UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported) March 2, 1998
SYSTEMS COMMUNICATIONS, INC.
- ----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 000-26668 65-0036344
- ----------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S Employer
of incorporation or organization) file Number) Identification No.)
4707 140th Avenue North, Suite 107, Clearwater, Florida 33762
- ----------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (813)530-4800
<PAGE> 2
SYSTEMS COMMUNICATIONS, INC.
Item 5. Other Events
Effective March 2, 1998, the Company and Timboon Ltd.
entered into a Settlement Agreement and Release (the
"Settlement Agreement") in settlement of all claims brought
against each other in connection with the Company's
$1,200,000 4% convertible debentures due October 1, 1998
(the "Debentures"). Pursuant to the Settlement Agreement,
the Company is required to pay Timboon, Ltd. $1,200,000, in
cash, or by the liquidation by Timboon, Ltd. of shares of
the Company's common stock into which the Debentures are
convertible. The Company has designated 4,000,000 shares of
its common stock, to be held in escrow, for liquidation by
Timboon, Ltd. pursuant to the terms of an escrow agreement
(the "Escrow Agreement"). The terms of the Escrow Agreement
generally provide that Timboon, Ltd. may liquidate during
each four-week period ("Trading Period")(i)up to 50% of the
aggregate trading volume of the Company's common stock on
the NASDAQ Bulletin Board and such other trading market on
which the Company's common stock may be publicly traded
for the prior four-week period at no less than the "bid"
price, or for the first eight weeks of trading by
Timboon, Ltd. under the Escrow Agreement up to 37.5% of the
trading volume for the previous four-week period at no less
than the "bid" price, provided a minimum "bid" price of
$0.31 per share, or greater, is maintained or (ii) up to
200,000 shares of the Company's common stock during any
Trading Period at or above the average of the "bid" and
"ask" price. In either case, the liquidation of shares of
the Company's common stock by Timboon, Ltd. is not to exceed
$200,000 of net proceeds in the aggregate during any Trading
Period.
The Escrow Agreement also provides that when Timboon, Ltd.
receives cumulative net proceeds of $1,200,000, the escrow
agent is to return all remaining shares held in escrow to
the Company or, in the event Timboon Ltd. receives
cumulative net proceeds of $1,200,000 from the liquidation
of 600,000 shares, or less, then the escrow agent is to
return all remaining shares, less 100,000 shares which are
to be retained by Timboon, Ltd.
In connection with the Settlement Agreement, Timboon, Ltd.
executed a Revocable Proxy on behalf of itself and its
principals and affiliates granting the Company's Board of
Directors, ex-efficio, the right to vote the escrow shares
for any matters on which the shareholders may vote at any
annual or special meeting of stockholders. The proxy is
revocable only upon the event of a default under the
Settlement Agreement.
<PAGE> 3
Item 7. Financial Statements and Exhibits
(c)Exhibits
(4)16. Form of Settlement Agreement dated as of March 2,
1998 between the Company and Timboon, Ltd.,
including Joint Escrow Instructions and Revocable
Proxy.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SYSTEMS COMMUNICATIONS, INC. Date: March 10, 1998
By /s/ James T. Kowalczyk
- -------------------------------------
James T. Kowalczyk
President, Principal Executive Officer
and Director
By /s/ Edwin B. Salmon, Jr.
- -------------------------------------
Edwin B. Salmon, Jr
Principal Accounting Officer and Director
<PAGE> 4
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------
(4)16. Form of Settlement Agreement dated as of March 2,
1998 between the Company and Timboon, Ltd.,
including Joint Escrow Instructions and Revocable
Proxy.
<PAGE> 5
Exhibit (4)16. FORM OF SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release (the "Settlement Agreement")
is made as of March 2, 1998 (the "Effective Date") by and between
Systems Communications, Inc. ("SCMI") and Timboom, Ltd.
("Timboom"). In consideration of the mutual promises and
covenants contained herein and other good and valuable
consideration, the receipt and sufficiency which is hereby
acknowledged, SCMI and Timboom agree as follows:
1. Unless otherwise noted, as used herein:
"Claims" means all actions, causes of action, suits, debts, dues,
sums of money, accounts, controversies, agreements promises,
variances, trespasses, damages, judgments, abstracts of judgments,
liens, executions, claims and demands, losses and liabilities, of
every kind and nature, in law or equity, and in whatever form
denominated, including without limitations, claims, counterclaims,
cross-claims and/or third party claims, relating to or arising
from the Debentures, the offering or subscription of the
Debentures, or the subject matter of the Lawsuits which SCMI or
Timboom asserted or could have asserted in either of the Lawsuits
from the beginning of time to the Effective Date of this
Settlement.
"Debenture" means the SCMI four percent (4%) Convertible Debenture
due October 1, 1998, in the principal amount of $1,200,000,
including without limitation the governing Offshore Security
Subscription Agreement and all documents or agreements necessary
or related thereto.
"Lawsuits" means all allegations and/or matters related to or
contained in Civil Action No. 97 Civ. 4644, Timboom Ltd., a/k/a
Timboon, Ltd. v. Systems Communications, Inc., in the United
States District Court for the Southern District of New York and/or
Case Number 97-6878CI-020, Timboom Ltd. a/k/a Timboon Ltd. v.
