<PAGE> 1
=========================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 0-21142
NEMATRON CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2483796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5840 INTERFACE DRIVE, ANN ARBOR, MICHIGAN 48103
(Address of principal executive offices) (Zip Code)
(313) 994-0591
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
[X] YES [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
No par value Common Stock: 5,221,770 SHARES AS OF MAY 12, 1997
Transitional Small Business Disclosure Format: [ ] YES [X] NO
=========================================================
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEMATRON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,302,488 $ 3,942,963
Accounts receivable, net of allowance for doubtful
accounts of $126,000 at March 31, 1997, and $115,000
at September 30, 1996 6,324,620 5,989,708
Inventories (Note 2) 4,635,570 4,520,937
Prepaid expenses and other current assets 853,758 750,995
- ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 15,116,436 15,204,603
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $3,273,888 at March 31, 1997 and $3,139,560
at September 30, 1996 4,089,120 3,384,285
OTHER ASSETS:
Software and related development costs, net of amortization
of $670,908 at March 31, 1997, and $611,022
at September 30, 1996 (Note 8) 5,643,541 4,426,257
Other intangible assets, net of accumulated amortization
of $667,467 at March 31, 1997 and $580,954
at September 30, 1996 (Note 8) 2,388,623 1,199,200
- ------------------------------------------------------------------------------------------
NET OTHER ASSETS 8,032,164 5,625,457
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $27,237,720 $24,214,345
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank (Note 3) $ 289,345 $ -0-
Accounts payable 1,947,465 1,661,120
Other accrued expenses 1,842,802 671,678
Current maturities of long-term debt (Note 3) 627,735 158,340
- ------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,707,347 2,491,138
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 3) 3,820,374 3,993,309
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 8,527,721 6,484,447
STOCKHOLDERS' EQUITY (NOTES 5, 7 AND 8):
Common stock, no par value, 15,000,000 shares authorized;
5,216,320 and 4,558,248 shares issued and outstanding
at March 31,1997 and September 30, 1996, respectively 21,113,523 17,572,814
Foreign currency translation adjustment -0- (85,518)
Retained Earnings (Accumulated deficit) (2,403,524) 242,602
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 18,709,999 17,729,898
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,237,720 $24,214,345
==========================================================================================
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES $ 5,077,698 $5,156,713 $10,186,128 $10,071,418
COST OF REVENUES 3,038,000 2,790,333 5,959,477 5,647,571
- --------------------------------------------------------------------------------------------------
GROSS PROFIT 2,039,698 2,366,380 4,226,651 4,423,847
OPERATING EXPENSES:
Product development costs 618,174 353,849 975,226 603,086
Selling, general and
administrative 1,995,058 1,793,417 3,750,954 3,351,012
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES $ 2,613,232 2,147,266 4,726,180 3,954,098
- --------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (573,534) 219,114 (499,529) 469,749
OTHER INCOME (EXPENSE):
Write off of in-process research
and development costs (Note 8) (1,655,000) -0- (1,655,000) -0-
Loss on closing of European
office (Note 6) (149,814) -0- (149,814) -0-
Interest expense (72,657) (153,848) (160,403) (321,402)
Debt retirement (Note 3) (122,340) -0- (122,340) -0-
Foreign currency loss (125,477) (6,717) (125,419) (13,869)
Other income (expense), net 37,181 11,115 66,380 (3,759)
- --------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (2,088,107) (149,450) (2,146,596) (339,030)
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES (2,661,641) 69,664 (2,646,125) 130,719
INCOME TAXES (BENEFIT) (NOTE 4) (5,000) -0- -0- -0-
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(2,656,641) $ 69,664 $(2,646,125) $ 130,719
==================================================================================================
EARNINGS (LOSS) PER SHARE (NOTE 7) $ (0.58) $ 0.02 $ (0.58) $ 0.04
==================================================================================================
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,646,125) $130,719
Adjustments to reconcile net income (loss) to net cash flows
used in operating activities: Depreciation and amortization 547,494 490,773
Write off of research and development costs (Note 8) 1,655,000 -0-
Debt retirement expense 122,340 -0-
Changes in assets and liabilities that provided (used) cash,
net of assets acquired:
Accounts receivable 341,472 (208,026)
Inventories (92,527) (701,786)
Prepaid expenses and other current assets (76,884) (179,096)
Accounts payable 92,276 (666,091)
Accrued expenses (5,135) (90,760)
- --------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (62,089) (1,224,267)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Intec Controls Corp. (Note 8) 281,058 -0-
Additions to capitalized software development costs (913,127) (371,088)
Additions to property and equipment, net of minor disposals (744,323) (179,857)
- --------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,376,392) (550,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable to bank 250,000 410,000
Proceeds from borrowings 2,172,117 1,817,952
Proceeds from exercise of common stock options and warrants 235,504 419,613
Payments of long-term debt (1,881,606) (507,754)
Payment of deferred financing fees (63,527) (165,781)
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 712,488 1,974,030
FOREIGN CURRENCY TRANSLATION EFFECT ON CASH 85,518 (12,672)
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (640,475) 186,146
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,942,963 78,258
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,302,488 $264,404
==================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $204,534 $299,966
Cash paid for income taxes -0- -0-
<CAPTION>
FINANCING AND INVESTING ACTIVITIES REGARDING THE ACQUISITION OF INTEC CONTROLS CORP. (NOTE 8):
<S> <C>
Cash acquired $281,058
Non-cash assets and liabilities acquired:
Current assets, other than cash 724,369
Property and equipment 305,309
Software development costs, including in-process R&D 2,003,092
Other intangible assets 1,407,000
Current liabilities (979,673)
Long term debt (5,950)
----------
Purchase price, including $430,000 of accrued costs $3,735,205
==========
</TABLE>
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NEMATRON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1997AND 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Nematron Corporation (the "Company") and its wholly-owned subsidiaries,
Nematron Europa B.V., a Netherlands corporation, and NemaSoft, Inc., and
Imagination Systems, Inc., Michigan corporations. During the second quarter
of fiscal 1997, the Company ceased operations of Nematron Europa, B.V. See
Note 6. All significant intercompany transactions and balances have been
eliminated in consolidation.
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair presentation of the
consolidated condensed financial statements for the interim periods have been
included. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to S.E.C. rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's latest annual report on Form 10-KSB.
The results of operations for the three-month and six-month periods are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - INVENTORIES
Inventories consist of the following at March 31, 1997 and September 30, 1996:
CATEGORY MARCH 31, 1997 SEPT. 30, 1996
Purchased parts and accessories $3,006,522 $2,734,974
Work in process 385,769 349,189
Finished goods and service stock 1,243,279 1,436,774
---------- -----------
Total Inventory $4,635,570 $4,520,937
========== ===========
NOTE 3 - SHORT-TERM AND LONG-TERM DEBT
Short-term debt includes the following debt instruments:
CATEGORY MARCH 31, 1997 SEPT. 30, 1996
Demand note payable to bank $250,000 $-0-
Other 39,344 -0-
----------- -----------
Total short-term debt $289,344 $-0-
=========== ===========
During the three months ended March 31, 1997, the Company negotiated an
expansion of its existing credit facility and entered into a Loan Agreement as
of February 12, 1997 (the "Agreement"). The Agreement allows a maximum
available demand line of credit in the amount of $6,000,000. Borrowings under
this facility bear interest at 2.5% over LIBOR (London Interbank Offered Rate)
and are secured by substantially all of the Company's assets and a second
mortgage on the Company's Ann Arbor facilities. The Agreement expires February
28, 1998. Amounts borrowed under the credit facility totaled $250,000 at March
31, 1997.
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Long-term debt includes the following debt instruments:
CATEGORY MARCH 31, 1997 SEPT. 30, 1996
Mortgage loan payable to bank $2,229,111 $2,300,000
Subordinated notes payable -0- 1,800,000
Term note 1,770,000 -0-
Equipment note 402,117 -0-
Capitalized lease obligations and other notes 46,881 51,649
----------- -----------
4,448,109 4,151,649
Less current maturities (627,735) (158,340)
----------- -----------
Long-term debt, less current maturities $3,820,374 $3,993,309
=========== ===========
On February 12, 1997, the Company entered into a term note agreement with a
bank for $1,800,000. The purpose of the loan was to pay off the subordinated
debt that carried an interest cost of 12% per annum. The note issued under
this agreement bears interest at LIBOR plus 2 1/2%, which at March 31, 1997
was approximately 8.05%. The note is payable in monthly installments of
$30,000 plus interest with the final payment due on February 1, 2002.
On March 31, 1997, the Company entered into an arrangement under an equipment
line of credit with a bank to finance the purchase of certain computer
equipment. Principal outstanding under this arrangement at March 31, 1997 was
$402,117. Payments of approximately $10,500 per month, over the forty-eight
month term of this arrangement, are determined using the prime interest rate,
which at March 31, 1997 was 8.5%.
NOTE 4 - INCOME TAXES (BENEFIT)
There was no current tax benefit computed for the six month period ended March
31,1997 because of the uncertainty that the associated deferred tax asset would
not be realized. The deferred tax benefit recognized in the three months ended
March 31, 1997 offset the tax expense recognized in the first quarter of fiscal
1997.
The Company has NOLs of approximately $7,100,000 which may be applied against
future taxable income. The NOLs expire beginning 2003 and run through 2012.
Utilization of these carryforwards are subject to annual limitations under
current Internal Revenue Service regulations.
NOTE 5 - CHANGE IN COMMON STOCK
The increase in common stock during the six months ended March 31, 1997 is due
to the issuance of 587,594 shares of common stock in connection with the
acquisition of Intec Controls Corp. (Note 8) and to the issuance of 70,480
shares of common stock in connection with the exercise of 47,647 warrants and
25,833 stock options.
NOTE 6 - CLOSING OF EUROPEAN OFFICE
During the second quarter of fiscal 1997, the Company ceased operations of its
wholly-owned subsidiary, Nematron Europa, B.V. In connection therewith, the
Company incurred a loss of approximately $150,000. The UK operations of the
former Intec Controls will serve as the base for re-launching the Company's
hardware platforms throughout Europe, as well as building on Intec's base of
software customers to roll out the Company's software products. See Note 8.
PAGE 6
<PAGE> 7
NOTE 7 - EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares
outstanding for each period presented because common stock equivalents are
anti-dilutive. The weighted average number of shares outstanding for each
period is as follows:
Three months ended:
March 31, 1997 4,607,802
March 31, 1996 3,575,647
Six months ended:
March 31, 1997 4,586,941
March 31, 1996 3,404,182
Fully diluted earnings per share is not presented because the computation
results in the same amounts as primary earnings per share or the amounts are
anti-dilutive. Common stock equivalents are not included in the earnings per
share calculation until the market price of the Company's common stock exceeds
the exercise price of the common stock equivalents for substantially all of the
three consecutive months ending with the last month of the period to which per
share data relate. For purposes of this calculation, the market price of the
Company's common stock was determined for the three months and six months ended
March 31, 1997 as the closing price of the Company's stock on the NASDAQ
National Market and for the three months and six months ended March 31, 1996 as
the closing price of the Company's stock on the NASDAQ SmallCap Market.
NOTE 8 - ACQUISITION OF INTEC CONTROLS CORP.
Effective March 31, 1997, the Company completed its acquisition of Intec
Controls Corp. ("Intec") of Walpole, Massachusetts, a supplier of high
performance regulatory control software solutions used primarily by process
industries located in the United States and Europe. Under the terms of the
related agreement, Intec was merged into the Company's NemaSoft, Inc.
subsidiary and the Intec stock was retired. The Company issued 587,594 shares
of Nematron common stock to Intec's shareholders, and such amount represents
11.3% of the total shares outstanding immediately after the acquisition.
In addition to the issuance of common stock as described in the previous
paragraph, the Company issued warrants to Intec's shareholders to purchase an
additional 124,998 shares of Nematron common stock at $6.73 per share. The
warrants expire February 20, 2000.
The purchase price of the net assets of Intec, including expenses incurred in
connection with the acquisition, was approximately $3,735,000. The acquisition
of Intec has been accounted for as a purchase and approximately $3,410,000 of
intangible assets have been allocated on a preliminary basis in the
accompanying consolidated condensed balance sheet. In connection with the
acquisition, the Company took, in the quarter ended March 31, 1997, a charge
against earnings of $1,655,000 relating to acquired in-process research and
development costs.
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition had occurred on October 1, 1995, the earliest
period presented herein, and does not purport to be indicative of what would
have occurred had the acquisition of Intec actually been consummated at that
date or the Company's future results of operations:
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
Revenues $5,947,749 $6,260,509 $12,075,891 $12,246,379
Net loss (981,048) (524,803) (958,531) (2,134,518)
Loss per share $(0.34) $(0.15) $(0.33) $(0.61)
PAGE 7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1997 COMPARED WITH THREE AND SIX
MONTH PERIODS ENDED MARCH 31, 1996
Net revenues for the three and six month periods ended March 31, 1997 decreased
$79,000 (1.5%) and increased $115,000 (1.1%), respectively, compared to the
same periods last year. The decrease in net revenues in the three month period
is primarily attributable to the closing of the operations in The Netherlands,
partially offset by an increase in revenues from software and software services
in the United States. The increase in net revenues in the six month period was
due primarily to an increase in software and software services. Revenues from
domestic customers for the three and six month periods ended March 31, 1997
decreased $95,000 and $513,000, respectively, while revenues from foreign
customers increased $16,000 and $628,000, respectively, compared to the same
periods last year. Overall, revenues continue to reflect the strong demand
for new hardware and software products in response to increased marketing and
sales efforts. Based upon the increased backlog at March 31, 1997 compared to
the backlog at March 31, 1996, management expects that revenues will increase
in the remainder of the current fiscal year over the revenue amount in the
comparable period a year ago.
