMENT - LINKON
FORM FOR NSO UNDER LINKON CORPORATION STOCK OPTION PLAN
-----------------------------
NONTRANSFERABLE NON-QUALIFIED STOCK OPTION AGREEMENT
NONTRANSFERABLE NON-QUALIFIED STOCK OPTION AGREEMENT, dated as of
__________ ___, 199_, between LINKON CORPORATION, a Nevada corporation (the
"Company"), and ______________________ (the "Optionee", which term as used
herein shall be deemed to include any successor to the Optionee by will or by
the laws of descent and distribution, unless the context shall otherwise
require).
Pursuant to the Company's 1996 Stock Option and Performance Incentive Plan
(the "Plan"), the Company, acting through the Management Compensation and Stock
Option Committee of its Board of Directors (the "Committee"), approved the
issuance to the Optionee, effective as of the date set forth above, of a non-
qualified stock option to purchase up to an aggregate of [# OF SHARES] shares
of Common Stock, $.001 par value per share, of the Company (the "Common Stock"),
at the price (the "Option Price") of [PRICE] per share, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and undertakings
hereinafter set forth, the parties hereto agree as follows:
1. OPTION; OPTION PRICE. On behalf of the Company, the Committee
hereby grants to the Optionee the option (the "Option") to purchase, subject to
the terms and conditions of this Agreement and the Plan (which are incorporated
by reference herein and which in all cases shall control in the event of any
conflict with the terms, definitions and provisions of this Agreement), [# OF
SHARES] shares of Common Stock of the Company at an exercise price per share
equal to the Option Price, which Option is not intended to qualify for federal
income tax purposes as an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). A copy of
the Plan as in effect on the date hereof has been supplied to the Optionee, and
the Optionee hereby acknowledges receipt thereof.
2. TERM. The term (the "Option Term") of the Option shall commence
on the date of this Agreement and shall expire on the [INSERT YEAR] anniversary
of the date of this Agreement, unless such Option shall theretofore have been
terminated in accordance with the terms hereof or of the Plan.
3. TIME OF EXERCISE. Unless accelerated in the discretion of the
Committee or as otherwise provided herein, the Option shall become exercisable
as to the total number of shares of Common Stock subject to the Option in
accordance with Exhibit A attached hereto. Subject to the provisions of
Sections 5 and 8 hereof, shares as to which the Option becomes exercisable
pursuant to the foregoing provisions may be purchased at any time thereafter
prior to the expiration or termination of the Option.
<PAGE>
4. TERMINATION OF OPTION. (a) The unexercised portion of the Option
(which portion was otherwise exercisable on the date of termination) (the
"Unexercised Portion") shall automatically terminate and shall become null and
void and be of no further force or effect upon the first to occur of the
following:
(i) the expiration of the Option Term;
(ii) the expiration of three months from the date that the Optionee
ceases to be an employee of, or in the case of a nonemployee Optionee, from the
date such Optionee ceases providing services to, the Company and all other
corporations which at the time the Option is granted qualify as "subsidiary
corporations" of the Company under Section 424(f) of the Code (any of the
aforementioned, including the Company, a "Participating Company") unless such
termination or cessation occurs by reason of (i) a Relocation Event (as defined
in Section 8.2 of the Plan); (ii) Disability or Retirement (as such terms are
defined in Section 8.3 of the Plan), (iii) death, or (iv) a Special Event (as
defined in Section 8.5 of the Plan), provided that, in the case of a Special
Event, the Committee shall have modified such Option to remain exercisable as
provided in Section 8.5 of the Plan;
(iii) with respect to a Relocation Event, the expiration of a period
equal to the lesser of (i) the period the Unexercised Portion would be
exercisable absent the Relocation Event and (ii) the period such Unexercised
Portion would be exercisable if granted to the spouse continuing as an employee,
officer, director or independent contractor of a Participating Company on the
date originally granted to the terminated spouse;
(iv) with respect to the Disability or Retirement of the Optionee,
the expiration of the Option Term;
(v) with respect to the death of the Optionee, the expiration of
three (3) years from the date of death (subject to the limitation set forth in
Section 5.7 of the Plan and only if exercised by the Designated Beneficiary (as
defined in Section 8.4 of the Plan) of the Optionee or the Optionee's personal
representatives, heirs or legatees); provided, however, that if the Optionee
dies following a termination of employment or, in the case of a nonemployee
officer or director, status as an officer or director due to Retirement,
Disability or a Special Event, if such death occurs before the Option is
exercised, the Option held by the Optionee on the date of termination shall be
exercisable by the Designated Beneficiary or the Optionee's personal
representatives, heirs or legatees, as the case may be, to the same extent such
Option was exercisable by the Optionee following such termination of employment;
(vi) with respect to a Special Event, the expiration of the period
specified by the Committee in the manner set forth in Section 8.5 of the Plan;
-2-
<PAGE>
(vii) with respect to the Optionee's cessation of employment with
any Participating Company resulting from a voluntary termination by the Optionee
(a "Resignation") or a termination for cause (as described in the second
paragraph of Section 8.1 of the Plan) or is otherwise attributable to a breach
by the Optionee of an employment, noncompetition or other similar agreement with
a Participating Company;
(viii) except to the extent permitted by Article 7 of the Plan, the
date on which the Option or any part thereof or right or privilege relating
thereto is transferred (otherwise than by will or the laws of descent and
distribution), assigned, pledged, hypothecated, attached or otherwise disposed
of by the Optionee.
