Page numbered in accordance with Rule 0-3(b). Page 1 of 34.
The Exhibit Index can be found on Page 13.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from to
Commission File Number 0-10329
AW COMPUTER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1991981
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9000A Commerce Parkway, Mt. Laurel, New Jersey 08054
(Address of principal executive offices)
609-234-3939
(Registrant's telephone number)
N/A
(Former name, address and former fiscal year, if changed since last report)
Check mark whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
As of August 13, 1997 there were issued and outstanding 6,680,567 Class A Common
Shares of the Company.
Page numbered in accordance with Rule 0-3(b). Page 2 of 34.
PART I
FINANCIAL INFORMATION
Item 1. Interim Financial Statements - (Unaudited)
Contents:
Consolidated Statements of Operations for the three and six
month periods ended June 30, 1997 and June 30, 1996.
Consolidated Balance Sheets as of June 30, 1997 and December
31, 1996.
Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1997 and June 30, 1996.
Notes to Interim Consolidated Financial Statements.
Page numbered in accordance with Rule 0-3(b). Page 3 of 34.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(UNAUDITED)
Three Months Six Months
------------ ----------
1997 1996 1997 1996
---- ---- ---- ----
$ 241,938 $ 130,119 Revenues $ 430,792 $ 475,992
370,652 592,202 Cost of revenues 680,258 988,099
--------- --------- --------- ---------
( 128,714) ( 462,083) Gross profit (loss) ( 249,466) ( 512,107)
--------- --------- --------- ---------
Selling, general and
640,871 583,809 administrative expenses 1,454,757 1,349,643
11,123 15,140 Development expense 29,480 83,472
13,402 20,016 Interest expense 26,519 38,431
( 2,326) ( 9,804) Other (income) - net ( 7,521) ( 16,891)
--------- --------- --------- ---------
663,070 609,161 1,503,235 1,454,655
--------- --------- --------- ---------
Income (loss) before
( 791,784) (1,071,244) income tax (1,752,701) (1,966,762)
--------- ---------- ---------- ----------
-- -- Income tax (benefit) -- --
$( 791,784) $(1,071,244) Net (loss) $(1,752,701) $(1,966,762)
========= ========= ========= =========
Per share statistics:
$(.12) $(.22) Net loss per share $(.26) $(.42)
=== === === ===
6,649,031 4,840,869 Average shares outstanding 6,654,271 4,666,294
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
Page numbered in accordance with Rule 0-3(b). Page 4 of 34.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS
1997 1996
Current assets:
Cash and cash equivalents $ 292,696 $ 919,621
Accounts and contract receivables, less allowance for doubtful
accounts of $41,831 in 1997 and $39,697 in 1996 72,178 78,380
Costs and estimated earnings in excess of billings on
uncompleted contracts 258,220 200,015
Inventories 51,589 56,589
Prepaid and other current assets 40,224 36,854
--------- ---------
Total current assets 714,907 1,291,459
Property and equipment, net 408,477 511,579
Computer software, net 669,351 669,351
Due from related parties -- --
Other assets 27,308 27,308
--------- ---------
Total assets $ 1,820,043 $ 2,499,697
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 750,000 $ 570,368
Current portion of long-term debt 95,448 --
Current portion of lease obligations -- --
Accounts payable 93,613 147,195
Accrued liabilities 324,901 269,371
Accrued compensation 238,288 177,362
Accrued contract costs 358,406 408,406
Other current liabilities 26,663 41,755
--------- ---------
Total current liabilities 1,887,319 1,614,457
Deferred compensation payable 216,508 162,508
--------- ---------
Total liabilities 2,103,827 1,776,965
Commitments and contingent liabilities
Shareholders' equity
Preferred Stock - No Par Value:
Authorized 4,950,000 shares in 1997 and 5,000,000 in 1996
and zero issued and outstanding in 1997 and 1996. -- --
Preferred Stock - Series A 10% Redeemable
Authorized 50,000 and zero shares; 6,356 and zero shares
issued and outstanding in 1997 and 1996, respectively 635,600 --
Common shares:
Class A, $.01 par; authorized 25,000,000 and 10,000,000
shares; 6,680,567 and 6,638,067 issued and outstanding in
1997 and 1996, respectively 66,806 66,381
Additional paid-in capital 4,546,205 4,431,860
Retained earnings (Deficit) (5,437,395) (3,680,509)
Stock subscription - related party ( 95,000) ( 95,000)
Deferred compensation -- --
--------- ---------
Total shareholders' equity ( 283,784) 722,732
--------- ---------
Total liabilities and shareholders' equity $(1,820,043) $ 2,499,697
========= =========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
Page numbered in accordance with Rule 0-3(b). Page 5 of 34.
AW COMPUTER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 30, 1996
(UNAUDITED)
Six Months
----------
1997 1996
---- ----
Cash flows, from operating activities:
Net income (loss): $(1,752,701) $(1,966,762)
Adjustments to reconcile net
income to net cash provided
by/(used in) operating activities:
Depreciation and amortization 108,765 152,603
Amortization of unearned
compensation -- 29,238
compensation
Decrease (increase) in:
Accounts receivable 6,202 409,952
Costs and estimated earnings
on uncompleted contracts ( 58,205) 300,250
Inventories 5,000 57,475
Income taxes receivable -- 280,445
Prepaid expenses ( 3,370) 39,836
Other assets -- ( 593)
Increase (decrease) in:
Accounts payable ( 53,582) ( 86,241)
Accrued liabilities 55,530 33,984
Accrued cost ( 50,000) 75,753
Other liabilities 99,832 108,486
--------- ---------
Net cash provided by (used in)
operating activities (1,642,529) ( 565,574)
--------- ----------
Cash flows, from investing activities:
Capital (expenditures) disposals ( 5,663) ( 92,819)
Computer software capitalized -- ( 219,178)
--------- ---------
Net cash (used in) investing activities ( 5,663) ( 311,997)
--------- ---------
Cash flows, from financing activities:
Net borrowing (payments):
Long-term debt and lease
obligations ( 474,920) ( 227,411)
Net (advances) repayments of
note payables 750,000 --
Proceeds from issuance of
common shares 45,050 668,261
Proceeds from issuance of
preferred shares 635,600 --
Payment of dividend ( 4,183) --
Additional paid in capital from
debt exchange 69,720 --
--------- ---------
Net cash provided by (used in)
financing activities 1,021,267 440,850
--------- ---------
Increase (decrease), cash and
cash equivalents ( 626,925) ( 436,721)
Cash and cash equivalents:
Beginning of period 919,621 848,560
--------- ---------
End of period $ 292,696 $ 411,839
========== ==========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
Page numbered in accordance with Rule 0-3(b). Page 6 of 34.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany
transactions and balances have been eliminated. All adjustments
consisting only of normal recurrent adjustments which, in the opinion
of management, are necessary for a fair statement of the results for
this interim period have been made.
