-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GHdo6XptXoL1e/n4PifJWuol/7rPBOc6FvwIcSpGNxIXyWVs0lfOj/gG+jpY5X4X AGv9QGJtzI5SrAxvFovaQA== 0000892569-97-002222.txt : 19970814 0000892569-97-002222.hdr.sgml : 19970814 ACCESSION NUMBER: 0000892569-97-002222 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRISTOL RETAIL SOLUTIONS INC CENTRAL INDEX KEY: 0001016657 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 582235556 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21633 FILM NUMBER: 97658802 BUSINESS ADDRESS: STREET 1: 18201 VON KARMAN STREET 2: STE 305 CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: 7144750800 MAIL ADDRESS: STREET 1: 18201 VON KARMAN AVE STREET 2: SUITE 305 CITY: IRVINE STATE: CA ZIP: 92612 FORMER COMPANY: FORMER CONFORMED NAME: BRISTOL TECHNOLOGY SYSTEMS INC DATE OF NAME CHANGE: 19960924 10QSB 1 FORM 10QSB FOR THE QUARTER ENDED JUNE 30, 1997 1 UNITED STATES SECURITES 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 June 30, 1997 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: 0-21633 BRISTOL RETAIL SOLUTIONS, INC. (Exact name of small business issuer as specified in its charter)
Delaware 58-2235556 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5000 Birch Street, Suite 205, Newport Beach, California 92660 (Address of principal executive offices) (Zip code)
(714) 475-0800 (Issuer's telephone number, including area code) BRISTOL TECHNOLOGY SYSTEMS, INC. 18201 Von Karman Avenue, Suite 305, Irvine, California 92612 (Former name, former address and former fiscal year, if changed since last report.) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $.001 par value - 5,466,159 shares as of July 31, 1997 Class A Redeemable Common Stock Purchase Warrants - 718,750 as of July 31, 1997 Page 1 2 BRISTOL RETAIL SOLUTIONS, INC. Index
Part I --- FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) BRISTOL RETAIL SOLUTIONS, INC. AND SUBSIDIARIES (SUCCESSOR): CASH REGISTERS, INCORPORATED (PREDECESSOR): Consolidated Balance Sheet as of June 30, 1997 (Successor) 3 Consolidated Statements of Operations for the three months ended June 30, 1997 (Successor) and for the three months ended June 30, 1996 (Predecessor) 4 Consolidated Statements of Operations for the six months ended June 30, 1997 (Successor) and for the six months ended June 30, 1996 (Predecessor) 5 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 (Successor) and for the six months ended June 30, 1996 (Predecessor) 6-7 Notes to Consolidated Financial Statements 8-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 Part II --- OTHER INFORMATION Item 2. Changes in Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 21-22 Signature 23
Page 2 3 BRISTOL RETAIL SOLUTIONS, INC. Consolidated Balance Sheet (Successor) (Unaudited) June 30, 1997
ASSETS Current assets Cash and cash equivalents $ 765,943 Accounts receivable, net of allowance for doubtful accounts of $199,327 2,812,439 Inventories 3,298,748 Prepaid expenses and other current assets 797,111 Current portion of note receivable 78,110 Amounts due from related parties 60,051 ---------------------- Total current assets 7,812,402 Property and equipment, at cost: Furniture and equipment 586,488 Automobiles 168,012 Leasehold improvements 102,452 ---------------------- 856,952 Less accumulated depreciation and amortization 91,453 ---------------------- Property and equipment, net 765,499 Intangible assets, net of accumulated amortization of $85,189 5,921,357 Note receivable - noncurrent portion 366,414 Other assets 717,269 ---------------------- Total assets $ 15,582,941 ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 704,599 Accounts payable 1,911,766 Accrued salaries, wages and related benefits 692,808 Accrued expenses 478,804 Deferred revenue 1,392,815 Customer advances 506,376 Note payable to related party 50,000 Current portion of capital lease obligations 20,195 Current portion of long-term debt 43,796 ---------------------- Total current liabilities 5,801,159 Capital lease obligations - noncurrent portion 30,042 Other long-term liabilities 51,909 Commitments and contingencies Stockholders' equity Preferred stock, $.001 par value: Authorized shares - - - 4,000,000 - - None issued and outstanding Common stock, $.001 par value: Authorized shares - - - 20,000,000 Issued and outstanding shares - - - 5,466,159 5,466 Additional paid-in capital 11,033,829 Accumulated deficit (1,314,839) ---------------------- 9,274,456 Less treasury stock, at cost, 5,000 shares (24,625) ---------------------- Total stockholders' equity 9,699,831 ---------------------- Total liabilities and stockholders' equity $ 15,582,941 ======================
See accompanying notes. Page 3 4 BRISTOL RETAIL SOLUTIONS, INC. Consolidated Statements of Operations (Unaudited)
(Successor) (Predecessor) Three Months Ended June 30, 1997 1996 ---------------------- ------------------------ Revenue: System sales and installation $ 3,092,157 $ 1,722,402 Service and supplies sales 1,492,264 529,294 ---------------------- ------------------------ Net revenue 4,584,421 2,251,696 Costs and expenses: Cost of system sales and installation 2,107,872 1,196,549 Cost of service and supplies sales 1,089,623 316,059 Selling, general and administrative expenses 2,113,141 644,597 Research and development costs 72,102 -- Write-off of cash surrender value of life insurance -- 76,140 ---------------------- ------------------------ Total costs and expenses 5,382,738 2,233,345 ---------------------- ------------------------ Operating income (loss) (798,317) 18,351 Other (income) expense: Interest income (44,681) (2,036) Interest expense 19,592 5,174 ---------------------- ------------------------ Total other (income) expense (25,089) 3,138 ---------------------- ------------------------ Income (loss) before income taxes (773,228) 15,213 Income tax provision (benefit) - - 5,335 ---------------------- ------------------------ Net income (loss) $ (773,228) $ 9,878 ====================== ======================== Net income (loss) per common share $ (0.15) $ 9.68 ====================== ======================== Common shares used in computing per share amounts 5,001,932 1,020 ====================== ========================
See accompanying notes. Page 4 5 BRISTOL RETAIL SOLUTIONS, INC. Consolidated Statements of Operations (Unaudited)
(Successor) (Predecessor) Six Months Ended June 30, 1997 1996 ---------------------- ------------------------ Revenue: System sales and installation $ 4,840,978 $ 3,018,990 Service and supplies sales 2,403,741 998,774 ---------------------- ------------------------ Net revenue 7,244,719 4,017,764 Costs and expenses: Cost of system sales and installation 3,279,468 2,148,267 Cost of service and supplies sales 1,778,958 634,195 Selling, general and administrative expenses 3,397,962 1,172,762 Research and development costs 72,102 - - Write-off of cash surrender value of life insurance - - 76,140 ---------------------- ------------------------ Total costs and expenses 8,528,490 4,031,364 ---------------------- ------------------------ Operating loss (1,283,771) (13,600) Other (income) expense: Investment income (108,933) (11,583) Interest expense 32,326 8,683 ---------------------- ------------------------ Total other income (76,607) (2,900) ---------------------- ------------------------ Loss before income taxes (1,207,164) (10,700) Income tax provision (benefit) 1,050 (3,752) ---------------------- ------------------------ Net loss $ (1,208,214) $ (6,948) ====================== ======================== Net loss per common share $ (0.25) $ (6.88) ====================== ======================== Common shares used in computing per share amounts 4,874,501 1,010 ====================== ========================
See accompanying notes. Page 5 6 BRISTOL RETAIL SOLUTIONS, INC. Consolidated Statements of Cash Flows (Unaudited)
(Successor) (Predecessor) Six Months Ended June 30, 1997 1996 ------------------- ------------------ Operating activities Net loss $ (1,208,214) $ (6,948) Adjustments to reconcile net loss to net cash and cash equivalents provided by (used in) operating activities: Depreciation 72,229 9,930 Amortization 66,600 - - Provision for doubtful accounts 38,939 15,224 Reserve for excess and obsolete inventories 38,647 - - Compensation expense 8,021 - - Deferred income taxes - - 8,500 Changes in operating assets and liabilities Accounts receivable 120,891 (195,210) Inventories 59,714 218,979 Prepaid expenses and other assets (389,038) 35,364 Accounts payable (23,489) 314,026 Other accrued expenses 175,384 9,689 Deferred revenue 2,785 (66,542) Customer advances 67,959 (233,487) Other long-term liabilities 27,409 - - ------------------ ----------------- Net cash and cash equivalents provided by (used in) operating activities (942,163) 109,525 Investing activities Capital expenditures (84,532) (20,650) Purchase of subsidiary companies, net of cash acquired (2,807,554) - - Receivables from rescinded acquisition (850,000) - - ------------------ ----------------- Net cash and cash equivalents used in investing activities (3,742,086) (20,650) Financing activities Net borrowings (repayments) on lines of credit 66,158 (13,406) Repayment of note payable to related party (47,922) (35,000) Repayment of capital lease obligations (3,671) - - Repayment of long-term debt (15,422) - - Repurchase of stock (24,625) (37,203) ------------------ ----------------- Net cash and cash equivalents used in financing activities (25,482) (85,609) Net increase (decrease) in cash and cash equivalents (4,709,731) 3,266 Cash and cash equivalents at beginning of period 5,475,674 2,269 ================== ================= Cash and cash equivalents at end of period $ 765,943 $ 5,535 ================== ================= Supplemental disclosures of cash flow information: Cash paid for interest $ 32,326 $ 8,683 ================== ================= Cash paid for income taxes, net $ 97,659 $ 14,500 ================== =================
See accompanying notes. Page 6 7 BRISTOL RETAIL SOLUTIONS, INC. Consolidated Statements of Cash Flows (Unaudited)
Supplemental disclosures of cash flow information (continued): The Company made certain business acquisitions during the six months ended June 30, 1997 for consideration of cash and the Company's common stock. The fair values of the assets acquired and the liabilities assumed at the respective dates of acquisition are as follows: Current assets, net of cash acquired $ 3,151,269 Property and equipment 861,409 Long-term assets 270,032 Intangible assets 4,294,557 Current liabilities (2,616,953) Long-term debt, net of current portion (353,104) ========================= Net assets acquired $ 5,607,210 ========================= The acquisitions were funded as follows: Cash 2,807,554 Note payable in cash 21,052 Common stock 2,749,656 Note payable in common stock 28,948 ========================= $ 5,607,210 =========================
Effective June 1, 1997, the Company transferred certain land, buildings and building improvements acquired as part of the EBM acquisition with a fair value of $381,000 and certain loans aggregating $381,000 assumed as part of the EBM acquisition to the former owner of EBM. See accompanying notes. Page 7 8 BRISTOL RETAIL SOLUTIONS, INC. Notes to Consolidated Financial Statements (Unaudited) June 30, 1997 Organization and Basis of Presentation Bristol Retail Solutions, Inc. (the Company, formerly Bristol Technology Systems, Inc.) was incorporated on April 3, 1996 in the state of Delaware for the purpose of acquiring and operating a national network of full service retail automation solution providers. As of June 30, 1997, the Company has acquired five companies (three "hubs" and two "spokes") that sell, install and maintain point-of-sale (POS) systems and turnkey retail automation (VAR) systems throughout the United States (see Acquisitions). The Company changed its name to Bristol Retail Solutions, Inc. in July 1997. The Company's former name was Bristol Technology Systems, Inc. The accompanying consolidated financial statements have been prepared by the Company without audit in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-QSB and Item 310 of Regulation S-B. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements do not include certain footnotes and financial presentations normally required under generally accepted accounting principles (GAAP) and, therefore, should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-KSB for the period from inception (April 3, 1996) to December 31, 1996. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Since the Company did not exist before April 3, 1996, but its wholly-owned subsidiary Cash Registers, Incorporated (CRI) did exist before that date, GAAP defines CRI as the Predecessor to the Company. As such, GAAP requires that the statement of operations of CRI for the three months ended June 30, 1996 and the statements of operations and cash flows of CRI for the six months ended June 30, 1996 be presented herein. The Company's consolidated financial statements as of June 30, 1997 include the accounts of the Company and its wholly-owned subsidiaries. Accordingly, the statements of operations and cash flows presented for the period subsequent to the acquisition of CRI (Successor) are not comparable to the statements of operations and cash flows for the period prior to the acquisition of CRI (Predecessor). No statement of operations for the Company has been presented for the period from inception (April 3, 1996) to June 30, 1996 because all costs incurred by the Company during that period, except for salaries of $31,250 that were expensed, were incurred in connection with the acquisition of CRI and were included as part of the CRI purchase price. Operations The Company anticipates that its current cash on hand, cash flow from operations and additional financing available under its various credit facilities will be sufficient to meet the Company's liquidity requirements for its operations through the end of fiscal 1997. However, the Company intends to identify, evaluate and acquire additional retail automation solution businesses during the remainder of the calendar year. These acquisitions are expected to be funded through a combination of cash and common stock and may necessitate additional costs and expenditures to expand operational and financial systems and corporate management and administration. The Company will require additional financing in order to continue this acquisition program. The Company is currently in the process of obtaining additional debt financing in order to meet its anticipated acquisition financial requirements during the remainder of fiscal 1997. However, there can be no assurance that the Company will be able to successfully obtain financing or that such financing will be available on terms the Company deems acceptable. The Company's long-term success is dependent upon its ability to obtain necessary financing, the successful execution of management's strategic plan and the achievement of sustained profitable operations. Acquisitions During the period from inception (April 3, 1996) to December 31, 1996, the Company acquired all of the outstanding common stock of CRI and Automated Register Systems, Inc. (ARS) for aggregate cash consideration of $2,058,000, including acquisition costs of $150,000, and 58,154 shares of non-registered, restricted common stock of the Company which were valued at $683,000 at the acquisition date. On April 1, 1997, the Company, though its wholly-owned subsidiary CRI, acquired all of the outstanding common stock of MicroData, Inc. (MicroData), a POS dealer with operations in Illinois and Kentucky, for consideration of $98,000 in Page 8 9 cash, including $19,000 of acquisition costs, and 11,415 shares of non-registered, restricted common stock of the Company valued at approximately $136,000. On May 29, 1997, the Company acquired Smyth Systems, Inc. (Smyth) for consideration of $2,369,000 in cash, including $20,000 of acquisition costs, and 569,408 shares of non-registered, restricted common stock of the Company valued at approximately $2,064,000. Smyth operates through two divisions which (i) provide VAR systems to customers throughout the United States and (ii) provide POS systems to customers in Southern California and Ohio. On June 6, 1997, the Company, through its wholly-owned subsidiary CRI, acquired Electronic Business Machines, Inc. (EBM), a POS dealer with operations in Indiana and Kentucky, for consideration of $452,000 in cash, including $52,000 of acquisition costs, and 139,682 shares of non-registered, restricted common stock of the Company valued at approximately $550,000. In addition, seventy-five (75) days following the closing date additional consideration of $21,000 in cash and 7,351 shares of non-registered, restricted common stock of the Company valued at approximately $29,000 will be paid to the shareholder of EBM. This additional consideration totaling $50,000 is recorded as a note payable to related party in the accompanying balance sheet at June 30, 1997. The acquisitions have been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based upon the fair values at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired has been recorded as intangible assets (goodwill). Goodwill acquired as part of the CRI and ARS acquisitions aggregating $1,712,000 is being amortized on a straight-line basis over an estimated life of 15 years and goodwill acquired as part of all other acquisitions aggregating $4,295,000 is being amortized on a straight-line basis over an estimated life of 40 years. The purchase price allocation related to the Smyth and EBM acquisitions is preliminary and the final purchase price allocation may involve the assignment of amounts to different intangible assets which may be amortized over different periods. The Company's consolidated statements of operations include the revenues and expenses of CRI, ARS, MicroData and Smyth subsequent to the acquisitions' respective closing dates. Pursuant to the EBM acquisition agreement, the Company assumed control of EBM's operations on May 31, 1997 and has included the revenues and expenses of EBM from such date in its consolidated statements of operations. Effective June 1, 1997, the Company transferred certain land, buildings and building improvements acquired as part of the EBM acquisition with a fair value of $381,000 and certain loans aggregating $381,000 assumed as part of the EBM acquisition to the former owner of EBM. The following presents the unaudited pro forma results of operations of the Company for the six-month period ended June 30, 1997 as if the Smyth and EBM acquisitions had been consummated on January 1, 1997, and includes pro forma adjustments to amortize intangible assets acquired as part of the acquisitions.
