FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1999.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________.
NOVEX SYSTEMS INTERNATIONAL, INC.
(Formerly Stratford Acquisition Corporation)
(Exact name of registrant as specified in its charter)
New York 0-26112 41-1759882
(State of Jurisdiction) (Commission File Number) (IRS Employer ID No.)
67 Wall Street, Suite 2001, New York, New York 10005
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 212-825-9292
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock $.001 par value NASD OTC Electronic Bulletin Board
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days. Yes _X_ No ___
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ].
Based on the closing sale price of $.20 on May 31, 1999, the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$1,161,003. The number of shares outstanding of the registrant's common stock,
$.001 par value was 15,250,771 on May 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Location in Form 10-K Incorporated Document
- --------------------- ---------------------
Part IV, Item 14 Form 8-K filed on
September 17, 1998
Part IV, Item 14 Form 8-K/A filed on
November 30, 1998
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NOVEX SYSTEMS INTERNATIONAL, INC.
Table of Contents
Page No.
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Part I
Item 1. Business and Risk Factors 1
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security
Holders 22
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 23
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 28
Part III
Item 10. Directors and Executive Officers of the
Registrant 28
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management 30
Item 13. Certain Relationships and Related Transactions 32
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 33
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PART I
Item 1. Business and Risk Factors
The Company will be subject to numerous and substantial economic,
operational and other risks which should be carefully evaluated. For a more
detailed discussion of the risk factors involved in the investment being
offered in this offering, see the following "RISK FACTORS."
RISK FACTORS
The Company evolved from the development stage in mid-1998 and any evaluation of
the Company and its business should only be made after having given careful
consideration to the following risk factors, in addition to those appearing
elsewhere in this Form 10-K.
Limited Operating History. Prior to the Company's September 16, 1998 acquisition
of Arm Pro, Inc., the manufacturer and marketer of the Fiberforce line of
polypropylene fibers which provides secondary reinforcement of concrete
products, the Company essentially had no operating history. Since August, 1995,
the Company has principally been engaged in research and development activities
relating to the development of its mineral-based admixture which, when blended
with a cement-based product (mortars, grouts, concrete), enhances the
performance characteristics of the products. In Spring, 1998, the Company
emerged from the development stage by selling small amounts of its line of
pre-packaged Novacrete concrete repair products. With the acquisition of Arm
Pro, Inc., the Company began marketing Arm Pro's Fiberforce line of
polypropylene fibers for concrete reinforcement, which on an annual historical
basis generated approximately $300,000 in sales and positive cash flow of
roughly $150,000 to the Company. Upon the closing of the Company's purchase of
the Allied Composition/Por-Rok business unit of The Sherwin-Williams Company
(hereinafter "Por-Rok")which took place on August 13, 1999, the Company will own
the Por-Rok business unit which generated $1,725,853 in revenues and earned
$201,208 in the calendar year ending December 31, 1998. Even with the Por-Rok
unit the Company will still be considered small and will continue to be subject
to the risks, complications, and uncertainties of successfully marketing
products with large competitors and the difficulties in recruiting and retaining
qualified personnel. (See Subsequent Events)
Lack of Profitability. The Company has recorded net losses for each year of
operation (1994-1998) and will record a net loss in the fiscal year ending May
31, 1999 of $1,392,340. The Company will now have a $5,325,024 cumulative
operating loss, most of which was accumulated during the Company's research and
development stage and was largely generated from accounting charges for non-cash
compensation that was paid in common stock and common stock options and not
solely from cash losses from operations. This operating loss is eligible to be
applied to income generated from future operations to minimize corporate taxes.
Limited Product Line. The Company's revenues will depend on the breadth of its
product line. Although the Company initially plans to expand its current product
lines initially by acquiring Por-Rok and other companies that the Company has
targeted, because of the uncertainties associated with closing transactions
there can be no assurances that the Company will achieve its objective to expand
its product line this year. (See Subsequent Events; The Company's Future
Operations; Company's Products)
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Uncertainty of Protection Offered by Patents and Trade Secrets. The Company's
proprietary technology is not protected by patents. The Company believes that
the patenting of its protects would increase the risk of competitors' infringing
on the technology. Competitors could easily infringe on the Company's technology
by integrating other chemicals into the Company's proprietary formulations to
mask the infringement of the Company's technology. The absence of patent
protection represents a risk in that the Company will not be able to prevent
other persons from developing competitive products. In addition, there can be no
assurance that the Company's technology or products will not infringe on a
patent owned by another person. To the extent the Company currently relies on
unpatented proprietary technology, processes and know-how and the protection of
such property by confidentiality agreements, there can be no assurance that
others may not independently develop similar technology and know-how or that the
confidentiality will not be breached by an unrelated party.
However, the Company's products and the Por-Rok products are protected by
trademarks in the United States and some products are protected by trademarks in
Canada and the United Kingdom. The Company currently relies upon laws on trade
secrets to protect its confidential and proprietary technology and know how.
There can be no assurance that competitors will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets. Even if there is an infringement of
any of the Company's trade secrets, the cost of enforcing its rights in an
infringement action could be substantial and would divert funds and resources
that would otherwise be available for other aspects of the Company's operations.
Need for Qualified Personnel. In order to meet its business objectives, the
Company will need to recruit additional marketing and manufacturing personnel.
The Company will be required to compete for such personnel with companies having
greater financial and other resources than the Company. Since the future success
of the Company will be dependent, in part, upon its ability to attract and
retain qualified personnel, its inability to do so could have a material adverse
effect upon the business of the Company.
Absence of Dividends. The Company has not paid any cash dividends and does not
anticipate paying any dividends in the foreseeable future. Earnings, if any,
will be retained to fund development and expansion. There is no assurance that
the Company will at any time pay cash dividends.
Seasonality. Although the Company anticipates that the substantial majority of
its sales will be derived from products used for residential, commercial and
industrial repair of deteriorating concrete structures and floors, the Company's
products will incur some degree of seasonal slow down during the three main
winter months of December, January and February.
No Assurance of Market Making Activity. The Common Shares of the Company are
presently quoted on the OTC Bulletin Board, a regulated quotation service that
captures and displays real-time quotes and indications of interest in securities
not listed on The Nasdaq Stock Market, or any U.S. securities exchange. The
current trading ticker symbol for the Common Shares is "HARD". The Company may,
but has not, entered into any agreements with market makers to make a market in
the Company's common stock. In addition, any such market making activity is
subject to the limits imposed by the Act, and the Securities Exchange Act of
1934, as amended, ("Exchange Act"). Accordingly, no assurance can be given that
an active market will always be available for the Common Shares, or as to the
liquidity of the trading market for the Common Shares. If a trading market is
not maintained, holders of the Common Shares may experience difficulty in
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reselling such Common Shares or may be unable to resell them at all. Any such
market in the Common Stock may be discontinued at any time. In addition, there
is no assurance that the price of the Common Shares in the market will be equal
to or greater than the offering price hereof, whether or not the Company employs
market makers to make a market in the Company's stock.
a. General Business Development
The Company is a corporation formed under the laws of New York and has its
principal place of business and executive offices located at 67 Wall Street,
Suite 2001, New York, New York 10005, telephone 212-825-9292. Until May 11,
1999, the Company was known as Stratford Acquisition Corp. and had been a
corporation organized under the laws of Minnesota. Effective May 11, 1999, the
Company merged into its wholly-owned subsidiary, Novex Systems International,
Inc., a newly-formed New York corporation, which was the surviving corporation.
The Company also has a wholly-owned operating subsidiary, Novex Systems
International, Ltd. (formerly known as Novacrete Technology (Canada) Inc.),
which is a company registered pursuant to the laws of the Province of Ontario,
Canada and is located at 2525 Tedlo Street, Unit B, Mississauga, Ontario L5A
4A8, telephone 905-566-0716 ("Novex Canada").
Prior to August 15, 1995, the Company was a dormant corporation. On August 15,
1998, the Company acquired from the inventor, the exclusive right to manufacture
and market a proprietary admixture for the enhancement of cementitious products
now known as the "Novacrete Admixture". The Novacrete Admixture is a blend of
various materials which when mixed with portland cement and water causes a
chemical reaction that creates a calcium silicate hydrate (CSH) paste binder
that has a very dense microscopic pore structure. This change in the molecular
matrix of the cementitious product increases the bonding between the CSH paste
and the aggregates that are mixed into the formula to create a mortar or
concrete product. By having a denser pore structure, the end product becomes
more durable and resistant to chemicals and water penetration. As such, the
Novacrete Admixture causes cement to chemically react in a manner that
ultimately produces higher compressive, bonding, flexural and tensile strengths,
reduces shrinkage, increases workability and, most importantly, because of its
dense pore structure results in a product having a higher resistance to
penetration of water and chloride ions from de-icing salts.
Upon acquiring the technology in 1995, the Company's initial plan was to conduct
further research and development of the Novacrete Admixture with the intention
of marketing the Novacrete Admixture and a line of pre-packaged concrete repair
products using the Novacrete Admixture. In the two and one-half year period from
August 15, 1995 through November, 1997 the Company underwent a series of
management changes, generated no revenues, incurred an accumulated deficit of
approximately $3,000,000 and was still in the early development stage.
On November 17, 1997, the Company made a major change in its business plan which
has resulted in significant advancements in all aspects of the Company's
operations. With the implementation of a 60 Day Business Development Plan that
was announced in December, 1997, the Company's new management increased the
number and caliber of its board of directors and senior management, installed
industrial level manufacturing and packaging equipment and warehousing equipment
for raw materials and finished goods, refurbished its executive offices at its
operating plant, constructed an internal testing laboratory, opened its first
U.S. sales office in New Jersey and closed on a working capital financing for
$550,000. The result of this business plan allowed the Company to manufacture
and package its Novacrete products, execute a sales and marketing program in
Canada and the East Coast of the United States leading the Company to book its
first sale in April 1998 of pre-packaged Novacrete Repair Products. Since that
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time, the Company has developed and marketed a line of eight concrete repair
products that it markets under the Novacrete name.
In September 1998, the Company's wholly-owned subsidiary, Novex Systems
International, Ltd. ("Novex Canada") purchased all of the issued and outstanding
common stock of ARM PRO Inc. ("ARM PRO"), located in Ontario, Canada. Since
1986, ARM PRO has manufactured and marketed the trademarked FIBERFORCE line of
polypropylene fibres. Polypropylene fibres are blended into cementitious
products to provide secondary reinforcement and reduce cracking. As part of the
Company's overall plan to consolidate the operations of an acquired company to
realize greater operating efficiencies, and enable the Company to achieve its
targeted gross margin of 50% of net sales, the Company in December 1998 merged
the operations of ARM PRO into its Mississauga, Ontario operating facility and
closed ARM PRO's Teeswater, Ontario plant.
On March 25, 1999, the Company announced that it entered into a definitive
agreement with The Sherwin-Williams Company to purchase the Por-Rok business
unit which is located in Clifton, New Jersey. Por-Rok manufacturers a well-known
line of grouting and concrete patching products that are distributed nationally.
The acquisition was completed on August 13, 1999.
The Company believes that the Por-Rok product line is a natural extension of the
Company's line of concrete repair and flooring products that it markets under
the Novacrete name. By diversifying the array of products that the Company can
offer to end-users and to distributors of building materials it will increase
sales of all products since end-users prefer to use one manufacturer's products
in any given construction project and distributors generally prefer to stock an
expanded rather than a limited product line.
The Company is also engaged in discussions with two other manufacturers of
specialized building materials about the prospects of acquiring these two
companies and merging their two operations into Por-Rok's New Jersey facility.
At the time of this filing the discussions were ongoing and no material terms
were being considered. The Company anticipates that it will close at least two
more transactions in the next fiscal year to expand the array of products that
the Company offers and to increase its market share in the United States and in
Canada.
b. Financial Information About Industry Segments
On account of the Company's small size and limited product line as of the filing
of this Form 10-K, it does not presently account for its business operations in
separate industry segments. The assets, revenues and operating expenses are all
part of the Company's sole operation and are dedicated to one business segment
- --the manufacturing and marketing of the Novacrete Admixture, Novacrete repair
and flooring products and the Fiberforce line of synthetic fibers.
Based upon its current operations and its operating activity for the past three
fiscal years, the Company believes that its financial information is adequately
presented in its audited financial statements and is cross-referenced herein to
the Company's Consolidated Balance sheet and Consolidated Statements of
Operations appearing on pages F-3 and F-4, respectively.
Additionally, the financial information accounts only for sales derived from the
Arm Pro transaction since the date of the acquisition on September 16, 1999 and
the not the entire fiscal year of 1999. As such, the financial statements
exclude the sales of Fiberforce products in June, July and August of 1998, which
historically have been the three strongest months for sales of these products.
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c. Subsequent Events
In August, 1999, the Company acquired Por-Rok. Por-Rok manufacturers a line of
grouting and concrete patching products. The purchase price was $2.1 million and
was paid for in part from the funds derived from a secured term loan from Dime
Commercial Corp. in the amount of $890,000 and a revolving line of credit that
is secured by the accounts receivable and inventory generated by the Company
(excluding Novex Canada) in exchange for which the Company was required to issue
to Dime a warrant to purchase 233,365 warrants having an exercise price of $.25
per share and an exercise period commencing upon issuance and terminating in
September 2002. The balance of the purchase price was paid for with a secured
note in the amount of $1.3 million and 1 million shares of common stock.
d. The Company's Current Business Operation
The Company is engaged in the business of manufacturing and marketing premium
building product materials that fit into two categories. The first category
consists of a line of polypropylene concrete reinforcing fibers that are
marketed under the Fiberforce tradename and a proprietary cement-enhancing
admixture that the Company will be marketing under the tradename Novacrete.
These products are promoted directly to ready-mix and pre-cast concrete
manufacturers. The second category of products consists of a line of
pre-packaged concrete repair products that are marketed to contractors directly
and also to distributors of building material products. (See Company Products)
The Company currently has its executive offices at 67 Wall Street, Suite 2001,
New York, New York 10005. The Company's manufacturing operations are conducted
through its wholly-owned subsidiary, Novex Canada, in a leased 12,500 square
foot facility located at Mississauga, Ontario (20 minutes west of Toronto). This
operating facility is divided into the three areas: 2,500 square feet is
allocated to offices and a research laboratory; 4,000 square feet is dedicated
to the manufacturing of the Company's Novacrete line of cementitious concrete
repair products and the remaining 6,000 square feet is used to manufacture the
Fiberforce line of polypropylene fibers and for inventorying finished goods.
Until the Company acquires The Por-Rok Division, all manufacturing and
distribution of the Company's products will continue to be centralized in its
Novex Canada facility. To eliminate excessive shipping costs associated with
delivering small quantities of product, the Company sells larger quantities of
products (full truckload orders) to distributors that ultimately resell the
product into local markets. In addition, the Company has employed the use of a
public warehouse in New Jersey that warehouses and ships product on behalf of
the Company for a per diem handling charge. The Company will use public
warehouses in areas where the sales volume justifies the need to have product
readily available in a local market, but where there is not an established
distributor that stocks the Company's products. With the acquisition of Por-Rok
the New Jersey public warehouse will no longer be necessary.
The Company plans to expand its product line significantly over the next five
years by acquiring companies that manufacture and market compatible premium
building material products that have already gained an acceptable level of
market penetration. The building material industry is large and encompasses a
wide variety of products, services and equipment. The Company, however, is
interested in acquiring manufacturers of premium flooring and concrete repair
products and related accessory products, and cement enhancing admixtures for
concrete. These types of products command higher margins since they are not
commodity products and are principally sold based on the product's added-value.
Because these products are usually made and packaged in either a
fully-integrated or, in some instances, a semi-integrated manufacturing
facility, large volumes of product can
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be produced in short-time periods and with minimal amounts of labor.
The consolidation strategy is designed to reap the cost reductions afforded by
the elimination of excess facilities and overhead, and to build a full service
specialty product line associated with one-stop shopping, which professional
contractors have come to prefer for convenience, product compatibility and
liability reasons.
e. The Classification of Building Materials
Building material products are classified in accordance with standardized
performance criteria established by the American Society of Testing Materials
(ASTM). The basic performance characteristics that are considered when
classifying the types of building products that the Company sells are:
(1) Compressive strength
(2) Flexural strength (flexibility)
(3) Tensile strength (splitting)
(4) Bonding strength (adherence)
(5) Shrinkage
(6) Resistance to water penetration
(7) Durability in freeze/thaw cycles
The Company has a research laboratory located in its Novex Canada facility, and
a full-time cement chemist that oversees the development of new products and
performs the technical analysis on products that the Company may acquire.
The Company follows a standard format for developing new building material
products. The initial step in the development of a building product entails an
analysis of the market for a product and the cost to manufacture the product. If
the market for a product and the cost to manufacture it are acceptable, the
Company's laboratory personnel develop a trial formulation for the product. Once
a trial formulation has been developed, a sample of the product is given to a
qualified independent testing laboratory, and the above 7 properties, among
others, are tested pursuant to established ASTM guidelines.
Standard testing generally requires the recording of the above properties at
1,3,7, and 28 day intervals from the beginning of the test. Early test results
are monitored to determine certain performance criteria, such as a product's
compressive strength within 24 to 72 hours after it has been installed. This
result is particularly important to end-users that need products that will be
used to repair areas that have little down time, such as hospitals, gas
stations, parking garages and other 24 hour operations. Higher strengths over
time are important where load bearing floor areas are involved, or in areas that
are exposed to aggressive industrial environments, like waste hauling stations.
If the 1-3-7-28 day results are acceptable, a full batch of the product is made
and samples of the product are generally given to contractors to use the product
on small job sites to observe the product's performance under non-laboratory
conditions. If the 1-3-7-28 day results are unacceptable, or the field trials
fail, the trial formulation is reworked and resubmitted for further laboratory
testing. In instances where only a slight modification to the product's
formulation is required, the need for additional laboratory testing may be
unnecessary. If the field trials are acceptable, technical data sheets, package
design and marketing materials are finalized and the product is then ready for
market.
The ASTM laboratory test results are an important validation of a product's
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performance capabilities. However, until a product has performed satisfactorily
in a number of projects, end-users are reluctant to use a product. The cost to
correct a project on account of a product failing and the resulting damage to
the reputation of the professional contractor or the specifying architect or
engineer are the underlying reasons for this resistance. The Company's products
have successfully passed these laboratory tests and have just commenced sales.
However, by selling these products in conjunction with Por Rok's
well-established product lines will help the Company to overcome this
resistance.
Accordingly, although the Company has been selling its line of concrete repair
products under the tradename Novacrete, the Company may consider marketing these
products in the future under the name of either Por-Rok or one of the other
tradenames owned by Por-Rok.
f. Marketing Organization
The Company currently has two full-time salespersons who are located in New
Jersey and Mississauga, Ontario, respectively, and four manufacturers'
representatives, three of whom are located in various regions of the eastern
part of the United States and one of whom is located in the Canadian province of
Alberta. The Company is in the process of hiring another full-time salesperson
in Canada to specialize in sales of the Novacrete and Por-Rok products, since
the other salesperson is principally focused on sales of Fiberforce fibers.
With the acquisition of Por-Rok, the Company will inherit eleven new
manufacturers' representative organizations that comprise 25 sales persons that
will give the Company coverage in all eastern states and as far west as North
Dakota. (See Manufacturing and Distribution)
g. Manufacturing and Distribution
The Company manufactures and distributes all of its products from its Novex
Canada operating facility. This facility has the annual capacity on a single
shift basis to produce 11,000,000 lbs. of Novacrete product and approximately
750,000 lbs. of Fiberforce product.
With the acquisition of the Por-Rok Division the manufacturing of Novacrete
products will be transferred to the Por-Rok facility. This fully-integrated
blending and packaging facility is already packaging products for distribution
through building supply yards and retail outlets in packages ranging from 1 and
5lb. plastic containers to 50lb. bags and pails, and will have the capacity to
produce over 24,000,000 lbs. on a single shift basis. This will become the
Company's distribution center for eastern United States.
The Company has two full-time salespersons and six manufacturer's
representatives that market the Company's products. With the acquisition of
Por-Rok the Company will acquire eleven more manufacturer's representatives.
Based on the territories that these individuals are presently covering the
Company would have the personnel to effectively service the following areas of
the United States and Canada:
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New England Region
Maine Massachusetts
New Hampshire Connecticut
Vermont Rhode Island
New York/Philadelphia Region
New York Delaware
New Jersey Maryland
Pennsylvania Washington, D.C.
Midwest Region
Iowa North Dakota
Indiana South Dakota
Michigan Iowa
Illinois Nebraska
Wisconsin Kansas
Minnesota
Southeast Region
Missouri North Carolina
Arkansas South Carolina
Mississippi Tennessee
Louisiana Alabama
West Virginia Georgia
Virginia Florida
Kentucky
Canada Distribution
Western Canada Eastern Canada
Manitoba Ontario
Saskatchewan Quebec
Alberta
British Columbia
h. A Brief History of the Admixture Technology
The Company's NovaCrete products resulted from its search for a way to
strengthen cement-based products without the addition of polymers. The cement
chemist that invented the Company's admixture formula intended to develop a
purely cementitious product that would equal the performance characteristics of
polymer-based products, but which would be significantly cheaper to manufacture.
Over the past four years, the Company has expended considerable resources to
develop its proprietary cement-enhancing admixture into a commercially viable
product. In this period, the Company has employed the services of two of
Canada's largest independent testing laboratories and has worked with a
well-known New Jersey-based laboratory to conduct field trials using the
admixture in concrete.
To date, the Company has successfully developed a version of its admixture
technology that can be used in formulations for concrete repair products to
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enhance the compressive, bond and flexural strengths of the product and increase
the density of the molecular matrix of the product so that is can resist the
penetration of erosive elements like water and deicing salts.
The Company is still developing a final formulation of its admixture technology
that can be used in new concrete. The Company conducted extensive field trials
last Fall with a large ready-mix concrete producer and achieved very promising
results regarding the admixture's ability to increase the strength of concrete.
Additional laboratory work and field trials will be required to make the
admixture product acceptable to the industry and cost effective for ready-mix
producers.
Although the Company can manufacture and distribute its final admixture product
for concrete in various sizes ranging from 25lb. bags to bulk packages weighing
2,000lbs., it is strongly considering licensing the completed admixture
formulation for concrete to a major chemical company that markets products to
concrete producers. Most large chemical companies that service the ready-mix
industry have the necessary equipment to transport the chemicals and load them
into bulk containers (silos) at ready-mix plants. In addition, many of these
companies actually loan dispensing equipment to ready-mix producers to eliminate
any complications with respect to loading the chemicals into a concrete truck.
By licensing the admixture technology for new concrete to a large chemical
company the Company will eliminate most, if not all of the transportation and
dispensing complications associated with marketing chemicals to ready-mix
concrete producers.
i. Market Trends for Performance Enhancing Admixtures and Building
Materials
The demand for high performance concrete and concrete repair products is growing
at a dramatic pace. The catalyst for the increased use of admixtures and the
need for higher performance products stems from the increasingly rigorous
specifications for new construction and concrete rehabilitation work. Federal
and state departments of transportation are increasing the performance standards
that need to be met in new construction and for the repair and rehabilitation of
roads and bridges in order to expand the life of the structures and to reduce
future maintenance.
Infrastructure in both developed and developing countries is aging, and
governments with stringent fiscal constraints are looking for effective and
durable alternatives to costly demolition and rebuilding. Repairs relating to
natural disasters are also adding to this demand. Other special applications,
including the storage of nuclear and hazardous waste, the shielding of workers
in nuclear medicine and radiology, and the disposal of chemical and other
hazardous wastes, are creating demand for high performance products.
A study by the Freedonia group estimates that the market for
performance-enhancing additives for cementitious products will grow 8.2%
annually, and reach $850 million in the U.S. alone by the Year 2000. At that
time the value of world-wide markets for these products will exceed $2
billion.(1)
The growth will be based in part on expected increases in infrastructure and
major construction spending. But it will also be driven by the increased use of
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(1) Freedonia Group Study reported in Construction Marketing Today, April,
1997.