Gross profit for the three and six month periods ended March 31, 1996 decreased
$327,000 and $197,000, respectively, over the same periods last year. Gross
profit as a percentage of revenues in the three and six month periods ended
March 31, 1997 was 40.2% and 41.5%, respectively, versus 45.9% and 43.9%,
respectively, in the same periods last year. The erosion in margins was due
primarily to pricing pressure on hardware products. As the percentage of
software revenue increases, management expects that gross margins will improve.
Additionally, with the sale of increasing amounts of software products,
related amortization of capitalized software costs will also increase.
Total operating expenses for the three and six month periods ended March 31,
1997 increased $466,000 (21.7%) and $772,000 (11.9%), respectively, over the
comparable periods last year primarily as a result of higher salaries and other
operating costs and increased product development efforts. The average number
of employees during the six months ended March 31, 1997 increased by
approximately 10% over the comparable period last year as emphasis continued to
be placed on sales, marketing and product development. Over 60% of the
Company's existing revenues are derived from sales of products developed in the
last 24 months. The Company intends to continue to invest in product
development efforts at no less than the current rate of increase, and expects
to continue to release upgrades and enhancements to existing product offerings
when appropriate.
Interest expense for the three month period ended March 31, 1997 decreased to
$73,000 compared to $154,000 for the comparable period last year. Likewise,
for the six month period ended March 31, 1997, interest expense decreased to
$160,000 from $321,000. Such decreases were due to reduced average borrowing
levels and lower effective interest rates. A total of $1,800,000 of
subordinate debt with an interest rate of 12% was replaced with a five year
term loan, which carries an adjustable interest rate which was 8.05% at March
31, 1997. Unamortized costs to acquire the subordinate debt of $122,000 were
written off in the current quarter. In addition, the Company incurred charges
of $1,655,000 during the quarter to write off in-process research and
development costs acquired in the Intec Controls Corp. acquisition and $150,000
related to the closing of the Company's Netherlands-based subsidiary.
Other income/(expense) was $37,000 and $66,000 in the three and six month
periods ended March 31, 1997, respectively. compared to other income/(expense)
of $11,000 and $(4,000), respectively, in the comparable periods of fiscal
1996. The income in fiscal 1997 is primarily attributable to the investment of
excess cash in interest-bearing cash equivalent securities.
Net loss for the three and six month periods ended March 31, 1997 was
$2,662,000 and $2,646,000, respectively, compared to net income of $70,000 and
$131,000 for the three and six month periods ended March 31, 1996,
respectively. Non-recurring charges in the current quarter relating to the
acquisition of Intec Controls Corp., the closing of the Company's Netherlands
office and the refinancing of debt contributed a total of $2,052,000 to the
reported operating results.
PAGE 8
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ACQUISITION OF INTEC CONTROLS CORP.
Effective March 31, 1997, the Company completed its acquisition of Intec
Controls Corp. ("Intec") of Walpole, Massachusetts, a supplier of high
performance regulatory control software solutions used primarily by process
industries located in the United States and Europe. Under the terms of the
related agreement, Intec was merged into the Company's NemaSoft, Inc.
subsidiary and the Company issued 587,594 shares of Nematron common stock to
Intec's shareholders. The 587,594 shares of the Company's common stock which
were issued in this transaction represent 11.3% of the total shares outstanding
immediately after the acquisition.
In addition to the issuance of common stock, the Company issued warrants to
Intec's shareholders to purchase an additional 124,998 shares of Nematron
common stock at $6.73 per share. The warrants expire February 20, 2000.
The purchase price of the net assets of Intec, including expenses incurred in
connection with the acquisition, was approximately $3,735,000. The acquisition
of Intec has been accounted for as a purchase and approximately $3,410,000 of
intangible assets have been recorded. In connection with this acquisition, the
Company took, in the quarter ended March 31, 1997, a charge against earnings of
$1,655,000 relating to the write off of acquired in-process research and
development costs.
Intec's products are being integrated into the current NemaSoft product line of
open architecture control and automation software products. The addition of
Intec's product line significantly extends the scope of the Company's software
offerings by extending the Company's reach into the process industries. It is
anticipated that eventually all of NemaSoft's operations will be headquartered
in Massachusetts. It is anticipated that the costs to consolidate the
operations of NemaSoft in Massachusetts will not be significant.
In addition to the synergism anticipated in the United States, the acquisition
of Intec provides the Company with the opportunity to continue improvement of
its European strategy. The former Intec facility in the United Kingdom will
become the new European headquarters for the Company and NemaSoft. The
Company's Netherlands-based office , which operated at a loss for a number of
years, has ceased operations, and its operations will be carried on by
personnel located in the United States and the United Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
Nematron had working capital of approximately $10,400,000 at March 31, 1997.
Primary sources of near-term liquidity are cash from operations and the
Company's $6,000,000 bank line of credit, of which $5,750,000 was unused at
March 31,1997. Amounts borrowed under the credit facility are due on demand
and bear interest at LIBOR (London Interbank Offered Rate) plus 2.5% (8.05% at
March 31, 1997). The line of credit facility expires on February 28, 1998, but
it is anticipated that the line will be renewed at that date on substantially
the same terms and conditions as the current facility.
Accounts receivable at March 31, 1997 increased $335,000 from the balance at
September 30, 1996 primarily due to increases of $676,000 in accounts
receivable balances as a result of the acquisition of Intec offset by
reductions achieved due to increased collection efforts. Inventories increased
$115,000 in anticipation of a stronger third quarter and in line with the
increase in the Company's backlog.
Current liabilities at March 31, 1997 increased $2,216,000 from the $2,491,000
balance at September 30, 1996. Approximately $1,400,000 of this increase is
associated with the acquisition of Intec. Current maturities of long term debt
increased $360,000 and $100,500, respectively, due to the new term note
agreement and the new equipment line of credit. In addition, a $250,000 note
payable to a bank was outstanding at March 31,1997.
Long-term debt, less current maturities, decreased $173,000 at March 31, 1997
due to the net effect of reductions caused by the refinancing of the
subordinate debt with term notes that contain a current maturity of $360,000
and debt repayments of $120,000 under terms of the notes. Offsetting these
decreases are increases in the long-term portion of the new equipment financing
of $301,500 and $6,000 of debt assumed in the Intec acquisition.
PAGE 9
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Common stock outstanding increased to 5,216,320 shares at March 31, 1997
compared to 4,558,248 shares outstanding at September 30, 1996, and the total
recorded amount of common stock increased by $3,541,000 during the six months
ended March 31, 1997. The increase was due to the issuance of 587,594 shares
of common stock at $5.625 per share in connection with the acquisition of
Intec, and the exercise of 47,647 warrants and 25,833 of stock options at an
average exercise price of $3.35 per share.
The Company expects to continue to invest a significant amount of cash to
continue its product development efforts, especially as it pertains to the
development of its Hyperkernel, OpenControl and Paragon software products, and
also for scheduled enhancements and extensions of the Company's Industrial
Control Computer product line.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
"Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains "forward-looking statements" within the meaning
of the Securities Exchange Act of 1934, as amended, based on current management
expectations. Actual results could differ materially from those in the forward
looking statements due to a number of uncertainties, including, but not limited
to, those discussed in this section.
Factors that could cause future results to differ from these expectations
include general economic conditions, particularly related to automotive
manufacturing, demand for the Company's products and services, the ability of
the Company to successfully implement its strategy to lead the industrial
automation market migration from closed architecture PLCs to open architecture
PC-based solutions, changes in Company strategy, product life cycles,
competitive factors (including the introduction or enhancement of competitive
products), pricing pressures, raw material price increases, delays in the
introduction of planned hardware and software products, software defects and
latent technological deficiencies in new products, changes in operating
expenses, fluctuations in foreign exchange rates, inability to attract or
retain sales and/or engineering talent, successful integration of the former
Intec products with Nematron's products, changes in customer requirements and
evolving industry standards.
PAGE 10
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in the Company's Annual Report on Form 10-KSB for the year
ended September 30, 1996, Xycom, Inc. had filed suit against the Company and
Universal Automation, Inc. ("UAI") in the Circuit Court for the County of
Washtenaw, State of Michigan. The suit alleged, among other things, that the
Company disclosed confidential information of Xycom and failed to notify Xycom
of the transfer of certain intellectual property, including the FloPro patent,
in connection with the Company's acquisition of UAI. The suit was settled on
March 14, 1997, with each party bearing its own legal expenses. The Company's
costs of settlement were immaterial. In addition, Nematron's NemaSoft
subsidiary agreed to grant a non-exclusive technology license for its patented
flowchart programming technology to a Xycom unit. No other rights related to
copyrights were granted.
ITEM 2: CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
The Company issued 587,594 shares of Company common stock and 124,998
warrants to the former stockholders of Intec Controls Corp. in connection with
the acquisition of Intec. See Note 8 of Notes to consolidated Financial
Statements. The warrants expire on February 20, 2000, and have an exercise
price of $6.73 per share. The Company issued the common stock and warrants to
Intec's stockholders without registration under the Securities Act of 1933 (the
"Act), in reliance upon Section 4(2) of the Act and Section 506 of Regulation D.
The Company relied, upon these exemptions based upon the limited number of Intec
stockholders, the provision of financial and other information concerning the
Company to the stockholders, investment representations made by the
stockholders, the lack of general solicitation, and actions taken by the Company
to restrict resale of the securities without registration, including the
placement of restrictive legends on the securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On April 17, 1997, the Company held its Annual Meeting of Shareholders.
(b) The following persons were nominated and elected as directors at the
Annual Meeting. Also presented is a tabulation of the results of the
voting on the nominees:
Nominee Votes For Votes Withheld Total
Frank G. Logan, III 3,842,841 120,289 3,963,130
Douglas B. Juanarena 3,842,735 120,395 3,963,130
Joseph J. Fitzsimmons 3,842,506 120,624 3,963,130
(c) Two proposals were voted upon at the annual meeting. Brief
descriptions of the two proposals and the results of the voting thereon
are as follows:
PROPOSAL TO AMEND THE 1993 STOCK OPTION PLAN TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE 1993 PLAN FROM
750,000 SHARES TO 950,000 SHARES, AND IMPOSE A LIMIT ON THE NUMBER
OF OPTIONS THAT MAY BE GRANTED TO SALARIED EMPLOYEES.
The results of shareholder voting on the above proposal were as follows:
Votes
For the proposal 1,831,146
Against the proposal 261,290
Non-votes 1,842,505
Abstentions 28,189
PAGE 11
<PAGE> 12
PROPOSAL TO AMEND THE 1993 DIRECTORS STOCK OPTION PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE 1993
PLAN FROM 20,000 SHARES TO 120,000 SHARES.
The results of shareholder voting on the above proposal were as follows:
Votes
For the proposal 1,852,608
Against the proposal 317,740
Non-votes 1,760,089
Abstentions 32,693
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits included herewith are set forth on the Index to Exhibits,
which index is incorporated by reference.
(b) Reports on Form 8-K.
February 26, 1997 Current report under Item 5 reflecting the
February 21, 1997 press release reporting
that Nematron Corporation signed a definitive
agreement to acquire Intec Controls Corp.
ALL OTHER ITEMS OMITTED ARE NOT APPLICABLE OR THE ANSWERS THERETO ARE NEGATIVE.
PAGE 12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEMATRON CORPORATION
BY:
MAY 14, 1997 /S/ FRANK G. LOGAN, III
- ------------ -----------------------------------------
DATE FRANK G. LOGAN, III, PRESIDENT & CEO
(DULY AUTHORIZED OFFICER)
MAY 14, 1997 /S/ DAVID P. GIENAPP
- ------------ -----------------------------------------
DATE DAVID P. GIENAPP, CHIEF FINANCIAL OFFICER
(CHIEF ACCOUNTING OFFICER)
PAGE 13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
2.1 Agreement and Plan of Merger, dated as of February 20, 1997,
by and among the Company, NemaSoft, Intec, Thomas W.
Kraus and Robert O Mick, as amended March 28, 1997,
incorporated by reference to Exhibit to Form 8-K filed
April 10, 1997
4.1 Revolving Credit Note entered into as of February 12, 1997,
between Nematron Corporation and KeyBank National
Association
4.2 Term Note entered into as of February 12, 1997, between
Nematron Corporation and KeyBank National Association
4.3 Revolving Credit Note (Equipment Line of Credit) entered
into as of February 12, 1997, between Nematron Corporation
and KeyBank National Association
4.4 Form of Warrant issued as of March 31, 1997 to Intec
shareholders, incorporated by reference to Exhibit to
Form 8-K filed April 10, 1997
10.1 Nematron Corporation 1993 Stock Option Plan, as amended and
restated March 1997.
10.2 Nematron Corporation 1993 Directors Stock Option Plan, as
amended and restated March 1997.
10.3 Registration Rights Agreement, dated as of March 31, 1997,
between Nematron Corporation and former stockholders of
Intec Controls Corp.
10.4 Employment and Noncompetition Agreement, dated as of March
31, 1997, between NemaSoft, Inc., and Thomas Kraus.
11 Computation of Earnings Per Share
27 Financial Data Schedule
PAGE 14
<PAGE> 1
EXHIBIT 4.1
REVOLVING CREDIT NOTE
LOANS UP TO:
Amount $6,000,000.00 No.
------------------------
Due Date: February 28, 1998 Date: February 12, 1997
PROMISE TO PAY - The undersigned, NEMATRON CORPORATION, a Michigan corporation,
for value received, promises to pay to KeyBank National Association, or its
assigns (hereinafter "Bank") or order after the above date of execution, the
sum of Six Million and No/100 Dollars ($6,000,000.00) to the extent such sum
has been advanced to the undersigned by the Bank and remains due and unpaid, as
indicated on the books and records of the Bank, plus interest as set forth
herein on February 28, 1998.
