SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: November 30, 19992000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.: 0-16035
SONO-TEK CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-1568099 (State or other jurisdiction of ( IRS Employer
incorporation or organization) Identification No.)
2012 Rt. 9W, Bldg. 3, Milton, NY 12547
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (914)(845) 795-2020
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 Exchange 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 such filing
requirements for the past 90 days.
YES X NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding as of
Class January 14, 200016, 2001
Common Stock, par value $.01 per share 8,355,6289,092,355
SONO-TEK CORPORATION
INDEX
Part I - Financial Information Page
Item 1 - Financial Statements: 1 - 3
Consolidated Balance Sheets -
November 30, 19992000 (Unaudited) and February 28, 199929, 2000 1
Consolidated Statements of Operations - Nine Months and Three Months
Ended November 30, 19992000 and 19981999 (Unaudited) 2
Consolidated Statements of Cash Flows - Nine Months Ended
November 30, 19992000 and 19981999 (Unaudited) 3
Notes to Consolidated Financial Statements 4 - 109
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 1110 - 14
Part II - Other Information 14 - 1512
Item 3 - Quantitative and Qualitative Disclosure About Market Risk 12
Part II - Not ApplicableOther Information 13
Signatures 1714
SONO-TEK CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
ASSETS
November 30, February 28,
1999 199929,
2000 2000
Current Assets Unaudited
------------------------------
Cash and cash equivalents $ 140,41443,720 $ 70,0518,176
Accounts receivable (less allowance of $9,915$36,997 and $6,000$39,997
at November 30 and February 28,29, respectively) 887,687 264,2171,155,788 1,619,639
Inventories (Note 5) 908,382 787,2001,240,232 1,224,380
Prepaid expenses and other current assets 82,592 42,039131,300 74,308
------------ ------------
Total current assets 2,019,075 1,163,5072,571,040 2,926,503
Equipment, furnishings and furnishingsleasehold improvements (less accumulated
depreciation of $447,696$532,913 and $407,486$469,011 at November 30 and
February 28,29, respectively) 181,552 127,892320,095 256,994
Intangible assets, net:
Goodwill (Note 3) 1,219,325 01,275,084 1,232,571
Patents, patents pending and copyrights (Note 1) 33,313 38,33327,142 31,642
Deferred financing fees (Note 7) 34,339 0
-----------27,235 32,563
------------- -----------
Total intangible assets, net 1,286,977 38,3331,329,461 1,296,776
Long-term equity investments (Note 6) 16,686 19,310
Other assets 22,072 5,917
------------ --------------11,342 14,542
------------- -------------
TOTAL ASSETS $3,509,675 $1,335,649$4,248,624 $4,514,125
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 975,647 $ 847,135
Deferred revenue 0 725,491
Accrued expenses 736,738 437,342
Revolving line of credit 350,000 334,307
Short term loans-related parties (Note 7) 302,084 239,084
Current maturities of long term debt (Note 8) $192,002 $10,503253,611 220,532
Short term loans-related parties (Note 6) 165,000 88,000
Revolving line of credit 299,948 199,948
Accounts payable 458,408 324,192
Accrued expenses 396,804 267,948
----------convertible loan 0 100,000
---------------- ----------
Total current liabilities 1,512,162 890,5912,618,080 2,903,891
---------- -------------------
Subordinated mezzanine debt 398,368 382,060
Long term debt, less current maturities (Note 8) 279,513 37,293121,737 273,544
Subordinated mezzanine debt (Note 7 ) 374,812 0
Subordinated long termconvertible loans-related parties (Note 6) 150,000 0
Noncurrent rent payable 9,832 9,083
------------ -----------150,000
---------- -------
Total liabilities 2,326,319 936,9673,288,185 3,709,495
Commitments and Contingencies
Put Warrants 77,000 077,000
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares authorized, 8,355,628
issued9,092,355 and
8,866,612 outstanding at November 30 and 12,000,000
shares authorized, 6,281,667 issued and outstanding at February 28 83,556 62,81729, respectively 90,924 88,666
Additional paid-in capital 5,454,049 4,735,9755,980,167 5,711,800
Accumulated deficit (4,431,249) (4,400,110)(5,187,652) (5,072,836)
----------- ----------
Total stockholders' equity 1,106,356 398,682883,439 727,630
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,509,675 $1,335,649$4,248,624 $4,514,125
========== ==========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended November 30, Three Months Ended November 30,
Unaudited Unaudited
2000 1999 19982000 1999 1998
---------------------------- ----------------------------
Net Sales $6,274,904 $3,660,200 $2,395,727$1,980,921 $1,551,772 $679,428
Cost of Goods Sold 3,608,736 1,726,067 1,291,9401,024,411 739,523 382,953
---------- --------- --------- ---------
Gross Profit 2,666,168 1,934,133 1,103,787956,510 812,249 296,475
---------- --------- --------- ---------
Operating Expenses
Research and product development costs 687,693 430,068 370,572218,058 170,712 107,906
Marketing and selling expenses 1,108,465 787,757 548,563363,191 303,061 177,946
General and administrative costs 691,249 591,840 353,682243,105 300,986 114,808
--------- ---------- --------- ---------
Total Operating Expenses 1,809,666 1,272,8172,487,407 1,809,665 824,354 774,759 400,660
--------- --------- --------- ---------
Operating Income 178,761 124,468 132,156 37,490
Other (Loss) 124,468 (169,030) 37,490 (104,185)Income:
Interest Expenseexpense (230,765) (167,587) (42,775)(53,402) (38,550)
(14,925)
MiscellaneousEquity loss in PNR (Note 6) (70,585) 0 (18,558) 0
Interest income and other (loss) income 7,773 11,980 3,826 (588)
---------- --------- -------- ----------
Total Other (Loss) Income and (Expense) 9,854 8,137 (800) 8,137
Interest and Other(293,577) (155,607) (68,134) (39,138)
(Loss) Income 2,126 2,615 212 1,083
---------- ------------ ------- ----------
Loss Before Income Taxes (31,140)) (201,053)(114,816) (31,139) 64,022 (1,648) (109,890)
Income Tax Expense (Note 9) 0 0 0 0
------------- ------------ ----------- ---------------------- --------- -------- ---------
Net Loss $(31,140) $(201,053)(Loss) Income $(114,816) $(31,139) $64,022 $(1,648)
$(109,890)========= ========= ======== ========== ======== =================
Basic (Loss) Earnings Per Share $(0.01) $(0.00) $(0.05)$ 0.01 $(0.00) $(0.03)
======= ======= ============= =======
Diluted (Loss) Earnings Per Share $(0.01) $(0.00) $(0.05)$ 0.01 $(0.00) $(0.03)
======= ======= ============= =======
Weighted Average Shares - Basic 8,984,787 7,155,467 4,375,7209,047,025 8,289,566 4,378,387
========= ========= ========= =========
Weighted Average Shares - Diluted 8,984,787 7,155,467 4,375,72010,987,648 8,289,566 4,378,387
========= ========= =================== =========
See notes to consolidated financial statements.
SONO-TEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended November 30,
Unaudited
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
------------------------------
Net Loss $(31,140) $(201,053)$(114,816) $(31,139)
Adjustments to reconcile net loss to net cash used inprovided by (used in)
operating activities:
Non-cash charge for issuance of warrants 75,831 102,626
Accrued interest-short term loans-related parties 27,337 13,293
Imputed interest expense on subordinated mezzanine debt 16,308 3,624
Loss on equity investment 2,624 0
Depreciation and amortization 141,529 75,937
33,162
Provision(Benefit) provision for doubtful accounts (3,000) 3,915 9,000
(Increase) decrease in:
Accounts receivable 466,851 (421,013)
441,134
Inventories (15,852) (36,919) (220,646)
Prepaid expenses and other current assets (53,792) (10,423) (9,035)
Increase (decrease) in:
Accounts payable and accrued expenses 277 (179,287)219,176 (16,640)
Customer depositdeposits181,396 (16,000)
Deferred revenue (725,491) 0
Non-current rent payable 0 749
744
------------------ ----------
Net Cash Used inProvided by (Used in) Operating Activities (331,991) (125,981)
----------218,101 (331,990)
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs net of cash received (102,813) (315,518) 0
Purchase of equipment and furnishings (127,003) (46,424)
(19,757)
--------- --------------------
Net Cash Used in Investing Activities (229,816) (361,942)
(19,757)--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit 15,693 100,000
99,948Proceeds from bank loan for production equipment 78,859 0
Proceeds from short term loans-related parties 204,000 127,000
Proceeds from subordinated mezzanine debt 0 450,000
Proceeds from issuance of stock 130,000 287,000 1,320
Proceeds from subordinated mezzanine debt 450,000exercise of warrants 55,692 0
Proceeds from exercise of stock options 1,602 0
Deferred financing fees 0 (35,523) 0
Repayments of short term loans-related party (141,000) (100,000)
Repayments of short term borrowings (100,000) 0
Repayments of long term debt (64,181) (6,760)
Repayments of note payable bank 0 (46,253)
---------and equipment loans (197,587) (64,181)
-------- --------
Net Cash Provided by Financing Activities 47,259 764,296 48,255
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 70,363 (97,483)35,544 70,364
CASH AND CASH EQUIVALENTS
Beginning of period 8,176 70,051
113,759
--------------- --------
End of period $140,414 $ 16,276
========$43,720 $140,415
======= ========
SUPPLEMENTAL DISCLOSURE:
Interest paid $39,179$34,859 $ 13,42439,179
======= ========
Common stock issued in connection with purchase of SEREC assets $7,500 $0
====== ==
Non-cash equity contribution in PNR $9,800 $0
====== ==
Non-cash exchange of accrued bonuses for common stock $0 $17,188
$ 0== ======= ====
See notes to consolidated financial statements.
SONO-TEK CORPORATION
Notes to Consolidated Financial Statements
November 30, 19992000 and 19981999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements of Sono-Tek
Corporation, a New York Corporation (the "Company"), include the accounts of the
Company and its wholly owned subsidiary, Sono-Tek Cleaning Systems, Inc.
("SCS"), a New Jersey Corporation formerly known as S&K Products International,
Inc., a New
Jersey Corporation ("S&K"), which the Company acquired on August 3, 1999 (the "S&K Acquisition see Note 3)"Acquisition").
All significant intercompany accounts and transactions are eliminated in
consolidation. The inclusion of S&K'sSCS's results since August 3, 1999 has an effect
on the comparison of the Company's Fiscal Year 20002001 results to prior periodsperiods.
Interim Reporting - The attached summary consolidated financial information does
not include all disclosures required to be included in a complete set of
financial statements prepared in conformity with accounting principles generally
accepted accounting
principles.in the United States of America. Such disclosures were included with
the financial statements of the Company at February 28, 1999,29, 2000, and included in
its report on Form 10-K. Such statements should be read in conjunction with the
data herein.
The financial information reflects all adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the interim
periods presented. The results for such interim periods are not necessarily
indicative of the results to be expected for the year.
Patent and Patent Pending Costs - Costs of patent applications are deferred and
charged to operations over seventeen years for domestic patents and twelve years
for foreign patents. However, if it appears that such costs are related to
products which are not expected to be developed for commercial application
within the reasonably foreseeable future, or are applicable to geographic areas
where the Company no longer requires patent protection, they are written-off to
operations. The accumulated amortization is $83,717$84,554 and $78,697$80,053 at November 30
and February 29, 2000, respectively.
Reclassifications - Certain February 29, 2000 balances have been reclassified to
conform with the current period presentations.
Adoption of Financial Accounting Standards - In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This statement establishes standards for the
accounting and reporting for derivative instruments and for hedging activities
and requires the recognition of all derivatives as assets or liabilities
measured at their fair value. Gains or losses resulting from changes in the fair
value of derivatives would be recognized in earnings in the period of change
unless certain hedging criteria are met. The Company does not expect SFAS 133 to
have a material impact on the consolidated financial statements. The FASB issued
SFAS Nos. 137 and 138, which deferred the effective date of implementation of
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000 and amended SFAS 133, respectively.
Revenue Recognition in Financial Statements - In December 1999, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying accounting principles generally accepted in the
United States of America to revenue recognition in financial statements. On June
26, 2000, the SEC issued SAB 101B to defer the effective date of implementation
of SAB 101 until no later than the fourth quarter of fiscal years beginning
after December 31, 1999. The Company is required to adopt SAB 101 by February
28, 1999, respectively.2001. The Company does not expect the adoption of SAB 101 to have a material
impact on the consolidated financial statements.
NOTE 2: SEGMENT INFORMATION
The Company has adopted the Statement of Financial Accounting Standard No 131
("SFAS 131") "Disclosures About Segments of an Enterprise and Related
Information".
The Company has two reportable segments: spraying products and cleaning and
drying systems. The spraying products segment is primarily engaged in the
business of developing, manufacturing, selling, installing and servicing
ultrasonic spray equipment. The cleaning and drying systems segment is engaged
in the business of developing, manufacturing, selling, installing and servicing
cleaning and drying systems for the semiconductor, disk drive and precision
cleaning industries.
Summary financial information concerning the Company's reportable segments is
shown in the following table:
Nine Months Ended November 30, 19992000
Spraying Cleaning
Products Systems Total
Net Sales $3,056,832 $603,368 $3,660,200$3,361,438 $2,913,466 $6,274,904
Net Income (Loss) 7,777 (38,917) (31,140)
Identifiable Assets 148,290 39,262 181,552370,566 (485,382) (114,816)
Capital Expenditures 42,134 4,290 46,424121,561 5,442 127,003
Depreciation and Amortization Expense 35,752 40,185 75,93757,225 84,305 141,530
Three Months Ended November 30, 19992000
Spraying Cleaning
Products Systems Total
Net Sales $1,036,179 $515,593 $1,551,772$1,190,617 $790,303 $1,980,921
Net Income (Loss) 9,051 (10,699) (1,648)
Identifiable Assets 148,290 39,262 181,552233,426 (169,404) 64,022
Capital Expenditures 35,665 4,290 39,95523,253 0 23,253
Depreciation and Amortization Expense 14,437 27,184 41,62123,329 30,871 54,201
The Company operated in a single reportable segment for the nine months and
three months ended November 30, 1998.period from March 1,
1999 through August 3, 1999.
NOTE 3: ACQUISITION OF SCS
On August 3, 1999 the Company purchased all the outstanding stock of S&K, a
supplier of cleaning and drying systems for the semiconductor, disk drive, and
precision cleaning industries. S&K is a wholly owned subsidiary of the Company.
The aggregate consideration tendered byIn June 2000, the Company in respectchanged S&K's name to
the
acquisition described above was $5,000 of cash and 810,000 shares of the
Company's common stock with a valuation of $0.30 per share. Also at the time of
the closing, two stock grants for a total of 250,000 shares of the Company's
common stock were made to two directors of the Company and 200,000 warrants were
issued to a non-employee director of the Company as an acknowledgment of their
services in consummating the acquisition. The value of the stock issued and
warrants granted to the non-employee director were accounted for as additional
purchase price. Professional fees of $101,345 associated with the acquisition
were also accounted for as additional purchase price. The fair value of net
assets acquired were:
Cash $26,648
Accounts Receivable 206,372
Inventory 84,263
Equipment & Furnishings 47,447
Other Assets 46,285
Accounts Payable (142,977)
Accrued Expenses (153,007)
Long Term Debt (687,901)
--------
Net Liabilities Assumed (572,870)
Acquisition Costs (674,166)
--------
Goodwill $1,247,036
==========
The aggregate purchase price exceeded the fair value of net assets acquired
resulting in goodwill that will be amortized on the straight-line basis over 15
years. Accumulated amortization of goodwill at November 30, 1999 was $27,711.SCS.
The following unaudited proforma information presents a summary of the
consolidated results of operations of Sono-Tekthe Company and S&KSCS as if the acquisition
had occurred on March 1, 1998.1999.
Proforma Consolidated Statement of Operations
Nine months ended November 30, 1999
1998
---- ----
Net Sales $4,219,427 $3,653,584
Cost of Goods Sold 1,962,130
1,883,253---------
Gross Profit 2,257,297
1,770,331
Operating Expenses 2,329,840
1,978,471---------
Operating Loss (72,543)
(208,140)
---------- ----------
Interest Expense (198,672) (95,973)
Interest & Misc. Income 28,382
(432)
---------- -------------------
Net Loss $(242,833)
$(304,545)
========== ===================
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill and the elimination of extraordinary items associated with
the S&K reorganization.acquisition. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
March 1, 1998,1999, or of future results of operations of the consolidated entities.
NOTE 4: PRIVATE PLACEMENTACQUISITION OF SEREC ASSETS
On May 5, 1999,September 21, 2000, the Company issuedacquired certain intellectual property and
intangible assets of Serec Corporation, a Private Placement MemorandumRhode Island corporation which
manufactured and sold solvent based cleaning systems. In exchange for $100,000
cash, the Company received the rights to raise upseven patents, one registered
trademark, unfulfilled purchase orders, engineering designs and certain other
intangible assets. Professional fees and other costs of $10,313, $7,500 of
which, was attributed to $500,000 by offering 1,666,667 sharesthe issuance of common stock, at $0.30 per share (the
"Private Placement"). During the third quarterwere capitalized as
additional purchase price. The aggregate purchase price of Fiscal Year 2000 the Company
completed the sale of an additional 216,667 shares of common stock for a total
of 956,667 shares of common stock sold pursuant$110,313 is recorded
as goodwill due to the Private Placement. Ofinability to specifically identify the total shares sold, 385,000 were purchased by directors of the Company, including
75,000 shares of common stock purchased in the third quarter. The gross proceeds
from the Private Placement were used to pay certain costsvalues associated
with the acquisitionvarious intangible assets acquired. The goodwill will be amortized on
the straight-line basis over 5 years. Accumulated amortization of S&K and for working capital. The Company continued to offer an
additional 210,000 shares pursuant to the Private Placement (Note 12).goodwill at
November 30, 2000 was $3,678.
NOTE 5: INVENTORY
Inventories at November 30, 19992000 are comprised of:
Finished goods $186,257$440,492
Work in process 92,676135,188
Raw materials and subassemblies 629,449
--------860,152
----------
Total 1,435,832
Less: Allowance (195,600)
----------
Net total inventories $908,382
========$1,240,232
NOTE 6: LONG-TERM EQUITY INVESTMENT - NET
In January 2000, in connection with the formation of PNR America, LLC, a
Delaware limited liability company ("PNR America"), the Company invested $19,600
in PNR America for a 49% ownership interest. Flowtech Srl ("Flowtech"), an
Italian pressure nozzle manufacturer, owns the remaining 51%. In August 2000,
the Company and Flowtech pledged an additional investment of $9,800 and $10,200,
respectively, in PNR America, thereby maintaining each's proportional share. On
November 30, 2000 the Company made its $9,800 contribution by decreasing the
amount owed to the Company by PNR America.
PNR America was formed to market and sell nozzles imported from Flowtech in the
U.S. The PNR America product line compliments the Company's existing business as
there are certain basic nozzle properties common to both product lines and
capitalizes on the Company's existing relationships with its customers. Prior to
the formation of PNR America, the Company had been a U.S. distributor of
Flowtech products.
Certain of the Company's officers and directors are also officers and directors
of PNR America, however, PNR America's board of directors is controlled by
Flowtech. The Company does not control PNR America and it is therefore not
consolidated for reporting purposes.
The Company shares its facilities and personnel with PNR America. The Company
allocated costs of $21,438 and $78,668 to PNR America for the three and nine
month periods ended November 30, 2000, respectively, and $13,967 for the period
of inception through February 29, 2000. Balances due from PNR America of $58,161
and $13,967 at November 30, 2000 and February 29, 2000, respectively, are
expected to be repaid out of PNR America's fiscal year 2001 operating cash
flows.
PNR America's year end is December 31, however, for financial reporting purposes
the Company will reflect its proportionate share of the operating results of PNR
America on a monthly basis, as the records are compiled by the Company. The
Company's cumulative recorded equity loss in PNR America at November 30, 2000
was $55,442. The Company recognized, during the nine and three month period
ended November 30, 2000 and the period from inception to February 29, 2000,
$70,585, $18,558 and $14,257, respectively, as its estimate of the proportionate
share of the net loss of PNR America. The Company, for financial reporting
purposes, has netted the cumulative equity loss in PNR America with the
intercompany balances due from PNR America.
The condensed financial information of PNR America as of November 30, 2000 and
for the three month period ended November 30, 2000 is as follows:
Net loss-three months ended November 30, 2000 $(35,654)
=========
Net loss-nine months ended November 30, 2000 $(144,048)
=========
Total assets - current $91,622
=======
Due to Sono-Tek $72,128
Due to Flowtech 137,087
Accrued Expenses 5,756
--------
Liabilities 214,971
Stockholders' deficiency (123,49)
--------
Total liabilities and stockholders' deficiency $91,622
=======
Note 6:7: SHORT TERM LOANS RELATED PARTY LOANS
Short term loans -PARTIES
From time to time the Company has required short-term loans to meet its payment
obligations. All of these loans, which are payable on demand, have been provided
by certain officers and directors of the Company at an interest rate of prime
plus 2% computed at the time of the loan. The interest
rate on such short term loans was 10.50%loan (9.75% to 11.5% at November 30, 1999.2000).