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admixtures in all types of cement, and concrete and "the growing popularity of
value-added proprietary admixture products in place of lower-cost generics."(2)
Markets for new concrete reflect a similar trend toward high performance
concerns. High performance is also required in various specialty niches, such as
fast-setting products for road repairs and other commercial applications where
the cost of shutdown is very high, and impermeable products for hazardous waste
disposal and radiation shielding for nuclear applications, to name a couple of
examples. With increasing environmental awareness, communities are now demanding
products that are safe to use and non-toxic.
The market for concrete and masonry products has been increasing substantially
in the United States. With the federally-funded Transportation Equity Act of the
21st Century (TEA 21) having been signed into law last year approximately $216
billion. will be spent over the next six year period, 1998-2003, where up to
$173 billion is provided for highways and an additional $41 billion for transit
projects. This bill increases the level of highway funding by over 30% when
compared to the previous Federal highway bill, the Intermodal Surface
Transportation Efficiency Act (ISTEA). Approximately $19.5 billion was
programmed for federal highway spending under ISTEA. ISTEA was augmented by the
1995 National Highway System Act that provided for an additional $5.2 billion in
funding. In addition, TEA 21 provides that the revenues generated from the 4.3
cents per gallon gas tax now be deposited into the Highway Trust Fund to be
spent for the intended purposes, the construction and rehabilitation of highways
and bridges.
In addition, with low interest rates and low inflation, and increasing market
prices for residential and commercial real estate, the development of new
residential and commercial units and the rehabilitation of existing structures
is expected to continue over the foreseeable future.
The United States and Canada are not the only geographic areas engaged in
significant infrastructure spending. Concrete structures -- buildings, bridges,
highways, dams -- all over the world are in need of repair. Stringent government
capital budgets inhibit replacement of all structures. Municipalities are
continually searching for ways to extend the useful life of these structures
through patching, refinishing, and protecting the existing work. The world-wide
market for cement-based products to repair concrete structures is projected to
be close to as high as $100 billion per year. The additive component of this
market is conservatively estimated at more than 2% or $2 billion.(3)
j. Competition
The industry for building material products is highly fragmented and has various
classes of competitors. Competition ranges from large multi-national companies
to local manufacturers. Because the transportation of heavy products like
building materials involves sizeable shipping costs, hundreds of manufacturers
of building products have been able to sustain market share in local markets,
thus resulting in a fragmented industry. The Company would like to capitalize on
this opportunity by acquiring selected companies in various regions of North
America to gain: (I) premium building products, (ii) market share, and (iii) the
- --------
(2) Freedonia Group Study reported in Construction Marketing Today, April,
1997.
(3) Based on Statistics Canada Report.
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opportunity to consolidate into certain selected operating facilities a number
of acquired companies, thereby eliminating excess overhead prevalent throughout
the industry. Until the Company can effect its business strategy, which will
eliminate some competition, at least in certain markets, the Company believes
the following companies will be its primary competitors.
Brand Major Competitors
Por-Rok Conspec
Anchoring Cement Custom Builders
Master Builders
Quikcrete
Sonneborn
Sternson
W.R. Meadows
ChemMasters
Rockite
C.G.M.
Super Por-Rok (Same as above)
Exterior Anchoring
Cement
Por-Rok (Same as above)
Aqua Plug
Por-Rok (Same as above)
Concrete Patch
Por-Rok Mapei
Halco Grout
Por-Rok Mascrete
Lev-L-Astic WW Henry
Dependable
Mapei
Dap
Por-Rok Dependable
Dash Patch Mascrete
WW Henry
CGM Underlayment
Taylor Vitrex
Umasco
All Novacrete Products Sika
Masterbuilders
Mapei
Dayton-Richmond
All Fiberforce Products Pro Mesh
Fibermesh
Forta
Dura-Fiber
Euclid
W. R. Grace
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k. Product Description - Novacrete Admixture
The admixture and concrete repair product businesses are well-established
throughout the world. There are various types of admixture products that are
used in construction products and the applications for these admixtures are
extensive. The Novacrete Admixture is a non-metallic, powder-based admixture
that consists of various raw materials that when combined together and mixed
with cement and water provides a chemical reaction which gives the final product
increased compressive and flexural strength, reduced shrinkage, greater density
and therefore better resistance to water and deicing salt penetration, greater
flow and workability and improves the bonding characteristics and setting time
for the product to fully-cure.
The Novacrete Admixture has the physical characteristics of a greyish-white
powder. Admixtures can be in powder form or liquid and can be used for multiple
or limited purposes such as slowing or increasing the setting time for a
product. Because of the reactive effect of the raw materials in the Novacrete
Admixture, the Novacrete Admixture should only be incorporated into cement-based
products where the other materials in the product are known and generally, only
after a sample test has been conducted to determine the appropriate level
(dosage rate) of Novacrete Admixture that should be used in the final product.
This approach substantially reduces the risk of improperly mixing the Novacrete
Admixture with chemically adverse substances that could cause product failure.
The Novacrete Admixture is manufactured at the Company's wholly-owned operating
subsidiary, Novacrete Canada, and is directly marketed by the Company's sales
personnel in 22lb. bags or in bulk quantities to end-users, which range from
manufacturers of cementitious products such as ready-mix concrete, pre-cast
concrete, brick, paver, cinder block and other manufacturers of cement-based
pre-packaged products. The Company also blends another admixture, synthetic
polypropylene fibres, into its Novacrete MPR concrete repair products.
Polypropylene fibres provide secondary-reinforcement to cement-based products
and help reduce internal cracking (map cracking) of a product that derives from
the heat that is created within a cementitious product during the hydration
process.
Upon the completion of its research and development program on the Novacrete
Admixture, and assuming the test results support the use of the admixture in
industry applications that require the use of high-performance concrete (HPC),
the Company will seek to implement a marketing strategy to penetrate the market
for HPC. HPC can be defined as concrete that has high compressive and flexural
strengths and high resistance to chloride and water penetration. Use of HPC is
increasing as federal and state agencies demand greater product life and
ultimate product strength for high-end uses such as roads, bridges, dams, ports
and other concrete applications that have exceptionally high load bearing
requirements like building foundations, parking garages and bridge decks.
l. Products
As of the filing of this Form 10-K, the following is a list of the Por-Rok,
Novacrete and Fiberforce products marketed by the Company:
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POR-ROK PRODUCTS (A Line of Grouts and Patching Products)
POR-ROK Anchoring Cement - non-shrink expansion cement that requires only water
at the job site to create a pourable, yet durable, anchoring, patching or
grouting compound.
SUPER POR-ROK Exterior Anchoring Cement - non-shrink expansion cement for
exterior applications that requires only water at the jobsite to create
exceptionally high early strengths in the first three days from installation.
POR-ROK Halco Grout - contains expansive agents and flow enhancers to provide
high strengths yet exceptional flowability for ease of application.
POR-ROK Aqua Plug - durable water resistant hydraulic cement which sets in 3-5
minutes. Designed to stop leaks or running water, patch cracks and fill holes in
masonry surfaces. Can be used in interior and exterior surfaces and sets under
water.
POR-ROK Concrete Patch - requires only mixing of water at jobsite, will level or
smooth most concrete or masonry surfaces and can be used to repair and patch
spalled concrete, cracks in masonry, broken steps and porches. Sets in 40-80
minutes and is stronger than ordinary concrete. Can be used in interior and
exterior surfaces.
POR-ROK Dash Patch - powder-based product that when mixed with water bonds well
to concrete, wood or plaster that is used to smooth surfaces prior to the
placement of tile, carpeting or wood. Fills cracks, ruts and score lines, strong
bond adhesion and no shrinkage.
POR-ROK Lev-L-Astic - used as an underlayment over concrete, wood, quarry tile,
terrazzo, prior to installing asphalt or vinyl asbestos, tile, linoleum, and
other types of floor surfaces. Eliminates the need for felt paper over wood
surfaces, eliminates high spots on floor, improves bonding base to new tile and
linoleum.
NOVACRETE PRODUCTS
ADMIXTURES
Novacrete Adment 77-A (Novacrete Admixture formulation)
STRUCTURAL MORTARS
Novacrete MP - single component, non-shrink, high performance multi-purpose
concrete and masonry restoration mortar
Novacrete MPR - single component, synthetic fibre-reinforced, non-shrink, high
performance structural repair mortar
Novacrete FC - single component, fast-cure, non-shrink, high bond repair mortar
capable of achieving 3,480 psi in four hours. FC can be walked upon in a little
less than one hour from installation and driven over within two hours of
installation.
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FLOORING SYSTEMS
Novacrete DURATOP - single component, aggregate filled, trowel applied,
heavy-duty floor topping to provide abrasion and chemical resistance in
aggressive service environments.
Novacrete FLOOR UNDERLAYMENT - single component, self-leveling, flooring
underlayment designed for ease of installation and to provide a smooth covering
over a deteriorated floor surface to enable tile, linoleum or carpeting to be
applied to the underlayment for smooth even finish.
FIBERFORCE PRODUCTS - All Fiberforce products are made from polypropylene and
are cut into various lengths and shapes. The Company currently manufacturers
three types of fibers which are categorized as monofilament, fibrillated and
Fiberforce #1. All fiber products are packaged in 1.0, 1.5 and 2.0 lb. bags and
are promoted to the ready-mix concrete industry and are designed to reduce
cracking and provide secondary reinforcement.
m. Raw Materials
An important aspect of the Company's business is having an adequate supply of
raw materials. The raw materials used in manufacturing the Novacrete Admixture,
the Novacrete Repair, Fiberforce, and the Por-Rok products are available in the
United States and Canada. The Company currently purchases most of its raw
materials from five principal suppliers located in Canada and has access to
numerous suppliers in the United States. The raw materials are purchased on an
as needed basis and at market prices at the time of purchase. The Company does
not anticipate that the prices and supplies of the raw materials will fluctuate
substantially since the majority of the raw materials are commodity items such
as sands and cement. The Company currently owns a substantial supply of the main
component of its Novacrete Admixture that its warehouses in its Mississauga
facility and in a public commercial warehouse.
n. Intellectual Property Rights
The Company does not have patents on any of its technology or its products. The
Company received a certificate of registration for the use of the trademark
Novacrete from the Canadian Intellectual Property Office on June 15, 1997. The
Certificate remains in effect until June 5, 2012 and can be renewed by the
Company. On March 3, 1998, the Company received a Certificate of trademark
Registration No. 2,140,062 to use the trademark Novacrete in the United States.
The term of the U.S. trademark registration is for ten years.
With the Company's acquisition of Por-Rok in August 1999, the Company acquired
the registered tradenames for all Por-Rok products currently being produced.
The Company has not filed an application for a patent on its proprietary
technology. The Company believes that the Por-Rok tradenames and trademark of
its brand name, Novacrete and Fiberforce will be more useful in the
commercialization of its products. The core technology that is used in each of
the Company's products is not easily replicated and if patented will ultimately
become public information. The Company has developed internal controls to
protect the confidentiality of its technology and does not believe that the lack
of legal patent protection will impair its ability to effectively compete with
other competitors of like products or cause the Company to incur unnecessary
risk of loss of the technology.
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Since the Company owns the trademark, Novacrete, for fourteen and ten years,
respectively, in Canada and the United States, with each country allowing for
additional extensions of time, the Company believes that it will have ample time
to establish brand recognition of the Novacrete name and product line. Even if
the Company had patent protection over its technology, it still assumes the risk
that a competitor may misappropriate the technology and that its only recourse
would be to commence costly and time consuming litigation. The existence or
absence of a patent poses no commercial disadvantage to marketing the Novacrete
products.
o. Seasonality
As part of the construction business, the Company is currently subject to
seasonal cycles which results in a major slow down in its operations during the
months of November through February. March begins the increase in business
activity which continues through November, with the peak sales months being
April through September. This seasonal cycle is attributable to the slowdown in
outdoor construction activity in Canada and the northeastern portion of the
United States during the winter months. On account of the Company's current
operating status it will be subject to the seasonal effects of the winter
months, however the Company has already begun to recruit agents to sell its
products in the southeastern portion of the U.S. and will engage in a very
active recruiting program to enroll agents in this territory.
p. Working Capital Requirements
Since the Company's principal market for the foreseeable future will consist of
the seven southern provinces of Canada and the East Coast of the United States
it will experience cash flow fluctuations that will track the seasonal
fluctuations in the Company's business due to the construction slowdown in the
winter months. From March to October the Company will experience its highest
level of working capital requirements to sustain higher levels of inventory to
meet the anticipated demand for finished products during these months. With the
slowdown of construction in the winter months the Company anticipates it will
generally require less than two-thirds of the amount of working capital, since
sales will likely decrease to this level of average monthly sales in the peak
months. For the period ending May 31, 1999 the Company experienced a fluctuation
in its working capital requirements since it was just emerging from the
development stage and only owned the Fiberforce product line for two months
prior to the winter slowdown period. However, for the fiscal year ending May 31,
2000, the Company will be much less likely to experience a fluctuation in its
working capital requirements to finance its operations on account of the less
seasonal nature of the Por-Rok products and the $750,000 revolving line of
credit that the Company now has with Dime Commercial Corp. To offset its working
capital demands in 1999, the Company secured a $250,000 bridge loan from a
shareholder to cover the cash shortfall and entered into a factoring agreement
with Montcap Financial Corporation which also provided the Company with $70,000
advance that is secured by substantially all assets of the Company's subsidiary.
In the fiscal year 1999 the net cash used in the Company's operations was
approximately $1.0 million. The amount was needed to fund the Company's
expansion of its operating facility and for operating expenses for: rent,
payroll, new operating equipment, raw materials, research and development,
professional fees and trade debts.
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To cover its working capital requirements in 1999, the Company sold a 10%
Debenture in February 1998 of $550,000. Had the Company not been able to sell
the debenture and notes to generate working capital it would have had a
substantial negative cash flow and would likely have had to formally reorganize
or cease its operations.
On September 4, 1998 the Company sold a 9% $800,000 Debenture that matures on
September 4, 2000 and a warrant to purchase 1,500,000 shares of common stock at
$.45 per share for a period expiring on September 4, 2000. From these proceeds
the Company used $610,000 to purchase ARM PRO and reserve the remaining $190,000
for working capital and transaction expenses. Upon closing the ARM PRO
transaction, pursuant to the definitive purchase agreement, ARM PRO was required
to have approximately $175,000 of cash, $100,000 in account receivable, $100,000
in inventory and total liabilities not to exceed $50,000.
Although the Company's general credit policy is to invoice customers on a thirty
day payment basis, to encourage customers to take larger volume orders it may in
limited circumstances allow for payment of an invoice in sixty days. In
addition, although invoices are stated as being due in thirty days, it is fairly
common practice in the construction products industry for contractor customers
to pay outstanding accounts payable over a 45-day period. This delay results
from the contractor having to submit invoices for work completed which includes
the cost of materials used on the project. Although the Company will be very
aggressive in allowing extending payment terms to customers where it will result
in additional sales of the Company's products, extended payment terms will
generally be discouraged.
q. Customer Dependence
On account of the Company having just started to sell its products during the
later part of this fiscal period it cannot be deemed as dependent upon a single
customer. In the future the Company will not be dependent on one customer since
its marketing strategy is to diversify its sales through major distributors that
are located in various geographical areas and to a large number of construction
professionals, such as engineers, architects, contractors, construction managers
and end-users all of whom will likely be involved in separate construction
projects. In addition the Fiberforce products are sold to various outlets none
of which account for more than 5% of Fiberforce product sales, and the Company
does not anticipate that any customer will account for ten percent or more of
its annual sales in the coming fiscal year.
r. No Backlog Orders
The Company does not have any backlog orders.
s. Government Contracts
The Company does not have any material contracts with the Government or any
government agency and therefore does not have any exposure to these types of
agreement.
t. Research and Development
In each of the past three fiscal years the Company has incurred expenses
relating to the research and development of its Novacrete Admixture and
Novacrete Repair Products. In fiscal year 1999, the Company spent
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approximately $30,000 on fees payable to outside independent testing
laboratories that were engaged to conduct various test procedures to improve the
Novacrete products and incurred approximately $60,000 in expenses for personnel
and laboratory equipment. In fiscal year 1998 the Company spent approximately
$40,000 on fees payable to outside testing laboratories to advance testing of
the Novacrete MP and Novacrete MPR products. Other than for a brief period in
1997 in which the Company employed the services of a cement technology
consultant for approximately three months, the Company did not have technical
personnel on staff from January, 1997 through February, 1998 to conduct research
and development on new products. In 1996, the Company spent less than $20,000 on
fees payable to outside testing laboratories to advance testing of the Novacrete
MP and an old formulation for a Novacrete Fast-Set product that the Company has
since abandoned and replaced with a new formulation that will be marketed under
the name Novacrete FC.
u. Environmental Compliance
The Company does not manufacture products or use raw materials in its products
that are deemed to be subject to rules or regulations relating to the discharge
of certain materials into the environment. Although the Company has installed a
compressed-air dust control system in its facility to maintain a higher quality
of air in its operating plant this system is not mandatory. The system cost the
Company approximately $20,000 and operates during the processing of certain
products that contain raw materials that have a very low density and have the
physical characteristics of dust-like particles.
As part of the Por-Rok acquisition, a Phase I Environmental Compliance Review
was conducted at Por-Rok's Clifton, New Jersey plant and no material findings
were reported.
With all shipment of product the Company issues a material safety and data sheet
(MSDS) which describes the product and its components and precautionary measures
when using the product. Since the Company's products are environmentally safe it
expects to expend a nominal percentage of its operating budget on environmental
compliance for the next fiscal year and for the foreseeable future, unless new
regulations are adopted by the governments of Canada or the United States.
v. Number of Employees
As of May 31, 1999, the Company, on a consolidated basis, employed ten full-time
employees. Of the ten employees, two were located in the Company's principal
executive offices in New York City, one was located at the Company's Cedar
Grove, New Jersey sales office and seven were located at the Company's operating
subsidiary, Novex Canada. Of the nine employees: four persons were in management
positions, three persons were in plant operations and two person occupied
administrative assistant positions. With the Por-Rok acquisition, the Company
will gain two management employees and five plant employees.
w. Financial Information About Foreign and Domestic Operations and Export
Sales.
Although the Company manufactured its products through a wholly-owned
operating subsidiary located in Canada it does not believe that it will be
subject to any material risks attendant with it being a foreign operation.
The Canadian government is stable and democratic and the Company does not
foresee any changing conditions that would adversely impact the Company. (See
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Financial Information about Industry Segments). To the contrary, with the
recent reduction of the Canadian dollars to the U.S. dollar the Company has
benefitted by preferential exchange rates and lower cost of operations.
x. The Company's Future Operations
Private Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information
included in this memorandum contain statements that are
forward-looking, such as statements relating to future
anticipated direction of the Company, plans for expansion,
corporate acquisitions, anticipated sales growth and capital
funding sources. Such forward-looking information involves
risks and uncertainties that could significantly affect
anticipated results in the future, and accordingly, such
results may even materially differ from those expressed in
any forward-looking statements made by or on behalf of the
Company.
Upon the closing of the Por-Rok transaction, the Company will transfer the
manufacturing of its Novacrete products from its Novex Canada operating facility
to Por-Rok's 25,000 square foot facility located in Clifton, New Jersey.
Por-Rok's fully-integrated manufacturing plant has the capacity to manufacture
approximately 2 million lbs. of product per month on a single shift, which
translates into roughly $8 million per annum in sales. Currently Por-Rok
manufacturers 5.5 million lbs. of product, or $1.8 million in revenues per
annum.
Por-Rok's facility consists of three buildings located on a 1.6 acre tract of
commercially-zoned land. The main building is 15,000 square feet, of which 3,000
square feet in dedicated to office space and a reception area and the remaining
12,000 square feet in allocated to the manufacturing of Por-Rok products and the
warehousing of certain raw materials. The majority of raw materials used at this
facility are stored in silos affixed to the roof of the building. Through an
automated raw material batching system that is controlled by a plant supervisor,
the raw materials are fed through the silo system and into mixing blenders. When
the raw materials have been blended into a finished product, the finished batch
is forced from the blender by compressed air into an automated packaging system
that packages the products into 50lb. bags. The bags are then manually stacked
onto wood pallets and are prepared for shipping. In addition, certain quantities
of the blended finished product are transported in large metal bins by a
forklift to another packaging system that packages the blended product into
1lb., 5lb., 7lb. and 50lb. pails. Most of the smaller quantity pails are then
repacked into cardboard boxes in quantities of 4-8 items per carton for
distribution to hardware and retail outlets.
The other two buildings at the Por-Rok facility are approximately 5,000 square
feet each and are used for warehousing supplies, raw materials and finished
goods. In addition, there is another 10,000 square feet of undeveloped land that
could be used to expand the manufacturing and warehousing capacity of the
Por-Rok facility.
By shifting the Novacrete product manufacturing to the Por-Rok facility, the
Company will have adequate space in its Novex Canada facility to inventory
Novacrete, Por-Rok and Fiberforce products for distribution throughout eastern
Canada. The Por-Rok facility will also be used to warehouse Fiberforce fiber
inventory that will be distributed in the United States. This arrangement will
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enable both facilities to serve as distribution centers for all Company products
and will allow for each facility and its personnel to specialize in the
manufacturing of select products.
y. Company's Plan to Increase Sales
Although an integral component of the Company's business plan and future growth
will be the acquisition of targeted companies and product lines in the building
materials industry, the Company's operating strategy will be to expand sales of
all its products. The Company will seek to expand its sales through a number of
initiatives each of which is discussed in detail in this section.
1. Systems Approach to Selling Building Materials
In 1998, the Company conducted extensive "hands-on" market research which has
become the underlying basis for the Company's "systems approach" to marketing
building materials. End-users prefer to purchase complete repair "kits" from one
manufacturer than to purchase isolated products from various manufacturers. To
serve end-users that desire to purchase products that are compatible,
distributors of building materials prefer to stock the products of manufacturers
that produce a full line of products that are intended to be used together.
Responding to market preferences, the Company's foremost goal this year will be
to grow and diversify the Company's product line. Growing through acquisitions
(versus solely by research and development) will shorten the time period needed
to achieve this goal, and will provide the Company with the advantage of
marketing compatible products that have already gained commercial acceptance.
An everyday concrete repair project, such as the worn floor of a large
industrial plant, could require a surface bonding agent, a very durable concrete
repair product, a floor hardener or smoother topping product, and possibly a
cure or sealing product to protect the installation from damage from water and
chemicals. The Company would like to be in the position to offer its customers
all of these products. They in turn, prefer to use products that are compatible
and are backed by the warranty of one manufacturer. By offering all the products
as a complete repair system under one warranty, the Company believes it will
increase both sales of all products and its ability to attract stocking
distributors that prefer to handle complete product lines.
2. One Label, One Store
The Company's One Label, One Store marketing program will be presented to all
distribution outlets that currently stock products offered by the Company and
Por-Rok.
"One Label, One Store" essentially means that the Company will be offering a
diversified line of products that can be used together under one warranty and
all of the Company's products will be available in most locations. One stop
shopping will benefit the customer and the distributor alike by eliminating the
customer's need to source products at various locations. By purchasing a wider
array of products from one manufacturer, distributors will be satisfying their
customers needs, eliminating the stocking logistics of using multiple vendors
and will obtain volume discounts.
This program will be offered to the 300+ outlets that distribute Por-Rok
products and to these new distributors and retail outlets that the Company will
be pursuing. In March, the Company first introduced the One Label, One Store
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program to The Home Depot and, at the initiation of Home Depot's headquarters,
the Company has had a second meet with the Northeastern USA Division
merchandising manager and has been approved to begin marketing its Fiberforce
line of products in five Home Depot stores in Ontario, Canada as soon as the
Company can complete a packaging design for retail distribution. The Company
currently packages its Fiberforce products in bags of 1lb. or larger for
distribution to ready-mix producers.
To gain early participation into the One Label,One Store program the Company
will: (i) offer early entry price discounts for distributors that purchase
additional products that the Company will be offering, (ii) arrange
pre-scheduled store visits to demonstrate the benefits of the new products to
the distributors' customers and employees, (iii) provide point-of-purchase (POP)
displays and other marketing materials to assist the distributors's sale of the
new products, and (iv) coordinate mailings of marketing pieces on the One Label,
One Store program to the distributors's customers.