Six Months Ended June 30, 1997 ------------- Net revenue $ 13,039,000 Net loss $ (1,332,000) Net loss per share $ (.24) Shares used in computing net income per share 5,464,788
The pro forma results of operations are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisitions occurred on January 1, 1997 or the results which may occur in the future. On May 9, 1997, pursuant to a merger agreement dated April 30, 1997, the Company acquired all of the outstanding common stock of International Systems & Electronics Corporation (ISE), a POS dealer with operations in Florida, for consideration of $1,192,000 in cash, including $92,000 of acquisition costs, and 130,434 shares of non-registered, restricted common stock of the Company valued at approximately $750,000. On July 23, 1997, the Company entered into a Rescission Agreement whereby the merger agreement and all of the transactions contemplated thereunder were rescinded in their entirety effective as of April 30, 1997. Under the Rescission Agreement, at the closing date (i) all of the 130,434 shares of common stock will be returned to the Company and canceled; (ii) the shareholder of ISE will refund to the Company $250,000 in cash; (iii) the shareholder of ISE will deliver to the Company a promissory note in the amount of $350,000 bearing interest at 8.5% to be paid in thirty equal monthly installments commencing in January 1998; (iv) the shareholder of ISE will begin from time to time to make monthly transfers of finished goods inventory to the Company with an aggregate market value of up to $250,000; and (v) a consulting agreement will be executed by the shareholder of ISE to provide consulting services to the Company through December 31, 2001 for a fee of $250,000, which fee has been prepaid by the Company. The transactions contemplated by the Rescission Agreement are expected to close on August 15, 1997. All costs incurred related to the acquisition and the subsequent rescission have been expensed in the accompanying statements of operations. The $1,100,000 cash payment made to the shareholder of ISE in accordance with the merger agreement has been recorded as receivables and prepaid consulting fees, in Page 9 10 accordance with the terms of the Rescission Agreement. The shares of common stock issued in the acquisition and subsequently canceled under the rescission agreement are not included in the common shares used in computing per share amounts. Income Taxes The Company provides for income taxes in interim periods based on the estimated effective income tax rate for the complete fiscal year. For the six months ended June 30, 1997, the estimated effective income tax rate is less than the U.S. statutory rate primarily due to a 100% valuation allowance provided against the deferred tax assets that arose from the current operating loss. Per Share Information Net loss per share is based on the weighted average number of common shares outstanding. Common stock equivalents, which consist of stock options and warrants, were antidilutive for the six months ended June 30, 1997. No common stock equivalents were outstanding during the six months ended June 30, 1996. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods to conform to the new method. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options and warrants will be excluded from the calculation. The new requirements do not significantly change the calculation of fully diluted earnings per share. Statement No. 128 is not expected to impact the Company's net loss per share for the six months ended June 30, 1997 and 1996, as no dilutive stock options and warrants were included in those calculations. Contingencies The Company is subject to legal proceedings and claims which arise in the normal course of its business. Management believes that the resolution of such matters will not have a material effect on the Company's financial position or future results of operations. Debt CRI has a line of credit with a commercial bank which does not have a termination date, but which is reviewed annually for renewal. At June 30, 1997, the line permitted borrowings up to $350,000. Borrowings under the line bear interest at a rate which the Company and the bank mutually agree upon and are secured by CRI's accounts receivable. The line prohibits the reduction or depletion of CRI's capital without 30 days prior written notice to the bank. At June 30, 1997, $320,000 was outstanding under the line at an interest rate of 9.5%. ARS has a line of credit with a bank which provides for aggregate borrowings up to $475,000 based on the value of ARS's accounts receivable and inventory; bears interest at the bank's prime rate plus 1%; matures on June 1, 1998; and is collateralized by ARS's accounts receivable and inventory. ARS had outstanding borrowings of $185,000 bearing interest at 9.5% at June 30, 1997. The line requires ARS to maintain certain financial covenants with which ARS was in compliance at June 30, 1997. The line is guaranteed by the Company and restricts the Company's ability to dispose of substantially all of its assets without the approval of the bank. Smyth has available a $1 million line of credit with a commercial bank which bears interest at the bank's base lending rate plus 0.5%. Borrowings under the line are collateralized by the assets of Smyth and are payable on demand. At June 30, 1997, $200,000 was outstanding under the line at an interest rate of 9%. The line requires Smyth to maintain certain financial covenants with which Smyth was in compliance at June 30, 1997. The line is guaranteed by the Company and restricts the Company's ability to dispose of substantially all of its assets without the approval of the bank. Subsequent Events On August 5, 1997, the Company acquired all of the outstanding common stock of Pacific Cash Register and Computer, Inc. (PCR), a POS dealer with operations in Northern California. As consideration for the merger, the shareholders of PCR received cash of $152,000; 55,417 shares of non-registered, restricted common stock of the Company valued at approximately $166,000 at the acquisition date (the Restricted Stock); and 19,583 additional shares of non-registered, restricted common stock of the Company valued at approximately $59,000 at the acquisition date (the Additional Shares). The retention by the former shareholders of PCR of the Additional Shares is contingent upon PCR achieving a specified level of pre-tax earnings, as defined, for the fiscal year ended December 31, 1997. To the extent that PCR's pre-tax earnings are less than the specified Page 10 11 level, then a proportional amount of the Additional Shares will be returned to the Company and canceled. In addition, at the closing date 25,000 shares of the Restricted Stock valued at approximately $75,000 (the Escrow Shares) were retained in escrow subject to the final determination of PCR's net worth at the closing date. A proportionate amount of the Escrow Shares will be returned to the Company if PCR's net worth at the closing date is less than $107,000. Effective July 22, 1997, CRI increased the borrowing availability under its line of credit facility to $600,000 at an interest rate of prime plus 1% and the Company executed a guarantee of borrowings outstanding under the line. Page 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1997 The following information includes forward-looking statements, the realization of which may be impacted by certain important factors discussed in "Additional Factors That May Affect Future Results," below. OVERVIEW The Company was formed on April 3, 1996 to establish a national network of full service retail automation solution providers. As of June 30, 1997, the Company has acquired five subsidiaries (three "hubs" and two "spokes") that sell, install and maintain point-of-sale (POS) systems and turnkey retail automation (VAR) systems. The Company changed its name to Bristol Retail Solutions, Inc. in July 1997. The Company's former name was Bristol Technology Systems, Inc. The following discussion and analysis of the results of operations relates to 1) the consolidated financial statements of the Company as of and for the three- and six-month periods ended June 30, 1997 and 2) the stand-alone statements of operations and cash flows of CRI for the three- and six-month periods ended June 30, 1996. Because the consolidated results of operations of the Company for the three- and six-month periods ended June 30, 1997 include the results of the Company and its wholly-owned subsidiaries, whereas the results of operations of CRI for the three- and six-month periods ended June 30, 1996 include only the results of CRI, the results of operations for the three- and six-month periods ended June 30, 1997 and June 30, 1996 are not comparable. Accordingly, the discussion of the results of operations stated below does not compare the three- and six-month periods ended June 30, 1997 and June 30, 1996, but instead discusses each period separately. The discussion and analysis of financial condition relates to the consolidated balance sheet of the Company at June 30, 1997. No statement of operations for the Company has been presented for the period from inception (April 3, 1996) to June 30, 1996 because all costs incurred by the Company during that period, except for salaries of $31,250 that were expensed, were incurred in connection with the acquisition of CRI and were included as part of the CRI purchase price. RESULTS OF OPERATIONS OF THE COMPANY Three- and Six-month Periods Ending June 30, 1997 Net revenue The Company's net revenue is comprised of two components: (i) revenue derived from the sale and installation of hardware and software (Systems Revenue) and (ii) revenue derived from the sale of services and supplies (Service Revenue). Net revenue for the quarter ended June 30, 1997 was $4,584,000 and was comprised of net revenue from the Company's wholly-owned subsidiaries CRI, ARS and MicroData for the entire quarter and Smyth and EBM from the date of their respective acquisitions (see Notes to Consolidated Financial Statements, Acquisitions). Net revenue for the quarter ended June 30, 1997 was comprised of $3,092,000, or 67%, of Systems Revenue and $1,492,000, or 33%, of Service Revenue. Net revenue for the six months ended June 30, 1997 was $7,245,000 and was comprised of net revenue from the Company's wholly-owned subsidiaries CRI and ARS for the entire six-month period and MicroData, Smyth and EBM from the date of their respective acquisitions. Net revenue for the six months ended June 30, 1997 was comprised of $4,841,000, or 67%, of Systems Revenue and $2,404,000, or 33%, of Service Revenue. This compares to a composition of net revenue for the period from inception (April 3, 1996) to December 31, 1996 of 74% Systems Revenue and 26% Service Revenue, which is comprised solely of revenues of CRI. The mix of revenue changed during the first six months of 1997 due to a decline in systems sales to Seed Restaurant Group, CRI's largest customer during 1996; due to an increase in Service Revenue derived from additional maintenance contracts obtained as a result of a high volume of systems sold by CRI during the last half of 1996; and due to different revenue mixes at ARS and at the subsidiaries acquired in 1997. No customer accounted for more than 10% of sales for the three- and six-month periods ended June 30, 1997. Sales of products from the Company's three main hardware vendors, Panasonic, ERC Parts, Inc. (ERC), a distributor of Panasonic products, and NCR Corporation (NCR), accounted for approximately 25% and 47% of net revenue for the three- and six-month periods ended June 30, 1997. The Company has supply agreements with these manufacturers. The agreements are non-exclusive, have geographic limitations and have renewable one-year terms. A change in the Company's relationships with these principal vendors could have a material adverse effect on the Company's financial condition and results of operations. Page 12 13 Gross Margin Gross margin for the quarter ended June 30, 1997 was 30% and was comprised of gross margin for Systems Revenue of 32% and gross margin for Service Revenue of 27%. Gross margin for the six months ended June 30, 1997 was 30% and was comprised of gross margin for Systems Revenue of 32% and gross margin for Service Revenue of 26%. This compares to gross margin for the period from inception (April 3, 1996) to December 31, 1996 of 32%, which is comprised solely of gross margin of CRI. Gross margins have decreased slightly in 1997 due primarily to lower margins realized at ARS and at the subsidiaries acquired in 1997. Selling, General and Administrative Expenses Selling, general and administrative expenses for the quarter ended June 30, 1997 were $2,113,000, or 46% of net revenue. Six-month selling, general and administrative expenses were $3,398,000, or 47% of net revenue. Selling, general and administrative expenses increased during the quarter due to planned staffing additions at corporate headquarters needed to integrate acquired companies and to support future growth. Research and Development Costs Research and development costs were $72,000 during the three- and six-month periods ended June 30, 1997 and consist primarily of internal costs to develop proprietary software incurred at the Company's wholly-owned subsidiary Smyth, which was acquired on May 29, 1997. The Company's policy is to expense such costs until technological feasibility is established. Interest Income and Interest Expense Interest income of $45,000 and $109,000 for the three- and six-month periods ended June 30, 1997, respectively, was derived primarily from interest earned on the investment of the Company's proceeds from its initial public offering. The proceeds are invested in a short-term, interest-bearing money market fund. Interest expense of $20,000 and $32,000 for the three- and six-month periods ended June 30, 1997, respectively, consisted primarily of interest on outstanding balances on the Company's lines of credit. Income Tax Provision The Company recorded an effective income tax provision of 0% for the three- and six-month periods ended June 30, 1997. Income tax expense consisted solely of state taxes as the Company had a taxable loss for federal income tax purposes. RESULTS OF OPERATIONS OF CRI Three- and Six-Month Periods Ended June 30, 1996 Net revenue Net revenue for the quarter ended June 30, 1996 was $2,252,000, comprised of $1,723,000, or 76%, of Systems Revenue and $529,000, or 24%, of Service Revenue. Net revenue for the six months ended June 30, 1996 was $4,018,000, comprised of $3,019,000, or 75%, of Systems Revenue and $999,000, or 25%, of Service Revenue. CRI's largest customer, Seed Restaurant Group, accounted for approximately 54% and 49% of net revenue, respectively, for the three- and six-month periods ended June 30, 1996. No other customer accounted for more than 10% of CRI's net revenue for the three- and six-month periods ended June 30, 1996. Sales of products from CRI's two main hardware vendors, ERC and NCR, accounted for approximately 53% and 51% of net revenue, respectively, for the three- and six-month periods ended June 30, 1996. Gross Margin Gross margin for the quarter ended June 30, 1996 was $739,000, or 33%, and was comprised of gross margin for Systems Revenue of 31% and gross margin for Service Revenue of 40%. Gross margin for the six months ended June 30, 1996 was $1,235,000, or 31%, and was comprised of gross margin for Systems Revenue of 29% and gross margin for Service Revenue of 37%. Page 13 14 Selling, General and Administrative Expenses Selling, general and administrative expenses for the quarter ended June 30, 1996 were $645,000, or 29% of net revenue. Six-month selling, general and administrative expenses were $1,173,000, or 29% of net revenue. Write-off of Cash Surrender Value of Officers' Life Insurance The write-off of the cash surrender value of officers' life insurance in the quarter ended June 30, 1996 represents amounts written off because the ownership of the life insurance policies was transferred to former owners and a former director of CRI in contemplation of the acquisition of CRI by the Company. Income Tax Benefit CRI recorded an effective income tax provision of 35% for the quarter ended June 30, 1996 and an effective income tax benefit of 35% for the six months ended June 30, 1996. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY The Company had cash and cash equivalents of $766,000 and working capital of $2,011,000 at June 30, 1997, compared to cash and cash equivalents of $5,476,000 and working capital of $6,164,000 at December 31, 1996. During the six months ended June 30, 1997, the Company utilized $942,000 for operations; utilized $85,000 for the purchase of property and equipment and utilized $2,808,000 for the acquisitions of MicroData, Smyth and EBM; and utilized $25,000 for financing activities, which consists of the net impact of borrowings and repayments under the Company's various debt agreements and the purchase of treasury stock. In addition, the Company utilized $850,000 during the period for an acquisition which was later rescinded. These funds are recorded as receivables at June 30, 1997 and will be returned to the Company as provided in the Rescission Agreement (see Notes to Consolidated Financial Statements - Acquisitions). CRI has a line of credit with a commercial bank which does not have a termination date, but which is reviewed annually for renewal. At June 30, 1997, the line permitted borrowings up to $350,000. Borrowings under the line bear interest at a rate which the Company and the bank mutually agree upon and are secured by CRI's accounts receivable. The line prohibits the reduction or depletion of CRI's capital without 30 days prior written notice to the bank. At June 30, 1997, $320,000 was outstanding under the line at an interest rate of 9.5%. Effective July 22, 1997, CRI increased the borrowing availability under its line of credit to $600,000 at an interest rate of prime plus 1% and the Company executed a guarantee of borrowings outstanding under the line. ARS has a line of credit with a bank which provides for aggregate borrowings up to $475,000 based on the value of ARS's accounts receivable and inventory; bears interest at the bank's prime rate plus 1%; matures on June 1, 1998; and is collateralized by ARS's accounts receivable and inventory. ARS had outstanding borrowings of $185,000 bearing interest at 9.5% at June 30, 1997. The line requires ARS to maintain certain financial covenants with which ARS was in compliance at June 30, 1997. The line is guaranteed by the Company and restricts the Company's ability to dispose of substantially all of its assets without the approval of the bank. Smyth has available a $1 million line of credit with a commercial bank which bears interest at the bank's base lending rate plus 0.5%. Borrowings under the line are collateralized by the assets of Smyth and are payable on demand. At June 30, 1997, $200,000 was outstanding under the line at an interest rate of 9%. The line requires Smyth to maintain certain financial covenants with which Smyth was in compliance at June 30, 1997. The line is guaranteed by the Company and restricts the Company's ability to dispose of substantially all of its assets without the approval of the bank. On April 1, 1997, the Company, though its wholly-owned subsidiary CRI, acquired all of the outstanding common stock of MicroData, a POS dealer with operations in Illinois and Kentucky, for consideration of $98,000 in cash, including $19,000 of acquisition costs, and 11,415 shares of non-registered, restricted common stock of the Company valued at approximately $136,000. The transaction was recorded under the purchase method of accounting. On May 29, 1997, the Company acquired Smyth for consideration of $2,369,000 in cash, including $20,000 of acquisition costs, and 569,408 shares of non-registered, restricted common stock of the Company valued at approximately $2,064,000. Smyth operates through two divisions which (i) provide VAR systems to customers throughout the United States and (ii) provide POS systems to customers in Southern California and Ohio. The transaction was recorded under the purchase method of accounting. Page 14 15 On June 6, 1997, the Company, through its wholly-owned subsidiary CRI, acquired EBM, a POS dealer with operations in Indiana and Kentucky, for consideration of $452,000 in cash, including $52,000 of acquisition costs, and 139,682 shares of non-registered, restricted common stock of the Company valued at approximately $550,000. In addition, seventy-five (75) days following the closing date additional consideration of $21,000 in cash and 7,351 shares of non-registered, restricted common stock of the Company valued at approximately $29,000 will be paid to the shareholder of EBM. The transaction was recorded under the purchase method of accounting. On August 5, 1997, the Company acquired all of the outstanding common stock of PCR, a POS dealer with operations in Northern California. As consideration for the merger, the shareholders of PCR received cash of $152,000; 55,417 shares of non-registered, restricted common stock of the Company valued at approximately $166,000 at the acquisition date (the Restricted Stock); and 19,583 additional shares of non-registered, restricted common stock of the Company valued at approximately $59,000 at the acquisition date (the Additional Shares). The retention by the former shareholders of PCR of the Additional Shares is contingent upon PCR achieving a specified level of pre-tax earnings, as defined, for the fiscal year ended December 31, 1997. To the extent that PCR's pre-tax earnings are less than the specified level, then a proportional amount of the Additional Shares will be returned to the Company and canceled. In addition, at the closing date 25,000 shares of the Restricted Stock valued at approximately $75,000 (the Escrow Shares) were retained in escrow subject to the final determination of PCR's net worth at the closing date. A proportionate amount of the Escrow Shares will be returned to the Company if PCR's net worth at the closing date is less than $107,000. The transaction will be recorded under the purchase method of accounting. The Company is currently engaged in discussions with several other retail automation solution businesses regarding possible acquisitions, some of which could be material. However, the Company currently has not entered into any definitive agreements with respect to any acquisitions that are, individually or in the aggregate, material to the Company other than the agreement with PCR discussed above. The Company anticipates that its current cash on hand, cash flow from operations and additional financing available under its various credit facilities will be sufficient to meet the Company's liquidity requirements for its operations through the end of fiscal 1997. However, the Company intends to identify, evaluate and acquire additional retail automation solution businesses during the remainder of the calendar year. These acquisitions are expected to be funded through a combination of cash and common stock and may necessitate additional costs and expenditures to expand operational and financial systems and corporate management and administration. The Company will require additional financing in order to continue this acquisition program. The Company is currently in the process of obtaining additional debt financing in order to meet its anticipated acquisition financial requirements during the remainder of fiscal 1997. However, there can be no assurance that the Company will be able to successfully obtain financing or that such financing will be available on terms the Company deems acceptable. The Company's long-term success is dependent upon its ability to obtain necessary financing, the successful execution of management's strategic plan and the achievement of sustained profitable operations. FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS The Company's business can be subject to seasonal influences. The POS dealers which the Company has acquired to date have typically had lower net revenues in the first quarter of the fiscal year primarily due to the lower level of new store openings by customers during January through March. As the Company grows through acquisition, this pattern of seasonality may or may not continue. Quarterly results in the future may be materially affected by the timing and magnitude of acquisitions, the timing and magnitude of costs related to such acquisitions, the timing and extent of staffing additions at corporate headquarters necessary to integrate acquired companies and support future growth and general economic conditions. Therefore, results for any quarter are not necessarily indicative of the results that the Company may achieve for any subsequent fiscal quarter or for a full fiscal year. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on current expectations and involve a number of risks and uncertainties. In addition, the Company may from time to time make oral forward-looking statements. Factors that may materially affect revenues, expenses and operating results include, without limitation, the success of the Company's operating subsidiaries; the impact of the Company's acquisition strategy and the Company's ability to successfully integrate and manage the acquired subsidiaries; the ability of the Company to obtain future financing on acceptable terms; and subsequent changes in business strategy or plan. The forward-looking statements included herein are based on current assumptions that the Company will continue to sell and install products on a timely basis; that the Company will continue to sell maintenance contracts to service its installed base; that Page 15 16 the Company will successfully implement its acquisition strategy; that competitive conditions within the Company's market will not change materially or adversely; that demand for the Company's products and services will remain strong; that the Company will retain existing key management personnel; that inventory risks due to shifts in market demand will be minimized; that the Company's forecasts will accurately anticipate market demand; that the Company will be able to obtain future financing on acceptable terms when needed; that the Company will be able to maintain key vendor relationships; and that there will be no material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments that are difficult to predict accurately and are subject to many factors that can materially affect the Company's business, financial condition and results of operations. Budgeting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause the Company to alter its acquisition strategy, marketing, capital expenditure, or other budgets, which may in turn affect the Company's business, financial condition and results of operations. In light of the factors that can materially affect the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Because of these and other factors affecting the Company's operating results, past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. The following factors also may materially affect the Company's business, financial condition and results of operations and therefore should be considered. Limited Operating History. The Company was founded in April 1996 and, prior to the acquisition of CRI in June 1996, the Company had no operations upon which an evaluation of the Company and its prospects could be based. There can be no assurance that the Company will be able to implement successfully its strategic plan, to generate sufficient revenue to meet its expenses or to achieve or sustain profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Risks Related to the Company's Acquisition Strategy. The Company has an aggressive acquisition strategy that is expected to involve the acquisition of a significant number of additional retail automation solution providers. From its inception through August 5, 1997, the Company has completed three "hub" acquisitions and three "spoke" acquisitions. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional companies or successfully integrate the operations of additional companies into those of the Company without encountering substantial costs, delays or other problems. In addition, there can be no assurance that companies acquired in the future will achieve sales and profitability that justify the Company's investment in them or that acquired companies will not have unknown liabilities that could materially adversely affect the Company's business, results of operations and financial condition. The Company may compete for acquisition and expansion opportunities with companies that have greater resources than the Company. There can be no assurance that suitable acquisition candidates will continue to be available to the Company or that financing for acquisitions will be obtainable on terms acceptable to the Company, if at all. There can be no assurance that acquisitions can be consummated or that acquired businesses can be integrated successfully and profitably into the Company's operations. While the Company's decentralized management strategy, together with operating efficiencies resulting from the elimination of duplicative functions and economies of scale, may present opportunities to reduce costs, such strategies may initially necessitate costs and expenditures to expand operational and financial systems and corporate management and administration. Such costs and expenditures may materially affect the Company's financial condition and results of operations in fiscal quarters immediately following a material acquisition and, further, there can be no assurance that such strategies will ultimately result in cost reductions. In addition, there can be no assurance that the pace of the Company's acquisitions will not adversely affect the Company's efforts to implement its cost-savings and integration strategies and to manage its acquisitions profitability. Likewise, delays in implementing planned integration strategies and activities also could adversely affect the Company's quarterly earnings. The Company may acquire certain businesses that have either been unprofitable or that have had inconsistent profitability prior to their acquisition. An inability of the Company to improve the profitability of these acquired businesses could have a material adverse effect on the Company. Finally, the Company's acquisition strategy places significant demands on the Company's resources and there can be no assurance that the Company's management and operational systems and structure can be expanded to effectively support the Company's continued acquisition strategy. If the Company is unable to implement successfully its acquisition strategy, this inability may have a material adverse effect on the Company's business, results of operations and financial condition. Need for Additional Financing to Implement Acquisition Strategy. The Company has financed its prior acquisitions, and intends to finance future acquisitions, by using cash and shares of common stock. The Company will need to obtain additional cash through future debt or equity financing in order to continue its acquisition program. There can be no assurance that the Company will be able to obtain such financing when it is needed or that any such financing will be available on terms the Company deems acceptable, if at all. In addition, there can be no assurance that the Company will be able to continue to finance acquisitions by using shares of common stock. For example, if the price of a share of the Company's common stock declines for Page 16 17 a prolonged period, the owners of potential acquisition targets may not be willing to receive shares of common stock in exchange for their businesses, thereby adversely affecting the pace of the Company's acquisition program. Such an effect on the pace of the Company's acquisition program could further reduce the price of a share of common stock, to the further detriment of the Company's acquisition strategy. Consideration for Acquired Companies Exceeds Asset Value. Valuations of the companies acquired by the Company have not been undertaken based on independent appraisals, but have been determined through arm's-length negotiations between the Company and representatives of such companies. The consideration for each such company has been based primarily on the judgment of management as to the value of such company as a going concern and not on the book value of the acquired assets. Valuations of these companies determined solely by appraisals of the acquired assets may have been less than the consideration paid for the companies. No assurance can be given that the future performance of such companies will be commensurate with the consideration paid. Moreover, the Company has incurred and expects to incur significant amortization charges resulting from consideration paid in excess of the book value of the assets of the companies acquired and companies which may be acquired in the future. Substantial Competition. The automated retail solutions industry is highly fragmented and competitive. Competitive factors within the industry include product prices, quality of products, service levels, and reputation and geographical location of dealers. The Company primarily competes with independent automated retail solution providers and some of these providers are currently larger and have greater financial resources than the Company. In addition, there are original equipment manufacturers of automated retail solution equipment that compete in certain product areas. The Company's ability to make acquisitions will also be subject to competition. The Company believes that, during the next few years, competing automated retail solution providers may seek growth through consolidation through and with entities other than the Company. Furthermore, no assurance can be given that the major manufacturers will not choose to effect or expand the distribution of their products through their own wholesale organizations or effect distribution directly to many of the retail accounts of the Company in the markets served by the Company. Any of these developments could have a material adverse effect on the Company's business, results of operations and financial condition. Substantial Fluctuations in Future Operating Results. The Company may experience substantial fluctuations in its annual and quarterly operating results in future periods. The Company's operating results are affected by a number of factors, many of which are beyond the Company's control. A substantial portion of the Company's backlog is typically scheduled for delivery within 90 days. Delivery dates for products sold by the Company are subject to change due to customers changing the required installation date of a automation retail solution system. The changing of such delivery dates is beyond the Company's control. Quarterly sales and operating results therefore depend in large part on customer-driven delivery dates, which are subject to change. In addition, a significant portion of the Company's operating expenses are relatively fixed in nature and planned expenditures are based in part on anticipated orders. Any inability to adjust spending quickly enough to compensate for any revenue shortfall may magnify the adverse impact of such revenue shortfall on the Company's results of operations. Dependence on Manufacturers. A substantial part of the Company's net revenue is and will be derived from the sale of POS systems, ECRs and related equipment, none of which are manufactured by the Company. The Company's business is dependent upon close relationships with equipment manufacturers and the Company's ability to purchase equipment in the quantities necessary and upon competitive terms so that it will be able to meet the needs of its end user customers. During the six months ended June 30, 1997, the Company purchased its hardware principally from three main vendors, Panasonic, ERC, a distributor of Panasonic products, and NCR. Sales of Panasonic, ERC and NCR products accounted for approximately 25% and 47% of net revenue for the three- and six-month periods ended June 30, 1997, respectively. The Company has supply agreements with these manufacturers. The agreements are non-exclusive, have geographic limitations and have renewable one-year terms. While the Company does not foresee why any of these relationships will not continue in the future, there can be no assurance that the relationships with these manufacturers will continue or that the Company's supply requirements can be met in the future through alternative sources. The Company's inability to obtain equipment, parts or supplies on competitive terms from its major manufacturers could have a material adverse effect on the Company's business. Fixed Fee Contracts. Many of the Company's service contracts are fixed fee contracts pursuant to which the customer pays a specified fee for the Company's performance of all necessary maintenance and remedial services during the contract's term. Under these agreements, the Company is responsible for all costs incurred in maintaining and repairing the equipment, including the cost of replacement parts, regardless of actual costs incurred. Accordingly, the Company can incur losses from fixed fee contracts if the actual cost of maintaining or repairing the equipment exceeds the costs estimated by the Company. Potential Inability to Market Newly Developed Products. The technology of POS systems, ECRs, VARs and related equipment is changing rapidly. There can be no assurance that the Company's existing POS and ECR manufacturers will be able to supply competitive new products or achieve technological advances necessary to remain competitive in the industry. Further, there can be no assurance that the Company will be able to obtain the necessary authorizations from manufacturers to market any newly Page 17 18 developed equipment. The Company's Smyth subsidiary operates in the VAR solutions segment, wherein it develops customized turnkey retail automation solutions, consisting of both hardware and software. There can be no assurance that Smyth will be able to develop commercially viable and technologically advanced VAR solutions at competitive prices. Possible Environmental Liabilities. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of removal or remediation of certain hazardous or toxic substances which could be located on, in or under such property. These laws and regulations often impose liability whether or not the owner or operator knew of or was responsible for the presence of the hazardous or toxic substances. The costs for any required remedy or removal of these substances could be substantial, and the liability as to any property is generally not limited under these laws and regulations and could exceed the value of the property and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate these substances properly may also adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. In connection with the ownership or operation of its acquired companies, the Company could be liable for these and other related costs. Reliance on Key Personnel. Implementation of the Company's acquisition strategy is largely dependent on the efforts of a few senior officers. In particular, the Company's operations are dependent on a great degree on the continued efforts of Chief Executive Officer Richard H. Walker. Furthermore, the Company will likely be dependent on the senior management of companies that are acquired. Competition for highly qualified personnel is intense, and the loss of any executive officer or other key employee, or the failure to attract and retain other skilled employees, could have a material adverse effect upon the Company's business, results of operations or financial condition. The Company is a party to employment agreements with Mr. Walker, as well as with Executive Vice President Paul Spindler and Maurice R. Johnson, President of CRI. Each of the agreements with Messrs. Walker, Spindler and Johnson terminate in the year 2001, unless terminated earlier pursuant to the agreements, and each contains confidentiality and/or noncompetition provisions therein. The Company is the beneficiary of a key man life insurance policy in the amount of $1,000,000 on the life of Mr. Walker for a term of one year; there can be no assurance that the Company will maintain the policy in effect or that the coverage will be sufficient to compensate the Company for the loss of the services of Mr. Walker. Anti-Takeover Effects of Certain Charter and Bylaw Provisions. Certain provisions of the Company's Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. These provisions make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. For example, the Company has not elected to be excluded from the provisions of Section 203 of the Delaware General Corporation Law, which impose certain limitations on business combinations with interested stockholders upon acquiring 15% or more of the Common Stock. This statute may have the effect of inhibiting a non-negotiated merger or other business combination involving the Company, even if such event would be beneficial to the then-existing stockholders. In addition, the Company's Certificate of Incorporation authorizes the issuance of up to 4,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors may, without stockholder approval, issue preferred stock with dividends, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of the Company's Common Stock. The issuance of preferred stock could have the effect of entrenching the Company's Board of Directors and making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company currently has no plans, arrangements or understanding to issue shares of preferred stock. Volatility of Stock Price. The stock market from time to time experiences significant price and volume fluctuations that are unrelated to the operating performance of the particular companies. These broad market fluctuations may materially adversely affect the market price of the Company's common stock. In addition, the market price of the Company's common stock has been and may continue to be highly volatile. Factors such as possible fluctuations in the Company's business, results of operations or financial condition, failure of the Company to meet expectations of security analysts and investors, announcements of new acquisitions, the timing and size of acquisitions, the loss of suppliers or customers, the announcement of new or terminated supply agreements by the Company or its competitors, changes in regulations governing the Company's operations or its suppliers, the loss of the services of a member of senior management, litigation and changes in general market conditions all could have a material adverse affect on the market price of the Company's common stock. Page 18 19 Maintenance Criteria for Nasdaq; Risks of Low-Priced Securities. The Company's common stock is presently traded on the Nasdaq SmallCap Market. To maintain inclusion on the Nasdaq SmallCap Market, the Company's common stock must continue to be registered under Section 12(g) of the Exchange Act, and the Company must continue to have total tangible assets of at least $2,000,000, total stockholders' equity of at least $1,000,000, a public float of at least 100,000 shares with a market value of at least $200,000, at least 300 stockholders, a minimum bid price of $1.00 per share and at least two market makers. The Nasdaq Stock Market, Inc. has proposed certain changes to the maintenance criteria for listing eligibility on the Nasdaq SmallCap Market. The proposed maintenance standards would require at least $2,000,000 in net tangible assets or $500,000 in income in two of the last three years, a public float of at least 500,000 shares, $1 million in market value of public float, a minimum bid price of $1.00 per share, at least two market makers and at least 300 stockholders. While the Company currently meets the current maintenance standards, there is no assurance that the Company will be able to maintain the standards for Nasdaq SmallCap Market inclusion with respect to its securities. If the Company fails to maintain Nasdaq Small Cap Market listing, the market value of the Company's common stock likely would decline and stockholders would find it more difficult to dispose of or to obtain accurate quotations as to the market value of the common stock. Indemnification and Limitation of Liability. The Company's Certificate of Incorporation and Bylaws include provisions that eliminate the directors' personal liability for monetary damages to the fullest extent possible under Delaware Law or other applicable law (the Director Liability Provision). The Directory Liability Provision eliminates the liability of directors to the Company and its stockholders for monetary damages arising out of any violation by a director of his fiduciary duty of due care. Under Delaware Law, however, the Director Liability Provision does not eliminate the personal liability of a director for (i) breach of the director's duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases or redemptions of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. The Director Liability Provision also does not affect a director's liability under the federal securities laws or the recovery of damages by third parties. Absence of Dividends. The Company has not paid dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future. In addition, line of credit agreements entered into by the Company's subsidiaries contain certain provisions which restrict the paying of dividends without the prior consent of the lender. Page 19 20 PART II OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES The following is a summary of transactions by the Company during the three months ended June 30, 1997, involving sales of the Company's Securities that were not registered under the Securities Act. (1) On April 1, 1997, the Company issued 11,415 shares of Common Stock to the former shareholders of MicroData, Inc., as partial consideration paid in connection with the acquisition of the outstanding shares of MicroData, Inc. by Cash Registers, Incorporated ("CRI"), a wholly-owned subsidiary of the Company. (2) On May 29, 1997, the Company issued 569,408 shares of Common Stock to the former shareholders of Smyth Systems, Inc., as partial consideration paid in connection with the acquisition of the outstanding shares of Smyth Systems, Inc. by the Company. (3) On June 6, 1997, the Company issued 139,682 shares of Common Stock to the former shareholders of Electronic Business Machines, Inc., as partial consideration paid in connection with the acquisition of the outstanding shares of Electronic Business Machines, Inc. by CRI. Exemption from the registration requirements of the Securities Act for the transactions described above is claimed under Section 4(2) of the Securities Act, among others, on the basis that such transactions did not involve any public offering and the purchasers were sophisticated with access to the kind of information registration would provide. No underwriting fees or broker's commissions were paid in connection with the foregoing transactions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the Company's stockholders was held on May 20, 1997 in Irvine, California. Matters submitted to a vote of security holders were as follows: (1) The election of the following six directors to hold office until the next annual meeting and until their successors are elected and duly qualified:
Director For Withheld --------------------- ------------- ----------- Richard H. Walker 4,004,593 46,700 Paul Spindler 4,004,593 46,700 Lawrence Cohen 4,004,593 46,700 Maurice R. Johnson 4,004,593 46,700 Dr. Jack Borsting 4,004,593 46,700 Dr. Thomas Lutri 4,004,593 46,700
Immediately following the annual meeting, Mr. Johnson resigned as a director of the Company and the Board of Directors voted to reduce the number of directors from six to five. (2) The approval of the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 1997. In Favor 3,990,643 Opposed 37,300 Abstentions 23,350
(3) The approval of the amendment of the Company's 1996 Equity Participation Plan to increase the number of shares authorized to be issued under the Plan to 2,450,000 shares from 450,000 shares. In Favor 2,710,782 Opposed 102,597 Abstentions 18,150 Broker Non-Votes 1,219,764
(4) The approval of the Company's 1997 Employee Stock Purchase Plan. In Favor 2,729,542 Opposed 70,167 Abstentions 34,450 Broker Non-Votes 1,217,134
Page 20 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K (a) Exhibits 10.27 Agreement and Plan of Merger by and among Bristol Technology Systems, Inc., Bristol Merger Corp., International Systems & Electronics Corporation and Pedro Penton (Incorporated by reference to Exhibit 10.27 of the Company's Form 8-K dated May 9, 1997 as filed with the Securities and Exchange Commission on May 23, 1997, File No. 0-21633). On July 23, 1997, this agreement was rescinded effective as of April 30, 1997. 10.28+ Employment Agreement to be effective as of May 1, 1997 by and between Pedro Penton and International Systems & Electronics Corporation (Incorporated by reference to Exhibit 10.28 of the Company's Form 8-K dated May 9, 1997 as filed with the Securities and Exchange Commission on May 23, 1997, File No. 0-21633). On July 23, 1997, this agreement was rescinded effective as of April 30, 1997. 10.29 Agreement and Plan of Reorganization by and among Bristol Technology Systems, Inc., Smyth Systems, Inc., the Managing Stockholders of Smyth Systems, Inc. and Smyth Merger Corp. (Incorporated by reference to Exhibit 10.29 of the Company's Form 8-K dated May 29, 1997 as filed with the Securities and Exchange Commission on June 12, 1997, File No. 0-21633). 10.30 Second Amendment to Agreement and Plan of Reorganization (Incorporated by reference to Exhibit 10.30 of the Company's Form 8-K dated May 29, 1997 as filed with the Securities and Exchange Commission on June 12, 1997, File No. 0-21633). 10.31+ Employment Agreement by and between Robert T. Smyth and Smyth Systems, Inc. and First Amendment to Employment Agreement (Incorporated by reference to Exhibit 10.31 of the Company's Form 8-K dated May 29, 1997 as filed with the Securities and Exchange Commission on June 12, 1997, File No. 0-21633). 10.32+ Employment Agreement by and between Larry D. Smyth and Smyth Systems, Inc. and First Amendment to Employment Agreement (Incorporated by reference to Exhibit 10.32 of the Company's Form 8-K dated May 29, 1997 as filed with the Securities and Exchange Commission on June 12, 1997, File No. 0-21633). 10.33+ Employment Agreement by and between William A. Smyth and Smyth Systems, Inc. and First Amendment to Employment Agreement (Incorporated by reference to Exhibit 10.33 of the Company's Form 8-K dated May 29, 1997 as filed with the Securities and Exchange Commission on June 12, 1997, File No. 0-21633). 10.34 Agreement and Plan of Merger by and among Bristol Technology Systems, Inc., Cash Registers, Inc., Floyd Shirrell and Electronic Business Machines, Inc. (Incorporated by reference to Exhibit 10.34 of the Company's Form 8-K dated June 6, 1997 as filed with the Securities and Exchange Commission on June 20, 1997, File No. 0-21633). 10.35 First Amendment to Agreement and Plan of Merger by and among Bristol Technology Systems, Inc., Cash Registers, Inc., Floyd Shirrell and Electronic Business Machines, Inc. (Incorporated by reference to Exhibit 10.35 of the Company's Form 8-K dated June 6, 1997 as filed with the Securities and Exchange Commission on June 20, 1997, File No. 0-21633). Page 21 22 10.36+ Independent Contractor Agreement by and between Bristol Technology Systems, Inc., Cash Registers, Inc. and Floyd Shirrell (Incorporated by reference to Exhibit 10.36 of the Company's Form 8-K dated June 6, 1997 as filed with the Securities and Exchange Commission on June 20, 1997, File No. 0-21633). 10.37+ Amendment to the 1996 Equity Participation Plan of Bristol Technology Systems, Inc. (Incorporated by reference to Exhibit A of the Company's Definitive Proxy Statement Pursuant to Section 14(a) as filed with the Securities and Exchange Commission on April 14, 1997, File No. 0-21633). 10.38 Bristol Technology Systems, Inc. 1997 Employee Stock Purchase Plan (Incorporated by reference to Exhibit B of the Company's Definitive Proxy Statement Pursuant to Section 14(a) as filed with the Securities and Exchange Commission on April 14, 1997, File No. 0-21633). 10.39* Business Loan Agreement and Promissory Note by and between Smyth Systems, Inc. and United National Bank & Trust Co. dated June 2, 1997. 10.40* Borrowing Agreement by and between Automated Retail Systems, Inc. and Seafirst Bank dated June 3, 1997. 10.41* Agreement and Plan of Merger by and among Bristol Technology Systems, Inc., Pacific Merger Corp., Pacific Cash Register and Computer, Inc., Robert Freaney and Abbass Barzgar dated June 27, 1997. 10.42* Rescission Agreement by and among Bristol Retail Solutions, Inc. (formerly known as Bristol Technology Systems, Inc.), International Systems & Electronics Corporation and Pedro Penton dated July 23, 1997. 10.43* Closing Agreement by and among Bristol Retail Solutions, Inc. (formerly, Bristol Technology Systems, Inc.), Pacific Merger Corp., Pacific Cash Register and Computer, Inc., Robert Freaney and Abbass Barzgar dated August 4, 1997. 11* Calculation of Earnings per Share 27* Financial Data Schedule * Filed herewith. + Indicates a management contract or compensatory plan or arrangement. (b) Reports on Form 8 - K During the three months ended June 30, 1997, the Company filed the following Current Reports on Form 8-K: Form 8-K dated April 3, 1997 filed with the Commission on April 17, 1997 reporting information under Items 5 and 7. Form 8 - K dated May 9, 1997 filed with the Commission on May 23, 1997 reporting information under Items 2 and 7. Form 8 - K dated May 22, 1997 filed with the Commission on May 29, 1997 reporting information under Item 5. Form 8-K dated May 29, 1997 filed with the Commission on June 12, 1997 reporting information under Items 2 and 7. Form 8-K dated June 6, 1997 filed with the Commission on June 20, 1997 reporting information under Items 2 and 7. Page 22 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Bristol Retail Solutions, Inc. ------------------------------------------ (Registrant) August 13, 1997 By: /s/ ROGER T. MONACO - --------------------------- ------------------------------------------ Date Roger T. Monaco Senior Vice President and Chief Financial Officer (Principal financial and accounting officer) Page 23 EX-10.39 2 BUSINESS LOAN AGREEMENT 1 EXHIBIT 10.39 [ LOGO UNITED BANK LOGO ] BUSINESS LOAN AGREEMENT
- -------------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIAL $1,000,000.00 06-02-1997 1009809 04 1465 104 [SIG] - -------------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - -------------------------------------------------------------------------------------------------------------------------- BORROWER: Smyth Systems, Inc. (TIN: 33-0761324) LENDER: UNITED NATIONAL BANK & TRUST CO. 7100 Whipple Ave. N.W. P.O. BOX 24190 North Canton, OH 44720 220 MARKET AVENUE SOUTH CANTON, OH 44702
