FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/ X / ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to _______________.
Commission File Number 0-16335
OZO DIVERSIFIED AUTOMATION, INC.
(Name of Small BusinessIssuer as Specified in its Charter)
Colorado 84-0922701
(State or other juris- (IRS Employer
diction of incorpora- Identification No.)
tion or organization)
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
(Address of Principal Executive Offices)
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Issuer's telephone number, including area code: (303) 368-0401
Securities registered under Section 12(g) of the Exchange Act:
$0.10 Par Value Common Stock
(Title of Class)
Indicate by 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 preceding 12 months and, (2) has been subject to such filing requirements for the past 90 days. YES /X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. / /
Revenues for fiscal year ended Dec. 31, 1996 were $2,166,763.
The aggregate market value of the Registrant's voting stock held as of March 31, 1997 by nonaffiliates of the Registrant was $259,304.
As of March 31, 1997, Registrant had 458,164 shares of its $0.10 par value common stock outstanding.
Total Pages _________
Exhibit Index at Page________
PART I
ITEM 1. BUSINESS.
(a) Business Development. OZO Diversified Automation, Inc. ("OZO" or the "Company") was incorporated as a Colorado corporation on October 13, 1983. Since its formation, the Company has designed, manufactured and marketed computer controlled equipment for electronics industry applications. The initial products of the company were Computer Numeric Controlled ("CNC") workstations for the fabrication of prototype printed circuit boards ("PCBs"). The Company's workstations are utilized in four application areas of the electronics industry: electronics assembly companies, product designers, printed circuit board fabricators and test fixture fabricators. During the fiscal year ended December 31, 1996, the Company had net sales of $2,166,763, compared to $1,736,938 for the fiscal year ended December 31, 1995.
(b) Business of Issuer. OZO manufactures and markets computer aided manufacturing workstations that are used by electronics industry manufacturers. The workstations are CNC equipment, that is, equipment controlled by computer software. The software developed by the Company controls the operation and function of the machinery hardware which is also developed by the Company. OZO's hardware and software products enable electronics assembly companies to rout or depanel PCBs from panels that are produced on a surface mount assembly line, product designers to produce prototype PCBs, printed circuit board fabricators to drill and rout PCBs, and test fixture fabricators to drill and rout test fixtures.
(1) Products. The Company's products are packaged to address specific market niches of the electronics equipment market. Each workstation includes an OZO machine, associated spindles for the machine, a computer controller and software.
The Company's products include the spindles for each of its workstation products. Drilling, routing, and mechanical etch spindles are produced by the Company. The drill spindle is an automatic tool change spindle. The router head enables the product to depanel PCBs from a panel or to cut printed circuit boards to final size and shape. The mechanical etch head mills the outline of the circuitry of a PCB board into standard copper-clad material enabling customers to quickly fabricate prototypes without the need for chemistry.
The Company's Model 18, Model 24, Model 16SI, Model 18 HS, and Large Format machines are marketed under the PanelMASTER, PanelMASTER HS, PanelROUTER SI, FixtureMASTER, Large Format FixtureMASTER, EtchMASTER, and LabMASTER product designations. The Company's other product is the Model 2-24, which is a two spindle drilling machine for medium volume producers of PCBs.
The Company's Model 2-24, Large Format, Model 16SI, and Model 18 HS products utilize a servo motor drive system designed by the Company. The Company's Model 18 and Model 24 products utilize a stepper motor drive system designed by the Company.
The Company manufactures depaneling equipment for automated assembly lines that produce assembled printed circuit boards. This is called in-line equipment, equipment that is incorporated into an automated assembly line. The Company offers customized solutions to in-line depaneling equipment customers by producing customized fixturing for machines and integrating machines into assembly lines. The Company also manufactures stand alone depaneling equipment, that is, the equipment is off-line and not incorporated into an automated assembly line. The Company's Model 16 PanelROUTER SI can be utilized as an in-line or off-line system. The Company's PanelMASTER and PanelMASTER HS are off-line systems.
Manufacturing and Assembly of Products
The Company fabricates some machined parts at its in-house machine shop and contracts with independent machine shops, sheet metal suppliers, paint and anodize shops, and electronic manufacturers for various parts and services. Off-the-shelf components are purchased from various industrial suppliers. Final assembly, testing and inspection of the finished systems are done by the Company's employees at its facility. During 1996 a modified drive motor was a long-lead time item purchased from a single source of supply, and the Company carried an inventory of this component. In 1997 the Company intends to replace its drive motors with a more readily available model which can be easily obtained from numerous sources. Accordingly, the Company is not dependent on one or a few major suppliers.
(2) Distribution. The Company utilizes in-house sales engineers for direct sales in the United States, Canada, and Mexico, a limited number of manufacturer representative organizations in the United States, and international distributors covering Europe, the United Kingdom, Brazil, South Korea, Taiwan, Singapore, Malaysia, Hong Kong and the Peoples Republic of China, Australia, New Zealand, India, Pakistan, Turkey, and United Arab Emirates. The Company has a policy of supporting its international distributor base, providing regular service, training visits, individualized sales literature and support for trade shows held within their respective territories.
(3) Status of Product. In 1996 the Company continued the introduction of its new line of premium routing machines, namely the Model 16 PanelROUTER SI and the Model 18 PanelMASTER HS. During the year, both machines continued to gain acceptance in the marketplace, with sales of four PanelMASTER HS units and six PanelROUTER SI systems being completed by year end. Additionally, two more of each machine were sold and shipped in the first quarter 1997. While sales of the premium routing equipment were slower than desired during the year, the Company anticipates that the projected growth of the electronics industry will sustain a strong demand for these products through 1997 and beyond. Management is confident that the depaneling technology represented by these machines will remain an important aspect of the manufacture of printed circuit boards and related electronic subsystems. The depaneling market niche continued to be the Company's most important United States business segment in 1996, and in 1997 it will remain a significant part of the Company's overall sales strategy.
While the Company remains focused on sales of its premium depaneling equipment to facilitate its strategic growth initiatives, the demand for its traditional drilling and routing machines also remains strong. The Company continues to sell its lower tier systems to test fixture fabricators and small printed circuit board facilities in the United States. Internationally, test fixture fabricators, small printed circuit board facilities, and prototype operations are a consistent market for the Company's Model 18, Model 24, and Model 2-24 products.
(4) Competition. The Company competes in four areas of the equipment market for the electronics industry. The four areas are: depaneling equipment, low to medium volume bare board drilling and routing equipment, test fixture drilling and routing equipment, and prototyping equipment. The Company has identified two U.S. competitors, who are manufacturers of depaneling equipment, and two foreign competitors. All of the competitors are divisions of companies larger than OZO and produce revenues from various products. The Company believes that it competes favorably in the depaneling equipment market. The Company believes that its ability to continue to compete will depend upon its ability to produce competitively priced full featured equipment for the off-line depaneling equipment market and upon its ability to produce customized solutions for the in-line depaneling equipment market. The Company estimates that there are twenty competitors worldwide who manufacture drilling and routing equipment. The Company believes that it competes favorably only in the low to medium volume drilling equipment market and in the test fixture drilling application market. The Company's drilling equipment customers are predominantly small businesses, who prefer the Company's products over more expensive products. The Company has identified one U.S. competitor and one foreign competitor who manufacture printed circuit board prototyping equipment. The Company believes that it competes favorably in this market for customers seeking full function equipment, but cannot compete with single function lower cost prototyping equipment.
While other competitors supplying products necessary for the development, production, and depaneling of printed electronic circuit boards exist or may enter the market, the Company anticipates that its specialized products will continue to find acceptance. Presently, however, the Company's relatively small size may give competitors with established reputations and greater marketing capability and financial resources an advantage in the marketplace.
(5) Raw Materials. The Company procures parts and raw materials from a broad base of suppliers, and does not rely on one or a few major vendors for critical components. Most materials purchased by the Company are of-the-shelf items.
(6) Customer Dependence. The Company is not dependent on one or a few major customers.
(7) Patents, Trademarks and Licenses. The Company has not sought patent protection for the hardware it has developed and presently considers certain aspects thereof to be proprietary to the Company protected by its trade secrets. The Company has made only a limited search of existing patents to determine the extent to which such proprietary protection may have been available or whether the Company's products infringe on patents held by others. A claim against the Company for possible infringement of a patent was made in 1994 and the Company has executed a License Agreement with the unaffiliated claimant. Royalties were paid in 1995 under this License Agreement. The Company is unaware of any other claims or proprietary rights of others on which the Company's products may be deemed to infringe. As additional developments of the Company's products and proprietary information occur, the Company intends to pursue the appropriate protection. Should products of the Company be deemed to infringe on patents held by others, the Company would be subject to the risk of litigation, expense of licensing rights to use such proprietary technology, or other adverse results.
Copyright protection for the Company's proprietary software, which is a key component of the operation of the Company's workstation systems, has been acquired by the Company. Copyright protection for the Company's proprietary stepper motor software was acquired on May 26, 1988. Copyright protection for the Company's servo motor software was acquired by the Company on October 27, 1994.
(8) Government Approval. The Company is not subject to any government approval for its products.
(9) Government Regulation. The Company has no knowledge of impending government regulation on its business.
(10) Research and Development. Research and development expenses for the fiscal years ending December 31, 1996 and December 31, 1995 were approximately $159,570 and $164,757 respectively. Ongoing projects in 1997 include automation enhancements for the PanelMASTER HS and PanelROUTER SI, software upgrades for all products, speed and efficiency improvements on Model 18 and Model 24 machines, completion and refinement of an industrial vision system, and a spindle optimization and redesign program. The Company does not receive funding from other parties to conduct research and development, except in specific cases where U.S. government NSF or ARPA grants may be awarded. The Company received no grants in 1995 or 1996.
(11) Environmental Regulation. Since its inception, the Company has not made any material capital expenditures for environmental control facilities and the Company does not expect to make any such expenditures during the current or forthcoming fiscal year. The Company believes that it is in full compliance with all federal, state, and local environmental regulations.
(12) Employees. As of December 31, 1996, the Company had 18 full-time employees and one part-time employee.
ITEM 2. PROPERTIES
For the duration of 1996, the Company continued to lease approximately 6,440 square feet of office and production space in Denver, Colorado. The monthly lease obligation was $3,050 per month. As of December 31, 1996, the Company had reached an agreement in principle to acquire an additional 3,400 square feet of contiguous space to facilitate an expansion of its manufacturing area. This agreement became effective on March 1, 1997, and the combined space as of this date was approximately 9,040 square feet (approximately 400 square feet of non-contiguous storage space was exited once the agreement to acquire the adjacent space was executed). As of March 1, 1997, the Company's lease obligation on all space was extended for three years, through February 28, 2000. The current monthly lease obligation, as of March 1, 1997, is $4,168 per month.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is a party or of which any of its property is the subject as of the date of this report and there were no such proceedings during the fiscal year ended December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
Although the Company's common stock is not listed on NASDAQ, it is quoted on NASDAQ's OTC Bulletin Board.
The following table shows the range of high and low closing bid quotations of the Common Stock as traded in the over-the- counter market during the last two fiscal years.
Common Stock
High Low
Fiscal Period Bid Bid
1995
First Quarter 1 1/2
Second Quarter 1 1/2
Third Quarter 1 1/2 3/4
Fourth Quarter 1 1/2 3/4
1996
First Quarter 1 1
Second Quarter 1 1/2 1
Third Quarter 1 1/4 3/4
Fourth Quarter 3/4 1/2
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The above quotations were reported by market makers in the stock and by the National Quotation Bureau, Inc. The quotations represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent prices at which actual transactions were or could have been effected.
(b) Holders.
As of December 31, 1996, the Company had approximately 710 holders of record of its $0.10 par value common stock.
(c) Dividends.
The Company has not declared cash dividends on its common stock since its inception, and the Company does not anticipate paying any dividends in the foreseeable future. There are no contractual restrictions on the Company's ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Results of Operations
For the fiscal year ended December 31, 1996, sales of the Company's products increased to $2,166,763, a 24.7% improvement over sales of $1,736,938 recorded in 1995. The increase in revenues was due in part to the continued demand for the Company's traditional multi-purpose drilling machines, combined with increased market acceptance of the Company's new PanelMASTER HS and PanelROUTER SI workstations. Introduced in 1995 and 1994 respectively, the PanelMASTER HS and PanelROUTER SI continue to gain favor in the electronics industry, where the demand for custom depaneling equipment continues to grow. For the fiscal year ended December 31, 1996, the Company had sold four PanelMASTER HS standalone units and six in-line PanelROUTER SI systems.
While sales for fiscal year 1996 increased 24.7% over the prior period, the cost of goods sold also increased 25.1% to $1,314,209, from $1,050,768 in 1995. Consequently, the gross profit margins remained substantially the same at 39.3% of total revenues in 1996 compared to 39.5% of total revenues in 1995.
In terms of the foreign and domestic breakdown of sales, the Company experienced growth in both sectors during 1996. Domestic sales as of December 31, 1996 were $914,725, a 29.5% increase compared to $706,441 for the same period in 1995. International revenues also increased by 17.2%, with exported sales accounting for $945,000 versus $806,000 in 1995. Parts and service revenue accounted for the remaining sales of $305,167, or 14.1% of total revenues. This area recorded sales of $224,497 in 1995, or 13% of total revenues. International sales are an integral part of the Company's strategic sales objective, and the Company is reliant upon its foreign distributors to produce revenues in these areas. In 1996, approximately 71% of International sales were generated in the Far East (Asian and Pacific Rim countries). International and Domestic sales on new equipment were comprised of nearly equal proportions in 1996, with 49.2% of the revenues coming from exports and 50.8% of sales originating from Domestic sources. This is compared to International and Domestic sales of 46% and 54% respectively, in 1995.
As in past years, there are many factors that impair the Company's ability to reasonably predict the future sales potential of foreign markets. Exchange rate variations, policies of local governments regarding import duties or trade restrictions on U.S. produced equipment, and fluctuations of local economies, may affect the Company's ability to sustain revenues internationally. Similarly, these same uncertainties limit the predictability of sales projections in foreign markets. Nevertheless, the Company remains equally dependent upon both the Domestic and International sectors for maintaining its revenue base from year to year.
Results of operations improved to a loss of $80,832 for the fiscal year ended December 31, 1996, from a loss of $219,848 for the same period in 1995. Although net earnings continued to be negative in 1996, much of the unfavorable performance can be attributed to followup service requirements on the initial PanelROUTER SI inline systems. Due to the complexity of the applications, and unforeseen upgrades and enhancements which were implemented at the Company's expense, the profitability of the initial machines was not as predicted. Subsequently, the Company incurred greater than anticipated warranty costs for post installation support of several of the PanelROUTER SI's built in 1996. While price increases effected in January 1996 helped to reduce the losses on these machines, the equipment was still sold at a discount in order to gain entrance to a highly competitive marketplace. During the course of the year, as the performance and reliability of the PanelROUTER SI improved, and as the product gained acceptance in the marketplace, the prices that the Company was able to charge for this equipment increased to a level that is consistent with similar competitive products.