3. Improve Por-Rok's Sales Organization.
Por-Rok currently markets its products by using the services of 11 manufacturing
representatives. There are no full-time sales personnel to coordinate the sales
and marketing function. The Company plans to dedicate one full-time sales person
to work with 11 manufacturer's representatives to adequately train them on the
Por-Rok and Novacrete product lines, along with other products that the Company
plans to acquire and develop internally, and to make personal calls to each
Por-Rok customer to promote the One Label, One Store program. In addition, the
local manufacturer's representative will be responsible for making periodic
follow-up calls to monitor the sales activity of the Por-Rok distribution
outlets in his territory.
In addition, the Company plans to advertise its product line (including Por-Rok
products) in trade journals and at trade shows.
4. Architect and Engineering Representative
The Company plans to hire a technical salesperson to coordinate the introduction
of the Company's products to architects, engineers and contractors that write
specifications for construction projects. Having its products "speced" into a
job will create product demand in that the contractor that is awarded the
project is required to use the specified product. In addition, as the Company's
products begin to appear in construction project specifications, distributors
will become more interested in stocking the Company's products as the demand for
the products becomes established.
In addition, the Company plans to hire a full-time sales person in Canada and
engage the services of one or two more manufacturing representatives to cover
the territory consisting of Eastern Canada. The Company currently uses a
manufacturers' representative located in the Province of Alberta to cover the
Western provinces of Canada, principally Alberta.
5. Future Acquisitions
The Company is currently considering the acquisition of companies that would
expand the Company's product line into specialized flooring and concrete repair
products, cures and seals, moisture protection products, specialized industrial
grouts, bonding agents, and other accessory products.
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6. New Retail Channels
As part of the Company's efforts to expand sales of products in all possible
distribution channels, the Company will work aggressively to expand Por-Rok's
existing retail base by offering promotional discounts to other regional
hardware outlets and purchasing cooperatives along with "big-box" stores like
Home Depot and Lowe's.
7. Performance Based Compensation
The Company will increase the performance-based compensation of the 11
manufacturers' representative organizations that it will acquire with Por-Rok.
By increasing the actual percentage of sales that will be paid to sales
personnel as commissions and by offering them the opportunity to participate in
other performance-based compensation the Company believes it will be offering
the incentives needed to motivate its sales force and reduce attrition by
develop long-term relationships with these individuals.
Item 2. Properties
The Company's principal executive offices are located at 67 Wall Street, Suite
2001, New York, New York 10005, 212-825-9292, pursuant to a sublease that the
Company has entered into with Dowe, Capetankis and Priete the primary tenant and
a law firm in which Janet L. Dowe, spouse of Daniel W. Dowe is a partner. Mr.
Dowe has no affiliation with the firm or any duties to the firm.
The Company's subsidiary, Novex Systems International, Ltd.operates from a
facility housing its executive offices and a 12,500 square foot manufacturing
facility located at 2525 Tedlo Street, Unit B, Mississauga, Ontario, Canada L5A
4A8, 905-566-0716. This facility is subject to a five year lease commencing on
May 1, 1997 and expiring on April 30, 2002. The annual lease payments are
$62,500 (CDN).
Upon the closing of The Sherwin-Williams Transaction, the Company will own all
the real property, buildings and personal property being located 16 Cherry
Street, Clifton, New Jersey 07014, 973-777-2307. The real property consists of a
1.58 acre tract of land with three separate buildings consisting approximately
of 15,000, 6,000 and 5,000 square feet, respectively.
In June, 1998 the Company entered into a lease agreement to lease offices
located at 98 Sand Park Road, Cedar Grove, New Jersey, March, for a monthly sum
of $500, 973-571-0930. This lease was on a month-to-month basis and expired in
August 1999 at which time the Company acquired the Por-Rok facility in Clifton,
New Jersey, and relocated its Cedar Grove office to Clifton.
Item 3. Legal Proceedings
On August 12, 1997, a shareholder, Mel Greenspoon, commenced an action against
the Company and its former President, Mr. A. Roy MacMillan, to enjoin the
Company and Mr. MacMillan from taking any action that would restrict the sale
of common stock that he allegedly owns. The Company has raised several defenses
to this action and believes the lawsuit is without merit. Mel Greenspoon vs.
Stratford Acquisition Corporation, et. al., Ontario Court (General Division),
Index No. 97-CV-126814.
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Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders that was held on April 29, 1999, the
following proposals were submitted to a vote of the shareholders and approved by
the requisite number of votes.
I. THE ELECTION OF DIRECTORS:
Nominees Term
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Class 1: Edward J. Malloy 1
Class 2: William K. Lavin 2
Class 3: Daniel W. Dowe 3
Douglas S. Friedenberg 3
II. A proposal to change the name of the Company from Stratford Acquisition
Corp. to Novex Systems International, Inc.
III. Proposals to adopt various amendments to the Company's Articles of
Incorporation:
A. authorizing the Board of Directors to issue preferred stock.
B. authorizing the Board of Directors or 75% of the outstanding shares to
amend the By-Laws of the Company;
C. authorizing the Chairman of the Board or the Secretary within 10 days
of receipt of a written request from a majority of the Board of
Directors to call a special meeting of shareholders;
D. authorizing the Board of Directors to increase to no more than twelve
or decrease to no less than three the number of directors of the
Company and to establish a classified board of directors;
E. permitting 75% of the outstanding shares to remove a director for
cause only and only at an annual or special meeting of shareholders
called for that purpose;
F. authorizing the Company to limit the personal liability of directors
to the maximum extent permitted by law;
G. authorizing the Company to indemnify the officers, directors,
employees and agents of the Company to the maximum extent permitted by
law; and
H. requiring the affirmative vote of 75% of all outstanding shares to
make, amend or repeal any provision in the Articles of Incorporation
relating to any of the foregoing proposed resolutions which are
adopted at the meeting.
IV. A proposal to redomesticate the Company from the State of Minnesota to the
State of New York by way of a merger of the Company into its wholly-owned
subsidiary, Novex Systems International, Inc.
V. A proposal to approve and ratify the appointment of Feldman Sherb Ehrlich &
Co., P.C. (now known as Feldman Sherb Horowitz & Co., P.C.) as the
Company's independent auditors.
22
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock, $.001 par value, is traded on the Over-the-Counter
Bulletin Board ("OTC") operated by the National Association of Securities
Dealers under the ticker symbol HARD. The tables present the high and low
closing bid prices for each of the four quarters in the fiscal year ending May
31, 1999. The quotations reflect interdealer prices without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
The Company's common stock became actively traded in July, 1995. On May 31,
1999, the closing bid price was $.20. The Company has paid no cash dividends in
the fiscal year ended May 31, 1999 and does not expect to change its dividend
policy in the foreseeable future.
Quarterly Common Stock Bid Price Ranges
Quarter High Low Last Day of Quarter
- ------- ---- ---
1st $.50 $.27 August 31, 1998
2nd $.36 $.19 November 30, 1998
3rd $.20 $.13 February 28, 1999
4th $.38 $.13 May 31, 1999
Quarter High Low Last Day of Quarter
- ------- ---- ---
1st $.43 $.24 August 31, 1997
2nd $.52 $.25 November 30, 1997
3rd $.28 $.19 February 28, 1998
4th $.77 $.20 May 31, 1998
The number of shares of common stock issued and outstanding as of May 31, 1999
and May 31, 1998 were 15,250,771 and 11,965,646, respectively. On a fully
diluted basis, the number of shares of common stock issued and outstanding on
May 31, 1999 was 20,918,047. The Company has approximately 1,200 shareholders
holding stock in record and nominee name.
23
<PAGE>
Item 6. Selected Financial Data
This table should be read in conjunction with the consolidated financial
statements and Management's Discussion and Analysis of Finanical Condition and
Results of Operations, provided elsewhere herein.
Year End May 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Net Sales(4): $321,311 $9,073 $0
Loss from
operations: ($1,181,253) ($ 995,653) ($2,288,031)
Net loss from
operations
per weighted-average
share of common stock
outstanding: ($.10) ($.10) (.24)
Total Assets: $656,058 $318,540 $219,533
Long-Term Obligations: $772,582 $0 $315,000
Cash Dividends: $0 $0 $0
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1999 vs. 1998
The fiscal year ending May 31, 1999 was the first year in which the Company was
not in the development stage for the entire year. In addition, the Company
closed one acquisition, Arm Pro, Inc., and signed another contract to purchase
Por-Rok which transaction closed after the fiscal year on August 13, 1999. In
this past year the Company generated $321,311 in Net sales which excludes
Fiberforce sales during the first quarter, which is the strongest period for
fiber sales, on account of the acquisition having closed on September 16, 1998.
The Company generated a loss from operations of $1,181,253 of which $122,315 was
attributable to non-cash stock compensation.
As the operating analysis indicates the Company has formally emerged from the
development stage but was still required to rely on funds from external sources
to cover its cash shortfall from operations. To maintain a positive cash balance
the Company upon the acquisition of Arm Pro, Inc.'s common stock, the Company
acquired assets that included the bank accounts owned by Arm Pro which had a
balance of $158,000 at the closing. This cash, along with the $175,000 balance
from the $800,000 debenture that was sold to purchase Arm Pro, Inc. for
$610,000, plus transaction expenses, was used to fund the Company's operations.
To cut costs the employment of four persons having occupied administrative and
sales positions were terminated. The increase in general and administrative
costs of approximately $400,000 is primarily due to the ArmPro acquisition.
In the 1999 fiscal period, other than for approximately $75,000 derived from
sales of Novacrete products, sales were generated from the Company's Fiberforce
line of products. Despite the lower than expected level of sales in what was
- --------
(4) The Company was in the development stage until Spring 1998.
24
<PAGE>
first post-development stage year of operation for NovaCrete products, the
Company did exceed its targeted gross margin of 60% of net sales by generating a
65% gross margin, or $208,006 on sales of $321,311.
On May 31, 1999 the Company had $252,785 in current assets and $80,914 of
property and equipment and goodwill of $316,300. The increase in good will was
attributable to the excess of the purchase price for Arm Pro, Inc. over the net
assets acquired in the transaction.
As of May 31, 1999, the Company had $221,707 in inventory. Of this amount,
$113,288 consisted of raw materials, $3,217 consisted of work in progress and
$105,202 consisted of finished goods. A substantial amount of the raw material
inventory consists of the 600,000 lbs. of one raw material that is used in the
Novacrete Admixture. The finished goods inventory consists of 55lb. bags of
Novacrete Repair Products that are stacked on wood pallets with each pallet
containing 56 bags and bags of Fiberforce products that are packed in cardboard
boxes. In the increase in inventory from was primarily attributable to new
inventory of Fiberforce products and a build up of Novacrete products.
The Company had $1,579,444 in total liabilities at the end of the fiscal year
which was an increase of 119% over the prior year. The majority of the increase
in liabilities resulted from the Company's sale of an $800,000 note to acquire
Arm Pro, Inc. and a note for $250,000 that was sold to the holder of the
$800,000 note to provide additional working capital to the Company.
As part of the Por-Rok transaction, the holder of the $800,000 note agreed to
convert the principal amount of the note into common stock at $.17 per share.
The $250,000 working capital note was to be satisfied in full from the proceeds
of the $750,000 line of credit that the Company secured on August 13, 1999.
The increase in accounts payable and accrued expenses was directly attributable
to the Company's expansion of its operations in the current fiscal year.
As part of the Por-Rok transaction, the current portion of long-term debt of
$393,548 net of the $250,000 working capital note will be converted into common
stock. (See Subsequent Events.)
1998 vs. 1997
After the senior management change in November, 1997, the Company significantly
advanced its plans to move from the development stage to the operating stage. On
March 15, 1997 the Company officially began commercial levels of production of
its Novacrete products and recorded its first truckload shipment of product in
April, 1998, which was to a construction products distributor in Canada. In
addition in May, 1998, the Company sold its first truckload of product to a
distributor in the United States. As a result of this activity, which began just
two and one-half months prior to the close of this fiscal year the Company
recorded $9,073 in gross revenues for the one truckload sales that took place in
April. The truckload that was ordered in May was not shipped until early June
and appears as revenue in the first quarter of the 1999 fiscal year. Although
this increase in gross revenues represents a 100% increase over the operating
results in 1997, the percentage increase should be viewed in light of the fact
that the Company recorded $0 in gross revenue in the previous fiscal year and
had very little capability in the previous year to sell its products, although
it did have inventory for sale.
In 1998, the Company had $122,134 in inventory. Of this amount, $76,276
consisted of raw materials, $440 consisted of work in process and $45,418
consisted of finished goods. A substantial amount of the raw material inventory
consists of the 600,000 lbs. of one raw material that is used in the Novacrete
Admixture. The finished goods inventory consists of 55lb. bags of Novacrete
Repair Products that are stacked on wood pallets with each pallet containing 56
bags.
From June 1, 1997 to January, 1998 the Company's operations were funded through
sales of its common stock to affiliated and non-affiliated parties. In December,
1997, the Company under the direction of its current President and
25
<PAGE>
Chief Executive Officer announced a 60 Day Plan to advance the Company from the
development stage. In February, 1998, the Company sold a 10% $550,000 Debenture
that matured on October 31, 1998, to three non-affiliated persons who also
received warrants to purchase 1,100,000 share of common stock at the exercise
price of $.30 per share for a three year period. The proceeds of this debenture
were used principally to purchase the industrial blending and bagging equipment
that was installed in the Company's operating subsidiary in March 1998, to
renovate the Company's offices and for working capital to fund the Company's
operations until sales of its product could materialize.
Operating costs relating to general and administrative cost decreased from
$927,106 in 1997 to $810,516 in 1998 or 12% from the previous year. The decrease
in operating costs was attributable primarily to the reduction of personnel from
November, 1997 to February, 1998, when the Company began to increase its payroll
with new personnel and with better management of the Company's resources. In
addition non-cash costs attributable to the issuance of stock compensation
decreased substantially in 1998 to $180,405 when compared to the $1,360,580
incurred in 1997. The Company fully expects this trend to continue since new
management has terminated the stock option plan that was initiated in 1996 and
which resulted in the excessive issuance of common stock to insiders at below
market prices. In 1998, the Company incurred $17,548 of interest expenses versus
$12,917 in the previous year and $15,267 of foreign currency losses versus
$3,144 in the previous year. In addition the Company amortized debt discount of
$84,535 in 1998 which resulted from the issuance of warrants to holders of the
debenture that was sold in February, 1998.
The net result of operations increase in operating expenses over revenues
resulted in a loss from operations of $1,112,594 as compared to a loss from
operations of $2,303,778 in 1997.
On account of the changes that the Company made to expand and equip its
operating facility and to recruit experienced personnel to oversee the
technical, operational and marketing aspects of the Company's business and the
closing of the pending ARM PRO acquisition (See Subsequent Events) the Company
believes that the fiscal year ending May 31, 1999, could result in material
increases in revenue.
Liquidity and Financial Resources
The Company ended the 1999 fiscal year with nominal liquidity and a $1,181,253
in operating losses. However, since the Company has begun to sell its products
in commercial quantities to large distributors of construction products and to
ready-mix concrete producers it anticipates that it will have substantially
improved its liquidity from operations to cover its expenses. In addition, as
part of the Por-Rok acquisition the Company obtained a $750,000 secured line of
credit from Dime Commercial Corp. With the Por-Rok acquisition the Company will
also be acquiring a mature line of products having a historical level of sales
in the $2 million range, net income of $201,000 and positive cash flow of
$350,000. Based on the Company's targeted gross margin of 60% of net sales the
Company will need to generate approximately $3,000,000 of gross revenues to
break-even before interest and debt retirement. Although the Company
substantially under performed this level of sales in 1999, the Arm Pro, Inc. and
Por-Rok acquisitions along with the additional year of marketing the Novacrete
products are expected to significantly enhance the Company's prospects for sales
in 2000.
26
<PAGE>
In September, 1998 the Company sold a 9% $800,000 Debenture to an entity that
had purchased $500,000 of the Debenture that was sold by the Company in February
1998. The holder agreed to convert the principal amount of the $500,000
debenture which was due to mature on October 31, 1998 into the Company's common
stock at a rate equal to the average of the eleven lowest closing trading prices
during the month of October, 1998.
Of the $800,000 note, $610,000 was used to purchase ARM PRO Inc. The balance of
the proceeds was used for working capital, transaction expenses and primarily to
move the ARM PRO operations to the Company's Mississauga Canada facility.
In addition, Montcap Financial Corporation advanced to the Company's
wholly-owned subsidary $70,000 that is secured by substantially all the asests
of the Subsidiary. One director loaned the Company $145,000 in notes during the
summer of 1998 to assist with cashflow shortfalls prior to the Company's
acquisition of Arm Pro and the Company received a bridge loan of $250,000 during
February 1999. (See Footnotes to Financial Statements)
Inflation and Changing Prices
The Company does not foresee any risks associated with inflation or price
increases in the near future. In addition the raw materials that are used in the
manufacturing of the Company's products are available locally through many
sources and are generally commodity items. Because the Company's operations are
in Canada, the devaluation of the Canadian dollar against the U.S. dollar has
allowed the Company to manufacture its products less costly for the sales made
in the United States and that any funds raised through the sale of securities
are U.S. dollar denominated and then transferred to the Canadian subsidiary at
favorable exchange rates. As such, while the Company has exposure to inflation,
in the very near future it does not believe that inflation will bear
significantly on its financial position.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries to represent years in the date code field.
Computer systems and products that do not accept four-digit year entries will
need to be upgraded or replaced to accept four-digit entries to distinguish
years beginning with 2000 from prior years. Management is in the process of
becoming compliant with the Year 2000 requirements and believes that its
management information system will be compliant on a timely basis. The Company
currently does not anticipate that it will experience any material disruption to
its operations as a result of the failure of its management information system
to be Year 2000 compliant. There can be no assurance, however, that computer
systems operated by third parties, including customers, vendors, credit card
transaction processors, and financial institutions, with which the company's
management information system interface will continue to properly interface with
the company's system and will otherwise be compliant on a timely basis with Year
2000 requirements. The Company currently is developing a plan to evaluate the
Year 2000 compliance status of third parties with which its system interfaces.
Any failure of the Company's management information system or the systems of
third parties to timely achieve Year 2000 compliance could have a material
adverse effect on the company's business, financial condition, and operating
results. The Company has not yet established a contingency plan in the event
that it is unable to correct the Year 2000 problem.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Page
Index to Consolidated Financial Statements F-1
Independent Auditors Report F-2
Financial Statements:
Consolidated Balance Sheets as of May 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended F-4
May 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity F-5
(Deficiency) for the years ended May 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for years ended May 31, F-6
1999, 1998 and 1997
Notes to Consolidated Financial Statements F-7 - 21
Financial Statement Schedules
- -----------------------------
Schedule II - Valuation and Qualifying Accounts F-22
Schedules not listed above have been omitted because they are
not applicable or are not required or the information
required to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
27
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets
as of May 31, 1999 and 1998 F-3
Consolidated Statements of Operations
for the years ended May 31, 1999, 1998 and 1997 F-4
Consolidated Statement of Changes in Shareholders' Equity (Deficiency)
for the years ended May 31, 1999, 1998, and 1997 F-5
Consolidated Statements of Cash Flows
for the years ended May 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7-21
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts F-22
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Novex Systems International, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Novex Systems
International, Inc. and Subsidiary (Formerly Stratford Acquisition Corp. and
Subsidiary) as of May 31, 1999 and 1998 and the related consolidated statements
of operations, changes in shareholders' equity (deficiency) and cash flows for
the years ended May 31, 1999, 1998, and 1997. We have also audited the financial
statement schedule on page F-22. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Novex
Systems International, Inc. and Subsidiary (Formerly Stratford Acquisition Corp.
and Subsidiary) as of May 31, 1999 and 1998 and the consolidated results of its
operations, changes in shareholders' equity (deficiency) and cash flows for the
years ended May 31, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
/s/ Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
Certified Public Accountants
New York, New York
September 8, 1999
F-2
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,788 $ 49,108
Accounts receivable, net of allowance for doubtful 20,690 9,250
accounts of $890 in 1999 and $0 in 1998
Inventory 221,707 122,134
Other receivables -- 17,367
Prepaid expenses and other current assets 8,600 2,801
----------- -----------
Total Current Assets 252,785 200,660
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 80,914 106,598
GOODWILL, net of accumulated amortization 316,300 --
OTHER ASSETS 6,059 11,282
----------- -----------
$ 656,058 $ 318,540
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Due to factor $ 56,700 $ --
Current portion of long term debt 393,548 520,470
Accounts payable 241,424 84,968
Advances from shareholder -- 37,000
Accrued interest 63,729 17,515
Accrued expenses and other current liabilities 51,461 59,632
----------- -----------
Total Current Liabilities 806,862 719,585
----------- -----------
COMMITMENTS AND CONTINGENCIES
LONG TERM DEBT, net of current portion 772,582 --
SHAREHOLDERS' DEFICIENCY:
Common stock - $0.001 par value
50,000,000 shares authorized
15,250,771 and 11,965,646 shares
issued and outstanding, respectively 15,251 11,966
Additional paid-in capital 4,386,387 3,519,673
Accumulated deficit (5,325,024) (3,932,684)
----------- -----------
Total shareholders' deficiency (923,386) (401,045)
----------- -----------
$ 656,058 $ 318,540
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended May 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 321,311 $ 9,073 $ --
COST OF GOOD SOLD 113,305 -- --
------------ ------------ ------------
GROSS PROFIT 208,006 9,073 --
------------ ------------ ------------
OPERATING EXPENSES:
General and administrative costs 1,211,760 810,516 927,106
Depreciation and amortization 55,184 13,805 345
Stock compensation costs 122,315 180,405 1,360,580
------------ ------------ ------------
TOTAL OPERATING EXPENSES 1,389,259 1,004,726 2,288,031
------------ ------------ ------------
LOSS FROM OPERATIONS (1,181,253) (995,653) (2,288,031)
------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest income 335 409 314
Interest expense (82,730) (17,548) (12,917)
Stock issued for payment of interest expense (15,175) -- --
Amortization of debt discount (146,674) (84,535) --
Foreign currency gain (loss) 33,157 (15,267) (3,144)
------------ ------------ ------------
TOTAL NET OTHER EXPENSES (211,087) (116,941) (15,747)
------------ ------------ ------------
NET LOSS $ (1,392,340) $ (1,112,594) $ (2,303,778)
============ ============ ============
BASIC NET LOSS PER COMMON SHARE $ (0.10) $ (0.10) $ (0.24)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,720,171 11,472,508 9,590,212
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, May 31, 1996 7,801,950 $ 7,802 $ 975,494 $ (516,312) $ 466,984
Sale of common stock 1,513,500 1,514 266,015 -- 267,529
Issuance of common stock
for services 626,531 627 1,171,287 -- 1,171,914
Issuance of options
for services -- -- 128,666 -- 128,666
Issuance of common stock
for compensation 171,400 171 59,829 -- 60,000
Net loss -- -- -- (2,303,778) (2,303,778)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1997 10,113,381 10,114 2,601,291 (2,820,090) (208,685)
Sale of common stock 720,750 721 258,521 -- 259,242
Issuance of common stock
for services 295,000 295 47,505 -- 47,800
Issuance of common stock
for debt 988,824 989 325,533 -- 326,522
Issuance of common stock
for compensation 331,441 331 98,119 -- 98,450
Redemption of common stock (483,750) (484) 484 -- --
Value of warrants issued with debt -- -- 154,065 -- 154,065
Value of warrants and options issued
for services -- -- 34,155 -- 34,155
Net loss -- -- -- (1,112,594) (1,112,594)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1998 11,965,646 11,966 3,519,673 (3,932,684) (401,045)
Sale of common stock 300,000 300 97,700 -- 98,000
Issuance of common stock
for services 179,164 179 48,437 -- 48,616
Issuance of common stock
for debt 2,730,737 2,731 562,444 -- 565,175
Issuance of common stock
for compensation 195,224 195 66,555 -- 66,750
Redemption of common stock (120,000) (120) 120 -- --
Value of options issued for services -- -- 6,949 -- 6,949
Value of warrants issued with debt -- -- 106,014 -- 106,014
Cancellation of options issued for services -- -- (21,505) -- (21,505)
Net loss -- -- -- (1,392,340) (1,392,340)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1999 15,250,771 $ 15,251 $ 4,386,387 $(5,325,024) $ (923,386)
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended May 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,392,340) $(1,112,594) $(2,303,778)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 55,184 13,805 345
Common stock and options issued for payment
of services and compensation 122,315 146,250 1,231,914
Common stock issued for payment of interest expense 15,175 11,522 --
Options issued as payment for services -- 34,155 128,666
Cancellation of options for services (21,505) -- --
Amortization of debt discount 146,674 84,535 --
Changes in assets and liabilities, net of the
effect from acquisition:
Accounts receivables (11,440) (9,250) --
Inventory (99,573) 21,179 (143,313)
Other receivables 17,367 23,212 (28,711)
Prepaid and other current assets (5,799) (2,801) --
Refundable deposits -- -- 178,148
Other assets 5,223 (1,147) (10,135)
Accounts payable 156,456 26,404 53,305
Accrued interest 46,214 5,868 12,077
Accrued expenses and other current liabilities (8,171) 16,625 35,205
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (974,220) (742,237) (846,277)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (15,564) (118,246) (2,503)
Sale (purchase) of marketable securities -- 13,250 (13,250)
Acquisition of business, net of cash acquired (330,236) -- --
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (345,800) (104,996) (15,753)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to factor 56,700 -- --
(Decrease) increase in advance from shareholders (37,000) 37,000 134,405
Proceeds from debt financing 1,155,000 480,470 265,230
Proceeds from issuance of debt with warrants -- 69,530 49,770
Proceeds from issuance of debt without warrants -- 40,000 --
Proceeds from the sale of common stock
and exercise of options 98,000 259,243 267,529
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,272,700 886,243 716,934
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (47,320) 39,010 (145,096)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 49,108 10,098 155,194
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,788 $ 49,108 $ 10,098
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 36,513 $ 691 $ 1,269
=========== =========== ===========
Income taxes $ 689 $ 689 $ --
=========== =========== ===========
Non-cash financing and investing activities:
Conversion of debt to equity $ 550,000 $ 315,000 $ --
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Novex Systems International, Inc. (the "Company") and, through its wholly
owned subsidiary Novex Systems International, Ltd., (the "Subsidiary") is
engaged in the business of manufacturing and marketing a proprietary
admixture for enhancing cement based products (hereinafter referred to as
"Novacrete"), various finished products for concrete repair and flooring
projects, and the manufacturing and marketing of polypropylene fibers used
in concrete products.