INTEREST RATE - The outstanding principal balance shall earn interest at rate
equal to the LIBOR Rate plus two and one half per cent (2.5%) per annum
("Effective Rate"), until maturity, but no more than the maximum rate allowed
by law. The "LIBOR Rate", as used herein, means the average rate [rounded up,
if necessary, to the next highest one sixteenth of one percent (1/16%)] of
interbank offered effective rates for thirty (30) day U.S. dollar deposits in
the London market based on quotations at major banks as determined by reference
to the Wall Street Journal("WSJ") edition published on its last publication
date of every month ("Determination Date") and distributed in Ann Arbor,
Michigan. In the event such average rate is not published in the WSJ or the
WSJ is not otherwise available to Bank on the Determination Date, Bank may use
the London interbank offered rate for thirty (30)day dollar deposits (or its
equivalent as determined in the sole discretion of Bank) as reported by any
nationally recognized financial reporting service on the Determination Date.
Borrower acknowledges that the published or reported LIBOR Rate may be with
respect to contracts entered into as of a date other than the Determination
Date.
The Effective Rate shall be adjusted as of the first day of each month based
the LIBOR Rate published or reported on the Determination Date, as applicable.
Interest shall accrue on the unpaid principal balance from the date of each
advance under this Note and be calculated upon the actual number of days
elapsed over a year assumed to have 360 days. Interest shall be payable monthly
beginning March 1, 1997, and on the first day of each month thereafter until
maturity of this note.
<PAGE> 2
The LIBOR Rate is used as an index only, and funds for Borrower's loans
are not being purchased or otherwise matched by the Bank from or on the London
InterBank Market.
DEFAULT RATE - Bank reserves the right to increase the interest rate after
default, whether by acceleration or otherwise, to a rate equal to the Effective
Rate plus three percent (3.00%) per annum, but no more than the maximum rate
allowed by law.
PRINCIPAL PAYMENTS - Except as set forth in Section 1.1.3 and Article VI
of a Loan Agreement dated September 30, 1996, as amended by a First
Amendment of even date ("Loan Agreement"), the undersigned shall pay the
entire unpaid principal and interest outstanding under this Note on
February 28, 1998.
APPLICATION OF PAYMENTS - Each payment will be applied first to interest, then
to costs, and the balance to principal.
FEES - Bank may charge a fee to cover additional administrative costs incurred
for any payment received by Bank six (6) business days or more after the due
date; such fee will be equal to two percent (2%) of the required principal
payment or $200.00, whichever is less. No payments will be accepted without
payment of this fee. In addition, Bank may charge a fee to cover
administrative costs incurred in origination and/or renewal of this Note, which
shall be payable upon execution of the Note.
SECURITY - To secure the payment of this Note and any or all other liabilities
of the undersigned to the Bank, howsoever arising or evidenced, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, several or joint, including any renewals, extensions,
modifications, etc., the undersigned hereby pledges to Bank and grants to Bank
a continuing security interest in the following described property, whether
real or personal, and in all additions, substitutions, and proceeds thereof:
(i) All property described in Security Agreements, Mortgages,
Assignments and Documents listed in Section 3.11 of the Loan
Agreement.
(ii) All securities and other property of the undersigned now or
hereafter in the possession or custody of the Bank, together with
substitutions, increments and proceeds;
(iii) Any other property declared or acknowledged to constitute security
for the indebtedness of the undersigned to the Bank, together with
2
<PAGE> 3
substitutions, increments and proceeds thereof, and
(iv) All balances of deposit accounts of the undersigned now or
at any time hereafter with the Bank.
The Bank shall have the right at any time to apply its own indebtedness or
liability to the undersigned or to any endorser or other party liable hereon in
whole or partial payment of this Note, either before or after its maturity, or
in whole or partial payment of any other liability due or to become due from
the undersigned to the Bank.
EVENTS OF DEFAULT - Any one of the following events shall be deemed a default
under the terms of this Note, triggering the Bank's remedies as provided under
statutory or contract law: (a) failure to pay any payment required under the
terms herein; (b) any default in the performance of any of the terms and
conditions of any document evidencing this loan transaction including this
Note, the security agreement, the mortgage, the loan agreement, etc.; (c) any
default in any terms and conditions of any other loan agreement between Bank
and the undersigned; (d) the death, dissolution, or insolvency of the
undersigned, or the appointment of a trustee or receiver for the undersigned,
or the making of any assignment for the benefit of creditors or the
commencement of any bankruptcy proceeding by or against the undersigned; (e)
the placement or issuance of any lien, levy, writ of garnishment or execution
or similar process against the undersigned or any property of the undersigned;
(f) the death of any guarantor of this Note.
REMEDIES ON DEFAULT - Upon the occurrence of any one or more of the above
events of default, unless the Bank shall otherwise elect, the full amount of
the indebtedness evidenced hereby and all other liabilities of the undersigned
to the Bank shall become immediately due and payable, without notice or demand.
Thereafter, Bank shall have all the rights and remedies provided by law,
whether common, statutory or otherwise, including all the remedies granted to
Bank under the Uniform Commercial Code, the right to offset any deposit
accounts held by Bank, the right to repossess and dispose of any collateral
pledged for this or any other loan agreement between Bank and the undersigned,
the right to foreclose any mortgage by advertisement as provided under Michigan
law, etc. The undersigned shall be liable for any deficiency remaining after
disposition of any property in which the Bank has a security interest to secure
payment of the indebtedness evidenced hereby, and the computation of such
deficiency or of the amount required to redeem such property shall include
actual attorneys' fees, legal expenses and any other costs incurred.
3
<PAGE> 4
WAIVER - Each endorser hereof and any other party liable for the indebtedness
evidenced hereby severally waives demand, presentment, notice of dishonor and
protest of this Note and consents to any extension or postponement of time of
its payment without limit as to the number or period thereof, to any
substitution, exchange or release of all or any part of the collateral securing
this Note, to the addition of any party hereto, and to the release or discharge
of or suspension of any rights and remedies against any person who may be
liable hereon for the payment of the indebtedness evidenced hereby.
MISCELLANEOUS - No delay on the part of the Bank in the exercise of any right
or remedy shall operate as a waiver thereof, no single or partial exercise by
the Bank of any right or remedy shall preclude any other future exercise
thereof or the exercise of any other right or remedy, and no waiver or
indulgence by the Bank of any default shall be effective unless in writing and
signed by the Bank, nor shall a waiver on one occasion be construed as a bar
to, or waiver of, any such right on any future occasion. The undersigned, if
more than one, shall be jointly and severally liable hereunder and the term
"undersigned" shall mean any one or more of them. Any reference to KeyBank
National Association or Bank herein shall be deemed to include any subsequent
holder of this Note.
NEMATRON CORPORATION
5840 Interface Drive
Ann Arbor, MI 48103 By: /s/ David P. Gienapp
-----------------------
David P. Gienapp
Its: Vice President of Finance
and Administration and
Treasurer
4
<PAGE> 1
EXHIBIT 4.2
TERM NOTE
Amount: $1,800,000.00 No.____________________
Due Date: February 1, 2002 Date: February 12, 1997
PROMISE TO PAY. NEMATRON CORPORATION, a Michigan corporation (referred to in
this Note as, "Borrower") promises to pay to KeyBank National Association
("Lender"), or order, in lawful money of the United States of America, the
principal amount of One Million Eight Hundred Thousand & 00/100 Dollars
($1,800,000.00), together with interest at the rate per annum equal to the
LIBOR Rate plus two and one half per cent (2.5%) per annum ("Effective Rate"),
on February 1, 2002 when the entire principal and interest balance owing under
this Note shall be due and payable.
The "LIBOR Rate", as used herein, means the average rate [rounded up, if
necessary, to the next highest one sixteenth of one percent (1/16%)] of
interbank offered effective rates for thirty (30) day U.S. dollar deposits in
the London market based on quotations at major banks as determined by reference
to the Wall Street Journal("WSJ") edition published on its last publication
date of every month ("Determination Date") and distributed in Ann Arbor,
Michigan. In the event such average rate is not published in the WSJ or the
WSJ is not otherwise available to Bank on the Determination Date, Bank may use
the London interbank offered rate for thirty (30)day dollar deposits (or its
equivalent as determined in the sole discretion of Bank) as reported by any
nationally recognized financial reporting service on the Determination Date.
Borrower acknowledges that the published or reported LIBOR Rate may be with
respect to contracts entered into as of a date other than the Determination
Date.
The Effective Rate shall be adjusted as of the first day of each month based
the LIBOR Rate published or reported on the Determination Date, as applicable.
Interest shall accrue on the unpaid principal balance from the date of each
advance under this Note and be calculated upon the actual number of days
elapsed over a year assumed to have 360 days. Interest shall be payable monthly
beginning March 1, 1997, and on the first day of each month thereafter until
maturity of this note.
The LIBOR Rate is used as an index only, and funds for Borrower's loans
are not being purchased or otherwise matched by the Bank from or on the London
Interbank Market.
INSTALLMENT PAYMENTS. Borrower will pay this loan in monthly installments of
$30,000 plus interest. Borrower's first payment is due March 1, 1997, and all
subsequent payments are
<PAGE> 2
due on the same day of each month after that. Borrower's final payment due
February 1, 2002, will be for all principal and all accrued interest not yet
paid. Interest on this Note is computed on a 365/360 simple interest basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, times the outstanding principal balance, times the actual number of days
the principal balance is outstanding. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
SECURITY. To secure the payment of this Note and any or all other liabilities
of the undersigned to the Bank, howsoever arising or evidenced, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, several or joint, including any renewals, extensions,
modifications, etc., the undersigned hereby pledges to Bank and grants to Bank
a continuing security interest in the following described property, whether
real or personal, and in all additions, substitutions, and proceeds thereof:
(i) All property described in Security Agreements, Mortgages,
Assignments and Documents listed in Section 3.11 of the Loan
Agreement.
(ii) All securities and other property of the undersigned now or
hereafter in the possession or custody of the Bank, together with
substitutions, increments and proceeds;
(iii)Any other property declared or acknowledged to constitute
security for the indebtedness of the undersigned to the Bank,
together with substitutions, increments and proceeds thereof, and
(iv) All balances of deposit accounts of the undersigned now or
at any time hereafter with the Bank.
The Bank shall have the right at any time to apply its own indebtedness or
liability to the undersigned or to any endorser or other party liable hereon in
whole or partial payment of this Note, either before or after its maturity, or
in whole or partial payment of any other liability due or to become due from
the undersigned to the Bank.
LOAN FEES. Borrower agrees that all loan fees are earned fully as of the date
of the loan and will not be subject to refund upon early payment (whether
voluntary or as a result of default), except as otherwise required by law.
2
<PAGE> 3
LATE CHARGE. If a payment is late, Borrower will be charged 2.000% of the
unpaid portion of the regularly scheduled payment or $200.00, whichever is
less.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due, (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note, a certain Loan Agreement dated September 30, 1996 as amended by First
Amendment of even date ("Loan Agreement") or any agreement related to this
Note, or in any other agreement or loan Borrower has with Lender, (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished, (d) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws, (e) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender, (f) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note, (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired, (h) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the interest rate on this Note to the
Effective Rate plus three per cent (3.00%). The interest rate will not exceed
the maximum rate permitted by applicable law. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will
pay Lender that amount. This includes, subject to any limits under applicable
law, Lender's reasonable attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including reasonable attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. This Note has been
delivered to Lender and accepted by Lender in the State of Michigan. If there
is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Washtenaw County, the State
3
<PAGE> 4
of Michigan, Lender and Borrower hereby waive the right to any jury trial
in any action, proceeding, or counterclaim brought by either Lender or Borrower
against the other. This Note shall be governed by and construed in accordance
with the laws of the State of Michigan.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Each Borrower understands and
agrees that, with our without notice to Borrower, Lender may with respect to
any other Borrower (a) make one or more additional secured or unsecured loans
or otherwise extend additional credit; (b) after, compromise, renew, extend,
accelerate, or otherwise change one or more times, the time for payment or
other terms any indebtedness, including increases and decreases of the rate of
interest on the indebtedness, (c) exchange, enforce, waive, subordinate, fail
or decide not to perfect, and release any security, with or without the
substitution of new collateral; (d) apply such security and direct the order or
manner of sale thereof, including without limitation, any nonjudicial sale
permitted by the terms of the controlling security agreements, as lender in its
discretion may determine; (e) release, substitute, agree not to sue, or deal
with any one or more of Borrower's sureties, endorsers, or other guarantors on
any terms or in any manner Lender may choose; and (f) determine how, when and
what application of payments and credits shall be made on any other
indebtedness owing by such other borrower. Borrower and any other person who
signs, guaranties or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor
accommodation makes or endorses, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral, or impair,
fail to release or perfect Lender's security interest in the collateral; and
take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify the loan
without the consent of or notice to anyone other than the party with whom the
modification is made.
BORROWER:
NEMATRON CORPORATION
By: /s/ David P. Gienapp
--------------------
David P. Gienapp
Vice President of Finance
and Administration and Treasurer
5840 Interface Drive
Ann Arbor, MI 48103
<PAGE> 1
EXHIBIT 4.3
REVOLVING CREDIT NOTE
(Equipment Line of Credit)
LOANS UP TO:
Amount $500,000.00 No.
------------------------
Due Date: July 31, 1997 Date: February 12, 1997
PROMISE TO PAY - The undersigned, NEMATRON CORPORATION, a Michigan corporation,
for value received, promises to pay to KeyBank National Association, or its
assigns (hereinafter "Bank") or order after the above date of execution, the
sum of Five Hundred Thousand and No/100 Dollars ($500,000.00) to the extent
such sum has been advanced to the undersigned by the Bank and remains due and
unpaid, as indicated on the books and records of the Bank, plus interest as set
forth herein on July 31, 1997.
INTEREST RATE - The outstanding principal balance shall earn interest at a rate
per annum equal to the Bank's Prime Rate, ("Effective Rate"). The Effective
Rate will change on the date of each announced change of the Prime Rate.
Interest is calculated upon the actual number of days elapsed over a year
assumed to have 360 days. The Bank's Prime Rate may not be the lowest rate
charged by the Bank to any of its customers. In no event will the interest rate
under this Note exceed the maximum rate of interest allowed by law. Interest
will be computed on the unpaid principal balance from the date of each advance
under this Note. Interest shall be payable monthly beginning March 1, 1997, and
on the first day of each month thereafter until maturity of this note.