As of November 30, 1999 and February 28, 19992000 the amount of these loans outstanding was $165,000 and $88,000, respectively.$302,084.
Interest expense for the nine month period and three month period ended November
30, 19992000 was $11,972$16,657 and $4,508,$7,381, respectively. Accrued interest was $13,292$27,337 and
$1,320$13,165 at November 30, 19992000 and February 28, 1999,29, 2000, respectively.
Long term loans - Two convertible subordinated notes, issued to the former S&K
shareholders or members of their immediate family, for an aggregate principal
amount of $150,000 were converted from S&K debt to Company debt on August 3,
1999, the date of the S&K Acquisition (the "S&K Notes"). The S&K Notes are
subordinate to the long-term debt with S&K's bank. The S&K Notes are payable
August 3, 2002 with interest accruing at a rate of 6% per annum. The unpaid
principal balance on the S&K Notes is convertible into common stock at $1.00 per
share. Interest expense for the nine month period and three month period ended
November 30, 1999 was $3,000 and $2,225, respectively. Accrued interest was
$3,000 at November 30, 1999.
NOTE 7: SUBORDINATED MEZZANINE DEBT8: COMMITMENTS AND CONTINGENCIES
On September 30, 1999,October 1, 2000, the Company entered into a Note and Warrant Purchase
Agreement with a Small Business Investment Corporation (the "SBIC Note")
pursuant tolease agreement for additional
production space in Milton, NY. The lease, which the Company obtained a loan, subordinated to the note payable,
bank (see Note 8), in the principal amount of $450,000 with an interest rate of
12%. The five year loan requires interest only payments for the first two years,
followed by monthly principal payments of $12,500 and interest for years three
to five. The SBIC Note is collateralized by certain assets of the Company,
equity interests in S&K and assigned life insurance policies on two directors of
the Company. The SBIC Note, among other things, restricts the payment of
dividends.
In addition, the SBIC Note was issued with a detachable stock purchase warrant
(the "Put Warrants") to purchase 1,100,000 shares of the Company's common stock
at a price of $.30, the fair market value of the Company's common stock on
September 30, 1999. The fair market value, as subsequently determined by an
independent appraisal, of the Put Warrants was determined to be $0.07, and is
accounted for as a discount to the SBIC Note and will be amortized over the
principal repayment term of the agreement. The unamortized discount atterminates November 30, 1999 is $75,188. The Put Warrants can be put to the Company from May 29,
2006 to May 29, 2007 as otherwise defined by the agreement and they expire on
September 30, 2010, and have certain put options as defined by the agreement.
The deferred financing fees incurred to acquire the SBIC Note will be amortized
over the life2002,
has an annual rent of the loan. Accumulated amortization of the deferred financing
fees was $1,184 at November 30, 1999.
NOTE 8. LONG TERM DEBT Long term debt consists of the following:
November 30 February 28
----------- -----------
Equipment loan, bank, collateralized by related production equipment, payable in
monthly installments of $1,225, including interest at 2% over the bank's prime
rate (10.50% and 9.75% at November 30 and
February 28, 1999, respectively). $40,124 $47,796
Note payable, bank, collateralized by all assets of S&K,
personally guaranteed by two officers of S&K, payable in
monthly installments of $17,852, including interest at 9.5% 431,391 0
------- -------
Total long term debt 471,515 47,796
Due within one year (192,002) (10,503)
--------- --------
Due after one year $279,513 $37,293
======== =======
At November 30, 1999, long term debt is payable as follows:
November 30, 2000 $192,002
November 30, 2001 211,347
November 30, 2002 64,842
November 30, 2003 3,324
-----
$471,515
NOTE 9: INCOME TAXES$18,000. The Company has the option to renew the lease for
a net operating loss carryforward, therefore no income tax
expense is recorded for the nine months andperiod of three months ended November 30, 1999
and 1998. For income tax purposes, the Company had available operating loss
carryforwards of approximately $3,632,000 at February 28, 1999. A valuation
allowance has been reported in an amount equal to the net deferred tax assets
due to the Company's inability to estimate it's ability to recover such amounts.years after expiration.
NOTE 10: LOSS9. EARNINGS (LOSS) PER SHARE
Basic earnings per share ("EPS") and loss per share ("LPS") are computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. Diluted EPS would reflect, if applicable, the
potential dilution that could occur if securities or other obligations to issue
common stock were exercised or converted into common stock. Stock options
granted but not yet exercised under the Company's stock option plans would be
included for Diluted EPS calculations, if applicable, under the treasury stock
method.
The computation of basic and diluted (loss) per share are set forth on the
following table:
Nine Months Ended Three Months Ended
November 30, November 30,
2000 1999 19982000 1999 1998
---- ---- ---- ----
Numerator-
Numerator for basic and diluted
earnings (loss) per share $(31,140) $(201,053)$(114,816) $(31,139) $64,022 $(1,648)
$(109,890)========== ========= ================= ======== ==========
Denominator:
Denominator for basic earnings (loss)
per share - weighted average shares 8,984,787 7,155,467 4,375,720 8,289,566 4,378,3879,047,025 8,289,467
Effects of dilutive securities:
Stock warrants for directors 0* 0* 0*1,526,483 0*
Stock options for employees, directors
and outside consultants 0* 0* 0*414,140 0*
-------------- --------------- -------------------------- --------------
Denominator for diluted earnings
(loss) per share 8,984,787* 7,155,467** 4,375,720** 8,289,566** 4,378,387** 10,987,648* 8,289,566
========= ========= =================== =========
*Stock options and warrants for employees, directors and outside consultants
are antidilutive as a result of the net loss and therefore are not
considered in the Diluted LPS calculation.
**The effect of considering a) the detachable warrants related to $530,000
of convertible secured subordinated promissory notes which were converted
to equity as of February 26, 1999 and b) the detachable Put Warrants (see
Note 7) and c) the convertible long term loans-related parties (Note 6) are
antidilutive and therefore not considered in the Diluted EPS and LPS per
share calculations.
Under the assumption that stock options, warrants and convertible long term
loans were not antidilutive as described in * and **,above, the denominator for Diluted LPS
would be 9,408,66711,234,771 and 5,701,8119,408,667 weighted average shares for the nine month
period at November 30, 19992000 and 1998,1999, respectively and 11,340,411 and
5,704,478 weighted
average shares for the three month period at November 30, 1999 and 1998, respectively.1999.
On October 22, 1999,9, 2000, the Board of Directors of the Company granted options to
acquire 262,50072,500 shares of common stock to qualified employees of the Company
which are exercisable at the fair market value on the date of grant, under the
Company's 1993 Stock Incentive Plan, as amended.
NOTE 11: OPERATING LEASES
The Company leases an office and manufacturing facility in Milton, NY under a
lease that expired in January 1997. The lease provided for a five-year renewal
option at annual rentals varying from $65,000 to $78,000, but that option was
not exercised. The Company is making payments on a month-to-month basis equal to
the amount that would have been required per month if the option had been
exercised. Subsequent to November 30, 1999, the Company entered into a new lease
for its existing facility in Milton, NY (see Note 12).
The Company leases an office and warehouse facility in Chestnut Ridge, NY
pursuant to a one year lease executed on August 3, 1999. The annual base rent
for the Company's Chestnut Ridge, NY facility is $92,000. The building is owned
by an officer of S&K. The rent expense under this agreement was $9,000 for the
period from August 3,1999 (see Note 3) to November 30, 1999.
NOTE 12:10: SUBSEQUENT EVENTS
Operating Leases-On December 1, 1999 the Company entered into a lease agreement
for an additional 3,500 square feetLetter of space in Milton, NY. The space will be
used for additional offices necessitated by the relocation of a substantial
portion of S&K's operations to the Company's Milton, NY location. In addition,
the new space will also house additional production and testing areas.intent - On January 1,May 16, 2000, the Company entered into two lease agreements. The first
lease is forsigned a letter of intent to
purchase all the outstanding stock of a corporation to further expand the
Company's existing facility in Milton, NY.product base. This lease
terminates November 30, 2002letter of intent has expired by its terms and has an annual rent of $78,000. In addition, a
2000 square foot warehouse has been leased through November 30, 2002 with an
annual rent of $9,000.
Pursuant to the operating leases subsequent to November 30, 1999, the
Company hasis no longer pursing the following future annual minimum payments through the endpurchase.
Short term loans - related parties - During December 2000, a director of the
three
year lease renewals:
Fiscal year ending February
2000 $ 19,000
2001 105,000
2002 105,000
2003 78,750
------
$307,750
Equipment Loan-On December 30, 1999Company loaned the Company entered into a loan agreement
with a bank for $73,000 for$20,000 at the construction of a cleanroom to be used in
testing S&K equipment. The five year loan has an interestfixed rate of prime9%, convertible at $1.00
per share into the Company's common stock.
Subordinated mezzanine debt - During December 2000, the note was increased by
$100,000. If the $100,000 plus 2%,
which was 10.5 % on December 30, 1999,interest is not repaid by March 22, 2001, the
scheduled principal payments will increase to $15,278 per month and is secured by the cleanroom. The loana
replacement Warrant will be repaid in sixty equal monthly installments of principal and interest.
Private Placement-On January 11, 2000, the Company completed the sale of 210,000issued for 1,344,444 shares of the Company's common
stock for $63,000. This completes the Private Placement offered
by the Company on May 5, 1999.stock.
SONO-TEK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Federal Securities Laws. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; political, regulatory,
competitive and technological developments affecting the Company's operations or
the demand for its products; timely development and market acceptance of new
products; adequacy of financing; capacity additions; and ability to enforce
patents.
The Company undertakes no obligation to update publicly any forward-looking
statements.
Liquidity and Capital Resources
The Company's working capital increased $233,997decreased $69,652 from $272,916$22,612 at February 28,
199929,
2000 to $506,913a working capital deficiency of $(47,040) at November 30, 1999.2000. The
increasedecrease in working capital was primarily a result of an increasea decrease in cash, accounts
receivable and inventories
of $855,000$466,851 that was offset by an increasea decrease in short term loansdeferred revenue of
$725,491 and current
liabilitiesincreases in accrued expenses of $621,000. The increase in cash was derived from the Private
Placement Memorandum$219,176 and the SBIC Note.customer deposits of
$181,396.
The Company's stockholders' equity increased $707,674$155,809 from $398,382$727,630 on February
28, 199929, 2000 to $1,106,346$883,439 on November 30, 1999. Of this increase, $287,000$137,500 was due to
the sale of 956,667137,500 shares of common stock through thea Private Placement, Memorandum dated May 5, 1999, $102,626$132,242
was due to the issuanceexercise of 600,000
warrants $332,000 was due to the issuance of 960,000 shares of common stock and 200,000 warrants to purchase common stock related to the acquisition of S&K and
$17,000 was due to the conversion of accrued expenses into 57,294 shares of
common stock, all of whichoptions that were partially offset by the $31,140loss$114,816
loss for the nine months ended November 30, 1999.2000.
During Fiscal Year 2000, the Company entered into an agreement with a Small
Business Investment Corporation, Norwood Venture Corporation ("Norwood"),
pursuant to which the Company obtained a five-year loan in the principal amount
of $450,000. The terms of the loan require interest payments only for the first
two years followed by monthly payments of $12,500 plus interest through
September 30, 2004. The Company also granted Norwood a warrant to purchase
1,100,000 shares of the Company's common stock which can be put to the Company.
Such warrants were valued at $77,000 which is accounted for as a discount and
will be imputed as additional interest expense over the term of the loan.
The Company currently has a $300,000$350,000 line of credit with a bank. The loan is
collateralized by accounts receivable, inventory and all other personal property
of the Company and is guaranteed by the Chairman and CEO of the Company. As of
November 30, 19992000 the outstanding balance was $299,948.$350,000.
Due to losses incurred during Fiscal YearYears 2000 and 1999, the Company was required to borrowhas
borrowed on a short-term basis from certain directors of the Company.officers and directors. As of November 30,
19992000 the balance owed thethese officers and directors was $165,000. A $150,000 related party loan to S&K was
assumed on August 3, 1999 and converted into subordinated convertible debt,
payable on August 3, 2002. On September 30, 1999, the Company obtained a
$450,000, five-year term loan from a Small Business Investment Corporation . The
Company also issued a warrant to the Small Business Investment Corporation to
purchase 1,100,000 shares of the Company's common stock with certain put
features as defined in the agreement. The proceeds of this loan were used for
(i) professional fees incurred in connection with the loan, (ii) the S&K
Acquisition, (iii) paying loans, salaries and accrued expenses of certain
officers, (iv) the reduction of trade payables, (v) acquiring certain fixed
assets, and (vi) general working capital and other corporate purposes of the
Company and its subsidiaries.$302,084.
Although there can be no assurances, management believes that theits current
backlog of orders and continued success ofsales and expanding markets for its new products along with the improvement in the market for the
SonoFlux Systems
will lead to broader markets and increases in salesprofits. These factors, and profits. Management also believes that the acquisitionanticipated success of
S&K will lead to
increased sales while at the same time realizing significant efficiencies by
integrating the operations of the two companies. With the increase in sales and
savings from the combined operation of both companies, management believesPNR America, should allow the Company will be able to meet its current obligations as they
become due.
Results of Operations
The Company's sales increased $1,264,473$2,614,704 from $2,395,727 for the nine months
ended November 30, 1998 to $3,660,200 for the nine months
ended November 30, 1999.1999 to $6,274,904 for the nine months ended November 30,
2000. The increase was due to $603,000an increase in SCS sales attributable to S&K,of $2,310,100, increased
sales of the SonoFlux System of $173,000, MCS Infinity and AccuMist Systems of
$191,000, pressure nozzles of $79,000 and special orders of $166,000$609,948, that were offset by a decrease in
nozzlesnozzle and liquid delivery sales of $65,000.$107,657.
The Company's sales increased $872,344$429,149 from $679,428$1,551,772 for the three months
ended November 30, 1999 to $1,551,772$1,980,921 for the three months ended November 30,
1999.2000. The increase was due to $515,000$274,710 in sales attributable to S&K,SCS, increased
sales of the SonoFlux System of $261,000, MCS Infinity$109,084, MCSoInfinity and AccuMist SystemsAccuMistoSystems of
$35,000, pressure nozzles of $49,000 and special orders of $36,000$163,673, that were offset by a decrease in nozzlesnozzle and liquid delivery sales of
$25,000.$68,918.
Gross profit increased $830,346$732,035 from $1,103,787 for the nine-month period ended
November 30, 1998 to $1,934,133 for the nine-month period ended
November 30, 1999.1999 to $2,666,168 for the nine-month period ended November 30,
2000. The increase in gross profit is due to the increase in sales that was
offset by increases in personnel costs of $607,175, service travel of $135,651
and warranty expense of $75,314.
The Company's gross profit increased $515,774$144,261 from $296,475 for the three
months ended November 30, 1998 to $812,249 for the three months
ended November 30, 1999.1999 to $956,510 for the three months ended November 30,
2000. The increase in gross profit is due to the increase in sales that was
offset by increases in personnel costs of $89,627, service travel of $45,899 and
warranty expense of $19,922.
The gross profit was 52%42% and 46%53% of sales for the nine month period ending
November 30, 19992000 and 1998,1999, respectively. The gross profit was 52%48% and 44%52% of
sales for the three month period ending November 30, 19992000 and 1998,1999,
respectively. For both the three and nine month periods the increasedecrease in the
Company's gross profit was primarily a result of increased sales of the
Company's products combined with decreases in labor costs and warranty costs.lower profit margins.
Research and product development costs increased $59,496$257,625 from $370,572 for the
nine months ended November 30, 1998 to $430,068 for the
nine months ended November 30, 1999.1999 to $687,693 for the nine months ended
November 30, 2000. Research and product development costs increased $62,806$47,346 from
$107,906 for the three months ended November 30, 1998 to
$170,712 for the three months ended November 30, 1999.1999 to $218,058 for the three
months ended November 30, 2000. For both the three and nine month periods, the
increase in the Company's research and product development costs was a result of
increased compensation and rent expense resulting from a larger engineering
staff and additionaltravel costs associated with S&K.new products for SCS.
Marketing and selling costs increased $239,194$320,708 from $548,563 for the nine months
ended November 30, 1998 to $787,757 for the nine months
ended November 30, 1999.1999 to $1,108,465 for the nine months ended November 30,
2000. The increase was a result of increased sales commissions and additional
commissionsales personnel that totaled $236,312 and labor costsincreased marketing expenses of
$50,000,
expenses related to start up costs associated with the sale of pressure nozzles
of $44,000, trade shows and travel of $27,000, and costs associated with S&K.$25,030.
Marketing and selling costs increased $125,115$60,130 from $177,946 for the three
months ended November 30, 1998 to $303,061 for the three months
ended November 30, 1999.1999 to $363,191 for the three months ended November 30,
2000. The increase was a result of additional commission and laborcommissions of $118,707 that were
offset by decreases in personnel costs of $95,000, trade shows$15,623, travel costs of $11,471 and
travelmarketing costs of $22,000, and the costs associated with S&K.$23,899.
General and administrative costs increased $238,158$99,409 from $353,682 for the nine
month period ended November 30, 1998 to $591,840 for the nine
month period ended November 30, 1999.1999 to $691,249 for the nine month period ended
November 30, 2000. The increase was due to increases in compensation of
$122,000, goodwill amortization of $28,000, professional and
consulting fees of approximately $24,000, travel$128,817 plus goodwill and deferred financing amortization of
$20,000 and additional S&K costs.$44,232 that were offset by a decrease in personnel costs of $58,929.
General and administrative costs increased $186,178decreased $57,881 from $114,808 for the three
month period ended November 30, 1998 to $300,986 for the three
month period ended November 30, 1999.1999 to $243,105 for the three month period
ended November 30, 2000. The increasedecrease was due to increases in compensation of
$100,000, professional and
consulting fees of approximately $27,000, goodwill
amortization$45,758 that were offset by decreased personnel costs of
$21,000, travel of $10,000, and additional S&K costs.$81,313.
Interest expense increased $124,812$63,178 from $42,775$167,587 for the nine month period ended
November 30, 19981999 to $167,587$230,765 for the nine months ended November 30, 1999. The
increase is primarily due to a non-cash charge of $102,626 for the costs
associated with 600,000 warrants that were issued on May 13, 1999 and to
interest expense on the S&K debt and the additional debt incurred on September
30, 1999.2000.
Interest expense increased $23,625$14,852 from $14,925$38,550 for the three month period ended
November 30, 19981999 to $38,550$53,402 for the three months ended November 30, 1999.2000. The
increase is a resultprimarily due to an increase in interest costs associated with the
addition of SCS and Norwood loan interest expense onand new equipment loans from the S&K debt and the additional debt
incurred on September 30, 1999.bank.
For the nine months ended November 30, 19992000 the Company had a net loss of
$31,140$114,816 or $(0.00)$(0.01) per share as compared to a net loss of $201,053$31,139 or $(0.05)$(0.00)
per share for the nine months ended November 30, 1998. The decrease in net loss
was primarily a result of an increase in the Company's sales offset by the
non-cash charge of $102,626 for the warrants issued May 13, 1999.
For the three months ended November 30, 1999,2000 the Company had a net income of
$64,022 or $0.01 per share as compared to a net loss of $1,648 or $(0.00) per
share as compared to a net loss of $109,890 or $(0.03) per
share for the three months ended November 30, 1998. The decrease in net loss for
the three month period was result of the increase in sales, offset by higher
costs due to interest, goodwill amortization and costs associated with S&K.
Year 2000 Compliance1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has assessed its readiness for the Year 2000 (Y2K). This assessment
identified areas that neededis exposed to be modified, and resultedmarket risk related to changes in the Company
upgrading both hardware and software used internally.
As part of its assessment, the Company evaluated its phone, security and
manufacturing machinery and determined that all of these systems are Y2K
compliant.interest rates. The
Company also evaluated the software and hardware used in its
products and determined that they are Y2K compliant. The Company has surveyed
its major suppliers for their Y2K readiness. Because all major components and
materials used by the Company in the manufacture of its products are readily
available from several suppliers, management considers this area to be of
minimal risk.
At the present time, a contingency plan has not been developed. The Company will
continue to monitor the need for a contingency plan. The Company has incurred
internal staff costs, as well as the expense to purchase additional hardware and
software of approximately $28,000. Despite its efforts to survey its customers,
suppliers and service providers, the Company cannot be certain as to the actual
Y2K readiness of these third parties or the impact that any non-compliance on
their part may haveinterest rate on the Company's business,debt is based on fluctuations in the prime rates.