2. Prior year statements have been restated to conform to present year
presentation.
3. These statements should be read in conjunction with the Summary of
Significant Accounting Policies and other notes included in the Notes
to Consolidated Financial Statements in the Company's 1996 Annual
Report on Form 10-KSB.
Page numbered in accordance with Rule 0-3(b). Page 7 of 34.
Item 2 Management's Discussion and Analysis or Plan of Operation
AW's future is dependent on the successful completion and receipt
of a significant deposit on an order(s) for either or both of the Company's
products, The Checker Productivity Analyzer ("CPA") and/or the Wizard of
Point-of-Sale ("Wizard"), or on the Company,s ability to raise additional
capital to maintain its operations until these products generate revenue. The
Company expects that its existing capital resources will enable it to maintain
its current operations through the third quarter of 1997. Thereafter, the
Company will need to raise substantial additional capital to remain in business.
The Company intends to seek such additional funding through collaborative or
partnering arrangements or through public or private equity or debt financing,
as well as attempting to obtain deposits from customers. There can be no
assurance that additional financing will be available on acceptable terms or at
all.
Based on the nominal size of firm orders for delivery within one
year, the Company believes that the volume of operations will remain at the
relatively low level experienced in the first six months of this year until
market acceptance of either CPA or Wizard. Acceptance of either or both of these
products would generate future revenues, however, there can be no assurance that
the Company will not continue to experience delays with these products or that
the Company's marketing efforts will be successful.
The development of the Company's computer vision-based CPA
product is complete. The Company has commenced live testing of the computer
vision-based products in an actual supermarket environment. The live testing is
on-going and there can be no assurances when testing will be completed or that
the testing will be successful. There can also be no assurance that the CPA
product will achieve commercial acceptance.
Operations
Revenues for the second quarter of 1997 were $242 thousand (or
86%) higher than revenues in the second quarter of 1996 due to increased revenue
from contracts in progress, revenue software services and from software
maintenance.
The Company experienced a negative gross profit of ($128,714)
compared to $(462,083) for the same period last year. The negative gross profit
was due to costs related to the development of the CPA Project. As of June 30,
1997, $1,558,000 and $3,899,000 have been recognized as revenues and costs under
the CPA Agreement, respectively. The CPA Project has exceeded its $1,700,000
contractual budget; as such, the Company has established an additional loss
provision representing the estimated cost to complete the project. As of June
30, 1997, the estimated cost to complete the CPA Project was $350,000. Due to
uncertainties inherent in the estimation process, it is reasonably possible that
the completion costs for the CPA Project will be further revised in the near
term.
Page numbered in accordance with Rule 0-3(b). Page 8 of 34.
Selling, general and administrative expenses ("SG&A") were $57
thousand (or 9.8%) higher in the second quarter of 1997 than in the same period
last year. As a percentage of revenues, these expenses were 268% versus 447% in
the second quarter of 1996.
Development expense was $11 thousand (or 26%) lower in the second
quarter of 1997 compared to the second quarter of 1996; this is primarily due to
reduced development activities on the Company's projects until completion of the
CPA project.
Revenues for the six months of 1997 were $431 thousand versus
$475 thousand for the comparable period of 1996 because of lower equipment and
software services revenue.
The Company experienced a negative gross profit of $249 thousand
versus $512 thousand for the six month periods. The negative gross profit was
caused by costs related to completion of the CPA contract with only minimal
revenue.
Selling, general and administrative expenses (SG&G) were $1.459
thousand in 1997 versus $1.350 thousand in 1996. As percentage of revenue, these
expenses were 337% versus 284% for 1997 and 1996 respectively.
Development expense was $29 thousand in 1997 versus $83 thousand
in 1996, a reduction of $54 thousand due to reduced development activities on
projects until the completion of the CPA project.
In June 1997, the Company issued 3,822 shares of Series A 10%
Redeemable Preferred Stock and two year Warrants to an investor group
representing $382,200 and $45,000 in exchange for the cancellation of
approximately $474,900 of secured debt and $22,000 of accrued interest
previously owed to Fleet Bank.
The Company realized a gain on the exchange and recorded an
increase of $69,720 to Additional Paid-in Capital.
In the second quarter and six month periods of 1997 and 1996, the
effective income tax benefit was 0% of the Net Loss before income taxes. This is
due to the lack of a net loss carryback provision in New Jersey State Income Tax
Code and the inability to carryback any additional losses to offset past income
for Federal Income Tax purposes.
As a result of the factors discussed above, operations in the
second quarter of 1997 resulted in a loss of $792 thousand (or $.12 per share)
compared to a net loss of $1.071 thousand (or $.22 per share) in the same period
last year. Operations for the six month period of 1997 resulted in a loss of
$1,753 or $(.26) per share compared to a net loss of $1,967 thousand or $.42 per
share.
Page numbered in accordance with Rule 0-3(b). Page 9 of 34.
Liquidity
During the six months ended June 30, 1997, working capital
decreased $850 thousand to ($1.173 million) compared to ($323 thousand) at
December 31, 1996. Current Assets decreased $577 thousand due to decreases in
cash of $627 thousand. Current Liabilities increased $273 thousand primarily due
to increases in Notes Payable of $750 thousand, an increase in Accrued
Compensation of $61 thousand, an increase in Accrued Liabilities of $56
thousand, a decrease in Current Portion of Long Term Debt of $475 thousand, a
decrease in Accounts Payable of $54 thousand, and a decrease in Other
Liabilities of $65 thousand.
During the second quarter of 1997, the Company raised $250,000
from a private placement of 2,500 Series A 10% Redeemable Preferred Stock and
two year Warrants to a limited number of qualified investors, including certain
officers and directors of the Company.
The Company borrowed $750,000 at 9.5%, per annum, due September
20, 1997, from its largest shareholder.
In June 1997, the Company exchanged 3,822 shares of Series A 10%
Redeemable Preferred Stock, two year Warrants to purchase 764,400 shares of
Class A Common Stock at $.50 per share and $45,000 for $474,900 of secured debt
and $22,000 of accrued interest. The transaction resulted in a gain of $69,700
and was recorded as an increase to Additional Paid-in Capital.
During the first six months of 1996, working capital decreased
$1.431 million to $(286) thousand compared to $1.145 million at December 31,
1995. Current assets decreased $1.406 million resulting from decreases in asset
categories. Current liabilities decreased by less than $100 thousand.