During January, 1997, the Company acquired 100% of the outstanding stock of
Novacrete Technology (Canada) Inc., a newly created company established to
manufacture and distribute the Company's Novacrete product line.
During September, 1998, the Company acquired all the issued and outstanding
common stock of Arm Pro Inc., ("Arm Pro") located in Ontario, Canada. Arm
Pro manufactures and markets polypropylene fibers which are blended into
cementitious products to provide secondary reenforcement and to reduce
cracking.
In December, 1998, Arm Pro was merged into the Subsidiary, the surviving
corporation.
In fiscal 1999, the Company and the Subsidiary (Formerly Novacrete
Technology (Canada), Inc.) were renamed to Novex Systems International,
Inc. and Novex Systems International, Ltd., respectively. The Company, at
this time reincorporated itself from the state of Minnesota to the state of
New York.
During fiscal 1998 and 1997, the Company was a development stage enterprise
and in fiscal 1999, the Company and its wholly owned Subsidiary emerged
from the development stage.
F-7
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its Subsidiary (hereinafter
referred to as the "Companies"). All material intercompany
transactions and balances have been eliminated.
(b) Cash and Cash Equivalents - The Companies maintains funds in both US
and Canadian financial institutions. The Company considers
highly-liquid investments with maturities of three months or less to
be cash and cash equivalents.
(c) Income Taxes - The Companies utilizes the asset and liability method
of accounting for income taxes as set forth in FASB Statement No.109,
"Accounting for Income Taxes". Under the asset and liability method,
deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse.
(d) Property and Equipment - Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method based upon the
estimated useful lives of the respective assets. Property and
equipment are being depreciated over a period of five years.
Maintenance, repairs and minor renewals are charged to operations as
incurred, whereas the cost of significant betterments is capitalized.
Upon the sale or retirement of property and equipment, the related
costs and accumulated depreciation are eliminated from the accounts
and gains or losses are reflected in operations.
(e) Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
(f) Fair Value of Financial Instruments - The carrying value of cash and
cash equivalents, accounts receivable, other receivables, due to
factor, accounts payable and accrued expenses approximate their fair
values based on the short-term maturity of these instruments. The
carrying amounts of long-term debt was also estimated to approximate
fair value.
(g) Loss Per Share - Basic net loss per common share is computed by
dividing net loss by the weighted average number of shares of common
stock outstanding. For the years ended May 31, 1999, 1998 and 1997,
diluted loss per share is the same as basic.
F-8
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) loss per share since the inclusion of stock options and warrants would
be antidilutive.
(i) Foreign Currency Translation - The Subsidiary functional currency is
the US dollar and therefore translates the nonmonetary assets and
liabilities at the historical exchange rates, while monetary assets
and liabilities are translated at the current exchange rates in effect
at the balance sheet date. Sales and expenses are translated at the
weighted average exchange for the year. Accordingly, all gains and
losses arising from foreign currency translation have been recorded in
the accompanying consolidated statements of operations.
(j) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(k) Reclassification - Certain reclassifications have been made to the
1998 consolidated financial statements in order to conform with the
1999 presentation.
(l) Impairment of Long-Lived Assets - The Company reviews long-lived
assets, certain identifiable assets and goodwill related to those
assets on a quarterly basis for impairment whenever circumstances and
situations change such that there is an indication that the carrying
amounts may not be recovered. At May 31, 1999, the Company does not
believe that any impairment has occurred.
3. CONCENTRATION OF CREDIT RISK
(a) Cash and Cash Equivalents
The Companies maintains cash balances at several commercial banks.
Accounts at these financial institution are insured by the Federal
Deposit Insurance Corporation up to $100,000.
(b) Accounts Receivable
The concentration of credit risk in the Company's accounts receivable
is mitigated by the Company's credit evaluation process, credit
limits, monitoring procedures and reasonably short collection terms.
Credit losses have been within management's expectations and the
Companies does not require collateral to support accounts receivable.
F-9
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
4. INVENTORY
Inventories at May 31, 1999 and 1998, consists of the following:
1999 1998
-------- --------
Raw Material $113,288 $ 76,276
Work in Progress 3,217 440
Finished Goods 105,202 45,418
-------- --------
$221,707 $122,134
======== ========
5. PROPERTY AND EQUIPMENT
Property and equipment at May 31, 1999 and 1998, consists of the following:
1999 1998
--------- ---------
Property and equipment $ 231,095 $ 103,247
Leasehold Improvements 17,330 17,330
--------- ---------
248,425 120,577
Less: accumulated depreciation
and amortization (167,511) (13,979)
--------- ---------
$ 80,914 $ 106,598
========= =========
6. GOODWILL
Goodwill arose in connection with the acquisition of Arm Pro by the Company
in September, 1998, and is being amortized on the straight-line method over
10 years. As of May 31, 1999, goodwill, net of accumulated amortization of
$30,795, is $316,300 (see Note 15).
7. DUE TO FACTOR
During February 1999, the Subsidiary entered into a commercial factoring
arrangement, with a Canadian financial institution, where they sold certain
accounts receivable to the commercial factor, with recourse. In addition,
this arrangement provides for advances based on working capital
requirements. Advances bear interest at the commercial factor's prime rate
plus one thousand four hundred and twenty five basis points (20.50% at May
31, 1999).
F-10
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
7. DUE TO FACTOR (Continued)
At May 31, 1999, receivables assigned to the factor were offset against
factor advances of approximately $70,000.
Advance availability is limited to the lesser of 75% of eligible inventory,
not to exceed $25,000 (Canadian dollars), or 25% of the lower of cost or
market value of the eligible inventory, not to exceed $25,000 (Canadian
dollar), plus 25% of the appraised value of the Subsidiary's equipment.
The arrangement is collateralized by substantially all assets of the
Subsidiary and is guaranteed by the Company. The arrangement also requires
that the benefits of the Subsidiary's business insurance be assigned to the
commercial factor.
8. ADVANCES FROM SHAREHOLDERS
During fiscal 1998, the Company was advanced $37,000 from existing
shareholders to provide working capital for operations. In fiscal 1999, the
Company issued 100,000 shares of its common stock as payment for the funds
advanced in 1998.
9. INCOME TAXES
At May 31, 1999, the Company had federal, state and city net operating loss
carryforwards of approximately $3,175,000 resulting from accumulated
operating losses through fiscal 1999. At May 31, 1999 and 1998, the Company
have net deferred tax assets of approximately $1,260,000 and $848,000,
respectively. The Company has established a valuation allowance for the
full amount of such net deferred tax assets at May 31, 1999 and 1998, as
management of the Company has not been able to determine that it is more
likely than not that the deferred tax assets will be realized.
The Company's wholly owned subsidiary has not had to pay Canadian income
taxes as they have generated operating losses since its inception.
F-11
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
10. LONG TERM DEBT
At May 31, long-term debt consists of:
1999 1998
---------- ----------
Debentures payable (a) $ -- $ 550,000
Notes payable (b) 40,000 40,000
Debentures payable (c) 800,000 --
Debenture payable (d) 250,000 --
Notes payable (e) 105,000 --
---------- ----------
1,195,000 590,000
Less: Unamortized discount on debentures 28,870 69,530
---------- ----------
1,166,130 520,470
Less: Current portion 393,548 520,470
---------- ----------
$ 772,582 $ --
========== ==========
(a) At May 31, 1998, the Company was obligated to debenture holders for
$550,000 with 1,100,000 detachable stock warrants exercisable at
$0.30. A total of $104,296 was allocated to the warrant portion of the
debt, with an un-amortization discount of $69,530 at year end
resulting in a net note payable of $480,470. The debentures bore
interest at 10% per annum and were converted with accrued interest of
$15,175 into 2,730,737 shares of common stock in October, 1998, (see
Note 11(d)).
(b) In May 1998, the Company issued notes payable for a total of $40,000,
to parties associated with a director of the Company, that bear
interest at 10% per annum. The principal of the notes and all
outstanding interest are due 90 days from the date of issuance.
Interest on the notes, are payable with the Company's common stock at
the rate of $0.40 per share. Furthermore, if the notes are not fully
satisfied at the maturity date, the Company is obligated to grant half
of a warrant to purchase one share of its common stock for each dollar
of the outstanding principal. As of May 31, 1999, these notes have not
been satified (see Note 17).
(c) These debentures from September 4, 1998, bear interest at 9% per annum
and mature on September 4, 2000. There are 1,500,000 stock warrants,
exercisable at $0.45, with an expiration date of two years from the
date of the notes' issuance. A total of $ 104,241 was allocated to the
warrant portion of the debt, with an un-amortized discount of $27,417
as of May 31, 1999 (see Note 17).
F-12
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
10. LONG TERM DEBT (Continued)
(d) This debenture from February 25, 1999, bears interest at 15% per annum
and matures on May 31, 1999. There are 150,000 stock warrants
attached, exercisable at $0.45, with an expiration date of two years
from the date of the notes' issuance. A total of $1,773 was allocated
to the warrant portion of the debt, with an un-amortized discount of
$1,453 as of May 31, 1999 (see Note 17).
(e) At various dates during fiscal 1999, the Company issued promissory
notes payable for a total of $105,000 to parties associated with a
director of the Company, that bear interest at 10% per annum. The
principal of the notes and all outstanding interest are due 90 days
from the date of issuance. Interest on the notes, are payable with the
Company's common stock at the rate of $0.40 per share. Furthermore, if
the notes are not fully satisfied at the maturity date, the Company is
obligated to grant half of a warrant to purchase one share of its
common stock for each dollar of the outstanding principal. As of May
31, 1999, these notes have not been satified (see Note 17).
11. SHAREHOLDERS' EQUITY
(a) During fiscal 1996, former management of the Company issued 1,800,000
shares for an amount that present management is unable to determine.
The Company has been contacting the registered shareholders to
determine if appropriate consideration was received for these shares.
The shares have been recorded as outstanding with no consideration
received for their issuance. During the years ended May 31, 1999 and
1998, a total of 120,000 and 483,750 shares of common stock,
respectively, were returned by the registered shareholders and have
been canceled by the Company. The Company intends to continue to
pursue litigation against the remaining shareholders who it alleges
have received securities without paying fair consideration to the
Company.
(b) During fiscal 1997, the Company issued 500,000 shares of common stock
for the purchase of the Novacrete Admixture formulation.
During fiscal 1997, the Company's president, at the time, accepted
171,400 shares of the Company's common stock as partial payment for
his annual salary. The shares issued were based on $60,000 of
compensation and the remaining unpaid compensation of $31,250 was
included in accrued expenses and other current liabilities at May 31,
1997. During fiscal 1998, the Company issued 97,665 shares of common
stock as payment for the $31,250 in compensation owed to him.
During fiscal 1997, the Company issued 126,531 shares as consideration
for various services.
F-13
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
11. SHAREHOLDERS' EQUITY (Continued)
(c) During fiscal 1998, the Company issued 295,000 shares of its common
stock as payment for services provided by the current president prior
to assuming his role as a Company officer, and to a financial
consultant. These shares were valued at prices ranging from $0.14 to
$0.40 per share.
In fiscal 1998, the Company issued 331,441 of its common stock to its
former and current president as compensation. These shares were valued
at a price range of $ .20 to $ .35 per share.
The Company issued 988,824 shares of its common stock as full payment
for the notes payable of $315,000 plus accrued interest of $11,522
during fiscal 1998.
During fiscal 1998, the Company sold 720,750 shares of its common
stock to various shareholders, at market prices ranging from $ .24 to
$ .40 per share to raise working capital.
(d) During fiscal 1999, the Company issued 96,474 shares of its common
stock as compensation to three board members for their services. These
shares were valued at prices ranging between $ .25 to $ .40 per share.
The Company issued 98,750 shares of its common stock to various
employees as a work incentives during fiscal 1999. These shares were
valued at prices ranging from $ .30 to $ .44 per share.
The Company issued 179,164 shares of its common stock for consulting
services during fiscal 1999. These shares were valued at prices
ranging from $.25 to $.33 per share.
During fiscal 1999, the Company issued 2,730,737 shares of its common
stock as full payment for debentures payable of $550,000 plus accrued
interest of $15,175 (see note 10(a)).
During fiscal 1999, the Company sold 300,000 shares of its common
stock to various shareholders, at market prices ranging from $ .29 to
$ .37 per share to raise working capital.
F-14
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
12. STOCK OPTIONS
The following table summarizes the activity with regard to options and
warrants for the years ended May 31, 1999, 1998, and 1997 (See page F-16
for chart references).
<TABLE>
<CAPTION>
Stock Options Warrants
--------------------------------------------- ---------------------------------------------
Exercise Exercise
Shares Price Exercisable Shares Price Exercisable
----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
May 31, 1996 -- $ -- -- -- $ -- --
Granted -- -- -- (3) 768,000 0.50 768,000
Exercised -- -- -- (768,000) -- (768,000)
Granted -- -- -- (3) 91,504 0.50 91,504
----------- ----------- --------- --------- ----------- ---------
Outstanding at
May 31, 1997 - - - 91,504 0.50 91,504
(1) Granted 1,727,772 0.50 1,727,772 (2) 308,000 0.35 308,000
(3) Granted 40,000 0.25 40,000 (3) 60,000 0.50 60,000
(1) Granted 300,000 0.40 300,000 (2) 1,100,000 0.30 308,000
(1) Granted 25,000 0.30 25,000 - - -
(3) Granted 20,000 0.25 20,000 - - -
(1) Granted 65,000 0.35 65,000 - - -
(3) Granted 25,000 0.31 25,000 - - -
----------- ----------- --------- --------- ----------- ---------
Outstanding at
May 31, 1998 2,202,772 0.25 - 0.50 2,202,772 1,559,504 0.30 - 0.50 1,559,504
(1) Granted 195,000 0.40 195,000 (2) 1,650,000 0.45 1,650,000
(1) Granted 100,000 0.45 100,000 (2) 5,000 0.20 5,000
(1) Granted 12,500 0.30 12,500 - - -
(1) Granted 27,500 0.50 27,500 - - -
(3) Canceled (60,000) (0.25) (60,000) - - -
(3) Canceled (25,000) (0.31) (25,000) - - -
----------- ----------- --------- --------- ----------- ---------
Outstanding at
May 31, 1999 2,452,772 $0.25 - 0.50 2,452,772 3,214,504 $ 0.20 - 0.50 3,214,504
=========== =========== ========= ========= =========== =========
</TABLE>
F-15
<PAGE>
12. STOCK OPTIONS (Continued)
(1) issued for employee services, including directors fees
(2) issued with debt
(3) issued for consulting services
During fiscal 1997, stock options were granted and exercised by certain
individuals and organizations for insufficient consideration according to
current management and therefore no amount was originally recorded in the
accompanying consolidated financial statements. The Company is currently
seeking to have all shares issued to these parties returned and canceled.
On April 1, 1998, the Company's board of directors approved a resolution to
adopt a Non-Qualified Stock Option Plan which shall be subject to
shareholder approval to become effective. During fiscal 1999, the Company's
board of directors and management decided not to establish a Non-Qualified
Stock Option Plan and therefore no formal shareholder approval will be
required.
The Company granted 135,000 options and warrants to various consultants for
services rendered during the year ended May 31, 1998. The options and
warrants expire five years from the date of grant and have an exercise
price ranging from $ .25 to $ .50 per share. The Company has recorded
$34,155 in consulting expenses in the accompanying consolidated statement
of operations.
During fiscal 1999, the Company granted 100,000 options for services. The
Company has recorded $6,949 in consulting expenses in the accompanying
consolidated statement of operations.
13. STOCK-BASED COMPENSATION
The Company accounts for its stock option plans under APB No. 25,
"Accounting for Sock Issued to Employees," ("APB 25"), under which no
compensation cost is recognized. In fiscal 1997, the Company adopted SFAS
no. 123 "Accounting for Stock-Based
F-16
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
13. STOCK-BASED COMPENSATION (Continued)
Compensation" ("SFAS 123") for disclosure purposes; accordingly, no
compensation has been recognized in the results of operations for its stock
option plan as required by APB 25, other than for options and warrants
issued for services or with debt. The valuation for options and warrants
issued for services during the years ended May 31, 1999, 1998, and 1997 was
$6,949, $34,155 and $128,666 respectively. The valuation for options and
warrants issued with debt during the years ended May 31, 1999, 1998, and
1997 was $106,014, $154,065 and $0, respectively.
For disclosure purposes, the fair value of options is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for stock options granted during fiscal
year ended May 31, 1999, 1998 and 1997 respectively: annual dividends of
$0; expected volatility of 50%; risk free interest rate of 6%; and expected
lives ranging from 2.5 to 5. The weighted average fair values of stock
options granted during the years ended May 31, 1999, 1998 and 1997, was
$0.17, $.20 and $.08 respectively.
Year ended May 31,
---------------------------------------
1999 1998 1997
---- ---- ----
Net loss to shareholders:
As reported $(1,392,340) $(1,112,954) $(2,303,778)
Pro forma $(1,432,076) $(1,562,387) $(2,320,553)
Net loss per share:
As reported $(0.10) $(0.10) $(0.24)
Pro forma $(0.10) $(0.14) $(0.24)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. The Companies employee stock options have
characteristics significantly different from those of traded options, and
since changes in subjective input assumptions can materially affect the
fair value estimate, in managements's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options and warrants.
F-17
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
14. SEGMENT INFORMATION
The Companies operate in the building material products industry and prior
to its acquisition of Arm Pro, its operations were in the development
stage. The Companies management has determined the operating segments based
on how the business is managed and operated. The Companies manufacture,
market and sell cement admixture and concrete repair products to the
building material industry. The Companies sales and long-lived assets by
operating segment and country as of May 31, 1999, 1998 and 1997, are as
follows:
United
States Canada Consolidated
--------- --------- ------------
For the year ended May 31, 1999:
Sales to unaffiliated customers $ 128,909 $ 192,402 $321,311
========= ========= ========
Long-Lived assets $ -- $ 358,073 $358,073
========= ========= ========
For the year ended May 31, 1998:
Sales to unaffiliated customers $ -- $ 9,073 $ 9,073
========= ========= ========
Long-Lived assets $ -- $ 106,598 $106,598
========= ========= ========
For the year ended May 31, 1997:
Sales to unaffiliated customers $ -- $ -- $ --
========= ========= ========
Long-Lived assets $ -- $ 2,899 $ 2,899
========= ========= ========
15. ACQUISITION
On September 16, 1999 the Companies purchased all the issued and
outstanding common stock of Arm Pro. The purchase price was $592,000
($891,000 Canadian dollars) and the funds used to purchase Arm Pro were
raised from the sale of debentures for $800,000 (see Note 10(c)). The
acquisition is accounted for as a purchase business combination. The
following table summarizes the acquisition:
F-18
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
15. ACQUISITION (Continued)
Purchase price $592,400
Acquisition costs 10,638
---------
603,038
---------
Assets acquired 403,313
liabilities assumed (147,370)
---------
255,943
---------
Goodwill 347,095
=========
The following schedule combines the unaudited pro-forma results of
operations of the Company and Arm Pro, as if the acquisition occurred on
June 1, 1996 and includes such adjustments which are directly attributable
to the acquisition, including the amortization of goodwill. It should not
be considered indicative of the results that would have been achieved had
the acquisition not occurred or the results that would have been obtained
had the acquisition actually occurred on June 1, 1996.
Years ended May 31,
---------------------------------------------
1999 1998 1997
------------ ------------ ------------
Net Sales $ 421,305 $ 327,554 $ 373,712
Cost of sales 212,059 133,988 174,364
------------ ------------ ------------
Gross profit 209,246 193,566 199,348
Operating expenses 1,406,026 1,189,113 2,576,302
------------ ------------ ------------
Loss from operations (1,196,780) (995,547) (2,376,954)
Net other expenses 180,254 138,269 2,016
------------ ------------ ------------
Net loss $ (1,377,034) $ (1,133,816) $ (2,378,970)
============ ============ ============
Net loss per share $ (0.10) $ (0.10) $ (0.25)
============ ============ ============
Shares used in calculation 13,720,171 11,472,508 9,590,212
============ ============ ============
F-19
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
16. COMMITMENTS AND CONTINGENCIES
(a) The Company has a verbal month to month sublease arrangement for its
headquarters in New York City as of fiscal 1999. The Subsidiary has a
lease arrangement for office and production facilities commencing May
1, 1997 and expiring on April 30, 2002. This lease requires monthly
rental payments of approximately $3,400 in the first two years of the
lease and $3,600 in the last three years of the lease.
The Company leases telecommunication, reproduction and computer
equipment and office furnishings under long-term operating lease
agreements. These lease agreements require cumulative monthly payments
of approximately $1,656 per month for the terms of the respective
leases expiring between October 1998 and January 2001.
Future noncancellable lease payments are as follows:
Year ending
May 31, Amount
---------- --------
1999 $ 56,893
2000 57,137
2001 48,530
2002 40,115
--------
TOTALS $202,675
========
Total rental expenses for the years ended May 31, 1999, 1998 and 1997
was approximately $57,000, $61,000 and $64,000, respectively.
(b) The Companies have a licensing agreement for certain concrete related
products, including an admixture that is capable of enhancing the
basic characteristic of cementitious products. The Companies are
obligated to pay royalties based on a percentage of sales, subject to
an annual guaranteed minimum royalty. Currently, the Company has not
had to pay royalties as the licensed products are still in the
development stage and therefore have not been ready for sale to
customers. Furthermore, the Company has had several discussions with
the licensor who has agreed to defer the minimum royalty payments
until the Novacrete Admixture product emerges from the research and
development stage.
F-20
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999, 1998 and 1997
16. COMMITMENTS AND CONTINGENCIES (Continued)
(c) During fiscal 1997, a shareholder commenced an action against the
Company and its former President to enjoin the Company and the former
President from taking any action that would restrict the sale of
common stock that he allegedly owns. In the opinion of management,
this action is without merit and will not have a material adverse
effect on the Companies financial position or results of operations.
17. SUBSEQUENT EVENT
During August 1999, the Company acquired from the Sherwin-Williams Company
("Sherwin") substantially all the assets of their Allied Composition and
Por-Rok ("Por-Rok") business line. Por-Rok manufactures and distributes
specialty building products.