If the prime rate increased by 1 percentage point from the levels at February
29, 2000, the negative effect on the Company's results of operations or
financial condition. This is a Yearwould
approximate $1,300 for the quarter ended November 30, 2000 readiness disclosure entitled to
protection as provided inand $3,500 for the
Year 2000 Information and Readiness Disclosure
Act.
As of January 14, 2000, the Company has not, nor to its knowledge, has any of
the Company's customers, suppliers, financial institutions, vendors, and
distributors, experienced any material Y2K complications. However, there can be
no absolute assurances that the Company and the Company's external agents will
not experience some complications resulting from Y2K problems in the future.nine months ended November 30, 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Company's annual meeting of
shareholders held on September 30, 1999.
1. The election of three (3) directors of the Company to serve until the
Company's 2001 annual meeting of shareholders.
For Withheld
John J. Antretter 6,665,545 351,330
Harvey L. Berger 6,665,545 351,330
Christopher L. Coccio 6,665,545 351,330
2. The election of one (1) director of the Company to serve until the
Company's 2000 annual meeting of shareholders.
For Withheld
Kevin Schumacher 6,665,545 351,330
3. To increase the number of authorized shares of the Company's common stock
from 12,000,000 shares to 25,000,000 shares.
For Against Abstained
6,111,760 826,178 78,937
4. To increase the number of shares of common stock issuable under the 1993
Stock Incentive Plan (the "1993 Plan") from 750,000 shares to 1,500,000
shares and to expand the 1993 Plan to cover all employees of the Company
and its subsidiaries, and, in the case of Non-Qualified Stock Options,
employees of affiliates of the Company.
For Against Abstained
5,107,225 804,512 81,687
5 Ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending February 29, 2000.
For Against Abstained
6,944,989 53,201 18,685
There were no broker non-votes.None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3.1.1 Certificate of Amendment of the3(d) Restated Certificate of Incorporation
dated September 30, 1999
4.11 Note and Warrant Purchase Agreement10(g) Lease for the Company's facilities in Milton,
NY dated September 29, 1999 by and between the Company and
Norwood Venture Corp.
4.11(a) Note issued by the Company, dated September 29,
1999, in the principal sum of $450,000.
4.11(b) Common Stock Purchase Warrant, dated September 29,
1999,issued by the Company to Norwood Venture Corp
4.11(c) General Security Agreement, dated September 29,
1999, issued by the Company in favor of Norwood
Venture Corp.
27. Financial Data Schedule - EDGAR filing only2000
(b) Reports on Form 8-K/A
Filed October 18, 19998-K
None
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.
Dated: January 14, 200016, 2001
SONO-TEK CORPORATION
(Registrant)
By: /s/ James L. Kehoe
James L. Kehoe
Chief Executive Officer
By: /s/ Kathleen N. Martin
Kathleen N. Martin
Chief Financial Officer
Exhibit 3.1.1
CERTIFICATE OF AMENDMENT
OF THE3(d)
CERTIFICATE OF INCORPORATION OF
SONO-TEK CORPORATION
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
* * * * *
1.Under Section 402 of the business Corporation Law
IT IS HEREBY CERTIFIED THAT:
(1) The name of the proposed corporation is:
SONO-TEK CORPORATION
(2) The purpose or purposes for which this corporation is SONO-TEK CORPORATION.
2. The certificateformed, are as
follows, to wit:
To engage in the business of incorporationmanufacturing, designing, creating,
compounding, developing, formulating, investing, patenting, owning, acquiring,
producing, processing, constructing, storing, applying, assembling, adapting,
conducting, operating, using, preparing for market, exhibiting, distributing,
installing, buying, selling, disposing, leasing, renting, mortgaging,
exploiting, licensing, exchanging, reconstructing, repairing, importing,
exporting and generally dealing in and with household and industrial fuel
combustion systems including but not limited to all kinds of said corporation was filed by the
Departmentburners, furnaces,
fuel atomizers, stoves, boilers, engines, fuel delivery systems, heating
devices, lighting devices, refrigerating devices, devices for producing and
furnishing gases, heat, light, cold, power, or electricity, and all other kinds
of State on the 21st daymechanical and electrical machines, devices, and appliances, and all kinds of
March, 1975.
3. (a) The certificate of incorporation is amended to increase the number of
authorized sharesmaterials, supplies, accessories, equipment, devices or other things used for
any of the corporation.
(b)foregoing, or in any other way thereto relating, and any and all
other kinds of machinery, appliances, device, supplies and articles.
To effectacquire such property, real and personal, as may be
necessary to the foregoing, Article Fourconduct of thesuch business.
The powers, rights and privileges provided in this Certificate
of Incorporation are not to be deemed to be in limitation of similar, other, or
additional powers, rights and privileges granted or permitted to a corporation
by the Business Corporation Law, it being intended that this Corporation shall
have the right to engage in such similar activities as like corporations may
lawfully engage in under the Business Corporation Law of the State of New York,
as now in effect, or as hereafter promulgated.
To do everything necessary, suitable or proper for the
accomplishment, attainment or furtherance of, to do every other act or thing
incidental to, appurtenant to, growing out of or connected with, the purposes,
objects or powers set forth in this Certificate of Incorporation, whether alone
or in association with others, to possess all the rights, powers and privileges
now or hereafter conferred by the laws of the State of New York upon a
corporation organized under the laws of the State of New York and, in general,
to carry on any of the activities and to do any of the things herein set forth
to the same extent and as fully as a natural person or partnership might or
could do; provided, that nothing herein set forth shall be construed as
authorizing the Corporation to possess any purpose, object or power, or to do
any act or thing forbidden by law to a Corporation organized under the laws of
the State of New York.
(3) The office of the Corporation is amended to read as follows:be located in the Town of Milton,
County of Ulster, State of New York.
(4) The aggregate number of shares of all classes which the Corporation shall
have authority to issue is twenty-five million (25,000,000) common shares,
par value $0.01 per share. No holder of any share of the Corporation shall,
because of his ownership of shares, have a pre-emptive or other right to
purchase, subscribe for, or take any part of any shares or any part of theany
notes, debentures, bonds, or other securities convertible into or carrying
options or warrants to purchase shares of the Corporation issued, optioned
or sold by the Corporation.
(5) The Secretary of State is designated as agent of the corporation upon whom
process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the Corporation
4.served upon him is c/o Sono-Tek Corporation 2012 Route 9W, Building 3
Milton, New York 12547
(6) The amendment was authorizedCorporation may, to the fullest extent permitted by Sections 721
through 726 of the Business Corporation Law of New York, indemnify any and
all directors and officers whom it shall have power to indemnify under the
said Sections from and against any and all of the expenses, liabilities or
other matters referred to in or covered by such sections, and the
indemnification provided for herein shall not be deemed exclusive of any
other rights to which the persons so indemnified may be entitled under any
By-law, agreement, vote of allshareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity by holding such office, and shall continue as a person who
has ceased to be a director or officer and shall inure to the directorsbenefit of
the heirs, executors and administrators of such a person.
(7) No director
of the Corporation followedshall be personally liable to the Corporation or
shareholders for damages for any breach of duty as a director; provided
that this Article (7) shall neither eliminate nor limit liability: (a) if a
judgment or other final adjudication adverse to such director establishes
that his or her acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that he or she personally
gained in fact a financial profit or other advantage to which he or she was
not legally entitled or that his or her acts violated Section 719 of the
Business Corporation law; or (b) for any act or omission prior to the
effectiveness of this Article (7). Any repeal or any modification to the
provisions of this Article (7) shall not adversely affect any right or
protection of a director of the Corporation existing pursuant to this
Article (7) immediately prior to such repeal or modification.
(8) The business of the Corporation shall be managed under the direction of a
Board of Directors in accordance with the following:
(a) The Board shall consist of six directors, unless and until
otherwise determined by vote of a majority of the entire board of
directors (whether or not there exist any vacancies in previously
authorized directorships at the time such resolution is presented
to the Board for adoption).
(b) The directors shall be divided into two classes, designated Class
I and Class II. All classes shall be as nearly equal in number as
possible, and no class shall include less than three directors.
The terms of office of the directors initially classified shall
be as follows: at the 1989 annual meeting of shareholders, Class
I directors shall be elected for a one year term expiring at the
next annual meeting of shareholders and Class II directors for a
two year term expiring at the second succeeding annual meeting of
shareholders. At each annual meeting of shareholders after such
initial classification, directors to replace those whose terms
expire at such annual meeting shall be elected to hold office
until the second succeeding annual meeting. Each director shall
hold office until the expiration of his term and until his
successor is elected and qualified or until his earlier death,
resignation or removal.
(c) A director elected to fill a vacancy shall be elected to hold
office for a term expiring at the next meeting of shareholders at
which the election of directors is in the regular order of
business and until his successor has been elected and qualified.
(d) If the number of directors is changed, (1) any newly created
directorships or any decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly
equal in number as possible; and (2) when the number of directors
is increased by the Board and any newly created directorships are
filled by the Board, there shall be no classification of the
additional directors until the next annual meeting of
shareholders.
(e) Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the Board for any
reason may be filled only by vote of the Board. If the number of
directors then in office is less than a quorum, such newly
created directorships and vacancies may be filled by a majority
of the directors then in office.
(f) Any director may be removed for cause by action of the Board. Any
director may also be removed for cause (but not without cause) by
the affirmative vote of the holders of a majorityat least two-thirds of the
outstanding shares entitled to vote on an amendmentthereon.
(g) The provisions of this Article (8) may be altered, amended or
repealed, and any provision inconsistent herewith may be adopted,
only by the affirmative vote of the holders of at least
two-thirds of the outstanding shares entitled to vote thereon.
The undersigned incorporator is of the age of eighteen years or over.
IN WITNESS WHEREOF, this certificate has been subscribed this
21st day of March, 1975 by the undersigned who affirms that the statements made
herein are true under penalties of perjury.
Exhibit 10(a)
LEASE
LEASE MADE THIS 29th DAY OF September, 2000
BETWEEN Jean K. Woodward, owner, as may be represented by William Woodward
(William Woodward Enterprises) residing at 50 Riverview Drive, Marlboro, New
York 12542-5310 herein referred to as Lessor,
AND Sono-Tek Corporation, having it's principal place of business at
2012 Route 9-W, Milton Industrial Park, Milton, New York 12547, herein referred
to as Lessee.
RECITALS:
1: Lessor is the sole owner of the premises described below and
desires to lease the premises to a suitable Lessee for
business purposes.
2: Lessee desires to lease the premises for the
purpose of conducting a business of light
manufacturing, electronics and related machinery
and equipment.
3: The parties desire to enter a lease agreement defining their rights, duties
and liabilities relating to the Certificatepremises.
In consideration of Incorporation at the annual meeting of shareholders on September 30, 1999.
s/s James L. Kehoe
Name: James Kehoe
Title: Chief Executive Officer
Exhibit 4.11
NOTEmutual covenants contained herein, the parties agree as
follows:
I. SUBJECT AND WARRANT PURCHASE AGREEMENT
SONO-TEK CORPORATION
$450,000 Principal Amount
12% Note
Due September 30, 2004
and
Warrant for 1,100,000 Shares of
$0.01 Par Value Common Stock
September 29, 1999
SONO-TEK CORPORATION,PURPOSES:
Lessor leases a corporation organized and existing under
the lawsportion of the building known as Phase I, Building 1,
in the Milton Industrial Park, in the County of Ulster, State of New York (the "Company") and
NORWOOD VENTURE CORP.more particularly described as follows:
Approximately 4,200 square feet of space located adjacent to the SonoTek
existing facilities containing a separate electric meter, gas meter, bathroom ,
small office and one drive-in overhead door.
II. TERM AND RENT:
Lessor demises the above premises for a corporation organizedterm of two (2) Years and existing undertwo
(2) months, commencing October 1, 2000 and terminating on November 30, 2002 at
five o'clock P.M., or sooner as provided herein, at the lawsannual rental of
Eighteen Thousand Dollars ($18,000.00) or proportioned thereof..
Such sums are payable in advance on October first for the first year
and on the anniversary date for each succeeding year. However and provided the
lessee is not otherwise in default, the lessee for convenience and with the
consent of the Statelessor may pay such annual rent in equal monthly installments of
Delaware
("NVC") hereby agreeOneThousand Five Hundred Dollars ($1,500.00) in advance on the first day of each
month for that month's rental, during the term of this lease. All rental
payments shall be made to Lessor at the address specified above. Lessee shall
pay the rent as follows:
Article 1.
PURCHASE AND SALE
1.1 Purchasespecified herein and Salein Section Three hereof.
III. ADDITIONAL RENT:
All taxes, charges, costs, and expenses that Lessee assumes or agrees
to pay hereunder, together with all interest and penalties that may accrue
thereon in the event of Notethe failure of Lessee to pay those items, and Warrant; Payments. Uponall other
damages, costs, expenses, and sums that Lessor may suffer or incur, or that may
become due by reason of any default of Lessee or failure by Lessee to comply
with the terms and conditions of this lease shall be deemed to be additional
rent, and, in the event of nonpayment, lessor shall have all the rights and
remedies as herein provided for failure to pay rent.
IV. UTILITIES NOT FURNISHED BY LESSOR - ENTIRE RESPONSIBILITY OF LESSEE:
Lessee shall initiate, contract for, and obtain, in its name, electric,
natural gas, and telephone utility services as required on the demised premises.
Lessee shall indemnify and hold harmless lessor from any claims
whatsoever arising out of lessee's failure to pay for utility services and/or
the charges therefor. Lessee shall pay Lessor's attorney's fees arising out of
any claims against Lessor arising out of charges for Lessee's utility services.
Except in the case of acts of negligence committed by Lessor, Lessor
shall not be liable for any personal injury or property damage resulting form
the negligent operation or faulty installation of utility services provided for
use on the demised premises, nor shall Lessor be liable for any injury or damage
suffered by lessee as a result of the failure to make necessary repairs to the
utility facilities.
Lessee shall be liable for any injury or damages to the equipment of
service lines of the utility suppliers that are located on the demised premises,
resulting from the negligent or deliberate acts of lessee, or the agents or
employees of lessee.
V. BROKERS COMMISSION:
There is no Broaker's Commission payable or due from either the Lessor
or the Lessee.
VI. IMPROVEMENTS TO BE MADE TO PREMISES:
Lessee shall make the following improvements to the premises: Install
access from the existing rental space into the new rental spacethrough a common
wall area as located and type of materials approved by the lessor.
The above improvements shall be at the direction of Sono-Tek
Corporation and completed no later than January 1, 2001. The above improvements
shall be subject to the provisions of paragraph VII.
VII: ALTERATIONS, ADDITIONS AND IMPROVEMENTS:
1. Subject to the limitation that no portion of the building on
the demised premises shall be demolished or removed by Lessee
without the prior written consent of Lessor, and , if
necessary, of any mortgagee. Lessee may at any time during the
lease term subject to the conditions set forth below and at
his own expense, make alterations, additions, or improvements
in and to the demised premisses and the building. Alterations
shall be performed in a workmanlike manner and shall not
weaken or impair the structural strength, or lessen the value,
of this Agreement, the Company agrees to
issue and sell to NVC, and NVC agrees to purchase, by check or wire transfer in
immediately available funds to one or more accounts designated in writing by the
Company, from the Company,building on the date onpremises, or change the purposes for
which this Agreement is executedthe building, or any pert thereof, may be used.
2. Conditions with respect to alterations, additions or improvements are as
follows:
1. Before commencement of any work all plans and delivered (the "Closing Date") (a) at par, a 12% Note of the Company due
September 30, 2004 in the principal amount of $450,000 (the "Note") and (b) for
$100, a Warrant for the purchase of 1,100,000 shares of the Company's $0.01 par
value Common Stock ("Common Stock"). The shares issued or issuable on exercise
of the Warrant are hereinafter referred to as "Warrant Shares". The Notespecifications
shall be in substantially the form of Exhibit A heretofiled with the blanks completed in
conformity herewith. The Warrantand approved by all governmental departments
or authorities having jurisdiction and any public utility company
having an interest therein, and all work shall be in substantially the form of Exhibit B
hereto with the blanks completed in conformity herewith. The Company shall apply
$12,500.00 to the prepayment of the principal amount of the Note on the last
business day of each month, commencing in the month of October, 2001 and
continuing to and including the month of August, 2004, and shall pay the
remaining outstanding principal amount of the Note and any interest accrued and
unpaid thereon at the scheduled maturity of the Note.
1.2 Issuance of Stock on Exercise of Warrant; Participation
Rights. The Company agreesdone in
accordance with the termsrequirements of local regulations. The plans and
under the
circumstances set forth in, the Warrant, to issuespecifications of any alterations shall be submitted to the
holder thereof the
number (subjectLessor for written approval prior to adjustment as provided in the Warrant) of shares of Common
Stock for which the Warrant is then exercisable in accordance with the terms of
the Warrant. The Company shallcommencing work. Said
approval not issue or agree to issue any equity securities
or securities with an equity feature unless either (a) it has given NVC at least
20 days' prior written notice thereof and afforded NVC a reasonable opportunity
during such 20 day period to acquire up to eight and one-half percent (8 1/2%)
of the securities to be issued (or rights to be granted) on the best terms on
which they are to be issued to any other person or entity (except that NVCunreasonably withheld. . The lessee shall have
the right to pay in cashinstall one identification sign at the fair market value, as reasonably determined by
the Company's Board of Director's, of any non-cash consideration involved) or
(b) Common Stock is to be issuedand the cash consideration to be received by the
Company for the issuance thereof exceeds $0.50 per share. Notwithstanding the
foregoing, NVC shall have no such rights of participation with respectmain entrance
to the issuance of (a) any securities to satisfy any conversion, option, subscription
or similar right outstanding on the date hereof or theretofore granted by the
Company in compliance with this Section 1.2, (b) up to 250,000 shares of Common
Stock issued to employees pursuant to the Company's employee stock option plan
and (c) up to 500,000 shares of Common Stock issued pursuant to private
placements in all material respects consistent with the terms provided in the
private placement memorandum dated May 5, 1999 a true copy of which has been
furnished to NVC by the Company (any such private placement being hereinafter
referred to as a "Company Private Placement").
1.3 Note Collateral. As collateral security for the due and
punctual payment and performance of the Note, (a) the Company is, on the date
hereof (i) executing and delivering to and in favor of NVC a General Security
Agreement and UCC-1 financing statements pursuant to which certain of the assets
of the Company are pledged to NVC to secure the Company's liabilities under the
Note and this Agreement (together, the "Security Agreement") and (ii) delivering
to NVC all evidences of its equity interest in, and debt securities issued to it
by, S&K Products International, Inc., a New Jersey Corporation ("S&K") together
with stock and bond powers executed in blank and (b) the Companydemised premises. Such sign shall within
30 days of the Closing Date, deliver to NVC original policies insuring the lives
of James L. Kehoe and Kevin Schumacher each in the amount of at least $450,000,
together with instruments assigning such policies and the proceeds thereof to
NVC to secure the Company's liabilities under the Note and this Agreement, each
of which shall be satisfactory to NVC in NVC's reasonable discretion (such
policies and instruments of assignment being together referred to herein as the
"Insurance Assignment"; the Security Agreement and the Insurance Assignment
being hereinafter referred to collectively as the "Security Agreements")..
ARTICLE 2
PUT; MANDATORY WARRANT EXERCISE
2.1 NVC's Put.not violate local
building codes. At any time commencing on the delivery by the
Company of the Company's audited financial statements for the Company's fiscal
year ending February 28, 2006 and terminating one year thereafter (such period,
the "Put Period"), NVC shall have the right (once, but not more than once), on
written notice to the Company (which notice shall be irrevocable), specifying a
closing date (the "Put Date") not less than 90 days from the date of such
notice, to sell to the Company, and to require the Company to purchase from it,
on the Put Date, the Warrant (to the extent not theretofore exercised) and all
(but not less than all) of the Warrant Shares then owned by NVC at a price (the
"Put Price") equal to the result obtained by subtracting the aggregate exercise
price of the Warrant to the extent then remaining unexercised from the product
of the greatest of:
(a) the Fair Market Value of the Company as determined by an
Independent Appraiser as at the end of the Company's fiscal year ended
February 28, 2006 (the "Company's 2006 Fiscal Year")term of this lease the lessee
shall at the option of lessor remove such alterations as are
designated by lessor.
2. Prior to commencement of any work Lessee shall pay the amount of
any increase in premiums on insurance policies provided for
herein because of endorsements to be made covering the risk
during the course of work. 1.
3. Alterations, additions and improvements on or in the demised
premises may commence upon the signing of this agreement. All
additions and improvements that may be erected or installed prior
to or during the term, shall become part of the demised premises
and the sole property of Lessor, except that all movable trade
fixtures, and a modular Class 100 clean room if installed by
lessee shall be and remain the property of Lessee.