Stephen E. Williams, in the Circuit Court of the Sixth Judicial
Circuit in and for Pinellas County, Florida.
2. Within two (2) business days after delivery to Timboom of the
common stock certificates as required by paragraph 4 hereof (the
"Securities"), counsel to each of the parties in the litigations
shall either execute a Stipulation of Dismissal with Prejudice and
Without Cost or shall request that the Court enter an Order
dismissing the Lawsuits with prejudice and without costs, either
of which shall act or dismiss with prejudice all Claims of the
parties to this Settlement Agreement against each other; provided,
however, that neither SCMI nor Timboom are releasing or dismissing
any claims which might arise from any future breach or violation
by the other of the terms of the Settlement Agreement herein, or
the Joint Escrow Instructions, or the Irrevocable Proxy given by
Timboom, both of which are dated March 2, 1998.
<PAGE> 6
3. Each of SCMI on the one hand and the Timboom on the other
hand, together with each of their respective predecessors,
successors, heirs, executors, administrators, assigns, parent
companies, subsidiaries and affiliates, their past and present
directors, officers, employees, agents, servants, attorneys,
shareholders and/or partners hereby remise, release, acquit and
forever discharge each other and each other's respective
predecessors, successors, heirs, executors, administrators,
assigns, subsidiaries and affiliates, the past and present
directors, officers, employees, agents, servants, attorneys,
shareholders and/or partners from any and all Claims; provided,
however, that the foregoing release shall not effect, waive,
limit, modify or otherwise change in any manner the obligations or
liability of any party under this Settlement Agreement, the Joint
Escrow Instructions executed herewith, and/or the Irrevocable
Proxy executed herewith, or any other instrument or agreement
executed and delivered pursuant to this Settlement Agreement,
which shall remain in full force and effect.
4. SCMI agrees to convert, or caused to be converted, Timboom's
outstanding balance of the Debenture and shall deliver within two
(2) business days of the Effective Date to the Escrow Agent
designated herein 4,000,000 shares of unlegended, unrestricted and
unregistered common stock issued by SCMI, to be held in escrow and
to be subject to the terms and conditions of the Settlement Term
Sheet executed by SCMI and by Timboom on or about January 5, 1998,
a copy of which is attached hereto and incorporated herein, and
the Joint Escrow Instructions to be executed herewith.
5. In conjunction with the issuance of the Securities, Timboom
agrees to execute a Revocable Proxy, on behalf of itself and its
principals and affiliates, granting the existing Board of
Directors of SCMI, ex-officio, the right to vote the Securities
for any matters on which shareholders may vote at each annual or
special meeting of stockholders of SCMI; provided, however, that
the proxy shall be revocable solely because of SCMI's breach of
the Settlement Agreement and/or Settlement Term Sheet; and
further, that Timboom will not transfer or exchange the Securities
with anyone solely for the purpose of terminating any such Proxy,
and it is understood, without limitation, that a cash sale of the
Securities to unaffiliated third-parties with no restrictions or
contractual buy-back rights is presumed not to be transferred or
exchanged solely for the purpose of terminating such Proxy; and
provided further that this Proxy shall expire on the later of the
anniversary of the eleventh month after the Effective Date of this
Settlement Agreement or the transfer or exchange of the Securities
in compliance with the preceding proviso.
6. SCMI and Timboom each represent that prior to the execution of
this Settlement Agreement they have fully informed themselves of
its terms, contents, conditions and effects, and that no promise
or representation of any kind has been made to them except as
expressly stated in this Settlement Agreement. SCMI and Timboom
each represent that they have relied solely and completely upon
their own judgment and the advice of their counsel in signing the
Settlement Term Sheet, this Settlement Agreement, the accompanying
Revocable Proxy and the Joint Escrow Instructions and that these
documents represent and express the entire agreement by and
between SCMI and Timboom concerning the subjects they purport to
cover.
<PAGE> 7
7. SCMI and Timboom represent and warrant that they have not
sold, assigned, transferred, conveyed or otherwise disposed of any
or all of any claim, demand, right or cause of action, relating to
any matter which covered by this Settlement Agreement, that each
is the sole owner of such claim, demand, right or cause of action,
and each has the power and authority and has been duly authorized
to enter into and perform this Settlement Agreement and that this
Agreement is the binding obligation of each, enforceable in
accordance with its terms.
8. Neither the execution of this Settlement Agreement nor
anything herein contained is intended to be, nor shall be
construed to be, an admission by SCMI or Timboom of any liability
to the other, now, in the past, or an admission of the existence
of facts upon which liability could based.
9. This Settlement Agreement is contractual and it has been
entered into to compromise disputed claims and to avoid the
uncertainty and expense of the Litigations. This Settlement
Agreement and each of its provisions in any orders of the Court
relating to it shall not be offered or received in evidence in any
action proceeding or otherwise used as an admission or concession
as to the merits of the Lawsuits or the liability of any nature on
the part of any of the parties hereto except to enforce its terms.
10. It is expressly understood and agreed that there are no
intended third-party beneficiaries of this Settlement Agreement
and that no persons other than the parties hereto shall have the
rights and privileges to enforce the provisions of this Settlement
Agreement.