In the area of operating expenses, general and administrative costs remained nearly even at $231,127 in 1996, compared to $232,536 for the same period in 1995. As a percentage of sales, the general and administrative costs accounted for 10.7% of total revenues in 1996, compared to 13.4% in 1995. The Company continues to focus on expense control as a requisite to facilitating a profitable recovery in 1997.
Marketing and sales costs remained comparable to the previous period, up only 3% to $497,575 in 1996 versus $482,849 as recorded in 1995. On a percentage basis, marketing and sales costs declined to 23.0% of total sales in 1996, compared to 27.8% of total sales in 1995. The slight improvement can be attributed to the mix of commission payments associated with products being sold by geographical region (i.e., commission rates for international distributors being different than those for manufacturer's representatives who sell, but do not service, equipment in the United States).
Research and Development costs decreased slightly in 1996 to $159,570, down 3.1% from $164,757 in 1995. The research and development activities in 1996 focused primarily on refinements related to the new PanelMASTER HS and the PanelROUTER SI. This included design enhancements on inline fixturing and automation, as well as software upgrades to improve control of the automated assemblies. Other R&D projects included the upgrade of spindle driver electronics, servo driver and amplifier reliability improvements, and software enhancements for the Company's earlier generation of drilling and routing machines.
On balance, the improvement in expense control in 1996
occurred in all three major operating expense categories:
general and administrative expense, marketing expense, and
research and development expense. Table 1 below illustrates
the breakdown of the major expense categories as a
percentage of net sales.
Table 1
1996 % 1995 %
Net Sales $2,166,763 100.0% $1,736,938 100.0%
Cost of Sales $1,314,209 60.7% $1,050,768 60.5%
---------- ------ ---------- ------
Gross Profit $ 852,554 39.3% $ 686,170 39.5%
G & A Expense $ 231,127 10.7% $ 232,536 13.4%
Marketing $ 497,575 23.0% $ 482,849 27.8%
R & D Expense $ 159,570 7.4% $ 164,757 9.5%
---------- ------ ---------- ------
Total $ 888,272 41.0% $ 880,142 50.7%
EBIT $ (35,718) (1.6%) $ (193,972) (11.2%)
Interest Expense $ (45,114) (2.1%) $ (25,876) (1.5%)
Net Loss $ (80,832) (3.7%) $ (219,848) (12.7%)
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Liquidity and Capital Resources
In April 1996 the Company borrowed $100,000 in short term
debt from affiliates of the investment banking firm of Barber and Bronson
Incorporated (The"April 1996 Loan"). The April 1996 Loan was secured in an
effort to provide working
capital needed to facilitate an expansion of the Company's
business base, and to provide the funding necessary to build
larger automated inline depaneling systems. The funding was
an important element of the Company's efforts to increase
sales, as demonstrated by an actual gain in revenues of
24.7%. The April 1996 Loan for $100,000 was secured at an
interest rate of 12%, and was scheduled to mature on
September 30, 1996. There were also 100,000 warrants
attached to the debt offering which are exercisable at $1.00
per share. As a result of the Company's cash constrained
operating condition in third quarter, the Company was unable
to repay the April 1996 Loan in a timely manner, and the repayment date
was renegotiated. Actual repayment of the $100,000 and all
accrued interest occurred on October 28, 1996. As a late
payment penalty, and as part of the overall resolution, the
Company agreed to pay interest at 12% for the duration of
the delinquency period, and conveyed an additional 15,000
warrants (exercisable at $0.75 per share) to the holders of the
April 1996 Loan.
In June 1996 the Company secured a second short term loan from an an affiliate of Barber and Bronson Incorporated for $40,000. The purpose of this loan was to provide interim financing in lieu of payment from a customer who failed to remit funds within the terms allowed under the purchase agreement. The customer did remit funds shortly thereafter, and the loan was repaid (principal and interest) in July 1996. This loan carried an interest rate of 12%, with a maturity date not to exceed September 23, 1996. No warrants were attached to this particular debt offering.
For short term cash and credit requirements, the Company continues to use the credit revolver established in July 1995 through its local bank. The revolving line of credit continues to be used to cover short term cash needs, and the maximum credit available remains at $30,000. The credit facility remains in force at the time of this filing. Efforts will be made in 1997 to expand the credit limit available to the Company.
Also, as disclosed in Item 12 and elsewhere, in fourth quarter 1996 the President and Chief Executive Officer made a series of loans to the Company in an effort to provide short term working capital for projects and to stabilize cash flow. The outstanding loan balance at the end of 1996 was $84,500. In early January 1997, this balance was subsequently reduced to below $25,000. Refer to Note 11 (Related Party Transactions) for additonal details of this loan.
The Company retired three significant debt obligations in
fourth quarter of 1996. In addition to retiring the
April 1996 Loan (as described
above), the Company also retired a $50,000 short term loan
from its local bank, as well as a $45,000 loan from a
customer. The Company will continue its efforts to
remediate, consolidate, and retire its debt obligations into
the next fiscal year.
The Company's cash position remained substantially the same at the end of 1996 compared to 1995. Cash as of December 31,1996 was at $3,111, down 1.6% from $3,162 as recorded at the end of 1995. Inventories decreased by $117,971 as of December 31, 1996. The year end inventory for 1996 was at $388,425, down 23.3% from the year end inventory noted on December 31, 1995. The change in inventory is a result of machine builds and the timing of orders undergoing assembly at the end of each fourth quarter. The comparison does not necessarily reflect any material change in the operating performance of the Company.
Total Assets increased 14.4% or $109,282 in 1996. The increase was primarily in two accounts, new Equipment Leased and Accounts Receivable. Accounts Receivable increased a substantial 44.2%, however the sales to receivable collection ratio actually declined. In 1996, the days collection period for average receivables was 36.8 days. In 1995 it was 38.3 days. The new equipment dollar increase of $180,626 was for new production equipment to increase production capacity.
Total Liabilities increased 22.3% or $183,114 in 1996. The increased financing was again primarily from two accounts, Long Term Capitalized Leases and a Note Payable to a related party. Because of the 1996 operating losses, liability financing was more than asset growth by $73,832. In terms of Current Liabilities, Accounts Payable increased 11.5% to $243,246 on December 31, 1996.
The Company made significant progress in 1996 with the continued introduction of its upper tier products, namely the PanelMASTER HS and the PanelROUTER SI. During the course of the year, the Company sold four PanelMASTER HS's and six PanelROUTER SI's, with two more of each model being shipped in the first quarter of 1997. Management believes that the market acceptance phase has progressed satisfactorily, and the prospects for receiving additional orders for the premium depaneling equipment is favorable at this time. In addition to the positive forecast, Management also believes that various re-engineering activities undertaken in the manufacturing area in fourth quarter 1996, will begin to show benefits in 1997. These re-engineering activities include: reductions in cycle times for equipment fabrication, substantial equipment upgrades in the machine shop, rapid response procurement and inventory procedures, quality defect reduction programs, performance enhancement projects for mechanical assemblies, electronics, and software, and cost containment /waste reduction projects throughout all levels of production. In addition, significant re-engineering projects have also been implemented within the administrative groups. As a result of these strategic initiatives, the favorable forecast for 1997, and a strong backlog through second quarter 1997, Management believes that the Company can continue as a going concern.
Looking forward, the Company intends to fund its current operations from a combination of cash on hand, cash generated from operations, existing lines of credit, potential new lines of credit or equity financing. Although these sources of capital are expected to fund the Company's current operations through December 31, 1997, unless the Company returns to profitability, or develops these additional equity or debt sources of financing, there would be a material adverse effect on the financial condition, operations and business prospects of the Company. The Company has no arrangements in place for such equity or debt financing and no assurance can be given that such financing will be available at all or on terms acceptable to the Company. Any additional equity or debt financing may involve substantial dilution to the interests of the Company's shareholders as well as warrantholders. If the Company is unable to obtain sufficient funds to satisfy its cash requirements, it will be forced to curtail operations, dispose of assets or seek extended payment terms from its vendors. There can be no assurances that the Company would be able to reduce expenses or successfully complete other steps necessary to continue as a going concern. Such events would materially and adversely affect the value of the Company's equity securities.
Backlog
As of March 28, 1997, the Company's backlog of orders was $693,000, compared to $630,000 as of March 29,1996. The previous backlog was $380,000 on March 21, 1995.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements on pages F-1 through F-17.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Identification of Directors and Executive Officers
Name and Position in the Company Age Director Since Alvin L. Katz 67 October 1996 (Chairman of the Board since October 1996, Director) David J. Wolenski 35 September 1996 (President since September 1996, Director) David W. Orthman 46 February 1992 (Secretary-Treasurer, Director) Scott E. Salpeter 38 October 1996 (Director) |
The present term of office of each director will expire at the next annual meeting of shareholders. The executive officers of the Company are elected annually at the first meeting of the Company's Board of Directors held after each Annual Meeting of Shareholders. Each executive officer holds office until his successor is duly elected and qualified or until his resignation or until he shall be removed in the manner provided by the Company's Bylaws.
See Item 12 for a description of understandings pursuant to which individuals were selected as a director of the Company.
Business Experience. The following is a brief account of the business experience during the past five years of each director and executive officer:
Name of Director Principal Occupation During the Last Five Years
Alvin L. Katz Chairman of the Board since October 1996; Currently serving on the
Board of Directors of Amtech Systems, Inc., a public company
engaged in the manufacture of capital equipment in the chip
manufacturing business; Blimpie International, a publicly
held fast food franchise; Nastech Pharmaceutical Company, Inc., a
public company engaged in the development of pharmaceuticals;
Foremost Industries, a public company engaged in the distribution and
repair of commercial refrigeration; and Miller Industries, a publicly
held real estate holding company; Also, from 1991 until the company
sold in September 1992, Chief Executive Officer of Odessa
Engineering Corp., a company engaged in the manufacture of pollution
monitoring equipment; and, since 1981, an adjunct professor of business
management at Florida Atlantic University.
David J. Wolenski President and Chief Executive Officer since September 1996;
Previously with Schuller International, Inc., a public company
engaged in the manufacture of building materials (formerly Manville
Corporation) from July 1983 through July 1996; Manufacturing
Manager at Schuller's Corona, California facility, September
1994 through July 1996; Manager Quality Assurance for Manville
Corporation's Performance Materials Division, March 1991
through September 1994.
David W. Orthman Director of Research and Development since April 1, 1992; Director
of Special Projects from June 6, 1990 to March 31, 1992;
Vice President of the Company from January 1989 to June 1990; Chairman
of the Board of Directors of the Company from March 1988 to
December 1988; President of the Company from October 1983 to
March 1988; Mr. Orthman developed the Model 18 and related
products and technology, as well as the Models 24, 2-20 and 2-24;
also developed the PanelMASTER HS and PanelROUTER SI high speed
depaneling systems and related products and technology.
Scott E. Salpeter Senior Associate of Barber and Bronson Inc. since September 1996;
From 1993 until August 1996, Chief Financial Officer,
Treasurer, Vice President, and a Director of ECOS Group, Inc.
(formerly Evans Environmental Corp.), a public company engaged in
environmental consulting and laboratory services; From 1988 through
1992, Chief Financial Officer of Alco International Group, Inc., a
public company engaged in marine transportation.
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Directorships
Except as described above, no director of the Company
is a director of any other Company with a class of securities
registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended, or subject to the requirements of
Section 15(d) of such Act, or any company registered as an
investment company under the Investment Company Act of 1940,
as amended.
(b) Identification of Certain Significant Employees
N/A
(c) Family Relationships
David W. Orthman and Marjorie Zimdars-Orthman are husband and wife. Ms Zimdars-Orthman was President and a director of the Company until September 1996. There are no other family relationships between any director, executive officer or person nominated or chosen by the Company to become a director or executive officer.
(d) Involvement in Legal Proceedings
N/A
(e) Compliance with Section 16(a) of the Exchange Act
Based solely on its review of the copies of the reports it received from persons required to file, the Company believes that during the 1996 fiscal year and subsequently, all filing requirements applicable to its officers, directors, and greater than ten-percent shareholders were in compliance, with one exception involving late filings of Form 3's. Specifically the Form 3's for the new directors who joined the Board in September 1996 and October 1996, were filed in April 1997.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table.
The following table shows information regarding compensation paid to the chief executive officers of the Registrant for the three years ending December 31, 1996:
Annual COMPENSATION Long Term Compensation
Name and Principal Other Annual Restricted Stock
Position Year Salary($) Bonus Compensation Awards($) Other
M. Zimdars-Orthman
CEO 1996 26,300(1) 0 0 None None
CEO 1995 39,500 0 0 None None
CEO 1994 32,760 0 0 7500 None
David J. Wolenski
CEO 1996 13,000(2) 0 0 5000 None
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Note(1): Marjorie Zimdars-Orthman was CEO through September 22, 1996; the salary is prorated accordingly.
Note(2): David J. Wolenski became CEO on September 23, 1996; the salary shown is for the balance of the year.
Other Plans.
There are no other bonus, profit sharing, pension, retirement, stock option, stock purchase, or other renumeration or incentive plans in effect.
Long Term Incentive Plan.
The Company has no long term incentive plans.
Compensation of Directors.
No compensation is currently being paid to members of the Board of Directors for their services as directors, execept for their salaries as reported above under executive officer compensation.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements.
The Company has no employment contracts with any executive officer. The Company has no compensation plan or arrangement with respect to any executive officer which plan or arrangement results or will result from the resignation, retirement or any other termination of such individual's employment with the Company. The Company has no plan or arrangement with respect to any such persons which will result from a change in control of the Company or a change in the individual's responsibilities following a change in control.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management.
The following table sets forth, as of March 31, 1997, the number of shares of the Company's Common Stock beneficially owned by owner's of more than five percent of the Company's outstanding Common Stock who are known to the Company and the Directors of the Company, individually, and the Officers and Directors of the Company as a group, and the percentage of ownership of the outstanding Common Stock represented by such shares.