VIII. TAXES AND OTHER CHARGES:
Lessor shall pay and discharge when due all state, municipal and local
real estate taxes, inheritance, succession and , (b) five times EBITDA forassessments, levies and other
charges, general and special, ordinary and extraordinary, of whatever name,
nature and kind that are or may be during the Company's 2006 Fiscal Yearterm hereof or if
higher, average EBITDA for such year andany renewal,
beginning with the fiscal year of2000, levied, assessed, imposed or charged on the
Company
immediately priorland or the premises hereby demised or on the (building or buildings) and
improvements now thereon or hereafter to such year,be built or (c) the book value of the Company as at the end of the Company's
2006 Fiscal Year,made thereon, and a fraction (the "Put Fraction") the numeratorall of
which ismay be levied, assessed, imposed or charged on or against the total number
of shares of Common Stock which would then be owned by NVC if all then issuedleasehold
estate hereby created and outstanding options, warrants and rights (together, "Rights") to acquire
Common Stock on conversion, exchange, subscriptionthe reversionary estate in the demised premises
during the term hereof or otherwise, whether or notany renewal.
If at any time during the time exercisable, had been exercised in full and the denominator of which
is the number (the "Full Dilution Number") of shares of Common Stock which would
be outstanding if all Rights to acquire Common Stock were exercisable and
exercised in full. For purposesterm of this Agreement, (v) "EBITDA" meanslease, the consolidated net incomepresent method of
taxation or assessment should be changed so that the Company and its Subsidiaries plus (adding back)whole or any deductions for income taxes, interest expense, depreciation and amortization
of intangible assets (including amortization of goodwill) for such period, (w)
EBITDA, book value, net income, income taxes, interest expense, depreciation and
such amortization shall each be as set forth in the Company's audited financial
statements prepared in accordance with Section 6.2 of this Agreement, (x)
"Subsidiary" means each Person (as hereinafter defined) which the Company or
another Subsidiary shall control or own more than 50% of the capital or equity,
(y) "Independent Appraiser" means the independent investment banking firm
located in New York City designated in writing by the Company or NVC to the
other unless within 30 days after such designation the other objects thereto in
writing, in which case, if the Company and NVC are unable to agree upon such an
investment banker, then such firm shall be the New York City office of a
nationally recognized firm of investment bankers to be chosen by the President
of the American Arbitration Association (the "AAA") and (z) "Fair Market Value"
of the Company means the highest purchase price which one could reasonably
expect would be paid for all of the business and assets of the Company and its
ownership interest in its Subsidiaries in a sale of the Company as a going
concern in an arm's-length sale transaction between an informed, willing and
strategically motivated buyer under no compulsion to buy, and an informed and
willing seller under no compulsion to sell, assuming that, at the time of the
sale, the purchase price is paid entirely in cash. NVC shall pay one-half, and
the Company shall pay one-half, of all fees and expenses charged by the
Independent Appraiser for determining the Fair Market Value of the Company.
Payment of the Put Price pursuant to this Section 2.1 shall be made by transfer
of good funds on the Put Date in an amount equal to one-third of the Put Price
and delivery of a note (the "Put Note") for the balance of the Put Price. The
Put Note shall (i) be payable in thirty-six equal monthly installments due on
the last business day of each month following the month in which the Put Date
occurs, each such installment to consist of a portion of the balance of the Put
Price and interest on the unpaid balance at an annual rate of 12% per annum,
(ii) become, by its terms, immediately payable in full upon the occurrence of an
Event of Default (as hereinafter defined) or payable on default (if unwaived) in
any payment thereon after ten days' notice by the holder of the Put Note of such
payment default (if such payment is not made within such period) and (iii) shall
otherwise be in substantially in the form of the Note.
Section 2.2 Termination of Put Rights. NVC's rights to sell to
the Company (or cause the Company to purchase) the Warrant and/or Warrant Shares
pursuant to Section 2.1 shall terminate if (a) (i) Common Stock has for 90
consecutive trading days been listed and traded on the NASDAQ small cap market
at a price of at least $1.50 per share (appropriately adjusted for any change in
the Company's equity capitalization) (such event being hereinafter referred to
as a "Liquity Condition") and (ii) the Company causes to be registered for sale,
and NVC sells, at least 300,000 Warrant Shares and receives net sale proceeds
therefrom of at least $1.50 per Warrant Share after subtracting the exercise
price paid by NVC to acquire such Warrant Shares pursuant to the Warrant (the
occurrence of (i) and (ii) being hereinafter referred to as a "Liquidity Event")
or (b) the Company receives net proceeds of at least $5,000,000 from the sale of
its Common Stock in a registered public offering which places a valuation (prior
to such sale of Common Stock) on the Company of at least $15,000,000 (the events
described in (b) being hereinafter referred to as a "Qualified Public
Offering").
Section 2.3 Mandatory Warrant Exercise. At the request of the
Company, NVC shall, upon the occurrence of a Liquidity Condition, exercise the
Warrant and cooperate with the Company (in the manner described in Article 10)
in the registration and sale of at least 300,000 Warrant Shares if the resulting
sale would create a Liquidity Event.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to NVC that:
3.1 Organization; Good Standing. The Company is a corporation
duly organized and validly existing under the laws of the State of its
incorporation and has all requisite corporate power and authority to own,
operate and lease its properties, to carry on its business as now being
conducted and to enter into this Agreement and perform its obligations hereunder
and under each of the other documents entered into by it in connection herewith
(including the Note and Warrant), which documents are listed on the List of
Closing Documents attached hereto as Exhibit C (such other documents, together
with this Agreement, being collectively referred to as the "Transaction
Documents"). The Company is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the failure to be
so qualified would have a material adverse effect upon its business or assets.
The jurisdictions in which the Company is qualified to do business are set forth
on Schedule 3.1 hereto.
3.2 Authorization. The execution, delivery and performance by
the Company of each Transaction Document to be executed by the Company
(including this Agreement, the Note, the Warrant and the Security Agreements)
listed on Exhibit C) has been duly authorized by all requisite corporate action
on the part of the
Company. No consent, license, approval, authorization,
registration, filingtaxes, assessments, levies or similar requirement ("Permit") is necessary in
connection therewith except as set forthcharges now levied, assessed or imposed on Schedule 3.2 hereto; there are,the
real estate hereby demised and improvements thereon, shall be transferred to the
Company's knowledge, no pending or threatened investigations or legal
proceedings ("Actions") which questionrentals received from such real estate, lessee shall pay such proportionate
share of taxes and assessments levied and assessed on such rentals as shall
proportionately relieve the transactions contemplated thereby;taxes and none ofassessments on such transactions will conflict with or result in any violation of
or constitute a breach of or default underreal estate, it being
the certificate of incorporation or
by-lawsintent of the Companyparties hereto that lessor shall receive the rents reserved
herein with deduction of taxes (except gift, estate, inheritance, succession and
income taxes on the interest of lessor), assessments levies or any applicable laws, rules, regulations, agreements
with governmental authorities (together, "Laws"), orders, injunctions,
judgments, awards or decrees (together, "Orders") or, except as set forth on
Schedule 3.2 hereto, other agreements, understandings, deeds, notes, mortgages
or licenses (together, "Contracts") binding upon the Company or its assets or
will resultcharges in
the creation of any lien, charge or encumbrance (together,
"Liens") (except the Lien created by the Security Agreements) upon any of the
assets of the Company pursuant to any Contracts. Each such Transaction Document
has been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company enforceable in accordance with its
terms except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights or by general equitable principles.
3.3 Capitalization. On the Closing Date, after consummation of
the transactions contemplated hereby, the Company's authorized capital stock
will consist solely of those shares identified under the heading "Authorized
Capital Stock" on Schedule 3.3. Of such shares, only those shares identified
under the heading "Outstanding Common Shares and Ownership Thereof" on Schedule
3.3 are outstanding and such shares are held of record and,respect to the knowledge ofreal estate and improvements thereon, but that lessee shall not
be obligated to pay full taxes and assessments on such real estate and
improvements and also on such rentals.
IX. REPAIRS:
Lessee shall, at all times during the Company, beneficially as indicated under such heading except as set forth on
Schedule 3.3. No person, corporation, association or other entity ("Person") haslease and at his own cost and
expense, repair, replace and maintain in good, safe and substantial condition,
all buildings and any Right issued by the Company entitling such Person to acquire shares of the
Company's capital stock or any other securities (whether or not authorized or
outstandingimprovements, additions, and alterations on the date of this Agreement) which are convertible intodemised
premises, and shall use all reasonable precaution to prevent waste, damage or
exchangeable for such shares except as indicated on Schedule 3.3 under the
heading "Rights". The shares of the Company's Common Stock purchasable on the
exercise of the Warrant have been duly reserved for issuance, and when issued
upon the valid exercise of the Warrant, will be validly issued, fully paid and
non-assessable shares of the Company's Common Stock. No Person is entitled to
any preemptive or other rights to subscribe for the Warrant Shares. Except as
set forth under the heading "Liabilities Owed to or by Affiliates" on Schedule
3.3, there is no outstanding indebtedness of the Company owed to any Person (or
any close relative of such Person) who owns directly or indirectly 5% or more of
any class of the outstanding securities of the Company or of which the Company
owns 5% or more of the equity or capital or to any officer or director of the
Company or any of their close relatives (any Person with such an ownership or
other relationship with the Company described in this sentence being hereinafter
referred to as an "Affiliate") or any indebtedness of any Affiliateinjury to the Company. Other than as described on Schedule 3.3 under the heading "Management
or Control", theredemised premises. It is intended that this clause refers to
non-structural repairs, unless structural repairs are no agreements or other instruments of any kind which
relate to the voting of the capital stock or other securities of the Company or
the management or control of the Company other than the certificate of
incorporation and by-laws of the Company. Except pursuant to Article 10 of this
Agreement, or those agreements listed on Schedule 3.3 under the heading
"Registration Rights", there are no agreements or other instruments providing
registration rights to holders of any security issued or issuablenecessitated by the
Company.
3.4 Equity Investments. The Company does not own, beneficially
or of record, any capital stock or other equity securities of, or direct or
indirect equity interest in, any other Person or enterprise except as indicated
on Schedule 3.4.
3.5 Litigation. To the Company's knowledge, except as set forth
on Schedule 3.5, there are no Actions which would, if adversely determined,
severally or in the aggregate, materially and adversely affect the business,
operations, assets or financial or other condition (together, the "Financial
Condition") of the Company or the transactions contemplated by the Transaction
Documents.
3.6 Compliance; Permits. To the Company's knowledge, except as
set forth on Schedule 3.6, there is no failure by the Company to comply with or
any default or violation by the Company under, any Laws, Orders, Permits or
Contracts applicable to its business which failure, violation or default could
have a material adverse effect on the Company's Financial Condition and the
Company has not received notice of any claim to the contrary. To the Company's
knowledge, the Company has all material Permits necessary for the
conduct of lessee, its business,agents or assigns. In such case, lessee shall be
responsible for structural repairs.
Lessor shall maintain the building exterior, lawn and landscaping.
Lessor shall be responsible for snow removal, and grounds cleaning. Lessor shall
replace all shrubs to the property which have died.
Lessee shall remove snow and debris from walkways and in front of
which material Permits are listed on Schedule 3.6.
3.7 Material Contracts. Exceptdoors.. Lessee shall be responsible for office cleaning, window cleaning, refuse
removal, maintenance of light fixtures, bi-annual service of heating and air
condition equipment, and to maintain all plumbing fixtures against leaks and
water wasting.
X. SECURITY DEPOSIT:
Lessee shall deposit No Money with lessor upon the signing here of for
the Contracts described on
Schedule 3.7, true copiespurposes of which have been furnished to NVC,a security deposit.
XI. INSURANCE:
1. In the Company is
not bound by any contracts with employees or Affiliates, collective bargaining,
pension, retirement, profit-sharing or similar agreements, or Contracts which
are material to the businessterm of the Company.
3.8 Financial Statements. True copieslease and for any further time that Lessee
shall hold the demised premises, Lessee shall obtain and maintain
at his expense the following types and mounts of the financial
statementsinsurance:
Personal Injury and other information identified on Schedule 3.8 have been furnished
to NVC by the Company. Except as describedProperty Damage Insurance. Insurance against
liability for bodily injury and property damage in the next sentence, such statementssum of Two
Million Dollars ($2,000,000.00) per claimant and information present fairly the financial condition and the results of
operations of the Company as at the dates thereof and for the periods covered
thereby including contingent liabilities. Such financial statements were
prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved except that such financial
statements with respect to periods other than full fiscal years of the Company
are subject to normal year-end adjustments and may lack footnotes and other
presentation items. The Company has no material obligations or liabilities,
contingent or otherwise, except (a) as set forth on Schedule 3.5 or Schedule
3.8, (b) as reflected on such financial statements and (c) those obligations and
liabilities incurred in the ordinary coursesum of
the Company's business since the
date of the latest financial statements identified on Schedule 3.8 and, exceptFive Million Dollars ($5,000,000.00) per occurrence.
2. All insurance provided by Lessee as may be set forth on Schedule 3.8, there has been no material adverse change
in the Financial Condition of the Company since the date of the most recently
dated balance sheet of the Company included in such financial statements (the
"Most Recent Balance Sheet").
3.9 Pro Forma Balance Sheet. Set forth on Schedule 3.9 is the
Company's pro forma opening balance sheet reflecting the Most Recent Balance
Sheet, but giving effect to the transactions contemplatedrequired by this Agreement and
the acquisition by the Company of S&K as if such transactions had occurred on
the date of the Most Recent Balance Sheet pursuant to the Stock Purchase
Agreement (the "S&K Agreement") between the Company and S&K dated as of August
3, 1999 (a true copy of which Agreement has been furnished by the Company to
NVC). If the Closing Date and the consummation of the Company's acquisition of
S&K had occurred on the date of the Most Recent Balance Sheet, such pro forma
opening balance sheet would present fairly, on a pro forma basis, the financial
condition of the Company as at such date.
3.10 Projections. Except as described on Schedule 3.10, in light
of all material facts known to the Company on the date hereof and based upon the
assumptions that underlie the Company's projections (which assumptions the
Company believes in good faith are reasonable), the Company has no reason, in
good faith, to believe that its prospects are not at least as favorable as
indicated in the projections concerning the Company included in Exhibit D
attached hereto.
3.11 Capital Changes. Except as set forth on Schedule 3.11, and
other than pursuant to the terms of the Transaction Documents, since the date of
the Most Recent Balance Sheet, (i) no dividend has been declared or paid by the
Company, (ii) the Company has not issued, acquired or redeemed or agreed to
acquire or redeem any of its securities and (iii) no capital stock of the
Company has been split or otherwise subdivided.
3.12 Taxes. Except as set forth on Schedule 3.12, to the
Company's knowledge, the Company has filed all tax returns required tosection
shall be filed,
and has paid all taxes shown to be payable thereon or which are otherwise due
and payable by it or as to which claim for payment has been made.
3.13 Indebtedness. The Company has no liability for borrowed
money or any other liability evidenced by bonds, debentures, notes or similar
instruments (together, "Indebtedness for Borrowed Money") except as disclosed on
the Most Recent Balance Sheet or set forth on Schedule 3.13.
3.14 Title; Operating Condition; Insurance. The Company has good
title to, or a valid leasehold interest in, all its assets subject only to the
Liens described on Schedule 3.14. All plant and equipment owned or leased by the
Company is operating satisfactorily in all material respects and the Company has
no reason to believe that it will not continue to do so subject to normal
maintenance, repair, deterioration and obsolescence. Insurance is in effect to
such extent and covering such risks as is required by law and as is customary
for companies engaged in similar businesses. Such insurance is described on
Schedule 3.14 and is considered adequate by management.
3.15 Patents, Copyrights, etc. Except as set forth on Schedule
3.15, the Company owns or possesses adequate licenses or other rights to use all
patents, processes, trademarks, trade names or copyrights necessary to the
conduct of its business as now conducted or presently intended to be conducted
(together, "Proprietary Rights") and the Company has no reason to believe that
any such Proprietary Rights conflict or will conflict with the rights of others.
3.16 Security Interest. Upon the consummation of the purchase of
the Note by NVC, the execution and delivery of the Security Agreements and the
filing of the UCC-1 financing statements in the jurisdictions set forth on
Schedule 3.16 will be effective to createcarried in favor of NVC a legal, valid,
enforceable, fully perfected security interest in the collateral described
therein (to the extent perfection of such LienLessor and Lessee as their
respective interests may be obtained by such filing
under Article 9 of the Uniform Commercial Code).superior in right to any Liens,
existing or future, which any Person other than NVC may have against such
collateral, subject only to the superior right of those Liens described on
Schedule 3.14.
3.17 ERISA. The Company is in compliance in all material
respects with the Employee Retirement Income Security Act of 1974 ("ERISA") and
all rules and regulations thereunder. The Company has no unfunded vested
liability under any plan described in Section 4021(a) of ERISA ("Plan") and no
reportable event described in Section 4043(b) of ERISA has occurred or is
continuing with respect to any Plan.
3.18 Investment Company Act. The Company is not an "investment
company", or a company "controlled by an investment company", within the meaning
of the Investment Company Act of 1940, as amended.
3.19 Flood Hazard. The Company will not use the proceeds from
the sale of the Note or Warrant to construct or acquire property to be located
within the boundaries of a special flood hazard area so designated by the United
States Federal Emergency Management Administration.
3.20 Hazardous Wastes. To the best of the Company's knowledge,
none of the Company's assets has ever been used by it or others, nor has the
Company taken any action, to dispose of, produce, store, handle, treat, release
or transport any hazardous waste or substance except in a manner which would
have complied in all material respects with all Laws applicable to such
activities if taken on the date hereof, nor has the Company been notified of any
claim to the contrary.
3.21 Full Disclosure. To the Company's knowledge, this Agreement
and all of the Exhibits and other written material delivered by the Company to
NVC in connection with the transactions contemplated hereby do not contain any
statement that is false or misleading with respect to any material fact and do
not omit to state a material fact necessary in order to make the statements
therein not false or misleading. There is no additional fact (other than facts
generally known to the public or in the Company's industry) of which the Company
is aware that has not been disclosed in writing to NVC that materially affects
adversely or, so far as the Company can reasonably foresee on the date hereof,
will materially affect adversely the Company's Financial Condition.
3.22 Representation as to Subsidiaries. To the Company's best
knowledge, each of the representations set forth in Sections 3.1 through 3.21
(other than Section 3.16) would be true if made by each Subsidiary if such
Subsidiary were the Company referred to therein, provided that this
representation and warranty is qualified in its entirety by the matters
disclosed in the S&K Agreement (including its schedules and exhibits).
ARTICLE 4
AFFIRMATIVE COVENANTS
Until the date (the "Covenant Termination Date") on which either
(a) the Note and any Put Note has been paid in full and NVC ceases to hold at
least 20% of the Common Stock or Rights to acquire the same which are purchased
hereunder or (b) the Note has been paid in full and there has been a Qualified
Public Offering, or, in the case of Section 4.4 and Section 4.7, until the Note
is paid in full, the Company shall,:
4.1 Compliance with Applicable Law. Comply with all Laws, Orders
and Permits, except for such non-compliance that does not have a material
adverse effect on the Financial Condition of the Company and its Subsidiaries
taken as a whole;
4.2 Maintenance of Corporate Existence and Properties. Maintain
its corporate existence, maintain its qualification and good standing in all
jurisdictions where failure to maintain qualification or good standing would
have a material adverse effect on the conduct of its business and the ownership
of its assets, keep its material physical assets in reasonably good repair and
make all necessary replacements, additions and improvements to such assets;
4.3 Accounting Methods and Fiscal Year. (i) Maintain a system of
accounting and keep such books, records and accounts (which shall be true and
complete in all material respects) as may be required to permit the preparation
of the financial statements required by this Agreement, and (ii) make no change
in its fiscal year, unless it gives prior notice to NVC and appropriate changes
are made to this Agreement, satisfactory to NVC, to adjust the fiscal periods
referred to herein;
4.4 Use of Proceeds. Use the proceeds received by it from the
sale of the Note pursuant to this Agreement for the purposes indicated on
Exhibit E;
4.5 Insurance. Maintain insurance with financially sound and
reputable insurance companies to such extent and covering such risks as shall be
required by applicable Laws and such additional insurance (consistent with the
insurance presently maintained by the Company) as is customary for companies
engaged in the same or a similar business or as may be reasonably requested by
NVC;
4.6 Visits and Inspections. Permit representatives designated by
NVC, from time to time, as often as may be reasonably requested, but only during
normal business hours and on at least five (5) days' prior written notice, to
(a) visit and inspect any properties in which the Company might have an
interest, (b) inspect and make extracts from the Company's books and records,
including but not limited to management letters prepared by its independent
accountants, and (c) discuss with the Company's principal officers and its
independent accountants the Company's Financial Condition;
4.7 Continuation in Present Fields of Business. Engage
substantially in the areas of business ("Permitted Fields") heretofore and most
recently conducted by it and conduct its business, without substantial change,
in accordance with past practice; and
4.8 Subsidiaries. Cause each Subsidiary to comply with each of
the covenants set forth in Article 4 (which covenants shall, for purposes of
this Section 4.8, apply to each such Subsidiary as if it were the Company
referred to therein).