11. This Settlement Agreement may be amended, modified, waived or
discharged only by mutual written agreement of the effective
parties hereto. Any such amendment, modification, waiver or
discharge shall not be deemed a waiver of any other provision of
this Settlement Agreement unless so specified.
12. Notwithstanding the place where this Settlement Agreement may
be executed by either of the parties, or any other factor, all
terms and provisions hereof shall be governed by and construed in
accordance with the laws of the State of New York, applicable to
agreements made and to be fully performed in that State and
without regard to the principles of conflicts of laws thereof.
Any action brought to enforce, or otherwise arising out of this
Settlement Agreement shall be brought only in either a Federal or
State Court sitting in the State of New York, County of New York.
13. This Settlement Agreement may be executed in multiple
originals or counterparts, each of which shall be deemed an
original for all purposes, but all such counterparts together
shall constitute one and the same instruments. Facsimile copies
of this Settlement Agreement shall be considered originals for all
purposes.
14. The parties agree to designate Wilmington Trust Company as
Escrow Agent and to abide by and honor the obligations of the
Joint Escrow Instructions, a copy of which is annexed hereto and
which terms and conditions are incorporated herein and made a part
hereof.
15. The parties hereto agree to execute, have acknowledged and
deliver to each other such other documents and instruments, if
any, if may be necessary or appropriate to evidence or carry out
the terms of this Settlement Agreement.
<PAGE> 8
16. This Settlement Agreement shall be deemed to have been
mutually prepared by the parties hereto and shall not be construed
against any of them solely by reason of authorship.
17. This Settlement Agreement shall be binding upon and shall
inure to the benefit to the parties thereto and their respective
heirs, legal representatives and successors; provided, however,
that no assignment by any party hereto shall operate to relieve
such party of its obligations hereunder.
Dated: March 2, 1998
Timboom, Ltd.
By: ______________________________
Its: ______________________________
Systems Communications, Inc.
By: ______________________________
Its: ______________________________
<PAGE> 8
STATE OF ISRAEL)
( SS:
COUNTY OF TEL AVIV)
On the _______________ day of _______________, 1998, before me
personally came ______________________________ to me known, who,
by me duly sworn, did depose and say that deponent resides at
______________________________, that the deponent is the
_______________ of Timboom, Ltd., the corporation described in,
and which executed the foregoing RELEASE, and that the deponent
signed deponent's name by order of the Board of Directors of said
corporation.
______________________________
Notary Public
STATE OF FLORIDA)
( SS:
COUNTY OF ___________)
On the _______________ day of _______________, 1998, before me
personally came ______________________________ to me known, who,
by me duly sworn, did depose and say that deponent resides at
______________________________, that the deponent is the
_______________ of Systems Communications, Inc., the corporation
described in, and which executed the foregoing RELEASE, and that
the deponent signed deponent's name by order of the Board of
Directors of said corporation.
______________________________
Notary Public
<PAGE> 9
Settlement Term Sheet
For Settlement Purposes
Without Prejudice
Timboon Ltd. ("Timboon") and Systems Communications, Inc.
("SCMI"), in contemplating the settlement of the dispute among
them, agree as follows:
1. SCMI will convert the Timboon debenture and deliver for the
benefit of Timboon, 4,000,000 shares of unlegend, unrestricted and
unregistered shares of common stock to Timboon (the "Shares"), to
the Escrow Agent subject to paragraphs 4 and 8 below.
2. Timboon and SCMI will enter into an Escrow Agreement with a
disinterested third party suitable to both parties, to be named by
__________, 1997. The Escrow Agent will carry out the terms of
the Escrow Agreement as outlined in this term sheet after complete
review by each parties counsel. The Escrow Agent shall be
entitled to charge a fee for its services. Said fee shall be
deducted from gross proceeds from selling activity. Said fee
should be reasonable and customary for the professional services
rendered.
3. Timboon will open a segregated brokerage account (the
"Account") for the benefit of Timboon with Prudential Securities
(the "Account"). The broker will not charge Timboon a commission
on transactions in the Account in excess of those currently being
charged on other accounts Timboon may have with the broker. The
Account shall be a segregated cash account and unencumbered. The
broker will not DTC or otherwise electronically transfer shares
out of the Account to any other account or broker dealer that was
not associated with a printed long sale in the Account. Timboon
shall have authority to direct sales of SCMI stock in the Account
subject to the restrictions on trading activity set forth herein.
4. (i) During any Period as herein defined, Timboon may sell no
more than 1/2 of the preceding Period's volume on a cumulative basis
at market (bid) (hereinafter "Limitation A"). Timboon may
additionally sell up to 200,000 Shares during any (4) week Period
commencing on the first trade under any limitation herein (the
"Period"), at or above the average of the bid/ask price at the
time it places the order with the Broker, so long as its offer is
not the single lowest offer ("Limitations B"). [The time of
placing the order and the associated bid/ask prices shall be that
which determines how the trade was handled by Timboon]
Additionally, Timboon agrees to restrict selling at (a) market
(bid) to 37.5% of the preceding Period's volume for a period of
eight (8) weeks following the first delivery of shares to the
brokerage account so long as a minimum bid of $.31 is maintained,
and (b) to a total of $200,000 in net proceeds, or such greater
amount as may be agreed upon by the Parties in SCMI's sole
discretion ("Limitation C") during any Period. There shall be no
carryover to subsequent Period for Limitation B and C.