Amount and
Nature of
Beneficial Percent
Name of Beneficial Owner Position With Company Ownership of Class
David W. Orthman Director,Director of 94,710(2) 20.1%
Marjorie A. Zimdars-Orthman(1) Research & Development
7450 E. Jewell Ave., #A
Denver, Colorado 80231
David J. Wolenski Director, President, 5,000 1.1%
7450 E. Jewell Ave., #A Chief Executive Officer
Denver, Colorado 80231
Ron C. Carpenter Chief Financial Officer 8,750 1.9%
7450 E. Jewell Ave., #A
Denver, Colorado 80231
Scott E. Salpeter
201 S. Biscayne Blvd. #2950 Director 0 0
Miami, Florida 33131
Alvin L. Katz Director, Chairman 36,250(3) 7.4%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
All Officers and Directors
as a Group (5 Persons) 144,710 29.7%
_________________
Steven N. Bronson 111,650(4) 22.9%
201 S. Biscayne Blvd. #2950 None
Miami, Florida 33131
James S. Cassel None 28,750(5) 5.9%
201 S. Biscayne Blvd. #2950
Miami, Florida 33131
|
Note (1): Marjorie A. Zimdars-Orthman was President and Chief Executive Officer of the Company until September 22, 1996.
Note (2): Of the 94,710 shares beneficially owned by David W. Orthman and
Marjorie A. Zimdars-Orthman, 79,090 shares are jointly held; another
10,000 shares are held by Marjorie A. Zimdars-Orthman and 5,620 shares
are held by David W. Orthman.
Note (3): Of the 36,250 shares beneficially owned by Alvin L. Katz, 5,000
shares are in the name of his wife, Lenore Katz; 2,500 shares are held in
general partnership (the partnership consists of 5,000 shares of common stock,
with Alvin L. Katz maintaining a 1% ownership interest and Lenore Katz
maintaining a 49% ownership interest in said partnership); 25,000 shares
are in the form of warrants, exercisable at $1.00 per share through
April 1, 2001; and 3,750 shares are in the form of warrants exercisable
at $0.75 per share through October 10, 2001. Not included in this
calculation are 8,772 shares due upon conversion of debentures, December 30,
1998.
Note (4): Of the 111,650 shares beneficially owned by Steven N. Bronson,
82,900 are in the form of common stock obtained through various transactions
and previous exercise of warrants; 25,000 shares are in the form of warrants,
exercisable at $1.00 per share through April 1, 2001, and 3,750 shares
are in the form of warrants, exercisable at $0.75 per share through
October 10, 2001. Not included in this calculation are 8,772 shares due
upon conversion of debentures, December 30, 1998.
Note (5): All of the 28,750 shares beneficially owned by James S. Cassel are
in the form of warrants, 25,000 of which are exercisable at $1.00 per share
through April 1, 2001, and 3,750 of which are exercisable at $0.75 per share
through October 10, 2001.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management and Others and Certain Business Relationships.
On September 23, 1996 the Company initiated a significant change in management by installing David J. Wolenski as President and Chief Executive Officer. Mr. Wolenski joined the Company following a fourteen year career with Schuller International, Inc. (formerly Manville Corp.) where he held positions in research, engineering, business development, quality assurance, and manufacturing. He succeeds Marjorie Zimdars-Orthman, who held the position of President and CEO since 1992. Ms. Zimdars-Orthman resigned from the position in order to assume a technical role within the Company and to address operational improvements needed within the Company's manufacturing division. Ron. C. Carpenter assumed the position of Chief Financial Officer.
Concurrent with Mr. Wolenski assuming the position of President and CEO, he was also appointed Director following the expansion of the OZO Board to four members. On September 23, 1996, the OZO Board of Directors consisted of Marjorie Zimdars-Orthman, Chairman of the Board; Ron C. Carpenter, Secretary-Treasurer; David W. Orthman, and David J. Wolenski.
Following his appointment as President, Mr. Wolenski negotiated the resolution of the April 1996 Loan which was secured through affiliates of Barber and Bronson Incorporated. The resolution involved the repayment of $100,000 in short term debt which was due October 1, 1996. The renegotiated terms provided for a lump sum payment of the principal in its entirety, as well as all accrued interest, on or before November 1, 1996. This transaction was completed on October 28, 1996, and the April 1996 Loan was subsequently retired. Following those negotiations, and as a part of the overall resolution reached with holders of the April 1996 Loan, Marjorie Zimdars-Orthman and Ron C. Carpenter resigned from the Board. Their resignations were effective immediately. At that time, the remaining directors, Messrs. Wolenski and David Orthman, elected Scott E. Salpeter and Alvin L. Katz, to fill the resulting vacancies. Both Mr. Salpeter and Mr. Katz are affiliated with Barber and Bronson Incorporated. As of those actions, the Board of Directors consist of Alvin L. Katz, Chairman, David W. Orthman, Secretary-Treasurer, Scott E. Salpeter, and David J. Wolenski, President.
Also, in fourth quarter 1996, the President and Chief Executive Officer made a series of loans to the Company in an effort to provide short term working capital for projects and to stabilize cash flow. The unsecured loans were made to the Company at a financing rate that was comparable to that which could have been obtained through outside sources. This action was undertaken with the approval and concurrence of the Board of Directors. As a result of this transaction, the outstanding loan balance at the end of 1996 was $84,500. This balance was subsequently reduced to below $25,000 in January 1997.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements:
Independent Auditors' Report
Balance Sheet--As of December 31, 1996
Statements of Operations--Years Ended December 31, 1996, and 1995
Statements of Stockholders' Deficiency--Years Ended December 31, 1995,
and 1996
Statements of Cash Flows for the Years Ended December 31, 1996, and 1995
Notes to Financial Statements
(b) 8-K Reports:
No 8-K reports were filed in the fourth quarter of 1996.
(c) Exhibits:
3.1 Articles of Incorporation incorporated by reference to Registration Statement No. 33-13074-D as Exhibit 3.1.
3.2 Amended Bylaws adopted June 1, 1987, incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1987 as Exhibit 3.2.
3.4 Articles of Amendment to Restated Articles of Incorporation dated March 7, 1991. Incorporated by reference to Annual Report on Form 10-K for fiscal year ended December 31, 1990 as Exhibit 3.4.
10.1 OEM Purchase Agreement dated January 15, 1990, between the Company and Ariel Electronics, Inc. incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1989 as Exhibit 10.16.
10.2 Form of Convertible Promissory Note, 12/30/93 Private Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.2.
10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.3.
10.4 Form of Note Purchaser Warrant Agreement and Warrant, 12/30/93 Private Placement incorporated by reference to Annual Report on Form 10-KSB for the fiscal year ended December 31, 1993 as Exhibit 10.4.
10.5 Form of Promissory Note, 4/1/96, filed herewith.
10.6 Form of Security Agreement, 4/1/96, filed herewith.
10.7 Form of Common Stock Purchase Warrant, 4/1/96 filed herewith.
10.8 Form of Promissory Note, 7/1/96, filed herewith.
10.9 Form of 4/1/96 Promissory Note Extension, 10/17/96, filed herewith.
10.10 Form of Common Stock Purchase Warrant, 10/10/96, filed herewith.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 15, 1997.
OZO DIVERSIFIED AUTOMATION, INC.,
a Colorado corporation
By: David J. Wolenski
David J. Wolenski
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Date Name and Title Signature
April 15, 1997 David J. Wolenski David J. Wolenski
Principal Executive Officer
Principal Financial Officer
Director
April 15, 1997 David W. Orthman David W. Orthman
Secretary-Treasurer
Director
April 15, 1997 Alvin L. Katz Alvin L. Katz
Chairman of the Board
Director
April 15, 1997 Scott E. Salpeter Scott E. Salpeter
Director
April 15, 1997 Ron C. Carpenter Ron C. Carpenter
Principal Accounting Officer
Chief Financial Officer
|
OZO DIVERSIFIED AUTOMATION, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report F-2
Balance Sheet
December 31, 1996 F-3 - F-4
Statements of Operations
Years Ended December 31, 1996 and 1995 F-5
Statements of Stockholders' Deficiency
Years Ended December 31, 1995 and 1996 F-6
Statements of Cash Flows
Years Ended December 31, 1996 and 1995 F-7 - F-8
Notes to Financial Statements F-9 - F-17
|
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
OZO DIVERSIFIED AUTOMATION, INC.
We have audited the accompanying balance sheet of Ozo Diversified Automation, Inc. as of December 31, 1996 and the related statements of operations, stockholders' deficiency, and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ozo Diversified Automation, Inc. as of December 31, 1996 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations. This factor, and others discussed in Note 2, raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
WHEELER WASOFF, P.C.
Denver, Colorado
March 7, 1997
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Cash $ 3,111
Accounts receivable, (net of allowance
for doubtful accounts of $6,500) 257,775
Inventories (Note 3) 388,425
Prepaid expenses 11,385
----------
Total Current Assets 660,696
PROPERTY AND EQUIPMENT, at cost (Note 5)
Manufacturing 149,328
Furniture and fixtures 156,958
Assets under capitalized lease 195,246
Vehicle 10,820
----------
512,352
Less accumulated depreciation and
amortization 326,199
----------
186,153
----------
OTHER ASSETS
Deferred financing costs, net 16,254
----------
$ 863,103
-----------
-----------
|
See accompanying notes to financial statements.
OZO DIVERSIFIED AUTOMATION, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Note payable - bank $ 28,000
Note payable - officer 84,500
Accounts payable - trade 243,246
Commissions payable 51,027
Due to shareholders 54,545
Accrued expenses 76,387
Customer deposits 45,000
Current portion of long term debt and
capitalized lease obligations (Note 5) 34,607
-----------
Total Current Liabilities 617,312
-----------
LONG TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS (Note 5) 387,387
-----------
COMMITMENTS (Note 7)
STOCKHOLDERS' DEFICIENCY, (Note 6)
Preferred stock - $.10 par value
authorized - 1,000,000 shares
issued - none -
Common stock - $.10 par value
authorized - 5,000,000 shares
issued and outstanding - 458,164 shares 45,816
Capital in excess of par value 1,176,254
Accumulated deficit (1,363,666)
------------
(141,596)
------------
$ 863,103
------------
------------
|
See accompanying notes to financial statements.
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
NET SALES $2,166,763 $1,736,938
COST OF SALES 1,314,209 1,050,768
---------- ----------
Gross profit 852,554 686,170
---------- ----------
OPERATING EXPENSES
General and administrative 231,127 232,536
Marketing and sales 497,575 482,849
Research and development 159,570 164,757
---------- ----------
888,272 880,142
---------- ----------
OTHER (EXPENSE) ITEMS
Interest expense (45,114) (25,876)
---------- ----------
NET (LOSS) $ (80,832) $ (219,848)
---------- ----------
NET (LOSS) PER COMMON SHARE $ (.18) $ (.49)
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 454,497 452,664
---------- ----------
---------- ----------
|
See accompanying notes to financial statements.
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1995 AND 1996
COMMON STOCK
CAPITAL IN
EXCESS OF ACCUMULATED
SHARES AMOUNT PAR VALUE DEFICIT
BALANCE, JANUARY 1, 1995 452,664 $45,266 $1,169,804 $(1,062,986)
Net Loss - - - (219,848)
------- ------- ---------- -----------
BALANCE, DECEMBER 31, 1995 452,664 45,266 1,169,804 (1,282,834)
Issuance of common stock to
officer and employee 5,500 550 6,450 -
Net Loss - - - (80,832)
------- ------- ---------- -----------
BALANCE, DECEMBER 31, 1996 458,164 $45,816 $1,176,254 $(1,363,666)
------- ------- ---------- -----------
------- ------- ---------- -----------
|
See accompanying notes to financial statements.
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (80,832) $(219,848)
Adjustments to reconcile net (loss)
to net cash (used) by operating
activities
Depreciation and amortization 38,863 24,593
Stock issuance 7,000 -
Other (4,522) 6,022
Changes in assets and liabilities
(Increase) decrease in accounts and
notes receivable (72,293) 13,142
Decrease (increase) in inventories 117,972 (252,305)
Decrease in prepaids 3,759 2,241
Increase in accounts payable and
accrued expenses 60,542 214,049
(Decrease) increase in deferred
income and customer deposits (113,118) 158,118
--------- ---------
Net cash (used) by operating activities (42,629) (53,988)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (12,485) (642)
--------- ---------
Net cash (used) by investing activities (12,485) (642)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt and capital
lease obligations (29,937) (16,819)
Proceeds from short-term borrowings 375,500 199,500
Payment of short-term borrowings (375,000) (172,000)
Proceeds from officer loan 168,800 -
Payment of officer loan (84,300) -
--------- ---------
Net cash provided by financing
activities 55,063 10,681
--------- ---------
NET (DECREASE) IN CASH (51) (43,949)
CASH, BEGINNING OF YEAR 3,162 47,111
--------- ---------
CASH, END OF YEAR $ 3,111 $ 3,162
--------- ---------
--------- ---------
See accompanying notes to financial statements.
F - 7
|
OZO DIVERSIFIED AUTOMATION, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid cash for interest on long-term debt of $41,568
and $19,501 during the years ended December 31, 1996 and 1995,
respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
In 1996 and 1995, the Company acquired equipment by entering into
lease obligations of $180,626 and $14,620, respectively.
In 1996 the Company issued 5,500 shares of common stock, valued
at $7,000, to an officer and employee of the Company. See Note 6 for
additional details.
See accompanying notes to financial statements.
F - 8
|
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Ozo Diversified Automation, Inc. (the Company) was
incorporated under the laws of the State of Colorado on
October 13, 1983. The Company is engaged in the
design, manufacture, and marketing of computer controlled
manufacturing and machining equipment predominately
to entities in North America and the Pacific Rim.
INVENTORIES
Inventories are stated at the lower of cost or
market, with cost determined on a first-in, first-out
basis.
WARRANTY COSTS
The Company provides a warranty on products sold
for a period of one year from the date of sale. Estimated
warranty costs are charged to cost of sales at the time
of sale.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation
and amortization of assets under capital lease is provided
by use of the straight-line method over the estimated
useful lives of the related assets of three to five years.
Expenditures for replacements, renewals and
betterments are capitalized. Maintenance and repairs
are charged to operations as incurred.
Depreciation expense and amortization of assets
under capital lease was $30,737 and $16,466 for the
years ended December 31, 1996 and 1995, respectively.
RESEARCH AND DEVELOPMENT
Expenditures for the research and development of
new products are charged to operations as they are
incurred.
F - 9
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OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs include fees and costs
incurred in conjunction with the Company's sale of 9%
convertible notes (Note 5). These fees and costs are
being amortized over the term of the respective loans
on a basis which approximates the interest method.
Accumulated amorti-zation of deferred financing costs
was $24,380 at December 31, 1996. Unamortized deferred
financing fees are written-off when debt is retired
before the maturity date.
INCOME TAXES
The Company has adopted the provisions of
Statement of Financial Accounting Standards 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109
requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of
events that have been included in the financial
statements or tax returns. Under this method, the
deferred tax liabilities and assets are determined
based on the difference between the financial statement
and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the
differences are expected to reverse.
LOSS PER SHARE
Loss per common share is computed based on the
weighted average number of common shares outstanding
during each period. Common stock equivalents,
consisting of warrants and convertible debt, are not
considered in the calcula-tion of net loss per share as
their inclusion would be antidilutive.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company
considers as cash equivalents all highly liquid
investments with a maturity of three months or less at
the time of purchase.