THIS BUSINESS LOAN AGREEMENT between Smyth Systems, Inc. ("Borrower") and UNITED NATIONAL BANK & TRUST CO. ("Lender") is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement. TERM. This Agreement shall be effective as of June 2, 1997, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money in the United States of America. AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. BORROWER. The word "Borrower" means Smyth Systems, Inc. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. DEBT. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." GRANTOR. The word "Grantor" means and includes without limitation each and all of the persons or entitles granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness. INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually, or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. LENDER. The word "Lender" means UNITED NATIONAL BANK & TRUST CO., its successors and assigns. LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's readily marketable securities. LOAN. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this agreement from time to time. NOTE. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure Indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness. SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. SECURITY INTEREST. The words "Security Interest mean and include without limitation, any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1988 as now or hereafter amended. SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to Indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total assets, excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. WORKING CAPITAL. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements granting to Lender security interests in the Collateral, (c) Financing Statements perfecting Lenders Security Interests. (d) 2 6-02-1997 BUSINESS LOAN AGREEMENT Page 2 1009809 (Continued) =============================================================================== evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel, including without limitation any guaranties described below. BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require. PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in this Agreement, in the Related documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. NO EVENT OF DEFAULT. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each Disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists: ORGANIZATION: Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Ohio and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses of financial condition. AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws or code of regulations, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. PROPERTIES. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or liability or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender to indemnity or contribution in the event the Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security interests and rights in and to such Collateral. BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or installed steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 7100 Whipple Ave. N.W., North Canton, OH 44720. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: LITIGATION. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. FINANCIAL RECORDS. Maintain books and records in accordance with generally accepted accounting principles, applied on a consistent basis, 3 06-02-1997 BUSINESS LOAN AGREEMENT Page 3 Loan No 1009809 (Continued) =============================================================================== and permit Lender to examine and audit Borrower's books and records at all reasonable times. FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender, and, as soon as available, but in no event later than thirty (30) days after the end of each fiscal quarter, Borrower's balance sheet and profit and loss statement for the period ended, prepared and certified as correct to the best knowledge and belief by Borrower's chief financial officer or other officer or person acceptable to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables of payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios: TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than $1,100,000.00. CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities in excess of 1.25 to 1.00. The following provisions shall apply for purposes of determining compliance with the foregoing financial covenants and ratios: December 31, 1997. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor named below, on Lender's forms, and in the amount and under the conditions spelled out in those guaranties. GUARANTOR AMOUNT --------- ------ BRISTOL TECHNOLOGY SYSTEMS, INC. $1,000,000.00 OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income or profits. Provided, however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income or profits. PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrowers, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and /or other natural resources. ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security interests. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however, that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. 4 6-02-1997 BUSINESS LOAN AGREEMENT Page 4 1009809 (Continued) =============================================================================== LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Loans. OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Release Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security interest) at any time and for any reason. INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower or Grantor, as the case may be, as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding, and if Borrower or Grantor gives Lender written notice of the creditor or forfeiture proceeding and furnishes reserves or a surety bond for the creditor or forfeiture proceeding satisfactory to Lender. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the indebtedness. Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure the Event of Default. CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. INSECURITY. Lender, in good faith, deems itself insecure. RIGHT TO CURE. If any default, other than a Default on indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make the Loan Advances or disbursement), and, at Lender's option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement. AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the acceleration or amendment. APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of Ohio. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of STARK County, the State of Ohio. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the persons signing below is responsible for all obligations in this Agreement. CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorney's fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorney's fees and Lender's legal expenses, whether or not there is a lawsuit, including attorney's fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage 5 6-02-1997 BUSINESS LOAN AGREEMENT LOAN NO 1009809 (CONTINUED) ================================================================================ prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower's current address(es). SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower.* SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. SURVIVAL. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE 2, 1997. BORROWER: Smyth Systems, Inc. By: /s/ ROBERT T. SMYTH By: /s/ RICHARD H. WALKER --------------------------- --------------------------- Robert T. Smyth, President Richard H. Walker, Vice President LENDER: UNITED NATIONAL BANK & TRUST CO. By: [SIG] --------------------------- Authorized Officer ================================================================================ *For purposes of this Business Loan Agreement, Bristol Technology Systems, Inc., who is the parent corporation of Smyth Systems, Inc., shall not be considered as "Borrower". UNS ________ Smyth Systems, Inc. ________ 6 [UNITED BANK LOGO] UNITED NATIONAL BANK & TRUST CO. PROMISSORY NOTE
- ----------------------------------------------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $1,000,000 06-02-1997 1009809 04 1465 104 - ----------------------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - ----------------------------------------------------------------------------------------------------------------------------------- Borrower: Smyth Systems, Inc. (TIN: 33-0751324 Lender: UNITED NATIONAL BANK & TRUST CO. 7100 Whipple Ave. N.W. P.O. BOX 24190 North Canton, OH 44720 220 MARKET AVENUE SOUTH CANTON, OH 44702 ===================================================================================================================================
Principal Amount: $1,000,000 Initial Rate: 9.000% Date of Note: June 2, 1997 PROMISE TO PAY. Smyth Systems, Inc. ("Borrower") promises to pay to UNITED NATIONAL BANK & TRUST CO. ("Lender"), or order, in lawful money of the United States of America, on demand, the principal amount of One Million & 00/100 Dollars ($1,000,000) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. The interest rate will not increase above 25.000%. PAYMENT. Borrower will pay this loan immediately upon Lender's demand. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning July 2, 1997, with all subsequent interest payments to be due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs and any late charges, then to any unpaid interest, and any remaining amount to principal. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the UNITED NATIONAL BANK BASE LENDING RATE. The Base Rate will be determined by the Loan Committee and then reported to the Executive Committee. The Base Rate will be established upon consideration of the following factors: (1) The prime or base rate of money bank centers in Cleveland, Pittsburgh and New York. (2) Competitive conditions for the commercial loan market in the Bank's lending area. (3) The Bank's money position and cost of funds. The Loan Committee shall periodically review the Base Rate and make adjustments as needed reflecting the fluctuation in the prime rate and pressures in the market. Debtor will then be notified each time Bank changes the Base Rate, (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each day. The index currently is 8.500% per annum. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 0.500 percentage points over the index, adjusted if necessary for the maximum rate limitation described below, resulting in an initial rate of 9.000% per annum. Notwithstanding any other provision of this Note, the variable interest rate or rates provided for in this Note will be subject to the following maximum rate. NOTICE: Under no circumstances will the interest rate on this Note be more than (except for any higher default rate shown below) the lesser of 25.000% per annum or the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $75.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g)Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. (i) Lender in good faith deems itself insecure. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the proceeding twelve (12) months, it may be cured (and no event of default will have occurred) if Borrower, after receiving written notice from Lender demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon default, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 5.500 percentage points over the Index. The interest rate will not exceed the maximum rate permitted by applicable law. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of Ohio. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of STARK County, the State of Ohio. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed in accordance with the laws of the State of Ohio. CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers any attorney-at-law, including an attorney hired by Lender, to appear in any court of record and to confess judgment against Borrower for the unpaid amount of this Note as evidenced by an affidavit signed by an officer of Lender setting forth the amount then due, plus attorneys' fees as provided in this Note plus costs of suit, and to release all errors, and all rights of appeal. If a copy of this Note, verified by an affidavit, shall have been filed in the proceeding, it will not be necessary to file the original as a warrant of attorney. Borrower waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing warrant and power to confess judgment will be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void; but the power will continue undiminished and may be exercised from time to time as Lender may elect until all amounts owing on this Note have been paid in full. Borrower waives any conflict of interest that an attorney hired by Lender may have in acting on behalf of Borrower in confessing judgment against Borrower while such attorney is retained by Lender. Borrower expressly consents to such attorney acting for Borrower in confessing judgment. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $23.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some account), including without limitation all accounts hold jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. COLLATERAL. This Note is secured by a Blanket lien on all business assets. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or by an authorized person. Lender may, but need not require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following party or parties are authorized to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: Robert T. Smyth, President; and Richard H. Walker, Vice President. Borrower agrees to be liable for all sums either (a) advanced in 7 6-02-1997 PROMISSORY NOTE Page 2 LOAN NO. 1009809 (Continued) =============================================================================== accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. GENERAL PROVISIONS. This note is payable on demand. The inclusion of specific default provisions or rights of Lender shall not preclude Lender's right to declare payment of this Note on its demand. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. In particular, this section means (among other things) that Borrower does not agree or intend to pay, and Lender does not agree or intend to contract for, charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for this loan, which would in any way or event (including demand, prepayment, or acceleration) cause Lender to charge or collect more for this loan than the maximum lender would be permitted to charge or collect by federal law or the law of the State of Ohio (as applicable). Any such excess interest or unauthorized fee shall, instead of anything stated to the contrary, be applied first to reduce the principal balance of this loan, and when the principal has been paid in full, be refunded to Borrower. Lender may delay or forgo enforcing any of his rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THIS NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. - ------------------------------------------------------------------------------- NOTICE: FOR THIS NOTICE "YOU" MEANS THE BORROWER AND "HIS" MEANS LENDER. WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. - ------------------------------------------------------------------------------- BORROWER: Smyth Systems, Inc. By: /s/ Robert T. Smyth By: /s/ Richard H. Walker -------------------------- --------------------------------- Robert T. Smyth, President Richard H. Walker, Vice President =============================================================================== EX-10.40 3 BORROWING AGREEMENT 1 EXHIBIT 10.40 [SEAFIRST BANK LOGO] BORROWING AGREEMENT - ----------------------------------------------------------------------------- Loan. By accepting this agreement from AUTOMATED RETAIL SYSTEMS, INC., a DELAWARE corporation ("Borrower"), the chief executive office of which is located at 1437 S. JACKSON, SEATTLE, WA 98144, Bank of America N.T. & S.A., doing business as Seafirst Bank (including its successors and/or assigns "Bank") promises to lend to Borrower the principal amount of $475,000.00 (the "Loan") on a revolving basis until JUNE 1, 1998, with no more than the lesser of (i) the Borrowing Base (as defined below) or (ii) $475,000.00 to be outstanding at any one time. Any one or more of the following persons are authorized to request and direct disbursement of loan proceeds under this agreement: Mike Pollastro, Gary Pollastro or Kelly Kaufman. Payment. In return, Borrower promises to pay to the order of Bank the principal amount of $475,000.00, plus interest at a floating rate of the index (as defined below) plus 1.00% per year, as the index may change from time to time, calculated on the basis of actual number of days elapsed over a year of 360 days (together the "Obligations"), to be paid as follows: all outstanding principal to be paid in full on JUNE 1, 1998, with all accrued interest to be paid on the 1st day of each month, beginning the 1st day of JULY, 1997, and upon maturity or acceleration of the Obligations. Bank is authorized to automatically debit each required installment of principal and/or interest from Borrower's checking account number 7404312 at Bank, or such other deposit account at Bank as Borrower may authorize in the future. If a payment is 10 days or more late, Borrower, at Bank's option, will be charged 5.000% of the regularly scheduled payment or $20.00, whichever is greater. Borrower shall pay to Bank a loan fee of $1,500.00 upon execution of this agreement. Collateral. To secure the Obligations, Borrower grants to Bank a security interest in Borrower's accounts, general intangibles, documents, instruments, chattel paper, deposit accounts, inventory, including but not limited to all electronic cash registers, all point of sale products and all scanner products, now owned and hereafter acquired by debtor, including all attachments, accessions, parts, and additions thereto, and all replacements thereof, all whether now owned or hereafter acquired, and all proceeds and products thereof, and any such other collateral as may be granted to Bank in a document referring to this agreement (the "Collateral"). Conditions. Bank shall have no obligation to advance funds to Borrower until: o Borrower and every other party whose signature is required on this agreement has signed this agreement. o Borrower has delivered to Bank all signed documents necessary to perfect Bank's security interests granted in this agreement. o Bank has received proof satisfactory to Bank that all insurance required under this agreement is in effect. Covenants. Borrower shall deliver to Bank: o copies of Borrower's annual tax returns, as soon as filed with Internal Revenue Service. o