<PAGE> 10
(ii) For example, for the purposes of Limitation A, in the first
week after the ____________ (hereinafter "Week 1"), Timboon will
not sell in excess of 50% of the average weekly volume for the
four weeks prior thereto (hereinafter "Weeks A, B, C and D").
During the second week following the date hereof, the limitation
shall be calculated using the weekly sales volume for weeks B, C,
D and week 1. To the extent that during Week 1, Timboon has sold
less than 50% of the applicable volume limitation, it shall be
allowed to sell such additional shares during Week 2 (e.g. weekly
volume Week A - 100,000, Week B - 125,000, Week C - 175,000, Week
D - 225,000 - maximum sales limit for Week 1 is 50% of 625,000 or
312,000; Week volume - 300,000 - maximum for Week 2 is 50% of
825,000 less the number of shares sold during Week 1), if any; it
being understood that the intra-period limitation of Limitation A
shall be 50% of the volume on a moving basis during the Period,
but there shall be no carryover of Limitation A subsequent to the
Period.
5. (I) SCMI will deliver to the Escrow Agent who will initially
take possession of the 4,000,000 Shares in 50,000 and 20,000 share
increment certificates. Said shares will remain in "safe keeping"
and out of the DTC system until released by the Escrow Agent to
said broker. The Escrow Agent will deliver to said broker an
amount of shares rounded to the nearest 20,000 share increments
equal to the total trading volume of SCMI for the prior Period,
less any residual surplus from the previous Period, for deposit
into Timboon's account. The Escrow Agent shall supplement the
certificates in 20,000 share intervals to the brokerage account on
a biweekly basis, to the extent required subject to compliance
with the Limitation B and C requirements. Pursuant to paragraph 7
below, the Escrow Agent shall determine the stock sales which have
occurred at or above the average intra-day bid/ask price on a
biweekly basis.
(ii) The Broker will wire transfer or otherwise effect
delivery of funds to Timboon in a manner suitable to Timboon. At
all times the remaining certificates will be available for visual
inspection and verification by Timboon and SCMI.
6. Timboon will execute an irrevocable proxy granting the
existing directors of SCMI the right to vote the shares of common
stock.
7. Timboon shall provide SCMI with time stamped copies of
confirmations for all orders and transactions in SCMI stock on a
daily basis via facsimile. Such confirmations shall be sent so as
to be received by 5:00 PM on the second (2nd) business day
following trading activity. Additionally, Timboon will direct
Prudential Securities to forward duplicate monthly brokerage
statements and confirmation to the Escrow Agent regarding
Timboon's trading activity in SCMI stock in the Account, at the
time same are sent to Timboon. The Escrow Agent will make the
documents available to SCMI and its counsel for inspection and
review.
8. The Escrow Agent shall calculate Timboon's cumulative net
revenue from the selling activity. Cumulative net revenue shall
be defined as gross trade amount less brokerage commission and
Escrow Agent fees, which shall be paid by Timboon out of sales
proceeds. Once Timboon has realized $1,200,000 U.S., all
remaining certificate held by the Escrow Agent and all shares
remaining in the brokerage account shall be delivered to SCMI's
transfer Agent for cancellation and returned to treasury
authorized but un-issued.
<PAGE> 11
9. Subject to Paragraph 10 below, should Timboon realize
cumulative net proceeds of $1,200,000 U.S. by selling less than
600,000 shares (or such lesser amount as Timboon shall specify),
then Timboon shall be entitled to retain 100,000 shares as
consideration for orderly disposition of the securities at which
time all additional certificates held by the Escrow Agent and all
shares remaining in the brokerage account shall be delivered to
SCMI's transfer Agent for cancellation and returned to treasury
authorized but un-issued. Should Timboon realize cumulative net
proceeds less than $1,200,000 U.S. after having sold all 4,000,000
shares, SCMI shall wire in immediately available U.S. funds equal
to that amount which when added to the cumulative net proceeds
would equal $1,200,000 U.S.
10. SCMI shall have the right to pay at any time the total
deficiency between Timboon's current cumulative net proceeds and
$1,200,000 U.S. in cash at which time all remaining certificates
held by the Escrow Agent and all shares remaining in the brokerage
account shall be delivered to SCMI's transfer Agent for
cancellation and returned to treasury authorized but un-issued.
11. Simultaneous with the execution of final documentation, the
parties shall release each other and their respective officers,
directors and Agents (said release to be held in escrow until
final implementation of this settlement), and discontinue all
litigation among them, including the action in the Southern
District of New York and Florida State Court, with each party to
bear its own cost, including legal fees, subject to the continuing
jurisdiction of the United Stated District Court with respect to
the settlement.
12. Timboon will not enter any sales order for SCMI stock,
directly, individually or through any affiliate or account in
which or over which either of them have trading authority, until
such time as the Escrow Agent has delivered to the broker the
shares to be sold pursuant to paragraph 4 above.
