UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
[ ] 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: 0-21142
NEMATRON CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2483796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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5840 INTERFACE DRIVE, ANN ARBOR, MICHIGAN 48103
(Address of principal executive offices) (Zip Code)
(734) 214-2000
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
[X] YES [ ] No
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
No par value Common Stock: 12,525,430 SHARES OUTSTANDING AS OF MAY 5, 1999
Transitional Small Business Disclosure Format: [ ] YES [X] NO
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,554,952 $ 106,730
Accounts receivable, net of allowance for doubtful
accounts of $167,000 at March 31, 1999, and
$368,000 at December 31, 1998 2,875,314 1,999,900
Inventories (Note 2) 1,674,113 1,884,335
Prepaid expenses and other current assets 416,142 305,310
----------- -----------
Total Current Assets 6,520,521 4,296,275
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $5,682,871 at March 31, 1999 and $5,685,402 at
December 31, 1998 3,066,530 3,344,140
OTHER ASSETS:
Software and related development costs, net of amortization
of $2,800,432 at March 31,1999, and $2,557,639 at
December 31, 1998 3,738,744 3,880,284
Other intangible assets, net of amortization of $2,285,909 at
March 31, 1999 and $2,225,842 at December 31,1998 882,091 942,158
----------- -----------
Net Other Assets 4,620,835 4,822,442
----------- -----------
TOTAL ASSETS $ 14,207,886 $ 12,462,857
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (Note 4) $ 3,074,173 $ 2,715,457
Accounts payable 1,834,850 1,409,645
Trade notes payable 655,745 1,123,956
Other accrued expenses 1,319,496 1,387,403
Convertible promissory notes payable (Note 3) 830,137 1,000,000
Funds held in escrow 1,500,000 -0-
Current maturities of long-term debt (Note 4) 1,653,779 1,576,492
----------- -----------
Total Current Liabilities 10,868,180 9,212,953
LONG-TERM DEBT, less current maturities (Note 4) 1,897,851 2,182,783
DEFERRED TAX LIABILITY 167,400 178,200
----------- -----------
Total Liabilities 12,933,431 11,573,936
STOCKHOLDERS' EQUITY:
Common stock, no par value, 15,000,000 shares authorized;
6,032,766 and 5,353,316 shares issued and outstanding at
March 31, 1999 and at
December 31, 1998,
respectively (Notes 3 and 8) 24,834,671 24,664,809
Foreign currency translation adjustment (4,252) (7,134)
Accumulated deficit (23,555,964) (23,768,754)
----------- -----------
Total Stockholders' Equity 1,274,455 888,921
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,207,886 $ 12,462,857
=========== ===========
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
QUARTER ENDED QUARTER ENDED
MARCH 31, MARCH 31,
1999 1998
(UNAUDITED) (UNAUDITED)
NET REVENUES $ 5,806,326 $ 4,943,454
COST OF REVENUES 3,936,225 3,406,493
---------- ----------
Gross Profit 1,870,101 1,536,961
OPERATING EXPENSES:
Product development costs 191,351 233,737
Selling, general and administrative expenses 1,224,522 2,360,010
---------- ----------
Total Operating Expenses 1,415,873 2,593,747
---------- ----------
Operating Income (Loss) 454,228 (1,056,786)
OTHER INCOME (EXPENSE):
Interest expense (249,850) (160,126)
Sundry income (expense), net (2,388) 14,324
---------- -----------
Total Other Income (Expense) (252,238) (145,802)
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 201,990 (1,202,588)
INCOME TAX BENEFIT (NOTE 5) 10,800 71,429
---------- -----------
NET INCOME (LOSS) $ 212,790 $ (1,131,159)
========== ==========
BASIC INCOME (LOSS) PER SHARE (NOTE 6) $ 0.04 $ (0.21)
========== ==========
DILUTED INCOME (LOSS) PER SHARE (NOTE 6) $ 0.02 $ (0.21)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 6):
Basic 5,615,288 5,342,842
========== ==========
Diluted 9,981,461 5,342,842
========== ==========
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NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
QUARTER ENDED QUARTER ENDED
MARCH 31, MARCH 31,
1999 1998
(UNAUDITED) (UNAUDITED)
Net Income (loss) $ 212,790 $ (1,131,159)
Other comprehensive income - equity adjustment from
Foreign translation 2,882 7,481
--------- ----------
Comprehensive income (loss) $ 215,672 $ (1,123,678)
========= ==========
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
QUARTER ENDED QUARTER ENDED
MARCH 31, 1999 MARCH 31, 1998
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 212,790 $ (1,131,159)
Adjustments to reconcile net income (loss) to net cash flows
used in operating activities:
Depreciation and amortization 533,064 660,299
Deferred income tax benefit (10,800) (71,429)
Loss on disposal of property 10,373 -0-
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (875,414) (376,553)
Inventories 210,222 247,764
Prepaid expenses and other current assets (110,832) (46,131)
Accounts payable 425,205 505,367
Accrued expenses (67,907) (18,756)
--------- --------
Net Cash Provided By (Used In) Operating Activities 326,701 (230,598)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to capitalized software development costs (101,253) (674,058)
Additions to property and equipment, net of minor disposals (30,991) (121,741)
Proceeds from disposals of property and equipment 12,490 -0-
--------- --------
Net Cash Used In Investing Activities (119,754) (795,799)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock subscriptions 1,500,000 -0-
Increase in note payable to bank 358,716 793,000
Payment of trade notes payable (468,211) -0-
Payments of long-term debt (152,112) (186,307)
Proceeds from exercise of options and warrants -0- 27,655
--------- --------
Net Cash Provided By Financing Activities 1,238,393 634,348
--------- --------
FOREIGN CURRENCY TRANSLATION EFFECT 2,882 7,481
--------- --------
Net Increase (Decrease) In Cash and Cash Equivalents 1,448,222 (384,568)
Cash and Cash Equivalents at Beginning of Period 106,730 454,765
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,554,952 $ 70,197
========= ==========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Increase in Common Stock from conversion of
convertible promissory notes (Note 3) $ 169,863
Decrease in long-term debt and property resulting from
adjustment of purchase price $ 55,534
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 229,735 $ 152,215
Cash paid for income taxes -0- -0-
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Nematron Corporation (the "Company") and its wholly-owned subsidiaries, Nematron Ltd., a United Kingdom corporation, and NemaSoft, Inc. ("NemaSoft") and Imagination Systems, Inc., ("ISI") both Michigan corporations. All significant intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-KSB and amendments thereto, and in the transition report for the three months ended December 31, 1998.
Certain reclassifications have been made to the fiscal 1998 presentation to conform to classifications used in fiscal 1999.
The Company has changed its fiscal year end from September 30 to December 31, and filed a transition report for the three month period ended December 31, 1998.
The results of operations for the three-month periods ended March 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year.
NOTE 2 - INVENTORIES
Inventories consist of the following at March 31, 1999 and December 31, 1998:
MARCH 31, 1999 DECEMBER 31, 1998
Purchased parts and accessories $ 1,223,839 $ 1,142,431
Work in process 157,620 307,762
Finished goods, demo units and service stock 292,654 434,142
---------- ----------
Total Inventory $ 1,674,113 $ 1,884,335
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NOTE 3 - CONVERTIBLE PROMISSORY NOTES
In December 1998, the Company issued convertible promissory notes (the "Notes") in the aggregate principal amount of $1 million with 18 investors in a private placement (collectively, the "Note Holders") as the first stage of a capital transaction, under which the Company raised a total of approximately $4 million of equity. The Notes bore interest at the rate of seven percent (7%) per annum, were due and payable, with accrued interest, on the later of March 31, 1999 or 5 days following the date of shareholder approval of the capital transaction. The Notes were not transferable without the Company's consent. The Notes and accrued interest thereon were convertible by the Note Holders into Common Stock at $.25 per share (the "Conversion Price"). In February and March 1999, certain Note Holders converted $169,863 of Notes and received 679,450 shares of Common Stock. On April 7, 1999, following
shareholder approval of the capital transaction on April 6, 1999, the remaining $830,137 of Notes and $23,029 of accrued interest thereon were converted into 3,412,664 shares Common Stock.
NOTE 4 - SHORT-TERM AND LONG-TERM DEBT
The Company has entered into various amendments, through April 23, 1999, to the September 1998 loan agreements with its primary bank lender which provide, among other things, for a modification of certain terms of the Term Note, two Equipment Notes and a Revolving Credit Note (the "Bank Agreements"). The Bank Agreements contains various affirmative and negative covenants, with which the Company is in compliance.