F - 10
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OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates.
SHARE BASED COMPENSATION
In October 1995, Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation" was issued. This new standard defines a
fair value based method of accounting for an employee
stock option or similar equity instrument. This
statement gives entities a choice of recognizing
related compensation expense by adopting the new fair
value method or to continue to measure compensation
using the intrinsic value approach under Accounting
Principles Board (APB) Opinion No. 25. The Company has
elected to Utilize APB No. 25 for measurement; and
will, pursuant to SFAS No. 123, disclose supplementally
the pro forma effects on net income and earnings per
share of using the new measurement criteria.
NOTE 2 - BASIS OF ACCOUNTING
The accompanying financial statements have been
prepared on the basis of accounting principles
applicable to a going concern which contemplates the
realization of assets and extinguishment of liabilities
in the normal course of business. As shown in the
accompanying financial statements, the Company has
incurred a net loss of $80,832 for 1996 and has
accumulated a deficit of $1,363,666 through December
31, 1996. These factors, among others, may indicate
that the Company may be unable to continue in
existence. The Company's financial statements do not include
any adjustments related to the carrying value of assets or the
F - 11
|
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - BASIS OF ACCOUNTING (CONTINUED)
amount and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
The Company's ability to establish itself as a going
concern is dependent on its ability to meet its
financing require-ments and ultimately to achieve
profitable operations.
Management is continuing its programs of cost
control and containment; installing new production and
budgetary controls in all aspects of operations;
expanding its marketing efforts, especially on new
products, and pursuing additional financing from
outside sources. Management believes that these
actions presently being taken to revise the Company's
operating and financial requirements provide the
opportunity to continue as a going concern.
NOTE 3 - INVENTORIES
Inventories at December 31, 1996 consist of the
following:
|
Raw materials $311,989
Work in process and components 76,436
Finished goods -
--------
$388,425
--------
--------
|
NOTE 4 - NOTE PAYABLE - BANK
Note payable - bank consists of the balance due on
a revolving line of credit from a commercial bank. The
note matures in July 2000, and is repayable monthly at
the rate of a 2% principal reduction and interest
thereon. Interest on the note is 2% above the prime
interest rate. The note is secured by substantially
all assets of the Company including receivables,
inventory and equipment and is personally guaranteed by
certain present and/or former officers/directors of the
Company.
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTE PAYABLE - BANK (CONTINUED)
At December 31, 1996, the Company had $2,000 available to be drawn upon under the line of credit.
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION
Long term debt and capitalized lease obligations consist of the following at December 31, 1996:
9% unsecured convertible notes,
due December 30, 1998,
interest payable quarterly $120,000
9% unsecured non-convertible
notes, due December 30, 1998,
interest payable quarterly 120,000
Capitalized lease obligations
with interest at 8.76% to 10.1%,
repayable in monthly install-
ments of an aggregate $4,278;
collateralized by the under-
lying equipment 181,994
--------
421,994
Less current portion 34,607
--------
$387,387
--------
--------
|
The aggregate maturities of long term debt, including capitalized lease obligations, over the next five years are as follows: 1997 - $34,607; 1998 - $276,949; 1999 - $36,673; 2000 - $40,555; 2001 - $33,210.
OZO DIVERSIFED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - LONG TERM DEBT AND CAPITALIZED LEASE OBLIGATION
(CONTINUED)
Future minimum payments on capitalized leases are as follows:
Year ending December 31,
1997 $ 51,337
1998 50,081
1999 46,164
2000 46,164
2001 34,623
228,369
Less amount representing interest 46,375
Present value of net minimum lease
payments including current
maturity $181,994
|
The 9% notes represent gross proceeds from a private placement of $240,000 of units completed in December 1993. In conjunction with the offering, warrants to purchase 110,000 shares of common stock at $2.00 per share were issued. In 1994, warrants were exercised at a reduced price of $1.00 per share for 100,000 shares. At December 31, 1996 10,000 warrants, exercisable at $2.00 per share through December 30, 1998, are out-standing. The convertible notes are convertible into shares of the Company's common stock at $1.14 per share through December 30, 1998.
NOTE 6 - STOCKHOLDERS' EQUITY
COMMON STOCK
In 1996 the Company issued 5,000 shares of its common stock to its President, valued at $6,250 ($1.25 per share); and 500 shares to an employee, valued at $750 ($1.50 per share).
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
At December 31, 1996 the Company had warrants outstanding to purchase shares of the Company's common stock as follows:
- 10,000 shares at $2.00 per share expiring December 30, 1998; issued in conjunction with 9% notes.
- 100,000 shares at $1.00 per share, expiring April 1, 2001; issued in 1996 in conjunction with short-term borrowings.
- 15,000 shares at $.75 per share, expiring October 1, 2001; issued in conjunction with granting an extension on the due date of short-term borrowings.
NOTE 7 - COMMITMENTS
The Company has entered into a non-cancelable lease for office and production facilities. Minimum payments due under this lease are as follows:
Year ending December 31,
1997 $ 47,755 1998 50,618 1999 51,456 2000 8,600 |
Rent expense was $38,340 and $43,408 for 1996 and 1995, respectively.
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - SEGMENT INFORMATION
Foreign sales represent export sales, and were approximately 47% and 46% of net sales revenue for the years ended December 31, 1996 and 1995, respectively.
Export sales of systems, by geographic region, are
as follows:
1996 1995
Pacific Rim $ 535,000 $ 666,000
South America 155,000 95,000
Asia 140,000 45,000
Europe 115,000 -
--------- ---------
$ 945,000 $ 806,000
|
Sales by two distributors in the Pacific Rim represented 13% and 8% for 1996, and 21% and 15% for 1995, of total Company sales in each of those years.
NOTE 9 - INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards totaling approximately $1,165,000 that may be offset against future taxable income through 2011 and research and development credits of approximately $51,000 expiring through 2011.
The Company has fully reserved the tax benefits of these operating losses and credits because the likelihood of realization of the tax benefits cannot be determined. These carryforwards and credits are subject to review by the Internal Revenue Service.
The $287,000 tax benefit of the loss carryforward and tax credits has been offset by a valuation allowance of the same amount. Of the total tax benefit, $21,000 is attributable to 1996.
OZO DIVERSIFIED AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
Temporary differences between the time of reporting certain items for financial and tax reporting purposes, primarily from using different methods of reporting depreciation costs and warranty and vacation accruals, are not considered significant by management of the Company.
NOTE 10 - FINANCIAL INSTRUMENTS
FAIR VALUE
The carrying amount reported in the balance sheets for cash, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. Credit risk with respect to these receivables is generally diver- sified due to the number of entities comprising the Company's customer base and their dispersion across many different industries and geographies.
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1996 the President of the Company loaned the Company an aggregate $168,800 under an unsecured line of credit note, due November 16, 1996 with interest at prime plus 2.5%. The President has not made demand for payment under the note, and at December 31, 1996 $84,500 was outstanding under the loan agreement.
At December 31, 1996 and 1995 the former President of the Company had accrued wages and advances due of $54,545 and $32,795, respectively.
EXHIBIT INDEX
Exhibit Page
No. Document No.
3.1 Articles of Incorporation incorporated by reference to N/A
Registration Statement No. 33-13074-D as Exhibit 3.1.
3.2 Amended Bylaws adopted June 1, 1987, incorporated by reference N/A
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 as Exhibit 3.2.
3.4 Articles of Amendment to Restated Articles of Incorporation N/A
dated March 7, 1991. Incorporated by reference to Annual
Report on Form 10-K for fiscal year ended December 31, 1990
as Exhibit 3.4.
10.1 OEM Purchase Agreement dated January 15, 1990, between the N/A
Company and Ariel Electronics, Inc. incorporated by reference
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 as Exhibit 10.16.
10.2 Form of Convertible Promissory Note, 12/30/93 Private Placement N/A
incorporated by reference to Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993 as Exhibit 10.2.
10.3 Form of Non-Convertible Promissory Note, 12/30/93 Private N/A
Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993 as
Exhibit 10.3.
10.4 Form of Note Purchaser Warrant Agreement and Warrant, 12/30/93 N/A
Private Placement incorporated by reference to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993 as
Exhibit 10.4.
10.5 Form of Promissory Note, 4/1/96, filed herewith.
10.6 Form of Security Agreement, 4/1/96, filed herewith.
10.7 Form of Common Stock Purchase Warrant, 4/1/96 filed herewith.
10.8 Form of Promissory Note, 7/1/96, filed herewith.
10.9 Form of 4/1/96 Promissory Note Extension, 10/17/96,
filed herewith.
10.10 Form of Common Stock Purchase Warrant, 10/10/96, filed
herewith.
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Dated: April 1, 1996 $_________
THE UNDERSIGNED, Ozo Diversified Automation, Inc. (the "Maker"), promises to pay to ____________ ("Payee") the principal sum of __________ (the "Principal Sum"), in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, together with interest on so much thereof as is from time to time unpaid, from the date hereof until paid.
The Principal Sum shall bear interest, on the amount due and owing on a daily basis, at an annual rate equal to twelve percent (12%). If the Principal Sum is not paid in accordance with this Note, the Principal Sum shall bear interest beginning on the date of default and continuing thereafter until paid in full, at the highest rate permitted by law ("Default Rate"). The acceptance of such payment at the Default Rate shall not constitute a waiver of such default. Interest chargeable under this Promissory Note (the "Note") shall be computed on the basis of a 360-day year for actual days elapsed.
The entire Principal Sum with all accrued interest shall be due on September 30, 1996. This Note is secured pursuant to the Security Agreement from Maker to Payee of even date herewith and attached hereto as Exhibit A ("Security Agreement").
This Note is one of a series of Promissory Notes. The terms and conditions of all of the Promissory Notes shall be identical in all respects, except that the principal sum of each of the Promissory Notes (and, as such, the amount of interest payable) may differ. All Promissory Notes of this series rank equally and ratably without priority over one another.
All payments of interest, principal, or both, are payable at 2101 West Commercial Boulevard, Suite 1500, Fort Lauderdale, Florida 33309, or at such other place as the Payee may designate in writing, in lawful money of the United States of America, which shall be legal tender in payment for all debts, public and private, at the time of payment.
The privilege is reserved and given to prepay without penalty the indebtedness evidenced hereby, in whole or in part, at any time without notice. All such partial prepayments shall be applied first against the payment of all interest accrued and unpaid to the date of such prepayment, and then against the Principal Sum.
The failure of the Maker to pay when due any installment of principal or interest on this Note shall constitute a default under this Note, whereupon the owner or holder hereof may, at its option, exercise any or all rights, powers, remedies afforded, including the right to declare the unpaid balance of Principal Sum and accrued interest on this Note at once mature and payable.
If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to protect any security for its payment, the undersigned will pay all costs of collection and litigation, together with reasonable attorneys' fees incurred at both trial and appellate levels. The laws of the State of Florida shall govern and the proper venue and jurisdiction shall be Dade County, Florida.
Payor expressly waives protest, demand, presentment and notice of dishonor, and agrees that this Note may be extended, in whole or in part, without limit as to the number of such extensions or the number of periods thereof and without affecting the liability thereon.
Each of the provisions of this Note is and shall be deemed to be severable; and in the event that any provision hereof be deemed to be invalid for any reason of the operation of any law or by reason of the interpretation placed thereon by any court, said provision shall be deemed to be stricken herefrom, and this Note shall be construed as not containing such provision. The validity or lack thereof of such provision shall not effect the validity of any other provision hereof, and any and all other provisions which are otherwise lawful and valid shall remain in full force and effect.
This Note may be assigned or transferred by Payee but shall not be assigned or transferred by Maker without the written consent of Payee.
The word undersigned as used herein shall be considered to mean and include all makers and endorsers hereof. Words used in the plural herein shall include the singular, as the context may require.
IN WITNESS WHEREOF, the undersigned Maker has duly executed this Note as of the day and year above first written.
OZO DIVERSIFIED AUTOMATION, INC.,
a Colorado corporation
By:
Name: Marjorie Zimdars-Orthman
Title: President
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") made as of the 1st day of April, 1996 is given by Ozo Diversified Automation, Inc., a Colorado corporation ("Debtor"), to Steven N. Bronson, Lenore Katz, James S. Cassel, Bruce C. Barber and Eric Elliott (collectively, the "Secured Parties").
R E C I T A L S:
A. Debtor has borrowed the principal amount of One Hundred Thousand Dollars ($100,000.00) in the aggregate from Secured Parties, which is evidenced by a series of Promissory Notes of even date herewith from Debtor to each of Secured Parties (collectively, the "Notes").
B. In order to induce Secured Parties to make said loan to Debtor, Debtor has agreed to grant to each of Secured Parties a security interest in any and all of Debtor's right, title and interest in and to any and all Accounts as defined in the Uniform Commercial Code as in effect from time to time in the State of Florida including but not limited to any and all accounts receivable now or hereafter existing (the "Collateral").
NOW, THEREFORE, with reference to the above recitals, and in reliance thereon, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Creation of Security Interest. Debtor hereby grants to each of Secured Parties a security interest in, and does hereby collaterally assign, hypothecate, pledge, mortgage, convey and set over unto Secured Parties, the Collateral and all of Debtor's present and hereafter acquired right, title and interest in and to the Collateral, for the purpose of securing payment of the principal of and interest on and all other amounts and payments due on account of the Notes (the "Indebtedness") and the performance of all agreements, covenants, terms and conditions contained in the Notes and this Security Agreement. The security interest of each of the Secured Parties ranks equally and ratably without priority over one another.
2. Warranties, Representations and Covenants of Debtor. Debtor hereby warrants, represents and covenants to Secured Parties as follows:
(a) Debtor is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado. Debtor has full corporate power and authority to conduct its business as it is currently conducted or proposed to be conducted, to own all of its properties and to execute, deliver and perform this Agreement and the Notes and to perform its obligations hereunder and thereunder.
(b) The execution and delivery of this Agreement and the Notes and the performance of Debtor's obligations hereunder and thereunder have been duly authorized by all requisite corporate action on the part of Debtor. This Agreement and the Notes have been duly executed and delivered by Debtor and constitute the legal and valid obligations of Debtor, enforceable against Debtor in accordance with their respective terms. The execution, delivery and performance of this Agreement and the Notes, and the taking of any and all actions contemplated thereby, will not constitute a breach or default under, or be in conflict with, any contractual or other obligations to which Debtor or by which the Collateral is bound.