During the first half of 1996, cash and cash equivalents
decreased $437 thousand. The primary factors in this decrease were $1,966
thousand loss from operations, $219 thousand of investment in non-current
assets, $227 thousand in debt reduction offset by $668 thousand in proceeds from
the sale of common stock.
Page numbered in accordance with Rule 0-3(b). Page 10 of 34.
Financial Resources
The Company expects to require continued significant product
development efforts and capital expenditures for equipment in 1997. The Company
believes its competitive position must be maintained by the development of new
proprietary hardware and software products. Expenditures for these items will be
funded from cash flow and from potential future financing as can be arranged.
Continuation of operations beyond the third quarter will be dependent on the
successful completion and rollout of either the CPA Project or the Wizard
Project or on the Company securing external financing to help bring its products
to market. There can be no assurance that additional financing will be available
on acceptable terms or at all.
During the quarter ending June 30, 1997, the Company reduced to
$95,448 the Line of Credit. The Line of Credit had an interest rate of Prime
plus one percent (8.25%). The credit facility is collateralized by substantially
all of the Company's assets.
The Company borrowed $750,000 at 9.5%, per annum, due September
20, 1997, from its largest shareholder.
During April and May of 1997, the Company raised $250,000 from
the sale of 2,500 shares of Series A 10% Redeemable Preferred Stock and two year
Warrants to purchase 500,000 Class A Common Shares for $.50 per share sold to a
limited number of qualified investors, including certain officers and directors
of the Company.
On June 28, 1997, the Company consummated an exchange with an
investor group, including certain officers and directors of the Company. The
investor group purchased the Company's Bank Debt and exchanged $474,900 of
secured debt and $22,000 of accrued interest for 3,822 shares of Series A 10%
Redeemable Preferred Stock, two year Warrants to 764,400 Class A Common Shares
for $.50 per share and a $45,000 cash payment. The exchange resulted in a gain
of $69,700 and was recorded as Additional Paid-in Capital.
Page numbered in accordance with Rule 0-3(b). Page 11 of 34.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8 - None.
a. Exhibits:
99a Loan and Modification Agreement.
99B Note to Mylan Laboratories, Inc.
99C Form of Warrant to purchase Class A Common Shares.
27 Financial Data Schedules, electronically filed, as
per Regulation SB.
b. Reports on Form 8-K - None.
Page numbered in accordance with Rule 0-3(b). Page 12 of 34.
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.
AW COMPUTER SYSTEMS, INC.
(REGISTRANT)
DATE: August 15, 1997 /s/Charles Welch
Charles Welch
CEO/President
DATE: August 15, 1997 /s/Charles F. Trapp
Charles F. Trapp
Vice President, Finance
Principal Financial Officer
Page numbered in accordance with Rule 0-3(b). Page 13 of 34.
EXHIBIT INDEX
Rule 0-3(b)
Page Numbered
Where the Exhibit
Description can be Found
99-A Loan and Modification Agreement. Page 11.
99-B Note to Mylan Laboratories, Inc. Page 11.
99-C Form of Warrant to purchase Class
A Common Shares. Page 11.
Page numbered in accordance with Rule 0-3(b). Page 14 of 34.
EXHIBIT 99-A
LOAN & NOTE MODIFICATION AGREEMENT
THIS LOAN & NOTE MODIFICATION AGREEMENT, made this Twenty-Sixth day of
June, 1997, between AW COMPUTER SYSTEMS, INC., having an address at 9000A
Commerce Parkway, Mount Laurel, New Jersey (hereinafter called "Borrower"); and
the INVESTORS, set forth on Schedule A attached hereto (hereinafter called
"Lender").
WITNESSETH:
WHEREAS, Borrower borrowed from Fleet Bank N.A., as successor in
interest to National Westminster Bank USA Five Hundred Fifty Thousand ($550,000)
Dollars pursuant to a promissory note dated October 25, 1996 (the "First Note")
and Twenty Thousand Three Hundred Sixty-Eight ($20,368) Dollars pursuant to a
promissory note dated October 25, 1996 (the "Second Note");
WHEREAS, Lender acquired all rights, title and interest in and to the
First and Second Notes as well as all documents executed in connection
therewith, including but not limited to the Continuing Security Agreement dated
May 13, 1994 (the "Security Agreement") and the financing statements pursuant to
an Assignment Without Recourse from Fleet Bank N.A. dated June 26, 1997, and
WHEREAS, Borrower has requested that Lender modify the First and Second
Notes in exchange for certain consideration hereinafter set forth.
NOW, THEREFORE, In consideration of the premises and of the mutual
agreements herein contained, and upon the express condition that the execution
of this Agreement will not impair the lien of said Security Agreement, it is
hereby agreed by and among the parties as follows:
1. NO IMPAIRMENT OF LIEN. All of the personal property described
in the Security Agreement shall remain in all respects subject to the lien,
charge, or encumbrance of said Security Agreement and the financing statements
filed pursuant thereto, and nothing herein contained and nothing done pursuant
hereto shall affect or be construed to affect, the lien, charge, or encumbrance
of, or warranty of title in, or conveyance effected by said security interest or
the priority thereof over other liens, charges, encumbrances, or conveyances or,
except as expressly provided herein, to release or affect the liability of any
party or parties whomsoever who may now or hereafter be liable under or on
account of said obligation and/or mortgage.
2. MODIFICATION. The parties hereby acknowledge that the
principal balance remaining due to Lender in accordance with the aforementioned
First and Second Notes are $550,000 and $20,378, respectively as of this date.
The Borrower and Lender do hereby agree that:
- 1 -
Page numbered in accordance with Rule 0-3(b). Page 15 of 34.
A. The First and Second Notes are hereby reduced to
$115,900 and $ 0 - in consideration of the transfers set forth in Section 3
hereof.
B. In all other respects the terms and conditions of the
First Note, Second Note and Security Agreement shall remain in full force and
effect.
C. The accrued and unpaid interest, late fees and legal
expenses on the First and Second Notes, as of the date hereof, is forgiven.
D, Any action to be taken in connection with the loan
documents shall be made by a decision of the Lenders holding a majority interest
in the First and Second Notes.
3. EXCHANGE AGREEMENT. In consideration for the reduction of the
principal amount of the First and Second Notes, Borrower is granting Lender
4,641 shares of Series A 10% Redeemable Preferred Stock of Borrower and 928,200
warrants to purchase Borrower's Class A Common Stock at $.50 per share, as more
specifically set forth in the Exchange Agreement attached hereto as Exhibit B,
executed contemporaneously herewith and incorporated herein by reference.
4. COUNTERPARTS. This Agreement may be signed in one or more
counterparts each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
IN WITNESS WHEREOF, the Borrower has hereunto caused these presents to
be duly executed by its respective officers and for its respective corporate
seals to be hereunto affixed, and Lender has set his hand and seal, as of the
day and year first above written.