13. Omitted
14. Timboon will allow a statement from Timboon to be released by
SCMI to PR Newswire or comparable news service, stating its
settlement with SCMI. Timboon through its counsel shall approve
said press statement prior to its release. Timboon shall file a
Form 13-D with the Settlement Agreement annexed as an Exhibit.
15. This agreement is subject to the following:
a.) Execution of a final and comprehensive settlement agreement
acceptable to the parties and their counsel by 3:00 P.M. on
December 15, 1997;
b.) Review by corporate counsel;
c.) Approval of the Board of Directors of SCMI and Timboon Ltd.
16. This Agreement shall be governed, construed and interpreted
in accordance with, the laws of the State of New York.
Timboon LTD. SYSTEMS COMMUNICATIONS, INC.
By:_____________________________ By:___________________________
Menachem Eitan Edwin B. Salmon, Jr.
<PAGE> 12
JOINT ESCROW INSTRUCTIONS
TO:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
RE: Timboom, Ltd. v. Systems Communications, Inc.
Gentlemen:
Reference is made to a Settlement Agreement annexed hereto between
Systems Communications, Inc. ("SCMI"), and Timboom, Ltd., a/k/a
Timboon Ltd. ("Timboom"). Pursuant to the Settlement Agreement,
to which a copy of these Joint Escrow Instructions is attached as
Exhibit A, SCMI and Timboom have agreed to settle certain
litigation between them by, among other things, SCMI's conversion
of a debenture in the principal amount of $1,120,000, due October
1, 1998 ("Debenture") held by Timboom into 4,000,000 shares of
unlegended, unrestricted and unregistered common stock issued by
SCMI registered in the name of "Mertz & Moyer," Escrow Agent's
nominee and delivered to Escrow Agent (the "Securities") and the
structured liquidation of the Securities in accordance with these
Escrow Instructions. This letter shall serve as the Joint Escrow
Instructions ("Escrow Instructions") referred to in the Settlement
Agreement. All capitalized terms used hereout defined herein
shall have the meanings asserted to such terms in the Settlement
Agreement.
Wilmington Trust Company (hereafter the "Escrow Agent") is hereby
authorized and directed to hold and transfer and disburse the
Securities in accordance with the following restrictions and
instructions:
1. SCMI shall deliver and the Escrow Agent shall receive and take
possession of the Securities in 50,000 and 20,000 share increments
certificates. The Escrow Agent shall maintain the Securities in
safekeeping and out of the DTC system. The Escrow Agent shall not
be liable to the other parties hereto for any decline in value or
loss of marketability of the Securities.
2. The Escrow Agent will maintain a ledger of certificate numbers
and denominations of the Securities, and the date and amount of
Securities transmitted and disbursed pursuant to these Escrow
Instructions.
3. The Escrow Agent shall disburse and transmit the Securities to
Prudential Securities, Inc. at 575 Fifth Avenue, Ninth Floor, New
York, New York 10017, c/o Amir Rosenthal; Telephone: (212) 557-
3030 ("Prudential") to be deposited into a segregated cash
brokerage account for the benefit of Timboom (the "Account") as
follows:
<PAGE> 13
(a) The Initial Trading Period Delivery. Not later than the
close of business on the first trading day of each four (4) week
period ("Trading Period"), commencing on ___________, Timboom
shall obtain and deliver to the parties a copy of a Bloomberg
report indicating a written calculation of the number of shares of
SCMI common stock traded during the preceding four week period, as
reported on the NASDAQ Bulletin Board as of 4:00 p.m. EST (or DST)
on the preceding Trading Day (a Trading Day shall be any business
day on which the NASDAQ Bulletin Board is open for the trading of
Securities in whole or in part) and such other trading market on
which SCMI stock may be publicly traded hereafter (the "Initial
Trading Period Volume"). Not later than the close of business on
the third Trading Day of such Trading Period Escrow Agent shall
deliver to Prudential Securities, by deposit with an overnight
delivery service, in an amount rounded to the nearest 20,000 share
increments, equal to the Initial Trading Period Volume less the
volume of Securities then remaining in the Account, if any (the
"Residual Surplus") (the difference between the Initial Trading
Period Volume and the Residual Surplus is the "Initial Trading
Period Delivery") and less the volume of Securities required to be
withheld as the result of a dispute pursuant to paragraph 8(b),
together with duly executed and authenticated stock powers
transferring such securities to Timboom.
(b) Supplemental Trading Period Delivery. Not later than the
close of business on the first trading day of the third (3) week
within each Trading Period, Timboom shall obtain and deliver to
the parties a copy of a Bloomberg report indicating a written
calculation of the number of shares of SCMI common stock traded
during the preceding four week period, as reported on the NASDAQ
Bulletin Board as of 4:00 p.m. EST (or DST) on the preceding
Trading Day, and such other trading market on which SCMI stock may
be publicly traded hereafter (the "Interim Trading Volume"). If
the Interim Trading Volume is greater than the Initial Trading
Period Volume for that Trading Period provided the limitations
described in paragraph 4 have not been exceeded, and neither SCMI
nor Timboom has objected to Escrow Agent's calculations as permitted
in paragraph 8, Escrow Agent shall deliver additional Securities,
equal to such difference rounded to the nearest 20,000 share
increments, together with duly executed and authenticated stock
powers transferring such Securities to Timboom, to Prudential by
the close of business of business the third Trading Day of such
Trading Period by deposit with an overnight delivery service.