Pursuant to the purchase agreement the Company (i) paid $800,000 to
Sherwin, (ii) issued 1,000,000 shares of restricted common stock to Sherwin
with the requirement to register the common stock with the Securities and
Exchange Commission and (iii) issued a note payable for $1,300,000 which
bears interest at 10% per annum and is payable over a one year period. In
order, to induce Sherwin to accept the note payable, the Company had to
convert all the previously issued debt to equity, except for the $250,000
debenture which will it be paid as a condition of the Por-Rok acquisition
(see Note 10). Further, Sherwin has a subordinated security interest in
substantially all the assets of the Companies.
The Company has entered into a $890,000 installment term note with a
commercial bank of which $800,000 was used for the purchase of Por-Rok and
the remaining $90,000 was used for working capital needs in fiscal 2000.
This financing arrangement also provides for a $750,000 revolving note
payable to fund future working capital requirements. In addition, the
Company granted class B warrants to purchase 233,365 shares of restricted
common stock at an exercise price of $.25 to the commercial bank. The
commercial bank has a senior secured interest in substantially all the
assets of the Companies.
F-21
<PAGE>
NOVEX SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
(Formerly Stratford Acquisition Corp. and Subsidiary)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended May 31, 1999, 1998 and 1997
Additions
Balance at charged to Balance at
beginning cost and Deductions- end of
Description of year expenses describe year
----------- ------- -------- ---------- ---------
Allowance for doubtful
accounts
Year ended May 31, 1997 $-- $ -- $ -- $ --
Year ended May 31, 1998 -- -- -- --
Year ended May 31, 1999 -- 890 -- 890
F-22
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has engaged the certified public accounting firm of Feldman Sherb &
Horowitz as its outside auditors to audit the Company's annual financial
statements for the fiscal year ending May 31, 1999 and has had no disagreements
with them.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following provides certain information concerning the directors and
executive officers of the Company and its subsidiaries as of May 31, 1999.
Name Age Position
- ---- --- --------
William K. Lavin 55 Chairman, Secretary
Daniel W. Dowe 37 Director, President
and Chief Executive Officer
D. Friedenberg 47 Director, Treasurer
Edward J. Malloy 63 Director
* At the annual shareholders meeting held on April 29, 1999, Messrs. Friedenberg
and Dowe were elected to serve as directors for a period of three years; Mr.
Lavin for a period of two years and Mr. Malloy for one year.
William K. Lavin. Mr. Lavin became a director in October, 1997 and currently
operates his own consulting business that he formed in 1994. Prior to forming
his firm, he was Chief Executive Officer of Woolworth Corporation (renamed
"Venator") from 1993-1994 and immediately prior to that position he served as
Woolworth's Chief Administrative and Financial Officer. Mr. Lavin serves on the
board of directors of the Allegheny Corporation (NYSE:Y) and Chicago Title
Corporation (NYSE:CTZ).
Daniel W. Dowe. Mr. Dowe became a director in March, 1997, Acting President on
November 17, 1997 and President and Chief Executive Officer on April 1, 1998.
Mr. Dowe has agreed to serve in this capacity for a three year period pursuant
to a written employment agreement and will have an option to serve for
additional three year period. He was the founder of Dowe & Dowe, a New York
City-based law firm that provided legal services to the Company. From 1993 to
November 17, 1997, Mr. Dowe was practicing corporate and securities law at his
firm. From 1990 to 1993, Mr. Dowe was an associate with Donohue & Donohue, a New
York City-based law firm concentrating on international trade matters. Prior to
practicing law, he was employed by Alliance Capital Management Company, Salomon
Brothers (Salomon Smith Barney, a division of Citigroup, Inc.) and J.P. Morgan
Bank.
Douglas S. Friedenberg. Mr. Friedenberg has been a director since November,
1996. He has been the President of Firebird Capital Management, a financial
28
<PAGE>
advisory firm, since March, 1993. In 1991, he co-founded and became President of
Unicorn Capital Management, an investment management firm. From 1983 to 1991, he
managed private investment portfolios for Morgan Stanley, Inc., a large New York
City-based investment banking firm. Mr. Friedenberg currently serves as a
Director of Datametrics Corporation (AMEX:DC).
Edward J. Malloy. Mr. Malloy became a director in January, 1998. He is currently
President of the Building and Construction Council of Greater New York. Mr.
Malloy represents the interests of over 200,000 laborers involved in the
building trades in the Greater New York City area. He is responsible for
developing building projects in both the public and private sectors to ensure
for an adequate level of work for his union members. Mr. Malloy brings to the
Company an extensive level of contacts and industry experience.
Item 11. Executive Compensation
The following table shows all remuneration in excess of $100,000 paid by the
Company and its subsidiaries through March 31, 1999, to all directors and
officers:
Table 1
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual compensation Awards Payouts
------------------- ------ -------
Securi-
ties
Name Other Underly- All
and Annual Restrict- ing Other
Princi- Compen- ed Stock Options LTIP Compen-
pal Fisc. Salary Bonus sation Awards SARs Payout sation
Position Year ($) ($) ($) (#) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel
Dowe
President 1996 n/a
(1)(2)(3) 1997 n/a
1998 $89,850 432,357 575,924
1999 $180,000
</TABLE>
(1) From November 17, 1997 through March 31, 1998, during which time Mr. Dowe
served as interim president of the Company, he earned $52,500 in cash
compensation. Commencing April 1, 1998, Mr. Dowe became an employee of the
Company at an annual salary of $180,000. In the fiscal year ending May 31, 1999,
Mr. Dowe received $150,000 in cash compensation and deferred the remaining
$30,000 until the Company closed the Por-Rok transaction. In addition, Mr. Dowe
loaned the Company $29,000 in the fiscal year 1999 to cover working capital
shortfalls. Mr. Dowe does not receive any additional remuneration for serving as
a director.
(2) Prior to becoming an employee of the Company, Mr. Dowe received 64,857
shares of common stock in payment for $22,700 of legal services rendered to the
Company through November, 1997. From November 17, 1997 through March
29
<PAGE>
31, 1998, during which time Mr. Dowe served as interim president of the Company,
he earned 97,500 shares of Common Stock. When Mr. Dowe became an employee of the
Company, he received 270,000 shares of Common Stock representing 30,000 shares
per month for the remainder of the calendar year.
(3) On June 25, 1997, the Company issued an aggregate of 1,727,772 stock options
to its directors as an incentive for future performance. Of these options, Mr.
Dowe received 575,924 options. The stock options were exercisable when issued at
then current market price of $.37 per Share and will expire on June 25, 2002. As
part of the financing of the Por-Rok acquisition Mr. Friedenberg agreed to waive
his ownership interest in his option to purchase 575,924 shares of common stock.
In addition as part of his severance from the Company, Mr. MacMillan also agreed
to waive his ownership interest in his option to purchase 575,924 shares of
common stock.
Item 12. Security Ownership of Certain Beneficial Owners
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the amount of common stock owned as of May 31, 1999 by
each director and officer and affiliates and by all directors and officers as a
group. Each individual has beneficial ownership of the shares which are subject
to unexercised stock options and stock warrants held by him, and each individual
has sole voting power and sole investment power with respect to the number of
shares beneficially owned:
30
<PAGE>
Table 1
Security Ownership of Certain Beneficial Owners and Management
Amount and Nature
Name and Address of Beneficial Percent
of Beneficial owner Ownership Class(1)
- ------------------- --------- --------
Douglas Friedenberg, 2,879,883 13.74%
Director, Treasurer
67 Wall Street, Suite 2001
New York, New York 10005
Daniel W. Dowe 1,008,281 4.81%
Director, President,
Chief Executive Officer
67 Wall Street, Suite 2001
New York, New York 10005
William K. Lavin 222,158 1.07%
Chairman, Secretary
67 Wall Street, Suite 2001
New York, New York 10005
Edward J. Malloy 222,158 1.07%
Director
71 West 23rd Street
New York, New York 10010
All Directors and Officers
as a group 4,332,480 20.91%
(1) The class includes stock options and stock warrants granted to the directors
and officers prior to May 31, 1999 which are deemed by the Company to be
acquirable by the beneficial owner within 60 days of the date of this offering
memorandum by exercise of the option or warrant. As of May 31, 1999, there were
15,250,771 shares issued and outstanding, 20,918,047 on a fully diluted basis.
Percentages are stated on a fully diluted basis.
Except for Mr. Dowe, the three remaining directors receive $2,500 per quarter
for services rendered as directors of the company, which is paid in restricted
common stock based on the average bid and closing prices of the company's common
stock on the last trading day for the months ending March, June, September and
December. In addition each non-employee director shall receive an additional
$10,000 per annum, payable in equally quarterly installments if such director is
a member of a committee of the board of directors that actually meets during the
quarterly period. During the fiscal year 1999, there were no committee meetings.
31
<PAGE>
Table 2
Security Ownership of Certain Beneficial Owners
(Non-Management)
Set forth below is certain information about the only shareholder known by the
Company (other than Mr. Friedenberg and his affiliated companies) to be a
beneficial owner of more than 5% of the outstanding Common Shares of the Company
as of the May 31, 1999:
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class(1)
- ----------------------------------------------------------------------
Quilcap Corporation 5,113,277 24.40%
375 Park Avenue
Suite 1404
New York, New York
(1) Percentage is stated on a fully diluted basis.
Item 13. Certain Relationships and Related Transactions
Mr. Friedenberg is a principal shareholder of the Company in addition to being a
director and officer. Mr. Friedenberg does not receive a salary, but from time
to time is compensated by the Company for services rendered on various financial
projects.
Mr. Dowe's spouse Janet L. Dowe is a partner in the law firm Dowe, Capetanakis &
Priete, which occasionally provides legal services to the Company, and sublets
office space to the Company. Any payments to Dowe, Capetankis and Priete for
services rendered to the Company must be approved by the Audit Committee of the
Board of Directors, which consists of Messrs. Friedenberg and Lavin.
In addition to serving as an unpaid director of the Company, Mr. Lavin, or his
consulting firm WKL, Inc. will receive compensation for services rendered to the
Company for various acquisition projects.
32
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page
(A) The following financial statements and supplementary
data are included in Part II Item 8
Index to Consolidated Financial Statements F-1
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of May 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years ended F-4
May 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity F-5
(Deficiency) for the years ended May 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for years ended May 31, F-6
1999, 1998 and 1997
Notes to Consolidated Financial Statements F-7 - 21
Financial Statement Schedules
- -----------------------------
Schedule II - Valuation and Qualifying Accounts F-22
Schedules not listed above have been omitted because they are
not applicable or are not required or the information
required to be set forth therein is included in the Consolidated
Financial Statements or Notes thereto.
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(B) Exhibits to be incorporated herein by reference:
Exhibit Incorporated Document
- ------- ---------------------
3(i) - Articles of Incorporation Form 10-K/A for the
of Stratford Acquisition period ending May 31,
Corp. 1996
4 - 10% $550,000 Convertible Form 10-K for the
Debenture and Stock Warrant period ending May 31,
Agreement 1998
99 - Battista Agreement Form 10-K/A for the
period ending May 31,
1997.
99 - Supercrete N/A Limited Form 10-K for the period
Agreement dated December ending May 31, 1997
20, 1996
99 - Employment Agreement for Form 10-K for the period
Daniel W. Dowe dated ending May 31, 1998
April 1, 1998
33
<PAGE>
(B) Exhibits filed herein:
Exhibit
3(i) Certificate of Incorporation of
Novex Systems International, Inc.
Plan of Merger of Stratford
Acquisition Corp. And Novex Systems
International, Inc. Into Novex Systems
International, Inc.
New York Certificate of Merger of
Stratford Acquisition Corp. into
Novex Systems International, Inc.
Minnesota Articles of Merger of
Stratford Acquisition Corp. Into
Novex Systems International, Inc.
3(ii) By-Laws
4 - 9% $800,000 Convertible
Debenture and Stock Warrant
Agreement
15% $250,000 Senior Debenture and
Stock Warrant Agreement
Terms Sheets re Director Loans to Company dated July
29, 1998; August 13, 1998; August 20, 1998; August
27, 1998; September 4, 1998; and May 14, 1999
21 - Subsidiaries of the Company
(c) Reports on Form 8-K
Part IV, Item 14 Form 8-K filed on
October 2, 1998
Part IV, Item 14 Form 8-K/A filed on
November 30, 1998
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Stratford Acquisition Corporation has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized:
NOVEX SYSTEMS INTERNATIONAL CORPORATION
By: /s/ Daniel W. Dowe
----------------------------------
Daniel W. Dowe, President
By: /s/ Douglas Friedenberg
----------------------------------
Douglas Friedenberg, Treasurer
Dated: September 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in capacities and on the dates indicated:
Dated
-----
/s/ Daniel W. Dowe
- --------------------- Director September 13, 1999
Daniel W. Dowe
/s/ William K. Lavin
- --------------------- Director September 13, 1999
William K. Lavin
/s/ Douglas Friedenberg
- --------------------- Director September 13, 1999
Douglas Friedenberg
/s/ Edward J. Malloy
- --------------------- Director September 13, 1999
Edward J. Malloy
35
CERTIFICATE OF INCORPORATION
OF
NOVEX SYSTEMS INTERNATIONAL INC.
-----------------------------------
UNDER SECTION 402 OF THE
BUSINESS CORPORATION LAW
-----------------------------------
The undersigned, being a natural person over the age of eighteen, in order
to form a corporation under and pursuant to the Business Corporation Law of the
State of New York, hereby certifies:
First: The name of the corporation is Novex Systems International Inc. (the
"Company").
Second: The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized pursuant to the Business
Corporation Law of the State of New York.
Third: The office of the Company shall be in the County of New York, State
of New York.
Fourth: The Secretary of State of the State of New York is hereby
designated as the agent of the corporation upon whom process against the
corporation may be served. The post office address within the State of New York
to which the Secretary of State shall mail a copy of any process against the
corporation served upon him is:
c/o Novex Systems International Inc.
67 Wall Street, Suite 2001
New York, NY 10005
Fifth: The duration of the Company is to be perpetual.
Sixth: Section 1. Authorized Capital Stock. The Company is authorized to
issue two classes of capital stock, designated Common Stock and Preferred Stock.
The total number of shares of capital stock that the Company is authorized to
issue is 60,000,000 shares, consisting of 50,000,000 shares of Common Stock, par
value $.001 per share, and 10,000,000 shares of Preferred Stock, par value $.001
per share.
Section 2. Preferred Stock. The Preferred Stock may be issued in one or
more series. The Board of Directors of the Company (the "Board") is hereby
authorized to issue the shares of Preferred Stock, without additional
stockholder approval, in such series and to fix from time to time before
issuance the number of shares to be included in any such series and the
designation, relative powers, preferences, and rights and qualifications,
limitations, or restrictions of all shares of such series. The authority of the
Board with respect to each such series will include, without limiting the
generality of the foregoing, the determination of any or all of the following:
(a) the number of shares of any series and the designation to distinguish
the shares of such series from the shares of all other series;
(b) the voting powers, if any, and whether such voting powers are full or
limited in such series;
<PAGE>
(c) the redemption provisions, if any, applicable to such series, including
the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or noncumulative, the
dividend rate of such series, and the dates and preferences of dividends on such
series;
(e) the rights of such series upon the voluntary or involuntary dissolution
of, or upon any distribution of the assets of, the Company;
(f) the provisions, if any, pursuant to which the shares of such series are
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes of stock, or any
other security, of the Company or any other corporation or other entity, and the
price or prices or the rates of exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any securities of
the Company or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund applicable to such series;
and
(i) any other relative, participating, optional, or other special powers,
preferences, rights, qualifications, limitations, or restrictions thereof all as
may be determined from time to time by the Board and stated in the resolution or
resolutions providing for the issuance of such Preferred Stock (collectively, a
"Preferred Stock Designation").
Section 3. Common Stock. The holders of Common Stock will be entitled to
one vote on each matter submitted to a vote at a meeting of stockholders for
each share of Common Stock held of record by such holder as of the record date
for such meeting.
Seventh: The Board may make, amend, and repeal the Bylaws of the Company.
Any Bylaw made by the Board under the powers conferred hereby may be amended or
repealed by the Board or by the stockholders in the manner provided in the
Bylaws of the Company. The Bylaws may only be adopted, amended or repealed by
the stockholders by the affirmative vote of at least 75% of the votes of the
shares at the time entitled to vote in the election of any Directors, voting
together as a single class. The Company may in its Bylaws confer powers upon the
Board in addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board by applicable law.
Eighth: Subject to the rights of the holders of any series of Preferred
Stock:
(a) any action required or permitted to be taken by the stockholders of the
Company must be effected at a duly called annual or special meeting of
stockholders of the Company or by unanimous consent in writing, as provided by
the New York Business Corporation Law; and
(b) special meetings of stockholders of the Company may be called only by
(i) the Chairman of the Board (the "Chairman") or (ii) the Secretary of the
company (the "Secretary") within 10 calendar days after receipt of the written
request of a majority of the total number of Directors which the Company would
have if there were no vacancies (the "Whole Board"), or as required pursuant to
relevant provisions of the New York Business Corporation Law.
At any annual meeting or special meeting of stockholders of the Company,
only such business will be conducted or considered as has been brought before
such meeting in the manner provided in the Bylaws of the Company.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, in order to repeal, adopt, or amend any provision of this Article
Eighth requires the affirmative vote of at least 75% of the votes of the shares
at the time entitled to vote in the election of any Directors, voting together
as a single class.
2
<PAGE>
Ninth: Section 1. Number, Election, and Terms of Directors. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, the number of the Directors of the Company may be increased or
decreased from time to time in the manner described in the Bylaws of the
Company, but shall never be less than three nor more than twelve. The Directors,
other than those who may be elected by the holders of any series of Preferred
Stock, will be classified with respect to the time for which they severally hold
office into three classes, as nearly equal in number as possible, designated
Class 1, Class 2, and Class 3. The Directors first appointed to Class 1 will
hold office for a term expiring at the annual meeting of stockholders to be held
in 1999; the Directors first appointed to Class 2 will hold office for a term
expiring at the annual meeting of stockholders to be held in 2000; and the
Directors first appointed to Class 3 will hold office for a term expiring at the
annual meeting of stockholders to be held in 2001, with the members of each
class to hold office until their successors are elected and qualified. At each
succeeding annual meeting of the stockholders of the Company, the successors of
the class of Directors whose terms expire at that meeting will be elected by a
plurality vote of all votes cast at such meeting to hold office for a term
expiring at the end of the period designated for that class in which the
director shall be elected. Election of Directors of the Company need not be by
written ballot unless requested by the Chairman or by the holders of a majority
of the Voting Stock present in person or represented by proxy at a meeting of
the stockholders at which Directors are to be elected.
Section 2. Nomination of Director Advance notice of stockholder nominations
for the election of Directors must be nominated in the manner provided in the
Bylaws of the Company.
Section 3. Creation of New Directors. The Board of Directors may create new
Directorships from time to time at their discretion, without additional
stockholder approval.
Section 4. Newly Created Directorships and Vacancies. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board resulting from death,
resignation, disqualification, removal, or other cause will be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board, or by a sole remaining Director.
Any Director elected in accordance with the preceding sentence will hold office
for the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor has been duly elected and qualified. No decrease in the number of
Directors constituting the Board may shorten the term of any incumbent Director.
Section 5. Removal. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, any Director may be removed from
office by the stockholders only for cause and only in the manner provided in
this Section 5. At any annual meeting or special meeting of the stockholders,
the notice of which states that the removal of a Director or Directors is among
the purposes of the meeting, the affirmative vote of at least 75% of the votes
of the shares at the time entitled to vote in the election of any Directors,
voting together as a single class, may remove such Director or Directors for
cause. Except as may be provided by applicable law, cause for removal will be
deemed to exist only if the Director whose removal is proposed has been adjudged
by a court of competent jurisdiction to be liable to the Company or its
stockholders for misconduct as a result of (a) a breach of such Director's duty
of loyalty to the Company, (b) any act or omission by such Director not in good
faith or which involves a knowing violation of law, or (c) any transaction from
which such Director derived an improper personal benefit, and such adjudication
is no longer subject to direct appeal.
Section 6. Amendment, Repeal, Etc. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of at
least 75% of the votes of the shares at the time entitled to vote in the
election of any Directors, voting together as a single class, is required to
amend, adopt, or repeal any provision inconsistent with, this Article Ninth.
3
<PAGE>
Tenth: Notwithstanding anything contained in this Certificate of
Incorporation or the Bylaws of the Company to the contrary, the Company shall
engage in any business combinations with interested stockholders only in
accordance with the relevant provisions of the New York Business Corporation
Law.
Eleventh: To the fullest extent permitted by the New York Business
Corporation Law or any other applicable law currently or hereafter in effect, no
Director of the Company will be personally liable to the Company or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as a Director of the Company. Any repeal or modification of
this Article will not adversely affect any right or protection of a Director of
the Company existing prior to such repeal or modification.
Section 1. Amendment, Repeal, Etc. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of at
least 75% of the votes of the shares at the time entitled to vote in the
election of any Directors, voting together as a single class, is required to
amend, adopt, or repeal any provision inconsistent with, this Article Eleventh.
Twelfth: Each person who is or was or had agreed to become a Director or
officer of the Company, and each such person who is or was serving or who had
agreed to serve at the request of the Board or an officer of the Company as an
employee or agent of the Company or as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other entity,
whether for profit or not for profit (including the heirs, executors,
administrators, or estate of such person), will be indemnified by the Company to
the full extent permitted by the New York Business Corporation Law or any other
applicable law as currently or hereafter in effect. The right of indemnification
provided in this Article Twelfth will not be exclusive of any other rights to
which any person seeking indemnification may otherwise be entitled, including
without limitation pursuant to any contract approved a majority of the whole
Board (whether or not the Directors approving such contract are or are to be
parties to such contract or similar contracts), and (b) will be applicable to
matters otherwise was its scope whether or not such matters arose or arise
before or after the adoption of this Article Twelfth. Without limiting the
generality or the effect of the foregoing, the company may adopt Bylaws, or
enter into one or more agreements with any person, which provide for
indemnification greater or different than that provided in this Article Twelfth
or the New York Business Corporation Law in effect from time to time.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the amendment or repeal of, or adoption of any provisions inconsistent
with, this Article Twelfth requires the affirmative vote of at least 75% of the
votes of the shares at the time entitled to vote in the election of any
Directors, voting together as a single class. Any amendment or repeal of, or
adoption of any provision inconsistent with, this Article Twelfth will not
adversely affect any right or protection existing hereunder prior to such
amendment, repeal, or adoption.
IN WITNESS WHEREOF, the undersigned has executed and signed this
Certificate of Incorporation this third day of February, 1999.
------------------------
Scott M. Dubowsky, Esq.
Incorporator
4
<PAGE>
PLAN OF MERGER OF
STRATFORD ACQUISITION CORP. AND NOVEX SYSTEMS INTERNATIONAL, INC.
INTO
NOVEX SYSTEMS INTERNATIONAL, INC.
ARTICLE I
Names of Constituent Corporations
1. The names of the corporation to be merged are Stratford Acquisition Corp., a
Minnesota corporation. The name under which Stratford Acquisition Corporation
was formed is Twin City Hair Goods, Inc.
2. The name of the surviving corporation is Novex Systems International, Inc., a
New York corporation.
ARTICLE II
1. Stratford Acquisition Corporation has outstanding 15,081,607 shares of $.001
par value common stock all of which are entitled to vote.
2. Novex Systems International, Inc. has outstanding one share of $.001 par
value common stock which is entitled to vote.
3. The number of the shares aforementioned is not subject to change prior to the
effective date of the merger.
ARTICLE III
Terms and Conditions of Merger
1. The By-Laws of Surviving Corporation. The By-Laws of the Surviving
Corporation, as they exist on the effective date of the merger, shall be and
remain the By-Laws of the Surviving Corporation until the same shall be altered,
amended or repealed as provided therein.
2. First Annual Meeting of Surviving Corporation. The first annual meeting of
the shareholders of the Surviving Corporation held after the date when the
Merger becomes effective, shall be the annual meeting provided or to be provided
by the By-Laws thereof for the year 2000.