(b) Anything contained herein to the contrary notwithstanding, the Option
shall not be affected by any change of duties or position of the Optionee
(including a transfer to or from any Participating Company), so long as the
Optionee continues to be an employee of a Participating Company.
(c) In the case of an employee, officer or director on an approved leave of
absence, the Option of such person shall not be affected unless such leave of
absence is longer than 13 weeks in which case the date of exercisability of such
Option shall be postponed for a period equal to the length of such leave of
absence unless waived by the Committee.
5. PROCEDURE FOR EXERCISE. (a) The Option may be exercised, from
time to time, in whole or in part (but for the purchase of whole shares only),
by delivery of a written notice (the "Notice") from the Optionee to the
Secretary of the Company, which Notice shall:
(i) state that the Optionee elects to exercise the Option;
(ii) state the number of shares of Common Stock with respect to which
the Option is being exercised (the "Optioned Shares");
(iii) state the method of payment for the Optioned Shares pursuant to
Section 5(b) hereof;
(iv) state the date upon which the Optionee desires to consummate the
purchase of the Optioned Shares (which date must be prior to the termination of
such Option and no later than 30 days from the delivery of such Notice);
(v) include any representations of the Optionee required under
Section 8(b) hereof; and
(vi) if the Option shall be exercised pursuant to Section 10 hereof
by any person other than the Optionee, include evidence to the satisfaction of
the Committee of the right of such person to exercise the Option.
-3-
<PAGE>
(b) Payment of the Option Price for the Optioned Shares shall be made (i)
in cash or by personal or certified check, or at the discretion of the Committee
(ii) by delivery of stock certificates (in negotiable form) representing shares
of Common Stock that have a Market Price on the date of exercise equal to the
product of (A) the number of Optioned Shares which are being purchased pursuant
to the exercise of such Option, multiplied by (B) the applicable Option Price,
(iii) a combination of either of the methods set forth in clauses (i) and (ii)
above, (iv) (A) by arrangements which are acceptable to the Committee and as
permitted by applicable law whereby the Optionee relinquishes a portion of the
Option, or (B) in compliance with any other cashless exercise program authorized
by the Committee for use in connection with the Plan at the time of such
exercise, or (v) in such other consideration as shall be acceptable to the
Committee. For the purpose of the preceding clause (iv)(A), the fair market
value of the portion of the Option that is relinquished shall be the Market
Price at the time of exercise of the number of Optioned Shares subject to the
portion of the Option that is relinquished less the aggregate Option Price
specified in the Option with respect to such Optioned Shares.
(c) The Company shall issue a stock certificate in the name of the Optionee
(or such other person exercising the Option in accordance with the provisions of
Section 10 hereof) for the Optioned Shares as soon as practicable after receipt
of the Notice and payment of the aggregate Option Price for such shares.
6. NO RIGHTS AS A STOCKHOLDER. The Optionee shall not have any
privileges of a stockholder of the Company with respect to any Optioned Shares
until the date of issuance of a stock certificate pursuant to Section 5(c)
hereof.
7. ADJUSTMENTS. If the outstanding shares of Common Stock of the Company
are increased, decreased, or exchanged for a different number or kind of shares
or other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all of substantially all of
the property of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other distribution with
respect to such shares of Common Stock or other securities, then an appropriate
and proportionate adjustment shall be made in (i) the number and kind of shares
or other securities subject to the Option and (ii) the price for each share or
other unit of any other securities subject to the Option without change in the
aggregate purchase price or value as to which such Option remains exercisable or
subject to restrictions. Any adjustment under this Section 7 shall be made by
the Company's Board of Directors, whose determination as to what adjustments
shall be made and the extent thereof will be final, binding and conclusive. No
fractional interests will be issued under the Plan resulting from any such
adjustment.
8. ADDITIONAL PROVISIONS RELATED TO EXERCISE. (a) The Option shall be
exercisable only on such date or dates and during such period and for such
number of shares of Common Stock as are set forth in this Agreement.
-4-
<PAGE>
(b) To exercise the Option, the Optionee shall follow the procedures
set forth in Section 5 hereof. Unless at the time of exercise of the Option
there shall be, in the opinion of counsel for the Company, a valid and effective
registration statement under the Securities Act of 1933 (the "'33 Act") and
appropriate qualification and registration under applicable state securities
laws relating to the Optioned Shares being acquired pursuant to the Option, the
Optionee shall be required, upon exercise of the Option, to give to the Company
a written representation, in a form reasonably satisfactory to the Company, that
he or she is acquiring the Optioned Shares for his or her own account for
investment and not with a view to, or for sale in connection with, the resale or
distribution of any such shares. The Optionee shall be further required to
agree that he or she will not sell or transfer any Optioned Shares acquired
pursuant to exercise of the Option until he or she requests and receives an
opinion of the Company's counsel to the effect that such proposed sale or
transfer will not result in a violation of the '33 Act, or a registration
statement covering the sale or transfer of the shares has been declared
effective by the Securities and Exchange Commission, or he or she obtains a no-
action letter from the Securities and Exchange Commission with respect to the
proposed transfer.