Under the terms of the Bank Agreements, the amount available under the Revolving Credit Note was reduced from $5,000,000 to $4,000,000 on April 7, 1999, following the private placement of $3,000,000 of Common Stock on the same date. The credit availability is limited by a borrowing formula which allows for advances up to a maximum of the sum of 80% of eligible domestic and foreign accounts, plus 35% of inventory, less the amount of letters of credit issued by the Company. Prior to the private placement, the formula also included a Permitted Overadvance of $1,100,000. The interest rate on the credit line borrowings is at the bank's prime interest rate plus 2% (9.75% effective rate at March 31, 1999). Amounts borrowed under the line of credit are due in full on October 31, 1999.
Long-term debt includes the following debt instruments at March 31, 1999, and December 31, 1998:
MARCH 31, 1998 DECEMBER 31, 1998
Mortgage loan payable to bank $ 1,912,928 $ 1,956,474
Term note payable 1,100,000 1,170,000
Capitalized lease obligations and other notes 538,702 632,801
----------- -----------
Total long-term debt 3,551,630 3,759,275
Less current maturities (1,653,779) (1,576,492)
---------- ----------
Long-term debt, less current maturities $ 1,897,851 $ 2,182,783
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The mortgage loan agreement contains covenants that require the Company to maintain a minimum tangible net worth and a minimum debt-to-equity ratio. The Company is not in compliance with these covenants; however, the Company's mortgage lender has waived these defaults through October 1, 1999.
The Bank Agreements include various affirmative and negative covenants, the most restrictive of which are the prohibition of dividend payments and a requirement to maintain a specified level of adjusted net income, as defined in the Bank Agreements. These borrowings under the Bank Agreements are due October 31, 1999. These notes totaling $1,283,568 and $1,487,017 at March 31, 1999 and December 31, 1998, respectively, are included in current maturities of long-term debt. The Company intends to negotiate an extension of the due dates of the debt instruments or to replace these borrowings with a new lender prior to the expiration date of the Bank Agreements.
NOTE 5 - TAXES ON INCOME
The current tax benefit computed for the three-month periods ended March 31, 1999 and 1998 reflect the tax benefit associated with the amortization of non-deductible goodwill and other intangible assets during the same periods.
The Company has NOLs of approximately $19,400,000, which may be applied against future taxable income. The NOLs expire beginning 2003 and run through 2013. Utilization of these carryforwards is subject to annual limitations under current Internal Revenue Service regulations. The Company has established a valuation allowance for the estimated amount of the total limitation on the utilization of the net operating loss carryforwards.
NOTE 6 - INCOME (LOSS) PER SHARE
Income (loss) per share ("EPS") is as follows:
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
THREE MONTHS ENDED MARCH 31, 1999:
BASIC EPS:
Net income $ 212,790 5,615,288 $ 0.04
EFFECT OF DILUTIVE SECURITIES:
Options 16,128 4,366,173 (0.02)
---------- --------- -----
DILUTED EPS:
Net income available to common
Shareholders plus assumed conversion $ 228,918 9,981,461 $ 0.02
========= ========= =====
THREE MONTHS ENDED MARCH 31, 1998:
BASIC EPS:
Net loss $ (1,131,159) 5,342,842 $(0.21)
EFFECT OF DILUTIVE SECURITIES:
None -0- -0- 0.00
----------- --------- -----
DILUTED EPS:
Net income available to common
Shareholders plus assumed conversion $ (1,131,159) 5,342,842 $(0.21)
=========== ========= =====
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For the three months ended March 31, 1999, 598,806 options and 322,676 warrants were outstanding but were not included in the computation of diluted EPS because the exercise prices of the excluded options and warrants were greater than the average market price of the common shares during the period. The options expire on various dates between 2003 and 2009, and the warrants expire between February 2000 and October 2002.
For the three months ended March 31, 1998, 825,937 options and 322,676 warrants were outstanding but were not included in the computation of diluted EPS because the inclusion of these securities would have an antidilutive effect on loss per share during the three months ended March 31, 1998. The options expire on various dates between 2003 and 2009, and the warrants expire between February 2000 and October 2002.
In April 1999 the Company issued a total of 6,492,664 shares of Common Stock in connection with the capital transaction described in Notes 3 and 8. Of this total, 3,996,583 shares have been accounted for in the diluted EPS computation for the three month period ended March 31, 1999. If the Common Stock issuances had occurred as of the beginning of the three-month period ended March 31, 1999, an additional 2,496,081 shares of Common Stock would have been outstanding for the period, resulting in a diluted EPS of $0.02.
NOTE 7 - CONTINGENCIES
On May 8, 1998, a lawsuit was filed against the Company in the District Court for the Southern District of New York, and in December 1998, the case was transferred to the United States District Court for the Eastern District of Michigan. The lawsuit named as defendants the Company, certain of its officers and directors, its former independent auditor and the underwriter for the Company's initial public offering. The plaintiffs sought to represent a class of shareholders who purchased the Company's common stock from January 31, 1996 through April 28, 1998. An amended complaint filed by the plaintiffs in October 1998 claimed violations of securities laws and common law based on allegations that defendants made untrue statements of material facts and that they omitted material facts necessary in order to make the statements not misleading. The complaint sought unspecified damages and costs. In April 1999, the Court granted the Company's motion to dismiss the suit, although the plaintiffs have the right to amend their complaint and file an appeal.
NOTE 8 - SUBSEQUENT EVENTS
In April 1999 the Company's shareholders approved a two stage capital transaction. Stage one included the issuance of $1,000,000 of Notes, as described in Note 3 above, and stage two included the conversion of options included in such Notes and the private placement of securities. In February and March 1999, certain note holders converted $169,863 of Notes and received 679,450 shares of Common Stock. Following shareholder approval, the remaining $830,137 of Notes and $23,029 of accrued interest thereon were converted into 3,412,664 shares of Common Stock. As a result of the completion of the first stage of the capital transaction, a total of 4,092,114 shares of Common Stock were issued. In April 1999 the Company completed the second stage of the capital transaction. As a result thereof, the Company issued a total of 3,080,000 shares of Common Stock at $1.00 per share upon the exercise of the options and the private placement. (See Note 3).
In April 1999, the Company's shareholders approved an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock from 15 million to 30 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1998
Net revenues for the first quarter of 1999 increased $863,000 (17.5%) to $5,806,000 compared to the same period last year. The increase is attributable to an increase in sales of bundled Industrial Control Computers, partially offset by slightly lower sales of software products. Management expects that net revenues for the last nine months of 1999 will increase compared to the year earlier period. This net revenue increase is expected based on existing scheduled production releases, expected shipments under current supply contracts and the current backlog.
Gross profit for the first quarter of 1999 increased $333,000 (21.7%) to $1,870,000 compared to the same period last year. Gross profit as a percentage of sales in the first quarter of 1999 was 32.2% compared to 31.1% in the same period last year. The improvement in gross profit percentage results from a higher percentage of sales of higher margin bundled hardware/software products in the current period compared to the same period last year. Management expects that gross profit margins will remain relatively constant throughout the year as the mix of sales in the remaining quarters of 1999 is expected to be similar to the sales mix experienced in the first quarter of the year based on the current backlog.
Product development expenses for the first quarter of 1999 decreased $42,000 (18.1%) to $191,000 compared to the same period last year. The decrease is attributable to a smaller development staff and less development efforts in the current period compared to a year ago. Management expects that product development expenses will increase slightly in the remaining quarters of 1999 as staff and development efforts are planned to increase above current levels to develop and release new products in 1999.
Selling, general and administrative expenses for the first quarter of 1999 decreased $1,135,000 (48.1%) to $1,225,000 compared to the comparable period of last year and decreased as a percentage of net revenue to 21.1% in the first quarter of 1999 from 47.7% in the comparable period last year. The decrease was primarily a result of lower staff levels, the effects of closing of satellite offices during the last six months, and the effects of cost controls during the current period. Management expects that selling, general and administrative expenses will increase in the remaining quarters of 1999 because of expanded marketing and sales activities, but that such expenses will decrease as a percentage of net revenues as net revenues are expected to increase by a greater amount in the remaining quarters of 1999.
Interest expense from use of funds for the first quarter of 1999 increased $90,000 (56.0%) to $250,000 compared to $160,000 for the comparable period last year due to higher average borrowing levels and higher effective interest rates on the line of credit borrowings.
Sundry expense for the first quarter of 1999 increased by $17,000 compared to the same period last year primarily because of losses on property disposals.