within 30 days of quarter end, Borrower's quarterly balance sheet and income statement, which may be internally prepared, certified by an officer of Borrower as true and correct. o within 90 days of each fiscal year end, Guarantor's year-end balance sheet, income statement, and statement of cash flows, which shall be audited on a basis consistent with prior statements, and to which shall be attached a consolidated balance sheet, income statement, and statement of cash flows which shall include the financial results of Automated Retail Systems, Inc. o such other financial information as Bank may reasonably request from time to time. Borrower shall also: o maintain replacement value insurance on all tangible Collateral against all risks, casualties, and losses through extended coverage or otherwise, with such policy or policies naming Bank as loss payee, as its interests may appear. o give Bank prompt written notice of any material adverse change in Borrower's financial condition. o keep accurate and complete books, accounts, and records, and during normal business hours, as often as Bank may reasonably request, permit Bank's authorized agents or employees to have access to Borrower's premises and financial records, and to make copies or abstracts of such records. o maintain at all times a minimum Tangible Net Worth of not less than $500,000.00 and not permit Borrower's total indebtedness, which is not subordinated in a manner satisfactory to Bank, to exceed 2.50 times Borrower's Tangible Net Worth. o maintain at all times an excess of current assets over current liabilities of not less than $300,000.00. o deliver to Bank a monthly Borrowing Base Certificate with month end accounts receivable aging. Remedies. If Borrower violates any promise of this agreement; or Borrower defaults under any other agreement with Bank; or if anything should happen which significantly impairs Borrower's financial condition, the value of the Collateral, or Bank's prospects for repayment of the Obligations, Bank may refuse to make any further advances of funds to Borrower, may immediately demand payment in full of all Obligations (which, at Bank's option, shall bear interest from the date of such demand at a rate 4% in excess of the rate otherwise applicable under this agreement), and may use any one or more of its remedies given under this agreement or by the laws of the State of Washington. Borrower shall, if demanded by Bank, pay all of Bank's costs, expenses, and attorneys' fees (including the cost of in-house counsel) incurred in collecting the Obligations, or arising out of the transaction reflected by this agreement, which is governed by the laws of Washington. If neither party elects or has the right to elect arbitration under the following paragraph, any lawsuit relating to this agreement may be brought in a court located in King County, Washington, or at a Bank's option where necessary to obtain jurisdiction over any Borrower, guarantor, or Collateral. Arbitration. Any dispute relating to this agreement (in contract or tort) shall be settled by arbitration if requested by Bank, Borrower, or any other party to the dispute (such as a guarantor); provided, however, that both Bank and Borrower must consent to a request for arbitration relating to an obligation secured by real property or a marine vessel. The arbitration proceedings shall be held in Seattle, Washington by the American Arbitration Association under its commercial rules of arbitration, by a single arbitrator. The United States Arbitration Act will apply. Borrowing Agreement (Automated Register Systems, Inc.; R/C No. 88211/SA1212AR) - - Page 1 2 Judgment upon the arbitration award may be entered in any court having jurisdiction. Commencement of a lawsuit shall not constitute a waiver of the right of any party to request arbitration if the lawsuit is contested. Likewise, any party may exercise self-help remedies such as setoff, foreclosure, repossession, or sale of any collateral before, after, or during arbitration without waiving the right to request arbitration. At Bank's option, foreclosure under a deed of trust may be made judicially (as a mortgage) or nonjudicially (by power of sale). Definitions. For purposes of this agreement, terms defined in the Washington version of the Uniform Commercial Code, R.C.W. Section 62A.9-101, et seq. ("UCC"), and not otherwise defined in this agreement, shall have the meaning given in the UCC; and an accounting term not otherwise defined in this agreement shall have the meaning assigned to it under generally accepted accounting principles. "Borrowing Base" shall have the meaning given in the separate "Borrowing Plan" executed by Borrower and Bank previously to or in conjunction with the execution of this agreement, the terms of which are incorporated into this agreement by this reference. "Index" shall mean the floating commercial loan reference rate of Bank, publicly announced from time to time as its "prime rate," with each change in the Index to be effective on the date the prime rate changes. "Tangible Net Worth" shall mean the excess of total assets over total liabilities, excluding, however, from the determination of total assets (a) all assets which should be classified as intangible assets (such as goodwill, patents, trademarks, copyrights, franchises, and deferred charges, including unamortized debt discount and research and development costs), (b) treasury stock, (c) cash held in a sinking or other similar fund established for the purpose of redemption or other retirement of capital stock, (d) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence, or amortization of properties and other reserves or appropriations of retained earnings which have been or should be established in connection with Borrower's business, and (e) any revaluation or other write-up in book value of assets subsequent to the fiscal year of Borrower last ended at the date Tangible Net Worth is being measured. Amendments. This agreement can only be amended in writing, signed by the party to be bound by such amendment. If Borrower shall enter into, or has entered into, other borrowing agreements with Bank, each such agreement shall supplement the other, and Borrower must comply with each such agreement independently, unless otherwise agreed in writing by Bank. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. This agreement is dated JUNE 3, 1997. Bank: SEAFIRST BANK By [SIG] ------------------------------------- Title Vice President ---------------------------------- Borrower: AUTOMATED RETAIL SYSTEMS, INC. By: [SIG] ------------------------------------ Title: Vice President and Director --------------------------------- Certificate of Authority. I am an officer of AUTOMATED RETAIL SYSTEMS, INC., a DELAWARE corporation, and certify under penalty of perjury that (1) its execution of this agreement has been authorized either (a) by resolution of its board of directors adopted at meeting where a quorum was present or by written consent of all directors or (b) by virtue of its articles of incorporation and bylaws as now in effect; that (2) the person signing above on behalf of Borrower is authorized to do so, and is further authorized to sign any other loan documents or agreements between Bank and Borrower and any amendments to this and such other agreements, and to designate additional individuals who are authorized to request and direct advances under any credit facility of Bank to Borrower; and such person's signature above is such person's true signature, and that such person is Borrower's duly elected ________________________. Officer's Signature: [SIG] ------------------- Printed Name: RICHARD H. WALKER -------------------------- Title: Vice President and Director --------------------------------- EX-10.41 4 AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 10.41 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of June 27, 1997, by and among BRISTOL TECHNOLOGY SYSTEMS, INC., a Delaware corporation ("Bristol"); PACIFIC MERGER CORP., a Delaware corporation ("Purchaser"); PACIFIC CASH REGISTER AND COMPUTER, INC., a California corporation ("Company"); and ROBERT FREANEY and ABBASS BARZGAR, residents of the State of California (individually, a "Shareholder" and, collectively, the "Shareholders"). RECITALS A. Bristol owns all of the issued and outstanding capital stock of Purchaser. B. The Shareholders own all of the issued and outstanding capital stock of Company. C. This Agreement contemplates a forward subsidiary merger of Company with and into Purchaser in a tax free reorganization pursuant to Code Section 368(a)(2)(D), whereby the Shareholders shall exchange all of their shares of capital stock of Company (the "Company Shares") for cash and shares of non-registered, restricted Common Stock of Bristol (the "Restricted Stock"). The Restricted Stock is the same class and subject to all of the rights, and no further restrictions other than transferability, than Bristol's Common Stock currently listed and traded on NASDAQ. D. The parties hereto expect that the merger will further certain of their business objectives, including, without limitation, increased market share, reduced administrative costs, volume efficiencies, improved value added operations, quicker on-site service, greater product diversity and enhanced service and support of end-user installations. NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties herein contained, the parties hereto do hereby agree as follows: ARTICLE 0 CERTAIN DEFINITIONS Capitalized terms not ascribed a meaning in this Section 0 shall have the meaning ascribed to such term elsewhere in this Agreement. The capitalized terms set forth below shall have the following meanings: "Approval" has the meaning set forth in Section 2.5(d). "Certificates" has the meaning set forth in Section 1.1. "Class I Inventory" and "Class II Inventory" have the meanings set forth in Section 2.4(c). "Closing" has the meaning set forth in Section 1.4. "Closing Date" has the meaning set forth in Section 1.1. "Code" means the Internal Revenue Code of 1986, as amended. "Company Shares" has the meaning set forth in Recital C. "Confidential Information" means any information concerning the business and affairs of Company that is not already generally available to the public. "Delaware General Corporation Law" means the General Corporation Law of the State of Delaware, as amended. 2 "Effective Bristol Share Price" means (i)(a) the closing price per share of Bristol's publicly traded Common Stock on June 16, 1997, plus (b) the closing price per share of Bristol's publicly traded Common Stock on June 26, 1997 (or, if such date is not a trading day, the last trading day prior to such date), plus (c) the Interim Period Average (as defined below), divided by (ii) three (3). "Interim Period Average" means the sum of the closing prices of Bristol's publicly traded Common Stock on every trading day from and including the date referenced in clause (a), above, and through and including the date referenced in clause (b), above, divided by the number of trading days included in such period. The closing price of Bristol's publicly traded Common Stock on a trading day, for purposes of this calculation, shall be the day's last trade price as reported on NASDAQ. "Effective Time" has the meaning set forth in Section 1.1. "Employee Benefit Plan" means any (i) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan; (ii) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan; (iii) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan); or (iii) Employee Welfare Benefit Plan or fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Section 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section 3(1). "Encumbrance" means any mortgage, pledge, lien, encumbrance, security interest, charge, option, or other adverse interest, other than (i) mechanic's, materialmen's, and similar liens; (ii) liens for Taxes not yet due and payable or for Taxes that Company is contesting in good faith through appropriate proceedings; (iii) purchase money liens and liens securing rental payments under capital lease arrangements; and (iv) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Financial Statements" has the meaning set forth in Section 2.3(a). "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Hazardous Substances" has the meaning set forth in Section 2.5(d). "Knowledge" means that Company and the Shareholders are actually or reasonably should be aware of the fact or matter in question after a reasonable investigation concerning the existence of such fact or matter. "Leased Premises" has the meaning set forth in Section 2.4(a). "Leases" has the meaning set forth in Section 2.4(a). "Liability" means any debt, claim, loss, liability, damage, judgment, fine, penalty, cost, expense or other obligation of any nature, whether known or unknown, asserted or unasserted, absolute or contingent, liquidated or unliquidated, or due or to become due, including any Liability for Taxes. "Materially Adverse Effect" means a materially adverse effect on the business, financial condition, sales, results of operation, prospects, customers, suppliers, employee relations, insurability, assets or properties of Company. "Merger" has the meaning set forth in Section 1.1. "Net Worth" means the difference between (i) the audited aggregate book value of the assets of Company, and (ii) the aggregate book value of the liabilities of Company. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). -2- 3 "Personal Property" has the meaning set forth in Section 2.4(b). "Pre-Tax Earnings" means earnings before income taxes, as determined in accordance with GAAP. "Restricted Stock" has the meaning set forth in Recital C. "Surviving Corporation" has the meaning set forth in Section 1.1. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs, duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on, minimum, estimated, or other tax, duty or assessment of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. ARTICLE I THE BASIC TRANSACTION 1.1 The Merger. On and subject to the terms and conditions of this Agreement, Company will merge with and into Purchaser (the "Merger") on July 31, 1997 (the "Closing Date"), at such time (the "Effective Time") as the Purchaser and Company file Certificates of Merger (the "Certificates") with the Secretaries of State of the States of Delaware and California, substantially in the form of Exhibits "A" and "B" hereto. Purchaser shall be the corporation surviving the Merger (the "Surviving Corporation"). 1.2 Actions Taken on or Prior to the Closing Date. On or prior to the Closing Date. Bristol and Purchaser shall conduct a legal, financial and business due diligence investigation of Company and the parties hereto shall perform their respective delivery obligations set forth in Article 6, below. 1.3 Effect of Merger. 1.3.1 General. At the Effective Time, the Merger shall have the effect set forth in Sections 259, 260 and 261 of the Delaware General Corporation Law. Without limiting the foregoing, Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either Purchaser or Company in order to carry out and effectuate the transactions contemplated by this Agreement. 1.3.2 Certificate of Incorporation. The Certificate of Incorporation of Purchaser in effect at and as of the Effective Time shall remain the Certificate of Incorporation of Surviving Corporation. 1.3.3 By-laws. The By-laws of Purchaser in effect at and as of the Effective Time shall remain the By-laws of Surviving Corporation. 1.3.4 Directors and Officers. The directors of Surviving Corporation at and as of the Effective Time shall be Richard H. Walker, Michael J. Pollastro, Gary T. Pollastro, and Robert Freaney, in each case until their successors are elected and qualified. The officers of Surviving Corporation at and as of the Effective Time shall be those individuals holding such positions as set forth on Schedule 1.3.4, in each case until their successors are elected and qualified. Bristol hereby agrees that it shall vote all of its shares of the Surviving Corporation to cause Robert Freaney to continue to serve as a member of the Surviving Corporation's Board of Directors until such time as the Employment Agreement to be entered into between Robert Freaney and the Surviving Corporation terminates. 1.3.5 Conversion of Company Shares. At and as of the Effective Time, the Company Shares owned by the Shareholders shall be converted into the right of the Shareholders to exchange their Company Shares at the Closing for cash -3- 4 and Restricted Stock in accordance with Sections 1.4, 1.5 and 1.6, below. Upon such conversion, no Company Share shall be deemed to be outstanding or to have any rights attributed to it other than those set forth in this Section 1.3.5. The Shareholders shall deliver all of their Company Shares to Purchaser on or before the Closing Date and such shares shall be canceled at the Closing. 1.3.6 Capital Stock of Purchaser and Bristol. Each share of capital stock of Purchaser and Bristol, including, but not limited to, each share of Restricted Stock, issued and outstanding at and as of the Effective Time shall remain issued and outstanding. 1.4 Closing. If the conditions to close, as set forth in Article 5, below, are satisfied, then the parties hereto shall meet on the Closing Date at the offices of Bristol, located at 5000 Birch Street, Suite 250, Newport Beach, California 92660, commencing at 10:00 a.m. local time (the "Closing"), or at such other place or in such other manner as the parties shall mutually agree. On the Closing Date, Purchaser shall file the Certificates and, immediately thereafter deliver to the Shareholders the "Aggregate Consideration" stated immediately below. 