3. Meeting of the Board of Directors of the Surviving Corporation. The first
meeting of the board of directors of the Surviving Corporation to be held after
the date when the Merger becomes effective may be called or may convene in the
manner provided in the By-Laws of the Surviving Corporation and may be held at
the time and place specified in the notice of the meeting.
4. Officers and Directors of the Surviving Corporation. All persons who shall be
directors and officers of the Non-Surviving Corporation on the effective date of
the Merger shall serve in the same respective offices and directorships of the
Surviving Corporation until the shareholders and board of
2
<PAGE>
directors of the Surviving Corporation shall elect or appoint their respective
successors. If on or after the effective date of the Merger a vacancy shall, for
any reason, exist in the board of directors or in any of the offices of the
Surviving Corporation, the vacancy shall be filled in the manner provided in the
Certificate of Incorporation of the Surviving Corporation or in its ByLaws.
5. In addition to the approval of shareholders of the constituent corporations,
the obligations of the constituent corporations to effect the Merger are subject
to the satisfaction or, where permitted, waiver of certain other conditions,
including (I) consents, approvals and waivers from third parties required to
consummate the merger and (ii) the approval for listing on the NASD bulletin
board, subject to the official notice of issuance, of the shares of the
Surviving Corporation to be issued in the merger.
ARTICLE IV
Conversion of Shares
1. Conversion of Shares of Stratford Acquisition Corporation. The manner and
basis of converting the shares of Stratford Acquisition Corporation into shares
of Novex Systems International, Inc. shall be as follows: Each publicly held
share of common stock of Stratford Acquisition Corp. outstanding on the
effective date of the Merger and all rights in respect thereof shall, forthwith
upon such effective date, be converted into, and become exchanged for an equal
number of shares of common stock of Novex Systems International, Inc., and each
holder of such shares of Stratford Acquisition Corp. shall be entitled, upon
presentation for surrender to Novex Systems International, Inc. or its agent, of
the certificate or certificates representing such shares, to receive in exchange
therefor a certificate or certificates representing the number of fully paid and
non-assessable shares of Novex Systems International, Inc. to which such holder
shall be entitled upon the aforesaid basis of conversion and exchange.
In order to receive the shares of Common Stock of the Surviving Corporation
to which they will be entitled as a result of the Merger, holders of publicly
held shares of Stratford Acquisition Corp. ("Publicly Held Shares") will be
required to surrender their stock certificates after the effective date of the
Merger, together with a duly completed and executed letter of transmittal to the
Surviving Corporation or its designated agent (the "Exchange Agent"). Upon
receipt of such stock certificate and letter of transmittal from the
shareholders of such Publicly Held Shares, the Surviving Corporation or the
Exchange Agent will arrange for the issuance and delivery of a Common Stock
certificate of the Surviving Corporation to the registered holder or his
transferee for the number of shares of common stock of the Surviving Corporation
that such person is entitled to receive as a result of the Merger. Instructions
with regard to the surrender of certificates together with a letter of
transmittal to be used for such purpose, will be mailed as promptly as
practicable after the effective date of the Merger to holders of Publicly Held
Shares. Holders of Publicly Held Shares who wish to exercise their dissenters'
rights must submit their stock certificates in accordance with the instructions
to be set forth in the proxy materials of the Non-Surviving Corporation. Holders
of Publicly Held Shares who are not electing to dissent should not submit their
stock certificates for exchange until such letter of transmittal and
instructions are received.
2
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If any certificate for shares of Common Stock of the Surviving Corporation
is to be issued to a person other than the person in whose name the certificate
for shares of the Publicly Held Shares surrendered in exchange therefor is
registered, it shall be a condition of such issuance that the stock certificate
so surrendered shall be properly endorsed (with such signature guarantees as may
be required by the letter of transmittal) and otherwise in proper form for
transfer and that the person requesting such issuance shall pay any transfer or
other taxes required by reason of the issuance of certificates for shares of
Common Stock of the Surviving Corporation to a person other than the registered
holder of the Publicly Held Shares surrendered or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
Until a certificate that previously represented Publicly Held Shares held
by a shareholder of the Non-Surviving Corporation is actually surrendered for
exchange and received by the Exchange Agent, the holder thereof will not be
entitled to vote or receive any dividends or other distributions with respect to
Common Stock of the Surviving Corporation payable to holders of record after the
effective date of the Merger. Subject to applicable law, upon such surrender of
stock certificates the previously represented Publicly Held Shares held by
shareholders of the Non-Surviving Corporation, such dividends or other
distributions will be remitted (without interest) to the record holder of
certificates for shares of Common Stock of the Surviving Corporation issued in
exchange therefor. Any certificates for shares of Common Stock of the Surviving
Corporation delivered or made available to the Exchange Agent and not exchanged
for Publicly Held Share certificates within six months after the effective date
of the Merger will be returned by the Exchange Agent to the Surviving
Corporation, which will thereafter act as Exchange Agent subject to the rights
of holders of certificates for unsurrendered Publicly Held Shares. However, none
of the Surviving Corporation, the Non-Surviving Corporation or the Exchange
Agent will be liable to any holder of Publicly Held Shares for any Common Stock
of the Surviving Corporation or dividends or distributions thereon or cash
delivered to a public official pursuant to applicable escheat, unclaimed
property or similar laws.
2. Treatment of Stock Options and Warrants. Each option and warrant of the
Non-Surviving Corporation outstanding at the effective date of the Merger shall
be converted into an equal number of options or warrants of the Surviving
Corporation in a similar fashion as that set forth above with respect to the
common stock of the Non-Surviving Corporation.
ARTICLE V
Amendments to Certificate of Incorporation
Of Surviving Corporation
There shall be no amendments or changes to the certificate of incorporation
of the Surviving Corporation to be effected by the merger.
3
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ARTICLE VI
Abandonment of Merger
Notwithstanding shareholder authorization of this plan of merger, this plan
may be abandoned by at any time prior to the filing of the certificate of merger
with the Department of State (I) by mutual consent of the Board of Directors of
the constituent corporations or (ii) subject to certain conditions if the Merger
has not been consummated on or before December 31, 1999. The filing of the
certificate of merger by the Department of State shall establish conclusively
that this plan has not been abandoned.
ARTICLE VII
Miscellaneous Provisions
1. Authorization by Shareholders. This plan shall be submitted to the respective
shareholders of the Constituent Corporations for their authorization thereof
pursuant to law.
2. Certain Regulatory Matters. The Company is subject to regulation under state
and federal laws that govern the sale of securities and the rules of certain
self-regulatory organizations. Certain notices are required pursuant to such
regulation in connection with the Merger. Appropriate filings are being
submitted and it is anticipated, although there can be no assurance, that all
such notices will be effected prior to, or promptly following, the Effective
date of the Merger. The Surviving Corporation will file an application for
listing of its shares with the NASDAQ OTC Bulletin Board and it is anticipated
that such approval will be obtained; however, there can be no assurance that it
will be obtained.
3. Effective Date of Merger; Effect of Merger.
(a) The merger shall be effected upon the filing of the certificate of
merger by the Department of State, and the certificate of merger shall contain
no provision to the contrary.
(b) The merger shall have the effect specified in paragraph (f) of Section
907 of the New York Business Corporations Law.
4. Expenses of Merger. The Surviving Corporation shall pay all the expenses of
carrying this plan into effect and of accomplishing the merger.
5. Counterparts. For the convenience of the parties and to facilitate approval
of this plan, any number of counterparts thereof may be executed, and each such
executed counterpart shall be deemed to be an original instrument.
4
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IN WITNESS WHEREOF, this plan of merger has been subscribed on behalf of
Stratford Acquisition Corp. and on behalf of Novex Systems International, Inc.
on February 25, 1999, the plan having been duly adopted by the board of
directors each corporation on February 25, 1999.
STRATFORD ACQUISITION CORP.
ATTEST: By: /s/Daniel W. Dowe
---------------------------
- ----------- Daniel W. Dowe, President
- ----------- By: /s/William K. Lavin
---------------------------
William K. Lavin, Secretary
NOVEX SYSTEMS INTERNATIONAL, INC.
ATTEST: By: /s/Daniel W. Dowe
---------------------------
Daniel W. Dowe, President
- ---------
By: /s/William K. Lavin
- --------- ---------------------------
William K. Lavin, Secretary
5
<PAGE>
CERTIFICATE OF MERGER
OF
STRATFORD ACQUISITION CORP.
INTO
NOVEX SYSTEMS INTERNATIONAL, INC.
UNDER SECTION 905 OF THE BUSINESS CORPORATION LAW
The undersigned, Daniel W. Dowe and William K. Lavin, being the president
and secretary, respectively, of each of Stratford Acquisition Corp. and Novex
Systems International, Inc. hereby certify:
(1) The name of the corporation to be merged is Stratford Acquisition
Corp., a Minnesota corporation. The name under which the corporation was formed
is Twin City Hair Goods Inc. Stratford Acquisition Corp. filed with the New York
Department of State an Application for Authority To Do Business and a
Certificate of Assumed Name on February 24, 1997, and February 25, 1997,
respectively.
(2) Stratford Acquisition Corporation has outstanding 15,081,607 shares of
$.001 par value common stock all of which are entitled to vote. Of these shares,
none of the shares are owned by Novex Systems International, Inc. The number of
outstanding shares of Stratford Acquisition Corp. is not subject to change prior
to the effective date of the merger.
(3) Shares of Novex Systems International, Inc. shall be issued pro rata to
shareholders of Stratford Acquisition Corp., the parent corporation, on the
surrender of certificates for their shares in Stratford Acquisition Corp.
(4) There shall be no amendments or changes to the certificate of
incorporation of Novex Systems International, Inc. to be effected by the merger.
(5) The date when the Articles of Incorporation of Stratford Acquisition
Corp. was filed by the Department of State of the State of Minnesota is February
14, 1966.
The date when the Certificate of Incorporation of Novex Systems
International, Inc. was filed by the Department of State of the State of New
York is February 5, 1999.
(6) The Plan of Merger of Stratford Acquisition Corp. into Novex Systems
International, Inc. was adopted by the board of directors of Stratford
Acquisition Corp., the parent corporation.
(7) The proposed merger has been approved by the shareholders of Stratford
Acquisition Corporation, the parent corporation, in accordance with paragraph
(a) of Section 903 (Authorization by Shareholders) of the Business Corporation
Law.
<PAGE>
IN WITNESS WHEREOF, the undersigned have subscribed this certificate and
hereby affirm it as true under the penalties of perjury this 29th day of April,
1999.
STRATFORD ACQUISITION CORP.
By: /s/Daniel W. Dowe
-------------------------------
Daniel W. Dowe, President
By: /s/William K. Lavin
-------------------------------
William K. Lavin, Secretary
2
<PAGE>
ARTICLES OF MERGER
OF
STRATFORD ACQUISITION CORP.
INTO
NOVEX SYSTEMS INTERNATIONAL, INC.
UNDER SECTION 302A.651 OF THE BUSINESS CORPORATIONS LAW
The undersigned, Daniel W. Dowe and William K. Lavin, being the president
and secretary, respectively, of each of Stratford Acquisition Corp. and Novex
Systems International, Inc. hereby certify:
(1) Annexed hereto is a true and correct copy of the Plan of Merger of
Stratford Acquisition Corp., a domestic corporation, into Novex Systems
International, Inc., a New York corporation.
(2) The annexed Plan of Merger has been approved by the shareholders of
each of the constituent corporations pursuant to Chapter 302A of the Business
Corporations Law of the State of Minnesota.
(3) The foreign corporation, Novex Systems International, Inc., shall be
the surviving corporation.
(4) Novex Systems International, Inc. hereby agrees that
(A) it may be served with process in the State of Minnesota in a proceeding
for the enforcement of an obligation of Stratford Acquisition Corp. and in a
proceeding for the enforcement of the rights of a dissenting shareholder of
Stratford Acquisition Corp. against Novex Systems International, Inc.;
(B) it irrevocably appoints the Secretary of State of the State of
Minnesota as its agent to accept service of process in any proceeding. Process
may be forwarded to Novex Systems International, Inc. at 67 Wall Street, Suite
2001, New York, New York 10005; and
(C) it will promptly pay to the dissenting shareholders of Stratford
Acquisition Corp. the amount, if any, to which they are entitled under section
302A.473.
IN WITNESS WHEREOF, the undersigned have subscribed this certificate and
hereby affirm it as true under the penalties of perjury this 29th day of April,
1999.
STRATFORD ACQUISITION CORP.
By: /s/Daniel W. Dowe
-------------------------------
Daniel W. Dowe, President
By: /s/William K. Lavin
-------------------------------
William K. Lavin, Secretary
NOVEX SYSTEMS INTERNATIONAL, INC.
BYLAWS
<PAGE>
STRATFORD ACQUISITION, INC.
BYLAWS
TABLE OF CONTENTS
STOCKHOLDERS'MEETINGS..........................................................1
1. Time and Place of Meetings...............................................1
2. Annual Meeting...........................................................1
3. Special Meetings.........................................................1
4. Notice of Meetings.......................................................1
5. Inspectors...............................................................2
6. Quorum...................................................................2
7. Voting...................................................................2
8. Order of Business........................................................2
DIRECTORS......................................................................4
9. Function.................................................................4
10. Number, Election, and Terms.............................................4
11. Vacancies and Newly Created Directorships...............................4
12. Removal.................................................................4
13. Nominations of Directors; Election......................................4
14. Resignation.............................................................5
15. Regular Meetings........................................................6
16. Special Meetings........................................................6
17. Quorum..................................................................6
18. Participation in Meetings by Telephone Conference.......................6
19. Compensation............................................................7
20. Rules...................................................................7
NOTICES........................................................................7
21. Generally...............................................................7
22. Waivers.................................................................7
OFFICERS.......................................................................7
23. Generally...............................................................7
24. Compensation............................................................8
25. Succession..............................................................8
26. Authority and Duties....................................................8
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STOCK..........................................................................8
27. Certificates............................................................8
28. Classes of Stock........................................................8
29. Transfers...............................................................8
30. Lost, Stolen, or Destroyed Certificates.................................9
31. Record Dates............................................................9
INDEMNIFiCATION................................................................9
32. Damages and Expenses....................................................9
33. Insurance, Contracts, and Funding......................................14
GENERAL.......................................................................14
34. Fiscal Year............................................................14
35. Seal...................................................................14
36. Reliance upon Books, Reports, and Records..............................14
37. Time Periods...........................................................15
38. Amendments.............................................................15
39. Certain Defined Terms..................................................15
ii
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STOCKHOLDERS' MEETINGS
1. Time and Place of Meetings. All meetings of the stockholders for the
election of the Directors or for any other purpose will be held at such time and
place, within or without the State of New York, as may be designated by the
Board or, in the absence of a designation by the Board, the Chairman, the
President, or the Secretary, and stated in the notice of meeting. The Board may
postpone and reschedule any previously scheduled annual or special meeting of
the stockholders.
2. Annual Meeting. An annual meeting of the stockholders will be held at
such date and time as may be designated from time to time by the Board, at which
meeting the stockholders will elect by a plurality vote the Directors to succeed
those whose terms expire at such meeting and will transact such other business
as may properly be brought before the meeting in accordance with Bylaw 8.
3. Special Meetings. Special meetings of the stockholders may be called
only by (a) the Chairman or (b) the Secretary within 10 calendar days after
receipt of the written request of a majority of the Whole Board, or as required
pursuant to relevant provisions of the New York Business Corporation Law. Any
such request by a majority of the Whole Board must be sent to the Chairman and
the Secretary must state the purpose or purposes of the proposed meeting.
Special meetings of holders of the outstanding Preferred Stock, if any, may be
called in the manner and for the purposes provided in the applicable Preferred
Stock Designation. At a special meeting of stockholders, only such business may
be conducted or considered as (i) has been specified in the notice of the
meeting (or any supplement thereto) given by or at the direction of the Chairman
or a majority of the Whole Board or (ii) otherwise is properly brought before
the meeting by the presiding officer of the meeting (as described in Bylaw 8) or
by or at the direction of a majority of the Whole Board.
4. Notice of Meetings. Written notice of every meeting of stockholders,
stating the record date, and the place, date, and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, will be given not less than 10 nor more than 60 calendar days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting, except as otherwise provided herein or by law. When a meeting is
adjourned to another place, date, or time, written notice need not be given of
the adjourned meeting if the place, date, and time thereof are announced at the
meeting at which the adjournment is taken; provided, however, that if the
adjournment is for more than 30 calendar days, or if after the adjournment a new
record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting must be given in conformity herewith. At
any adjourned
<PAGE>
meeting, any business may be transacted which properly could have been
transacted at the original meeting.
5. Inspectors. The Board may appoint one or more inspectors of election to
act as judges of the voting and to determine those entitled to vote at any
meeting of the stockholders, or any adjournment thereof, in advance of such
meeting. The Board may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the presiding officer of the meeting may
appoint one or more substitute inspectors.
6. Quorum. Except as otherwise provided by law or in a Preferred Stock
Designation, the holders of a majority of the votes of the shares at the time
entitled to vote in the election of any Directors will constitute a quorum at
all meetings of the stockholders for the transaction of business thereat. If the
item is required to be voted on by a particular class or series of shares,
voting as a class, the holders of a majority of votes of shares of such class or
series shall constitute a quorum. If, however, such quorum is not present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, will have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented.
7. Voting. Except as otherwise provided by law, by the Certificate of
Incorporation, or in a Preferred Stock Designation, each stockholder will be
entitled at every meeting of the stockholders to one vote for each share of
stock having voting power standing in the name of such stockholder on the books
of the Company on the record date for the meeting and such votes may be cast
either in person or by written proxy. Every proxy must be duly executed and
filed with the Secretary. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary. The vote upon any question brought before a
meeting of the stockholders may be by voice vote, unless otherwise required by
the Certificate of Incorporation or these Bylaws or unless the Chairman or the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at such meeting otherwise
determine. Every vote taken by written ballot will be counted by the inspectors
of election. When a quorum is present at any meeting, the affirmative vote of a
majority of the votes of the shares at the time entitled to vote in the election
of Directors, present in person or represented by proxy at the meeting and
entitled to vote on the subject matter and which has actually been voted will be
the act of the stockholders, except in the election of Directors or as otherwise
provided in these Bylaws, the Certificate of Incorporation, a Preferred Stock
Designation, or bylaw.
8. Order of Business. (a) The Chairman, or such other officer of the
Company designated by a majority of the Whole Board, will call meetings of the
stockholders to order and will act as presiding officer thereof. Unless
otherwise determined by the Board prior to the meeting, the presiding officer of
the meeting of the stockholders will also determine the order of business and
have the authority in his or her sole discretion to regulate the conduct of any
such meeting, including without limitation by imposing restrictions on the
persons (other than
2
<PAGE>
stockholders of the Company or their duly appointed proxies) who may attend any
such stockholders' meeting, by ascertaining whether any stockholder or his proxy
may be excluded from any meeting of the stockholders based upon any
determination by the presiding officer, in his sole discretion, that any such
person has unduly disrupted or is likely to disrupt the proceedings thereat, and
by determining the circumstances in which any person may make a statement or ask
questions at any meeting of the stockholders.
(b) At an annual meeting of the stockholders, only such business will be
conducted or considered as is properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board, (ii) otherwise properly brought before the meeting by the presiding
officer or by or at the direction of a majority of the Whole Board, or (iii)
otherwise properly requested to be brought before the meeting by a stockholder
of the Company in accordance with paragraph (c) of this Bylaw 8.
(c) For business to be properly requested to be brought before an annual
meeting by a stockholder, the stockholder must (i) be a stockholder of the
Company of record at the time of the giving of the notice for such annual
meeting provided for in these Bylaws, (ii) be entitled to vote at such meeting,
and (iii) have given timely notice thereof in writing to the Secretary. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company not less than 60 calendar days
prior to the annual meeting; provided, however, that in the event public
announcement of the date of the annual meeting is not made at least 75 calendar
days prior to the date of the annual meeting, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
calendar day following the day on which public announcement is first made of the
date of the annual meeting. A stockholder's notice to the Secretary must set
forth as to each matter the stockholder proposes to bring before the annual
meeting (A) a description in reasonable detail of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (B) the name and address, as they appear on the Company's
books, of the stockholder proposing such business and the beneficial owner, if
any, on whose behalf the proposal is made, (C) the class and number of shares of
the Company that are owned beneficially and of record by the stockholder
proposing such business and by the beneficial owner, if any, on whose behalf the
proposal is made, and (D) any material interest of such stockholder proposing
such business and the beneficial owner, if any, on whose behalf the proposal is
made in such business. Notwithstanding anything in these Bylaws to the contrary,
no business will be conducted at an annual meeting except in accordance with the
procedures set forth in this Bylaw 8. The presiding officer of the annual
meeting will, if the facts warrant, determine that business was not properly
brought before the meeting in accordance with the procedures prescribed in this
Bylaw 8 and, if he or she should so determine, he or she will so declare to the
meeting and any such business not properly brought before the meeting will not
be transacted. Notwithstanding the foregoing provisions of this Bylaw 8, a
stockholder must also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Bylaw 8. For purposes of this Bylaw and
Bylaw 13, "public announcement" means disclosure in a press release reported by
the Dow Jones News Service, Associated Press, or comparable national news
service or in a document publicly filed by the Company with the Securities and
Exchange
3
<PAGE>
Commission pursuant to Sections 13, 14, or 15(d) of the Securities Exchange Act
of 1934, as amended. Nothing in this Bylaw 8 will be deemed to affect any rights
of stockholders to request inclusion of proposals in the Company's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended.
DIRECTORS
9. Function. The business and affairs of the Company will be managed under
the direction of its Board.
10. Number, Election, and Terms. Subject to the rights, if any, of any
series of Preferred Stock to elect additional Directors under circumstances
specified in a Preferred Stock Designation, the authorized number of Directors
may be determined from time to time only by a vote of a majority of the Whole
Board or by the affirmative vote of 75% of the votes of the shares at the time
entitled to vote in the election of Directors, voting together as a single
class, but in no case will the number of Directors be other than as provided in
the Certificate of Incorporation. The Directors, other than those who may be
elected by the holders of any series of the Preferred Stock, will be classified
with respect to the time for which they severally hold office in accordance with
the Certificate of Incorporation. The Board may create new directorships from
time to time as provided in the Certificate of Incorporation.
11. Vacancies and Newly Created Directorships. Subject to the rights, if
any, of the holders of any series of Preferred Stock to elect additional
Directors under circumstances specified in a Preferred Stock Designation, newly
created directorships resulting from any increase in the number of Directors and
any vacancies on the Board resulting from death, resignation, disqualification,
removal, or other cause will be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, even though less than a
quorum of the Board, or by a sole remaining Director. Any Director elected in
accordance with the preceding sentence will hold office for the remainder of the
full term of the class of Directors in which the new directorship was created or
the vacancy occurred and until such Director's successor is elected and
qualified. No decrease in the number of Directors constituting the Board will
shorten the term of an incumbent Director.
12. Removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect additional Directors under circumstances specified in a
Preferred Stock Designation, any Director may be removed from office by the
stockholders only for cause and only in the manner provided in the Certificate
of Incorporation and, if applicable, any amendment to these Bylaws.
13. Nominations of Directors; Election. (a) Subject to the rights, if any,
of the holders of any series of Preferred Stock to elect additional Directors
under circumstances
4
<PAGE>
specified in a Preferred Stock Designation, only persons who are nominated in
accordance with the following procedures will be eligible for election as
Directors of the Company.
(b) Nominations of persons for election as Directors of the Company may be
made at a meeting of stockholders (i) by or at the direction of the Board or
(ii) by any stockholder who is a stockholder of record at the time of giving of
notice provided for in this Bylaw 13 who is entitled to vote for the election of
Directors at the meeting and who complies with the procedures set forth in this
Bylaw 13. All nominations by stockholders must be made pursuant to timely notice
in proper written form to the Secretary.