DEFAULT RATE - Bank reserves the right to increase the interest rate after
default, whether by acceleration or otherwise, to a rate equal to the Effective
Rate plus three percent (3.00%) per annum, but no more than the maximum rate
allowed by law.
PRINCIPAL PAYMENTS - Except as set forth in Article VI of a Loan
Agreement dated September 30, 1996, as amended by a First Amendment of
even date ("Loan Agreement"), the undersigned shall pay the entire
unpaid principal and interest outstanding under this Note on July 31,
1997.
APPLICATION OF PAYMENTS - Each payment will be applied first to interest, then
to costs, and the balance to principal.
FEES - Bank may charge a fee to cover additional administrative costs incurred
for any payment received by Bank six (6) business days or more after the due
date; such fee will be equal to two percent (2%) of the required
<PAGE> 2
principal payment or $200.00, whichever is less. No payments will be accepted
without payment of this fee. In addition, Bank may charge a fee to cover
administrative costs incurred in origination and/or renewal of this Note, which
shall be payable upon execution of the Note.
SECURITY - To secure the payment of this Note and any or all other liabilities
of the undersigned to the Bank, howsoever arising or evidenced, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, several or joint, including any renewals, extensions,
modifications, etc., the undersigned hereby pledges to Bank and grants to Bank
a continuing security interest in the following described property, whether
real or personal, and in all additions, substitutions, and proceeds thereof:
(i) All property described in Security Agreements, Mortgages,
Assignments and Documents listed in Section 3.11 of the Loan
Agreement.
(ii) All securities and other property of the undersigned now or
hereafter in the possession or custody of the Bank, together with
substitutions, increments and proceeds;
(iii) Any other property declared or acknowledged to constitute security
for the indebtedness of the undersigned to the Bank, together with
substitutions, increments and proceeds thereof, and
(iv) All balances of deposit accounts of the undersigned now or
at any time hereafter with the Bank.
The Bank shall have the right at any time to apply its own indebtedness or
liability to the undersigned or to any endorser or other party liable hereon in
whole or partial payment of this Note, either before or after its maturity, or
in whole or partial payment of any other liability due or to become due from
the undersigned to the Bank.
EVENTS OF DEFAULT - Any one of the following events shall be deemed a default
under the terms of this Note, triggering the Bank's remedies as provided under
statutory or contract law: (a) failure to pay any payment required under the
terms herein; (b) any default in the performance of any of the terms and
conditions of any document evidencing this loan transaction including the Loan
Agreement, this Note, any security agreement, mortgage or other instrument; (c)
any default in any terms and conditions of any other loan agreement between
Bank and the undersigned; (d) the death,
2
<PAGE> 3
dissolution, or insolvency of the undersigned, or the appointment of a trustee
or receiver for the undersigned, or the making of any assignment for the
benefit of creditors or the commencement of any bankruptcy proceeding by or
against the undersigned; (e) the placement or issuance of any lien, levy, writ
of garnishment or execution or similar process against the undersigned or any
property of the undersigned; (f) the death of any guarantor of this Note.
REMEDIES ON DEFAULT - Upon the occurrence of any one or more of the above
events of default, unless the Bank shall otherwise elect, the full amount of
the indebtedness evidenced hereby and all other liabilities of the undersigned
to the Bank shall become immediately due and payable, without notice or demand.
Thereafter, Bank shall have all the rights and remedies provided by law,
whether common, statutory or otherwise, including all the remedies granted to
Bank under the Uniform Commercial Code, the right to offset any deposit
accounts held by Bank, the right to repossess and dispose of any collateral
pledged for this or any other loan agreement between Bank and the undersigned,
the right to foreclose any mortgage by advertisement as provided under Michigan
law, etc. The undersigned shall be liable for any deficiency remaining after
disposition of any property in which the Bank has a security interest to secure
payment of the indebtedness evidenced hereby, and the computation of such
deficiency or of the amount required to redeem such property shall include
actual attorneys' fees, legal expenses and any other costs incurred.
WAIVER - Each endorser hereof and any other party liable for the indebtedness
evidenced hereby severally waives demand, presentment, notice of dishonor and
protest of this Note and consents to any extension or postponement of time of
its payment without limit as to the number or period thereof, to any
substitution, exchange or release of all or any part of the collateral securing
this Note, to the addition of any party hereto, and to the release or discharge
of or suspension of any rights and remedies against any person who may be
liable hereon for the payment of the indebtedness evidenced hereby.
MISCELLANEOUS - No delay on the part of the Bank in the exercise of any right
or remedy shall operate as a waiver thereof, no single or partial exercise by
the Bank of any right or remedy shall preclude any other future exercise
thereof or the exercise of any other right or remedy, and no waiver or
indulgence by the Bank of any default shall be effective unless in writing and
signed by the Bank, nor shall a waiver on one occasion be construed as a bar
to, or waiver of, any such right on any future occasion. The undersigned, if
more than one, shall be jointly and severally liable hereunder and the term
"undersigned"
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shall mean any one or more of them. Any reference to KeyBank National
Association or Bank herein shall be deemed to include any subsequent holder of
this Note.
NEMATRON CORPORATION
5840 Interface Drive
Ann Arbor, MI 48103 By: /s/ David P. Gienapp
---------------------
David P. Gienapp
Its: Vice President of Finance
and Administration and
Treasurer
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EXHIBIT 10.1
NEMATRON CORPORATION
1993 STOCK OPTION PLAN
(as amended and restated March 1997)
1. PURPOSE. The purpose of the Plan is to promote the best interests of
the Company and its shareholders by encouraging Participants to acquire a
proprietary interest in the Company, thus identifying their interests with
those of its shareholders and encouraging the Participants to make greater
efforts on behalf of the Company.
2. ADMINISTRATION. (a) The selection of Participants in the Plan and
decisions concerning the timing, pricing and amount of any grant of options
under the Plan shall be made by the Committee. Except as provided in Section
13 of the Plan, the Committee shall interpret the Plan, prescribe, amend and
rescind rules and regulations relating to the Plan, and make all other
determinations necessary or advisable for its administration of the Plan. The
decision of the Committee on any question concerning the interpretation of the
Plan or any option granted under the Plan shall be final and binding upon all
Participants.
(b) The Committee may delegate to one or more officers or managers of the
Company or a committee of such officers or managers, the authority, subject to
such terms and limitations as the Committee shall determine, to grant options
to, or to cancel, modify, waive rights with respect to, alter, discontinue or
terminate options held by Participants who are not officers or directors of the
Company for purposes of Section 16 of the Exchange Act.
3. PARTICIPANTS. Participants in the Plan shall be such key Employees
(including, without limitation, Employees who are also Directors of the
Company) as the Committee may select from time to time. The Committee may
grant options to an individual upon the condition that the individual become an
Employee, provided that the option shall be deemed to be granted only on the
date the individual becomes an Employee.
4. STOCK. The stock subject to options under the Plan shall be the Common
Stock. The total amount of Common Stock on which options may be granted under
the Plan shall not exceed 950,000 shares, subject to adjustment in accordance
with Section 10. Shares subject to any unexercised portion of a terminated,
cancelled, forfeited or expired option granted under the Plan may again be
subjected to options under the Plan.
5. AWARD OF OPTIONS. Subject to the limitations set forth in the Plan,
the Committee from time to time may grant options to such Participants and for
such number of shares of Common Stock and upon such other terms (including,
without limitation, the exercise price and the times at which the option may be
exercised) as it shall designate; provided that all options granted under the
Plan shall vest immediately upon a Change in Control of the Company; and
provided further, that, during any two-year period, no salaried employee shall
receive options to purchase more than 200,000 shares of Common Stock. Each
option shall be evidenced by a stock option agreement in such form and
containing such provisions as the Committee shall deem appropriate, provided
that such terms shall not be inconsistent with the Plan. The Committee may
<PAGE> 2
designate any option granted as either an Incentive Stock Option or a
Nonqualified Stock Option, or the Committee may designate a portion of an option
as an Incentive Stock Option or a Nonqualified Stock Option. Any Participant
may hold more than one option under the Plan and any other stock option plan of
the Company. The date on which an option is granted shall be the date of the
Committee's authorization of the option or such later date as shall be
determined by the Committee at the time the option is authorized.
Incentive Stock Options. Any option intended to constitute an Incentive
Stock Option shall comply with the following requirements in addition to the
other requirements of the Plan: (a) the exercise price per share for each
Incentive Stock Option granted under the Plan shall not be less than the Fair
Market Value per share of Common Stock on the date the option is granted;
provided that no Incentive Stock Option shall be granted to any Participant who
owns (within the meaning of Section 424(d) of the Code) stock of the Company or
any Parent or Subsidiary possessing more than 10% of the total combined voting
power of all classes of stock of such Company, Parent or Subsidiary unless, at
the date of grant of an option to such Participant, the exercise price for the
option is at least 110% of the Fair Market Value of the shares subject to option
and the option, by its terms, is not exercisable more than five years after the
date of grant; (b) the aggregate Fair Market Value of the underlying Common
Stock at the time of grant as to which Incentive Stock Options under the Plan
(or a plan of a Parent or Subsidiary) may first be exercised by a Participant in
any calendar year shall not exceed $100,000 (to the extent that an option
intended to constitute an Incentive Stock Option shall exceed the $100,000
limitation, the portion of the option that exceeds such limitation shall be
deemed to constitute a Nonqualified Stock Option); and (c) an Incentive Stock
Option shall not be exercisable after the tenth anniversary of the date of grant
or such lesser period as the Committee may specify from time to time.
Nonqualified Stock Options. A Nonqualified Stock Option shall not be
exercisable after the tenth anniversary of the date of grant, or such lesser
period as the Committee shall determine. The exercise price per share of a
Nonqualified Stock Option shall not be less than the Fair Market Value per share
of the Common Stock on the date of grant.
6. EXERCISE; PAYMENT FOR SHARES. A Participant may exercise an option, to
the extent an option is exercisable, by delivering written notice of exercise
to the Company and tendering payment for the shares being purchased. The
purchase price for shares of Common Stock to be acquired upon exercise of an
option granted hereunder shall be paid in full, at the time of exercise, in any
of the following ways: (a) in cash, (b) by certified check, bank draft or money
order, (c) by tendering to the Company shares of Common Stock then owned by the
Participant, duly endorsed for transfer or with duly executed stock power
attached, which shares shall be valued at their Fair Market Value as of the
date of such exercise and payment or (d) by delivery to the Company of a
properly executed exercise notice, acceptable to the Company, together with
irrevocable instructions to the Participant's broker to deliver to the Company
a sufficient amount of cash to pay the exercise price and any applicable income
and employment withholding taxes, in
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accordance with a written agreement between the Company and the brokerage firm
("Cashless Exercise") if, at the time of exercise, the Company has entered into
such an agreement.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from a
Participant's compensation or require a Participant to remit sufficient funds to
satisfy applicable withholding for income and employment taxes upon the exercise
of an option.
8. NON-ASSIGNABILITY. No option shall be transferable by a Participant
except by will or the laws of descent and distribution or, in the case of a
Nonqualified Stock Option, pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. During the lifetime of a Participant, an option shall
be exercised only by the Participant. No transfer of an option shall be
effective to bind the Company unless the Company shall have been furnished with
written notice thereof and such evidence as the Company may deem necessary to
establish the validity of the transfer and the acceptance by the transferee of
the terms and conditions of the option.
9. TERMINATION OF EMPLOYMENT. Unless otherwise provided in the stock
option agreement relating to a particular option: (a) if, prior to the date that
such option shall first become exercisable, the Participant's Employment shall
be terminated, with or without cause, or by the act, death, Disability, or
retirement of the Participant, the Participant's right to exercise the option
shall terminate and all rights thereunder shall cease; and (b) if, on or after
the date that such option shall first become exercisable, a Participant's
Employment shall be terminated for any reason other than death or Disability,
the Participant shall have the right, prior to the earlier of (i) the expiration
of the option or (ii) the day which is three months after such termination of
Employment, to exercise the option to the extent that it was exercisable and is
unexercised on the date of such termination of Employment, subject to any other
limitation on the exercise of the option in effect at the date of exercise; and
(c) if, on or after the date that such option shall have become exercisable, the
Participant shall die or become Disabled while an Employee or while such option
remains exercisable, the Participant or the executor or administrator of the
estate of the Participant (as the case may be), or the person or persons to whom
the option shall have been transferred by will or by the laws of descent and
distribution, shall have the right, prior to the earlier of (i) the expiration
of the option or (ii) the day which is one year after the date of the
Participant's death or termination due to such Disability to exercise the option
to the extent that it was exercisable and unexercised on the date of death,
subject to any other limitation on exercise in effect at the date of exercise.
The transfer of an Employee from one corporation to another among the
Company, any Parent and any Subsidiary, or a leave of absence with the written
consent of the Company, shall not constitute a termination of Employment for
purposes of the Plan.
10. ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Common Stock, other
securities, or other
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property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Common Stock or other securities of the Company, issuance of warrants or
other rights to purchase Common Stock or other securities of the Company, or
other similar corporate transaction or event affects the Common Stock such that
an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (a) the number and type of shares of
Common Stock or other securities which thereafter may be made the subject of
options, (b) the number and type of shares of Common Stock or other securities
subject to outstanding options, and (c) the exercise price with respect to any
option, or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding option; provided, however, in each case, that with
respect to Incentive Stock Options no such adjustment shall be authorized to the
extent that such authority would cause the Plan to violate Section 422 of the
Code or any successor provision thereto; and provided further, however, that the
number of shares of Common Stock subject to any option shall always be a whole
number. In the event of a Change of Control, all outstanding options under the
Plan immediately shall become exercisable in full.
12. RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any
rights as a shareholder with respect to any shares covered by an option until
the issuance of a stock certificate to the Participant for such shares. No
adjustment shall be made for dividends or other rights with respect to such
shares for which the record date is prior to the date such certificate is
issued.
13. TERMINATION AND AMENDMENT. The Board of Directors may terminate the
Plan, or the granting of options under the Plan, at any time. No Incentive
Stock Option shall be granted under the Plan after September 15, 2002.
Termination of the Plan shall not affect the rights of the holders of any
options previously granted.
The Board of Directors may amend or modify the Plan at any time and from
time to time. No amendment, modification, or termination of the Plan shall in
any manner affect any option granted under the Plan without the consent of the
Participant holding the option.
14. APPROVAL OF PLAN. The Plan shall be subject to the approval of the
holders of at least a majority of the shares of Common Stock of the Company
present and entitled to vote at a meeting of shareholders of the Company held
within 12 months after adoption of the Plan by the Board (or acting by consent
in lieu of a meeting). No option granted under the Plan may be exercised in
whole or in part until the Plan has been approved by the shareholders as
provided herein. If not approved by shareholders within such 12-month period,
the Plan and any options granted hereunder shall become void and of no effect.
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<PAGE> 5
15. EFFECT ON EMPLOYMENT. Neither the adoption of the Plan nor the
granting of any option pursuant to it shall be deemed to create any right in any
individual to be retained as an Employee.
16. USE OF PROCEEDS. The proceeds received from the sale of Common Stock
pursuant to exercises of options granted under the Plan will be used for general
corporate purposes of the Company.
17. CERTAIN DEFINITIONS.
A "Change in Control" shall mean a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not the Company is then subject to such reporting requirement; provided that,
without limitation, a Change in Control shall be deemed to have occurred if (i)
any individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity (other than a Subsidiary or an
employee benefit plan or employee benefit plan trust maintained by the Company
or a Subsidiary), or any syndicate or group deemed to be a person under Section
14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities entitled to vote in the election of
directors of the Company, provided that a person shall not be deemed to
beneficially own shares solely because such person has the right to vote such
shares pursuant to a revocable proxy or proxies given in response to a public
solicitation made in accordance with the applicable rules promulgated under the
Exchange Act; (ii) consummation of any merger or consolidation with respect to
which the Company or any Parent is a constituent corporation (other than a
transaction for the purpose of changing the Company's corporate domicile), any
liquidation or dissolution of the Company or any sale of all or substantially
all of the Company's assets; and (iii) a change in the identity of a majority of
the members of the Company's Board of Directors within any twelve-month period,
which change or changes are not recommended by the incumbent directors
immediately prior to any such change or changes.
The "Code" is the Internal Revenue Code of 1986, as amended.
The "Committee" is a committee of two or more directors of the Company,
each of whom is a "non-employee director" as defined in Rule 16b-3 under the
Exchange Act.
The "Common Stock" is the common stock of the Company.
The "Company" is Nematron Corporation, a Michigan corporation.
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"Disabled" or "Disability" means permanently disabled as defined in
Section 22(e)(3) of the Code.
"Employee" means an individual with an "employment relationship" with the
Company, or any Parent or Subsidiary, as defined in Regulation 1.421-7(h)
promulgated under the Code, and shall include, without limitation, employees who
are directors of the Company, or any Parent or Subsidiary.
"Employment" means the state of being an Employee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the average of the high and low sale prices
per share of the Common Stock reported in the Wall Street Journal (or if high
and low sale prices are not reported, the last sale price reported in the Wall
Street Journal or, if the last sale price is not reported, the last bid price
per share reported in the Wall Street Journal) for the last preceding day on
which the Common Stock was traded prior to the date with respect to which the
fair market value is to be determined, as determined by the Committee in its
sole discretion.
An "Incentive Stock Option" is an option intended to meet the requirements
of Section 422 of the Code.
A "Nonqualified Stock Option" is an option granted under the Plan other
than an Incentive Stock Option.
"Parent" means any "parent corporation" of the Company as defined in
Section 424(e) of the Code.
"Participant" is defined in Section 3.
The "Plan" is the 1993 Stock Option Plan.
"Subsidiary" means any "subsidiary corporation" of the Company as defined
in Section 424(f) of the Code.
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EXHIBIT 10.2
NEMATRON CORPORATION
1993 DIRECTORS STOCK OPTION PLAN
(as amended and restated March 1997)
1. PURPOSE. The purpose of the Plan is to promote the best interests of
the Company and its shareholders by attracting and retaining the best available
personnel to serve as directors of the Company, to provide additional incentive
to non-employee directors and to encourage their continued service on the Board
of Directors.
2. ADMINISTRATION. The Board of Directors shall interpret the Plan as it
deems necessary or advisable for administration of the Plan; provided, however,
that the Board shall exercise only ministerial duties and shall have no
discretion with respect to who may be a Participant or the amount, price and
timing of awards under the Plan. The decision of the Board on any matter on
which it may make a determination under the immediately preceding sentence shall
be final and binding upon all Participants.
3. PARTICIPANTS. Participants in the Plan shall be directors of the
Company who are not Employees and who are members of the Board of Directors on
the date an option is granted under the Plan.
4. STOCK. The stock subject to options under the Plan shall be the Common
Stock. The total amount of Common Stock on which options may be granted under
the Plan shall not exceed 120,000 shares, subject to adjustment in accordance
with Section 9. Shares subject to any unexercised portion of a terminated,
cancelled, forfeited or expired option granted under the Plan may again be
subjected to options under the Plan.
5. AWARD OF OPTIONS. On (a) the later of the effective date of the Plan or
the date on which a Participant first becomes a member of the Board of
Directors, and (b) the date of each annual meeting of shareholders occurring
thereafter during the term of the Plan if such Participant shall have been a
director for the six months immediately preceding such annual meeting, each
Participant shall, automatically and without discretion, be granted an option
<PAGE> 2
to purchase 1,000 shares of Common Stock with an exercise price equal to the
greater of (a) the Fair Market Value per share or (b) the Book Value per share
of Common Stock on the date the option is granted. Each such option shall be
exercisable beginning six months after the date the option is granted until the
close of business on the fifth anniversary of the date the option is granted and
shall be a Nonqualified Stock Option. Once an option becomes exercisable, a
Participant may exercise all or part of such option by delivering written notice
to the Company and tendering payment for the shares being purchased. Each option
shall be evidenced by a stock option agreement containing such terms described
above and incorporating the terms of the Plan. Any Participant may hold more
than one option under the Plan and any other stock option plan of the Company.
6. PAYMENT FOR SHARES. The purchase price for shares of Common Stock to be
acquired upon exercise of an option granted hereunder shall be paid in full, at
the time of exercise, in any of the following ways: (a) in cash, (b) by
certified check, bank draft or money order, (c) by tendering to the Company
shares of Common Stock then owned by the Participant, duly endorsed for transfer
or with duly executed stock power attached, which shares shall be valued at
their Fair Market Value as of the date of such exercise and payment.
7. WITHHOLDING TAXES. The Company shall have the right to withhold from a
Participant's compensation or require a Participant to remit sufficient funds to
satisfy applicable withholding tax obligations upon the exercise of an option.
8. NON-ASSIGNABILITY. No option shall be transferable by a Participant
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act ("ERISA"), or the rules thereunder.
During the lifetime of a Participant, an option shall be exercised only by the
Participant. No transfer of an option shall be effective to bind the Company
unless the Company shall have been furnished written
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notice thereof and such evidence as the Company may deem necessary to establish
the validity of the transfer and the acceptance by the transferee of the terms
and conditions of the option.
9. TERMINATION OF SERVICE. (a) If, prior to the date that an option shall
first become exercisable, the Participant shall cease to be a director of the
Company, with or without cause, or due to the act, death, Disability, or
retirement of the Participant, the Participant's right to exercise the option
shall terminate and all rights thereunder shall cease. (b) If, on or after the
date that an option shall first become exercisable, a Participant shall cease to
be a director of the Company for any reason other than death or Disability, the
Participant shall have the right, prior to the earlier of (i) the expiration of
the option or (ii) the day which is three months after the date on which the
Participant ceased to be a director of the Company, to exercise the option to
the extent that it was exercisable and is unexercised on the date the
Participant ceased to be a director of the Company, subject to any other
limitation on the exercise of the option in effect at the date of exercise. (c)
If, on or after the date that an option shall have become exercisable, the
Participant shall die or become Disabled while a director of the Company or
while such option remains exercisable, the Participant or the executor or
administrator of the estate of the Participant (as the case may be), or the
person or persons to whom the option shall have been transferred by will or by
the laws of descent and distribution, shall have the right, prior to the earlier
of (i) the expiration of the option or (ii) the day which is one year after the
date of the Participant's death or Disability to exercise the option to the
extent that it was exercisable and unexercised on the date of death, subject to
any other limitation on exercise in effect at the date of exercise.
10. ADJUSTMENTS. In the event that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Common Stock
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or other securities of the Company, issuance of warrants or other rights to
purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the Common Stock such that an adjustment
is determined by the Board of Directors to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Board of Directors shall, in such manner
as it may deem equitable, adjust any or all of (a) the number and type of shares
of Common Stock or other securities which thereafter may be made the subject of
options, (b) the number and type of shares of Common Stock or other securities
subject to outstanding options, and (c) the exercise price with respect to any
option, or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding option; provided, however, that the number of shares of
Common Stock subject to any option shall always be a whole number.
11. RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any
rights as a shareholder with respect to any shares covered by an option until
the issuance of a stock certificate to the Participant for such shares. No
adjustment shall be made for dividends or other rights with respect to such
shares for which the record date is prior to the date such certificate is
issued.
12. TERMINATION AND AMENDMENT. The Board of Directors may terminate the
Plan, or the granting of options under the Plan, at any time. No Option shall
be granted under the Plan after September 15, 2002. Termination of the Plan
shall not affect the rights of the holders of any options previously granted.
The Board of Directors may amend or modify the Plan at any time and from
time to time. No amendment, modification, or termination of the Plan shall in
any manner affect any option granted under the Plan without the consent of the
Participant holding the option.
13. APPROVAL OF PLAN. The Plan shall be subject to the approval of the
holders of at least a majority of the shares of
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Common Stock of the Company present and entitled to vote at a meeting of
shareholders of the Company held within 12 months after adoption of the Plan by
the Board (or acting by consent in lieu of a meeting). The Plan shall be
effective on the date the Plan is so approved by shareholders. No option
granted under the Plan may be exercised in whole or in part until the Plan has
been approved by the shareholders as provided herein. If not approved by
shareholders within such 12-month period, the Plan and any options granted
hereunder shall become void and of no effect.
14. CERTAIN DEFINITIONS.
The "Book Value" per share of Common Stock shall mean (i) the total
shareholders' equity for the Company and its Subsidiaries, as stated on the
Company's most recently published consolidated balance sheet, divided by (ii)
the number of shares of Common Stock issued and outstanding on the date of
grant.
The "Code" is the Internal Revenue Code of 1986, as amended.
The "Common Stock" is the common stock of the Company.
The "Company" is Nematron Corporation, a Michigan corporation.
"Disabled" or "Disability" means permanently disabled as defined in Section
22(e)(3) of the Code.
"Employee" means an individual with an "employment relationship" with the
Company, or any Parent or Subsidiary, as defined in Regulation 1.421-7(h)
promulgated under the Code, and shall include, without limitation, employees who
are directors of the Company, or any Parent or Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Fair Market Value" shall mean the average of the high and low sale prices
per share of the Common Stock reported in the Wall Street Journal (or if high
and low sale prices are not reported, the last sale price per share reported in
the Wall Street Journal or, if the last sale prices is not reported, the last
bid price per share reported in the Wall Street Journal) for the last preceding
day on which the Common Stock was traded prior to the date with respect to which
the fair market value is to be determined, as determined by the Board in its
sole discretion.
A "Nonqualified Stock Option" is an option granted under the Plan other
than an option intended to meet the requirements of Section 422 of the Code.
"Parent" means any "parent corporation" of the Company as defined in
Section 424(e) of the Code.
"Participant" is defined in Section 3.
The "Plan" is the 1993 Directors Stock Option Plan.
"Subsidiary" means any "subsidiary corporation" of the Company as defined
in Section 424(f) of the Code.
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EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of March 31, 1997 by Nematron Corporation, a Michigan corporation (the
"Company"), and certain other persons who are signatories hereto (collectively,
the "Holders" and each a "Holder").
WHEREAS, the Company is a party to a certain Agreement and Plan of Merger
(the "Merger Agreement"), of even date herewith, with Intec Controls Corp., a
Massachusetts corporation ("Intec"), NemaSoft, Inc., a Michigan corporation
("NemaSoft"), Thomas W. Kraus and Robert O. Mick pursuant to which Intec is
being merged with and into NemaSoft and the shareholders of Intec, including the
Holders, will receive shares of the Company's common stock (the "Common Stock");
WHEREAS, in order to induce Intec to enter into the Merger Agreement, the
Company has agreed to provide certain registration rights to the Holders with
respect to the shares of Common Stock acquired by them pursuant to the Merger
Agreement;
NOW, THEREFORE, the Company for the benefit of the Holders agrees as
follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
ADVICE: As set forth in Section 4(d).
COMMON STOCK: As set forth in the recitals.
COMPANY: As set forth in the preamble.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended from time
to time.
HOLDER: As set forth in the preamble.
HOLDER'S QUESTIONNAIRE: A questionnaire in the form attached hereto as
Exhibit A.
INTEC: As set forth in the recitals.
MAJORITY HOLDERS: At any time, Holders of Registrable Securities who would
then hold a majority of the Registrable Securities.
MERGER: The merger of Intec with and into NemaSoft as contemplated in the
Merger Agreement.
<PAGE> 2
MERGER AGREEMENT: As set forth in the recitals.
NASD: The National Association of Securities Dealers, Inc.
NEMASOFT: As set forth in the recitals.
PERSON: Any individual, partnership, corporation, trust or other entity.