YEAR 2000 ISSUE
The Year 2000 Issue ("Y2K") is the result of certain computer programs being written using two digits rather than four digits to define the applicable year. Computer systems with a Y2K problem will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to disruptions in operations. In 1997, the Company began to assess its Y2K readiness and adopted a three-phase program for Y2K information systems compliance. Phase I is the identification of systems and products with which the Company has exposure to Y2K issues. Phase II encompasses the development and implementation of action plans to be Y2K compliant in all areas by mid-1999. Phase III includes final testing of each major area of exposure to ensure compliance. The Company has identified four major areas determined to be critical for successful Y2K compliance: (1) financial and information system applications; (2) software products currently sold; (3) third-party relationships and 4) non-information technology areas such as security, telephone systems and climate control systems.
The Company has finished Phase I of its program. The Company has contacted all significant software suppliers and, due to recent implementation of its major financial and operational software,
believes that its financial and operational software is Y2K compliant. The Company has also reviewed its financial and information system applications, as well as its hardware and software products for Y2K compliance, including the firmware embedded in certain hardware products. The Company has determined that its major financial and operational software and the systems used in non-information technology areas, such as security, telephone systems and climate control systems, are Y2K compliant. The Company has used its employee engineers and others in its review and testing procedures.
The Company has one older software product, used by purchasers of the product for monitoring and testing in a test cell environment (not related to machine control) which had to be modified to correct a Y2K problem. The modification has been completed at a cost of approximately $30,000, all of which related to the salary and benefits of software development employees of the Company, and such cost was funded from working capital. The Company has notified its customers that a solution is currently available for purchase.
The Company has relationships with, and is to varying degrees dependent upon, various third parties that provide funds, information, goods and services to the Company. These include the Company's bank lender, utility providers, stock transfer agent, and suppliers of components. The Company is attempting, through informal contacts, to assess the compliance of these third parties. While not all parties have informed the Company as to their status, the most significant of these third parties have represented that their systems and products are Y2K compliant. The Company will continue with this assessment in the next two quarters of 1999. The Y2K compliance of the systems of these third parties is outside the Company's control and there can be no assurance that these third parties will by Y2K compliant.
Because the Company expects that the systems within its control will be Y2K compliant before the end of 1999, the Company believes that the most reasonably likely worst case scenario is a compliance failure by one or more of the third parties described above. Such a failure would likely have an effect on the Company's business, financial condition and results of operations. The magnitude of that effect, however, cannot be quantified at this time because of variables such as the type and importance of the third party, the possible effect on the Company's operations and the Company's ability to respond. Thus, there can be no assurance that there will not be a material adverse effect on the Company if such third parties do not remediate their systems in a timely manner and in a way that is compatible with the Company's systems.
As a result, the Company will develop contingency plans that assume some estimated level of noncompliance by, or business disruption to, these third parties. The Company intends to have contingency plans developed by the end of the third quarter of 1999 for third parties determined to be at high risk of noncompliance or business disruption or whose noncompliance or disruption, while not high risk, is considered likely to materially affect the Company. The contingency plans will be developed on a case-by-case basis, and may include plans for switching to Y2K compliant suppliers.
Judgments regarding contingency plans are subject to many uncertainties and there can be no assurance that the Company will correctly anticipate the level, impact or duration of noncompliance or that its contingency plans will be sufficient to mitigate the impact of any noncompliance. Some material adverse effect to the Company may result despite such contingency plans.
To date, the Company has expended approximately $50,000 in incremental costs to assess and remediate Y2K problems. Existing engineering and application support and other Company personnel have expended these efforts. These costs have been expensed as incurred. The Company estimates additional Y2K remediation costs of $20,000 incrementally over the next three quarters. Estimates of time, cost and risks are based on currently available information. Developments that could affect estimates include, without limitation, the availability of trained personnel, the ability to locate and correct all noncompliant systems, cooperation and remediation success of third parties material to the Company, and the ability to correctly anticipate risks and implement suitable contingency plans in the event of system failures at the Company or third parties.
LIQUIDITY AND CAPITAL RESOURCES
As of December 1, 1998, the Company executed and delivered convertible promissory notes (the "Notes") in the aggregate principal amount of $1 million to 18 investors in a private placement (collectively, the "Note Holders"). The Notes bore interest at the rate of seven percent (7%) per annum, were due and payable, with accrued interest, on March 31, 1999 (except as described below) and were not transferable without the Company's consent. The Notes were payable by the Company with Common Stock valued at $.25 per share and were convertible by the Note Holders into Common Stock at $.25 per share (the "Conversion Price"). In February 1999, 679,450 shares of Common Stock were issued to certain Note Holders who converted $169,863 of Notes. In April 1999, the Note Holders converted all remaining Notes and accrued interest thereon into 3,412,664 additional shares of Common Stock, bringing the total shares of Common Stock issued pursuant to the conversion of Notes and accrued interest thereon to 4,092,114 shares.
In contemplation of the second stage of the Company's financing plan, the Company was to raise an additional $3 million. Five of the Note Holders, including directors Mr. Nichols, Mr. Globus and two of his affiliates and Mr. Hershey (on behalf of J. Eric May), expressed a willingness to invest additional funds in the Company's Common Stock and were granted, in connection with their purchase of Notes as of December 1, 1998, options to acquire additional Notes with an aggregate principal amount of $1,250,000 on or before January 31, 1999 (the "Options"). As of January 12, 1999, the terms of the Options were amended to provide that (i) the Options expire on the earlier of April 30, 1999 and the fifth business day after receipt of shareholder approval of the issuance of the shares, (ii) the Option holders together have the right to purchase a total of 1,250,000 shares of Common Stock, rather than Notes convertible into Common Stock (subject to receipt of the shareholder approval) and (iii) the exercise price of the Options is $1.00 per share, rather than $.25. The Notes held by these five investors were also amended to extend the maturity of the Notes from March 31, 1999 to coincide with the termination of the Options -- the earlier of April 30, 1999 and the fifth business day after receipt of shareholder approval. Option holders purchased 425,000 shares of Common Stock at $1.00 per share on April 7, 1999. The Company raised an additional $2,655,000 through the sale of an additional 2,655,000 shares of Common Stock on April 7, 1999, following the receipt of shareholder approval of such issuance. Of this amount, $1,500,000 had been received prior to March 31, 1999 and is reflected on the balance sheet as cash and as funds held in escrow.
The Company is party to a series of agreements with its primary bank lender under which it has a term note, two equipment notes and a bank line of credit. The bank line of credit permits borrowing up to $4,000,000, subject to an availability formula based upon a percentage of eligible accounts receivable and inventory, reduced by letters of credit issued by the Company. At April 30, 1999, approximately $350,000 was outstanding on the line, $2,000,000 is reserved in connection with a letter of credit issued to a contract manufacturer, and the additional line availability was approximately $320,000. The expiration date of the line of credit has been extended to October 31, 1999. Amounts borrowed under the facility bear interest at prime plus 2.0% (9.75% effective rate at March 31, 1999).
Prior to the expiration of the line of credit on October 31, 1999, the Company plans to negotiate an extension of the expiration date of the line of credit. However, there can be no assurance that the lender will renew the credit line, the term notes and equipment notes. Consequently, if negotiations to extend the credit line fail, management will seek financing from other financing sources, which may not materialize, or if such sources are available, the cost of such arrangement may be significantly higher than the current bank agreement.
The Company also successfully negotiated the conversion of $1.7 million of trade accounts payable into short-term trade notes. The Company is current with the revised terms of the trade notes, which expire at various dates through October 31, 1999.
Management estimates that as a result of the capital infusion discussed above, the extended terms of the trade notes and the extension of the bank agreements through October 31, 1999, it has sufficient liquidity to satisfy its liabilities as they become due. Management plans to negotiate with the bank to extend the terms of the bank agreements prior to their expiration dates. Based upon its expectation that these agreements will be successfully renewed and that operations provide working capital as planned, the Company expects to have sufficient long-term liquidity. If the bank agreements are not successfully negotiated, the Company will seek other lenders and expects that the credit terms will not differ materially from existing terms.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
"Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" includes "forward-looking statements" (as defined in the federal securities laws) based on current management expectations. Factors that could cause future results to differ from these expectations include the failure of the bank to renew its line of credit agreement when borrowings thereunder become due or the failure of the Company to secure a replacement lender, the decline of economic conditions in general and conditions in the automotive manufacturing industry in particular, a reduction in demand for the Company's products and services, decreases in orders under existing contracts, the inability of the Company to successfully implement its strategy to lead the industrial automation market migration from closed architecture PLCs to open architecture PC-based solutions, changes in Company strategy, reductions in product life cycles, competitive factors (including the introduction or enhancement of competitive products), pricing pressures which result in materially reduced selling prices for the Company's products, shifts in sales mix to less profitable products, raw material price increases or unavailability, delays in introduction of planned hardware and software products, software defects and latent technological deficiencies in new products, changes in operating expenses, fluctuations in foreign exchange rates, the inability to attract or retain sales, marketing and engineering talent, changes in customer requirements, unexpected Y2K issues in the Company's products or systems, evolving industry standards, and any additional factors described in the Company's other reports filed with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 8, 1998, a lawsuit was filed against the Company in the District Court for the Southern District of New York, and in December 1998, the case was transferred to the United States District Court for the Eastern District of Michigan. The lawsuit named as defendants the Company, certain of its officers and directors, its former independent auditor and the underwriter for the Company's initial public offering. The plaintiffs sought to represent a class of shareholders who purchased the Company's common stock from January 31, 1996 through April 28, 1998. An amended complaint filed by the plaintiffs in October 1998 claimed violations of securities laws and common law based on allegations that defendants made untrue statements of material facts and that they omitted material facts necessary in order to make the statements not misleading. The complaint sought unspecified damages and costs. In April 1999, the Court granted the Company's motion to dismiss the suit, although the plaintiffs have the right to amend their complaint and file an appeal.