(c) Except for the security interest granted hereby, a security interest granted to Ariel Electronics, Inc. (for which a Subordination Agreement has been signed), and a security interest granted to Professional Bank, Debtor is and will be the sole owner of the Collateral, free and clear from any lien, security interest, encumbrance or adverse claim of any kind. Debtor will not permit any financing statement (other than the financing statement filed by Professional Bank) to be filed with respect to the Collateral or any portion thereof except in favor of Secured Parties. Debtor will notify Secured Parties of, and will defend the Collateral against, all claims and demands of all persons at any time claiming the same or any interest therein.
(d) The security interest granted to Professional Bank was granted to secure a line of credit pursuant to which the Company may borrow up to $30,000. As of the date of this Agreement, the Company had borrowed under the line of credit a total of $30,000. In addition, the Company has executed a short term note in favor of Professional Bank in the amount of $50,000. The Company covenants and agrees that until the Notes have been paid in full, the Company will not borrow in excess of $30,000 under the line of credit and will not increase the amount available to the Company pursuant to the line of credit. The Company covenants and agrees that it will pay in full the short term note to Professional Bank by May 8, 1996. Moreover, until the Notes have been paid in full, the Company will not borrow any additional monies from Professional Bank.
(e) The chief executive offices of Debtor are at 7450 East Jewell Avenue, Suite A, Denver, Colorado 80231. Debtor will not change the address of its chief executive offices without at least thirty (30) days' advance notice to Secured Parties.
(f) A financing statement covering certain of the Collateral is on file with the State of Colorado for Professional Bank. Debtor will at its own cost and expense, upon demand, furnish to Secured Parties such further information and will execute and deliver to Secured Parties such financing statements and other documents in form satisfactory to Secured Parties and will do all such acts as Secured Parties may at any time or from time to time request or as may be necessary or appropriate to establish and maintain a perfected security interest in the Collateral as security for the Notes, subject to no other liens or encumbrances, other than liens or encumbrances benefiting Professional Bank; and Debtor will pay the cost of filing or
recording such financing statements or other documents, in all public offices wherever filing or recording is deemed desirable by Secured Parties.
(g) Debtor shall furnish promptly to Secured Parties such information concerning the Collateral as Secured Parties may from time to time reasonably request. Debtor shall permit and hereby authorizes Secured Parties to examine and inspect the Collateral and any portion thereof wherever the same may be located. Debtor shall, at the request of Secured Parties, assemble the Collateral or such portion thereof as may be designated by Secured Parties, together with all documents and records pertaining thereto, at such place as Secured Parties may designate.
3. Default. If any one or more of the following events ("Events of Default") shall occur:
(a) Debtor shall fail to pay the principal or interest under the Notes when due;
(b) Debtor fails to observe or perform any covenant, condition or agreement required to be observed or performed by Debtor hereunder;
(c) any representation or warranty made by Debtor herein is false or incorrect in any material respect; or
(d) any breach, violation or failure to perform any covenant, condition or agreement contained in the Subordination Agreement.
then Steven N. Bronson, as representative of the Secured Parties, may, in addition to exercising the remedies specified in the Notes and otherwise available to Secured Parties at law or in equity, exercise the rights and remedies provided in this Agreement.
4. Remedies upon Default. Upon the occurrence of an Event of Default, Steven N. Bronson, as representative of the Secured Parties, may, without further notice, and to the extent permitted by law, pursue any one or more of the following remedies concurrently or successively, it being the intent hereof that none of such remedies shall be to the exclusion of any others:
(a) make such payments and do such acts as Steven N. Bronson may deem necessary to protect the security interest of the Secured Parties in the Collateral, including without limitation, paying, purchasing, contesting or compromising any encumbrance, charge, claim or lien which is prior to or superior to the security interest granted hereunder and, in exercising any such powers or authority, pay all expenses incurred in connection therewith, and all funds expended by Secured Parties in protecting its security interest shall be deemed additional indebtedness secured by this Agreement;
(b) require Debtor to assemble the Collateral, or any portion thereof, at any place or places designated by Steven N. Bronson, and promptly to deliver such Collateral to Steven N. Bronson, or another agent or representative designated by them;
(c) publicly or privately sell, or otherwise dispose of the Collateral, upon terms and in such manner as Secured Parties may determine. Secured Parties may be a purchaser of the Collateral at any public sale. Steven N. Bronson will give Debtor reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made, and such notice, if given to Debtor pursuant to the provisions of Section 6 hereof at least five (5) days prior to the date of any public sale or disposition or the date after which any private sale or disposition may occur, shall constitute reasonable notice of such sale, lease or other disposition. Steven N. Bronson, on behalf of the Secured Parties, may postpone or adjourn any such sale of the Collateral from time to time by an announcement at the time and place of sale or by announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Further, Debtor waives and releases any cause of action and claim against Secured Parties as a result of Secured Parties' possession, collection or sale of the Collateral, any liability or penalty for failure of Secured Parties to comply with any requirement imposed on Secured Parties relating to notice of sale, holding of sale or reporting of sale of the Collateral, and, to the extent permitted by law, any right of redemption from such sale;
(d) notify any account debtor or any other party obligated on or with respect to any of the Collateral to make payment to Secured Parties or its nominee of any amounts due or to become due thereunder or with respect thereto and otherwise perform its obligations with respect to the Collateral on behalf of and for the benefit of the Secured Parties. Steven N. Bronson, as representative of the Secured Parties, may enforce collection and performance with respect to any of the Collateral by suit or otherwise, in its own name or in the name of Debtor or a nominee, and surrender, release, or exchange all or any part thereof; and compromise, extend or renew (whether or not for longer than the original period) or transfer, assign or endorse for collection or otherwise, any indebtedness or obligation with respect to the Collateral, or evidence thereof, and upon request of Steven N. Bronson, as representative of the Secured Parties, Debtor will, at its own expense, notify any person obligated on or with respect to any of the Collateral to make payment and performance directly to, in the name of, and on behalf of Secured Parties of any amounts or performance due or to become due thereunder or with respect thereto; and
(e) exercise any remedies of a secured party under the Uniform Commercial Code or any other applicable law.
To effectuate the foregoing, Debtor hereby agrees that if Steven N. Bronson, as representative of the Secured Parties, demands or attempts to take possession of the Collateral or any portion thereof in exercise of its rights and remedies hereunder, Debtor will immediately turn over and deliver possession thereof to Secured Parties, and Debtor authorizes, to the extent Debtor may now or hereafter lawfully grant such authority, Secured Parties, their employees and agents, and potential bidders or purchasers to enter upon any or all of the premises where the
Collateral or any portion thereof may at the time be located (or believed to be located) and Steven N. Bronson, on behalf of the Secured Parties, may (i) remove the same therefrom, (ii) manage the Collateral or any portion thereof, (iii) maintain the Collateral or any portion thereof, (iv) view, inspect and prepare for sale, the Collateral or any portion thereof, (v) sell, dispose of or consume the same or bid thereon. In the event Steven N. Bronson, as representative of the Secured Parties, seeks possession of the Collateral through replevin or other court process, Debtor hereby irrevocably waives (a) any bond, surety or security required as an incident to such possession, and (b) any demand for possession of the Collateral prior to commencement of any suit or action to recover possession thereof.
Debtor hereby indemnifies, defends, protects and holds harmless Secured Parties from and against any and all damages, liabilities, claims and obligations which may be incurred, asserted or imposed upon Secured Parties as a result of or in connection with any of the Collateral or as a result of Secured Parties' seeking to obtain performance of any of the obligations due with respect to the Collateral, except from such damages, liabilities, claims or obligations as result from gross negligence or intentional misconduct of Secured Parties.
Steven N. Bronson, as representative of the Secured Parties, shall have the right to enforce one or more remedies hereunder, successively or concurrently, and such action shall not operate to estop or prevent the Secured Parties from pursuing any further remedy which it may have, and any repossession or retaking or sale of the Collateral pursuant to the terms hereof shall not operate to release Debtor until full payment of any deficiency has been made in cash.
5. Application of Proceeds. The proceeds of disposition of the Collateral shall be applied in the following order to:
(a) the reasonable expenses of retaking, holding, preparing for sale, selling and the like, including reasonable attorneys' fees and legal expenses incurred by Secured Parties; and
(b) the Notes.
Secured Parties shall account to Debtor for any surplus, and Debtor shall remain liable for any deficiency.
6. Notices. Any notice, demand or other communication which Debtor or Secured Parties may desire or may be required to give to the other shall be in writing, and shall be deemed given if and when personally delivered, or on the first business day following delivery to a nationally recognized courier service for next business day delivery, charges billed to or prepaid by shipper, or the second business day after being deposited in United States registered or certified mail, postage prepaid, addressed to the party for whom it is intended at its or his address set forth below, or to such other address as Debtor or Secured Parties may have designated by written notice given in accordance herewith:
If to the Secured Parties:
c/o Barber & Bronson Incorporated
2101 West Commercial Boulevard
Suite 1500
Fort Lauderdale, Florida 33309
If to Debtor: Ozo Diversified Automation, Inc.
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
Attention: Ms. Marjorie Zimdars-Orthman,
President
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Except as otherwise specifically required herein, notice of the exercise of any right, option or power granted to Secured Parties by this Agreement is not required to be given.
7. Waiver. By exercising or failing to exercise any of its rights, options or elections hereunder, Secured Parties shall not be deemed to have waived any breach or default on the part of Debtor or to have released Debtor from any of its obligations hereunder, unless such waiver or release is in writing and signed by Secured Parties. In addition, the waiver by Secured Parties of any breach hereof or default in payment of any amounts due under the Notes shall not be deemed to constitute a waiver of any succeeding breach or default.
8. Binding Agreement. This Agreement and all provisions hereof shall be binding upon Debtor, its successors and assigns and all other persons or entities claiming under or through Debtor, and the word "Debtor," when used herein, shall include all such persons or entities and any others liable for the payment of the indebtedness secured hereby or any part thereof, whether or not they have executed this Agreement. The word "Secured Parties," when used herein, shall include the successors, endorsees and assigns of Secured Parties.
9. Governing Law; Interpretation. This Agreement shall be governed by the laws of the State of Florida, without application of the principles of conflicts of law; except that the perfection of the security interest granted by Debtor to Secured Parties pursuant to this Agreement shall be governed by the laws of the State of Colorado. Wherever possible each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Time is of the essence in this Agreement.
10. Miscellaneous. Neither this Agreement nor any provision hereof may be amended, modified, waived, discharged or terminated nor may any of the Collateral be released, except by an instrument in writing duly signed by or on behalf of Secured Parties hereunder. The section headings are used herein for convenience of reference only and shall not define or limit the provisions of this Agreement. As used in this Agreement, the singular shall include the plural, and the plural shall include the singular, and masculine, feminine, and neuter pronouns shall be fully interchangeable, where the context so requires.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed by its officers thereunto duly authorized as of the day and year first above written.
DEBTOR:
OZO DIVERSIFIED AUTOMATION,
INC., a Colorado corporation
By:
Marjorie Zimdars-Orthman,
President
Steven N. Bronson
Lenore Katz
James S. Cassel
Bruce C. Barber
Eric Elliott
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, UNLESS ANY SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SAID ACT IS AVAILABLE, AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT, WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.
OZO DIVERSIFIED AUTOMATION, INC.
COMMON STOCK PURCHASE WARRANT
1. Number and Price of Shares of Common Stock Subject to Common Stock Purchase Warrant. Subject to the terms and conditions hereinafter set forth, --------- (the "Holder"), is entitled to purchase from Ozo Diversified Automation, Inc., a Colorado corporation (the "Company"), at any time and from time to time during the period from April 1, 1996 (the "Commencement Date") until 5:00 p.m., Miami, Florida Time, on April 1, 2001 (the "Expiration Date"), at which time this Common Stock Purchase Warrant (the "Warrant") shall expire and become void, an aggregate of twenty-five thousand (25,000) shares (the "Warrant Shares") of the Company's common stock, $.10 par value per share (the "Common Stock"), which number of Warrant Shares is subject to adjustment from time to time, as described below, upon payment therefor of the exercise price of $1.00 per Warrant Share in lawful funds of the United States of America, such amounts (the "Basic Exercise Price") being subject to adjustment in the cir cumstances set forth hereinbelow. This applicable Basic Exercise Price, until such adjustment is made and thereafter as adjusted from time to time, is called the "Exercise Price."
2. Exercise of Warrant. This Warrant may be exercised in whole or in part at any time from and after the Commencement Date and on or before the Expiration Date, provided however, if such Expiration Date is a day on which Federal or State chartered banking institutions located in the State of Florida are authorized by law to close, then the Expiration Date shall be deemed to be the next succeeding day which shall not be such a day, by presentation and surrender to the Company at its principal office, or at the office of any transfer agent for the Warrants ("Transfer Agent"), designated by the Company, of this Warrant accompanied by the form of election to purchase on the last page hereof signed by the Holder and upon payment of the Exercise Price for the Warrant Shares purchased thereby, by cashier's check or by wire transfer of immediately available funds. If this Warrant is exercised in part only, the Company or Transfer Agent shall, promptly after presentation of this Warrant upon such exercise, execute and deliver a new Warrant, dated the date hereof, evidencing the rights of the Holder to purchase the balance of the Warrant Shares purchasable hereunder upon the same
terms and conditions herein set forth. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Warrant Shares or other securities issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share as provided below.
3. Demand Registration Rights. If, at any time prior to the Expiration Date, the Holders of a majority of the Warrants or the shares of Common Stock acquired upon the exercise of the Warrants shall give notice to the Company requesting that the Company file with the Securities and Exchange Commission (the "Commission") a registration statement relating to the Common Stock underlying such Warrants issued or issuable upon exercise thereof (the "Registration Statement"), the Company shall promptly give written notice of such proposed Registration Statement to the Holders of such Warrants or Common Stock, and to any subsequent permissible transferee of any of the Warrants or Common Stock (at the address of such persons appearing on the books of the Company or its transfer agent) which notice shall offer to include the Common Stock underlying such Warrants issuable or issued upon exercise thereof in the requested Registration Statement. The Company shall, as expeditiously as possible, file and use its best efforts to cause to become effective under the Securities Act of 1933, as amended (the "Securities Act"), the Registration Statement covering such of the Common Stock underlying the Warrants issuable or issued on exercise of the Warrants as the Company has been requested to register for disposition by the Holders thereof, to the extent required to permit the public sale or other public disposition thereof by the Holders. The Company shall cause the Registration Statement to remain effective for a period of twelve (12) months from the effective date of the Registration Statement or such earlier date as all of the Common Stock underlying the Warrants issuable or issued upon exercise thereof have been sold or the Warrants expire (the "Effective Period"). The Company shall pay all costs, expenses, disbursements, and fees, including fees and expenses of counsel and accountants for the Company, and the expenses of preparing, printing and filing under the Act and of furnishing copies of the prospectus, in connection with the Registration Statement and also including all costs, expenses, disbursements, and fees required to keep such Registration Statement current for the Effective Period, but excluding costs or expenses of the Holders' counsel, accountants or other professionals retained by the Holders and underwriting discounts and expenses attributable to the Company's securities held by the Holders.