ATTEST: AW COMPUTER SYSTEMS, INC.
- ------------------------- By: ------------------------------
Charles W. Welch, President
By: ------------------------------
, Investor
- 2 -
Page numbered in accordance with Rule 0-3(b). Page 16 of 34.
LOAN & NOTE MODIFICATION AGREEMENT
EXHIBIT B
AGREEMENT
AGREEMENT, made as of the day of June, 1997, by and among AW Computer
Systems, Inc. (the "Company") and ----------------------- (hereinafer referred
to as the "Seller").
RECITALS:
A. The Seller, together with the other investors, intends to
acquire the Bank Debt (as hereinafter defined) from Fleet Bank owed by the
Company to Fleet Bank. Bank Debt shall mean debts and obligations owed by the
Company to Fleet Bank in the aggregate amount of $591,955.73 as at June 26,
1997.
B. Upon the acquisition of the Bank Debt, the Seller, together
with the other investors, will be the true and lawful owner of the Bank Debt,
free and clear of all liens, claims and encumbrances whatsoever.
C. Contemporaneously with, and as a concurrent condition of, the
acquisition of the Bank Debt, the Seller desires to enter into a loan and note
modification agreement with the Company (the "Note Modification Agreement'),
pursuant to which, among other things, the Seller agrees to a reduction of
approximately 80% of the face amount of the Bank Debt (the "Reduced Bank Debt"),
and the Company accepts such reduction, for a combination of shares of Series A
10% Redeemable Preferred Stock (the "Preferred Shares"), related warrants to
purchase Class A Common Shares (the "Warrants") (the Preferred Stock and the
Warrants are hereinafter referred to as the "Securities") as set forth on
Exhibit A hereto and made a part hereof In addition, the Seller, together with
the other investors, shall retain the Secured Notes originally issued in favor
of the Fleet Bank, which notes shall be reduced in principal amount and in which
the Seller shall retain a proportionate interest.
NOW, THEREFORE, the parties intending to be legally bound, agree as
follows:
1. Subject to the following terms and conditions, in
consideration for the reduction in the principal amount of, and unpaid interest
on, the Secured Notes from $591,955.73 to $115,900 the Seller shall receive the
Securities of the Company set forth on Exhibit A (the "Transaction").
2. The Transaction is conditioned on the acquisition of the Bank
Debt by the Seller by June 30,1997.
3. Upon receipt of an executed copy of this Agreement from the
Seller, and an agreement between Fleet Bank and the Seller relating to the
acquisition of the Bank Debt, a release from Fleet Bank to the Company and the
Note Modification Agreement (all of which are being delivered contemporaneously
herewith), the Company shall issue a stock certificate representing the
Preferred Shares and the related Warrant to the Seller at the address set forth
on Exhibit A hereto.
- 1 -
Page numbered in accordance with Rule 0-3(b). Page 17 of 34.
4. Assuming the acquisition of the Bank Debt, the Seller,
together with the other investors, represents and warrants that he or she is the
true and lawful owner of the Bank Debt in the amount set forth on Exhibit A
hereto, free and clear of all liens, claims, encumbrances and restrictions
whatsoever.
5. This Agreement shall be governed exclusively by the laws of
the State of New Jersey without giving effect to principles of conflicts of law.
This Agreement represents the entire understanding of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, whether written or oral.
IN WITNESS WHEREOF, parties have executed this Agreement as of the day
first written above.
AW COMPUTER SYSTEMS, INC.
By: ---------------------------
Charles W. Welch, President
By: ---------------------------
, Investor
- 2 -
Page numbered in accordance with Rule 0-3(b). Page 18 of 34.
EXHIBIT 99-B
$750,000.00 May 23, 1997
Pittsburgh, Pennsylvania
AW Computer Systems, Inc. promises to pay to the order of Mylan
Laboratories Inc., the sum of Seven Hundred Fifty Thousand Dollars
($750,000.00), for value received, with an interest rate of nine and one-half
percent (9 1/2%) annum, payable at 781 Chestnut Ridge Road, Morgantown, West
Virginia, or at such other place as Mylan may designate. Payment in full is due
no later than one hundred twenty (120) days following the date hereof, and may
be repaid in cash or in other consideration as may be later agreed to in writing
by both parties.
AW COMPUTER SYSTEMS, INC.
By: /s/Charles J. McMullin
Charles J. McMullin
Chairman
Page numbered in accordance with Rule 0-3(b). Page 19 of 34.
EXHIBIT 99-C
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
NEITHER THIS WARRANT NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND THE RULES AND REGULATIONS THEREUNDER. BY ITS
ACCEPTANCE HEREOF, THE HOLDER OF THIS WARRANT REPRESENTS THAT IT IS ACQUIRING
THIS WARRANT FOR INVESTMENT AND AGREES TO COMPLY IN ALL RESPECTS WITH ANY
APPLICABLE STATE SECURITIES LAWS COVERING THE PURCHASE OF THIS WARRANT AND
RESTRICTING ITS TRANSFER, COPIES OF WHICH MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS WARRANT TO THE SECRETARY OF THIS
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE AT 9000A COMMERCE PARKWAY, MOUNT
LAUREL, NEW JERSEY 08054.
Dated:-----------------------------
WARRANT
To purchase up to ---------------- Class A Common Shares
AW COMPUTER SYSTEMS, INC.
Expiring:
THIS IS TO CERTIFY THAT, for value received,
- -------------------------, or registered assigns (the "Holder"), is entitled,
subject to certain conditions set forth in Section 1.01 hereof, to purchase from
AW COMPUTER SYSTEMS, INC., a New Jersey corporation (the "Company"), at any time
or from time to time after 9:00 a.m., New York City time, on
- --------------------------- and prior to 5:00 p.m. New York City time, on
- -------------------------------, at the Company's principal executive office, at
the Exercise Price, up to the number or Class A Common Shares, $.01 par value
per share (the "Common Stock"), of the Company shown above, all subject to
adjustment and upon the terms and conditions as hereinafter provided, and is
entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter described.
This Warrant is one of one or more warrants (the "Warrants")
of the same form and having the same terms as this Warrant, which warrants were
issued along with shares of Series A 10% Redeemable Preferred Stock (the "Series
A Preferred Stock") in connection with the Series A Preferred Stock Financing
and related
matters.
Certain terms used in this Warrant are defined in Article IV
hereof.