PROSPECTUS: A prospectus included in the Shelf Registration Statement,
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the Shelf
Registration Statement, and by all other amendments and supplements to such
prospectus, including post-effective amendments, and in each case including all
material incorporated by reference therein.
REGISTRABLE SECURITIES: The shares of Common Stock acquired by the Holders
pursuant to the Merger and shares of Common Stock acquired upon exercise of
Nematron Warrants (as defined in the Merger Agreement) prior to the filing of
the Shelf Registration Statement, excluding shares which have been sold or
otherwise disposed of under the Shelf Registration Statement.
REGISTRATION EXPENSES: Any and all expenses incident to performance of or
compliance with this Agreement, including, without limitation: (i) all SEC,
stock exchange or NASD registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualification of any of the Registrable Securities and the preparation of a
Blue Sky Memorandum) and compliance with the rules of the NASD, (iii) all
expenses of any Persons in preparing or assisting in preparing, word processing,
printing and distributing the Shelf Registration Statement, Prospectus,
certificates and other documents relating to the performance of and compliance
with the Agreement, (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable Securities on any securities exchange
or the Nasdaq Stock Market, and (v) the fees and disbursements of counsel for
the Company and of the independent public accountants of the Company, including
the expenses of any special audits or "cold comfort" letters, if any, required
by or incident to such performance and compliance. Registration Expenses shall
specifically exclude underwriting discounts and commissions, brokerage or dealer
fees, the fees and disbursements of counsel, accountants or other
representatives of a selling Holder, and transfer taxes, if any relating to the
sale or disposition of Registrable Securities by such Holder, all of which shall
be borne by such Holder in all cases.
RULE 144: Rule 144 promulgated under the Securities Act, as such rule may
be amended from time to time.
SEC: The Securities and Exchange Commission.
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<PAGE> 3
SECURITIES ACT: The Securities Act of 1933, as amended from time to time.
SHELF REGISTRATION: A registration required to be effected pursuant to
Section 2 hereof.
SHELF REGISTRATION STATEMENT: A "shelf" registration statement of the
Company and any other entity required to be a registrant with respect to such
shelf registration statement pursuant to the requirements of the Securities Act
which covers all of the Registrable Securities on an appropriate form under Rule
415 under the Securities Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all materials incorporated by
reference therein.
SUSPENSION NOTICE: As set forth in Section 4(d).
SECTION 2. SHELF REGISTRATION UNDER THE SECURITIES ACT.
(a) Filing of Shelf Registration Statement. Subject to Sections 2(c) and 4
hereof, not later than the date which is thirteen months after the Effective
Time (as defined in the Merger Agreement), the Company shall cause to be filed
with the SEC a Shelf Registration Statement providing for the sale by the
Holders of all of the Registrable Securities in accordance with the terms hereof
and will use its reasonable best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC as soon as reasonably practicable;
provided that the Company shall not be required to file the Shelf Registration
unless it has received, during the period set forth in Section 2(c), Holder's
Questionnaires from the Majority Holders. The Company agrees to use its
reasonable best efforts to keep the Shelf Registration Statement continuously in
effect under the Securities Act until paragraph (k) of Rule 144 is available for
the sale of the Registrable Securities by the Holder(s) thereof (assuming for
such purpose that no such Holder is an "affiliate" as defined in Rule 144) or
until all of the Registrable Securities have been sold by the Holders, whichever
occurs first. Such Shelf Registration Statement shall be available for the sale
of the Registrable Securities in accordance with the intended method or methods
of distribution by the selling Holders thereof and shall comply as to form in
all material respects with the requirements of the applicable form.
(b) Expenses. Registration Expenses in connection with the registration
pursuant to Section 2(a) shall be paid by the Company. Each Holder shall pay
all underwriting discounts and commissions, brokerage or dealer fees, the fees
and disbursements of counsel, accountants or other representatives of such
Holder and transfer taxes, if any, relating to the sale or disposition of the
Holder's Registrable Securities.
(c) Delivery of Holder's Questionnaire. Any Holder who desires to be
eligible to make offers and sales of its Registrable Securities under the Shelf
Registration Statement shall deliver a completed and executed Holder's
Questionnaire to the Company during the 30-day period beginning on the seventh
day prior to the first anniversary of the date hereof. Any Holder who does not
deliver
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<PAGE> 4
a Holder's Questionnaire (currently dated, completed and executed) to the
Company during such period shall not be eligible to make offers or sales
pursuant to the Shelf Registration Statement.
SECTION 3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to the Shelf
Registration Statement pursuant to Section 2 hereof, and subject to Sections
3(a) and 4, the Company shall do the following during the period in which the
Shelf Registration Statement is required to be kept effective:
(a) Amendments; Comment Responses. (i) Prepare and file with the SEC such
amendments and post-effective amendments to the Shelf Registration Statement as
may be necessary to keep the Shelf Registration Statement effective for the
applicable period; (ii) upon the occurrence of any event contemplated by Section
3(d)(iv) hereof, use its reasonable efforts promptly to prepare and file a
supplement or prepare, file and obtain effectiveness of a post-effective
amendment to the Shelf Registration Statement or a related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any 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, in the light of the circumstances under which
they were made, not misleading; (iii) cause each Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 or any similar rule that may be adopted under the
Securities Act; and (iv) respond promptly to any comments received from the SEC
with respect to the Shelf Registration Statement, or any amendment,
post-effective amendment or supplement relating thereto.
(b) Copies of Prospectus. Furnish to each Holder of Registrable Securities
who is eligible to make offers and sales under the Shelf Registration Statement,
without charge, as many copies of each applicable Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities.
(c) Blue Sky. If required by applicable law, use its reasonable best
efforts to register or qualify the Registrable Securities under all applicable
state securities or "blue sky" laws of such states as any Holder of Registrable
Securities who is eligible to make offers and sales under the Shelf Registration
Statement shall reasonably request in writing, keep each such registration or
qualification effective during the period in which the Shelf Registration
Statement is required to be kept effective or during the period offers or sales
are being made by a Holder that has delivered a Registration Notice to the
Company, whichever is shorter, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such Holder to consummate the
disposition of such Registrable Securities owned by such Holder in each such
state; provided,
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<PAGE> 5
however, that the Company shall not be required (i) to qualify generally to do
business in any jurisdiction or to register as a broker or dealer in such
jurisdiction where it would not be required so to qualify or register but for
this Section 3(c), (ii) to subject itself to taxation in any such jurisdiction,
(iii) to submit to the service of process in suits other than those arising out
of the offer or sale of the securities covered by the registration statement in
any such jurisdiction or (iv) to register or qualify the Registrable Securities
in any jurisdiction in which an exemption for such Registrable Securities or for
the offer and sale thereof by such Holder is available.
(d) Notification. Promptly notify each Holder who is eligible to make
offers and sales under the Shelf Registration Statement when the Shelf
Registration Statement has become effective and when the Registrable Securities
have been registered or qualified in each state requested (or that an exemption
from registration or qualification is available) and promptly notify each such
Holder (i) when any post-effective amendments and supplements to the Shelf
Registration Statement become effective with the SEC or any state securities
authority, (ii) of the issuance by the SEC or any state securities authority of
any stop order suspending the effectiveness of the Shelf Registration Statement
or the initiation of any proceedings for that purpose, (iii) if the Company
receives any notification with respect to the suspension of the qualification of
the Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose and (iv) of the happening of any event during the
period the Shelf Registration Statement is effective as a result of which the
Shelf Registration Statement or a related Prospectus contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading.
(e) Stop Orders. Make every reasonable effort to obtain the withdrawal of
any order by the SEC or any state securities authority suspending the
effectiveness of the Shelf Registration Statement at the earliest possible
moment.
(f) Copies of Shelf Registration Statement and Amendment. Furnish to each
Holder of Registrable Securities who is eligible to make offers and sales under
the Shelf Registration Statement, without charge upon request of such Holder,
one conformed copy of the Shelf Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested).
(g) Stock Certificates. Cooperate with the selling Holders of Registrable
Securities to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any Securities
Act legend and enable certificates for such Registrable Securities to be issued
for such numbers of shares and registered in such names as the selling Holders
may reasonably request.
(h) Earnings Statement. Make available to its security holders, as soon as
reasonably practicable, an earnings statement covering at least 12 months which
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
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<PAGE> 6
SECTION 4. RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE
SECURITIES.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Sections 2 and 3 hereof,
each Holder agrees as follows:
(a) Offers and Sales. The Holder will not offer or sell its Registrable
Securities under the Shelf Registration Statement unless (i) the Shelf
Registration Statement has become effective and has not been terminated and such
Holder is eligible to make offers and sales under the Shelf Registration
Statement pursuant to Section 2(c) hereof, (ii) such Holder has received copies
of the Prospectus (as it may be supplemented or amended as contemplated by
Section 3(a) hereof), and (iii) if any post-effective amendment has been filed
with the SEC of which filing such Holder has received notice, such Holder has
received notice that any such post-effective amendment has become effective.
(b) Need to Use Updated Prospectus. Upon receipt of a written notice from
the Company of the happening of any event of the kind described in Section
3(d)(iv) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Shelf Registration Statement until such
Holder receives copies of the supplemented or amended Prospectus contemplated by
Section 3(a) hereof and receives notice that any post-effective amendment has
become effective, and, if so directed by the Company, such Holder will deliver
to the Company all copies in its possession, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event that any
Holder uses a Prospectus in connection with the offer and sale of Registrable
Securities covered by such Prospectus, such Holder will use only the latest
version of such Prospectus provided to it by the Company.
(c) Notification of Sales. Upon the sale or disposition of any of its
Registrable Securities pursuant to the Shelf Registration Statement, the Holder
will promptly notify the Company in writing of the number of Registrable
Securities then being sold or disposed of.
(d) Moratorium. If the Company determines in its good faith judgment,
after consultation with counsel, that the filing of the Shelf Registration
Statement under Section 2 hereof or the use of any Prospectus would require the
disclosure of important information which the Company has a bona fide business
purpose for preserving as confidential or the disclosure of which would impede
the Company's ability to consummate a significant transaction, upon written
notice of such determination by the Company (a "Suspension Notice"), the rights
of the Holders to offer, sell or distribute any Registrable Securities pursuant
to the Shelf Registration Statement or to require the Company to take action
with respect to the registration or sale of any Registrable Securities pursuant
to the Shelf Registration Statement (including any action contemplated by
Sections 2 or 3 hereof) will be suspended until the earlier of the 90th day
after the giving of the Suspension Notice and the date upon which the Company
notifies the Holder in writing that suspension of such rights for the grounds
set forth in this Section 4(d) is no longer necessary (the "Advice"). In the
event that
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<PAGE> 7
the Company shall give any Suspension Notice, the Company shall use its
reasonable best efforts and take such actions as are reasonably necessary to
render the Advice as promptly as practicable.
(e) Offering by Company. In the case of the registration of any
underwritten equity offering proposed by the Company, the Holders shall, if
requested in writing by the managing underwriter or underwriters administering
such offering, not effect any offer, sale or distribution of Registrable
Securities (or any option or right to acquire Registrable Securities) during the
period commencing on the 10th business day prior to the expected effective date
(which date shall be stated in such notice) of the registration statement
covering such underwritten equity offering and ending on the date specified by
such managing underwriter in such written request, which date shall not be later
than six months after such expected date of effectiveness.
(f) Additional Information. In addition to the information set forth in
the Holder's Questionnaire, the Holder of Registrable Securities shall furnish
to the Company in writing such additional information regarding the proposed
distribution by such Holder as the Company may from time to time reasonably
request in writing.
(g) Distribution. Each Holder shall comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Shelf Registration Statement during the applicable period in accordance with the
intended method or methods of distribution stated in the then-current version of
the Prospectus.
SECTION 5. INDEMNIFICATION; CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder and its officers and directors and each person, if
any, who controls the Holder within the meaning of Section 15 of the Securities
Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading:
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company, which consent will not be
unreasonably withheld; and
7
<PAGE> 8
(iii) against any and all expense whatsoever, as incurred (including
reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under clause (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 5(a)
does not apply to any Holder with respect to any loss, liability, claim, damage
or expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Shelf Registration Statement (or any amendment thereto) or any
Prospectus.
(b) Indemnification by Holder. Each Holder severally and not jointly
agrees to indemnify and hold harmless the Company and the other selling Holders
and each of their directors and officers (including each director and officer of
the Company who signed the Shelf Registration Statement), and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, to the same extent as the indemnity contained in Section 5(a) hereof, but
only insofar as such loss, liability, claim, damage or expense arises out of or
is based upon any untrue statement or omission, or alleged untrue statement or
omission, made in the Shelf Registration Statement (or any amendment thereto) or
any Prospectus in reliance upon and in conformity with written information
furnished to the Company by such selling Holder expressly for use in the Shelf
Registration Statement (or any amendment thereto) or such Prospectus; provided,
however, that such Holder shall not be obligated to provide such indemnity to
the extent that such losses, liabilities, claims, damages or expenses result
from the failure of the Company to promptly amend or take action to correct or
supplement any such Registration Statement or Prospectus on the basis of
corrected or supplemental information provided in writing by such Holder to the
Company expressly for such purpose; and provided further, that each such
Holder's obligations hereunder shall be limited to an amount equal to the gross
proceeds received by such Holder of the Registrable Securities sold pursuant to
such Registration Statement.
(c) Notice. Each indemnified party shall give reasonably prompt notice to
the indemnifying party of any action or proceeding commenced against it in
respect of which indemnity may be sought hereunder, but failure so to notify an
indemnifying party (i) shall not relieve it from any liability which it may have
under the indemnity agreement provided in Section 5(a) or (b) unless and to the
extent it did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided under Section 5(a) or (b). If the
indemnifying party so elects within a reasonable time after receipt of such
notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by the
indemnifying party; provided, however, that, if such indemnified party
reasonably determines that a conflict of interest exists where it is advisable
for such indemnified
8
<PAGE> 9
party to be represented by separate counsel or that, upon advice of counsel,
there may be legal defenses available to them which are different from or in
addition to those available to the indemnifying party, then the indemnifying
party shall not be entitled to assume such defense and the indemnified party
shall be entitled to one separate counsel at the indemnifying party's expense.