On October 14, 1998, a former employee filed a complaint in the District Court in Virginia against the Company alleging that she was terminated illegally and in retaliation for her complaints regarding sexual harassment in the workplace. Plaintiff sought damages of $500,000. The same plaintiff had filed an EEOC complaint in May 1998 alleging improper dismissal relating to sexual harassment, and the EEOC complaint was denied in June 1998. In January 1999, plaintiff's lawsuit was dismissed with prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) The Company issued 679,450 shares of its Common Stock at $0.25 per share upon the conversion of convertible promissory notes held by Mr. James A. Nichols, a director of the Company, and one of his affiliates, an affiliate of Mr. Michael L. Hershey, a director of the Company, and two other individuals. The Company issued the Common Stock without registration under the Securities Act of 1933 (the "Act") in reliance upon Section 3(a)(9) of the Act. The Company relied upon this exemption because the issuance was an exchange of securities exclusively with its existing security holders and no commission or other remuneration was paid or given directly or indirectly for the exchange.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are set forth on the Index to Exhibits, which is incorporated herein.
(b) The Company filed no reports on Form 8-K during the quarter ended March 31, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEMATRON CORPORATION
BY:
MAY 7, 1999 /S/ MATTHEW S. GALVEZ
-------------------------------- ------------------------------------
DATE MATTHEW S. GALVEZ, PRESIDENT & COO
(DULY AUTHORIZED OFFICER)
MAY 7, 1999 /S/ DAVID P. GIENAPP
-------------------------------- -----------------------------------
DATE DAVID P. GIENAPP, EXECUTIVE VICE PRESIDENT -
FINANCE &ADMINISTRATION
(CHIEF ACCOUNTING OFFICER)
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INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
4.1 Amended and Restated Convertible Promissory Notes,
dated as of January 12 1999 (amending Convertible
Promissory Notes dated as of December 1, 1998)
10.1 Second Amendment to Repayment Agreement and Fifth
Amendment to Loan Agreement dated as of January 31,
1999 by and between KeyBank National Association and
the Company, filed as Exhibit 10.1 to the Company's
10-QSB for the period ended December 31, 1998 and
incorporated herein by reference
10.2 Third Amendment to Repayment Agreement and Sixth
Amendment to Loan Agreement dated as of April 23,
1999 by and between KeyBank National Association and
the Company
10.3 Long-Term Incentive Plan
27 Financial Data Schedule
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EXHIBIT 4.1
The following Form of Promissory Note has been entered into with the following individuals:
J. Eric May, Trustee $1,000,000 Globus Family Capital 500,000 Richard D. Globus 250,000 Stephen E. Globus 250,000 James A. Nichols 1,000,000 |
AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY OTHER SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE PAYOR THAT SUCH REGISTRATION IS NOT REQUIRED.
$__________________ December 1, 1998, amended as of January 12, 1999
Ann Arbor, Michigan
FOR VALUE RECEIVED, the undersigned, Nematron Corporation, a Michigan corporation (the "Payor"), hereby promises to pay to _________________, an individual [corporation] (the "Payee"), at ___________________________________________, or at such other place or places as the Payee may designate from time to time in writing to the Payor, in lawful money of the United States of America and in immediately available funds, the aggregate principal sum of _____________________________ ($_____________), and to pay interest on the outstanding principal balance at the rate of seven percent (7%) per annum, and after maturity or the occurrence of an event of default hereunder, at the rate of nine percent (9%) per annum. The payment of the principal and all accrued and unpaid interest thereon shall be due and payable on the earlier of April 30, 1999 or five (5) business days after receipt, at a duly convened meeting of the shareholders of the Payor to take place on or before April 30, 1999, of the approval of the Payor's shareholders of the issuance of the shares of common stock of the Payor ("Common Stock") to the extent required under applicable law and the rules of the Nasdaq Stock Market (assuming that the Common Stock is listed on the Nasdaq Stock Market's National Market, regardless of whether the Common Stock is then so listed) to allow the Company to issue to the Payee the shares of Common Stock pursuant to this Note without violation of such law or rules (the "Maturity Date"). Interest shall be charged on the basis of a year of 365 days.
This Note may be prepaid at any time and from time to time, in whole but not in part, without penalty or premium, upon five (5) days prior written notice from the Payor to the Payee, unless, prior to such repayment, Payee provides notice to Payor of its intent to exercise its conversion rights provided in the third paragraph of this note (Payee's notice of intent to exercise its conversion rights shall be effective notwithstanding Payor's notice of intent to repay). This Note shall be payable or prepayable, at the sole discretion of the Payor, in cash or Common Stock. For the purpose of payment or prepayment of this Note, Common Stock shall be valued at $.25 per share (the "Payment and Conversion Price").
Subject to the terms and conditions set forth herein, the principal and interest due and payable under this Note may be converted by Payee, in whole or in part, into Common Stock upon fifteen (15) days prior written notice from the Payee to the Payor and prior to the earlier of (i) the
Maturity Date or (ii) the prepayment in whole of this Note. The number of shares of Common Stock issuable upon such conversion shall be the principal and interest then due and payable under this Note divided by the Payment and Conversion Price, rounded down to the nearest whole share. No fractional shares shall be issued upon conversion of this Note. In the event any merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure affecting Common Stock occurs after the date hereof and prior to the Maturity Date, an equivalent adjustment shall be made in the aggregate number of shares which may be delivered upon conversion hereunder. Notwithstanding the foregoing provisions of this paragraph, the Payor shall not be required to issue more than _________ shares of Common Stock to the Payee pursuant to this paragraph unless the issuance of any additional shares (if aggregated with all other issuances and potential issuances of Common Stock pursuant to this Note and the other notes issued by the Payor on the date hereof and upon exercise of the Options granted pursuant to this Note and the other notes issued by the Payor on the date hereof) has been approved by the shareholders of the Payor to the extent required by applicable law, Payor's organizational documents or the rules of the Nasdaq Stock Market, assuming that the Common Stock is listed on the Nasdaq Stock Market's National Market, regardless of whether the Common Stock is then so listed (the "Required Approval"). Any portion of the principal or interest under this Note which Payee attempts to convert into Common Stock but which cannot be converted due to the limitation in the immediately preceding sentence shall remain outstanding under this Note until otherwise paid, prepaid or converted.
The Payor agrees to file one registration statement with the Securities and Exchange Commission to register the shares of its Common Stock issued upon payment or conversion of this Note (if any), including the shares issued pursuant to the Option granted in the tenth paragraph of this Note, following the issuance of such shares, in accordance with the terms and subject to the conditions of a registration rights agreement to be negotiated and entered into by the Payor and the Payee in a form reasonably satisfactory to both parties. Payor's failure to comply with the foregoing obligation to register such shares or the obligations in such registration rights agreement shall constitute an event of default under this Note.
THE PAYOR AND THE PAYEE, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS NOTE, OR ANY COURSE OF CONDUCT, DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF EITHER OF THEM. NEITHER THE PAYOR NOR THE PAYEE SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
The undersigned Payor hereby waives demand, presentment, protest, dishonor and notice of dishonor in connection with this Note.
In the event any action is taken to collect or enforce the indebtedness evidenced by this Note or any part thereof, the undersigned agrees to pay, in addition to the principal and interest due and payable hereon, all reasonable costs of collecting this Note, including reasonable attorneys' fees and expenses.
Acceptance by the Payee of any payment in an amount less than the amount then due and owing shall be deemed an acceptance on account only, and the failure to pay the entire amount then due and owing shall cause the Payor to remain in default.