4. Reservation of Common Stock. The Company covenants that, during the period this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares of Common Stock to provide for the issuance of the Warrant Shares upon the exercise of this Warrant. This Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary certificates for Warrant Shares upon the exercise of this Warrant.
5. No Stockholder Rights. This Warrant, as such, shall not entitle the Holder to any rights of a stockholder of the Company, until the Holder has exercised this Warrant in accordance with Section 2 hereof.
6. Adjustment of Exercise Price and Number of Warrant Shares.
6.1 The number and kind of securities issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, and the Company agrees to provide notice upon the happening of certain events, as follows:
a. If the Company is recapitalized through the subdivision or combination of its outstanding shares of Common Stock into a larger or smaller number of shares of Common Stock, the number of shares of Common Stock for which this Warrant may be exercised shall be increased or reduced, as of the record date for such recapitalization, in the same proportion as the increase or decrease in the outstanding shares of Common Stock, and the Exercise Price shall be adjusted so that the aggregate amount payable for the purchase of all of the Warrant Shares issuable hereunder immediately after the record date for such recapitalization shall equal the aggregate amount so payable immediately before such record date.
b. If the Company declares a dividend on its Common Stock payable in shares of its Common Stock or securities convertible into shares of its Common Stock, the number of shares of Common Stock for which this Warrant may be exercised shall be increased as of the record date for determining which holders of Common Stock shall be entitled to receive such dividend, in proportion to the increase in the number of outstanding shares of Common Stock (and shares of Common Stock issuable upon conversion of all such securities convertible into shares of Common Stock) as a result of such dividend, and the Exercise Price shall be adjusted so that the aggregate amount payable for the purchase of all the Warrant Shares issuable hereunder immediately after the record date for such dividend shall equal the aggregate amount so payable immediately before such record date.
c. If the Company effects a general distribution to holders of its Common Stock, other than as part of the Company's dissolution or liquidation or the winding up of its affairs, of any shares of its capital stock, any evidence of indebtedness or any of its assets (other than cash, shares of Common Stock or securities convertible into shares of Common Stock), the Company shall give written notice to the Holder of any such general distribution at least fifteen (15) days prior to the proposed record date in order to permit the Holder to exercise this Warrant on or before the record date. There shall be no adjustment in the number of shares of Common Stock for which this Warrant may be exercised, or in the Exercise Price, by virtue of any such general distribution, except as otherwise provided herein.
d. If the Company offers rights or warrants (other than the Warrant) to all holders of its Common Stock which entitle them to subscribe to or purchase additional shares of Common Stock or securities convertible into shares of Common Stock, the Company shall give written notice of any such proposed offering to the Holder at least fifteen (15) days prior to the proposed record date in order to permit the Holder to exercise this Warrant on or before such record date.
e. In the event an adjustment in the Exercise Price or the number of Warrant Shares issuable hereunder is made under subsection a. or b. above, and such an event does not occur, then any adjustments in the Exercise Price or number of Warrant Shares issuable upon exercise of this Warrant that were made in accordance with such subsection a. or b. shall be re-adjusted to the Exercise Price and number of Warrant Shares as were in effect immediately prior to the record date for such an event.
f. If and whenever the Company issues or sells, or in
accordance with Subsection 6.1 is deemed to have issued or sold,
any shares of its Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to the time
of such issuance or sale (except for the issuance or deemed
issuance of securities in a transaction described in paragraph g.
of this Subsection 6.1), then immediately upon such issuance or
sale the Exercise Price will be reduced to an Exercise Price
determined by multiplying the Exercise Price in effect
immediately prior to the issuance or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding prior to the issuance or sale plus
(ii) the number of Warrant Shares issuable hereunder that the
maximum aggregate amount of consideration receivable by the
Company upon such issuance or sale would purchase at the Exercise
Price in effect immediately prior to the issuance or sale, and
the denominator of which shall be the number of shares of Common
Stock deemed outstanding, as hereinafter determined, immediately
after such issuance or sale.
g. The following securities or transactions shall be excluded from the operation of paragraph f. of this Subsection 6.1:
(i) The existence and any exercise of any option, convertible promissory note, warrant, or other right to purchase Common Stock, that is outstanding on the date hereof; and
(ii) Any grant or exercise of options for Common Stock granted under the Company's stock option plans, in existence as of the date hereof, provided said grant or exercise is not effectuated as a result of any amendment to such plans subsequent to the date hereof, with an exercise price equal to at least the fair market value of the shares of Common Stock on the date of grant; and
(iii) Any shares issued to Advanced Controls in connection with the proposed stock exchange agreement between the Company and Advanced Controls.
h. If the Company in any manner grants any rights or
options to subscribe for or to purchase Common Stock or any stock
or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Rights" and
such convertible or exchangeable stock or securities being herein
called "Convertible Securities"), and the price per share for
which Common Stock is issuable upon the exercise of such Rights
or upon conversion or exchange of such Convertible Securities is
less than the Exercise Price in effect immediately prior to the
time of the granting of such Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of
such Rights or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise
of such Rights will be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For
purposes of this Section, the "price per share for which Common
Stock is issuable upon exercise of such Rights or upon conversion
or exchange of such Convertible Securities" will be determined by
dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Rights,
plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Rights, plus, in
the case of Rights that relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock then
issuable upon the exercise of such Rights or upon the conversion
or exchange of all Convertible Securities issuable upon the
exercise of such Rights. Except as otherwise provided in
Subsections j. and k. below, no adjustment of the Exercise Price
will be made when Convertible Securities are actually issued upon
the exercise of such Rights or when Common Stock is actually
issued upon the exercise of such Rights or the conversion or
exchange of such Convertible Securities.
i. If the Company in any manner issues or sells any Convertible Securities, and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Exercise Price in effect immediately prior to the time of such issuance or sale, then the maximum number of shares of Common Stock then issuable upon conversion or exchange of all such Convertible Securities will be deemed to be outstanding and to have been issued and sold by the Company for such price per share, as determined below. For the purposes of this Section, the "price per share for which Common Stock is issuable upon such conversion or exchange" will be determined by dividing (i) the total amount received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock then issuable upon the conversion or exchange of all such Convertible Securities. Except as otherwise provided in Subsections j. and k. below, no adjustment of the Exercise Price will be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Convertible Securities for which adjustments of the Exercise Price had been or are to be made pursuant to other provisions of this Section 6, no further adjustment of the Exercise Price will be made by reason of such issuance or sale.
j. If (a) the purchase price provided for in any Rights,
(b) the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities, or (c) the
rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock, changes at any time (other than
under or by reason of provisions that are designed to protect
against dilution of the type set forth in this Section 6 and are
no more favorable to the holders of such Rights or Convertible
Securities than this Section 6 would have if this Section 6 were
included in such Rights or Convertible Securities), then the
Exercise Price in effect at the time of such change will be re-
adjusted to the Exercise Price that would have been in effect at
such time had such Rights or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration, or changed conversion rate, as the case may be, at
the time initially granted, issued, or sold; and such adjustment
of the Exercise Price will be made whether the result thereof is
to increase or reduce the Exercise Price then in effect under
this Warrant, provided that no such adjustment shall increase the
Exercise Price above the initial Exercise Price hereof and that
such adjustments shall be made by the Board of Directors of the
Company who shall promptly provide notice of the new Exercise
Price to the Holder.
k. Upon the expiration of any Right, or the termination of any right to convert or exchange any Convertible Security, without the exercise of such Right, or the conversion of such Convertible Security, the Exercise Price then in effect hereunder will be adjusted to the Exercise Price that would have been in effect at the time of such expiration or termination had such Right or Convertible Security never been issued, but such subsequent adjustment shall not affect the number of shares of Common Stock issued upon any exercise of this Warrant prior to the date such adjustment is made.
l. If any shares of Common Stock, Rights, or Convertible Securities are issued or sold or deemed to have been issued or sold for consideration that includes cash, then the amount of cash consideration actually received by the Company will be deemed to be the cash portion thereof. If any shares of Common Stock, Rights, or Convertible Securities are issued or sold or deemed to have been issued or sold for a consideration part or all of which is other than cash, then the amount of the consideration other than cash received by the Company will be the fair value of such consideration as determined by the Board of Directors of the Company, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the market value thereof as of the date of receipt. If any shares of Common Stock, Rights, or Convertible Securities are issued in connection with any merger or consolidation in which the Company is the surviving corporation, then the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Rights, or Convertible Securities, as the case may be.
m. If any Right is issued in connection with the issuance or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Right by the parties thereto, the Right will be deemed to have been issued without consideration.
n. The number of shares of Common Stock deemed outstanding at any given time shall include the number of shares of Common Stock outstanding, as adjusted as provided herein, but shall not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issuance or sale of Common Stock hereunder.
o. No adjustment of the Exercise Price shall be made if the amount of such adjustment would be less than one cent per Warrant Share, but in such case any adjustment that otherwise would be required to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment that, together with any adjustment or adjustments so carried forward, shall amount to not less than one cent per Warrant Share.
6.2 In the event of any reorganization or reclassification of the outstanding shares of Common Stock (other than a change in par value, or from no par value to par value, or from par value to no par value, or as a result of a subdivision or combination) or in the event of any consolidation or merger of the Company with another entity at any time prior to the expiration of this Warrant, the Holder shall have the right to exercise this Warrant. Upon such exercise, the Holder shall have the right to receive the same kind and number of shares of capital stock and other securities, cash or other property as would have been distributed to the Holder upon such reorganization, reclassification, consolidation or merger. The Holder shall pay upon such exercise the Exercise Price that otherwise would have been payable pursuant to the terms of this Warrant. If any such reorganization, reclassification, consolidation or merger results in a cash distribution in excess of the then applicable Exercise Price, the Holder may, at the Holder's option, exercise this Warrant without making payment of the Exercise Price, and in such case the Company shall, upon distribution to the Holder, consider the Exercise Price to have been paid in full, and in making settlement to the Holder, shall deduct an amount equal to the Exercise Price from the amount payable to the Holder. In the event of any such reorganization, merger or consolidation, the corporation formed by such reorganization, consolidation or merger or the corporation which shall have acquired the assets of the Company shall execute and deliver a supplement hereto to the foregoing effect, which supplement shall also provide, if applicable, for adjustments which shall be as nearly equivalent as may be practicable to the adjustments required pursuant to this Warrant.
6.3 If the Company shall, at any time before the expiration of this Warrant, dissolve, liquidate or wind up its affairs, the Holder shall have the right to exercise this Warrant. Upon such exercise the Holder shall have the right to receive, in lieu of the shares of Common Stock of the Company that the Holder otherwise would have been entitled to receive, the same kind and amount of assets as would have been issued, distributed or paid
to the Holder upon any such dissolution, liquidation or winding up with respect to such stock receivable upon exercise of this Warrant on the date for determining those entitled to receive any such distribution. If any such dissolution, liquidation or winding up results in any cash distribution in excess of the Exercise Price provided by this Warrant, the Holder may, at the Holder's option, exercise this Warrant without making payment of the Exercise Price and, in such case, the Company shall, upon distribution to the Holder, consider the Exercise Price to have been paid in full and, in making settlement to the Holder, shall deduct an amount equal to the Exercise Price from the amount payable to the Holder.
6.4 Upon each adjustment of the Exercise Price pursuant to
Section 6 hereof, the Holder shall thereafter (until another such
adjustment) be entitled to purchase, at the adjusted Exercise
Price in effect on the date this Warrant is exercised, the number
of Warrant Shares, calculated to the nearest number of Warrant
Shares, determined by (a) multiplying the number of Warrant
Shares purchasable hereunder immediately prior to the adjustment
of the Exercise Price by the Exercise Price in effect immediately
prior to such adjustment, and (b) dividing the product so
obtained by the adjusted Exercise Price in effect on the date of
such exercise. The provisions of Section 9 shall apply, however,
so that no fractional share of Common Stock or fractional Warrant
shall be issued upon exercise of this Warrant.
6.5 The Company may retain a firm of independent public accounts of recognized standing (who may be any such firm regularly employed by the Company) to make any computation required under this Section 6, and a certificate signed by such firm shall be conclusive evidence of the correctness of any computation made under this Section 6.
7. Notice to Holder. So long as this Warrant shall be
outstanding (a) if the Company shall pay any dividends or make
any distribution upon the Common Stock otherwise than in cash or
(b) if the Company shall offer generally to the holders of Common
Stock the right to subscribe to or purchase any shares of any
class of capital stock or securities convertible into capital
stock or any similar rights or (c) if there shall be any capital
reorganization of the Company in which the Company is not the
surviving entity, recapitalization of the capital stock of the
Company, consolidation or merger of the Company with or into
another corporation, sale, lease or other transfer of all or
substantially all of the property and assets of the Company, or
voluntary or involuntary dissolution, liquidation or winding up
of the Company, then in such event, the Company shall cause to be
mailed by registered or certified mail to the Holder, at least
thirty (30) days prior to the relevant date described below (or
such shorter period as is reasonably possible if thirty (30) days
is not reasonably possible), a notice containing a description of
the proposed action and stating the date or expected date on
which a record of the Company's shareholders is to be taken for
the purpose of any such dividend, distribution of rights, or such
reclassification, reorganization, consolidation, merger,
conveyance, lease or transfer, dissolution, liquidation or
winding up is to take place and the date or expected date, if any
is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
8. Certificate of Adjustment. Whenever the Exercise Price or number or type of securities issuable upon exercise of this Warrant is adjusted, as herein provided, the Company shall promptly deliver to the Holder of this Warrant a certificate of an officer of the Company setting forth the nature of such adjustment and a brief statement of the facts requiring such adjustment.
9. No Fractional Shares. No fractional shares of Common Stock will be issued in connection with any subscription hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors.
10. Transfer or Loss of Warrant.
10.1 Prior to any proposed transfer of this Warrant or the Warrant Shares received on the exercise of this Warrant (the "Securities"), unless there is in effect a registration statement under the Securities Act, covering the proposed transfer, the Holder thereof shall give written notice to the Company of such Holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall, if the Company so requests, be accompanied by an unqualified written opinion of legal counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Securities may be effected without registration under the Securities Act, whereupon the Holder of the Securities shall be entitled to transfer the Securities in accordance with the terms of the notice delivered by the Holder to the Company. Each certificate evidencing the Securities transferred as above provided shall not bear such restrictive legends if in the opinion of counsel for the Company such legends are not required in order to establish compliance with any provisions of the Securities Act.
10.2 Upon receipt by the Company of evidence satisfactory to it of loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification, or, in the case of mutilation, upon surrender of this Warrant, the Company will execute and deliver, or instruct the Transfer Agent to execute and deliver, a new Warrant of like tenor and date and any such lost, stolen or destroyed Warrant thereupon shall become void.