If an indemnifying party is not so entitled to assume the defense of such action
or does not assume such defense, after having received the notice referred to in
the first sentence of this Section 5(c), the indemnifying party will pay the
reasonable fees and expenses of counsel for the indemnified party. In such event
however, the indemnifying party will not be liable for any settlement effected
without the written consent of such indemnifying party but, if settled with such
consent, the indemnifying party agrees to indemnify the indemnified party or
parties from and against any loss or liability by reason of such settlement upon
the terms and subject to the conditions set forth in this Agreement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is a party, and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding. If an indemnifying party is
entitled to assume, and assumes, the defense of such action or proceeding in
accordance with this paragraph, such indemnifying party shall not be liable for
any fees and expenses of counsel for the indemnified parties incurred thereafter
in connection with such action or proceeding.
(d) Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in this Section 5
is for any reason held to be unenforceable although applicable in accordance
with its terms (by entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal), the Company and the selling Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and the selling
Holders, in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and the selling Holders on the other (in such
proportions that the selling Holders are severally, not jointly, responsible for
the balance), in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether the action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
the indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The Company and the Holders agree that it would not be just or equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
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<PAGE> 10
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation and no Holder will be required to contribute an
amount in excess of the gross proceeds received or to be received by such Holder
upon the sale of the Registrable Securities pursuant to such Registration
Statement. For purposes of this Section 5(d), each Person, if any, who controls
a Holder within the meaning of Section 15 of the Securities Act and directors
and officers of a Holder shall have the same rights to contribution as such
Holder, and each director of the Company, each officer of the Company who signed
the Shelf Registration Statement and each Person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company.
SECTION 6. RULE 144 SALES. The Company covenants that it will file the
reports required to be filed by the Company under the Securities Act and the
Exchange Act, so as to enable any Holder to sell Registrable Securities pursuant
to Rule 144 under the Securities Act after the Holder has satisfied the holding
period requirement set forth therein.
SECTION 7. MISCELLANEOUS.
(a) Amendments. The provisions of this Agreement, including the provisions
of this sentence, may not be amended, modified or supplemented without the
written consent of the Company and Holders constituting Majority Holders.
Notice of any amendment, modification or supplement to this Agreement adopted in
accordance with this Section 7(a) shall be provided by Company to each Holder of
Registrable Securities at least thirty (30) days prior to the effective date of
such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telecopier or any courier guaranteeing overnight delivery, (i)
if to a Holder, at the most current address given by such Holder to the Company
by means of a notice given in accordance with the provisions of this Section
7(b) or provided in a Holder's Questionnaire, which address initially is, with
respect to each Holder, the address set forth on the signature page hereof, or
(ii) if to the Company, at 5840 Interface Drive, Ann Arbor, Michigan 48103,
Attention: President.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; or at the time delivered if delivered by an air
courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
Company and the Holders. If any successor, assignee or transferee of any Holder
shall acquire Registrable Securities, in any manner, whether by operation of law
or otherwise, such Registrable Securities shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Securities
such Person shall
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<PAGE> 11
be deemed a party hereto, shall be entitled to receive the benefits hereof and
shall be conclusively deemed to have agreed to be bound by all of the terms and
provisions hereof.
(d) Entire Agreement. This Agreement represents the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any and all prior oral and written agreements, arrangements and
understandings among the parties hereto with respect to such subject matter.
(e) Paragraph and Section Headings. The paragraph and section headings
contained in this Agreement are for general reference purposes only and shall
not affect in any manner the meaning, interpretation or construction of the
terms or other provisions of this Agreement.
(f) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, APPLICABLE TO
CONTRACTS TO BE MADE, EXECUTED, DELIVERED AND PERFORMED WHOLLY WITHIN SUCH
STATE, AND, IN ANY CASE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF
SUCH STATE.
(g) Severability. If at any time subsequent to the date hereof, any
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other provision of
this Agreement.
(h) Specific Performance. The Company and the Holders acknowledge that
there would be no adequate remedy at law if any party fails to perform any of
its obligations hereunder, and accordingly agree that the Company and each
Holder, in addition to any other remedy to which it may be entitled at law or in
equity, shall be entitled to compel specific performance of the obligations of
another under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
(i) No Waiver. The failure of any party at any time or times to require
performance of any provision hereof shall not affect the right at a later time
to enforce the same. No waiver by any party of any condition, and no breach of
any provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same original instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
or have caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
NEMATRON CORPORATION
By: /s/ Frank G. Logan III
-----------------------
Frank G. Logan, III
President
SHAREHOLDER*
-------------------------
Name:
------------------
Address:
----------------
----------------
----------------
*If you wish to become a party to the Registration Rights Agreement attached as
Annex D to the Proxy Statement included herewith, you must execute this
signature page on the line under "SHAREHOLDER," print your name and address and
return this page to the Company, along with your proxy and the signature page to
the Representation Letter, in the envelope provided.
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<PAGE> 13
SHAREHOLDER
By: /s/ Thomas W. Kraus
-----------------------------------
Thomas W. Kraus
9 Baker Street
Foxboro, MA 02035
By: /s/ Robert O. Mick
-----------------------------------
Robert O. Mick
50 Desert Brook Road
Wrentham, MA 02093
By: /s/ N.P. Lutte
-----------------------------------
Dr. N.P. Lutte
Avenals Farm, Water Lane
Angmering, West Sussex BN16 4EP
England
By: /s/ Dawna L. Paton
-----------------------------------
Dawna L. Paton
40 Kibby Place
Carlisle, MA 01741
By: /s/ Peter W. Fink
-----------------------------------
Peter W. Fink
178 Richardson Drive
Needham, MA 02192
By: /s/ Kevin L. Treen
-----------------------------------
Kevin L. Treen
50 Rudon Drive
N. Attleboro, MA 02760
By: /s/ Lewis A. Bergins
-----------------------------------
Lewis A. Bergins
172 Farm Street
Millis, MA 02054
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<PAGE> 14
By: /s/ John J. Lucas
-----------------------------------
John J. Lucas
4 Putter Drive
Acton, MA 01720
By: /s/ Paul H. Corriveau
-----------------------------------
Paul H. Corriveau
20 Horseshoe Drive
Plainville, MA 02762
By: /s/ John R. Wason
-----------------------------------
John R. Wason
4 Hoover Road
Norfolk, MA 02056
By: /s/ Huu Tam Huyen
-----------------------------------
Huu Tam Huyen, as joint tenant
8 Nottingham Drive
Norwood, MA 02062
By: /s/ Tin P. Pham
-----------------------------------
Tin P. Pham, as joint tenant
8 Nottingham Drive
Norwood, MA 02062
EUROTHERM PLC
By: /s/ R.M. Biddle
-----------------------------------
R. M. Biddle
Eurotherm plc
Finance Director
Leonardslee
Lower Beeding
Horsham, West Sussex RH 13 6PP
United Kingdom
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Agreement is dated as of March 31, 1997, and is between Thomas W.
Kraus (the "Employee"), and NemaSoft, Inc., a Michigan corporation (the
"Company"), a subsidiary of Nematron Corporation, a Michigan corporation
("Nematron").
In consideration of the premises herein contained, the parties agree as
follows:
1. Employment. The Company employs the Employee as President of the
Company, and the Employee accepts such employment, upon the terms and conditions
set forth in this Agreement.
2. Duties During Employment Period. The Employee shall perform and
discharge well and faithfully such duties for the Company as may be assigned to
the Employee from time to time by the Board of Directors of the Company and/or
the President of the Company and, in the absence of such assignment, such
services customary to such office as are necessary to the operations of the
Company. The Employee shall devote all of his business time, attention and
energies to the business of the Company.
3. Term. The Employee's employment under Sections 1 and 2 of this
Agreement shall be for a period (the "Employment Period") commencing on the date
hereof and ending two years after the date hereof, unless sooner terminated in
accordance with Section 9 below.
4. Employment Period Compensation.
(a) Base Salary. For all services to be rendered by the Employee
hereunder (including services as officer, employee, member of any committee of
the Company or any subsidiary or division or otherwise), the Company shall pay
an annual salary to the Employee during the Employment Period of $100,000
(payable in bi-weekly or semi-monthly installments, at the Company's election).
The Board of Directors may, at its option, make such additional salary
determination as it deems appropriate in light of the performance of the
Employee and the Company. However, Employee agrees and acknowledges that such
increases or bonuses have not been promised and may not occur at all. All
payments shall be subject to all applicable taxes required to be withheld by the
Company pursuant to federal, state or local law.
(b) Other Benefits. The Company shall provide Employee with the fringe
benefits, prerequisites, and other benefits of employment provided to salaried
executives of the Company, serving in a capacity similar to Employee, from time
to time during the Employment Period. These benefits will be adjusted from time
to time as determined by the Board of Directors of the Company.
5. Covenant Not To Compete.
(a) Noncompetition. The Employee acknowledges that the services to be
provided hereunder are unique and that their loss would cause irreparable injury
to the Company. The Employee also hereby acknowledges and recognizes the highly
competitive nature of the Company's business and,
<PAGE> 2
accordingly, in consideration of the employment of the Employee by the Company,
the Employee agrees to the following:
(i) That during the Restricted Period (hereinafter defined), he will
not, directly or indirectly (other than on behalf of the Company or its
subsidiaries), engage in any activity which is in direct and substantial
competition with the activities of the Company or its subsidiaries, whether
such engagement is as an officer, director, proprietor, employee, partner,
investor (other than as a holder of less than 2% of the outstanding capital
stock of a publicly traded corporation), consultant, advisor, agent or
otherwise, in any geographic area in which, or to any customer to whom, at any
time heretofore or hereafter during the Employee's employment with the Company
the products or services of the Company or its subsidiaries were distributed or
provided by the Company or its subsidiaries.
(ii) That during the Restricted Period the Employee will not directly
or indirectly (other than on behalf of the Company or its subsidiaries)
solicit, induce or influence any employee, sales agent, customer, supplier,
lender, lessor or any other person which has a business relationship with the
Company or its subsidiaries at any time during the Restricted Period to
discontinue or reduce the extent of such relationship with the Company or its
subsidiaries.
(b) Restricted Period. As used herein, the term "Restricted Period" shall
mean the period commencing with the date hereof and ending on the date that is
the second anniversary hereof.
6. Disclosure of Information. The Employee acknowledges that the Company's
trade secrets, private or secret processes as they exist from time to time and
information concerning products, development, technical information, procurement
and sales activities and procedures, promotion and pricing techniques and credit
and financial data concerning customers (the "Proprietary Information") are
valuable, special and unique assets of the Company and its subsidiaries, access
to and knowledge of which are essential to the performance of the Employee's
duties hereunder. In light of the highly competitive nature of the industry in
which the Company's businesses are conducted, the Employee agrees that all
Proprietary Information heretofore or in the future obtained by the Employee as
a result of the Employee's association with the Company shall be considered
confidential. In recognition of this fact, the Employee agrees that he will not
during the Restricted Period or at any time thereafter, disclose any of such
Proprietary Information for his own purposes or for the benefit of any person or
other entity (except the Company or its subsidiaries) under any circumstances
unless such Proprietary Information has been publicly disclosed generally or,
upon written advice of legal counsel reasonably satisfactory to the Company,
that the Employee is legally required to disclose such Proprietary Information.
Records prepared by the Employee or that come into his possession during his
employment by the Company are and remain the property of the Company, and when
his employment with the Company terminates, such records shall be left with the
Company.
7. Company Right to Inventions. The Employee shall promptly disclose,
grant and assign to the Company for its sole use and benefit any and all
inventions, improvements, technical information and suggestions relating in any
way to the products, services or other Business Activities from time to time
engaged in by the Company of its subsidiaries which the Employee has conceived,
developed or acquired,
2
<PAGE> 3
or may conceive, develop or acquire during the Employee's employment by the
Company (whether or not during usual working hours), together with all patent
applications, letters patent, copyrights and reissues thereof that may at any
time be granted for or upon any such invention, improvement or technical
information.
At the request of the Company at any time, the Employee shall execute
documents assigning to it, or its designee, any invention, improvement,
discovery, technical information, suggestion, idea, or any patent application or
patents, copyrights and reissues thereof referred to above, and shall execute
any papers requested relating thereto and perform such other lawful acts as may
be necessary or advantageous in the opinion of the Company or its counsel to
vest title to any such invention, discovery, improvement, technical information,
suggestion, idea, patent application, patent, copyright or reissues thereof in
the Company or its designee.
8. Remedies.
(a) The Employee acknowledges and agrees that the Company's remedy at
law for a breach or threatened breach of any of the provisions of Sections 5, 6
or 7 would be inadequate. In recognition of this fact, in the event of a
breach by the Employee of any of the provisions of Sections 5, 6 or 7, as
determined by the Company in its sole discretion acting in good faith, the
Employee agrees that, in addition to the Company's remedy at law and the
Company's rights under Section 9 hereof, the Company, without posting any bond,
shall be entitled to obtain, and the Employee agrees not to oppose the
Company's request for, equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
(b) The Employee acknowledges that the granting of a temporary
injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Sections 5, 6, or 7 and consequently
agrees, upon proof of any such breach, to the granting of injunctive relief
prohibiting the Employee from engaging in any of the activities prohibited by
Section 5. Nothing herein contained shall be construed as prohibiting the
Company from pursuing any other remedies available to it for such breach or
threatened breach.