4. Pursuant to the Agreement, the delivery of Securities by the
Escrow Agent for any Supplemental Trading Period shall be subject
to the following limitations:
(a) Limitation A. During any Trading Period, Timboom may not
sell a volume of Securities in excess of one-half of the aggregate
trading volume of SCMI's stock on the NASDAQ Bulletin Board and
such other trading market on which SCMI stock may be publicly
traded hereafter for the prior four-week period at or less than
market (bid) (as adjusted as hereinafter described, referred to
herein as "Limitation A").
For the purposes of Limitation A, in the first week after
_________, (hereinafter Week 1), Timboom shall not sell in excess
of 50% of the aggregate weekly trading volume for the previous
four weeks thereto (hereinafter Weeks A, B, C and D)("Limitation A
Weekly Allotment") at market (bid). During the second week, for
purposes of Limitation A, the Limitation A Weekly Allotment shall
be one-half of the trading volume for Weeks B, C, D and 1, reduced
by the volume of Securities previously sold by Timboom during such
Trading Period, if any, provided that there shall be no carry-over
of any unsold Securities from the Limitation A Weekly Allotment
between Trading Periods.
<PAGE> 14
By way of example, if the weekly trading volume of SCMI stock is
as follows: Week A - 100,000; Week B - 125,000; Week C - 175,000;
Week D - 225,000, then Limitation A for Week 1 shall be 312,500;
provided, however, that if the trading volume for Week 1 is
300,000 shares, then the Limitation A for Week 2 is 412,500 shares
less the number of shares sold by Timboom at the market (bid)
during Week 1.
(b) Notwithstanding Limitation A, for a period of eight (8)
weeks following the first delivery of Securities to Prudential,
and provided a minimum bid of $.31 is maintained, Timboom may not
sell more than 37.5% of the Trading Volume for the previous four-
week period at or less than market (bid).
(c) Limitation B. Notwithstanding Limitation A, Timboom may
also sell up to 200,000 shares of Securities during any Trading
Period at or above the average of the bid/ask price, so long as
its order is not the single lowest offer for that day
("Limitation B"). The time of placing the order with Prudential,
evidenced by copies of Prudential's time-stamped order tickets, to
be provided by Timboom and the contemporaneous associated bid/ask
prices, as reported by Bloomberg, copies of which shall be
provided by Timboom, shall be used to determine whether the trade
is subject to Limitation A or Limitation B.
(d) Limitation C. Timboom may not sell Securities within
any Trading Period if such sale, when combined with all other
sales by Timboom during such Trading Period, would generate Net
Proceeds in excess of $200,000 during that Trading Period, or such
greater amount as may be agreed upon by SCMI and Timboom, in
SCMI's sole discretion ("Limitation C").
5. In the event that Timboom exceeds Limitation A, Limitation B
or Limitation C within any Initial Trading Period, the Escrow
Agent shall not make the subsequent Supplemental Delivery to
Prudential during that Trading Period and shall deduct from the
Initial Trading Period Delivery for the next Trading Period an
amount of Securities equal to two times the volume of Securities
sold by Timboom in excess of Limitation A, B or C, as may be
applicable.
6. Timboom shall provide the Escrow Agent and SCMI with time-
stamped copies of confirmations from Prudential for all orders and
transactions in the Securities on a daily basis, via facsimile, to
be sent by Timboom so as to be received by the Escrow Agent by
5:00 p.m. on the second business day following any trading
activity, except that Timboom shall, after the close of trading on
the last trading day of the second and fourth week within each
Trading Period and not later than 9:00 a.m. EST (or DST) of the
next Trading Day, transmit via facsimile to the Escrow Agent and
SCMI confirmations for all orders and transactions in the
Securities which have been effected through such time. If such
confirmations of trading are not yet available to Timboom, then
Timboom shall prepare an estimated record of trading, including
the number of shares sold, the date of the sale, the price per
share and the proceeds of the sale, which shall be transmitted to
the Escrow Agent and SCMI via facsimile so as to be received by
the Escrow Agent and SCMI before the first trading day of the
third week of each Trading Period, and the first trading day of
the first week of the next Trading Period. Timboom shall be
required to provide confirmation of such estimated record of
trading by transmitting copies of Prudential's confirmations no
later than the close of business of the following trading day.
<PAGE> 15
7. Timboom has instructed Prudential to provide the Escrow Agent
with duplicate confirmations of all transactions in the Securities
and monthly statements for the Account at such time that the same
are sent to Timboom. The Escrow Agent will make such documents
available to SCMI and/or its counsel for inspection and review
during normal business hours at its offices.
8. (a) On the first trading day of each Trading Period or, if
delay occurs in the delivery of confirmations and/or other data
pursuant to paragraphs 6 and 7, as soon thereafter as reasonably
practicable, the Escrow Agent shall deliver to Timboom and SCMI
calculations of the Initial Trading Period Delivery, any
Supplemental Trading Period Delivery and the Cumulative Net
Proceeds generated from the sale of the Securities and shall
identify any transactions subject to Limitations A, B and/or C.