1.4.1 Aggregate Consideration. The total aggregate consideration (the "Aggregate Consideration") to be delivered to the Shareholders at Closing is as follows: (a) One Hundred Fifty Thousand Dollars ($150,000) in readily available funds, to be distributed in the same percentage as the Shareholders' respective stock ownership in the Company; (b) One Hundred Sixty-Six Thousand Two Hundred Fifty Dollars ($166,250) worth of Restricted Stock, the value of which will be the Effective Bristol Share Price, rounded down to the nearest whole number of shares, to be distributed in the same percentage as the Shareholders' respective stock ownership in the Company; provided, however, that the delivery of such Restricted Stock shall be subject to the provisions of Section 1.6 below; (c) Fifty-Eight Thousand Seven Hundred Fifty Dollars ($58,750) worth of "Additional Restricted Shares," which is defined and is subject to downward adjustment as specified in Section 1.5, below, to Robert Freaney; and (d) Two Thousand Three Hundred Twenty-Four Dollars ($2,324) to Abbass Barzgar in total satisfaction of a promissory note issued to Mr. Barzgar, a copy of which is attached as Exhibit "C." 1.5 Additional Restricted Shares. "Additional Restricted Shares" means capital shares of Bristol of the same class and subject to the same restrictions as the Restricted Stock. The purpose in issuing the Additional Restricted Shares is to acknowledge the perceived value of the Company, based upon Purchaser's and the Shareholders' common understanding of the Company's Pre-Tax Earnings and future earnings potential. However, due to the relatively small scale of the transaction contemplated by this Agreement, Purchaser and Shareholders do not think it prudent or cost effective to perform an audit of the Company's financial statements or past performance. As such, Purchaser wishes to withhold a portion of the Aggregate Consideration until such time as the Company's post-closing performance verifies the parties' projections and understandings as to the Company's value. If the Company's Pre-Tax Earnings for the fiscal year ending December 31, 1997 equal or exceed Eighty Thousand Dollars ($80,000), then the Additional Restricted Shares will become transferable, free and clear of all restrictions, conditions and/or encumbrances, except for those restrictions set forth on the legend of the Restricted Additional Shares. To the extent that the Company's Pre-Tax Earnings for that period are less than Eighty Thousand Dollars ($80,000), then a proportionate amount of the Additional restricted Shares will be returned to Bristol and canceled in accordance with Section 1.5(b), below. (a) Company's Pre-Tax Earnings Defined. For the purposes of this Section 1.5 only, the terms in the phrase "Company's Pre-Tax Earnings" will have the same meaning as otherwise ascribed in this Agreement, modified as follows: (i) "Company" means Pacific Cash Register and Computer, Inc., as it existed from January 1, 1997 through the Closing Date, and that portion of Purchaser's post-closing business formerly owned, operated by, and/or attributable to, the acquisition of Pacific Cash Register and Computer, Inc. from the Closing date through December 31, 1997. -4- 5 (ii) "Pre-Tax Earnings" will include appropriate adjustments to take into consideration any diversion or reassignment of sales or income to a division, parent or subsidiary of the Purchaser, in addition to adjustments to offset any expenses, which are attributable to such division, parent or subsidiary. Pre-Tax Earnings will also be adjusted to exclude any expenses in any way relating to or arising from the merger transaction herein contemplated, including but not limited to all attorney or professional fees. In addition, in determining Pre-Tax Earnings any set aside for uncollectible accounts receivable shall not exceed the greater of (i) the amount set forth in the "Closing Balance Sheet" (as defined in Section 1.6, below); or (ii) if Bristol or Purchaser believe such amount to be inadequate, the amount determined by Bristol's independent accounting firm. (iii) "Pre-Tax Earnings" shall include earnings derived from sales by Company employees of new products made available to Company as a result of the Merger. (b) Effect of Failing to Meet Earnings Restriction. If in accordance with GAAP (after giving consideration to the factors specified in Section 1.5(a)), it is determined that the Company's Pre-Tax Earnings are less than Eighty Thousand Dollars ($80,000) for fiscal year ending December 31, 1997, then Robert Freaney will return $4.6865 worth of the Additional Restricted Shares to Bristol for each dollar by which Eighty Thousand Dollars ($80,000) exceeds the Company's Pre-Tax Earnings for that period. The value of the Additional Restricted Shares to be returned shall be based upon the average closing price of Bristol's publicly traded Common Stock for the ten (10) trading days immediately preceding December 31, 1997, rounded down to the nearest whole number of shares. The Shareholders' liability under this paragraph will be limited solely to a return of the Additional Restricted Shares and will not create any obligation to pay any deficit balance in the event the market value for the Bristol Common Stock has declined since the date of issuance or otherwise. The balance of the Additional Restricted Shares after returning a proportionate amount of shares pursuant to this paragraph, if any, will remain the property of Robert Freaney, free of any conditions, restrictions and/or encumbrances, except for those restrictions set forth on the legend of the Additional Restricted Shares. (c) Additional Provisions. During the period after issuance but before the Company's Pre-Tax Earnings are formally determined, Robert Freaney will be entitled to receive any dividends paid with respect to the Additional Restricted Shares. During this period, Robert Freaney may not sell, transfer, assign, encumber, option, hypothecate or enter into any agreement to otherwise dispose of such shares. Certificates evidencing such shares will indicate that the shares are restricted in accordance with this Section 1.5 and Section 4.7, below. 1.6 Escrow Account. The purpose of this Section 1.6 is to acknowledge the perceived Net Worth of the Company as of the Closing Date. As discussed above, due to the relatively small scale of the transaction contemplated by this Agreement, Purchaser and Shareholder do not think it is prudent or cost effective to perform an audit of the Company's balance sheet at the Closing Date. Bristol and Purchaser therefore desire to escrow a portion of the Aggregate Consideration until such time as Bristol and Purchaser can verify the parties anticipated Net Worth of the Company as of the Closing Date of $117,000 (the "Anticipated Closing Date Net Worth"). As such, immediately after the Effective Time and on the Closing Date, Bristol shall deposit with Stradling, Yocca, Carlson & Rauth ("the Escrow Agent") Seventy-Five Thousand Dollars ($75,000) worth of Restricted Stock (the "Escrowed Stock"). The Escrow Agent shall (i) hold the Escrowed Stock; and (ii) distribute the Escrowed Stock in accordance with this Section 1.6. (a) Closing Balance Sheet. Promptly after the Closing Date, Robert Freaney shall prepare a balance sheet for the Company as of the Closing Date (the "Closing Balance Sheet"), which arrives at the Anticipated Closing Date Net Worth. If, for any reason during the period ending one-hundred twenty (120) days from the Closing Date, the Chief Financial Officer of Bristol believe that a downward adjustment to the Anticipated Closing Date Net Worth is appropriate, then Bristol shall submit to the Shareholders in writing the amount of the proposed downward adjustment and a reasonable description of the reasons for such adjustment (the "First Notice"). If the Shareholders fail to notify Bristol in writing (the "Second Notice") of their objection to the proposed downward adjustment within fifteen (15) days of receipt of the First Notice, then such downward adjustment shall be deemed final and binding upon the parties hereto. If the Shareholders deliver the Second Notice within such fifteen (15) day period, then the issue of whether such downward adjustment is appropriate shall be submitted to Bristol's independent accountants, who shall determine the appropriateness of the downward adjustment in accordance with GAAP. The determination of Bristol's independent auditors shall be final and binding upon the parties hereto. (b) Distribution of Escrowed Stock. Subject to subparagraphs (i) and (ii), below, following the expiration of the later of (1) the period ending one hundred twenty (120) days from the Closing Date; or (2) the resolution of any downward adjustments in accordance with Section 1.6(a), above, the Escrow Agent shall deliver to the Shareholders the -5- 6 Escrowed Stock, to be distributed among the Shareholders in the same percentage as the Shareholders' respective stock ownership in the Company. (i) If a downward adjustment to the Anticipated Closing Date Net Worth is deemed final in accordance with Section 1.6(a), above, then the Escrowed Stock otherwise due Shareholders under Section 1.6(b), above, shall be reduced, on a dollar for dollar basis, by the amount of such downward adjustment. For purposes of any such reduction, the value of the Escrowed Stock shall be deemed to be equal to the Effective Bristol Share Price. (ii) The number of shares of Escrowed Stock reduced pursuant to subparagraph (i), above, if any, shall be delivered by the Escrow Agent to Bristol. ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE SHAREHOLDERS Company and the Shareholders jointly and severally represent and warrant to, and agree with, Bristol, Purchaser and Surviving Corporation that (except for changes contemplated by this Agreement), each of the following statements is true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (each such statement to be made again by Company and the Shareholders on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 2): 2.1 Organization and Authority. (a) Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has all requisite corporate power and authority to carry on its business as currently conducted and to own or lease and operate its properties, and is duly qualified to do business as a foreign corporation in each jurisdiction where its business makes such qualification necessary. Company and the Shareholders have the requisite power to enter into this Agreement and to carry out their respective obligations hereunder. (b) The copies of the Articles of Incorporation and the By-laws of Company which have been heretofore made available to Purchaser and Bristol, are true copies of such instruments as amended to date, and such instruments are in full force and effect. The stock certificates, transfer books and minute books of Company heretofore made available to Purchaser and Bristol are true and complete and constitute all of the stock certificates, transfer books and minute books of Company. (c) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by Company's Board of Directors and shareholders, and no other proceedings on the part of Company are necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement is a valid and binding obligation of Company and the Shareholders enforceable in accordance with its terms except as enforcement may be limited to bankruptcy, insolvency or other similar laws affecting the enforcement of creditors rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. (d) Except as disclosed in Schedule 2.1(d) attached hereto, there are no persons or entities of any kind in which Company owns, directly or indirectly, any shares of capital stock, or any partnership, membership, joint venture or equitable or similar interest. (e) Except as set forth on Schedule 2.1(e)(1) attached hereto, no consent, approval or authorization of, or declaration, filing or registration with, any third party, including any government or regulatory authority, is required in connection with the execution and delivery by Company or the Shareholders of this Agreement and the consummation by Company and the Shareholders of the transactions contemplated hereby. Except as set forth on Schedule 2.1(e)(2) attached hereto, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will -6- 7 (i) conflict with, result in a breach of, or constitute a default under any of the terms, conditions, or provisions of the Articles of Incorporation or By-laws of Company; (ii) violate any law, order, judgment or decree to which any of Company's properties or assets are bound; (iii) violate or constitute a default under (whether after the giving of notice, passage of time or both), or permit the termination of, or impair any rights or increase any obligations of Company under, any agreement or instrument to which Company is a party or by which any part of Company's properties or assets is bound; or (iv) result in the acceleration of the maturity of any debt or obligation of Company or in the creation or imposition of any Encumbrance upon any of the property or assets of Company. 2.2 Capitalization. The authorized capital stock of Company consists of 2,000 shares of common stock, $10 par value per share, of which 1,000 shares are issued and outstanding. All outstanding capital stock of Company was duly authorized and validly issued, and is fully paid and nonassessable. Company does not have outstanding, and is not bound by, any option, warrant or other right, call or commitment to issue, or any obligation or commitment to purchase, any of its capital stock or any securities convertible into or exchangeable for any of its authorized capital stock. The Shareholders (i) own all of the outstanding capital stock of Company; (ii) are the sole legal and beneficial owners of that number of Company Shares set forth on Schedule 2.2(1) hereto; (iii) are in possession of the certificate(s) representing such shares; (iv) own such shares free and clear of all Encumbrances with respect thereto; and (iv) have the full power, authority and right to exchange, surrender and cancel such shares in accordance with this Agreement and to perform their obligations hereunder with respect to the exchange, surrender and cancellation of such shares. Except as set forth on Schedule 2.2(2) attached hereto, there are no buy-sell agreements, shareholders' agreements or similar agreements relating to any of the shares of the capital stock of Company. 2.3 Financial Matters. (a) Attached hereto as Schedule 2.3(a)(1) are the unaudited balance sheets of Company at December 31, 1994, at December 31, 1995, at December 31, 1996, and at March 31, 1997, the related statements of income, shareholders' equity and cash flows for the annual and three (3) month period then ended, respectively, and the related notes to such financial statements (all of such financial statements and notes being hereinafter referred to as the "Financial Statements"). Except as set forth in Schedule 2.3(a)(2) attached hereto, the Financial Statements (including the notes thereto) (i) present fairly and accurately the financial condition of Company as of such dates and the results of operations of Company for such periods; and (ii) are correct and complete, and are consistent with the books and records of Company (which books and records are correct and complete). (b) Company does not have any Liabilities, other than those which (i) are set forth in the Financial Statements; (ii) have been specifically and expressly disclosed in the Schedules hereto by reference to the specific Section of this Agreement to which such disclosure relates; (iii) have been incurred since the date of the most recent Financial Statements in the Ordinary Course of Business in amounts and on terms consistent, individually and in the aggregate, with Company's past practice; or (vi) are expressly contemplated by this Agreement, except for those costs and liabilities incurred in connection with the Merger. (c) Since the date of the March 31, 1997 Financial Statements, (i) Company has operated its business only in the Ordinary Course of Business; (ii) there has not occurred any event, condition or circumstance that has had or is likely to have a Materially Adverse Effect on Company; (iii) Company has not issued or sold, or contracted to sell, any of its capital stock, notes, bonds or other securities, or any option to purchase the same, or entered into any agreement with respect thereto; (iv) Company has not incurred any property damage, destruction or similar loss in an aggregate amount exceeding Ten Thousand Dollars ($10,000) whether or not covered by insurance; (v) Company has not suffered any loss or any prospective loss, of any significant supplier, distributor, licensor, contractor or customer or altered any contractual arrangement with any such supplier, distributor, licensor, contractor or customer; (vi) Company has not incurred any Liability, made any expenditure, or sold any assets or properties, except in each case in the Ordinary Course of Business, consistent with past practices and at arms-length; (vii) there has been no declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of Company, and Company has not redeemed, repurchased or otherwise acquired any of its capital stock or securities convertible into or exchangeable for its capital stock or entered into any agreement to do so; (viii) Company has not made any prepayments on any of its Liabilities, securities or other obligations, other than trade payables in the Ordinary Course of Business; (ix) there has not been any increase in the rate of compensation payable or to become payable to any of Company's officers or employees or any increase in the amounts paid or payable to such officers or employees under any bonus, insurance, pension or other benefit plan, or any arrangements theretofore made for or with any of such officers or employees; (x) Company has not adopted or amended any benefit plan, agreement, trust, fund or other arrangement for the benefit of employees except as required by Tax laws; and (xi) except as required by applicable law, there has been no change in any accounting principle, procedure or practice followed by Company or in the method of applying such principle, procedure or practice. -7- 8 (d) Attached as Schedule 2.3(d) is a list containing all distributions, credits or compensation, of any nature, paid or to be paid to the Shareholders by Company in fiscal year 1996 and 1997. 