(c) To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Company not less than 60
calendar days prior to the meeting; provided, however, that in the event that
public announcement of the date of the meeting is not made at least 75 calendar
days prior to the date of the meeting, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th calendar
day following the day on which public announcement is first made of the date of
the meeting. To be in proper written form, such stockholder's notice must set
forth or include (i) the name and address, as they appear on the Company's
books, of the stockholder giving the notice and of the beneficial owner, if any,
on whose behalf the nomination is made; (ii) a representation that the
stockholder giving the notice is a holder of record of stock of the Company
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (iii) the
class and number of shares of stock of the Company owned beneficially and of
record by the stockholder giving the notice and by the beneficial owner, if any,
on whose behalf the nomination is made; (iv) a description of all arrangements
or understandings between or among any of (A) the stockholder giving the notice,
(B) the beneficial owner on whose behalf the notice is given, (C) each nominee,
and (D) any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder giving the
notice; (v) such other information regarding each nominee proposed by the
stockholder giving the notice as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board; and (vi) the signed consent of each nominee to serve as a director of the
Company if so elected. At the request of the Board, any person nominated by the
Board for election as a Director must furnish to the Secretary that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. The presiding officer of the meeting for election of Directors
will, if the facts warrant, determine that a nomination was not made in
accordance with the procedures prescribed by this Bylaw 13, and if he or she
should so determine, he or she will so declare to the meeting and the defective
nomination will be disregarded. Notwithstanding the foregoing provisions of this
Bylaw 13, a stockholder must also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw 13.
14. Resignation. Any Director may resign at any time by giving written
notice of his resignation to the Chairman or the Secretary. Any resignation will
be effective upon actual receipt by any such person or, if later, as of the date
and time specified in such written notice.
5
<PAGE>
15. Regular Meetings. Regular meetings of the Board may be held immediately
after the annual meeting of the stockholders and at such other time and place
either within or without the State of New York as may from time to time be
determined by the Board. Notice of regular meetings of the Board need not be
given.
16. Special Meetings. Special meetings of the Board may be called by the
Chairman or the President on one day's notice to each Director by whom such
notice is not waived, given either personally or by mail, telephone, telegram,
telex, facsimile, or similar medium of communication, and will be called by the
Chairman or the President in like manner and on like notice on the written
request of three or more Directors. Special meetings of the Board may be held at
such time and place either within or without the State of New York as is
determined by the Board or specified in the notice of any such meeting.
17. Quorum. At all meetings of the Board, a majority of the total number of
Directors then in office will constitute a quorum for the transaction of
business. Except for the designation of committees as hereinafter provided and
except for actions required by these Bylaws or the Certificate of Incorporation
to be taken by a majority of the Whole Board, the act of a majority of the
Directors present at any meeting at which there is a quorum will be the act of
the Board. If a quorum is not present at any meeting of the Board, the Directors
present thereat may adjourn the meeting from time to time to another place,
time, or date, without notice other than announcement at the meeting, until a
quorum is present.
18. Participation in Meetings by Telephone Conference. Members of the Board
or any committee designated by the Board may participate in a meeting of the
Board or any such committee, as the case may be, by means of telephone
conference or similar means by which all persons participating in the meeting
can hear each other, and such participation in a meeting will constitute
presence in person at the meeting.
(a) The Board, by resolution passed by a majority of the Whole Board, may
designate one or more additional committees, each such committee to consist of
one or more Directors and each to have such lawfully delegable powers and duties
as the Board may confer.
(b) Each committee of the Board will serve at the pleasure of the Board or
as may be specified in any resolution from time to time adopted by the Board.
The Board may designate one or more Directors as alternate members of any such
committee, who may replace any absent or disqualified member at any meeting of
such committee. In lieu of such action by the Board, in the absence or
disqualification of any member of a committee of the Board, the members thereof
present at any such meeting of such committee and not disqualified from voting,
whether or not they constitute a quorum, may unanimously appoint another member
of the Board to act at the meeting in the place of any such absent or
disqualified member.
(c) Except as otherwise provided in these Bylaws or by law, any committee
of the Board, to the extent provided in the resolution of the Board, will have
and may exercise all the powers and authority of the Board in the direction of
the management of the business and affairs of the Company. Any such committee
designated by the Board will have such name as may be
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determined from time to time by resolution adopted by the Board. Unless
otherwise prescribed by the Board, a majority of the members of any committee of
the Board will constitute a quorum for the transaction of business, and the act
of a majority of the members present at a meeting at which there is a quorum
will be the act of such committee. Each committee of the Board may prescribe its
own rules for calling and holding meetings and its method of procedure, subject
to any rules prescribed by the Board, and will keep a written record of all
actions taken by it.
19. Compensation. The Board may establish the compensation for, and
reimbursement of the expenses of, Directors for membership on the Board and on
committees of the Board, attendance at meetings of the Board or committees of
the Board, and for other services by Directors to the Company or any of its
majority-owned subsidiaries.
20. Rules. The Board may adopt rules and regulations for the conduct of
their meetings and the management of the affairs of the Company.
NOTICES
21. Generally. Except as otherwise provided by law, these Bylaws, or the
Certificate of Incorporation, whenever by law or under the provisions of the
Certificate of Incorporation or these Bylaws notice is required to be given to
any Director or stockholder, it will not be construed to require personal
notice, but such notice may be given in writing, by first class mail, addressed
to such Director or stockholder, at the address of such Director or stockholder
as it appears on the records of the Company, with postage thereon prepaid, and
such notice will be deemed to be given at the time when the same is deposited in
the United States mail. Notice to Directors may also be given by telephone,
telegram, telex, facsimile, or similar medium of communication or as otherwise
may be permitted by these Bylaws.
22. Waivers. Whenever any notice is required to be given by law or under
the provisions of the Certificate of Incorporation or these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time of the event for which notice is to be given,
will be deemed equivalent to such notice. Attendance of a person at a meeting
will constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
OFFICERS
23. Generally. The officers of the Company will be elected by the Board and
will consist of a Chairman, a President, (who, unless the Board specifies
otherwise, will also be the Chief Executive Officer), a Secretary, and a
Treasurer. The Board of Directors may also choose any or all of the following:
one or more Vice Chairmen, one or more Assistants to the Chairman, one or more
Vice Presidents (who may be given particular designations with respect to
authority, function, or seniority), and such other officers as the Board may
from time to time determine. Notwithstanding the foregoing, by specific action
the Board may authorize the Chairman to
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appoint any person to any office other than Chairman, President, Secretary, or
Treasurer. Any number of offices may be held by the same person. Any of the
offices may be left vacant from time to time as the Board may determine. In the
case of the absence or disability of any officer of the Company or for any other
reason deemed sufficient by a majority of the Board, the Board may delegate the
absent or disabled officer's powers or duties to any other officer or to any
Director.
24. Compensation. The compensation of all officers and agents of the
Company who are also Directors of the Company will be fixed by the Board or by a
committee of the Board. The Board may fix, or delegate the power to fix, the
compensation of other officers and agents of the Company to an officer of the
Company.
25. Succession. The officers of the Company will hold office until their
successors are elected and qualified. Any officer may be removed at any time by
the affirmative vote of a majority of the Whole Board. Any vacancy occurring in
any office of the Company may be filled by the Board.
26. Authority and Duties. Each of the officers of the Company will have
such authority and will perform such duties as are customarily incident to their
respective offices or as may be specified from time to time by the Board.
STOCK
27. Certificates. Certificates representing shares of stock of the Company
will be in such form as is determined by the Board, subject to applicable legal
requirements. Each such certificate will be numbered and its issuance recorded
in the books of the Company, and such certificate will exhibit the holder's name
and the number of shares and will be signed by, or in the name of, the Company
by the President and the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, and will also be signed by, or bear the facsimile
signature of, a duly authorized officer or agent of any properly designated
transfer agent of the Company. Any or all of the signatures and the seal of the
Company, if any, upon such certificates may be facsimiles, engraved, or printed.
Such certificates may be issued and delivered notwithstanding that the person
whose facsimile signature appears thereon may have ceased to be such officer at
the time the certificates are issued and delivered.
28. Classes of Stock. The designations, preferences, and relative
participating, optional, or other special rights of the various classes of stock
or series thereof, and the qualifications, limitations, or restrictions thereof,
will be set forth in full or summarized on the face or back of the certificates
which the Company issues to represent its stock, or in lieu thereof, such
certificates will set forth the office of the Company from which the holders of
certificates may obtain a copy of such information.
29. Transfers. Upon surrender to the Company or the transfer agent of the
Company of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, it will be the
duty of the Company to issue, or to
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cause its transfer agent to issue, a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon its books.
30. Lost, Stolen, or Destroyed Certificates. The Secretary may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact, satisfactory
to the Secretary, by the person claiming the certificate of stock to be lost,
stolen, or destroyed. As a condition precedent to the issuance of a new
certificate or certificates, the Secretary may require the owners of such lost,
stolen, or destroyed certificate or certificates to give the Company a bond in
such sum and with such surety or sureties as the Secretary may direct as
indemnity against any claims that may be made against the Company with respect
to the certificate alleged to have been lost, stolen, or destroyed or the
issuance of the new certificate.
31. Record Dates. (a) In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board may fix a record date, which will not be more
than 60 nor less than 10 calendar days before the date of such meeting. If no
record date is fixed by the Board, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders will be at the
close of business on the calendar day next preceding the day on which notice is
given, or, if no notice is given, the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of the stockholders will apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
(b)In order that the Company may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the record date shall be such date as shall be selected by the Board, or, if no
date is selected, at the close of business on the calendar day on which the
Board adopts the resolution relating thereto.
(c) The Company will be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes, and will
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person, whether or not the Company has notice
thereof, except as expressly provided by applicable law.
INDEMNIFICATION
32. Damages and Expenses. (a) Without limiting the generality or effect of
any provision of the Certificate of Incorporation, the Company will to the
fullest extent permitted by applicable law as then in effect indemnify any
person (an "Indemnitee") who is or was involved in any manner (including without
limitation as a party or a witness) or is threatened to be made so involved in
any threatened, pending, or completed investigation, claim, action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (including
without limitation
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any action, suit, or proceeding, by or in the right of the Company to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that such person
is or was or had agreed to become a Director, officer, employee, or agent of the
Company, or is or was serving at the request of the Board or an officer of the
Company as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other entity, whether for profit or not
for profit (including the heirs, executors, administrators, or estate of such
person), or anything done or not by such person in any such capacity, against
all expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such Proceeding. Such indemnification will be a contract right and will include
the right to receive payment in advance of any expenses incurred by an
Indemnitee in connection with such Proceeding, consistent with the provisions of
applicable law as then in effect.
(b) The right of indemnification provided in this Bylaw 33 will not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, and will be applicable to Proceedings commenced or
continuing after the adoption of this Bylaw 33, whether arising from acts or
omissions occurring before or after such adoption.
(c) In furtherance, but not in limitation of the foregoing provisions, the
following procedures, presumptions, and remedies will apply with respect to
advancement of expenses and the right to indemnification under this Bylaw 33:
(i) All reasonable expenses incurred by or on behalf of an Indemnitee
in connection with any Proceeding will be advanced to the Indemnitee by the
Company within 30 calendar days after the receipt by the Company of a
statement or statements from the Indemnitee requesting such advance or
advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements will reasonably evidence the
expenses incurred by the Indemnitee and, if and to the extent required by
law at the time of such advance, will include or be accompanied by an
undertaking by or on behalf of the Indemnitee to repay such amounts
advanced as to which it may ultimately be determined that the Indemnitee is
not entitled. If such an undertaking is required by law at the time of an
advance, no security will be required for such undertaking and such
undertaking will be accepted without reference to the recipient's financial
ability to make repayment.
(ii) To obtain indemnification under this Bylaw 33, the Indemnitee
will submit to the Secretary a written request, including such
documentation supporting the claim as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification (the "Supporting
Documentation"). The determination of the Indemnitee's entitlement to
indemnification will be made not more than 30 calendar days after receipt
by the Company of the written request for indemnification together with the
Supporting Documentation. The Secretary will promptly upon receipt of such
a request for indemnification advise the Board in writing that the
Indemnitee has requested indemnification. The Indemnitee's entitlement to
indemnification under this Bylaw 33 will be determined in one of the
following ways: (A) by a majority vote of the Disinterested Directors (as
hereinafter defined), if they constitute a quorum of the Board, or, in the
case of an Indemnitee that is not a present or former officer of the
Company, by any committee of the Board or
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committee of officers or agents of the Company designated for such purpose
by a majority of the Whole Board; (B) by a written opinion of Independent
Counsel if (1) a Change of Control has occurred and the Indemnitee so
requests or (2) in the case of an Indemnitee that is a present or former
officer of the Company, a quorum of the Board consisting of Disinterested
Directors is not obtainable or, even if obtainable, a majority of such
Disinterested Directors so directs; (C) by the stockholders (but only if a
majority of the Disinterested Directors, if they constitute a quorum of the
Board, presents the issue of entitlement to indemnification to the
stockholders for their determination); or (D) as provided in subparagraph
(iii) below. In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to clause (B)
above, a majority of the Disinterested Directors will select the
Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object; provided, however, that if a Change
of Control has occurred, the Indemnitee will select such Independent
Counsel, but only an Independent Counsel to which the Board does not
reasonably object.
(iii) Except as otherwise expressly provided in this Bylaw 33, the
Indemnitee will be presumed to be entitled to indemnification under this
Bylaw 33 upon submission of a request for indemnification together with the
Supporting Documentation in accordance with subparagraph (c) (ii) above,
and thereafter the Company will have the burden of proof to overcome that
presumption in reaching a contrary determination. In any event, if the
person or persons empowered under subparagraph (c) (ii) to determine
entitlement to indemnification has not been appointed or has not made a
determination within 30 calendar days after receipt by the Company of the
request therefor together with the Supporting Documentation, the Indemnitee
will be deemed to be entitled to indemnification and the Indemnitee will be
entitled to such indemnification unless (A) the Indemnitee misrepresented
or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law. The termination of any Proceeding
described in paragraph (a) of this Bylaw 33, or of any claim, issue, or
matter therein, by judgment, order, settlement, or conviction, or upon a
plea of nolo contendere or its equivalent, will not, of itself, adversely
affect the right of the Indemnitee to indemnification or create a
presumption that the Indemnitee did not act in good faith and in a manner
which the Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company or, with respect to any criminal Proceeding,
that the Indemnitee had reasonable cause to believe that his conduct was
unlawful.
(iv) (A) In the event that a determination is made pursuant to
subparagraph (c) (ii) that the Indemnitee is not entitled to
indemnification under this Bylaw 33, (1) the Indemnitee will be entitled to
seek an adjudication of his or her entitlement to such indemnification
either, at the Indemnitee's sole option, in (x) an appropriate court of the
State of New York or any other court of competent jurisdiction or (y) an
arbitration to be conducted by a single arbitrator pursuant to the rules of
the American Arbitration Association; (2) any such judicial proceeding or
arbitration will be de novo and the Indemnitee will not be prejudiced by
reason of such adverse determination; and (3) in any such judicial
proceeding or arbitration the Company will have the burden of proving that
the Indemnitee is not entitled to indemnification under this Bylaw 33.
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(B) If a determination is made or deemed to have been made, pursuant to
subparagraph (c) (ii) or (iii) of this Bylaw 33 that the Indemnitee is entitled
to indemnification, the Company will be obligated to pay the amounts
constituting such indemnification within five (5) business days after such
determination has been made or deemed to have been made and will be conclusively
bound by such determination unless (1) the Indemnitee misrepresented or failed
to disclose a material fact in making the request for indemnification or in the
Supporting Documentation or (2) such indemnification is prohibited by law, these
Bylaws or the Certificate of Incorporation. In the event that advancement of
expenses is not timely made pursuant to subparagraph (c) (i) of the Bylaw 33 or
payment of indemnification is not made within five (5) business days after a
determination of entitlement to indemnification has been made or deemed to have
been made pursuant to subparagraph (c) (ii) or (iii) of this Bylaw 33, the
Indemnitee will be entitled to seek judicial enforcement of the Company's
obligation to pay to the Indemnitee such advancement of expenses or
indemnification. Notwithstanding the foregoing, the Company may bring an action,
in an appropriate court in the State of New York or any other court of competent
jurisdiction, contesting the right of the Indemnitee to receive indemnification
hereunder due to the occurrence of any event described in subclause (1) or (2)
of this clause (B) (a "Disqualifying Event"); provided, however, that in any
such action the Company will have the burden of proving the occurrence of such
Disqualifying Event.
(C) The Company will be precluded from asserting in any judicial proceeding
or arbitration commenced pursuant to the provisions of this subparagraph (c)
(iv) that the procedures and presumptions of this Bylaw 33 are not valid,
binding, and enforceable and will stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Bylaw 33.
(D) In the event that the Indemnitee, pursuant to the provisions of this
subparagraph (c) (iv), seeks a judicial adjudication of, or an award in
arbitration to enforce, his rights under, or to recover damages for breach of,
this Bylaw 33, the Indemnitee will be entitled to recover from the Company, and
will be indemnified by the Company against, any expenses actually and reasonably
incurred by the Indemnitee if the Indemnitee prevails in such judicial
adjudication or arbitration. If it is determined in such judicial adjudication
or arbitration that the Indemnitee is entitled to receive part but not all of
the indemnification or advancement of expenses sought, the expenses incurred by
the Indemnitee in connection with such judicial adjudication or arbitration will
be prorated accordingly.
(v) For purposes of this paragraph (c):
(A) "Change in Control" means the occurrence of any of the following
events:
1. The Company is merged, consolidated, or reorganized into or with another
corporation or other legal entity, and as a result of such merger,
consolidation, or reorganization less than a majority of the combined voting
power of the then outstanding securities of such corporation or entity
immediately after such transaction are held in the aggregate by the holders of
the Voting Stock immediately prior to such transaction;
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2. The Company sells or otherwise transfers all or substantially all of its
assets to another corporation or other legal entity and, as a result of such
sale or transfer, less than a majority of the combined voting power of the
then-outstanding securities of such other corporation or entity immediately
after such sale or transfer is held in the aggregate by the holders of Voting
Stock immediately prior to such sale or transfer;
3. There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form, or report or item therein), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), disclosing that any person (as the term "person" is used in Section 13
(d) (3) and Section 14 (d) (2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of securities
representing 30% or more of the combined voting power of the Voting Stock;
4. The Company files a report or proxy statement with the Securities and
Exchange Commission pursuant to the Exchange Act disclosing in response to Form
8-K or Schedule 14A (or any successor schedule, form, or report or item therein)
that a change in control of the Company has occurred or will occur in the future
pursuant to any then-existing contract or transaction; or
5. If, during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Directors cease for any reason to
constitute at least a majority thereof; provided, however, that for purposes of
this clause (5) each Director who is first elected, or first nominated for
election by the Company's stockholders, by a vote of at least two-thirds of the
Directors (or a committee of the Board) then still in office who were Directors
at the beginning of any such period will be deemed to have been a Director at
the beginning of such period. Notwithstanding the foregoing provisions of
clauses (3) or (4) of this paragraph (c) (v) (A); unless otherwise determined in
a specific case by majority vote of the Board, a "Change in Control" will not be
deemed to have occurred for purposes of such clauses (3) or (4) solely because
(x) the Company, and (y) an entity in which the Company, directly or indirectly,
beneficially owns 50% or more of the voting securities (a "Subsidiary"), or (z)
any employee stock ownership plan or any other employee benefit plan of the
Company or any Subsidiary either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form
8-K, or Schedule 14A (or any successor schedule, form, or report or item
therein) under the Exchange Act disclosing beneficial ownership by it of shares
of Voting Stock, whether in excess of 30% or otherwise, or because the Company
reports that a change in control of the Company has occurred or will occur in
the future by reason of such beneficial ownership.
(B) "Disinterested Director" means a Director of the Company who is not or
was not a party to the Proceeding in respect of which indemnification is sought
by the Indemnitee.
(C) "Independent Counsel" means a law firm or a member of a law firm that
neither presently is, nor in the past five years has been, retained to represent
(1) the Company or the Indemnitee in any matter material to either such party or
(2) any other party to the Proceeding
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giving rise to a claim for indemnification under this Bylaw 33. Notwithstanding
the foregoing, the term "Independent Counsel" will not include any person who,
under the applicable standards of professional conduct then prevailing under the
law of the State of New York, would be precluded from representing either the
Company or the Indemnitee in an action to determine the Indemnitee's rights
under this Bylaw 33.
(D) If any provision or provisions of this Bylaw 33 are held to be invalid,
illegal, or unenforceable for any reason whatsoever: (i) the validity, legality,
and enforceability of the remaining provisions of this Bylaw 33 (including
without limitation all portions of any paragraph of this Bylaw 33 containing any
such provision held to be invalid, illegal, or unenforceable, that are not
themselves invalid, illegal, or unenforceable) will not in any way be affected
or impaired thereby and (ii) to the fullest extent possible, the provisions of
this Bylaw 33 (including without limitation all portions of any paragraph of
this Bylaw 33 containing any such provision held to be invalid, illegal, or
unenforceable, that are not themselves invalid, illegal, or unenforceable) will
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal, or unenforceable.
33. Insurance, Contracts, and Funding. The Company may purchase and
maintain insurance to protect itself and any Indemnitee against any expenses,
judgments, fines, and amounts paid in settlement or incurred by any Indemnitee
in connection with any Proceeding referred to in Bylaw 33 or otherwise, to the
fullest extent permitted by applicable law as then in effect. The Company may
enter into contracts with any person entitled to indemnification under Bylaw 33
or otherwise, and may create a trust fund, grant a security interest, or use
other means (including without limitation a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in Bylaw 33.
GENERAL
34. Fiscal Year. The fiscal year of the Company will end on May 31stst of
each year or such other date as may be fixed from time to time by the Board.
35. Seal. The Board may adopt a corporate seal and use the same by causing
it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
36. Reliance upon Books, Reports, and Records. Each Director, each member
of a committee designated by the Board, and each officer of the Company will, in
the performance of his or her duties, be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports, or statements presented to the Company by any of the Company's officers
or employees, or committees of the Board, or by any other person or entity as to
matters the Director, committee member, or officer believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company.
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37. Time Periods. In applying any provision of these Bylaws that requires
that an act be done or not be done a specified number of days prior to an event
or that an act be done during a period of a specified number of days prior to an
event, calendar days will be used unless otherwise specified, the day of the
doing of the act will be excluded and the day of the event will be included.
38. Amendments. Except as otherwise provided by law or by the Certificate
of Incorporation, these Bylaws or any of them may be amended in any respect or
repealed at any time, either (i) at any meeting of stockholders, provided that
any amendment or supplement proposed to be acted upon at any such meeting has
been described or referred to in the notice of such meeting, or (ii) at any
meeting of the Board, provided that no amendment adopted by the Board may vary
or conflict with any amendment adopted by the stockholders.
39. Certain Defined Terms. Terms used herein with initial capital letters
that are defined in the Certificate of Incorporation are used herein as so
defined.
15
Exhibit 4
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SECTION 4(2) UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THESE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE 1933 ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
No. ____ $800,000 USD
Dated: September , 1998
STRATFORD ACQUISITION CORPORATION 1
9% $800,000 Debenture
and
Warrant to Purchase 1,500,000 Shares of Common Stock
THE SECURITIES REPRESENTED HEREBY, INCLUDING THE WARRANTS TO PURCHASE COMMON
STOCK AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, ARE BEING
OFFERED AND SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION
IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE SECURITIES OFFERED HEREBY MAY NOT BE OFFERED FOR RESALE OR RESOLD
ABSENT REGISTRATION UNDER THE SECURITIES ACT OR SUCH LAWS UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
UNITS OF THIS DEBENTURE SHALL BE PURCHASED FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT SHALL HAVE
BECOME EFFECTIVE WITH RESPECT THERETO, OR (II) RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH PROPOSED TRANSFER IN VIOLATION OF ANY APPLICABLE STATE
SECURITIES LAWS.
THIS OFFERING IS BEING MADE SOLELY TO "ACCREDITED INVESTORS" AS THAT TERM IS
DEFINED IN RULE 501 OF REGULATION D PROMULGATED UNDER THE ACT, AND WILL BE SOLD
SOLELY PURSUANT TO A FULLY EXECUTED 9% $800,000 DEBENTURE AND STOCK WARRANT
SUBSCRIPTION AGREEMENT ("SUBSCRIPTION AGREEMENT").
THIS DEBENTURE is one of a duly authorized issue of Debentures of STRATFORD
ACQUISITION CORPORATION, a corporation duly organized and existing under the
laws of the State of Minnesota and having its principal executive offices at 67
Wall Street, Suite 2411, New York, New York 10005 (the "Company") designated as
its 9% $800,000 Debenture due September 4, 2000 (the "Maturity Date").