11. Notices. Notices and other communications to be given to the Holder shall be deemed sufficiently given if delivered by hand, or five (5) days after mailing by registered or certified mail, postage prepaid, to the Holder at 2101 West Commercial Boulevard, Suite 1500, Fort Lauderdale, Florida 33309. Notices or other communications to the Company shall be deemed to have been sufficiently given if delivered by hand or five days after mailing if mailed by registered or certified mail postage prepaid, to the Company at 7450 East Jewell Avenue, Suite A, Denver, Colorado 80231. A party may change the address to which notice shall be given by notice pursuant to this Section 11.
12. Entire Agreement and Modification. The Company and the Holder of this Warrant hereby represent and warrant that this Warrant is intended to and does contain and embody all of the understandings and agreements, both written and oral, of the parties hereto with respect to the subject matter of this Warrant, and that there exists no oral agreement or understanding, express or implied liability, whereby the absolute, final and unconditional character and nature of this Warrant shall be in any way invalidated, impaired or affected. A modification or waiver of any of the terms, conditions or provisions of this Warrant shall be effective only if made in writing and executed with the same formality of this Warrant.
13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Florida, without application of the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the 1st day of April, 1996.
OZO DIVERSIFIED AUTOMATION, INC.,
a Colorado corporation
By:
Name: Marjorie Zimdars-Orthman
Title: President
ELECTION TO PURCHASE
TO: Ozo Diversified Automation, Inc.
The undersigned hereby irrevocably elects to exercise Warrants represented by this Common Stock Purchase Warrant to purchase ____________________ shares of Common Stock issuable upon the exercise of such Warrants and requests that certificates for such shares be issued in the name of:
(Please insert social security or other identifying number)
(Please print name and address)
Dated: ____________________, 19__
(Signature
must conform in all respects to
name of holder as specified on the
face of the Warrant)
PROMISSORY NOTE
Dated: JuLY 1, 1996 $40,000
THE UNDERSIGNED, Ozo Diversified Automation, Inc. (the "Maker"), promises to pay to Steven N. Bronson ("Payee") the principal sum of Forty Thousand Dollars (the "Principal Sum"), in such coin or currency of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, together with interest on so much thereof as is from time to time unpaid, from the date hereof until paid. The entire Principal Sum with all accrued interest shall be due upon the earlier of (i) two days from the date of the Company's receipt of payment of its accounts receivable for Chrysler Credit Corporation, and (ii) September 23, 1996.
The Principal Sum shall bear interest, on the amount due and
owing on a daily basis, at an annual rate equal to twelve percent
(12%). If the Principal Sum is not paid in accordance with this
Note, the Principal Sum shall bear interest beginning on the date
of default and continuing thereafter until paid in full, at the
highest rate permitted by law ("Default Rate"). The acceptance
of such payment at the Default Rate shall not constitute a waiver
of such default. Interest chargeable under this Promissory Note
(the "Note") shall be computed on the basis of a 360-day year
for actual days
elapsed.
All payments of interest, principal, or both, are payable at 2101 West Commercial Boulevard, Suite 1500, Fort Lauderdale, Florida 33309, or at such other place as the Payee may designate in writing, in lawful money of the United States of America, which shall be legal tender in payment for all debts, public and private, at the time of payment.
The privilege is reserved and given to prepay without penalty the indebtedness evidenced hereby, in whole or in part, at any time without notice. All such partial prepayments shall be applied first against the payment of all interest accrued and unpaid to the date of such prepayment, and then against the Principal Sum.
The failure of the Maker to pay when due any installment of principal or interest on this Note shall constitute a default under this Note, whereupon the owner or holder hereof may, at his option, exercise any or all rights, powers, remedies afforded, including the right to declare the unpaid balance of Principal Sum and accrued interest on this Note at once mature and payable.
If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to protect any security for its payment, the undersigned will pay all costs of collection and litigation, together with reasonable attorneys' fees incurred at both trial and appellate levels. The laws of the State of Florida shall govern and the proper venue and jurisdiction shall be Dade County, Florida.
Maker expressly waives protest, demand, presentment and notice of dishonor, and agrees that this Note may be extended, in whole or in part, without limit as to the number of such extensions or the number of periods thereof and without affecting the liability thereon.
Each of the provisions of this Note is and shall be deemed to be severable; and in the event that any provision hereof be deemed to be invalid for any reason of the operation of any law or by reason of the interpretation placed thereon by any court, said provision shall be deemed to be stricken herefrom, and this Note shall be construed as not containing such provision. The validity or lack thereof of such provision shall not effect the validity of any other provision hereof, and any and all other provisions which are otherwise lawful and valid shall remain in full force and effect.
This Note may be assigned or transferred by Payee but shall not be assigned or transferred by Maker without the written consent of Payee.
The word undersigned as used herein shall be considered to mean and include all makers and endorsers hereof. Words used in the plural herein shall include the singular, as the context may require.
IN WITNESS WHEREOF, the undersigned Maker has duly executed this Note as of the day and year above first written.
OZO DIVERSIFIED AUTOMATION,
INC., a Colorado corporation
By:
Name: Marjorie Zimdars-Orthman
Title: President
Mr. David J. Wolenski
October 17, 1996
PROMISSORY NOTE EXTENSION
October 17, 1996
Mr. David J. Wolenski
President and Chief Executive Officer
Ozo Diversified Automation, Inc.
7450 East Jewell Avenue
Suite A
Denver, Colorado 80231
Dear David:
As you are aware, Ozo Diversified Automation, Inc. ("Ozo") borrowed $100,000.00, in the aggregate, from the undersigned as evidenced by Promissory Notes dated April 1, 1996 (collectively, the "Notes"). The principal sum of the Notes, with all accrued interest, became due on September 30, 1996. Ozo was unable to pay the Notes. In consideration for the undersigned not making demand on the Notes, and exercising any and all legal rights available to them with respect to such Notes and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Ozo and the undersigned agree as follows:
1. Ozo has, or will pay, all accrued and unpaid interest due with respect to the Notes.
2. As of this date, the Notes will bear interest, until paid in full, at 12% per annum.
3. The entire principal sum, with all accrued interest, on the Notes, shall be due on or before October 30, 1996.
4. Ozo will arrange to have issued to the undersigned Common Stock Purchase Warrants to purchase an aggregate of 15,000 shares of the Company's common stock, $.10 par value per share (the "Common Stock"). The Basic Exercise Price (as defined in the Common Stock Purchase Warrants) shall be $.75 per share, the market price of such Common Stock on October 1, 1996.
5. Ozo shall cause each of the Company's directors, other than David W. Orthman and David J. Wolenski, to resign from the Company's Board of Directors. The remaining directors shall appoint as replacements Al Katz and Scott Salpeter, such that the Board of Directors of the Company shall consist of Al Katz, Scott Salpeter, David W. Orthman and David J. Wolenski, with Al Katz being the Chairman of the Board of Directors. Management of Ozo will arrange to have each of Ozo's directors, officers, and principal shareholders who are not directors and officers of Ozo, sign letter agreements agreeing to vote any and all shares of the Company's Common Stock owned by them in favor of Mr. Salpeter and Mr. Katz serving as directors of the Company, from the date hereof until October 10, 1997. At the discretion of the Board of Directors, a fifth director may be appointed provided the appointment of such director is approved by three of the four members of the Board of Directors.
Assuming this letter accurately memorializes the terms of our Agreement, please acknowledge your agreement below. Please return five (5) copies of the signed Agreement to the undersigned, along with the signed Common Stock Purchase Warrants which are attached hereto.
Sincerely yours,
James S. Cassel Steven N. Bronson
Bruce C. Barber Lenore Katz
Eric R. Elliott
ACKNOWLEDGED and AGREED as
of October 10, 1996.
|
OZO DIVERSIFIED AUTOMATION, INC.
By:
David J. Wolenski, President and Chief
Executive Officer
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, UNLESS ANY SUCH TRANSACTION IS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SAID ACT IS AVAILABLE, AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO SUCH EFFECT, WHICH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.
OZO DIVERSIFIED AUTOMATION, INC.
COMMON STOCK PURCHASE WARRANT
1. Number and Price of Shares of Common Stock Subject to Common Stock Purchase Warrant. Subject to the terms and conditions hereinafter set forth, _______ (the "Holder"), is entitled to purchase from Ozo Diversified Automation, Inc., a Colorado corporation (the "Company"), at any time and from time to time during the period from October 10, 1996 (the "Commencement Date") until 5:00 p.m., Miami, Florida Time, on October 10, 2001 (the "Expiration Date"), at which time this Common Stock Purchase Warrant (the "Warrant") shall expire and become void, an aggregate of ________ shares (the "Warrant Shares") of the Company's common stock, $.10 par value per share (the "Common Stock"), which number of Warrant Shares is subject to adjustment from time to time, as described below, upon payment therefor of the exercise price of $.75 per Warrant Share in lawful funds of the United States of America, such amounts (the "Basic Exercise Price") being subject to adjustment in the cir cumstances set forth hereinbelow. This applicable Basic Exercise Price, until such adjustment is made and thereafter as adjusted from time to time, is called the "Exercise Price."
2. Exercise of Warrant. This Warrant may be exercised in whole or in part at any time from and after the Commencement Date and on or before the Expiration Date, provided however, if such Expiration Date is a day on which Federal or State chartered banking institutions located in the State of Florida are authorized by law to close, then the Expiration Date shall be deemed to be the next succeeding day which shall not be such a day, by presentation and surrender to the Company at its principal office, or at the office of any transfer agent for the Warrants ("Transfer Agent"), designated by the Company, of this Warrant accompanied by the form of election to purchase on the last page hereof signed by the Holder and upon payment of the Exercise Price for the Warrant Shares purchased thereby, by cashier's check or by wire transfer of immediately available funds. If this Warrant is exercised in part only, the Company or Transfer Agent shall, promptly after presentation of this Warrant upon such exercise, execute and deliver a new Warrant, dated the date hereof, evidencing the rights of the Holder to purchase the balance of the Warrant Shares purchasable hereunder upon the same
terms and conditions herein set forth. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Warrant Shares or other securities issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share as provided below.
3. Demand Registration Rights. If, at any time prior to the Expiration Date, the Holders of a majority of the Warrants or the shares of Common Stock acquired upon the exercise of the Warrants shall give notice to the Company requesting that the Company file with the Securities and Exchange Commission (the "Commission") a registration statement relating to the Common Stock underlying such Warrants issued or issuable upon exercise thereof (the "Registration Statement"), the Company shall promptly give written notice of such proposed Registration Statement to the Holders of such Warrants or Common Stock, and to any subsequent permissible transferee of any of the Warrants or Common Stock (at the address of such persons appearing on the books of the Company or its transfer agent) which notice shall offer to include the Common Stock underlying such Warrants issuable or issued upon exercise thereof in the requested Registration Statement. The Company shall, as expeditiously as possible, file and use its best efforts to cause to become effective under the Securities Act of 1933, as amended (the "Securities Act"), the Registration Statement covering such of the Common Stock underlying the Warrants issuable or issued on exercise of the Warrants as the Company has been requested to register for disposition by the Holders thereof, to the extent required to permit the public sale or other public disposition thereof by the Holders. The Company shall cause the Registration Statement to remain effective for a period of twelve (12) months from the effective date of the Registration Statement or such earlier date as all of the Common Stock underlying the Warrants issuable or issued upon exercise thereof have been sold or the Warrants expire (the "Effective Period"). The Company shall pay all costs, expenses, disbursements, and fees, including fees and expenses of counsel and accountants for the Company, and the expenses of preparing, printing and filing under the Act and of furnishing copies of the prospectus, in connection with the Registration Statement and also including all costs, expenses, disbursements, and fees required to keep such Registration Statement current for the Effective Period, but excluding costs or expenses of the Holders' counsel, accountants or other professionals retained by the Holders and underwriting discounts and expenses attributable to the Company's securities held by the Holders.
4. Reservation of Common Stock. The Company covenants that, during the period this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares of Common Stock to provide for the issuance of the Warrant Shares upon the exercise of this Warrant. This Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary certificates for Warrant Shares upon the exercise of this Warrant.
5. No Stockholder Rights. This Warrant, as such, shall not entitle the Holder to any rights of a stockholder of the Company, until the Holder has exercised this Warrant in accordance with Section 2 hereof.
6. Adjustment of Exercise Price and Number of Warrant Shares.
6.1 The number and kind of securities issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, and the Company agrees to provide notice upon the happening of certain events, as follows:
a. If the Company is recapitalized through the subdivision or combination of its outstanding shares of Common Stock into a larger or smaller number of shares of Common Stock, the number of shares of Common Stock for which this Warrant may be exercised shall be increased or reduced, as of the record date for such recapitalization, in the same proportion as the increase or decrease in the outstanding shares of Common Stock, and the Exercise Price shall be adjusted so that the aggregate amount payable for the purchase of all of the Warrant Shares issuable hereunder immediately after the record date for such recapitalization shall equal the aggregate amount so payable immediately before such record date.
b. If the Company declares a dividend on its Common Stock payable in shares of its Common Stock or securities convertible into shares of its Common Stock, the number of shares of Common Stock for which this Warrant may be exercised shall be increased as of the record date for determining which holders of Common Stock shall be entitled to receive such dividend, in proportion to the increase in the number of outstanding shares of Common Stock (and shares of Common Stock issuable upon conversion of all such securities convertible into shares of Common Stock) as a result of such dividend, and the Exercise Price shall be adjusted so that the aggregate amount payable for the purchase of all the Warrant Shares issuable hereunder immediately after the record date for such dividend shall equal the aggregate amount so payable immediately before such record date.
c. If the Company effects a general distribution to holders of its Common Stock, other than as part of the Company's dissolution or liquidation or the winding up of its affairs, of any shares of its capital stock, any evidence of indebtedness or any of its assets (other than cash, shares of Common Stock or securities convertible into shares of Common Stock), the Company shall give written notice to the Holder of any such general distribution at least fifteen (15) days prior to the proposed record date in order to permit the Holder to exercise this Warrant on or before the record date. There shall be no adjustment in the number of shares of Common Stock for which this Warrant may be exercised, or in the Exercise Price, by virtue of any such general distribution, except as otherwise provided herein.
d. If the Company offers rights or warrants (other than the Warrant) to all holders of its Common Stock which entitle them to subscribe to or purchase additional shares of Common Stock or securities convertible into shares of Common Stock, the Company shall give written notice of any such proposed offering to the Holder at least fifteen (15) days prior to the proposed record date in order to permit the Holder to exercise this Warrant on or before such record date.
e. In the event an adjustment in the Exercise Price or the number of Warrant Shares issuable hereunder is made under subsection a. or b. above, and such an event does not occur, then any adjustments in the Exercise Price or number of Warrant Shares issuable upon exercise of this Warrant that were made in accordance with such subsection a. or b. shall be re-adjusted to the Exercise Price and number of Warrant Shares as were in effect immediately prior to the record date for such an event.
f. If and whenever the Company issues or sells, or in
accordance with Subsection 6.1 is deemed to have issued or sold,
any shares of its Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to the time
of such issuance or sale (except for the issuance or deemed
issuance of securities in a transaction described in paragraph g.
of this Subsection 6.1), then immediately upon such issuance or
sale the Exercise Price will be reduced to an Exercise Price
determined by multiplying the Exercise Price in effect
immediately prior to the issuance or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding prior to the issuance or sale plus
(ii) the number of Warrant Shares issuable hereunder that the
maximum aggregate amount of consideration receivable by the
Company upon such issuance or sale would purchase at the Exercise
Price in effect immediately prior to the issuance or sale, and
the denominator of which shall be the number of shares of Common
Stock deemed outstanding, as hereinafter determined, immediately
after such issuance or sale.
g. The following securities or transactions shall be excluded from the operation of paragraph f. of this Subsection 6.1:
(i) The existence and any exercise of any option, convertible promissory note, warrant, or other right to purchase Common Stock, that is outstanding on the date hereof; and
(ii) Any grant or exercise of options for Common Stock granted under the Company's stock option plans, in existence as of the date hereof, provided said grant or exercise is not effectuated as a result of any amendment to such plans subsequent to the date hereof, with an exercise price equal to at least the fair market value of the shares of Common Stock on the date of grant; and
(iii) Any shares issued to Advanced Controls in connection with the proposed stock exchange agreement between the Company and Advanced Controls.