This Note and the Option granted below may not be sold, assigned or otherwise transferred without the prior written consent of Payor, which consent shall not be unreasonably withheld. In all events, a transfer to Payee's revocable living trust shall be allowed after written notice provided to the Payor.
This Note is made under, and shall be governed by and construed in accordance with, the laws of the State of Michigan as to notes made and performed entirely within such State and without giving effect to choice of law principles of such State.
Payor hereby grants to Payee a fully paid option to purchase __________ shares of Common Stock at $1.00 per share (the "Option") upon the following terms and conditions: (1) The Option may be exercised in whole, but not in part, at any time after the date hereof until 5:00 p.m. Eastern Standard Time on the Maturity Date; (2) The Option may be exercised only upon written notice of such exercise (stating the name and address, amount of subscription and social security number (or EIN) of such investor) accompanied by payment in full by a wire transfer, in immediately available funds to a bank account designated by the Payor, of an amount equal to purchase price ; (3) If the Option is exercised, Payee shall be deemed to have represented that the shares of Common Stock purchased pursuant to the exercise of the Option (the "Option Shares") have been purchased for Payee's own account, or as the case may be, for the account of the Payee's designee as provided herein, and not for the purpose of resale or distribution; (4) If the Option is exercised, Payee shall be deemed to have acknowledged that the Option Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any other securities laws and may not be sold or offered for sale in the absence of an effective registration statement as to the Option Shares under the Securities Act or an opinion of counsel reasonably satisfactory to the Payor that such registration is not required. This Note was entered into as a last resort and in good faith. Payor will not solicit from third parties offers or solicitations of offers for purchase of shares until the Required Approval is received or rejected; provided, that Payor shall be permitted to solicit offers to purchase up to 3,000,000 additional shares of Common Stock (including the Option Shares); and provided further, that Payor's Board of Directors, on behalf of Payor, may furnish information and may participate in discussions and negotiations through its representatives with persons who have sought the same if the failure to provide such information or participate in such negotiations or discussions would cause the directors to breach their fiduciary duties to Payor's shareholders under applicable law.
Notwithstanding any provision in this Note to the contrary, Payor shall not be required to issue any shares of Common Stock in excess of the number of shares referenced in the third paragraph of this Note if any Required Approval has not been received or if such issuance would constitute a violation of any applicable Federal or state securities law or any other law or regulation. If shareholder approval is required, Payor agrees to seek, as soon a practicable following execution of this Promissory Note, the approval of its shareholders of the issuance of any such shares to the extent required by applicable law, Payor's organizational documents or the rules of the Nasdaq Stock Market.
NEMATRON CORPORATION
ACCEPTED AND AGREED:
Its:
EXHIBIT 10.2
THIRD AMENDMENT TO REPAYMENT AGREEMENT
AND SIXTH AMENDMENT TO LOAN AGREEMENT
This Third Amendment to Repayment Agreement and Sixth Amendment to Loan Agreement ("Third Amendment") is made as of the 23rd day of April, 1999, by and among KEYBANK NATIONAL ASSOCIATION, f/k/a Society Bank, Michigan, a national banking association located at 127 Public Square, Cleveland, Ohio 44114 ("KeyBank" or "Bank"), NEMATRON CORPORATION, a Michigan corporation located at 5840 Interface Drive, Ann Arbor, Michigan 48103 ("Borrower") and NEMASOFT, INC., a Michigan corporation located at 5840 Interface Drive, Ann Arbor, Michigan 48103 ("Guarantor"; Borrower and Guarantor together referred to as "Interested Parties").
RECITALS
WHEREAS, Bank and the Interested Parties executed a certain Repayment Agreement dated as of September 28, 1998 ("Repayment Agreement"); and
WHEREAS, Bank and the Interested Parties executed a certain First Amendment to Repayment Agreement and Fourth Amendment to Loan Agreement dated as of December 1, 1998 ("First Amendment") and a Second Amendment to Repayment Agreement and Fifth Amendment to Loan Agreement dated as of January 31, 1999 ("Second Amendment"); and
WHEREAS, capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Repayment Agreement; and
WHEREAS, the Interested Parties have request that Bank modify the Repayment Agreement and the Loan Agreement to allow for the issuance of Standby Letters of Credit from Bank in the maximum aggregate amount of Two Million Dollars ($2,000,000), to which request Bank has acquiesced in the manner described herein.
I. AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the agreements and covenants herein, the parties agree as follows:
1. Recitals. The Recitals are incorporated herein by reference.
2. Restructure and Amendment of Loan Documents. Certain of the Loan
Documents shall be amended as follows:
i) Section 1 of the Repayment Agreement is amended by adding,
in appropriate alphabetical order, a new definition of
`Loan Agreement', and by deleting the existing definition
of `Original
Loan Documents' and replacing it with a new definition, as follows:
"`Loan Agreement' shall have the meaning ascribed thereto in the Recitals, as such agreement may be further amended, or amended and restated, from time to time.
`Original Loan Documents' means all documents heretofore executed in connection with the Original Notes, as well as all documents evidencing leases of equipment by KCCI to any Interested Party, and including all amendments of any thereof and `Loan Documents' means the Repayment Agreement, any amendment thereto and each of the documents required to be executed and delivered to Bank in connection therewith, as same may be amended from time to time, together with all of the Original Loan Documents."
ii) Section 3 of the Repayment Agreement is amended by inserting a new subsection (k) as follows:
"k) The Loan Agreement is amended by reinserting subsection 1.3 as follows:
1.3 LETTERS OF CREDIT
1.3.1 Upon the request of Borrower, made at any time between April 23, 1999 and October 1, 1999, and so long as no Event of Default under this Agreement has occurred or is continuing, Bank shall issue a Letter of Credit expiring no later than October 31, 1999 (by its terms or upon notice by Bank to the Letter of Credit beneficiary) in such form as may from time to time be approved by Bank in favor of such beneficiaries as Borrower shall specify; provided that the face amount of the Letter of Credit, when added to the aggregate face amount of all other Letters of Credit previously issued pursuant to this Agreement from time to time shall not exceed Two Million Dollars ($2,000,000).
1.3.2 The Obligations of Borrower with respect to a Letter of Credit shall be governed by the terms and conditions of a Standby Letter of Credit Application executed between Borrower and Bank (which, together with any similar replacement agreement subsequently executed by Borrower in connection with the Letter of Credit, is the "Application"). Borrower shall reimburse Bank for the amount of each draft presented under the Letter of Credit and paid by Bank and the amount of any taxes, fees, charges or other costs or expenses whatsoever incurred by Bank in connection with any payment made by Bank under, or with respect to, the Letters of Credit (the "Letter of Credit Obligation") as set forth in the Application.
1.3.3 To the extent that Borrower is eligible for a cash advance under the Line of Credit, Borrower authorizes Bank to
make an advance thereunder in an amount sufficient to discharge Borrower's Letter of Credit Obligation as of the date such obligation arises.
1.3.4 To the extent that Borrower is not eligible for a cash advance under the Line of Credit pursuant to this Agreement, Borrower shall immediately pay and discharge the Letter of Credit Obligation pursuant to the terms of the Application."
3. Effective Date. The provisions of this Third Amendment shall be effective on April 23, 1999 ("Effective Date"), provided that a fully executed copy of this Third Amendment is delivered to Bank on or before April 23, 1999.
4.Loan Documents. Any reference in any of the Loan Documents to the Repayment Agreement or the Loan Agreement shall, from and after the Effective Date, be deemed to refer to the Repayment Agreement and the Loan Agreement as modified by this Third Amendment.
5. Conflicting Terms; No Other Modification. To the extent that any of the terms and conditions of this Third Amendment are inconsistent with the terms of the Repayment Agreement, the conditions of this Third Amendment shall prevail. Otherwise, unless expressly modified or superseded herein, all of the terms and conditions of the Repayment Agreement are ratified and confirmed and shall remain unaffected and in full force and effect.
6. Course of Dealing. Interested Parties understand that the Loan Documents will be strictly enforced going forward, and that Bank's failure to insist on strict performance to date shall not be interposed as a defense to Bank's exercise of its legal rights, nor shall it constitute a waiver of any thereof.
7. Release. Effective as of the date of the delivery of a fully executed copy or original of this Third Amendment, the Interested Parties jointly and severally agree to release and hereby do release and discharge, Bank and KCCI, their respective shareholders, agents, servants, employees, directors, officers, attorneys, affiliates, subsidiaries, successors and assigns and all persons, firms, corporations, and organizations acting on their behalf ("Bank Parties") of and from all damages, losses, claims, demands, liabilities, obligations, actions and causes of action whatsoever that each Interested Party has or claims to have against any Bank Party as of the date hereof and whether known or unknown at the time of this release, and of every nature and extent whatsoever on account of or in any way, directly or indirectly, touching, concerning, arising out of or founded upon the Loan Documents, or the relationship respecting any agreement between any Interested Party and any Bank Party.