The Cumulative Net Proceeds shall be the gross proceeds from the
sale of all Securities in the Account, as reported by Prudential
and/or Timboom, less any brokerage commission charged separately
by Prudential, and all fees charged by the Escrow Agent, pursuant
to paragraph 20 below, but without any deduction for any taxes,
withholdings, offset or account fees which may be deducted from
such Account. Escrow Agent shall also note whether or not, based
solely on the information supplied by Prudential, Timboom has
complied with the Limitations set forth in paragraph 4, but shall
be under an obligation to confirm the accuracy or completeness of
such information, or Timboom's compliance with the Limitations.
(b) The Escrow Agent shall transmit the calculations or
findings referred to in the preceding paragraph by facsimile
simultaneously to Timboom and SCMI. If Timboom and/or SCMI
dispute the Escrow Agent's calculations or findings, they shall
notify the Escrow Agent by the close of the following Trading Day,
in writing, with a copy provided to the other party, setting forth
the detailed factual basis of their dispute. In the event of a
dispute, the Escrow Agent shall refrain from delivering to
Prudential additional Securities in the amount disputed until
Timboom and SCMI shall have resolved their dispute and delivered
joint instructions to Escrow Agent. In the absence of a notice of
dispute from either party as herein provided, Escrow Agent's
calculations and/or findings shall be deemed to have been
confirmed by both parties for purposes of compliance with any
instructions contained in this Agreement.
9. (a) Subject to 9(b), when Cumulative Net Proceeds are
generated in the amount of $1,200,000 U.S. (the "Settlement
Amount"), the Escrow Agent shall deliver all remaining Securities
together with duly executed and authenticated stock powers to
SCMI, to SCMI's Transfer Agent, or as SCMI may otherwise direct
in writing.
(b) If Cumulative Net Proceeds are generated in the amount
of the Settlement Amount before Timboom has sold 600,000 shares of
the Securities (or such lesser volume of shares as Timboom may
direct), or if Timboom has given notice that it intends to
terminate selling Securities hereunder prior to selling 600,000
shares of the Securities, then the Escrow Agent shall: (a) deliver
to Prudential shares of Securities (together with duly executed
and authenticated stock powers) which, together with any shares of
the Securities then remaining in the Account, total 100,000 shares
of the Securities to be delivered to Timboom; and (b) deliver all
remaining Securities to SCMI's Transfer Agent or as SCMI may
otherwise direct in writing.
10. Pursuant to the Agreement, SCMI has the right to deliver
all or a portion of the Settlement Amount in cash to Timboom in
lieu of the Securities. Upon receipt of written notice from SCMI
and Timboom confirming the receipt and amount of the cash payment
received by Timboom, Escrow Agent shall adjust its record to
reflect an equivalent increase in Cumulative Net Proceeds.
<PAGE> 16
11. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by SCMI, Timboom and
the Escrow Agent.
12. The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth herein and may rely
and shall be protected in relying or refraining from acting on any
instrument reasonably believed by the Escrow Agent to be genuine
and to have been signed (whether original or by facsimile) or
presented by the proper party or parties. The Escrow Agent shall
not be personally liable for any act the Escrow Agent may do or
omit to do hereunder as Escrow Agent while acting in good faith.
13. The Escrow Agent shall hereby expressly authorized to comply
with and obey orders, judgments or decrees of any court of which
it receives notice.
14. The Escrow Agent's responsibilities as Escrow Agent hereunder
shall terminate if the Escrow Agent shall resign by written notice
provided to SCMI and Timboom. In the event of any such
resignation, Timboom and SCMI shall appoint a successor escrow
agent within thirty (30) days of the effective date of Escrow
Agent's resignation, and the Escrow Agent shall retain possession
of the Securities, but shall not make any further deliveries to
Prudential, until such time as the Escrow Agent receives
notification jointly from SCMI and Timboom of the appointment of a
successor Escrow Agent.
15. If the Escrow Agent reasonably requires other or further
instruments or instructions in connection with these Joint Escrow
Instructions or obligations with respect hereto, the Escrow Agent
shall notify both SCMI and Timboom of its requests, SCMI and
Timboom shall cooperate to furnish joint written instructions.
Escrow Agent shall be authorized (but not required) to seek
confirmation of any instructions or the occurrence of any
condition or event by telephone call back, and may rely upon such
confirmation of anyone purporting to be an officer of either
party.
16. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of
Securities or the calculations provided for hereunder, or should
any document, data or information required to be delivered to
Escrow Agent be delayed or withheld, the Escrow Agent is
authorized and directed to retain in the Escrow Agent's possession
without liability to anyone, all, or any part of the Securities,
until such disputes shall have been settled either by mutual
written agreement of the parties concerned, or by a final order,
decree or judgment of a court of competent jurisdiction after the
time for appeal has expired and no appeal has been perfected, but
the Escrow Agent shall be under no duty whatsoever to institute or
defend any such proceedings; or to deliver Securities or any other
property and documents held by the Escrow Agent hereunder to a
state or federal court having competent subject matter
jurisdiction and located in the state and city of New York in
accordance with the applicable procedure therefore.