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ARTICLE I METHOD OF EXERCISE
1.01 Method of Exercise. To exercise this Warrant in whole
or in part, the Holder shall deliver to the Company, at the Company's principal
executive office (a) this Warrant, (b) a written notice of such Holder's
election to exercise this Warrant, which notice shall specify the number of
share of Common Stock to be purchased, but in no event less than 100 shares, the
denominations of the share certificate or certificates desired and the name or
names in which such certificates are to be registered, and (c) payment of the
Exercise Price with respect to such shares. Such payment may be made, at the
option of the Holder, in cash, by certified or bank cashier's check, money order
or wire transfer, or in any other manner consented to in writing by the Company,
or any combination thereof.
The Company shall, as promptly as practicable after receipt of
the items required by the previous paragraph, execute and deliver or cause to be
executed and delivered, in accordance with such notice, a certificate or
certificates representing the aggregate number of share of Common Stock
specified in said notice. The share certificate or certificates so delivered
shall be in such denominations as may be specified in such notice or, if such
notice shall not specify denominations, in denominations of 100 shares each, and
shall be issued in the name of the Holder or such other name as shall be
designated in such notice. Such certificate or certificates shall be deemed to
have been issued, and such Holder or Holders or any other person so designated
to be named therein shall be deemed for all purposes to have become a Holder of
record of such shares, as of the date the aforementioned notice is received by
the Company. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
the Holder a new Warrant evidencing the right to purchase the remaining share of
Common Stock called for by this Warrant which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of the Holder,
appropriate notations may be made on this Warrant which shall then be returned
to the Holder. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of share
certificates and new Warrants, except that, if share certificates or new
Warrants shall be registered in a name or names other than the name of the
Holder, funds sufficient to pay all transfer taxes, if any, payable as a result
of such transfer shall be paid by the Holder at the time of delivering the
aforementioned notice of exercise or promptly upon receipt of a written request
of the Company for payment.
1.02 Shares To Be Fully Paid and Nonassessable. All shares
of Common Stock issued upon the exercise of this Warrant shall be validly
issued, fully paid and nonassessable and, if the Common Stock is then eligible
for listing on any national securities exchanges (as defined in the Exchange
Act), or quoted on NASDAQ, shall be duly listed or quoted thereon, as the case
may be.
1.03 No Fractional Shares To Be Issued. The Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
this Warrant. If any fractions of a share would, but for this Section, be
issuable upon any exercise of this Warrant, in lieu of such fractional share the
Company shall pay to the holder, in cash, an amount equal to the same fraction
of the Market Price per share of Common Stock for the Trading Day immediately
prior to the date of such exercise.
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1.04 Share Legend. Each certificate for shares of Common
Stock issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Act, shall bear the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
NEITHER SUCH SHARES OF THE COMMON STOCK NOR ANY INTEREST THEREIN MAY BE
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND THE RULES AND
REGULATIONS THEREUNDER. BY ITS ACCEPTANCE HEREOF, THE HOLDER OF SUCH SHARES
OF COMMON STOCK CERTIFICATE REPRESENTS THAT IT IS ACQUIRING THIS COMMON
STOCK FOR INVESTMENT AND AGREES TO COMPLY IN ALL RESPECTS WITH ANY
APPLICABLE STATE SECURITIES LAWS, AND THE WARRANT RELATING TO THIS COMMON
STOCK ISSUED PURSUANT TO SUCH WARRANT, COVERING THE PURCHASE OF THIS COMMON
STOCK AND RESTRICTING THEIR TRANSFER, COPIES OF WHICH MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THIS COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE AT 9000A
COMMERCE PARKWAY, MOUNT LAUREL, NEW JERSEY 08054.
Any certificate issued at any time in exchange or
substitution for any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration
statement under the Act) shall also bear such legend unless, in the opinion of
counsel reasonably acceptable to the Company, the securities represented thereby
need no longer be subject to restrictions on resale under the Act.
ARTICLE II
EXCHANGES, TRANSFERS AND REPLACEMENTS
2.01 Exchange and Registration or Transfer of Warrants.
Provided, in the opinion of counsel reasonably acceptable to the Company, the
following is permitted under the Act, the holder of this Warrant may, at its
option, surrender this Warrant at the principal executive office of the Company
and receive in exchange therefor a Warrant or Warrants, each for 100 shares of
Common Stock or an integral multiple thereof, for the same aggregate number of
share of Common Stock as the Warrant or Warrants so surrendered for exchange and
registered to such person or persons as may be designated by such holder.
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This Warrant may be divided or combined with other
Warrants upon presentation hereof and of any Warrant or Warrants with which this
Warrant is to be combined at the principal executive office of the Company,
together with a written notice specifying the names and denominations in which
the new Warrant or Warrants are to be issued, signed by the holders hereof and
thereof or their respective duly authorized agents or attorneys. Subject to
compliance with this Section 2.01 as to any transfer which may be involved in
the division or combination, the Company shall execute and deliver a new Warrant
or Warrants to be divided or combined in accordance with such notice.
The Company shall keep, at said principal office, a
register in which, subject to such reasonable regulations as it may prescribe,
the Company shall register or cause to be registered Warrants and shall register
or cause to be registered the transfer of the Warrants as provided in this
Section 2.01. Such register shall be in written form. Upon due presentment for
registration of transfer of any Warrants at such office, the Company shall
execute and register or cause to be registered and deliver in the name of the
transferee or transferees a new Warrant or Warrants for an equal aggregate
number of Shares.
The Company shall pay any tax or other governmental
charge that may be imposed in connection with any exchange of Warrants not
involving a transfer, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with a transfer of Warrants.
2.02 Loss, Theft or Destruction of Warrant Certificates.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to the
Company (the original Warrant holder's or any other institutional Warrant
holder's undertaking being satisfactory indemnity in the event of loss, theft,
destruction or mutilation of any Warrant owned by such institutional holder),
or, in the case of any such mutilation, upon surrender and cancellation of the
Warrant, the Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same aggregate number of shares of Common Stock.
2.03 Change of Principal Executive Office. In the event
the Company shall change the address of its principal executive office, the
Company shall give the holder of this Warrant notice five (5) calendar days
prior to such change.
ARTICLE III
ANTIDILUTION PROVISIONS
3.01 Adjustments Generally. The Exercise Price and the
number of shares of Common Stock (or other securities or property) issuable upon
exercise of this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events, as provided in this Article III.