8. Third-Party Beneficiaries/Entire Agreement. All the conditions and obligations hereunder are imposed solely and exclusively for the benefit of the parties hereto and their successors and assigns. No other person or entity shall obtain any interest herein or require satisfaction of such conditions in accordance with the terms hereof or be entitled to assume that any of the parties hereto will enforce such conditions and obligations and no other person shall, under any circumstances, be a beneficiary of such conditions. This Third Amendment embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter of this Third Amendment and supersedes all prior and contemporaneous negotiations, agreements and understandings relative to such subject matter.
9. Binding Effect; Governing Law. This Third Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of Michigan without regard to principles of conflict of laws.
10. Counterparts. This Third Amendment may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original and all of which counterparts together shall constitute one and the same fully executed instrument.
11. Consent and Reaffirmation of Guaranty. Guarantor, being guarantor of the Obligations of Borrower pursuant to a Continuing Guaranty dated October 6, 1995, joins in and consents to the within Third Amendment and agrees that the provisions of such guaranty are ratified and confirmed and that the guaranty remains in full force and effect.
12. Corporate Authority. Borrower and Guarantor hereby represent and
warrant to Bank that (a) Borrower and Guarantor have the legal power and
authority to execute and deliver this Third Amendment; (b) the officials
executing this Third Amendment have been duly authorized to execute and deliver
the same and bind Borrower and Guarantor with respect to the provisions hereof;
(c) the execution and delivery hereof by Borrower and Guarantor and the
performance and observance by Borrower and Guarantor of the provisions hereof do
not violate or conflict with the organizational agreements of Borrower or
Guarantor or any law applicable to Borrower or Guarantor or result in a breach
of any provision of or constitute a default under any other agreement,
instrument or document binding upon or enforceable against Borrower or
Guarantor; (d) this Third Amendment constitutes a valid and binding obligation
of Borrower and Guarantor in every respect, enforceable in accordance with its
terms.
IN WITNESS WHEREOF, Interested Parties and Bank have caused this Third Amendment to be executed by their duly authorized officers as of the date first written above.
NEMATRON CORPORATION
Address:
5840 Interface Drive By: /s/ David P. Gienapp .
--------------------------------
Ann Arbor, Michigan 48103 Its: V P- Finance and Administration
-------------------------------
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NEMASOFT, INC., Guarantor Address:
5840 Interface Drive By: /s/David P. Gienapp .
---------------------------------
Ann Arbor, Michigan 48103 Its: Secretary .
--------------------------------
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KEYBANK NATIONAL ASSOCIATION
Address:
202 S. Michigan Street By: /s/ Richard Rozenboom .
P.O. Box 6 ------------------------------
South Bend, Indiana 46601 Its: Vice President .
------------------------------
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EXHIBIT 10.3
NEMATRON CORPORATION
LONG-TERM INCENTIVE PLAN
I. GENERAL PROVISIONS
1.1 PURPOSE. The purpose of the Plan is to promote the best interests of the Corporation and its shareholders by attracting and motivating highly qualified individuals to serve as Employees and to encourage Employees to acquire an ownership interest in the Corporation, thus identifying their interests with those of shareholders and encouraging Employees to make greater efforts on behalf of the Corporation to achieve the Corporation's long-term business plans and objectives.
1.2 DEFINITIONS. As used in this Plan, the following terms have the meaning described below:
(a) "AGREEMENT" means the written agreement that sets forth the terms of a Participant's Option, Restricted Stock grant or Performance Share Award.
(b) "BOARD" means the Board of Directors of the Corporation.
(c) "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not the Company is then subject to such reporting requirement;
provided that, without limitation, a Change in Control shall be deemed to have
occurred if (i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity (other than a Subsidiary or
an employee benefit plan or employee benefit plan trust maintained by the
Company or a Subsidiary), or any syndicate or group deemed to be a person under
Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities entitled to
vote in the election of directors of the Company, provided that a person shall
not be deemed to beneficially own shares solely because such person has the
right to vote such shares pursuant to a revocable proxy or proxies given in
response to a public solicitation made in accordance with the applicable rules
promulgated under the Exchange Act; (ii) consummation of any merger or
consolidation with respect to which the Company or any Parent is a constituent
corporation (other than a transaction for the purpose of changing the Company's
corporate domicile), any liquidation or dissolution of the Company or any sale
of all or substantially all of the Company's assets; and (iii) a change in the
identity of a majority of the members of the Company's Board of Directors within
any twelve-month period, which change or changes are not recommended by the
incumbent directors immediately prior to any such change or changes.
(d) "CODE" means the Internal Revenue Code of 1986, as amended from time to time.
(e) "COMMITTEE" means a committee of two or more directors of the Company, each of whom is a "non-employee director" as defined in Rule 16b-3 of the Exchange Act.
(f) "COMMON STOCK" means shares of the Corporation's authorized common stock, no par value.
(g) "CORPORATION" means Nematron Corporation, a Michigan corporation.
(h) "DIRECTOR" means a member of the Corporation's Board of Directors.
(i) "DISABILITY" means total and permanent disability, as defined in Code Section 22(e).
(j) "EFFECTIVE DATE" means January 12, 1999.
(k) "EMPLOYEE" means a full-time salaried employee of the Corporation or its Subsidiaries, who has an "employment relationship" with the Corporation or its Subsidiaries, as defined in Treasury Regulation 1.421-7(h), and the term "employment" means employment with the Corporation or its subsidiaries.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time and any successor thereto.
(m) "EXPIRATION DATE" means the date set forth in the Agreement relating to an Option on which the right to exercise shall expire absent a termination of the Participant's employment. Unless otherwise provided in the Agreement, the Expiration Date for an Option shall be the tenth anniversary of its Grant Date.
(n) "FAIR MARKET VALUE" means the average of the high and low sale prices per share of the Common Stock reported in the Wall Street Journal (or if high and low sale prices are not reported, the last sale price reported in the Wall Street Journal or, if the last sale price is not reported, the last bid price per share reported in the Wall Street Journal) for the last preceding day on which the Common Stock was traded prior to the date with respect to which the fair market value is to be determined, as determined by the Committee in its sole discretion.
(o) "GRANT DATE" means the date on which the Committee authorizes an individual Option, Restricted Stock grant or Performance Share Award, or such later date as shall be designated by the Committee.
(p) "INCENTIVE STOCK OPTION" means an Option that is intended to meet the requirements of Section 422 of the Code.
(q) [reserved]
(r) "NONQUALIFIED STOCK OPTION" means an Option that is not intended to constitute an Incentive Stock Option.
(s) "OPTION" means either an Incentive Stock Option or a Nonqualified Stock Option to purchase Common Stock.
(t) "PARTICIPANT" shall have the meaning ascribed in Section 1.4 of the Plan.
(u) "PERFORMANCE SHARE AWARD" means an award granted in accordance with Article IV of the Plan.
(v) "PLAN" means the Nematron Corporation Long-Term Incentive Plan, the terms of which are set forth herein, and amendments thereto.
(w) "RESTRICTION PERIOD" means the period or periods of time during which a Participant's Restricted Stock grant is subject to restrictions on transferability.
(x) "RESTRICTED STOCK" means Common Stock that is subject to restrictions on transferability.
(y) "RETIREMENT" means retirement at age 65 or older.
(z) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as in effect from time to time.
(aa) "SUBSIDIARY" means a corporation defined in Code
Section 424(f).
1.3 ADMINISTRATION. The Plan shall be administered by the Committee. The Committee shall interpret the Plan, prescribe, amend, and rescind rules and regulations relating to the Plan, and make all other determinations necessary or advisable for its administration. The decision of the Committee on any question concerning the interpretation of the Plan or its administration with respect to any Option, Restricted Stock grant or Performance Share Award granted under the Plan shall be final and binding upon all Participants.
1.4 PARTICIPANTS. Participants in the Plan shall be such Employees (including Employees who are Directors) as the Committee may select from time to time. The Committee may grant Options, Restricted Stock and Performance Share Awards to an individual upon the condition that the individual become an Employee, provided that the Option, Restricted Stock grant or Performance Share Award shall be deemed to be granted only on the date that the individual becomes an Employee.