(c) Stock certificates representing shares of Common Stock acquired
upon the exercise of the Option that have not been registered under the
Securities Act shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY THAT SUCH SALE, OFFER FOR SALE, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION DOES NOT VIOLATE THE PROVISIONS OF SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 OF SUCH ACT.
9. NO EVIDENCE OF EMPLOYMENT OR SERVICE. Nothing contained in the Plan
or this Agreement shall confer upon the Optionee any right to continue in the
employ of a Participating Company or interfere in any way with the right of a
Participating Company (subject to the terms of any separate agreement to the
contrary) to terminate the Optionee's employment or to increase or decrease the
Optionee's compensation at any time.
10. RESTRICTION ON TRANSFER. The Option may not be transferred, pledged,
assigned, hypothecated or otherwise disposed of in any way by the Optionee,
except by will or by the laws of descent and distribution or as may otherwise be
required by law, and may be exercised during the lifetime of the Optionee only
by the Optionee. If the Optionee dies, the Option shall thereafter be
exercisable, during the period specified in Section 4(a)(ii) hereof, by his or
her Designated Beneficiary or personal representatives, heirs or legatees, as
the case may be, to the
-5-
<PAGE>
full extent to which the Option was exercisable by the Optionee at the time of
his or her death. The Option shall not be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of the Option contrary to the provisions hereof, and the levy
of any execution, attachment or similar process upon the Option, shall be null
and void and without effect.
11. TAXES. Whenever shares of Common Stock are to be delivered to the
Optionee upon exercise of the Option, the Company shall be entitled to require
as a condition of delivery that the Optionee remit or, in appropriate cases,
agree to remit when due, an amount sufficient to satisfy all current or
estimated future federal, state and local withholding tax and employment tax
requirements relating thereto; provided, however, if such funds are not so
remitted to the Company and at such time the Optionee is an Employee of a
Participating Company, the Company may withhold such portion of the Optionee's
salary as is equal to the amount of such tax requirements.
12. NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if (i) personally
delivered, (ii) sent by nationally-recognized overnight courier or (iii) sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Optionee, to the address set forth on the signature page
hereto; and
If to the Company, to:
Linkon Corporation
140 Sherman Street
Fairfield, Connecticut 06430
Attention: Secretary;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered, if
personally delivered or if sent by nationally-recognized overnight courier, and
(ii) on the third Business Day (as hereinafter defined) following the date on
which the piece of mail containing such communication is posted, if sent by
mail. As used herein, "Business Day" means a day that is not a Saturday, Sunday
or a day on which banking institutions in the city to which the notice or
communication is to be sent are not required to be open.
13. NO WAIVER. No waiver of any breach or condition of this Agreement
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
14. OPTIONEE UNDERTAKING. The Optionee hereby agrees to take whatever
additional actions and execute whatever additional documents the Company may in
its reasonable
-6-
<PAGE>
judgment deem necessary or advisable in order to carry out or effect one or more
of the obligations or restrictions imposed on the Optionee pursuant to the
express provisions of this Agreement.
15. MODIFICATION OF RIGHTS. The rights of the Optionee are subject to
modification and termination in certain events as provided in this Agreement and
the Plan.
16. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Connecticut applicable to contracts
made and to be wholly performed therein.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
18. ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
agreement between the parties with respect to the subject matter hereof, and
supersede all previously written or oral negotiations, commitments,
representations and agreements with respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Nontransferable
Non-Qualified Stock Option Agreement as of the date first written above.
LINKON CORPORATION
By:
-----------------------------------
Name:
Title:
OPTIONEE:
------------------------------------------
Name:
------------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
-7-
<PAGE>
EXHIBIT A
[description of terms regarding exercise to be inserted]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET DATED AS OF JANUARY, 31 1998 AND THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
JANUARY, 31 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 511,961
<SECURITIES> 0
<RECEIVABLES> 76,600
<ALLOWANCES> 39,465
<INVENTORY> 400,625
<CURRENT-ASSETS> 968,466
<PP&E> 1,130,553
<DEPRECIATION> 1,020,066
<TOTAL-ASSETS> 2,365,141
<CURRENT-LIABILITIES> 1,783,707
<BONDS> 957,328
0
0
<COMMON> 10,897
<OTHER-SE> (375,894)
<TOTAL-LIABILITY-AND-EQUITY> 2,365,141
<SALES> 3,862,594
<TOTAL-REVENUES> 3,862,594
<CGS> 2,227,528
<TOTAL-COSTS> 2,227,528
<OTHER-EXPENSES> 3,014,477
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 264,050
<INCOME-PRETAX> (1,643,135)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,647,135)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