<PAGE<
h. If the Company in any manner grants any rights or
options to subscribe for or to purchase Common Stock or any stock
or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Rights" and
such convertible or exchangeable stock or securities being herein
called "Convertible Securities"), and the price per share for
which Common Stock is issuable upon the exercise of such Rights
or upon conversion or exchange of such Convertible Securities is
less than the Exercise Price in effect immediately prior to the
time of the granting of such Rights, then the total maximum
number of shares of Common Stock issuable upon the exercise of
such Rights or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise
of such Rights will be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For
purposes of this Section, the "price per share for which Common
Stock is issuable upon exercise of such Rights or upon conversion
or exchange of such Convertible Securities" will be determined by
dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Rights,
plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Rights, plus, in
the case of Rights that relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock then
issuable upon the exercise of such Rights or upon the conversion
or exchange of all Convertible Securities issuable upon the
exercise of such Rights. Except as otherwise provided in
Subsections j. and k. below, no adjustment of the Exercise Price
will be made when Convertible Securities are actually issued upon
the exercise of such Rights or when Common Stock is actually
issued upon the exercise of such Rights or the conversion or
exchange of such Convertible Securities.
i. If the Company in any manner issues or sells any Convertible Securities, and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Exercise Price in effect immediately prior to the time of such issuance or sale, then the maximum number of shares of Common Stock then issuable upon conversion or exchange of all such Convertible Securities will be deemed to be outstanding and to have been issued and sold by the Company for such price per share, as determined below. For the purposes of this Section, the "price per share for which Common Stock is issuable upon such conversion or exchange" will be determined by dividing (i) the total amount received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock then issuable upon the conversion or exchange of all such Convertible Securities. Except as otherwise provided in Subsections j. and k. below, no adjustment of the Exercise Price will be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Convertible Securities for which adjustments of the Exercise Price had been or are to be made pursuant to other provisions of this Section 6, no further adjustment of the Exercise Price will be made by reason of such issuance or sale.
j. If (a) the purchase price provided for in any Rights,
(b) the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities, or (c) the
rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock, changes at any time (other than
under or by reason of provisions that are designed to protect
against dilution of the type set forth in this Section 6 and are
no more favorable to the holders of such Rights or Convertible
Securities than this Section 6 would have if this Section 6 were
included in such Rights or Convertible Securities), then the
Exercise Price in effect at the time of such change will be re-
adjusted to the Exercise Price that would have been in effect at
such time had such Rights or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration, or changed conversion rate, as the case may be, at
the time initially granted, issued, or sold; and such adjustment
of the Exercise Price will be made whether the result thereof is
to increase or reduce the Exercise Price then in effect under
this Warrant, provided that no such adjustment shall increase the
Exercise Price above the initial Exercise Price hereof and that
such adjustments shall be made by the Board of Directors of the
Company who shall promptly provide notice of the new Exercise
Price to the Holder.
k. Upon the expiration of any Right, or the termination of any right to convert or exchange any Convertible Security, without the exercise of such Right, or the conversion of such Convertible Security, the Exercise Price then in effect hereunder will be adjusted to the Exercise Price that would have been in effect at the time of such expiration or termination had such Right or Convertible Security never been issued, but such subsequent adjustment shall not affect the number of shares of Common Stock issued upon any exercise of this Warrant prior to the date such adjustment is made.
l. If any shares of Common Stock, Rights, or Convertible Securities are issued or sold or deemed to have been issued or sold for consideration that includes cash, then the amount of cash consideration actually received by the Company will be deemed to be the cash portion thereof. If any shares of Common Stock, Rights, or Convertible Securities are issued or sold or deemed to have been issued or sold for a consideration part or all of which is other than cash, then the amount of the consideration other than cash received by the Company will be the fair value of such consideration as determined by the Board of Directors of the Company, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the market value thereof as of the date of receipt. If any shares of Common Stock, Rights, or Convertible Securities are issued in connection with any merger or consolidation in which the Company is the surviving corporation, then the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Rights, or Convertible Securities, as the case may be.
m. If any Right is issued in connection with the issuance or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Right by the parties thereto, the Right will be deemed to have been issued without consideration.
n. The number of shares of Common Stock deemed outstanding at any given time shall include the number of shares of Common Stock outstanding, as adjusted as provided herein, but shall not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issuance or sale of Common Stock hereunder.
o. No adjustment of the Exercise Price shall be made if the amount of such adjustment would be less than one cent per Warrant Share, but in such case any adjustment that otherwise would be required to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment that, together with any adjustment or adjustments so carried forward, shall amount to not less than one cent per Warrant Share.
6.2 In the event of any reorganization or reclassification of the outstanding shares of Common Stock (other than a change in par value, or from no par value to par value, or from par value to no par value, or as a result of a subdivision or combination) or in the event of any consolidation or merger of the Company with another entity at any time prior to the expiration of this Warrant, the Holder shall have the right to exercise this Warrant. Upon such exercise, the Holder shall have the right to receive the same kind and number of shares of capital stock and other securities, cash or other property as would have been distributed to the Holder upon such reorganization, reclassification, consolidation or merger. The Holder shall pay upon such exercise the Exercise Price that otherwise would have been payable pursuant to the terms of this Warrant. If any such reorganization, reclassification, consolidation or merger results in a cash distribution in excess of the then applicable Exercise Price, the Holder may, at the Holder's option, exercise this Warrant without making payment of the Exercise Price, and in such case the Company shall, upon distribution to the Holder, consider the Exercise Price to have been paid in full, and in making settlement to the Holder, shall deduct an amount equal to the Exercise Price from the amount payable to the Holder. In the event of any such reorganization, merger or consolidation, the corporation formed by such reorganization, consolidation or merger or the corporation which shall have acquired the assets of the Company shall execute and deliver a supplement hereto to the foregoing effect, which supplement shall also provide, if applicable, for adjustments which shall be as nearly equivalent as may be practicable to the adjustments required pursuant to this Warrant.
6.3 If the Company shall, at any time before the expiration of this Warrant, dissolve, liquidate or wind up its affairs, the Holder shall have the right to exercise this Warrant. Upon such exercise the Holder shall have the right to receive, in lieu of the shares of Common Stock of the Company that the Holder otherwise would have been entitled to receive, the same kind and amount of assets as would have been issued, distributed or paid to the Holder upon any such dissolution, liquidation or winding
up with respect to such stock receivable upon exercise of this Warrant on the date for determining those entitled to receive any such distribution. If any such dissolution, liquidation or winding up results in any cash distribution in excess of the Exercise Price provided by this Warrant, the Holder may, at the Holder's option, exercise this Warrant without making payment of the Exercise Price and, in such case, the Company shall, upon distribution to the Holder, consider the Exercise Price to have been paid in full and, in making settlement to the Holder, shall deduct an amount equal to the Exercise Price from the amount payable to the Holder.
6.4 Upon each adjustment of the Exercise Price pursuant to
Section 6 hereof, the Holder shall thereafter (until another such
adjustment) be entitled to purchase, at the adjusted Exercise
Price in effect on the date this Warrant is exercised, the number
of Warrant Shares, calculated to the nearest number of Warrant
Shares, determined by (a) multiplying the number of Warrant
Shares purchasable hereunder immediately prior to the adjustment
of the Exercise Price by the Exercise Price in effect immediately
prior to such adjustment, and (b) dividing the product so
obtained by the adjusted Exercise Price in effect on the date of
such exercise. The provisions of Section 9 shall apply, however,
so that no fractional share of Common Stock or fractional Warrant
shall be issued upon exercise of this Warrant.
6.5 The Company may retain a firm of independent public accounts of recognized standing (who may be any such firm regularly employed by the Company) to make any computation required under this Section 6, and a certificate signed by such firm shall be conclusive evidence of the correctness of any computation made under this Section 6.
7. Notice to Holder. So long as this Warrant shall be
outstanding (a) if the Company shall pay any dividends or make
any distribution upon the Common Stock otherwise than in cash or
(b) if the Company shall offer generally to the holders of Common
Stock the right to subscribe to or purchase any shares of any
class of capital stock or securities convertible into capital
stock or any similar rights or (c) if there shall be any capital
reorganization of the Company in which the Company is not the
surviving entity, recapitalization of the capital stock of the
Company, consolidation or merger of the Company with or into
another corporation, sale, lease or other transfer of all or
substantially all of the property and assets of the Company, or
voluntary or involuntary dissolution, liquidation or winding up
of the Company, then in such event, the Company shall cause to be
mailed by registered or certified mail to the Holder, at least
thirty (30) days prior to the relevant date described below (or
such shorter period as is reasonably possible if thirty (30) days
is not reasonably possible), a notice containing a description of
the proposed action and stating the date or expected date on
which a record of the Company's shareholders is to be taken for
the purpose of any such dividend, distribution of rights, or such
reclassification, reorganization, consolidation, merger,
conveyance, lease or transfer, dissolution, liquidation or
winding up is to take place and the date or expected date, if any
is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such event.
8. Certificate of Adjustment. Whenever the Exercise Price or number or type of securities issuable upon exercise of this Warrant is adjusted, as herein provided, the Company shall promptly deliver to the Holder of this Warrant a certificate of an officer of the Company setting forth the nature of such adjustment and a brief statement of the facts requiring such adjustment.
9. No Fractional Shares. No fractional shares of Common Stock will be issued in connection with any subscription hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors.
10. Transfer or Loss of Warrant.
10.1 Prior to any proposed transfer of this Warrant or the Warrant Shares received on the exercise of this Warrant (the "Securities"), unless there is in effect a registration statement under the Securities Act, covering the proposed transfer, the Holder thereof shall give written notice to the Company of such Holder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall, if the Company so requests, be accompanied by an unqualified written opinion of legal counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of the Securities may be effected without registration under the Securities Act, whereupon the Holder of the Securities shall be entitled to transfer the Securities in accordance with the terms of the notice delivered by the Holder to the Company. Each certificate evidencing the Securities transferred as above provided shall not bear such restrictive legends if in the opinion of counsel for the Company such legends are not required in order to establish compliance with any provisions of the Securities Act.
10.2 Upon receipt by the Company of evidence satisfactory to it of loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification, or, in the case of mutilation, upon surrender of this Warrant, the Company will execute and deliver, or instruct the Transfer Agent to execute and deliver, a new Warrant of like tenor and date and any such lost, stolen or destroyed Warrant thereupon shall become void.
11. Notices. Notices and other communications to be given to the Holder shall be deemed sufficiently given if delivered by hand, or five (5) days after mailing by registered or certified mail, postage prepaid, to the Holder at 201 South Biscayne Boulevard, Suite 2950, Miami, Florida 33131. Notices or other communications to the Company shall be deemed to have been sufficiently given if delivered by hand or five days after mailing if mailed by registered or certified mail postage prepaid, to the Company at 7450 East Jewell Avenue, Suite A, Denver, Colorado 80231. A party may change the address to which notice shall be given by notice pursuant to this Section 11.
12. Entire Agreement and Modification. The Company and the Holder of this Warrant hereby represent and warrant that this Warrant is intended to and does contain and embody all of the understandings and agreements, both written and oral, of the parties hereto with respect to the subject matter of this Warrant, and that there exists no oral agreement or understanding, express or implied liability, whereby the absolute, final and unconditional character and nature of this Warrant shall be in any way invalidated, impaired or affected. A modification or waiver of any of the terms, conditions or provisions of this Warrant shall be effective only if made in writing and executed with the same formality of this Warrant.
13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Florida, without application of the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the 10th day of October, 1996.
OZO DIVERSIFIED AUTOMATION,
INC., a Colorado corporation
By:
David J. Wolenski,
President and Chief Executive
Officer
ELECTION TO PURCHASE
TO: Ozo Diversified Automation, Inc.
The undersigned hereby irrevocably elects to exercise Warrants represented by this Common Stock Purchase Warrant to purchase ____________________ shares of Common Stock issuable upon the exercise of such Warrants and requests that certificates for such shares be issued in the name of:
(Please insert social security or other identifying number)
(Please print name and address)
Dated: ____________________, 19__
(Signature must conform in all respects to name of holder as specified on the face of the Warrant) |
| ARTICLE 5 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD END | DEC 31 1996 |
| CASH | 3,111 |
| SECURITIES | 0 |
| RECEIVABLES | 257,775 |
| ALLOWANCES | 0 |
| INVENTORY | 388,425 |
| CURRENT ASSETS | 660,696 |
| PP&E | 512,352 |
| DEPRECIATION | 326,199 |
| TOTAL ASSETS | 863,103 |
| CURRENT LIABILITIES | 617,312 |
| BONDS | 240,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 45,816 |
| OTHER SE | 0 |
| TOTAL LIABILITY AND EQUITY | 863,103 |
| SALES | 2,166,763 |
| TOTAL REVENUES | 2,166,763 |
| CGS | 1,314,209 |
| TOTAL COSTS | 1,314,209 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 45,114 |
| INCOME PRETAX | (80,832) |
| INCOME TAX | 0 |
| INCOME CONTINUING | 0 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (80,832) |
| EPS PRIMARY | (.18) |
| EPS DILUTED | 0 |