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3.02 Common Stock Reorganization. If the Company shall
subdivide its outstanding shares of Common stock into a greater number of shares
or consolidate its outstanding shares of Common Stock into a smaller number of
shares (any such event being called a "Common Stock Reorganization"), then (a)
the Exercise Price shall be adjusted, effective immediately after the record
date at which the holders of shares of Common Stock are determined for purposes
of such Common Stock Reorganization, to a price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
on such record date before giving effect to such Common Stock Reorganization and
the denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such Common Stock Reorganization, and (b) the
number of shares of Common Stock subject to purchase upon exercise of this
Warrant shall be adjusted, effective at such time, to a number determined by
multiplying the number of shares of Common Stock subject to purchase immediately
before such Common Stock Reorganization by a fraction, the numerator of which
shall be the number of shares then outstanding after giving effect to such
Common Stock Reorganization and the denominator of which shall be the number of
shares of Common Stock outstanding immediately before such Common Stock
Reorganization.
3.03 Special Dividends. If the Company shall issue or
distribute to all or substantially all holders of shares of Common Stock
evidences of indebtedness, any other securities of the Company, or any cash,
property or other assets, and if such issuance or distribution does not
constitute a cash dividend or distribution out of surplus or net profits legally
available therefor, or a Common Stock Reorganization (any such nonexcluded event
being herein called a "Special Dividend"), the Exercise Price shall be adjusted,
effective immediately after the record date at which the holders of shares of
Common Stock are determined for purposes of such Special Dividend, to a price
determined by multiplying the Exercise Price then in effect by a fraction, the
numerator of which shall be the Market Price per share of Common Stock on such
record date less the then fair market value (as reasonably determined in good
faith by the Board of Directors of the Company) of the evidences of
indebtedness, securities or property or other assets issued or distributed in
such Special Dividend with respect to one share of Common Stock, and the
denominator of which shall be the Market Price per share of Common Stock on such
record date.
3.04 Capital Reorganizations. If there shall be any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a Common
Stock Reorganization or a change in par value) in, outstanding shares of Common
Stock, or any sale or conveyance of the property of the Company as a entirety or
substantially a an entirety (any such event being called a "Capital
Reorganization"), then effective upon the effective date of such Capital
Reorganization, the Holder shall have the right to purchase, upon exercise of
this Warrant, the kind and amount of shares of stock and other securities and
property (including in cash) which the Holder would have owned or have been
entitled to receive after such Capital Reorganization if this Warrant had been
exercised immediately prior to such Capital Reorganization. As a condition to
effecting any Capital Reorganization, the Company or the successor or surviving
corporation, as the case may be, shall execute and deliver to each Warrant
holder an agreement as to the Warrant holder's rights in accordance with this
Section 3.04, providing for subsequent adjustments as nearly equivalent as may
be practicable to the adjustments provided for in this Article III. The
provisions of this Section 3.04 shall similarly apply to successive Capital
Reorganizations.
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3.05 Certain Other Events. If any event occurs as to which
the foregoing provisions of this Article III are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors of the Company, fairly protect the purchase rights of the Warrants in
accordance with the essential intent and principles of such provisions, then
such Board shall make such adjustments in the application of such provisions, in
accordance with such essential intent and principles, as shall be reasonably
necessary, in the good faith opinion of such Board, to protect such purchase
rights as aforesaid, but in no event shall any such adjustment have the effect
of increasing the Exercise Price or decreasing the number of shares of Common
Stock subject to purchase upon exercise of this Warrant.
3.06 Adjustment Rules. (a) Any adjustments pursuant to
this Article III shall be made successively whenever an event referred to
therein shall occur.
(b) If the Company shall set a record date to determine
the holders of shares of Common Stock for purposes of a Common Stock
Reorganization or Capital Reorganization, and shall legally abandon such action
prior to effecting such action, then no adjustment shall be made pursuant to
this Article III in respect
of such action.
(c) All calculations under this Article III shall be made
to the nearest cent or to the nearest one hundredth (1/100th) of a share, as the
case may be. Notwithstanding any provisions of this Article III to the contrary,
no adjustment in the Exercise Price shall be made if the amount of such
adjustment would be less than $0.05, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $0.05 or more.
(d) In any case in which the provisions of this Article
III shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of such
event (i) issuing to the holder of any Warrant exercised after such record date
and before the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such holder any amount of
cash in lieu of a fractional share of Common Stock pursuant to Section 1.03;
provided that the Company upon request shall deliver to such holder a due bill
or other appropriate instrument evidencing such holder's rights to receive such
additional shares, and such cash, upon the occurrence of the event requiring
such adjustment.
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3.07 Proceedings Prior to Any Action Requiring Adjustment.
As a condition precedent to the taking of any action which would require an
adjustment pursuant to this Article III, the Company shall take any action which
may be necessary in order that the Company may thereafter validly and legally
issue as fully paid and nonassessable all shares of Common Stock which the
holders of Warrants are entitled to receive upon exercise thereof.
3.08 Statement Regarding Adjustment. Whenever the Exercise
Price or the number of shares received upon exercise of the Warrants shall be
adjusted a provided in Article III, the Company shall forthwith file, at the
office of any transfer agent for the Warrants and at the principal office of the
Company, a statement showing in detail the facts requiring such adjustment and
the Exercise Price and the number of shares received upon exercise of the
Warrants that shall be in effect after such adjustment, and the Company shall
also cause a copy of such statement to be sent by mail, first class postage
prepaid, to each holder of Warrants, at its address appearing on the Company's
records. Each such statement shall be signed by the Company's independent public
accountants. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section 3.08. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
3.09 Notice to Holders. In the event the Company shall
propose to take any action of the type described in Article III (but only if the
action of the type described in Article III would result in an adjustment in the
Exercise Price or the number of shares received upon exercise of the Warrants),
or to declare any cash dividends or distribution out of surplus or net profits
legally available therefor, the Company shall give notice to each Warrant holder
in the manner set forth in Section 3.09, which notice shall specify the record
date, if any, with respect to any such action and the approximate date on which
such action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Exercise Price and the number, kind or class of shares or other securities
or property which shall be deliverable or purchasable upon the occurrence of
such action or deliverable upon exercise of the Warrants. In the case of any
action which would require the fixing of a record date, such notice shall be
given at least 15 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 20 days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
ARTICLE IV
DEFINITIONS
The following terms, as used in this Warrant, have
the following respective meanings:
"Act" means the Securities Act of 1933, as amended,
and any similar or successor Federal statute, and the rules and regulations of
the Securities and Exchange Commission (or its successor) thereunder, all as the
same shall be in effect at the time.
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"Series A Preferred Stock Financing" shall mean the
financing as of April 15, 1997 whereby the Company offered up to 1,000 Units
consisting of Series A Preferred Stock and related warrants for an investment of
up to $1,000,000.
"Capital Reorganization" shall have the meaning set
forth in Section 3.04 hereof.