1.5 STOCK. The total number of shares of Common Stock available for grants and awards under the Plan shall not, in the aggregate, exceed 1,250,000 shares of Common Stock, as adjusted from time to time in accordance with Article VI. Shares subject to any unexercised portion of a terminated, forfeited, canceled or expired Option granted hereunder, and shares subject to any terminated, forfeited, canceled or expired portion of a Performance Share Award or Restricted Stock grant made hereunder shall be available for subsequent grants and awards under the Plan.
1.6 AGREEMENT. No person shall have any rights under any grant or award made pursuant to the Plan unless and until the Corporation and the recipient of the grant or award have executed and delivered an agreement expressly granting or awarding benefits to such person pursuant to the Plan and containing the provisions required under the Plan to be set forth in the Agreement. The terms of the Plan shall govern in the event any provision of any Agreement conflicts with any term in this Plan as constituted on the Grant Date.
II. STOCK OPTIONS FOR EMPLOYEES
2.1 GRANT OF OPTIONS. The Committee, at any time and from time to time, subject to Section 7.7, may grant Options to such Employees and for such number of shares of Common Stock as it shall designate. Any Participant may hold more than one Option under the Plan and any other Plan of the Corporation. The Committee shall determine, in its discretion, subject to the limitations set forth in the Plan, the general terms and conditions of the Option, including, without limitation, the number of shares which the Option entitles the holder to purchase, the exercise price, the time or times during which the Option shall be exercisable and the Expiration Date of the Option, which terms shall be set forth in a Participant's Agreement; provided that, during any three year period, no salaried Employee shall receive Options to purchase more than 500,000 shares of Common Stock. The Committee may designate any Option granted as either an Incentive Stock Option or a Nonqualified Stock Option, or the Committee may designate a portion of an Option as an Incentive Stock Option or a Nonqualified Stock Option.
2.2 INCENTIVE STOCK OPTIONS. Any Option intended to constitute an Incentive Stock Option shall comply with the requirements of this Section 2.2 in addition to the other requirements of this Article II. No Incentive Stock Option shall be granted with an exercise price below its Fair Market Value on the Grant Date or with an exercise term that extends beyond 10 years from the Grant Date. An Incentive Stock Option shall not be granted to any Participant who owns (within the meaning of Code Section 424(d)) stock of the Corporation possessing more than 10% of the total combined voting power of all classes of stock of the Corporation unless, at the Grant Date, the exercise price for the Option is at least 110% of the Fair Market Value of the shares subject to the Option and the Option, by its terms, is not exercisable more than five years after the Grant Date. The aggregate Fair Market Value of the underlying Common Stock (determined at the Grant Date) as to which Incentive Stock Options granted under the Plan may first be exercised by a Participant in any one calendar year shall not exceed $100,000. To the extent that an Option intended to constitute an Incentive Stock Option shall violate the foregoing $100,000 limitation, the portion of the Option that exceeds the $100,000 limitation shall be deemed to constitute a Nonqualified Stock Option.
2.3 OPTION PRICE. The Committee shall determine the per share exercise price for each Option granted under the Plan; provided, that the exercise price shall not be less than the Fair Market Value on the Grant Date.
2.4 PAYMENT FOR OPTION SHARES. The purchase price for shares of
Common Stock to be acquired upon exercise of an option granted hereunder shall
be paid in full, at the time of exercise, in any of the following ways: (a) in
cash, (b) by certified check, bank draft or money order, (c) by tendering to the
Company shares of Common Stock then owned by the Participant, duly endorsed for
transfer or with duly executed stock power attached, which shares shall be
valued at their Fair Market Value as of the date of such exercise and payment or
(d) by delivery to the Company of a properly executed exercise notice,
acceptable to the Company, together with irrevocable instructions to the
Participant's broker to deliver to the Company a sufficient amount of cash to
pay the exercise price and any applicable income and employment withholding
taxes, in accordance with a written agreement between the Company and the
brokerage firm ("Cashless Exercise") if, at the time of exercise, the Company
has entered into such an agreement.
III. RESTRICTED STOCK
3.1 GRANT OF RESTRICTED STOCK. Subject to the terms and conditions of the Plan, the Committee, at any time and from time to time, may grant shares of Restricted Stock under this Plan to such Employees in such amounts as it shall determine.
3.2 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Stock shall be evidenced by an Agreement that shall specify the terms of the restrictions, including the Restriction Period, the number of shares subject to the grant, and such other provisions, including performance goals, if any, as the Committee may determine.
3.3 TRANSFERABILITY. Except as provided in this Article III of the Plan, the shares of Restricted Stock granted hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated, hypothecated or encumbered until the termination of the applicable Restriction Period established by the Committee and specified in the Agreement, or upon the earlier satisfaction of other conditions as specified by the Committee in its sole discretion and set forth in such Agreement. The Committee may, but is not required to, specify more than one set of restrictions applicable to a Restriction Period with respect to a Restricted Stock grant. All rights with respect to the Restricted Stock granted to a Participant shall be exercised during a Participant's lifetime only by the Participant or the Participant's legal representative.
3.4 OTHER RESTRICTIONS. The Committee may impose such other restrictions on any shares of Restricted Stock granted under the Plan as it may deem advisable including, without limitation, restrictions under applicable Federal or State securities laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions.
3.5 CERTIFICATE LEGEND. In addition to any legends placed on certificates pursuant to Sections 3.3 and 3.4, each certificate representing shares of Restricted Stock shall bear the following legend:
The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law, is subject to certain restrictions on transfer set forth in the Nematron Corporation Long-Term Incentive Plan ("Plan"), rules and administrative guidelines adopted pursuant to such Plan and a Restricted Stock Agreement dated April 6, 1999. A copy of the Plan, such rules and such Restricted Stock Agreement may be obtained from Nematron Corporation.
3.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article III of the Plan, and subject to applicable federal and state securities laws, shares covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Restriction Period. Once the shares are released from the restrictions, the Participant shall be entitled to have the legend required by Section 3.6 of the Plan removed from the certificate representing such shares. The Committee shall have discretion to waive the applicable Restriction Period with respect to all or any part of a Restricted Stock grant.
3.7 VOTING RIGHTS. During the Restriction Period, Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to the Restricted Stock.
3.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Restriction Period, a Participant shall be entitled to receive all dividends and other distributions paid with respect to shares of Restricted Stock. If any dividends or distributions are paid in shares of Common Stock during the Restriction Period, the dividend or other distribution shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid.
IV. PERFORMANCE SHARE AWARDS
4.1 GRANT OF PERFORMANCE SHARE AWARDS. The Committee, at its discretion, may grant Performance Share Awards (including, but not limited to, stock appreciation rights and phantom shares) to Employees and may determine, on an individual or group basis, the performance goals to be attained pursuant to each Performance Share Award.
4.2 TERMS OF PERFORMANCE SHARE AWARDS. In general, Performance Share Awards shall consist of rights to receive cash, Common Stock or a combination of each, if designated performance goals are achieved. The terms of a Participant's Performance Share Award shall be set forth in the Agreement relating to such Award. Each Agreement shall specify the performance goals applicable to the Participant, the period over which the goals are to be attained, the payment schedule if the goals are attained, and any other terms, conditions and restrictions applicable to an individual Performance Share Award and not inconsistent with the provisions of the Plan. The Committee, at its discretion, may waive all or part of the conditions, goals and restrictions applicable to the receipt of full or partial payment of a Performance Share Award.
V. TERMINATION
5.1. OPTIONS.
The time or times at which an Option shall terminate prior to its Expiration Date shall be determined by the Committee in its discretion and set forth in the Agreement relating to such Option. If a Participant's Agreement does not specify such time or times, the following shall apply:
(A) If a Participant's employment is terminated for any reason prior to the date that an Option or a portion thereof first becomes exercisable, such Option or portion thereof shall terminate and all rights thereunder shall cease.
(B) To the extent an Option is exercisable and unexercised on the date a Participant's employment is terminated
(I) for any reason other than death, Disability or Retirement, the Option shall terminate on the earlier of (A) the Expiration Date of the Option, and (B) three months after the Participant's termination.
(II) because the Participant has died or become subject to a Disability, the Option shall terminate on the earlier of (A) the Expiration Date of the Option and (B) the first anniversary of the date of such Participant's termination.
(III) due to Retirement, the Option shall terminate on the earlier of (A) the Expiration Date of the Option, and (B) the second anniversary of such Participant's termination.
(C) During the period from the Participant's termination until the termination of the Option, the Participant, or the person or persons to whom the Option shall have been transferred by will or by the laws of descent and distribution, may exercise the Option only to the extent that such Option was exercisable on the date of the Participant's termination.
(D) The Committee may, at any time, accelerate the right of a Participant to exercise an Option or extend the exercise period of such an Option; provided, that no Option exercise period may be extended beyond the Option's Expiration Date.