ARTICLE 5
NEGATIVE COVENANTS
Until the Covenant Termination Date (but in the case of Sections
5.1, 5.2, 5.3, 5.4, 5.5, 5.7 and 5.10 only until the Note shall have been paid
in full), the Company shall not directly or indirectly:
5.1 Indebtedness. Create, assume, incur or otherwise become or
remain obligated in respect of any Indebtedness for Borrowed Money (not
including purchase money indebtedness) except as set forth on Schedule 5.1 (it
being understood that trade debt incurred in the ordinary course of business is
not deemed to be Indebtedness for Borrowed Money) or repay indebtedness to James
L. Kehoe or Samuel Schwartz listed on Schedule 3.3 other than pursuant to the
limitations described in such Schedule;
5.2 Guaranties. Become or remain liable with respect to any
obligation of any other Person, except by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business and except as set
forth on Schedule 5.2;
5.3 Liens. Create, assume, incur, permit, or suffer to exist any
Lien upon or with respect to any of its assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom except Liens (a) in favor of
NVC, (b) for taxes and other governmental charges, (c) of materialmen,
mechanics, carriers, warehousemen or landlords or similar liens incurred in the
ordinary course of business, (d) incidental to either the ordinary and normal
conduct of its business or the acquisition or ownership of any of its assets,
(d) securing purchase money indebtedness or (e) set forth on Schedule 5.3;
provided that in the case of (b) or (c), payment is not yet due or is being
contested by appropriate proceedingsappear, and in the case of (d),insurance
against damage to the Liens dodemised premises by fire and other
casualty, shall provide that loss, if any, shall be adjusted with
and be payable to Lessor. If required by Lessor, any insurance
against fire or other casualty shall provide that loss shall be
payable to the holder under a standard mortgage clause. Rent
insurance and the proceeds are hereby assigned to lessor to be
held by Lessor as security for the payment of the rent and any
additional rent hereunder until restoration of the premises. All
insurance shall be written with responsible companies that Lessor
shall approve, and the policies shall be held by lessor, or when
appropriate, by the holder of any mortgage in which case copies
of the policies or certificates of insurance shall be delivered
by Lessee to Lessor. All policies shall require 30 days notice by
registered mail to Lessor of any cancellation or change affecting
any interest of Lessor.
XII. UNLAWFUL OR DANGEROUS ACTIVITY:
Lessee shall neither use nor occupy the demised premises or any part
thereof for any unlawful, disreputable or ultra hazardous business purpose nor
operate or conduct his business in a manner constituting a nuisance of any kind.
Lessee shall immediately, on discovery of any unlawful, disreputable or ultra
hazardous use, take action to halt such activity and keep such premises
environmentally clean and safe.
XIII. DEFAULT OR BREACH:
Each of the following events shall constitute a default or breach of
this lease by Lessee:
1. If Lessee, or any successor or assignee of Lessee while in
possession, shall file a petition in bankruptcy or insolvency
or for reorganization under any bankruptcy act, or shall
voluntarily take advantage of any such act by answer or
otherwise, or shall make an assignment fo the benefit of
creditors.
2. If involuntary proceedings under any bankruptcy law or
insolvency act shall be institute against Lessee, or if a
receiver or trustee shall be appointed of all or substantially
all of the property of Lessee, and such proceedings shall not
materially impairbe dismissed or the Company's usereceivership or trusteeship vacated within
20 days after the institution or appointment.
3. If Lessee shall fail to pay Lessor any rent owed or additional
rent when the rent shall become due within five days after
written notice of assetssuch failure to lessee at the address above
given. Lessee shall pay as additional rent the sum of $300.00.
If such rent is not received on or before the 1st day of the
month and lessor sends such written notice of default. Lessor
shall extend to lessee, a five (5) day grace period relative
to such rent payment.
4. If lessee shall fail to perform or comply with any of the
conditions of this lease and if the nonperformance shall
continue for a period of 10 days after notice thereof by
Lessor to Lessee or, if the performance cannot be reasonably
had within the 10 day period, Lessee shall not in its business;
5.4 Acquisitionsgood faith
have commenced performance within the 10 day period and Investments. Exceptshall
not diligently proceed to completion of performance.
5. If this lease or the estate of Lessee hereunder shall be
transferred to or shall pass to or devolve on any other person
or party, except in the manner herein permitted.
6. If Lessee fails to take possession of the demised premises on
the term commencement date, or within 10 days after notice
that the demised premises are available for occupancy, if the
term commencement date is not fixed herein or shall be
deferred as herein provided.
XIV. EFFECT OF DEFAULT:
In the event of any default hereunder, as set forth on
Schedule 5.4, purchase or acquire (a) assets constitutingin Section I, the
business or a
division or operating unitrights of any Person or (b)Lessor shall be as follows:
1. Lessor shall have the stock, securities or
obligationsright to cancel and terminate this
lease, as well as all of any Person except (i) current tradethe right, title and customer accounts
receivable for goods sold or services renderedinterest of
lessee hereunder, by giving to lessee not less than 10 days
notice of the cancellation and termination. On expiration of
the time fixed in the ordinary coursenotice; this lease and the right, title
and interest of business and payable in accordance with customary trade terms, (ii) notes
acceptedlessee hereunder, shall terminate in the ordinary course of business evidencing overdue tradesame
manner and customer accounts receivable arisingwith the same force and effect, except as to
lessee's liability, as if the date fixed in the ordinary coursenotice of
business, (iii)
direct obligationscancellation and termination were the end of the United Statesterm
cancellation and termination were the end of Americathe term herein
originally determined.
2. Lessor may elect, but shall not be obligated to make any
payment required by lessee herein or comply with a maturity of not more
than 365 days, (iv) deposits insured by the FDIC, and (v) investments in
open-end regulated investment companies which invest in money market and other
debt securities with maturities generally not exceeding one year;
5.5 Loans. Except as set forth on Schedule 5.5, lend moneyany
agreement, term or extend credit, or make or permitcondition required hereby to be outstanding loansperformed
by Lessee, and the lessor shall have the right to enter the
demised premises for the purpose of correcting or advances,remedying
any such default and to any
Person, except, inremain until the ordinary course of business, loans or advances (a) in the
nature of prepayments to subcontractors and suppliers, (b) as contemplated by
Section 5.4(b)(i) and (ii), and (c) to employees for travel, relocation or other
similar allowances not exceeding (for the Company and its Subsidiaries together)
$20,000 in the aggregate at any one time outstanding, and except for loans or
advances to Subsidiaries which are directly or indirectly wholly-owned by the
Company;
5.6 Restricted Payments. Until the Notedefault has been
paid in full
and a Qualified Public Offeringcorrected or Liquidity Event has taken place, except as
set forth on Schedule 5.6 or required by Section 2.1, declare, pay or makeremedied, but any dividend or other distribution on any shares of the Company's capital stock or
redeem, retire, purchase or acquire directly or indirectly any shares of its
capital stock now or hereafter outstanding or return any capital to its
stockholders;
5.7 Merger, Consolidation and Sale of Assets. Except as set
forth on Schedule 5.7, merge or consolidate with any other Person, liquidate,
wind up or reorganize its business, or sell, lease, transfer or otherwise
dispose of (a) any of its assets with a fair market value in excess of $50,000,
other than in the ordinary course of the Company's business, or (b) in a single
transaction or a series of related transactions, all or a substantial portion of
its assets outside the ordinary course of business (not including dispositions
of worn out or obsolete assets);
5.8 Transactions with Affiliates. Permit any income or profits
of the Company to be divertedexpenditure for the direct or indirect benefit of any
director, officer, employee or shareholder or effect any transaction with, or on
behalf of, any Affiliate (a) not in the ordinary course of the Company's
business or (b) on a basis less favorable to the Company than would be the case
if such transaction had been effected with a Person who is not an Affiliate or
make any transfer or payment to or directly or indirectly for the benefit of any
Affiliate without receiving full value therefor or make any transfer or cash or
non-cash payment (including any such payment in the form of salary or fringe
benefits such as personal use of Company facilities or resources) to or directly
or indirectly for the benefit of any Affiliate in respect of any services,
except as described on Schedule 5.8;
5.9 ERISA Plans. (i) Terminate any Plan so as to result in any
material liability to the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (the "PBGC"), (ii) engage in or
permit any Person to engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended) involving any Plan which would subject the Company to any material tax,
penalty or other liability, (iii) incur or suffer to exist any material
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived, involving any Plan, or (iv) allow or suffer to exist any event or
condition, which presents a material risk of incurring a material liability to
the PBGCcorrection
by reason of termination of any Plan;
5.10 Sale or Discount of Receivables. Sell with recourse, or
discount or otherwise sell for less than the face value thereof, any substantial
portion of its notes or accounts receivable (provided that this Section 5.10lessor shall not be deemed to restrictwaive or release the Company from granting discountsdefault
of lessee or the right of lessor to customerstake any action as may be
other wise permissible hereunder in the normal coursecase of its business);
5.11 Charterany default.
3. Lessor may re-enter the premises immediately and By-Laws. Amend its certificateremove the
property and personnel of incorporation
(other thanlessee, and store the property in a
public warehouse or at a place selected by lessor, at the
expense of lessee. After re-entry lessor may terminate the
lease on giving 10 days written notice of termination to
increaselessee. Without the numbernotice, re-entry will not terminate the
lease. On termination, the lessor may recover from lessee all
damages proximately resulting from the breach, including the
costs recovering the premises, and the present worth of the
Company's authorized shares to
25,000,000)balance of this lease over the present worth of the reasonable
rental value of the premises for the remainder of the lease
term, which sum shall be immediately due lessor from lessee.
4. After re-entry, lessor may relet the premises or By-Laws.
5.12 Transfer of Shares. Suffer or permitany part
thereof for any term without terminating the transfer or
registration of transferlease, at the
rent and on the booksterms as lessor may choose. Lessor may make
alterations and repairs to the premises. The duties and
liabilities of the Company any shares of Common Stock
of anyparties if the premises are relet as
provided herein shall be as follows:
a. In addition to lessee's liability to lessor for
breach of the persons identified on Schedule 5.12 (the "Principals") orlease, lessee shall be liable for all expenses
of persons to whom their sharesthe reletting, for the alterations and repairs made, and
for the difference between the rent received by lessor under
the new lease agreement and the rent installments that are transferred pursuant todue
for the same period under this Section 5.12 if
NVC has not been afforded a reasonable opportunity to transfer (or has waivedlease.
b. Lessor shall have the right, but shall not be
required, to transfer), onapply the same terms (except thatrent received from the reletting for
the premises (1) to reduce the indebtedness of lessee to
lessor under the lease, not including indebtedness for rent,
(2) to expenses of the reletting and alterations and repairs
made, (3) to rent due under this lease, or (4) to payment of
future rent under this lease as it shall receive cash
equalbecomes due.
If the new lessee does not pay a rent installment
promptly to lessor, and the rent installment has been credited
in advance of payment to the fair market valueindebtedness of lessee other than
rent, or if rentals from the new lessee have been otherwise
applied by Lessor as provided for herein and during any non-cash consideration involvedrent
installment period are less than the rent payable for the
corresponding installment period under this lease, lessee
shall pay lessor the deficiency, separately for each rent
installment deficiency period, and before the end of that
period. Lessor may at any time after a reletting terminate the
lease for the breach on which lessor had based the re-entry
and subsequently relet the premises.
5. After re-entry, lessor may procure the appointment of a
receiver to take possession and collect rents and profits of
the business of lessee, and, if necessary to collect the rents
and profits. The receiver may take possession of the personal
property used in such
terms),the business of lessee, including inventory,
trade fixtures, and furnishings, and use them in the business
without compensating lessee. Proceedings for appointment of a
receiver by lessor, or the appointment of a receiver, shall
not terminate and forfeit this lease unless lessor has given
written notice of termination to lessee as provided herein.
XV. CONDEMNATION:
Rights and duties in the event of condemnation are as follows:
1. If the whole of the demised premises shall be taken or
condemned by any public, or quasi-public use or purpose, this
lease shall cease and terminate as of the date on which title
shall vest thereby in that authority, and the rent reserved
hereunder shall be apportioned and paid up to that date.
2 .If only a portion of the Warrant Shares which is equal todemised premises shall be taken or
condemned, this lease and the percentage of the
Common Stock of such transferor which is being transferred. This Section 5.12terms hereof shall not be deemed to prohibitcease of
terminate, but the transfer of shares of Common Stock by a
Principal to members of his immediate family or to a trust for the benefit of
such Principal or members of his immediate family.
5.13 Observation Rights. Take any action pursuant to resolutions
adopted by the Board of Directors of the Company, or any committee thereof
unless a representative of NVC has been afforded the same opportunity to attend
a meeting at which such resolutions are adopted or to review the written consent
pursuant to which such resolutions are adopted which such representative would
have been required to have been afforded if such representative had been a
member of such Board of Directors or committee.
5.14 Subsidiaries. Permit any Subsidiary to violate any of the
covenants set forth in this Article 5 (which covenants shall for purposes of
this Section 5.13 apply to each Subsidiary as if it were the Company referred to
therein), provided that this Section 5.13 shall not prohibit a Subsidiary
wholly-owned by the Company from making payments which would otherwise violate
Section 5.6.
ARTICLE 6
CERTAIN INFORMATION COVENANTS
Until the Covenant Termination Date, the Company shall furnish to NVC:
6.1 Monthly Financial Statements. As soon as available, and in
any event within 45 days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such month and the related consolidated and consolidating statements of
income, retained earnings and cash flows of the Company and its Subsidiaries for
such month all in reasonable detail, and setting forth in each case in
comparative form the corresponding figures for the Company and its Subsidiaries
for the corresponding period of the previous fiscal year accompanied by (i) an
analysis of the variations from the budget (referred to in Section 6.4) for such
month and for the portion of the Company's fiscal year then ended, and (ii) a
certificate of the President or chief financial officer of the Company to the
effect that such statements fairly present the financial condition of the
Company and its Subsidiaries as of the balance sheet date and results of the
operations of the Company and its Subsidiaries for the period then ended,
subject to normal year-end adjustments and the absence of footnotes.
6.2 Audited Year-End Statements. As soon as available, and in
any event within 90 days after the end of each fiscal year of the Company, the
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year and the related consolidated and
consolidating statements of income, retained earnings and cash flows of the
Company and its Subsidiaries for such fiscal year, setting forth in comparative
form the corresponding figures for the Company and its Subsidiaries as at the
end of and for the previous fiscal year, in each case audited by independent
certified public accountants reasonably acceptable to NVC and who shall have
authorized the Company to deliver such financial statements and audit thereof to
NVC pursuant to this Agreement.
6.3 Officer's Certificate. So long as the Note has not been paid
in full, at the time financial statements are furnished pursuant to Section 6.1
or 6.2, a certificate of the President or chief financial officer of the Company
stating that, based on an examination sufficient to enable him to make an
informed statement, to his knowledge no event described in Article 7 (an "Event
of Default") or any event which with the giving of notice and/or lapse of time
would constitute an Event of Default (a "Default") exists or, if such is not the
case, specifying such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the action being taken with respect
thereto.
6.4 Budgets. Prior to each March 1, a budget setting forth
projections of the consolidated income statements and cash flow statements of
the Company and its Subsidiaries for the Company's following fiscal year and
projections of the income statements and cash flow statements of the Company and
its Subsidiaries for each quarter of such fiscal year, which budget shall be
prepared in form consistent with the form of the financial statements furnished
pursuant to Sections 6.l and 6.2 and shall include an explanation of the
assumptions made by the Company with respect thereto and such other information
as NVC may reasonably request.
6.5 Additional Information. (i) Promptly upon receipt thereof,
copies of all reports, if any, submitted to the Board of Directors of the
Company by its independent public accountants, including without limitation any
management or audit report; (ii) promptly, upon receipt thereof, all amendments
to the terms of the Company's Indebtedness for Borrowed Money (not including
rate adjustments made automatically pursuant to the terms of any such
indebtedness) and all communications received from or on behalf of the holders
thereof relating to defaults or waivers thereof; (iii) as soon as practicable,
copies of all such financial statements and reports as the Company shall send to
its stockholders and of all registration statements and all regular or periodic
reports which the Company shall file, or may be required to file, with the SEC
or any successor commission; (iv) promptly upon submission thereof, copies of
all such financial statements, financial projections, reports and other written
communications as shall be submitted to the Directors of the Company in their
capacity as such; and (v) from time to time and promptly upon the reasonable
request of NVC, such additional data, certificates, reports, statements,
documents or further information regarding this Agreement, the Note, the
Warrant, the Warrant Shares or the Financial Condition of the Company or any
Subsidiary as NVC may reasonably request, including without limitation such
information as NVC shall reasonably require to show that the Company has carried
out its obligations under Section 4.4 or to furnish information which NVC must,
in turn, supply to the United States Small Business Administration.
6.6 Notice of Defaults, Litigation and Other Matters. Prompt notice of:
(a) any Default or Event of Default;
(b) any amendment of the certificate of incorporation or by-Laws
of the Company or any Subsidiary;
(c) any event described in Section 4043 of ERISA and any
proposed termination, partial termination or merger of a Plan of the Company or
of a Subsidiary or any proposed transfer of such a Plan's assets;
(d) any Action which could if adversely determined and if no
insurance were in effect have a material adverse effect on the Financial
Condition of the Company and its Subsidiaries taken as a whole; or
(e) (i) any material change since the date of this Agreement in
the Financial Condition of the Company or any Subsidiary of the Company or (ii)
the occurrence or non-occurrence, since such date, of any event of which the
Company has knowledge, in either case, that has had or is reasonably likely to
have a materially adverse effect on the Financial Condition of the Company and
its Subsidiaries taken as a whole.
ARTICLE 7
EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default,
whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of Laws or Orders:
7.1 Payment Defaults. The Company shall fail to make within ten
days after the date when due any payment of principal or interest on the Note or
shall fail to make for a period of more than five daysrent payable after the date on which it is due and after receipt of written notice from NVC any other paymentlessee
shall be required to surrender possession of such portion
shall be madereduced in proportion to NVC hereunder;the decreased use suffered
by lessee as the parties may agree or
7.2 Misrepresentations. Any representation or warranty made in
or pursuant to this Agreement or in any document delivered to NVC at the closing
of the transactions contemplated hereby shall at any time prove to have been
incorrect or misleading in any material respect when made; or
7.3 Covenant Defaults. The Company shall cease to maintain its
legal existence or shall default in any material respect in the performance or
observance of
(a) any term, covenant, condition or agreement
contained in (i) Article 5 or (ii) Sections 4.4, 4.7 or 6.6 and, if such
default can be remedied, such default continues unremedied for a period
of thirty consecutive (30) days during which the Company diligently
attempts to remedy such Default; or
(b) any term, covenant, condition or agreement
contained in this Agreement (other than a term, covenant, condition or
agreement, a default in the performance or observance of which is
elsewhere in Section 7.1 or 7.2 or in this Section 7.3 specifically
dealt with), and such default shall continue unremedied for a period of
30 days after notice from NVC, or, in the case of defaults which can be
remedied, for such longer period after notice from NVC as shall be reasonably required to remedy such default, provided that such grace
period shall terminate if and whendetermined
by arbitration.