"Closing Price" on any day means (a) if the Common
Stock is listed or admitted for trading on a national securities exchange, the
reported last sales price regular way or, if no such reported sale occurs on
such day, the average of the closing bid and asked prices regular way on such
day, in each case on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, (b) if the Common Stock is not
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices in the over-the-counter market on such day
as reported by NASDAQ or any comparable system or, if not so reported, as
reported by any New York Stock Exchange member firm selected by the Company for
such purpose or (c) if no such quotations are available on such day, the fair
market value of one share of Common Stock on such day as determined in good
faith by the Board of Directors of the Company.
"Common Stock" shall have the meaning set forth in
the first paragraph of this Warrant, subject to adjustment pursuant to Article
III.
"Common Stock Reorganization" shall have the meaning
set forth in Section 3.02 hereof.
"Company" shall have the meaning set forth in the
first paragraph of this Warrant.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and any similar or successor Federal statute, and the rules
and regulations of the Securities and Exchange Commission (or its successor)
thereunder, all as the same shall be in effect a the time.
"Exercise Price" means U.S. $0.50 per share of Common
Stock, subject to adjustment pursuant to Article III hereof.
"Holder" shall have the meaning set forth in the
first paragraph of this Warrant.
"Market Price" on any day means the average of the
daily Closing Prices of a share of Common Stock for the 20 consecutive Trading
Day ending on the most recent Trading Day for which a closing price is available
and if the Common Stock is not then publicly traded Market Price shall be
determined in good faith by the Board of Directors of the Company.
"NASD" means the National Association of Securities
Dealers, Inc.
"NASDAQ" means The National Association of Securities
Dealer, Inc. Automated Quotation System.
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"Registrable Securities" means 100% of the number of
shares of the Company's Common Stock issuable upon exercise of this Warrant
issued as part of the Units pursuant to the Series A Preferred Stock Financing.
"Securities Act" means the Securities Act of 1933.
"Total Warrant Shares" means the number of shares of
Common Stock set forth on the face of this Warrant, subject to adjustment
pursuant to Article III.
"Trading Day" means (a) if the Common Stock is listed
or admitted to trading on a national securities exchange, a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for business or (b) if the Common Stock is not so
listed or admitted to trading, a day on which any New York Stock Exchange member
firm is open for business.
"Warrant holder" means a holder of a Warrant.
"Warrants" shall have the meaning set forth in the
second paragraph of this Warrant.
"Warrant Common Stock" means the resulting Common
Stock from the exercise of the warrant.
ARTICLE V
REDEMPTION AND CANCELLATION OF WARRANTS
5.01 Redemption of Warrants. The Warrants are not
redeemable by the Company and the Company has no rights to purchase or otherwise
acquire the Warrants.
5.02 Cancellation of Warrants. The Company shall cancel
any Warrant surrendered for transfer, exchange or exercise.
ARTICLE VI
REGISTRATION RIGHTS
6.01 Registration Rights. Immediately upon the date of
final closing of the Series A Preferred Stock Financing, the Company shall
commence preparation of a registration statement with the Securities and
Exchange Commission relating to a rights offering to its holders of Common Stock
and, within ninety (90) days following the aforesaid closing date, the Company
shall use its best efforts to file a registration statement with the Securities
Registration Statement. In the event that the Company does not effect a
registration of a rights offering with the Securities and Exchange Commission
within one year from the aforesaid closing date, the Company shall be required
to file a registration statement covering the Registrable Securities with the
Securities and Exchange Commission within one year from the aforesaid closing
date. In connection with any such registration, the Company shall:
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(a) promptly (but not less than thirty (30) days prior to
the filing of any registration statement) give written notice thereof (which
shall include a list of the jurisdictions, if any, in which the Company intends
to register or qualify such securities under the applicable blue sky or other
state securities laws) to each Holder or holder of Warrant Common Stock;
(b) use its best efforts to effect such registration and
any qualification and compliance relating thereto, including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with the Securities Act and any other
governmental requirements or regulations as would permit or facilitate:
(i) the sale and distribution of all Warrant
Common Stock; and
(ii) the exercise of the Warrant (to the extent
not expired) to the extent outstanding and the sale and distribution of all
Warrant Common Stock issued upon such exercise.
6.02 Blue Sky Qualification. The Company shall only be
required to register or qualify the Warrant or the Warrant Common Stock in such
jurisdictions as it shall determine in its sole discretion and each Holder
agrees only to offer or sell or exercise the Warrant or the Warrant Common Stock
in such jurisdictions as the same shall be so registered or qualified.
6.03 Expenses. The Company shall bear all expenses in
connection with such registration, qualification and compliance under this
Section 6, including, without limitation, all registration and filing fee,
printing expenses, fees and disbursements of the Company's counsel and of a
single firm of legal counsel retained by the Holders or holders of Warrant
Common Stock and expenses of any audits incident to or required by any such
registration, qualification and compliance, provided, that the Company shall
not, in any event, be required to bear the cost of any commissions and
compensation paid, and concessions and discounts allowed to, underwriters,
dealers or others performing similar functions in connection with the sale and
distribution of the Warrant or Warrant Common Stock sold by any holders thereof.
6.04 Indemnification. (a) If Registrable Securities are
included in a Registration Statement, the Company will indemnify the Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on (A) any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or (B)
any 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
(C) any violation by the Company of any rule or regulation promulgated under the
Act applicable to the Company and relating to action or inaction required of the
Company in connection with any registration, qualification or compliance, and
will reimburse the Holder for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage or liability arises
out of or is based on any untrue statement or omission based upon written
information furnished to the Company by the Holder specifically for use therein.
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(b) Each party entitled to indemnification under this
Section 6.04 (sometimes referred to as the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
unless such failure materially and adversely affects the rights or abilities of
the Indemnifying Party to defend such action, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 6.04. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
with respect to such claim or litigation. If any such Indemnified Party shall
have reasonably concluded that there may be one or more legal defenses available
to such Indemnified Party which is different from or additional to those
available to the Indemnifying Party, or that such claim or litigation involves
or could have an effect upon matters beyond the scope of the indemnity agreement
provided in this Section 6.04, the Indemnifying Party shall not have the right
to assume the defense of such action on behalf of such Indemnified Party and
such Indemnifying Party shall reimburse such Indemnified Party for that portion
of the fees and expenses of any counsel retained by the Indemnified Party which
is reasonably related to the matters covered by the indemnity agreement provided
in this Section 6.04.
(c) If the indemnification provided for in this Section
6.04 shall for any reason be unenforceable by an indemnified party, although
otherwise available in accordance with its terms, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages, liabilities or expenses with respect to which such indemnified party
has claimed indemnification, in such proportion as is appropriate to reflect the
relative fault of the indemnified party on the one hand and the indemnifying
party on the other in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The Company and each Holder agree that it
would not be just and equitable if contribution pursuant hereto were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account such equitable considerations. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to herein shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending against any action or claim which is the subject
hereof. No person guilty of fraudulent misrepresentation shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
6.05 Information by the Investor. The Holder shall furnish
in writing to the Company such information regarding the Holder and the
distribution proposed by the Holder as the Company may request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Article VI.