9. Termination. Employee's employment will terminate on the first to
occur of the following:
(a) The Employee's employment under this Agreement may be terminated by
the Company for "Cause". The following, as determined by the Company's Board
of Directors in its sole discretion, acting in good faith, shall constitute
"Cause" for termination: fraud, theft, waste of material corporate assets,
gross negligence, conviction of a felony, willful misconduct, intentional
failure to materially perform his duties and responsibilities consistent with
the provisions of Sections 1 and 2 hereof, or breach of any of the provisions
of Sections 5, 6 or 7 of this Agreement. Prior to a determination of Cause,
the Company's Board of Directors shall give the Employee the opportunity to be
heard. If the Employee's employment under this Agreement is terminated by the
Company for any reason set forth in this paragraph (a), the Company shall
continue to be liable only for the Base Salary set forth in Section 4 of this
Agreement, if any, with respect to periods of time prior to the date of such
termination.
3
<PAGE> 4
(b) The Company may terminate the Employee's employment in the event of
Employee's "disability" and employment will terminate automatically upon
Employee's death. "Disability" shall be deemed to exist if Employee has
substantially failed to perform his duties under this Agreement for 90 days in
any 120 day period for reasons of mental or physical health, as determined by
competent medical evidence. If the Employee's employment under this Agreement
is terminated for any reason set forth in this paragraph (b), the Company shall
continue to be liable only for the Base Salary set forth in Section 4 of this
Agreement, if any, with respect to periods of time prior to the date of such
termination.
(c) The Company may terminate the Employee's employment for any reason
other than the reasons listed in paragraphs (a) and (b) or for no reason. If
the Employee's employment under this Agreement is terminated pursuant to this
paragraph (c), the Company shall continue to pay the Employee the compensation
described in Section 4 at the rate in effect on the date of such termination
until the date two years from the date hereof.
(d) The Employee may terminate his employment under this Agreement upon
the failure of the Company to provide the Employee with the compensation
described in Section 4, upon material reductions in the Employee's
responsibilities or authority (without the consent of the Employee), or if the
Company moves (without the consent of the Employee) the Employee's office to a
location that is more than 50 miles from Walpole, Massachusetts. If the
Employee terminates his employment under this Agreement for any reason set
forth in this paragraph (d) ("good reason"), the Company shall continue to pay
the Employee the compensation described in Section 4 at the rate in effect on
the date of such termination until the date two years from the date hereof.
10. Indemnification; Stock Purchase Loan Forgiveness.
(a) The parties acknowledge that (i) Employee owes $169,290 to the
Company pursuant to a certain loan made by Intec Controls Corp. (which was
merged into the Company on the date hereof) ("Intec") to the Employee in
connection with the purchase by the Employee of common stock of Intec (the
"Loan") and evidenced by the promissory note attached hereto as Exhibit A (the
"Note"); (ii) Tin P. Pham and Huu Huyen Pham (collectively, "Pham"), who are
former shareholders of Intec, have asserted various claims against Employee in
the lawsuit captioned "Tin P. Pham and Huu Huyen Pham, individually and as
shareholders of Intec Controls Corp. v. Thomas C. Kraus and Robert Mick,
individually and as shareholders of Intec Controls Corp.," Norfolk,
Massachusetts Superior Court, C.A. No. 97-005300 (together with any lawsuit
brought in Federal Court based upon substantially similar facts as stated in the
complaint filed in the aforementioned suit, the "Pham Suit"), and may assert
further claims against Employee, persons previously serving as officers or
directors of Intec, Intec, the Company or Nematron (all such claims of Pham,
whether asserted in the Pham Suit or otherwise, are collectively referred to
herein as the "Pham Claims") and (iii) the Company intends to forgive the Loan,
except to the extent provided below. The term "Pham Claims" shall not include
claims arising out of or based upon facts or circumstances arising or actions
taken after the date hereof.
4
<PAGE> 5
(b) Employee hereby agrees to indemnify, defend and hold harmless
Nematron and the Company from and against any and all liabilities, damages,
losses, penalties, fines, claims, costs and expenses (including, without
limitation, losses suffered as a result of any indemnification obligations, but
excluding the amount of any attorney's fees and expenses paid pursuant to
paragraph (e) below or incurred by the Company or Nematron) arising out of or
resulting from the Pham Claims (the "Damages"); provided, that Employee's
obligation shall not exceed the principal amount of the Loan. Immediately upon
the incurrence of any Damages by the Company or Nematron at any time and from
time to time on or before the Closure Date (as defined below), the portion of
the principal amount of the Loan which is to be forgiven shall be reduced by the
amount of such Damages and the portion of the principal amount of the Loan which
will not be forgiven shall be due and payable pursuant to the terms of the Note
and paragraph (b) of this Section 10. To the extent permitted by law, Employee
hereby waives any and all rights he may have to indemnification from the Company
or Nematron for liabilities, damages, losses, penalties, fines, claims, costs
and expenses incurred by him as a result of Pham Claims, except as set forth in
paragraph (e) below. Nothing contained herein shall be deemed to abridge or
modify Employee's rights to indemnification under the Bylaws of the Company or
Nematron for claims other than Pham Claims.
(c) Employee hereby confirms his obligation to repay the Note in
accordance with its terms to the extent it is not forgiven by the Company;
provided that, until the earlier of the (i) Closure Date or (ii) the date on
which the Employee's employment with the Company terminates (other than by
Employee for "good reason," or by the Company without Cause ), no principal
payments shall be required to be made under the Note. The Note shall bear
interest at the rate stated therein and interest shall be payable in accordance
with the terms thereof.
(d) The Company agrees to forgive the principal amount of the Loan, less
any amount deducted for Damages pursuant to paragraph (b) of this Section 10
(the "Net Loan Amount"), as follows, provided, that the Employee remains
employed by the Company on such dates, or has terminated his employment for
"good reason," or has been terminated without Cause:
(i) If the Closure Date occurs prior to the first anniversary of the
date hereof, the Company shall forgive one-third of the Net Loan Amount
(together with interest accrued on such amount to such date) on the Closure
Date, one-third of the Net Loan Amount (together with interest accrued on such
amount to such date) on the first anniversary of the date hereof and the
remainder (together with interest accrued on such amount to such date) on the
second anniversary of the date hereof.
(ii) If the Closure Date occurs after the first anniversary of the
date hereof but prior to the second anniversary of the date hereof, the Company
shall forgive two-thirds of the Net Loan Amount (together with interest accrued
on such amount to such date) on the Closure Date and the remainder of the Net
Loan Amount (together with interest accrued on such amount to such date) on the
second anniversary of the date hereof.
5
<PAGE> 6
(iii) If the Closure Date occurs on or after the second anniversary
of the date hereof, the Company shall forgive the Net Loan Amount (together with
interest accrued on such amount to such date) on the Closure Date.
(e) The Company agrees to reimburse Employee for the reasonable
attorney's fees and expenses actually incurred by him (and not otherwise
reimbursed or to be reimbursed) in connection with the Pham Suit and any other
action brought by Pham based upon substantially the same allegations as are made
in the Pham Suit; provided, that the Company shall be obligated to reimburse
Employee and Robert O. Mick for the fees and expenses of not more than one legal
counsel (it being understood that the Employee and Robert O. Mick shall be
jointly represented by the same counsel). Employee agrees to provide Nematron
with copies of all pleadings and correspondence relating to the Pham Suit. The
Company will reimburse the Employee for all taxes payable by the Employee in
connection with the forgiveness of the Net Loan Amount, including taxes payable
on such reimbursements.
(f) "Closure Date" shall mean the earlier to occur of the following
events: (i) the execution of a settlement agreement by and among all parties to
the Pham Suit which has been approved by Nematron in its reasonable discretion
and (A) which includes a full release and discharge by Pham (and their heirs,
successors and assigns) of all Pham Claims Pham ever had, may then have or, with
respect to the matters described in the Pham Suit, may have in the future
against Employee, all persons previously serving as officers or directors of
Intec, Intec, the Company or Nematron, (B) which results in the dismissal with
prejudice of the Pham Suit, (C) which makes a final and binding determination
with respect to all rights to indemnification of any person previously serving
as an officer or director of Intec and (D) the Net Loan Amount has been finally
determined; (ii) the dismissal with prejudice of the Pham Suit without liability
on the part of Employee, any person previously serving as an officer or
director of Intec, Intec, the Company or Nematron and the expiration of the time
period during which appeal may be sought; or (iii) a final judgment has been
issued in the Pham Suit, the time period during which appeal may be sought has
expired and the amount of any Damages suffered and to be suffered by Nematron
and the Company (including, without limitation, as a result of any obligation to
indemnify persons previously serving as officers or directors of Intec) and the
Net Loan Amount have been finally determined.
11. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed properly given if in writing and if mailed by
registered or certified mail, postage prepaid with return receipt requested or
sent by express courier service, charges prepaid by shipper, to his residence in
the case of notices to the Employee, and to the principal offices of the Company
at 5840 Interface Drive, Ann Arbor, Michigan 48103 to the attention of the
President in the case of notices to the Company (or to such other address as a
party is directed pursuant to written notice from the other party). Any notice
given by the Company to the Employee at his last directed address shall be
effective to bind any other person who shall acquire rights hereunder.
12. Assignment. This Agreement may not be assigned by the Employee but may
be assigned by the Company in the event that the Company shall be merged with,
or consolidated into, any other corporation,
6
<PAGE> 7
or in the event that the Company shall sell and transfer substantially all of
its assets, or if the Company becomes a majority owned subsidiary of another
entity.
13. Entire Agreement; Waiver. This instrument contains the entire
Agreement of the parties relating to the subject matter hereof, supersedes and
replaces in its entirety any existing employment agreement of the Employee,
whether oral or in writing, and may not be waived, changed, modified, extended
or discharged orally but only by Agreement in writing signed by the Employee and
an officer of the Company. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed as
a wavier of a breach of any other provision of this Agreement or of any
subsequent breach by the Employee.
14. Survival of Terms. Any termination of this Agreement shall not,
however, affect the ongoing provisions of this Agreement (including, without
limitation, the provisions of Section 10), which shall survive such termination
in accordance with their terms.
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan.
16. Headings. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
17. Validity. If for any reason any provision hereof shall be determined
to be invalid or unenforceable, the validity and effect of the other provisions
hereof shall not be affected thereby.
18. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. If any
court determines that any provision of Section 5 hereof is unenforceable because
of the duration or scope of such provision, such court shall have the power to
reduce the scope or duration of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
19. Limitation. The Employee agrees not to commence any cause of action
relating to his the Employee's rights or remedies under this agreement more than
six (6) months after the event complained of and agrees to waive any statute of
limitations to the contrary.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
EMPLOYEE
/s/ Thomas W. Kraus
-----------------------
Thomas W. Kraus
NEMASOFT, INC.
By: /s/ Frank G. Logan III
-----------------------
Frank G. Logan, III
Its: President
8
<PAGE> 1
EXHIBIT 11
NEMATRON CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE
THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31
--------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSUMPTIONS:
Shares outstanding at the end of the period 5,216,322 3,037,710 5,216,322 3,037,710
Weighted average common shares outstanding 4,607,802 2,915,070 4,586,941 2,892,217
Weighted average options and warrants outstanding A 851,508 1,161,517 851,508 1,119,507
Number of options and warrants outstanding at end of period B 946,238 1,054,525 946,238 1,054,525
20% of weighted average common shares outstanding 1,043,264 607,542 1,043,264 607,542
Number of common shares obtainable upon exercise of outstanding
options and warrants as a percentage of outstanding common
shares 18.14% 34.71% 18.14% 34.71%
Average exercise price of options and warrants C $5.41 $3.41 $4.97 $3.30
Average market price of common stock during the period D $6.30 $7.18 $6.76 $6.02
Number of common shares obtainable upon exercise of outstanding
options and warrants, limited to 20% of outstanding shares E 571,481 500,940 531,941 607,542
COMPUTATIONS:
APPLICATION OF ASSUMED PROCEEDS:
Toward repurchase of outstanding common stock at average
market price and using weighted average options and warrants
outstanding, limited to 20% of outstanding shares A*C $4,603,679 3,597,522 $4,603,679 3,660,057
Toward reduction of debt for shares in excess of 20% 62,536
------------ ---------- ---------- ----------
Total proceeds from exercise of options and warrants $4,603,679 $3,597,522 $4,603,679 $3,722,593
============ ========== ========== ==========
ADJUSTMENT OF NET INCOME (LOSS):
Actual net income (loss) F ($2,656,641) $69,664 ($2,646,125) $130,719
Interest reduction at 9.50% in FY 1997 - -
Interest reduction of 10.75% in FY 1996 - 1,602
------------ ---------- ---------- ----------
Adjusted net income (loss) G ($2,656,641) $69,664 ($2,646,125) $132,321
============ ========== ========== ==========
ADJUSTMENT OF SHARES OUTSTANDING:
Weighted average common shares outstanding H 4,607,802 2,915,070 4,586,941 2,892,217
Net additional shares outstanding A-E 280,028 660,577 319,567 511,965
------------ ---------- ---------- ----------
Adjusted shares outstanding I 4,887,830 3,575,647 4,906,508 3,404,182
============ ========== ========== ==========
EARNINGS (LOSS) PER SHARE:
Before adjustment F/H ($0.577) $0.024 ($0.577) $0.045
After adjustment G/I ($0.544) $0.019 ($0.539) $0.039
USE FOR PRIMARY EARNINGS(LOSS) PER SHARE FOR FINANCIAL STATEMENTS ($0.58) $0.02 ($0.58) $0.04
============ ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,302,488
<SECURITIES> 0
<RECEIVABLES> 6,324,620
<ALLOWANCES> 126,000
<INVENTORY> 4,635,570
<CURRENT-ASSETS> 15,116,436
<PP&E> 4,089,121
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,237,720
<CURRENT-LIABILITIES> 4,707,347
<BONDS> 3,820,374
0
0
<COMMON> 21,113,523
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,237,720
<SALES> 10,186,128
<TOTAL-REVENUES> 10,186,128
<CGS> 5,959,477
<TOTAL-COSTS> 5,959,477
<OTHER-EXPENSES> 4,726,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,403
<INCOME-PRETAX> (2,646,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,646,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,646,125)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