5.2 RESTRICTED STOCK. If a Participant's employment is terminated for any reason, any shares of Common Stock owned by a Participant which were the subject of a Restricted Stock grant under the Plan and at the time of such termination are subject to a Restriction Period shall be forfeited by the Participant to the Corporation upon such termination; provided, that the Committee, in its sole discretion, may waive the restrictions remaining on any or all shares of Restricted Stock as it deems appropriate.
5.3 PERFORMANCE SHARES. Performance Share Awards shall expire and be forfeited by a Participant upon termination of the Participant's employment for any reason; provided, that the Committee, in its discretion, may waive all or part of the conditions, goals and restrictions applicable to the receipt of full or partial payment of a Performance Share Award.
5.4 OTHER PROVISIONS. The transfer of an Employee from one corporation to another among the Corporation and any of its Subsidiaries, or a leave of absence under the Corporation's leave policy, shall not be a termination of employment for purposes of the Plan.
VI. ADJUSTMENTS AND CHANGE IN CONTROL
6.1 ADJUSTMENTS. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Corporation, issuance of warrants or other rights to purchase Common Stock or other securities of the Corporation, or other similar corporate transaction or event affects the Common Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (a) the number and type of shares of Common Stock which thereafter may be made the subject of grants and awards under the Plan, (b) the number and type of shares of Common Stock subject to outstanding grants and awards, (c) the exercise price with respect to any Option, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Option and (d) any performance-related conditions of any outstanding grants and awards based upon the price of Common Stock; provided, in each case, that with respect to Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422 of the Code or any successor provision thereto; and provided further, that any such adjustment shall provide for the elimination of any fractional share which might otherwise become subject to an Option, Restricted Stock grant or Performance Share Award.
6.2 CHANGE IN CONTROL. Notwithstanding anything contained herein to the contrary, upon a Change in Control, (i) any outstanding Option granted hereunder immediately shall become exercisable in full, regardless of any installment provision applicable to such Option, (ii) the remaining Restriction Period on any Restricted Stock granted hereunder immediately shall lapse and the shares shall become fully transferable, subject to any applicable federal or state securities laws, and (iii) all performance goals and conditions shall be deemed to have been satisfied and all restrictions shall lapse on any outstanding Performance Share Awards, which immediately shall become payable in full.
VII. MISCELLANEOUS
7.1 PARTIAL EXERCISE/FRACTIONAL SHARES. The Committee shall permit, and shall establish procedures for, the partial exercise of Options under the Plan. No fractional shares shall be issued in connection with the exercise of a Performance Share Award; instead, the Fair Market Value of the fractional shares shall be paid in cash, or at the discretion of the Committee, the number of shares shall be rounded down to the nearest whole number of shares and any fractional shares shall be disregarded.
7.2 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of the Plan, the Committee may impose such conditions on the exercise of an Option, or the grant of Restricted Stock or
a Performance Share Award (including, without limitation, the right of the Committee to limit the time of exercise to specified periods) as may be required to satisfy the requirements of Rule 16b-3.
7.3 RIGHTS PRIOR TO ISSUANCE OF SHARES. No Participant shall have any rights as a shareholder with respect to shares covered by an Option, Restricted Stock grant or Performance Share Award until, in the case of an Option, the Option is exercised or, in the case of a Restricted Stock grant or a Performance Share Award, the issuance of a stock certificate for such shares.
7.4 NON-ASSIGNABILITY. No Option, Restricted Stock grant or Performance Share Award shall be transferable by a Participant except by will or the laws of descent and distribution. During the lifetime of a Participant, an Option shall be exercised only by the Participant. No transfer of an Option, Restricted Stock grant or Performance Share Award by will or the laws of descent and distribution shall be effective to bind the Corporation unless the Corporation shall have been furnished with written notice thereof and a copy of the will or such evidence as the Corporation may deem necessary to establish the validity of the transfer and the acceptance by the transferee of the terms and conditions of the Option, Restricted Stock grant or Performance Share Award.
7.5. SECURITIES LAWS.
(A) Anything to the contrary herein notwithstanding, the Corporation's obligation to sell and deliver Common Stock pursuant to the exercise of an Option or deliver Common Stock pursuant to a Restricted Stock grant or Performance Share Award is subject to such compliance with federal and state laws, rules and regulations applying to the authorization, issuance or sale of securities as the Corporation deems necessary or advisable. The Corporation shall not be required to sell and deliver Common Stock unless and until it receives satisfactory assurance that the issuance or transfer of such shares shall not violate any of the provisions of the Securities Act of 1933 or the Exchange Act, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder or those of the National Association of Securities Dealers, Inc. or any stock exchange on which the Common Stock may be listed, the provisions of any state laws governing the sale of securities, or that there has been compliance with the provisions of such acts, rules, regulations and laws.
(B) The Committee may impose such restrictions on any shares of Common Stock acquired pursuant to the exercise of an Option or the grant of Restricted Stock or a Performance Share Award under the Plan as it may deem advisable, including, without limitation, restrictions (i) under applicable federal securities laws, (ii) required by the Nasdaq Stock Market (including, without limitation, with respect to securities traded on the Nasdaq National Market or the Nasdaq SmallCap Market) or any stock exchange or other recognized trading market upon which such shares of Common Stock are then listed or traded, and (iii) under any blue sky or state securities laws applicable to such shares. No shares shall be issued until counsel for the Corporation has determined that the Corporation has complied with all requirements under appropriate securities laws.
7.6 WITHHOLDING TAXES. The Corporation shall have the right to withhold from a Participant's compensation or require a Participant to remit sufficient funds to satisfy applicable withholding for income and employment taxes upon the exercise of an Option or the lapse of the Restriction Period on a Restricted Stock grant or the payment of a Performance Share Award. The cashless exercise procedure described in Section 2.4 may be utilized to satisfy the withholding requirements related to the exercise of an Option.
7.7 TERMINATION AND AMENDMENT.
(A) The Board may terminate the Plan, or the granting of Options, Restricted Stock or Performance Share Awards under the Plan, at any time. No new grants or awards shall be made under the Plan after the tenth anniversary date of the Effective Date.
(B) The Board may amend or modify the Plan at any time and from time to time.
(C) No amendment, modification, or termination of the Plan shall adversely affect any Option, Restricted Stock grant or Performance Share Award granted under the Plan
without the consent of the Participant holding the Option, Restricted Stock grant or Performance Share Award.
7.8 EFFECT ON EMPLOYMENT. Neither the adoption of the Plan nor the granting of any Option, Restricted Stock or Performance Share Award pursuant to the Plan shall be deemed to create any right in any individual to be retained or continued as an Employee.
7.9 USE OF PROCEEDS. The proceeds received from the sale of Common Stock pursuant to the Plan shall be used for general corporate purposes of the Corporation.
7.10 APPROVAL OF PLAN. The Plan shall be subject to the approval of the holders of at least a majority of the shares of Common Stock of the Corporation present and entitled to vote at a meeting of shareholders of the Corporation held within 12 months after adoption of the Plan by the Board. Any Option, Restricted Stock or Performance Share Award granted under the Plan on or after January 12, 1999 prior to such stockholder approval shall be conditioned upon receipt of such approval and may not be exercised in whole or in part unless the Plan has been approved by the shareholders as provided herein. If not approved by shareholders within 12 months after approval by the Board, the Plan shall be rescinded and any Options, Restricted Stock grants and Performance Share Awards granted under the Plan shall be void retroactive to the Grant Date.
BOARD APPROVAL: 1/12/99
STOCKHOLDER APPROVAL: 4/6/99
| ARTICLE 5 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD END | MAR 31 1999 |
| CASH | 1554952 |
| SECURITIES | 0 |
| RECEIVABLES | 2875314 |
| ALLOWANCES | 167000 |
| INVENTORY | 1674113 |
| CURRENT ASSETS | 6520521 |
| PP&E | 3066530 |
| DEPRECIATION | (5682871) |
| TOTAL ASSETS | 14207886 |
| CURRENT LIABILITIES | 10868180 |
| BONDS | 1897851 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 24834672 |
| OTHER SE | (4252) |
| TOTAL LIABILITY AND EQUITY | 14207886 |
| SALES | 5806325 |
| TOTAL REVENUES | 5806325 |
| CGS | 3936225 |
| TOTAL COSTS | 1415873 |
| OTHER EXPENSES | 2388 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 249850 |
| INCOME PRETAX | 201990 |
| INCOME TAX | 10800 |
| INCOME CONTINUING | 212790 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 212790 |
| EPS PRIMARY | 0.04 |
| EPS DILUTED | 0.02 |