3. In the Company shall cease to diligently
attempt to remedy such default; or
7.4 Cross-Default with Other Indebtedness. The Company shall
fail to pay, in accordance with its terms and when due and payable, and after
the expiration of all applicable cure periods, the principal of or interest on
any Indebtedness for Borrowed Money which aggregates at least $50,000, or the
maturityevent of any such Indebtedness shall have been acceleratedtaking or been required
to be prepaid prior to the stated maturity thereof or any event shall have
occurred and be continuing which, with the passage of time or the giving of
notice or both, would permit the acceleration of such maturity and the Company
shall not have obtained a waiver of default with respect thereto from the
applicable creditor; or
7.5 Cross-Default with Material Contracts. The Company shall
defaultcondemnation in the payment when due,whole or in
part, the performance or observance,entire resulting award of consequential damages
shall belong to lessor without any obligation or condition of any Contract, unlessdeduction therefrom for the
Company has obtained a
waiver of such default from the other party to such Contract, or unless such
default, together with all other such defaults, has not had and will not have a
materially adverse effect on the Financial Conditionvalue of the Company and its
Subsidiaries taken as a whole;unexpired term of this lease or 7.6 Bankruptcy, etc. (a) The Company, or any Subsidiary shall
(i) commence a voluntary case under Federal bankruptcy laws, (ii) file a
petition seeking to take advantage offor any other
Laws relating to bankruptcy,
insolvency, reorganization, winding upestate or composition or adjustment of debts
("Bankruptcy"), (iii) consent to or fail to contest in a timely and appropriate
manner any petition filed against it in any involuntary case under such
Bankruptcy laws or such other Laws, (iv) apply for or consent to, or fail to
contest in a timely and appropriate manner, the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator or the like
("Receiver") of itself or of a substantial part of its property, (v) admit in
writing its inability to pay, or generally not be paying, its debts as they
become due, (vi) make a general assignment for the benefit of creditors, or
(vii) take any corporate action for the purpose of effecting any of the
foregoing; or
(b) a case or other proceeding shall be commenced against the Company or
any Subsidiary in any court of competent jurisdiction seeking (i) relief under
Federal bankruptcy laws or under any other Laws relating to Bankruptcy, (ii) the
appointment of a Receiver of the Company or any Subsidiary or of all or any
substantial part of the assets of the Company or any Subsidiary and such case or
proceeding shall continue undismissed or unstayed for a period of 60 consecutive
calendar days, or an order granting the relief requested in such case or
proceeding against the Company or any Subsidiary (including, but not limited to,
an order for relief under Bankruptcy laws) shall be entered; or
7.7 Judgments. A judgment or order for the payment of money
shall be entered and become final against the Company or any Subsidiary which,
together with all other outstanding undischarged or unstayed judgments against
the Company and its Subsidiaries, exceeds $100,000 in the aggregate, and such
judgment or order shall continue undischarged or unstayed for 60 days; or
7.8 Noncompliance with ERISA. Any event occurs with respect to a
Plan of the Company or any Subsidiary of a type described in Section 4043(b) of
ERISA or any accumulated funding deficiency (as defined in Section 302 of
ERISA), whether or not waived, exists with respect to any such Plan or any
proceedings are instituted by the PBGC, or any other event or condition with
respect to any such Plan occurs which, in each case, in the reasonable opinion
of NVC, is likely to cause a material adverse change in the Financial Condition
of the Company and its Subsidiaries taken as a whole; or
7.9 Failure to Replace Executives. James L. Kehoe shall cease to
be or function as the chief executive officer of the Company and a successor
chief executive officer reasonably satisfactory to NVC shall not have been
appointed within 120 days of such cessation on terms reasonably satisfactory to
NVC; or
7.10 Default as to Warrant or Security Agreements. (a) The
Company defaults in the performance of any term, covenant or condition set forth
in (i)Section 1.2 or (ii) the Warrant, or (b) the provisions of the Note, the
Warrant or any of the Security Agreements shall be or become or shall be claimed
to be or to have become in any material respect invalid or unenforceable or (c)
NVC shall at any time cease to have a valid, fully perfected security interest in the collateral referreddemised premises now or later vested
in lessee. Lessee assigns to lessor all his right, title and
interest in the Security Agreements in each case subject to
no prior Liens other than any which may be specifically permitted pursuantand all such awards. If a separate award is
made for moving expenses, business interruption and fixtures
then such award of moving expenses, business interruption and
fixtures shall belong to the terms of this Agreement or the Security Agreements; or
ARTICLE 8
REMEDIES
Upon the occurrence of any Event of Default described in Section
7.6(a) or Section 7.6(b), the entire unpaid principal amount of the Note and any
interest accrued and unpaid thereon shall automatically be due and payable. Upon
the occurrence and during the continuance of any other Event of Default, NVC
shall have the right, by written notice to the Company, to declare due and
payable the principal of, and interest on, the Note, whereupon the same shall be
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived. No right or remedy herein
conferred is intended to be exclusive of any other rights or remedies and each
and every right or remedy shall be cumulative and shall be in addition to every
other right or remedy given hereunder or now or hereafter existing at law or in
equity. No delay or omission in the exercise of any right or power accruing upon
the occurrence of any Default or Event of Default shall impair any such right or
power or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Every power and remedy given by this Article
8 may be exercised from time to time and as often as may be deemed expedient by
NVC.
ARTICLE 9
CONSENTS
Any provision in this Agreement to the contrary notwithstanding,
with the written consent of NVC, the Company may be relieved from the effect of
any Event of Default or from performance of such obligations. Unless otherwise
specified in a written waiver or consent, a waiver or consent given hereunder
shall be effective only in the specific instance and for the specific purpose
for which given.
ARTICLE 10
REGISTRATION RIGHTS
10.1 Piggyback Registration. The Company shall give at least 20
days' prior written notice to NVC of its filing of any registration statement
under the Securities Act of 1933 (the "Securities Act") that is to be on a form
of the Securities and Exchange Commission pursuant to which there is to be sold
Common Stock (other than (a) the Common Stock owned by Kevin Schumacher, Justine
Schumacher or members of their immediate families on the date hereof, (b) Common
Stock issued to persons other than officers or directors of the Company pursuant
to a Company Private Placement or (c) Common Stock issued to employees who are
not officers or directors of the Company pursuant to the Company's stock option
plan) which is at the time already outstanding or which is subject to issuance
pursuant to then outstanding Rights and in each case is to be registered by
existing holders of Common Stock or Rights. NVC shall have an opportunity to
elect within 15 days after receipt thereof to include in such filing (if
permitted by the applicable form) any shares of Common Stock which are owned by
NVC or may be acquired on exercise of the Warrant to the extent that, in the
reasonable opinion of the underwriter, such inclusion shall not adversely affect
the proposed offering by the Company (but in any case NVC shall be entitled to
include in such filing the percentage of the shares of Common Stock owned by, or
that may on exercise of the Warrant be acquired by, NVC which is equal to 100%
of the highest percentage of the shares of Common Stock owned and/or subject to
acquisition by any other Person which are included in such filing). NVC may
assign or transfer its right to include a given number of shares of Common Stock
in a filing to any person to whom NVC transfers Common Stock or Warrants.
10.2 Registration Procedure. To include shares of Common Stock
in any registration, NVC shall (i) cooperate with the Company in preparing such
registration and execute all such agreements as the underwriter thereof may
reasonably deem to be necessary in favor of such underwriter, (ii) promptly
supply the Company with all information, documents, representations and
agreements as such underwriter may reasonably deem to be necessary in connection
with such registration and (iii) agree in writing not to sell or transfer any
Common Stock not included in such registration for such periods, not to exceed
180 days, as the underwriter may require, but NVC shall not be required to take
the actions described in this Section 10.2 unless the holders of all other
shares of Common Stock included in any offering covered by such registration
shall similarly take such actions.
10.3 Expenses. The costs and expenses (other than underwriting
discounts or commissions) of all registrations and qualifications under the
Securities Act, and of all other actions, that the Company is required to take
or effect pursuant to this Article 10 shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses, costs
of special audits incident to or required by any such registration, and fees and
disbursements of counsel for the Company and the reasonable fees and
disbursements of counsel for NVC).
10.4 Indemnification. (a)lessee.
4. In the event of a registration of
Common Stock pursuantpartial taking, lessor shall promptly
proceed to restore the Securities Act, the Company shall
(1) indemnify and hold harmless NVC and each Person, if any, who
controls NVC within the meaningremainder of the Securities Act, against any
losses, claims, damages, expenses (including attorneys' fees), or
liabilities (or actions in respect thereof) underbuilding on the
Securities Act or
otherwise, that arise out of or are based upon any untrue statement or
alleged untrue statementdemised premises to a self-contained architectural unit.
5. In case of any material fact containedgovernmental action not resulting in the taking
or condemnation of any such
registration statement, any preliminary prospectusportion of the demised premises but
creating a right to compensation therefor, or final prospectus,if less than a
fee title to all or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any other violation of law by the Company
with respect thereto, and
(2) reimburse NVC and each such controlling Person for any legal
or other expenses reasonably incurred by NVC or such controlling Person
in connection with defending against any such loss, claim, damage,
expense, liability or action (together, "Losses");
provided, however, that the Company shall not be liable to NVC or to any Person
who controls NVC within the meaningportion of the Securities Act in any such case to
the extent that any such Loss arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished by or on behalf of NVC or such controlling Person
expressly for use in the preparation thereof.
(b) In the event of a registration of Common Stock pursuant to
this Agreement, NVC shall
(1) indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed any such registration
statement, and any Person who controls the Company within the meaning of
the Securities Act, against any Losses to which the Company or any such
director, officer or controlling Person may become subject, under the
Securities Act or otherwise, insofar as such Losses arise out of or are
based upon any untrue or alleged untrue statement of any material fact
contained in any such registration statement, preliminary prospectus or
final prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any other violation of
law by NVC with respect thereto, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary prospectus or final prospectus, or amendment or supplement,
in reliance upon and in conformity with written information furnished by
or on behalf of NVC for use in such disclosure documents, and
(2) reimburse the Company or any such director, officer or
controlling Person for any legal or other expenses reasonably incurred
by it or him in connection with defending against any such Loss.
(c) Promptly after receipt by an indemnified party under this
Section 10.4 of notice of the commencement of any action which may involve a
Loss indemnified hereunder, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under this Section 10.4,
notify the indemnifying party of the commencement thereof, but the omission so
to notify the indemnifying party shall not relieve it from any liability that it
may have to any indemnified party except, and then only, to the extent such
indemnifying party is prejudiced by such omission.
(d) In case any Action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying partydemised premises shall
be entitled to participate in and, to the extent that
it may wish, jointly withtaken or condemned by any other indemnifying party similarly notified,
assume the defense thereof (in which event, it shall do so diligently), with
counsel reasonably satisfactory to such indemnified party. In the event the
indemnifying party gives notice to the indemnified partygovernmental authority for
temporary use of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party underoccupancy, this Section 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof subsequent to the date of such notice.
ARTICLE 11
INVESTMENT REPRESENTATIONS
NVC hereby represents and warrants that it is an "accredited
investor" within the meaning of Regulation D under the Securities Act and is
acquiring the Note and Warrant issued to it under this Agreement for purposes of
investment and with no present intent to sell or view to distribute the same.
NVC understands that neither the Note, the Warrant nor the Warrant Shares have
been registered under the Securities Act, in reliance upon exemptions from
registration and qualification thereunder, and that such exemptions are in part
dependent on the representations made herein. NVC represents and warrants that
it has such knowledge and experience that it is capable of evaluating the merits
and risks of this investment and protecting its own interest in connection with
this investment and that its Financial Condition is such that it is in a
financial position to hold the Note, the Warrant and the Warrant Shares to be
held by it for an indefinite period of time and to bear the economic risk of,
and withstand a complete loss of, the investment represented thereby.
ARTICLE 12
MISCELLANEOUS
12.1 Transferees; Additional Shareholders. (a) Upon any transfer
or assignment by NVC of any interest in the Note, the Warrant or the Warrant
Shares, as the case may be, the term "NVC" shall, with respect to the interest
so transferred or assigned, thereafter include such transferee or assignee.
(b) On surrender of any document representing all or
part of the Note or the Warrant for such purpose, one or more new Notes or
Warrants, as the case may be, shall be issued with appropriate revisions to
reflect, in the aggregate, the obligations of the Company under the
Note or the Warrant so surrendered.
12.2 Fees and Expenses. The Company is paying to NVC
simultaneously herewith, to the extent not already paid, a financing fee of
$20,000, which fee shall cover all costs incurred by NVC through and including
the Closing Date in effecting the transaction contemplated hereby and which the
Company has agreed to pay (including any fees or disbursements of NVC's counsel)
in connection with the negotiation, execution and delivery of the Transaction
Documents. The Company shall pay all reasonable costs of NVC (including any fees
or disbursements of NVC's counsel) incurred after the date hereof in connection
with the amendment or the enforcement of any Transaction Document.
12.3 Brokerage Fees. The Company agrees to indemnify NVC against
all brokers', finders' or similar fees that may be payable to any Person in
connection with the purchase of the Note and Warrant hereunder and against all
losses, claims, damages and liabilities and related expenses, including counsel
fees and expenses incurred by NVC in connection with such fees in each case
arising out of the actions of the Company. The Company represents and warrants
that no such fees are or will be payable except as set forth on Schedule 12.3.
NVC represents and warrants to the Company that it has not dealt with any
broker, finder or third party in connection with its purchase of the Note and
Warrant under any circumstances that could give rise to a claim for brokers',
finders' or similar fees.
12.4 Effectiveness. All representations and warranties made in
this Agreement shall survive the execution and delivery of this Agreement and
the purchase hereunder of the Note and the Warrant. Except as otherwise provided
herein, the covenants contained in this Agreementlease shall continue in full
force and effect until such date as the Note, any Put Note, the Warrantwithout reduction or abatement of rent, and
the Warrant Shares no longerrights of the parties shall be unaffected by the other
provisions of this section, but shall be governed by
applicable law.
XVI. DESTRUCTION OF PREMISES:
In the event of a partial destruction of the premises (not
caused by lessee and/or its' agents and/or independent
contractors) by fire or other cause for which lessee has
provided insurance payable to lessor under paragraph XIII or
condemnation during the term, lessor shall forth with repair
the same, provided the repairs can be made within 30 days of
receipt of such insurance or governmental authorities. Any
partial destruction shall neither annul nor void this lease.
If the repairs cannot be made in the specified time, lessor
may, at lessor's option, make repairs within a reasonable
time, this lease continuing in full force and effect and the
rent to be proportionately rebated. In the event that lessor
does not elect to make repairs that cannot be made in the
specified time, or those repairs cannot be made under the laws
and regulations of the applicable governmental authorities,
this lease may be terminated at the option of either party.
Should the building in which the demised premises are situated
be destroyed as set forth herein or condemned to the extent of
not less than 75 percent (75%) of the replacement cost
thereof, this lease shall be terminated.
XVII. SUBORDINATION:
This lease and all rights of lessee hereunder shall be subject
and subordinate to the lien of any and all mortgages that may now or
hereafter affect the demised premises, or any part thereof, and to any
and all renewals, modifications or extensions of any such mortgages.
Lessee shall on demand execute, acknowledge and deliver to lessor,
without expense to lessor, any and all instruments that may be
necessary or proper to subordinate this lease and all rights therein to
the lien of any such mortgage or mortgages and each renewal,
modification or extension, and if lessee shall fail at any time to
execute, acknowledge and deliver any such subordination instrument,
lessor in addition to any other remedies available in consequence
thereof, may execute, acknowledge and deliver the same as lessee's
attorney in fact and in lessee's name. Lessee hereby irrevocably makes,
constitutes and appoints lessor, its successors and assigns, his
attorney in fact for that purpose.
Lessor hereby covenants and warrants that, subject to Section
XVIII, he is owner of the demised premises and that lessee, on payment
of the rents herein provided for and the performance of the provisions
hereof on its part to be performed, shall and may peacefully possess
and enjoy the demised premises during the term hereof without any
interruption or disturbance.
XVIII. ACCESS TO PREMISES; SIGNS POSTED BY LESSOR:
Lessee shall permit lessor or its agents to enter the demised
premises at all reasonable hours to inspect the premises or make
repairs that lessee may neglect or refuse to make in accordance with
the provisions of this lease, and also to show the premises to
prospective buyers. At any time within one year prior to expiration of
the term, lessor may show the premises to persons prior to expiration
of the term, permit the usual notices of "For Rent" and "For Sale" to
be place on the demised premises and to remain outstanding.
12.5 Accuracythereon without
hindrance and molestation.
XIX. EASEMENTS, AGREEMENTS OR ENCUMBRANCES:
The parties shall be bound by all existing easements,
agreements and encumbrances of Information. All data, certificates, reports,
statements, opinionsrecord relating to the demised premises,
and lessor shall not be liable to lessee for any damages resulting from
any action taken by a holder of counsel, documentsan interest pursuant to the rights of
that holder thereunder.
XX. LIABILITY OF LESSOR:
Lessee shall be in exclusive control and other information furnishedpossession of the
demised premises, and lessor (except for acts of negligence of lessor)
shall not be liable for any injury or damages to any property or to any
person on or about the demised premises nor for any injury to any
property of lessee. The provisions herein permitting lessor to enter
and inspect the demised premises are made to insure that lessee is in
compliance with the terms and conditions hereof and makes repairs that
lessee has failed to make. Lessor shall not be liable to lessee for any
entry on the premises for inspection purposes (except for acts of
negligence of Lessor).
XXI. RENT ABATEMENT:
No abatement, diminution or reduction of rent shall be claimed
or allowed to lessee or any person claiming under him under any
circumstances, whether for inconvenience, discomfort, interruption of
business or otherwise, arising from and during the restoration of the
demised premises after the date hereof to NVCdestruction or damage thereof by fire or
other cause or the taking or condemnation of a portion only of the
demised premises.
XXII. STORAGE OF TOXIC MATERIALS, EXPLOSIVES AND FLAMMABLES PROHIBITED:
Lessee shall not, at anytime whatsoever, keep for use on the
demised premises any toxic materials, explosives or inflammable
substances.
XXIII. REPRESENTATIONS BY LESSOR:
At the commencement of the term lessee shall accept the
buildings and improvements and any equipment in their existing
condition and state of repair and lessee agrees that no
representations, statements or warranties, express or implied, have
been made by or on behalf of or at the request of the Company
pursuant to this Agreement orlessor in connection with or pursuant to any amendment or
modification of, or waiver under, this Agreement shall, at the time the same are
so furnished, be complete and correctrespect thereto except as
contained in all material respects to the extent
necessary to give NVC true and accurate knowledge of the subject matter thereof,
not contain any untrue statement of a material fact known to the Person
furnishing the same, or omit to state a material fact known to the Person
furnishing the same which fact is necessary to be stated therein in order to
make the statements contained therein not misleading, and the furnishing of the
same to NVC shall constitute a representation and warranty by the Company to
that effect. Notwithstanding the foregoing, any financial statements shall be
deemed to comply with the provisions of this Section 12.5 if such financial
statements comply with generally accepted accounting principles.
12.6 Notices.lease.
XXIV. WAIVERS:
The failure of lessor to insist on a strict performance of any
of the terms and conditions hereof shall be deemed a waiver of the
rights or remedies that lessor may have regarding that specific
instance only, and shall not be deemed a waiver of any subsequent
breach or default in any terms and conditions.
XXV. NOTICE:
All notices and other communications underto be given with respect to this Agreementlease shall (a) be in
writing, (b)writing. Each notice shall be sent by registered or certified mail,
postage prepaid and return receipt requested, delivered by handto the party to be
notified at the address set forth herein or by nationally
recognized overnight courier or sent by facsimile machine transmission (with
facsimile machine verification and hard copy delivered by one of theat such other methods permitted under this Section 12.6) and (c)address as
either party may from time to time designate in writing.
Every notice shall be deemed to have been given at the following
respective addresses:
If to the Company, totime it
at:
2012 Route 9W, Building 3
Milton, New York 12547
Facsimile No.: (914) 795-2720;
with a copy to:
D'Ancona & Pflaum LLC
111 E. Wacker Drive
Suite 2800
Chicago, Illinois 60601
Attention: Paul L. Applebaum, Esq.
Facsimile No.: (312) 602-3072
If to NVC, to it at:
Suite 1607
1430 Broadway
New York, New York 10018
Facsimile No.: (212) 869-5331
with a copy to:
DeForest & Duer
90 Broad Street
New York, New York 10004
Attn.: Arthur A. Lane, Esq.
Facsimile No.: (212) 425-7581.
The address of any party may be changed by such party by a notice to the other
parties specifically captioned "Notice of Change of Address Pursuant to Section
12.6". All notices and other communications shall be effective (i) if given by
mail, on the third business day after such communication is deposited in the mail, addressed as above provided, (ii)United States mails in the manner prescribed
herein. Nothing contained herein shall be construed to preclude
personal service of a summons or other legal process.
XXVI. ASSIGNMENT, MORTGAGE OR SUBLEASE:
Neither lessee nor his successors or assigns shall assign,
mortgage, pledge or encumber this lease or sublet the demised premises
in whole or in part, or permit the premises to be used or occupied by
others, nor shall this lease be assigned or transferred by operation of
law, without the prior consent in writing of lessor in each instance.
Exception to this would be legal subsidiaries of lessee. After two
years such consent is not to be unreasonably withheld. If this lease is
assigned or transferred, or if given by hand deliveryall or overnight
courier, when left at the addressany part of the addresseedemised premises
is sublet or occupied by anybody other than lessee, lessor may, after
default by lessee, collect rent from the assignee, transferee,
subtenant, or occupant, and apply the net amount collected to the rent
reserved herein, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any agreement or condition
hereof , or the acceptance of the assignee, transferee, subtenant or
occupant as above provided,lessee. Lessee shall continue to be liable hereunder in
accordance with the terms and (iii)
if given by facsimile machine transmission, upon facsimile machine verificationconditions of receipt, except that notices of a change of addressthis lease and shall not be
effective
until received. Noreleased from the performance of the terms and conditions hereof. The
consent by lessor to an assignment, mortgage, pledge or transfer shall
not be construed to relieve lessee from obtaining the express written
consent of lessor to any future transfer of interest.