<PAGE> 17
17. SCMI and Timboom represent and warrant to Escrow Agent that
the transfers of Securities to Escrow Agent and from Escrow Agent
to Timboom do not require registration under, nor do they violate,
any federal or local securities laws. SCMI and Timboom agree
jointly and severally to indemnify and hold harmless the Escrow
Agent from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of
the Escrow Agent hereunder, other than any such claim, liability,
cost or expense to the extent the same shall (a) have been tax
obligations in connection with Escrow Agent's fee hereunder; or
(b) have been determined by final, unappealable judgment of a
court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Escrow Agent. Escrow
Agent shall have first lien against the Securities to secure the
obligations of the parties hereunder.
18. Fees and Expenses of Escrow Agent. The Escrow Agent shall
prepare an invoice for fees in the amount of $6,000 per month,
plus expenses for its services rendered hereunder on a monthly
basis and transmit the same to SCMI and Timboom. The Escrow Agent
shall be reimbursed for all reasonable expenses and disbursements
incurred by the Escrow Agent in connection with the ordinary
duties as provided hereunder. In the event the Escrow Agent
renders any extra ordinary services in connection with these
Escrow Instructions, Escrow Agent shall be entitled to reasonable
additional compensation therefor. Such invoices shall be paid by
Timboom within thirty (30) days of receipt of such invoice either
directly or from the proceeds of the sale of the Securities and
Timboom shall direct Prudential to maintain adequate funds in the
Account from the proceeds of the sales of Securities to make
payment from the Account directly to the Escrow Agent for this
purpose. Escrow Agent shall have a first lien against the
Securities to secure the obligation of Timboom hereunder, and to
withhold delivery of such reasonable amount of Securities to
Prudential until payment of any invoice unpaid for more than
thirty (30) days has been received.
19. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal
delivery or three business days after deposit in the United States
Postal Service, by registered or certified mail with postage and
fees prepaid (with an advance copy by facsimile), addressed to
each of the other parties thereto entitled the following
addresses, or such other addresses as the party may designate by
ten days advance written notice to each of the parties hereto, or
by any alternate method prescribed as permitted herein:
SCMI:
Systems Communications, Inc.
4707 140th Avenue North, Suite 106
Clearwater, Florida 33762
Attention: Mr. Edwin Salmon
Facsimile Number: (813) 530-4707
with a copy to:
Nixon, Hargrave, Devans & Doyle, LLP
Clinton Square
P.O. Box 1051
Rochester, New York 14603
Attention: Carolyn Nussbaum, Esq.
Facsimile Number: (716) 263-1600
Timboom Ltd.
28 Hagvura Street
Karnei Shomron, Israel
Facsimile Number: 972 97929228
with a copy to:
Samuel Krieger, Esq.
Krieger & Prager, Esqs
319 Fifth Avenue
New York, New York 10016
Facsimile Number: (212) 213-2077.
Escrow Agent:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Jack Beeson, V.P.
Corporate Trust Administration
Facsimile Number: (302) 651-8882
<PAGE> 18
20. This instrument shall be binding upon and inure to the
benefit to the parties hereto, and their respective successors and
assigns, and shall be governed by the laws of the State of New
York without giving effect to the principle governing the
conflicts of laws.
21. The rights and obligations of any party hereto are not
assignable without the written consent of the other parties
hereto. These Joint Escrow Instructions constitute the entire
agreement amongst the parties with respect to the subject matter
hereof.
SYSTEMS COMMUNICATIONS, INC.
By:__________________________________
Its:__________________________________
Tax Identification No.:____________________
TIMBOOM, LTD.
By:__________________________________
Its:__________________________________
Tax Identification No.:____________________
ACCEPTED:
ESCROW AGENT
By:___________________________________
Its:___________________________________
<PAGE> 19
SYSTEMS COMMUNICATIONS, INC.
IRREVOCABLE PROXY
The undersigned stockholder of Systems Communications, Inc., a
Florida corporation (the "Company") hereby appoints the existing
directors of the Company, ex-officio as proxy of the undersigned
with full power of substitution to a vote for each share issued
pursuant to paragraph 4 of that certain Settlement Agreement and
Release, dated February __, 1998 (the "Settlement Agreement" and
the "Securities") on any matter on which shareholders of the
Company are enabled to vote at any annual meeting or special
meeting of stockholders of the Company held at any time prior to
January 31, 1999, and at any adjournment thereof, the number of
votes which the undersigned would be entitled to cast if
personally present.
This Proxy may be revoked only upon the Company's breach of a
provision of the Settlement Agreement. In all other respects, it
shall be irrevocable and coupled with an interest and is given to
the existing Directors of the Company, ex-officio, pursuant to the
Settlement Agreement to which this Proxy is subject, including the
limitations on the use hereof as described therein. This Proxy
shall continue in effect as to each such Security until the latter
to occur of; (1) a bona fide sale, transfer or exchange of all of
the Securities, it being understood that a "bona fide sale,
transfer or exchange" shall expressly include any cash sale of the
Securities of to unaffiliated third-parties with no restrictions;
or (2) until January 31, 1999.
Dated: March 2, 1998
TIMBOOM LIMITED
By:________________________________