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6.06 Notification; Continuation of Effectiveness. In the
case of each registration, qualification and compliance pursuant to this Section
6, the Company will keep all Holders and all holders of Warrant Common Stock
promptly advised in writing as to the initiation of proceedings for such
registration, qualification and compliance and as to the completion thereof, and
will advise, upon request, of the progress of such proceedings. The Company
will, at its expense, keep such registration, qualification and compliance
effective, unless otherwise noted herein, for a period of twelve months, or in
each case for such longer period as may be required by the Act, by such action
as may be necessary or appropriate to permit the exercise or sale and
distribution during such period of any Warrant not theretofore exercised or sold
and distributed and the sale or distribution of Warrant Common Stock not
theretofore sold or distributed including, without limitation, the filing of
post-effective amendments and supplements to any registration statement or
prospectus necessary to keep the registration current and further qualification
under any applicable blue sky or other state securities law, all as requested by
any Holder or holder of Warrant Common Stock with respect to which such
registration is being effected.
6.07 Transfer of Registration Rights. The rights to cause
the Company to register securities granted by the Company under this Article VI
may be assigned by the Holder to a transferee or assignee of all or less than
all the Registrable Securities, provided that such transfer may otherwise be
effected in accordance with applicable securities laws and that the Company is
given written notice, as provided in Article VI.
6.08 Prospectuses, etc. The Company will, at its expense,
furnish to each Holder or holder of Warrant Common Stock with respect to which
registration has been effected, such number of prospectuses, offering circulars
and other documents incident to such registration and related qualification or
compliance as such holder from time to time may reasonably request.
6.09 Listing on Securities Exchanges, etc. The Company
will, at its expense, promptly list on each national securities exchange, or
NASDAQ, on which Common Stock is at the time listed, upon official notice of
issuance upon the exercise of the Warrant, and maintain such listing of, all
shares of Common Stock from time to time issuable upon the exercise of the
Warrant, and when and if required by the Securities Exchange Act of 1934 (or any
similar statute then in effect) will register thereunder all shares of Common
Stock from time to time so issuable.
6.10 Underwritten Offerings. In the event any registration
under this Article VI is underwritten and the managing underwriter determines in
writing that the inclusion of all Registrable Securities that are to be included
would materially interfere with the successful completion thereof in the
reasonable judgment of such managing underwriter, then the number of Registrable
Securities to be included may be reduced on the same basis as other selling
stockholders in such registration.
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Page numbered in accordance with Rule 0-3(b). Page 31 of 34.
ARTICLE VII
MISCELLANEOUS
7.01 Notices. All notices, requests and other
communications provided for herein shall be in writing, and shall be deemed to
have been made or given when delivered or mailed, first class, postage prepaid,
or sent by telex or other telegraphic communications equipment. Such notices and
communications shall be addressed:
(a) if to the Company, to
9000A Commerce Parkway
Mount Laurel, New Jersey 08054
Attention: Michael P. Lutze, Secretary; or
(b) if the Holder, to its address as shown on the
registry books maintained pursuant to Section 2.01;
or in any of the foregoing cases at such other
address as such Person may hereafter specify for such
purpose by notice to the other Persons referred to
above.
7.02 Waivers; Amendments. No failure or delay of the
Holder in exercising any right, power or privilege, hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof, or any
abandonment or discontinuance of steps to enforce such a right, power or
privilege, preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies of the Holder are
cumulative and not exclusive of any rights or remedies which it would otherwise
have. The provisions of this Warrant may be amended, modified or waived if, but
only if, such amendment, modification or waiver is in writing and is signed by a
majority of the holders of the Warrants; provided that no amendment,
modification or waiver may change the exercise price of (including without
limitation any adjustments or any provisions with respect to adjustments, the
expiration of or the manner of exercising the Warrants) without the consent in
writing of all of the holders of the Warrants outstanding.
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Page numbered in accordance with Rule 0-3(b). Page 32 of 34.
7.03 Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of New York applicable to
contracts made and to be fully performed therein.
7.04 Survival of Agreements; Representations and
Warranties, etc. All warranties, representations and covenants made by the
Company herein or in any certificate or other instrument delivered by or on
behalf of it in connection herewith or the Notes shall be considered to have
been relied upon by the Holder and shall survive the issuance and delivery of
the Warrants and the shares of Common Stock issuable upon exercise of this
Warrant, and shall continue in full force and effect so long as this Warrant is
outstanding. All statements in any such certificate or other instrument shall
constitute representations and warranties hereunder.
7.05 Covenants to Bind Successor and Assigns. All the
covenants, stipulations, promises and agreements in this Warrant contained by or
on behalf of the Company shall bind its successors and assigns, whether or not
so expressed.
7.06 Severability. In case any one or more of the
provisions contained in this Warrant shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired in such jurisdiction and shall not invalidate or render illegal or
unenforceable such provision in any other jurisdiction.
7.07 Headings. The headings used herein are for
convenience of reference only and shall not be deemed to be a part of this
Warrant.
7.08 No Rights as Stockholder. This Warrant shall not
entitle the Holder to any rights as a stockholder of the Company.
7.09 Pronouns. The pronouns "it" and "its" herein shall be
deemed to mean "he" or "his", as the context requires.
IN WITNESS WHEREOF, AW Computer Systems, Inc. has
caused this Warrant to be executed in its corporate name by one of its officers
thereunto duly authorized, and its corporate seal to be hereunto affixed,
attested by its Secretary or an Assistant Secretary, all as of the day and year
first above written.
AW COMPUTER SYSTEMS, INC.
By: ------------------------
Charles Welch, President
Attest:
- ----------------------------
Secretary
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Page numbered in accordance with Rule 0-3(b). Page 33 of 34.
SUBSCRIPTION FORM
To be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
- -------------------- Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER:
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
(please print or type name and address)
and be delivered to
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Address
-------------------------------------------------
Taxpayer Identification Number
-------------------------------------------------
Signature Guaranteed
-------------------------------------------------
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Page numbered in accordance with Rule 0-3(b). Page 34 of 34.
ASSIGNMENT
To Be Executed by the Registered Holder
in order to Assign Warrants
FOR VALUE RECEIVED, -------------------------------------------- hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
(please print or type name and address)
- ------------------------------------------------ of the Warrants represented by
this Warrant Certificate, and hereby irrevocably constitutes and appoints
- ----------------------------------------- Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
- ---------------------------- -----------------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
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