XXVII. OPTION TO RENEW:
Lessor grants to lessee an option to renew this lease for a period of
Three (3) years after expiration of the term of this lease. The rental rate
shall be increased an amount equal to the Consumer Price Index (CPI) as noted
for New York and area, each year of the renewal. All other methodterms and condition
of givingthis renewal lease to be the same as those herein. To exercise this option,
lessee must give lessor written notice is hereby precluded.
12.7 Counterparts. This Agreementof the intention to do so at least six
(6) months before this lease expires.
XXVIII. SURRENDER OF POSSESSION:
Lessee shall, on the last day of the term, or on earlier
termination and forfeiture of the lease, peaceably and quietly
surrender and deliver the demised premises to lessor free of
subtenancies, including all buildings, additions and improvements
constructed or placed thereon by lessee, except moveable trade
fixtures, all in good condition and repair subject to reasonable wear
and tear (except to the extent provided for under paragraph XI, and XVI
herein. Any trade fixtures or personal property not used in connection
with the operation of the demised premises and belonging to Lessee, if
not removed at the termination of default, and if lessor shall so
elect, shall be deemed abandoned and become the property of lessor
without any payment or offset therefor. Lessor may be executedremove such fixtures
or property from the demised premises and store them at the risk and
expense of lessee if lessor shall not so elect. Lessee shall repair and
restore all damage to the demised premises caused by the removal of
equipment, trade fixtures and personal property.
XXIX. REMEDIES OF LESSOR:
A. In the event of a breach or a threatened breach by lessee of any of the
terms or conditions hereof, lessor shall have the right of injunction to
restrain lessee and the right to invoke any remedy allowed by law or in
any numberequity, as if the specific remedies of counterparts, eachindemnity or reimbursements were not
provided herein.
B. The rights and remedies given to lessor in this lease are distinct,
separate and cumulative and no one of whichthem, whether or not exercised by
lessor, shall be deemed to be an original and all of
which together shall constitute one instrument.
12.8 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
12.9 GAAP. Financial terms used and not otherwise defined herein
shall be interpreted, and calculations, to the extent not otherwise specified,
shall be made, in accordance with generally accepted accounting principles and
terminology.
12.10 Judicial Proceedings.
(a) Consent to Jurisdiction. The Company irrevocably submits to
the non-exclusive jurisdictionexclusion of any New York State or Federal court sitting in
the City of New York over any Action arising out of or relating to this
Agreement, the Note, the Warrant, the Warrant Shares, any Transaction Document
or any aspect of the transactions contemplated thereby. To the fullest extent it
may effectively do so under applicable law, the Company irrevocably waives and
agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the laying of the venue of any such Action
brought in any such court and any claim that any such Action brought in any such
court has been brought in an inconvenient forum.
(b) Enforcement of Judgments. The Company agrees, to the fullest
extent it may effectively do so under applicable law, that a judgment in any
Action of the nature referred to in subsection (a) above brought in any such
court shall, subject to such rights of appeal on issues other than jurisdiction
as may be available to it, be conclusive and binding upon it and may be enforced
in the courts of the United States of America or the State of New York (or any
other courts to the jurisdiction of which it is or may be subject) by a suit
upon such judgment.
(c) Service of Process. The Company consents to process being
served in any Action of the nature referred to in subsection (a) above by
mailing a copy thereof by registered or certified air mail, postage prepaid,
return receipt requested, to the address of the Company specified in or
designated pursuant to Section 12.6. The Company agrees that such service (i)
shall be deemed in every respect effective service of process upon it in any
such Action and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to it.
(d) No Limitation on Service or Suit. Nothing in this Section
12.10 shall affect the right of NVC to serve process in any manner permittedothers herein, by
law, or limitby equity provided.
C. In all cases hereunder, and in any right that NVC may have to bring any Action against the
Company in the courtssuit, action or proceeding of any jurisdictionkind
between the parties, it shall be presumptive evidence of the fact of the
existence of a charge being due if lessor shall produce a bill, notice or
certificate of any public official entitled to enforcegive that notice to the
effect that such charge appears of record on the books in his office and
has not been paid.
D. No receipt of money by lessor from lessee after default or cancellation of
this lease in any lawful manner shall (1) reinstate, continue or extend the
term or affect any notice given to lessee, (2) operated as a judgment obtained in one jurisdictionwaiver of the
right of lessor to enforce the payment of rent and additional rent then due
or falling due, or (3) operated as a waiver of the right of lessor to
recover possession of the demised premises by proper suit, action,
proceeding or other remedy. After (1) service of notice of termination and
forfeiture as herein provided and the expiration of the time specified
therein (2) the commencement of any suit, action, proceeding or other
remedy, or (3) final order or judgement for possession of the monies due,
without in any other jurisdiction.
(e) Waiver of Trial by Jury. The Company hereby waives trial by
jury in any Actionmanner affecting such notice, order or judgement. Any and
all such monies so collected shall be deemed to be payment on account of
the nature referred to in subsection (a) above, whether
brought by ituse and occupation of the demised premises or NVC.
12.11 Assignability.at the election of
lessor, on account of the liability of lessee hereunder.
XXX. TOTAL AGREEMENT; APPLICABLE TO SUCCESSORS:
This Agreement shall inure tolease contains the benefit
of and be binding uponentire agreement between the parties
hereto and their respectivecannot be changed to terminated except by a written instrument
subsequently executed by the parties hereto. This lease and the terms
and conditions hereof apply to and are binding on the heirs, legal
representatives, successors and assigns except thatof both parties.
XXXI. INDEMNIFICATION - LIABILITIES AND LOSSES:
Lessee shall, at all times prior to the Company may not assigntermination of this
lease and to the delivery to a lessor possession of the demised
premises and all improvements thereon, indemnify lessor against all
liability, loss, cost, damage or transferexpense sustained by lessor, including
attorney's fees and other expenses of litigation arising prior to
termination of the lease term and delivery to lessor of possession of
the premises:
1. On account of or through the use of the demised premises or improvements or
any part thereof or by any other reason for any purpose inconsistent with
the provisions of its rightsthis lease.
2. Arising out of, or directly or indirectly due to, any failure of lessee in
any respect promptly and faithfully to satisfy his obligations under this
Agreementlease.
3. Arising out of, or subject this Agreementdirectly or its rights
hereunderindirectly due to, any lienaccident or securityother
occurrence causing injury to any person or persons or property resulting
from the use of the demised premises and improvements or any part thereof.
4. For which the demised premises and improvements or any part thereof or the
lessor as owner thereof or interested therein may hereafter without fault
by lessor become liable, and especially, but not exclusively, any such
liability, loss, cost, damage or expense that may arise under any statute,
ordinance or regulation except such requirements as to which compliance is
related to the improvements on the demised premises (other than
improvements made by Lessee) and are not caused by use and occupancy of
lessee. It is not intended by this clause that Lessee shall be responsible
for liabilities imposed by the acts of others committed prior to the date
of this lease.
Lessee also shall, at all times prior to termination of the
lease term and delivery to lessor of possession of the premises,
indemnify lessor against all liens and charges of any and every nature
that may at any time be established against the premises or any
improvements thereon or any part thereof as a consequence, direct or
indirect, of any act or omission of lessee or as a consequence, direct
or indirect, of the existence of lessee's interest under this lease.
XXXII. NOTICE BY LESSEE OF LITIGATION - PAYMENT OF ATTORNEY'S FEES AND COSTS:
Within five days after lessee has knowledge of any material
litigation or other proceeding that shall be instituted against lessee,
against the demised premises to secure or recover possession thereof,
or that may affect the title to or the interest of any kind whateverlessor in the
demised premises, lessee shall give written notice thereof to lessor.
Lessee shall pay all reasonable attorney's fees and any such
assignmentcosts on
behalf of lessor if (a) lessor institutes litigation against lessee for
a breach of the terms and conditions of this lease, (b) lessor
institutes litigation against lessee for an unlawful detainer of the
demised premises, or (c) lessor is made a part to litigation against
lessee instituted by a third party, relating to the Companydemised premises,
wherein lessor is not at fault. The reasonable attorney's fees and
any such lien or security interestcosts incurred by lessor herein shall be absolutely voidpaid by lessee whether
litigation is prosecuted to judgement or not.
The payment of all attorney's fees and unenforceablecourt costs required
hereby shall be made to lessor as against NVC.
12.12 Governing Law.additional rental and shall be due in
full on the next regular date for a rental payment. This Agreementadditional
rental shall be subject to an interest charge of eighteen (18%) per
cent per annum, and lessor may enforce the payment by using any remedy
available at law or under this lease of the collection of past due
rent.
XXXIII. APPLICABLE LAW:
This agreement shall be governed by and construed in
accordance with the laws of the State of New York excluding choice of law rules
12.13 Confidentiality. For the longest period permitted under
applicable law, NVC shall hold in strictest confidence all
Confidential Information, shall not use any Confidential
Information, and shall not disclose any Confidential Information
to any person or entity; provided that such use and disclosure
may be made to the extent reasonably required in the proper
exercise of NVC's rights and performance of its obligations
under this Agreement or to the extent required pursuant to
applicable law, and NVC may disclose Confidential Information to
its agents and representatives, or its permitted assigns, who
reasonably require the same for purposes permitted under this
Section (and who agree in writing for the benefit of the Company
to be bound by the requirements of this Section). "Confidential
Information" means any and all confidential and/or proprietary
information of the Company or its Subsidiaries, including
without limitation, customer lists, marketing information,
pricing information, budgeting information, personnel
information, financial information, research, business plans and
strategies or other information concerning the business or
affairs of the Company (including information obtained under
Section 5.13), except to the extent such information is or
becomes generally known to the public other than as a result of
acts or omissions by NVC (or its agents or representatives) in
violation of this Agreement. The provisions of this Section
shall survive termination of this Agreement for the longest time
permitted under applicable law.York.
IN WITNESS WHEREOF, the parties hereto have causedexecuted this Note and
Warrant Purchase Agreement to be executed by their duly authorized
representatives aslease in
the State of New York the day and year first above written.
SONO-TEK CORPORATION/s/ Jean K. Woodward
Jean K. Woodward, Lessor
By: s/s/s/ James L. Kehoe
James L. Kehoe,
Chairman and Chief Executive Officer
NORWOOD VENTURE CORP.
By: s/s Mark R. Littell
Mark R. Littell,
President
Exhibit 4.11(a)
EXHIBIT A
FORM OF NOTE
THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN (i)
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933 ("THE
SECURITIES ACT") OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT AND (ii)
UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY TO IT OF COMPLIANCE WITH THE
SECURITIES ACT AND THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION.
SONO-TEK CORPORATION
12% Note
$ New York, New York
[Date]
FOR VALUE RECEIVED, the undersigned, SONO-TEK CORPORATION, a New
York corporation (the "Company"), hereby promises to pay to the order of at its
office located at , the principal sum of ($ ) in lawful money of the United
States of America on or before September 30, 2004 and to pay interest that shall
accrue on the unpaid principal amount hereof from the date hereof until such
principal amount is paid in full, at the rate of twelve percent (12%) per annum,
which rate shall be calculated on the basis of a 360-day year and actual days
elapsed. Overdue principal and (to the extent permitted by law) overdue interest
shall bear interest at the rate of fourteen percent (14%) per annum, calculated
in the same manner, payable on demand. Nothing herein shall at any time require
the Company to pay interest at a rate in excess of the maximum rate permitted by
applicable law. In the event that the interest specified in this Note is deemed
to be in excess of the maximum rate permitted by applicable law, the interest
payable hereunder shall be the maximum rate so permitted.
Interest shall be payable on the last business day of each month
until the entire principal amount hereof is paid in full and on each other date
on which a payment of principal is made.
This Note was issued pursuant to the Note and Warrant Purchase
Agreement dated September 29, 1999 (the "Purchase Agreement") between the
Company and Norwood Venture Corp. The Purchase Agreement requires the making of
scheduled payments of the principal amount of this Note prior to its final
maturity date and provides, among other things, for the acceleration of the
maturity of this Note upon the happening of certain events as set forth in the
Purchase Agreement.
This Note is collateralized by a General Security Agreement
executed by the Company.
The Company shall have the right at any time or from time to
time, on 30 days' prior written notice, to make prepayments (in addition to the
scheduled payments) of this Note in whole or in part, without premium or
penalty, provided that each partial prepayment shall be in an amount which is
not less than $50,000 and is an integral multiple thereof. Any such prepayment
shall be applied first to accrued and unpaid interest and then, in
chronologically inverse order, to the scheduled payments of principal required
to be made on this Note by the Purchase Agreement.
Presentment, demand, protest and notice of dishonor are hereby
waived by the Company.
This Note shall be construed in accordance with and governed by
the laws of the State of New York.
SONO-TEK CORPORATION
By:
Name:
Title: Chairman
Exhibit 4.11(b)
EXHIBIT B
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE ON EXERCISE THEREOF MAY NOT BE OFFERED
FOR SALE, SOLD OR TRANSFERRED OTHER THAN (i) PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR AN
EXEMPTION THEREFROM AND (ii) UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY
TO IT OF COMPLIANCE WITH THE SECURITIES ACT AND THE APPLICABLE SECURITIES LAWS
OF ANY OTHER JUSRIDCITION.
SONO-TEK CORPORATION
Common Stock Purchase Warrant
This certifies that, for value received,
or registered assigns is entitled to purchase
from SONO-TEK CORPORATION, a New York corporation (the
"Company"), 1,100,000 (subject to adjustment as provided herein) shares of the
Company's $0.01 par value Common Stock ("Common Stock") at a price of $0.30 per
share (the "Initial Exercise Price"; such price as adjusted from time to time
pursuant to this Warrant being hereinafter referred to as the "Exercise Price").
In making payment of part or all of the Exercise Price, the holder shall be
credited with any obligations payable or to become payable on the 12% Note due
September 30, 2004 issued by the Company (the "Note") pursuant to a certain Note
and Warrant Purchase Agreement dated September 29, 1999 (the "Purchase
Agreement") between the Company and Norwood Venture Corp. ("NVC") to the extent
that the holder tenders all or any portion of such holder's Note for
cancellation and requests the application of such obligations to the payment of
the Exercise Price. The Company agrees, on any such tender, to cause to be
issued and to deliver to such holder a duly executed Note (in the form required
by the Purchase Agreement) dated the date through which all accrued interest was
fully paid on the Note so tendered and evidencing the obligation of the Company
to pay that portion of the outstanding principal amount of the Note so tendered
which is not requested to be so applied. Payment of the Exercise Price may be
made in cash, by certified check payable to the order of the Company or by wire
transfer of immediately available funds to an account designated in writing by
the Company. Terms not otherwise defined in this Warrant are used with the
meanings of such terms which are set forth in the Purchase Agreement.
This Warrant shall expire on the sixth anniversary of the date on which
payment has been made of the Note in full, but shall in no event expire earlier
than the Put Date.
This Warrant is exercisable in whole or in part at any time on surrender
to the Company at its address set forth in the Purchase Agreement of this
Warrant together with a statement in the form attached hereto (with the blanks
in such form appropriately completed and duly executed) of such holder's
election to purchase, together with payment of the Exercise Price. The holder
shall be deemed to be the record owner of the shares thereby purchased as of the
close of business on the date this Warrant shall have been exercised. Upon such
surrender of the Warrant and payment of the Exercise Price as described above,
the Company agrees to cause to be issued and delivered with all reasonable
dispatch to or upon the written order of the registered holder and in such name
or names as such registered holder may designate, a certificate or certificates
for the number of shares and fractional shares so purchased upon the exercise of
such Warrant. Such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such shares as of the date of surrender of such
Warrant and payment of the Exercise Price as described above.
The number and type of securities for which this Warrant is exercisable
shall be appropriately changed and adjusted so that in all events (whether the
Company subdivides, reclassifies or combines, or declares or pays a dividend
(other than a cash dividend) on its Common Stock or merges or consolidates with
any other corporation, reorganizes or transfers other than in the ordinary
course of its business all or substantially all of the assets of the Company or
liquidates or dissolves or is subject to any other change which might otherwise
affect the securities for which this Warrant is exercisable), the holder shall
continue to be entitled to receive upon exercise of this Warrant shares of the
Company's capital stock and other securities and consideration as nearly
equivalent (on an economic basis) as practicable to what such holder would have
been entitled to receive if the exercise of this Warrant had occurred
immediately prior to such event.
The Company shall give written notice to the record holder of this
Warrant at such holder's address appearing on the Company's records of any of
the events which would cause a change or adjustment pursuant to the preceding
paragraph and of any proposed payment of any dividend or other distribution to
the holders of Common Stock, which notice shall be given at least twenty days
prior to the earlier of (a) the date on which such event is to occur or such
payment is to be made and (b) the record date, if any, with respect thereto.
Such notice shall specify any such record date, the date on which such event is
to take place and such facts as shall be reasonably necessary to indicate the
effect of such event on the number, kind or class of shares or other securities
or consideration that shall be deliverable or purchasable upon the occurrence of
such event or upon exercise of this Warrant. As to any change or adjustment to
be made pursuant to the preceding paragraph, the determination of the Company's
independent certified public accountants shall be determinative absent manifest
error.
All shares issued upon the exercise of the rights represented by this
Warrant shall be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company shall from time to time take all such action as may be requisite to
assure that the par value per share of Common Stock is at all times equal to or
less than the per share Exercise Price then in effect. During the period within
which the rights represented by this Warrant may be exercised, the Company shall
at all times have authorized, and reserved for the purpose of issuance upon
exercise of the rights evidenced by this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise of the rights represented by this
Warrant. The Company shall take all such action as may be necessary to assure
that such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the shares of Common Stock may be listed. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. The Company shall not take any action which would
result in any adjustment of the Exercise Price if the total number of shares of
Common Stock issuable after such action upon exercise of all Warrants then
outstanding would exceed the total number of then authorized but unissued shares
of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf by a duly authorized officer, as of the day of , 19 .
[SEAL] SONO-TEK CORPORATION
By:
Chairman and Chief Executive Officer
Attest:
Secretary
8/3/99
[Form of]
ELECTION TO PURCHASE
To: Sono-Tek Corporation
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder, the
following securities and other property:
and tenders payment in the amount of $ by [delivery of a certified check] [wire
transfer] payable to you in such amount or delivery of the Note (referred to in
the Warrant) for cancellation of indebtedness represented thereby in such
amount. The undersigned requests that certificates for such securities be issued
in the name of and delivered, together with any other property referred to
above, to
and, if such securities and property shall not be all of the securities and
property issuable and/or deliverable thereunder, that a new Warrant for the
balance be registered in the name of, and issued and delivered to, the
undersigned at the following address:
Dated:
- -----------------------
Exhibit 4.11(c)
GENERAL SECURITY AGREEMENT
September 29, 1999
The undersigned, SONO-TEK COPORATION, a New York corporation (herein
referred to as "Debtor") with an address as it appears with the signature below,
hereby agree(s) in favor of Norwood Venture Corp.(herein referred to as Secured
Party), as follows:
1. In consideration of one or more loans, advances, or other financial
accommodations at any time before, at or after date made or extended by Secured
Party to Debtor, directly or indirectly, as principal, guarantor or otherwise,
at the sole discretion of Secured Party in each instance, including without
limitation the purchase by Secured Party of Debtor's Note due September 30, 2004
pursuant to the Note and Warrant Purchase Agreement dated of even date herewith
between Debtor and Secured Party (the "Purchase Agreement"), Debtor hereby
grants to Secured Party a security interest in, a continuing lien upon and a
right of set-off against, and Debtor hereby assigns to Secured Party, the
Collateral described in Paragraph 2, to secure the payment, performance and
observance of all indebtedness, obligations, liabilities and agreements of any
kind of Debtor to Secured Party, now existing or hereafter arising, direct or
indirect (including participations or any interest of Secured Party in
obligations of Debtor to others), acquired outright, conditionally, or as
collateral security from another, absolute or contingent, joint or several,
secured or unsecured, due or not, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, and of all loan
agreements, documents and instruments evidencing any of the foregoing
obligations or under which any of the foregoing obligations may have been
issued, created, assumed or guaranteed (all of the foregoing being herein
referred to as the "Obligations").