- --------
(1) In January, 1997, the Company was authorized by the Secretary of State
of Minnesota to conduct business under the assumed name of NOVACRETE TECHNOLOGY
INC. Hereinafter the Company intends to use, whenever applicable, its assumed
name to facilitate its business and marketing efforts and will change its name
to Novex Systems International, Inc., subject to the approval of its
shareholders at the next annual meeting of shareholders.
<PAGE>
THE WARRANT offered herein shall provide the Holder of the Debenture with the
right to purchase 1,500,000 shares of the Company $.001 Common Stock at a
exercise price of forty-five cents ($.45 USD) per share. (the "Warrant"). The
Warrant(s) are exercisable at the date of issuance, but not later than midnight
on September 4, 2000 (EST). The Company reserves the sole right to redeem any or
all shares underlying the Warrant at the price of $.001 per share if the closing
trading price for the Company's common stock is equal to or exceeds one dollar
and fifty cents ($1.50 USD) per share for twenty (20) consecutive days after the
warrants are issued. (See Warrant Agreement).
FOR VALUE RECEIVED, the Company promises to pay to each registered holder hereof
and its successors and assigns (the "HOLDER"), each Holder being registered and
represented by its execution of the annexed 9% $800,000 DEBENTURE AND STOCK
WARRANT SUBSCRIPTION AGREEMENT (the "Subscription Agreement"), the principal sum
of the full amount (in United States Dollars) of the Holder's purchase of this
Debenture on the Maturity Date plus all outstanding accrued interest at the rate
of nine percent (9%) per annum, such interest being calculated on the basis of
the principal amount of the Debenture outstanding at the Maturity Date of the
Debenture, or on the redemption date of all or any portion of the Debenture.
(See Redemption Rights below). The accrual of interest on the Debenture shall
commence on the next day after the date stated on the Subscription Agreement and
shall continue to accrue against the outstanding principal amount of the
Debenture until it is paid. In instances where the Company shall redeem only a
portion of the Debenture, the unredeemed principal amount of the Debenture that
is outstanding after such partial redemption shall continue to accrue interest
until the unredeemed principal amount of the Debenture shall be redeemed or paid
in full by the Company, which shall not be later than the Maturity Date. The
interest payable on the Debenture will be paid on a quarterly basis on November
30; February 28; May 31; and August 31 until the Debenture has been paid in
full, to the person in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Company regarding registration
and transfers of the Debenture (the "Debenture Register"), provided, however,
that the Company's obligation to a transferee of this Debenture arises only if
such transfer, sale or other disposition is made in accordance with the terms
and conditions of the Subscription Agreement between the Company and the Holder.
The principal of, and interest on, this Debenture are payable in such coin and
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address last appearing on
the Debenture register of the Company as designated in writing by the Holder
hereof from time to time. To the extent the principal and all accrued interest
are outstanding on the Maturity Date, the Company will pay the principal and all
accrued interest due upon this Debenture on the Maturity Date, less any amounts
required by law to be deducted or withheld by the Company to the Holder at the
last address on the Debenture Register. The forwarding of such check shall
constitute a payment of principal and interest thereunder and shall satisfy and
discharge the liability for principal and interest on the Debenture to the
extent of the sum represented by such check plus any amounts so deducted,
pursuant to this Agreement.
The Debenture is being sold pursuant to an exemption from registration under the
securities laws and will be restricted from public resale. Accordingly, this
Debenture and any certificate(s), if any, evidencing ownership of the Debenture
will bear the following legend, or some other similar version:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
2
<PAGE>
EXEMPTION FROM REGISTRATION UNDER SECTION 4(2) UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THESE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE 1933 ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
In the event the Holder is relying on an exemption from registration under the
1933 Act, the certificates evidencing ownership of the Debenture may be issued
without restrictive legends if the Holder furnishes an opinion of counsel,
reasonably satisfactory to the Company, that sets forth in detail the legal
basis for the exemption from registration and its availability hereto.
The Debenture is subject to the following additional provisions:
1. Exchangeability. The Debenture may be exchangeable for like Debentures
in amounts not to exceed the aggregate principal amount initially purchased,
including any accrued interest, of authorized denominations, as requested by the
Holders surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. Tax Withholdings. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts required
to be withheld under the applicable provisions of the United States Income Tax
or other applicable laws at the time of such payments.
3. Offering Representations. This Debenture has been issued subject to
investment representations of the original Holder hereof and pursuant to the
Subscription Agreement and may be transferred or exchanged in the United States
only in compliance with the Act and applicable state securities laws. Prior to
the due presentment for such transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Company Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary. The transferee shall be bound, as the
original Holder by the same representations and terms described herein and under
the Subscription Agreement.
4. Redemption Rights. The Company may, at its sole option, redeem the
Debenture at any time prior to the Maturity Date by paying the Holder all or any
portion of one hundred and two percent (102%) of the outstanding principal and
the face amount of any all accrued interest on the principal amount of the
Debenture redeemed on the date of redemption. Under no circumstances will the
Company incur any other penalties for redeeming the Debenture, or any portion
thereof, prior to the Maturity Date.
5. Company's Payment Obligation. No provision of this Debenture shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on this Debenture at the place, time and
rate, and in coin or currency herein prescribed.
6. Waiver of Demand. The Company hereby expressly waives demand and
presentment for payment, notice on nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and
diligence in taking any action to collect amounts called for hereunder and
3
<PAGE>
shall be directly and primarily liable for the payment of all sums owing and to
be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
7. Events of Default. The Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the Holder in
collecting any amount due or exercising the conversion rights under this
Debenture, if one or more of the following described "Events of Default" shall
occur:
a. The Company fails to provide the Holder with certificates evidencing
ownership of the Warrants being issued as part of the sale of the Debenture. Any
such certificates shall be issued based on the terms and conditions of this
Debenture; or
b. Any of the representations or warranties made by the Company herein, or
in the Subscription Agreement, shall have been materially incorrect; or
c. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within thirty (30) calendar days thereafter; or
d. Bankruptcy reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or law for the relief of
debtors shall be instituted by or against the Company and, if instituted against
the Company, the Company shall by any action or answer approve of, consent to or
acquiesce in any such proceedings or admit the material allegations of, or
default in answering, a petition filed in any such proceeding.
Then, or at any time thereafter, and in each and every such case of an Event of
Default, unless such Event of Default shall have been deemed waived in writing
by the Holder (which waiver shall not be deemed to be a waiver of any subsequent
default), at the option of the Holder and in the Holder's sole discretion, the
Holder may consider this Debenture immediately due and payable, without
presentment, demand, protest, notice of any kind, all of which are hereby
expressly waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and Holder may immediately, and without
expiration of any period of grace, enforce any and all of the Holder's rights
and remedies provided herein or any other rights or remedies afforded by law.
8. Severability Clause. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
9. Amendment. This Debenture, the Warrant Agreement, the Subscription
Agreement and Term Sheet referred to in this Debenture constitute the full and
entire understanding and agreement between the Company and Holder with respect
hereof. Neither this Debenture nor any terms hereof may be
4
<PAGE>
amended, waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
10. Governing Law. This Debenture shall be construed and enforced in
accordance with and governed by the laws of the State of New York, except for
matters arising under the Act, without reference to principles of conflicts of
law. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the State and County of New York or the
state courts of the State of New York in connection with any dispute arising
under this Debenture and hereby waives, to the maximum extent permitted by law,
any objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. Each party hereby agrees
that if another party to this Debenture obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Debenture irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
11. Non-Recourse. No recourse shall be had for the payment of the principal
or interest of this Debenture against any incorporator or any past, present or
future stockholder, officer, director or agent of the Company or of any
successor corporation under any statute or by the enforcement of any assessment
or otherwise, all such liability of the incorporators, stockholders, officers,
directors and agents being waived, released and surrendered by the Holder hereof
by the acceptance of this Debenture.
12. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been made when delivered or mailed by first
class registered or certified mail, postage prepaid to the address of the
Company at the above address and to the Holder at the address appearing on the
Debenture Register.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: September , 1998
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
------------------------------
Mr. Daniel W. Dowe
President and Chief Executive
Officer
5
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SECTION 4(2) UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THESE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE 1933 ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
No. ____ $250,000 USD
Dated: February 25, 1999
STRATFORD ACQUISITION CORPORATION
15% $250,000 Senior Debenture
and
Warrant to Purchase 150,000 Shares of Common Stock
THE SECURITIES REPRESENTED HEREBY, INCLUDING THE WARRANTS TO PURCHASE COMMON
STOCK AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, ARE BEING
OFFERED AND SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION
IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE SECURITIES OFFERED HEREBY MAY NOT BE OFFERED FOR RESALE OR RESOLD
ABSENT REGISTRATION UNDER THE SECURITIES ACT OR SUCH LAWS UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
UNITS OF THIS DEBENTURE SHALL BE PURCHASED FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT SHALL HAVE
BECOME EFFECTIVE WITH RESPECT THERETO, OR (II) RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH PROPOSED TRANSFER IN VIOLATION OF ANY APPLICABLE STATE
SECURITIES LAWS.
THIS OFFERING IS BEING MADE SOLELY TO "ACCREDITED INVESTORS" AS THAT TERM IS
DEFINED IN RULE 501 OF REGULATION D PROMULGATED UNDER THE ACT, AND WILL BE SOLD
SOLELY PURSUANT TO A FULLY EXECUTED 15% $250,000 DEBENTURE AND STOCK WARRANT
SUBSCRIPTION AGREEMENT ("SUBSCRIPTION AGREEMENT").
THIS DEBENTURE is one of a duly authorized issue of Debentures of STRATFORD
ACQUISITION CORPORATION, a corporation duly organized and existing under the
laws of the State of Minnesota and having its principal executive offices at 67
Wall Street, Suite 2001, New York, New York 10005 (the "Company") designated as
its 15% $250,000 Debenture due June 1, 1999 (the "Maturity Date").
THE WARRANT offered herein shall provide the Holder of the Debenture with the
right to purchase 150,000 shares of the Company $.001 Common Stock at a exercise
price of forty-five cents ($.45 USD) per share (the "Warrant"). The Warrant(s)
are exercisable at the date of issuance, but not later than midnight on February
25, 2001 (EST). The Company reserves the sole right to redeem any or all shares
underlying the Warrant at the price of $.001 per share if the closing trading
price for the Company's common stock is equal to
<PAGE>
or exceeds one dollar and fifty cents ($1.50 USD) per share for twenty (20)
consecutive days after the warrants are issued. (See Warrant Agreement).
FOR VALUE RECEIVED, the Company promises to pay to each registered holder hereof
and its successors and assigns (the "HOLDER"), each Holder being registered and
represented by its execution of the annexed 15% $250,000 SENIOR DEBENTURE AND
STOCK WARRANT SUBSCRIPTION AGREEMENT (the "Subscription Agreement"), the
principal sum of the full amount (in United States Dollars) of the Holder's
purchase of this Debenture on the Maturity Date plus all unpaid outstanding
accrued interest at the rate of fifteen percent (15%) per annum (see Interest
Payments below), such interest being calculated on the basis of the principal
amount of the Debenture outstanding at the Maturity Date of the Debenture, or on
the redemption date of all or any portion of the Debenture. (See Redemption
Rights below). The accrual of interest on the Debenture shall commence on the
next day after the date stated on the Subscription Agreement and shall continue
to accrue against the outstanding principal amount of the Debenture until it is
paid. In instances where the Company shall redeem only a portion of the
Debenture, the unredeemed principal amount of the Debenture that is outstanding
after such partial redemption shall continue to accrue interest until the
unredeemed principal amount of the Debenture shall be redeemed or paid in full
by the Company, which shall not be later than the Maturity Date. The interest
payable on the Debenture will be paid on a monthly basis until the Debenture has
been paid in full, to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the Company regarding
registration and transfers of the Debenture (the "Debenture Register"),
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Subscription Agreement between
the Company and the Holder. The principal of, and interest on, this Debenture
are payable in such coin and currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture register of the Company as designated in
writing by the Holder hereof from time to time. To the extent the principal and
all accrued interest are outstanding on the Maturity Date, the Company will pay
the principal and all accrued interest due upon this Debenture on the Maturity
Date, less any amounts required by law to be deducted or withheld by the Company
to the Holder at the last address on the Debenture Register. The forwarding of
such check shall constitute a payment of principal and interest thereunder and
shall satisfy and discharge the liability for principal and interest on the
Debenture to the extent of the sum represented by such check plus any amounts so
deducted, pursuant to this Agreement.
The Debenture is being sold pursuant to an exemption from registration under the
securities laws and will be restricted from public resale. Accordingly, this
Debenture and any certificate(s), if any, evidencing ownership of the Debenture
will bear the following legend, or some other similar version:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COM-MISSION OR THE SECURITIES
COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRA-TION UNDER SECTION 4(2) UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"). THESE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
2
<PAGE>
In the event the Holder is relying on an exemption from registration under the
1933 Act, the certificates evidencing ownership of the Debenture may be issued
without restrictive legends if the Holder furnishes an opinion of counsel,
reasonably satisfactory to the Company, that sets forth in detail the legal
basis for the exemption from registration and its availability hereto.
The Debenture is subject to the following additional provisions:
1. Exchangeability. The Debenture may be exchangeable for like Debentures
in amounts not to exceed the aggregate principal amount initially purchased,
including any accrued interest, of authorized denominations, as requested by the
Holders surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. Tax Withholdings. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts required
to be withheld under the applicable provisions of the United States Income Tax
or other applicable laws at the time of such payments.
3. Offering Representations. This Debenture has been issued subject to
investment representations of the original Holder hereof and pursuant to the
Subscription Agreement and may be transferred or exchanged in the United States
only in compliance with the Act and applicable state securities laws. Prior to
the due presentment for such transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Company Debenture Register as the owner hereof for the purpose
of receiving payment as herein provided and all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary. The transferee shall be bound, as the
original Holder by the same representations and terms described herein and under
the Subscription Agreement.
4. Redemption Rights. The Company may, at its sole option, redeem the
Debenture at any time prior to the Maturity Date. If the Company shall redeem
the Debenture on or prior to April 1, 1999, it shall be obligated to pay the
Holder 110% of the principal amount of the Debenture redeemed on the date of
redemption. If the Debenture is redeemed after April 1, 1999 but on or prior to
June 1, 1999, the Company shall be obligated to pay the Holder 120% of the
principal amount of the Debenture redeemed on the date of redemption. If the
Debenture, or any portion thereof, is not redeemed on the Maturity Date, the
outstanding principal amount of the Debenture shall be redeemed at 140% of the
amount outstanding.
5. Interest Payments. This Debenture shall bear interest at the annual rate
of fifteen percent (15%), payable on a monthly basis until the Debenture is paid
in full. In the event the Debenture, or any principal portion thereof, is not
repaid on the Maturity Date, the outstanding principal amount of the Debenture
shall accrue interest at the monthly rate of 2-1/4%, which interest shall be
paid monthly.
6. Senior Status. The Holder of this Debenture shall be given a senior
position, other than for the secured interest granted by the Company to Montcap
Financial Corporation to provide asset-based factoring and equipment financing
to the Company's wholly-owned Canadian subsidiary, Novex Systems
3
<PAGE>
International Ltd.
In addition, as further security for the repayment of the Debenture, the
Holder of this Debenture shall have a collateral interest in 100,000 shares of
Datametrics Corporation (AMEX: DC) that are are under the control of Douglas
Friedenberg, a director of the Company.
7. Company's Payment Obligation. No provision of this Debenture shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on this Debenture at the place, time and
rate, and in coin or currency herein prescribed.
8. Waiver of Demand. The Company hereby expressly waives demand and
presentment for payment, notice on nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and
diligence in taking any action to collect amounts called for hereunder and shall
be directly and primarily liable for the payment of all sums owing and to be
owing hereon, regardless of and without any notice, diligence, act or omission
as or with respect to the collection of any amount called for hereunder.
9. Events of Default. The Company agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred by the Holder in
collecting any amount due or exercising the conversion rights under this
Debenture, if one or more of the following described "Events of Default" shall
occur:
a. The Company fails to provide the Holder with certificates
evidencing ownership of the Warrants being issued as part of the sale of
the Debenture. Any such certificates shall be issued based on the terms and
conditions of this Debenture; or
b. Any of the representations or warranties made by the Company
herein, or in the Subscription Agreement, shall have been materially
incorrect; or
c. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the
Company and shall not be dismissed within thirty (30) calendar days
thereafter; or
d. Bankruptcy reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, the Company shall by any action or answer approve of,
consent to or acquiesce in any such proceedings or admit the material
allegations of, or default in answering, a petition filed in any such
proceeding.
Then, or at any time thereafter, and in each and every such case of an Event of
Default, unless such Event of Default shall have been deemed waived in writing
by the Holder (which waiver shall not be deemed to be a waiver of any subsequent
default), at the option of the Holder and in the Holder's sole discretion, the
Holder may consider this Debenture immediately due and
4
<PAGE>
payable, without presentment, demand, protest, notice of any kind, all of which
are hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded by
law.
10. Severability Clause. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
11. Amendment. This Debenture, the Warrant Agreement, the Subscription
Agreement and Term Sheet referred to in this Debenture constitute the full and
entire understanding and agreement between the Company and Holder with respect
hereof. Neither this Debenture nor any terms hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Company and the Holder.
12. Governing Law. This Debenture shall be construed and enforced in
accordance with and governed by the laws of the State of New York, except for
matters arising under the Act, without reference to principles of conflicts of
law. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the State and County of New York or the
state courts of the State of New York in connection with any dispute arising
under this Debenture and hereby waives, to the maximum extent permitted by law,
any objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. Each party hereby agrees
that if another party to this Debenture obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Debenture irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
13. Non-Recourse. No recourse shall be had for the payment of the principal
or interest of this Debenture against any incorporator or any past, present or
future stockholder, officer, director or agent of the Company or of any
successor corporation under any statute or by the enforcement of any assessment
or otherwise, all such liability of the incorporators, stockholders, officers,
directors and agents being waived, released and surrendered by the Holder hereof
by the acceptance of this Debenture.
14. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been made when delivered or mailed by first
class registered or certified mail, postage prepaid to the address of the
Company at the above address
5
<PAGE>
and to the Holder at the address appearing on the Debenture Register.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: February 25, 1999
STRATFORD ACQUISITION CORPORATION
By: /s/Daniel W. Dowe
----------------------------
Mr. Daniel W. Dowe
President and Chief Executive
Officer
/s/ Douglas S. Friedenberg
----------------------------
Douglas S. Friedenberg
6
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
July 29, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $35,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $20,000 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxxxx
3
<PAGE>
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 29th day of July, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $20,000 (USD)
Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
July 29, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $35,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $15,000 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxxx
3
<PAGE>
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 29th day of July, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $15,000 (USD)
Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
August 13, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $25,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $12,500 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxx
3
<PAGE>
7. Notice
Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 13th day of August, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $12,500 (USD)
Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
August 13, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $25,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $12,500 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxx
3
<PAGE>
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 13th day of August, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $12,500 (USD)
Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
August 20, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $5,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $5,000 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxx
3
<PAGE>
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 20th day of August, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $5,000 (USD)
Firebird Overseas Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
August 27, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $20,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $10,000 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxx
3
<PAGE>
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 27th day of August, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $10,000 (USD)
Euro-Dutch Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
August 27, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $20,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $10,000 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxx
3
<PAGE>
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 27th day of August, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $10,000 (USD)
Firebird Partners Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
STRATFORD ACQUISITION CORPORATION
67 WALL STREET, SUITE 2411
NEW YORK, NEW YORK 10005
September 4, 1998
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Stratford Acquisition Corporation having its
principal executive offices at 67 Wall Street,
Suite 2411, New York, New York 10005 (hereinafter
"SAC") will sell a $25,000 promissory note bearing
interest at 10% per annum ("the Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by SAC.
Interest on the Note shall be payable in SAC $.001
par value common stock at the rate of $.40 per
share and the principal amount of the Note shall
be paid in cash.
4. Pre-Payment Penalty SAC shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date. However, if the Note is not
fully satisfied by the Maturity Date, SAC shall be
obligated to issue one-half (1/2) of a warrant to
purchase one (1) share
<PAGE>
of its $.001 par value common stock for each one
dollar ($1.00) of the then outstanding principal
amount of the Note. Furthermore, if the Note is
not fully satisfied within sixty (60) days from
the Maturity Date, SAC shall be obligated to issue
an additional one-half (1/2) of a warrant to
purchase one (1) share of its $.001 par value
common stock for each one dollar ($1.00) of the
then outstanding principal amount of the Note.
Notwithstanding anything stated herein to the
contrary, SAC fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if SAC shall have completed a financing from a
third-party to raise working capital for the
company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon SAC receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $25,000 (USD)
2
<PAGE>
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxx
3
<PAGE>
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
Agreed to on this 1st day of September, 1998.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $25,000 (USD)
Peter Sosnkowski Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
4
<PAGE>
NOVEX SYSTEMS INTERNATIONAL INC.
67 WALL STREET, SUITE 2001
NEW YORK, NEW YORK 10005
May 14, 1999
TERM SHEET
- --------------------------------------------------------------------------------
1. Transaction Novex Systems International,Inc. corporation
having its principal executive offices at 67 Wall
Street, Suite 2001, New York, New York 10005
(hereinafter "NSI") will sell a $15,000 promissory
note bearing interest at 10% per annum ("the
Note").
2. Term The principal amount of the Note and all accrued
and outstanding interest shall be due on the 90th
day from the date the Note is purchased by the
purchaser(s) ("Maturity Date").
3. Interest Interest on the outstanding principal amount of
the Note shall accrue from the date the Note is
purchased and shall continue to accrue on any
outstanding principal until such principal and all
accrued interest is satisfied in full by NSI.
4. Pre-Payment Penalty NSI shall not incur any penalty for any full or
partial payment of the outstanding principal
amount of the Note and any accrued interest prior
to the Maturity Date.
Notwithstanding anything stated herein to the
contrary, NSI fully agrees to pay the outstanding
principal amount of the Note and all outstanding
and accrued interest prior to the Maturity Date,
if NSI shall have completed a financing
<PAGE>
from a third-party to raise working capital for
the company.
5. Binding Agreement Upon the execution of this agreement below, this
agreement will become binding all parties hereto
and shall represent the full agreement of the
parties. Each party agrees to submit to the
personal jurisdiction and venue of all state and
federal courts located in the County of New York,
State of New York and that any disputes arising
hereunder shall be adjudicated in this
jurisdiction.
6. Payment Payment shall be deemed made and this agreement
shall become binding upon NSI receiving full
payment for all or any portion of the Note.
Payment shall be made by federal wire transfer
pursuant to the following instructions:
Amount: $15,000 (USD)
Bank: Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10007
ABA: 021000021
Account: Stratford Acquisition
Corporation - Checking
Account#: xxxxxxxxxxxx
7. Notice Any notice required to be given by any party shall
be deemed sufficient if in writing and sent by
facsimile, or U.S. Mail or hand courier to the
addresses stated above or below for either party
or to any subsequent address that a party shall
provide to the other party in writing.
2
<PAGE>
Agreed to on this 14th day of May, 1999.
NOVEX SYSTEMS INTERNATIONAL INC.
By: /s/ Daniel W. Dowe
--------------------------
Daniel W. Dowe, President
- --------------------------- $15,000 (USD)
Amount Purchased
- --------------------------
(Signature - print)
- --------------------------
(Address - print)
- --------------------------
(Telephone Number)
- --------------------------
(Facsimile Number)
3
Exhibit 21
Subsidiaries of the Company
Novex Systems International, Ltd.
2525 Tedlo Street, Unit B
Mississauga, Ontario L5A 4A8
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<FISCAL-YEAR-END> May-31-1999
<PERIOD-END> May-31-1999
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<SECURITIES> 0
<RECEIVABLES> 21,580
<ALLOWANCES> 890
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0
0
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<OTHER-SE> (938,637)
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<SALES> 321,311
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<CGS> 113,305
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<OTHER-EXPENSES> 211,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,905
<INCOME-PRETAX> (1,392,340)
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<NET-INCOME> (1,392,340)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
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