2. The Collateral is described as follows and/or on Schedule A, if any,
annexed hereto as part hereof and on any separate schedule at any time furnished
by Debtor to Secured Party (all of which are hereby deemed part of this Security
Agreement), which Collateral includes all attachments, accessions and equipment
now or hereafter affixed to the Collateral or used in connection therewith,
substitutions and replacements thereof, and (unless the description of the
Collateral expressly excludes after acquired Collateral) all items of the
Collateral both now owned or existing and hereafter acquired, created or
arising, and any and all products and proceeds thereof (including, without
limitation, any claims of Debtor against third parties, for loss or damage to or
destruction of any or all of the Collateral):
SEE ATTACHED SCHEDULE A ANNEXED HERETO AND MADE A PART HEREOF.
together with any and all monies, securities, drafts, notes, items and other
property of the Debtor and the proceeds thereof, now or hereafter held or
received by or in transit to, Secured Party from or for the Debtor, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and any and
all deposits (general or special), balances, sums, proceeds, and credits of the
Debtor with, and any and all claims of the Debtor against, Secured Party, at any
time existing. In the event that the Collateral includes inventory, Debtor also
grants to Secured Party a security interest in, and the collateral shall
include, all labels and other devices, names, or marks affixed or to be affixed
to inventory for purposes of selling or of identifying the same or the seller or
manufacturer thereof and all right, title and interest of Debtor therein and
thereto.
3. Debtor warrants, represents and covenants that: (a) the chief and
other places of business of Debtor, the books and records relating to the
Collateral and the Collateral are located at the addresses set forth below and
Debtor will not change any of the same without prior written notice to Secured
Party; (b) the Collateral is and will be used in Debtor's business and not for
personal, family, household or farming use; (c) the Collateral is now, and at
all times will be, owned by Debtor free and clear of all liens, security
interests, claims and encumbrances except as otherwise permitted in the Purchase
Agreement; (d) except as otherwise permitted in the Purchase Agreement, Debtor
will not assign, sell, mortgage, lease, transfer, pledge, grant a security
interest in or lien upon, encumber or otherwise dispose of or abandon, nor will
Debtor suffer or permit any of the same to occur with respect to, any part or
all of the Collateral, without prior written consent of Secured Party, except
for the sale from time to time in the ordinary course of business of Debtor of
such items of Collateral as may constitute part of the business inventory of
Debtor, and the inclusion of "proceeds" of the Collateral under the security
interest granted herein, shall not be deemed a consent by Secured Party to any
sale or other disposition of any part or all of the Collateral except as
expressly permitted herein; (e) subject to the provisions of the Purchase
Agreement, Debtor has made, and will continue to make payment or deposit or
otherwise provide for the payment, when due, of all taxes, assessments or
contributions required by law which have been or may be levied or assessed
against the Debtor, whether with respect to any of the Collateral, to any wages
or salaries paid by Debtor, or otherwise, and will deliver to Secured Party, on
demand, certificates or other evidence satisfactory to Secured Party attesting
thereto; (f) Debtor will use the Collateral for lawful purposes only, with all
reasonable care and caution and in conformity with the provisions of the
Purchase Agreement; (g) Debtor will keep the Collateral in reasonably good
repair at Debtor's own cost and expense; (h) subject to any limitations in the
Purchase Agreement, Secured Party shall at all times have free access to and
right of inspection of the Collateral and any records pertaining thereto (and
the right to make extracts from and to receive from Debtor originals or true
copies of such records and any papers and instruments relating to any or all of
the Collateral and to receive from Debtor originals or true copies of such
records and any papers and instruments relating to any or all of the Collateral
upon request therefor) and Debtor hereby grants to Secured Party a security
interest in all such records, papers and instruments to secure the payment,
performance and observance of the Obligations; (i) the Collateral is now and
shall remain personal property and Debtor will not permit any of the Collateral
to become a part of or affixed to real property without prior written notice to
Secured Party and without first making all arrangements, and delivering, or
causing to be delivered, to Secured Party all instruments and documents,
including, without limitation, waivers and subordination agreements by any
landlords or mortgagees, requested by and satisfactory to Secured Party to
preserve and protect the primary security interest granted herein against all
persons; (j) Debtor will, at its expense, perform all acts and execute all
documents reasonably requested by Secured party at any time to evidence,
perfect, maintain and enforce Secured Party's primary security interest in the
Collateral or otherwise in furtherance of the provisions of this Security
Agreement; (k) Debtor assumes all responsibility and liability arising from the
use of the Collateral; (l) upon request of Secured Party, at any time and from
time to time, Debtor shall, at its sole cost and expense, execute and deliver to
Secured Party one or more financing statements pursuant to the Uniform
Commercial Code ("UCC") and one or more applications for certificate of title
and any other papers, documents or instruments requested by Secured Party in
connection with this Security Agreement, and Debtor hereby authorizes Secured
Party to execute and file at any time or times, one or more financing statements
with respect to all or any part of the Collateral, signed only by the Secured
Party; (m) in its discretion, Secured Party may, only after a Default (as
hereinafter defined) has occurred, in its name or Debtor's or otherwise, notify
any account debtor or obligor of any account, contract, instrument, chattel
paper or general intangible included in the Collateral to make payment to
Secured Party; (n) Secured Party may, in its reasonable discretion at any time
after a Default demand, sue for, collect or receive any money or property at any
time payable or receivable on account of or in exchange for, or make any
compromise or settlement deemed desirable by Secured Party with respect to, any
of the Collateral, and/or extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of, or release, any of the
Collateral or the Obligations, all without consent by Debtor and without
otherwise discharging the Obligations, the Collateral or the security interest
granted herein; (o) Secured Party may, in its reasonable discretion, after a
Default, for the account and expense of Debtor, pay any amount or do any act
required of Debtor hereunder or requested by Secured Party to preserve, protect,
maintain or enforce the Obligations, the Collateral or the primary security
interest granted herein, and which Debtor fails to do or pay, and any such
payment shall be deemed an advance by Secured Party to Debtor and shall be
payable on demand together with interest at the highest rate then payable on any
of the Obligations; (p) after a Default, Debtor will promptly pay Secured Party
for any and all sums, costs and expenses which Secured Party may reasonably pay
or reasonably incur pursuant to the provisions of this Security Agreement or in
defending, protecting or enforcing the security interest granted herein or in
enforcing payment of the Obligations or otherwise in connection with the
provisions hereof, including but not limited to all court costs, collection
charges, reasonable travel, and reasonable attorney's fees (not less than 15% of
the outstanding Obligations where permitted by applicable law), all of which,
together with interest at a rate equal to the highest rate then payable on any
of the Obligations, shall be part of the Obligations and be payable on demand;
(q) Secured Party shall have the right to receive and retain as additional
Collateral all securities and rights issued or granted in respect of any
Collateral consisting of securities and after a Default, Secured Party, in its
discretion, may transfer to or register in the name of Secured Party or its
nominee all or any of the Collateral consisting of securities, and whether or
not so transferred or registered, Secured Party, after a Default, shall be
entitled to receive and retain all income, dividends and other distributions
thereon as part of the Collateral and to exchange any or all such Collateral
upon the reorganization, recapitalization, or readjustment of any entity issuing
such securities, and to exercise all rights with respect thereto as if it was
the absolute owner thereof (provided that prior to a Default Debtor alone shall
be entitled to exercise the right to vote such Collateral), and if the
Collateral has been so transferred or registered, Secured Party shall take such
action as Debtor may reasonably request to enable Debtor to exercise the right
to vote such Collateral or any part thereof for any purpose which is not
inconsistent with the terms of this Security Agreement or the Obligations or
which would not have an adverse effect on the value of the Collateral or any
part thereof; (r) after a Default any of the proceeds of the Collateral received
by Debtor shall not be commingled with other property of Debtor, but shall be
segregated, held by the Debtor in trust as the exclusive property of Secured
Party, and Debtor will immediately deliver to Secured Party the identical
checks, monies, or other proceeds of Collateral received, duly endorsed in blank
where appropriate to effectuate the provisions hereof, the same to be held by
Secured party as additional Collateral hereunder or, at Secured Party's option,
to be applied to payment of any of the Obligations, whether or not due and in
any order; and (s) at any time Secured Party may assign, transfer and deliver to
any transferee of any of the Obligations, any or all of the Collateral,
whereupon Secured Party shall be fully discharged from all responsibility and
the transferee shall be vested with all powers and rights of Secured Party
hereunder with respect thereto, but Secured Party shall retain all rights and
powers with respect to any Collateral not assigned, transferred or delivered.
4. The occurrence of any one or more "Defaults" or "Events of Default",
as defined in the Purchase Agreement, or the failure of Debtor to perform its
obligations under this Security Agreement shall constitute an event of default
("Default") by Debtor under this Security Agreement.
5. Upon the occurrence of any Default and during the continuance
thereof, Secured Party may, without demand upon Debtor, declare any or all
Obligations of Debtor immediately due and payable and Secured party shall have
the following rights and remedies (to the extent permitted by applicable law) in
addition to all rights and remedies of a secured party under the UCC, or of
Secured Party under the Obligations, all such rights and remedies being
cumulative, not exclusive and enforceable alternatively, successively or
concurrently: Secured Party may at any time and from time to time, with or
without judicial process or the aid and assistance of others, enter upon any
premises in which any of the Collateral may be located and, without resistance
or interference by Debtor, take possession of the Collateral; and/or dispose of
any part or all of the Collateral on any premises of Debtor; and/or require
Debtor to assemble and make available to Secured Party at the expense of Debtor
any part or all of the Collateral at any place and time designated by Secured
Party which is reasonably convenient to both parties and/or remove any part or
all of the Collateral from any premises on which any part may be located for the
purpose of effecting sale or other disposition thereof (and if any of the
Collateral consists of motor vehicles, Secured Party may use Debtor's license
plates) and/or sell, resell, lease, assign and deliver, grant options for or
otherwise dispose of any or all of the Collateral in its then condition or
following any commercially reasonable preparation or processing, at public or
private sale or proceedings or otherwise, by one or more contracts, in one or
more parcels, at the same or different times, with or without having the
Collateral at the place of sale or other disposition, for cash and/or credit,
and upon any terms, at such place(s) and time(s) and to such persons, firms or
corporations as Secured Party deems best, all without demand for performance or
any notice or advertisement whatsoever except that where an applicable statute
requires reasonable notice of sale or other disposition Debtor hereby agrees
that five days notice by ordinary mail, postage prepaid, to any address of
Debtor set forth in this Security Agreement of the place and time of any public
sale or of the time after which any private sale or other intended disposition
is to be made, shall be deemed reasonable notice thereof (if any of the
Collateral is sold by Secured Party upon credit or for future delivery, Secured
Party shall not be liable for the failure of the purchaser to pay for same and
in such event Secured Party may resell such Collateral); Secured Party may buy
any part or all of the Collateral at any public sale and if any part or all of
the Collateral is of a type customarily sold in a recognized market or is of the
type which is the subject of widely distributed standard price quotations
Secured Party may buy at private sale and may make payment therefor by any
means; Secured Party may apply the cash proceeds actually received from any sale
or other disposition to the reasonable expenses of retaking, holding, preparing
for sale, selling, leasing and the like, to reasonable attorney's fees (not
exceeding 15% of the outstanding Obligations) and all reasonable travel and
other expenses which may be incurred by Secured Party in attempting to collect
the Obligations or enforce this Security Agreement or in the prosecution or
defense of any action or proceeding related to the subject matter of this
Security Agreement (and then to the Obligations in such order and as to
principal or interest as Secured Party may desire), Debtor remaining liable and
agreeing to pay Secured Party on demand any deficiency remaining, together with
interest thereon at a rate equal to the highest rate then payable on the
Obligations and the balance of any expenses unpaid, with any surplus to be paid
to Debtor (subject to any duty of Secured Party imposed by law to the holder of
any subordinate security interest in the Collateral); Secured Party may
appropriate, set off and apply to the payment of any or all of the Obligations,
any and all Collateral in or coming into the possession of Secured Party or its
agents and belonging or owing to Debtor, without notice to Debtor, and in such
manner as Secured Party may in its discretion determine; Secured Party may
exercise all voting rights with respect to all or any of the Collateral
consisting of securities and may exercise all powers with respect thereto as if
an absolute owner thereof. Debtor recognizes that the Secured Party may be
unable to effect a public sale of all or a part of the Collateral consisting of
securities by reason of certain prohibitions contained in the Securities Act of
1933, but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such securities for their own account, for investment and not with a
view to the distribution or resale thereof. Debtor agrees that any such private
sales may be at prices and other terms less favorable to the seller than if sold
at public sales and that such private sales shall be deemed to have been made in
a commercially reasonable manner. Secured party has no obligation to delay sale
of any such securities for the period to time necessary to permit the issuer of
such securities, even if such issuer would agree, to register such securities
for public sale under the Securities Act of 1933
6. To effectuate the terms and provisions hereof, Debtor hereby
designates and appoints Secured Party and its designees or agents as
attorney-in-fact of Debtor, irrevocably and with power of substitution, with
authority, after a Default, to receive, open and dispose of all mail addressed
to Debtor, to notify the Post Office authorities to change the address for
delivery of mail addressed to Debtor to such address as Secured Party may
designate; to endorse the name of Debtor on any notes, acceptances, checks,
drafts, money orders, instruments or other evidences of payment or proceeds of
the Collateral that may come into Secured Party's possession; to sign the name
of Debtor on any invoices, documents, drafts against and notices to account
debtors or obligors of Debtor, assignments and requests for verification of
accounts; to execute proofs of claim and loss; to execute any endorsements,
assignments, or other instruments of conveyance or transfer; to adjust and
compromise any claims under insurance policies; to execute releases; and to do
all other acts and things (before as well as after a Default) necessary and
advisable in the reasonable discretion of Secured Party to carry out and enforce
this Security Agreement. All lawful and reasonable acts of said attorney or
designee are hereby ratified and approved and, except for willful misconduct or
gross negligence, said attorney or designee shall not be liable for any acts of
commission or omission, nor for any error of judgment or mistake of fact or law.
This power of attorney being coupled with an interest is irrevocable while any
of the Obligations shall remain unpaid.
7. Secured Party shall have the duty to exercise reasonable care in the
custody and preservation of any securities in its possession included in the
Collateral, which duty shall be fully satisfied if Secured Party maintains safe
custody of any such securities, and, with respect to any maturities, calls,
conversions, exchanges, redemption, offers, tenders or similar matters relating
to any of such securities (herein called "events"), in the exercise of its sole
discretion (a) Secured Party endeavors to take such action with respect to any
of the events as Debtor may reasonably and specifically request in writing in
sufficient time for such action to be evaluated and taken or (b) if Secured
Party determines that the action requested might adversely affect the value of
the securities as collateral, the collection of the Obligations secured, or
otherwise prejudice the interests of Secured Party, Secured Party gives
reasonable notice to Debtor that any such requested action will not be taken and
if Secured Party makes such determination or if Debtor fails to make such timely
request, Secured Party takes such other action as it deems advisable in the
circumstances. Secured Party shall have no further obligation to ascertain the
occurrence of, or to notify Debtor with respect to, any events and shall not be
deemed to assume any such obligation as a result of the establishment by Secured
Party of any internal procedures with respect to any securities in its
possession, nor shall Secured Party be deemed to assume any responsibility for,
or obligation or duty with respect to, any part or all of the Collateral, of any
nature or kind, or any matter or proceedings arising out of or relating thereto,
including, without limitation, any obligation or duty to take any action to
collect, preserve or protect its or Debtor's rights in the Collateral or against
any prior parties thereto, but the same shall be at Debtor's sole risk at all
times. If the Collateral hereunder includes "stock" as defined in Regulation U
of the Federal Reserve Board, it is hereby agreed such "stock" shall not secure
Obligations which are "purpose credits", as that term is used in Regulation U,
and (i) are secured solely by collateral other than "stock" or (ii) are
unsecured. Secured Party's prior recourse to any part or all of the Collateral
shall not constitute a condition of any demand, suit or proceeding for payment
or collection of the Obligations. No act, failure or delay by Secured Party
shall constitute a waiver of its rights and remedies hereunder or otherwise. No
single or partial waiver by the Secured Party of any Default or right or remedy
which it may have shall operate as a waiver of any other Default, right or
remedy or of the same Default, right or remedy on a future occasion. Debtor
hereby waives presentment, notice of dishonor and protest of all instruments
included in or evidencing any of the Obligations or the Collateral, and any and
all other notices and demands whatsoever (except as expressly provided herein).
Subject to the terms of the Purchase Agreement, Debtor agrees to pay, on demand,
all reasonable out-of-pocket expenses incurred by Secured Party in connection
with the enforcement of this Security Agreement, the Obligations, and the
transactions contemplated hereunder and thereunder, including but not limited to
the reasonable fees and expenses of counsel to Secured Party. In the event of
any litigation, with respect to any matter connected with this Security
Agreement, the Obligations or the Collateral, Debtor hereby waives the right to
a trial by jury and all defenses, including any defense based on any Statute of
Limitations, any claim of laches, rights of setoff and the rights to interpose
counterclaims of any nature other than mandatory counterclaims. Debtor hereby
irrevocably consents to the jurisdiction of the courts of the State of New York
and of any Federal Court located in such State in connection with any action or
proceeding arising out of or relating to the Obligations, this Security
Agreement or the Collateral, or any document or instrument delivered with
respect to any of the Obligations. Debtor hereby waives personal service of any
summons, complaint or other process in connection with any such action or
proceeding and agrees that the service thereof may be made by certified or
registered mail directed to Debtor at any place of business set forth below, or
at such other address as Debtor may designate by written notification by
certified or registered mail directed to and received by Secured Party at its
office set forth in the financing statements filed hereunder (or if no such
financing statements have been filed, at the office of Secured Party at which is
located the officer in direct supervision of the within security interest). The
Debtor so served shall appear or answer to such summons, complaint or other
process within thirty days after the mailing thereof. Should the Debtor so
served fail to appear or answer within said thirty-day period, such Debtor shall
be deemed in default and judgment may be entered by Secured Party against such
Debtor for the amount or such other relief as may be demanded in any summons,
complaint or other process so served. In the alternative, in its discretion
Secured Party may effect service upon Debtor in any other form or manner
permitted by law. All terms used herein shall have the meanings as defined in
the UCC, unless the context otherwise requires. No provision hereof shall be
modified, altered or limited except by a written instrument expressly referring
to this Security Agreement and to such provision, and executed by the party to
be charged. The execution and delivery of this Security Agreement has been
authorized by the Board of Directors of Debtor and by any necessary vote or
consent of stockholders of Debtor. This Security Agreement and all Obligations
shall be binding upon the successors and assigns of Debtor, and the foregoing,
together with the rights and remedies of Secured Party hereunder, shall inure to
the benefit of Secured Party, its successors, endorsees and assigns. This
Security Agreement and the Obligations shall be governed in all respects by the
laws of the State of New York. If any term of this Security Agreement shall be
held to be invalid, illegal or unenforceable, the validity of all other terms
hereof shall in no way be affected thereby. Secured Party is authorized to annex
hereto any schedules referred to herein. Debtor acknowledges receipt of a copy
of this Security Agreement.
IN WITNESS WHEREOF, the undersigned has executed or caused this
Security Agreement to be executed in the State of New York, the date first above
set forth.
(CORPORATE SEAL) SONO-TEK CORPORATION
By
James L. Kehoe, Chairman
Trade Name (if any)
All location(s) of
Collateral (including the
Section, Block and Lot
where there is located any
of the Collateral which is
or may be affixed to
realty).
Chief Place of Business:
Other Places of Business:
Name of record owner of real estate where any of the Collateral
is or may be affixed to realty:
Location of Books and Records
Relating to the Collateral:
1
Schedule A
Collateral shall mean and include all of Debtor's right, title and
interest in and to:
1. All Accounts;
2. All Inventory;
3. All Equipment; and
4. All Proceeds and products of any or all of the foregoing, to the
extent not otherwise included.
5. That certain Secured Note, dated as of August 3, 1999, payable by
S&K Products International, Inc. to Sono-Tek Corporation in the original
principal amount of $300,000 and ninety (90) shares of the Common Stock of S&K
Products International, Inc. standing in the name of Sono-Tek Corporation on the
books of S&K Products International, Inc. represented by Certificate No. 5.
For purposes of this Schedule A, the following terms shall have the following
meanings:
"Accounts" shall mean all "accounts", as such term is defined
in Section 9-106 of the Uniform Commercial Code as in effect on the
date hereof in the State of New York (the "Code"), in which Debtor now
or hereafter has any right, title or interest.
"Equipment" shall mean all "equipment", as such term is
defined in Section 9-109 of the Code, in which Debtor now or hereafter
has any right, title or interest.
"Inventory" shall mean all "inventory", as such term is
defined in Section 9-109 of the Code, in which Debtor now or hereafter
has any right, title or interest.
"Proceeds" shall mean "proceeds", as such term id defined in
Section 9-306 of the Code including, but not limited to (i) any and all
proceeds of any insurance, indemnity, warranty or guaranty payable to
Debtor from time to time with respect to any of the Collateral, (ii)
any and all payments (in any form whatsoever) made or due and payable
to Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of
the Collateral by any governmental body, authority, bureau or agency
(or any person, corporation, agency, authority or other entity acting
under color of governmental authority) and (iii) any and all other
amounts from time to time paid or payable under or in connection with
any of the Collateral.Corp, Lessee
/s/ Kathleen N. Martin, Witness