2.4 Assets. (a) Company owns no real property. Schedule 2.4(a) attached hereto contains a list of all real property leased by Company (the "Leased Premises"), together with copies of each of the leases (the "Leases"), including the name of the landlord or sublandlord, a description of the Leased Premises, the commencement and expiration dates of the current term, the security deposited by Company with the landlord or sublandlord, if any, and the monthly rental (including all base rent and all additional rents). Each Lease is in full force and effect and has not been assigned, modified, supplemented or amended, and neither Company nor the landlord or sublandlord under any Lease is in default under any of the Leases, and no circumstance or state of facts exists which, with the giving of notice or passage of time, or both, would permit the landlord or sublandlord under any Lease to terminate any Lease. (b) Schedule 2.4(b) attached hereto contains a list of all personal property (other than inventory and other than items with a book value of less than Ten Thousand Dollars ($10,000)) ("Personal Property") and real property improvements (including fixtures but excluding items with a book value of less than Ten Thousand Dollars ($10,000)) owned by Company. All Personal Property and real property improvements of Company are in good condition and repair and are adequate for the uses to which they are being put or would be put in the Ordinary Course of Business, and such Personal Property and real property improvements are not in need of maintenance or repair except for routine maintenance and repair and as otherwise disclosed on Schedule 2.4(b). (c) The inventory of Company is comprised of two types: (i) inventory held for sale to customers ("Class I Inventory"), which inventory is identified on Schedule 2.4(c)(i) attached hereto; and (ii) inventory of products, parts and supplies held for customer support and service ("Class II Inventory"), which inventory is identified on Schedule 2.4(c)(ii) attached hereto. Each item of Class I Inventory is in good and marketable condition and fit for the purpose for which it was produced or manufactured, and each item of Class II inventory is fairly and reasonably valued on the balance sheet of the most recent Financial Statements and is not obsolete, damaged or defective (except for obsolescence, damages or defects which in the aggregate are not likely to have a Materially Adverse Effect on Company). (d) The accounts receivable of Company reflected on the balance sheet of the March 31, 1997 Financial Statements have arisen from sales or the rendering of services in the Ordinary Course of Business and are not in dispute or subject to any setoffs, discounts, credits, reductions or counterclaims whatsoever and, with usual and ordinary collection efforts, will be paid in full, net of reserves reflected on such balance sheet, without resort to legal action. (e) Company owns, licenses or otherwise has the full right to use, all patents, trademarks, trade names, service marks, copyrights, technology, know-how and processes, and confidential information used in the conduct of its business. Schedule 2.4(e)(1) attached hereto contains a list of all registered and unregistered patents, trademarks, trade names, service marks and copyrights used by Company, all applications therefor and all licenses and other agreements relating thereto, which are owned by Company or used in the business of Company. No consent of any third party will be required for the use thereof upon completion of the transactions contemplated by this Agreement. No claims are currently being asserted by any person or entity with respect to the use of any such patents, trademarks, service marks, trade names, copyrights, technology, know-how or processes or confidential information or challenging or questioning the validity or effectiveness of any such license or agreement, nor, to the Knowledge of Company and the Shareholders, is there any basis for any such claims. The perpetual use of such patents, trademarks, trade names, service marks, copyrights, technology, know-how or processes, or confidential information by Company does not infringe on the rights of any person or entity, and, to the Knowledge of Company and the Shareholders, there is no infringing use of Company's patents, trademarks, trade names, service marks or copyrights by others. (f) Schedule 2.4(f) attached hereto contains a list of all written and oral agreements (other than the Leases) that either are not terminable at will or may involve more than Ten Thousand Dollars ($10,000) during the term thereof and to which Company is a party or by which Company or any of Company's assets or properties are bound. Each such agreement is legally binding and in full force and effect, and there is no existing or alleged default or event of default under any such agreement, nor does there exist any event or condition which, with notice or lapse of time or both, would constitute such a default or event of default by Company. Copies of all documents listed in Schedule 2.4(f) have been delivered to Purchaser and Bristol, and are true and complete in all respects and include all amendments and supplements thereto and modifications thereof. -8- 9 (g) Schedule 2.4(g) attached hereto contains a list of (i) every bank, savings and loan or other financial institution in which Company has any accounts or lock boxes and the corresponding account identification number, if any; (ii) the names of the persons authorized to make withdrawals therefrom or have access thereto; and (iii) each person who holds a power of attorney for Company. (h) Schedule 2.4(h) attached hereto contains a list of the ten (10) largest customers of Company measured by the revenues from such customers during the twelve (12) month period commencing April 1, 1996 and ending March 31, 1997, showing the approximate total billings by Company to each such customer during such period. There has not been any materially adverse change in the business relationship of Company with any customer named in Schedule 2.4(h). Except for the customers named in Schedule 2.4(h), Company did not have any customer who accounted for more than five percent (5%) of the aggregate sales or services of Company during the twelve (12) month period commencing April 1, 1996 and ending March 31, 1997. No person or entity that was a customer of Company at any time during the past twelve (12) months was at such time controlled by, in control of or under common control with Company or the Shareholders. (i) Schedule 2.4(i) attached hereto contains a list of the ten (10) largest suppliers of the Company measured by payments to such suppliers during the twelve (12) month period commencing April 1, 1996 and ending March 31, 1997. There has not been any materially adverse change in the business relationship of Company with any supplier named in Schedule 2.4(i). Except as set forth on Schedule 2.4(i), no person or entity that was a supplier of Company at any time during the past twelve (12) months was at such time controlled by, in control of or under common control with Company or the Shareholders. (j) Schedule 2.4(j) attached hereto contains a list of insurance policies in force currently or at any time during the past two (2) years and relating to Company or its assets or properties, including in each instance the name of the carrier, the term of the policy, the periods for which it has been continuously in effect, the annual premium and the general scope of coverage. Such insurance is and was sufficient in type to protect Company as it currently conducts its business and as it has conducted its business during the past two (2) years and the premiums for such insurance policies are fully paid. None of the policies provides for the assessment of additional or retroactive premiums, and there are no loans outstanding against any such policies. No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any insurance policy listed or required to be listed on Schedule 2.4(j) or binder listed or required to be listed in Schedule 2.4(j) has been received by Company. No claim or event that forms the basis of a claim has occurred which could cause Company's insurers to substantially increase the cost of insurance for Company. (k) Except as set forth on Schedule 2.4(k) attached hereto, all assets and properties purported to be owned by Company are owned free and clear of all Encumbrances. Company rightfully possesses or has the right to use all assets and properties necessary to conduct its business. 2.5 Legal Matters. (a) Except as set forth on Schedule 2.5(a) attached hereto, there is no action, suit, proceeding or investigation pending, or, to the Knowledge of Company or the Shareholders, threatened, at law or in equity, before any arbitrator or court or other governmental authority, nor any outstanding judgment, decree, injunction, charge, award or order, against or in any manner involving Company or any of Company's assets or properties, or the Company Shares. (b) Company has complied with all judgments, orders, rulings, statutes, laws, permits, licenses, franchises, ordinances and other governmental authorizations, approvals and regulations applicable to it or any of its operations, properties or assets. Company has all licenses and permits and other governmental authorizations and approvals required for the operation of its business and the use of its assets and properties. (c) Company has filed or caused to be filed all federal, state, local and foreign income and other Tax Returns required under applicable law to be filed on or before the Closing Date, Company has paid or made provision for all Taxes and other charges which have or may become due for the periods covered by such Tax Returns, all such Tax Returns are true, correct and complete in all respects. None of the Tax Returns of Company are currently under investigation or audit, nor to the Knowledge of Company or the Shareholders is an investigation or audit pending, and there has not been an investigation or audit of the Tax Returns of Company during the past seven (7) years. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Return for any period. The accounting treatment of all items of income, gain, loss, deduction and credit as reported on all Tax Returns and estimates filed by or on behalf of Company are true and -9- 10 complete, and all deferred Taxes and all Taxes due for the period ending on the Closing Date have been accrued on the Balance Sheet of the most recent Financial Statements through the date thereof. Company has never been, nor is Company currently, a party to any agreement relating to the sharing of any liability for, or payment of, Taxes with any third party. Schedule 2.5(c) attached hereto (i) lists all federal, state, local and foreign income Tax Returns filed with respect to Company for taxable periods ended on or after December 31, 1992; (ii) indicates those Tax Returns that have been audited, if any; (iii) and indicates those copies of all income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by Company since December 31, 1992. No claim has ever been made by an authority in a jurisdiction where Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of the assets of Company that arose in connection with any failure (or alleged failure) to pay any Tax. All Taxes owed by Company or which Company is obligated to withhold from amounts owing to any employee, independent contractor, stockholder, creditor or third party have been paid. There are no unresolved claims concerning Company's Tax Liability, and no basis for any such claim exists. (d) No solid, hazardous or toxic wastes, substances or materials, as those terms are used in the Clean Air Act, Resource Conservation and Recovery Act of 1976, as amended, the Hazardous Materials Transportation Act or the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), or in any other federal, state or local law or ordinance governing hazardous, toxic or solid wastes, materials or substances, and no asbestos, polychlorinated biphenyls, urea formaldehyde foam, explosives, infectious or biological wastes or radioactive materials (all of the above being collectively referred to herein as "Hazardous Substances") have been or are unlawfully stored, treated, disposed of, managed, generated, manufactured, produced, released, emitted or discharged, in, on, under or about the Leased Premises by Company so as to (i) require, under any applicable law or treaty, a governmental approval, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license (an "Approval"), unless such Approval has been obtained and remains in full force and effect; or (ii) render the Leased Premises in noncompliance with or in violation of any applicable law, regulation, or permit or subject to any obligation, Liability, order or requirements for remediation. No governmental or private action, suit or proceeding concerning or arising out of the use, storage, treatment, discharge, disposal, handling, manufacturing, processing, treatment, transportation, release or threat of release of any Hazardous Substance at, under or in connection with Company's business or the Leased Premises, or to enforce or impose liability under environmental pollution laws, common law or laws relating to the protection of worker and work place health and safety has been instituted, initiated or, to the Knowledge of Company and the Shareholders, threatened against or with respect to Company or the Shareholders or the Leased Premises as a result of the Company's or the Shareholders' acts or omissions. (e) Product Warranty. Each product manufactured, sold, or delivered by Company has been in conformity with all applicable contractual commitments and all express and implied warranties, and Company has no Liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the balance sheet of the most recent Financial Statements (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Company. No product manufactured, sold, or delivered by Company is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale. Schedule 2.5(e) includes copies of the standard terms and conditions of sale for Company (containing applicable guaranty, warranty, and indemnity provisions). (f) Product Liability. Company has no Liability (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against Company giving rise to any Liability) arising out of any injury to individuals or property as a result of the ownership, possession, or use of any product manufactured, sold, or delivered by Company. (g) Health and Safety. Company has received no notice of any violation, nor, to the Knowledge of Company and the Shareholders, is there any basis for any assertion of a violation by Company, of the Occupational Safety and Health Act of 1970, as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and changes thereunder) of federal, state and local governments (and all agencies thereof) concerning public health and safety or employee health and safety laws. (h) Absence of Claims. The Shareholders have no claims against the Company. -10- 11 2.6 Employment Matters (a) None of Company's employees belongs to a labor union in connection with his or her employment by Company nor has there been any request by any employee to be represented by a union in such connection. (b) Except as identified on Schedule 2.6(b) attached hereto, no officer, manager or key employee of Company has indicated within the past twelve (12) months that he or she may terminate his or her employment with Company (regardless of whether such indication was formal or informal). (c) Schedule 2.6(c) attached hereto sets forth the names of all Company's directors and officers, and the names of all persons whose compensation from Company during the current year will exceed Twenty-Five Thousand Dollars ($25,000). (d) Schedule 2.6(d) attached hereto contains a list of each pension, retirement, profit-sharing, deferred compensation, bonus or other incentive plan, employee program, arrangement, agreement or understanding, medical, vision, dental or other health plan, life insurance plan, severance plan or any other employee benefit plan to which Company or any entity under common control with the Company contributes or is a party or is bound and under which current or former employees of Company are eligible to participate or derive a benefit. (e) Company does not maintain, never has maintained or contributed to, and has never been required to contribute to any Employee Benefit Plan or has any Liability under any Employee Benefit Plan. (f) Company does not contribute to, never has contributed to, and has never been required to contribute to any multiemployer plan or has any Liability (including withdrawal liability) under any multiemployer plan. 2.7 Continuity of Interest. The Shareholders have no present plan, intention or arrangement to dispose of any of their Restricted Stock in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. 2.8 Tax Free Reorganization. This Agreement and the transactions contemplated herein qualify, in all respects, as a tax free reorganization pursuant to Code Section 368(a)(2)(D). 2.9 Brokers. No broker, finder or investment banker has acted directly or indirectly for Company or any of its officers or directors, or for the Shareholders in connection with this Agreement or the transactions contemplated hereby, and no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in respect thereof based in any way on agreements, arrangements or understandings made by or on behalf of Company or the Shareholders. 2.10 Disclosure. No representation or warranty by Company or the Shareholders in this Agreement or in any other certificate or document delivered to Purchaser and Bristol and their representatives contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. There is no fact which has not been disclosed to Purchaser and/or Bristol which has had or is likely to have a Materially Adverse Effect on Company. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER Bristol and Purchaser each hereby, jointly and severally, represent and warrant to, and agree with, Company and the Shareholders that (except for changes contemplated by this Agreement), each of the following statements is true, correct and complete as of the date of this Agreement and will be true correct and complete as of the Closing Date (each such statement to be made again by Bristol and the Purchaser on that date with the Closing Date being substituted for the date of this Agreement throughout this Article 3): -11- 12 3.1 Organization and Authority. (a) Purchaser and Bristol are corporations duly organized, validly existing and in good standing under the laws of the State of Delaware, have all requisite corporate power and authority to carry on their respective businesses as currently conducted and to own or lease and operate their respective properties, and are duly qualified to do business as foreign corporations in each jurisdiction where their businesses make such qualification necessary. Purchaser and Bristol have the requisite power to enter into this Agreement and to carry out their respective obligations hereunder. (b) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by Purchaser's and Bristol's respective Boards of Directors prior to the Closing Date, and no other proceedings on the part of Purchaser or Bristol are necessary to authorize this Agreement and the transactions contemplated hereby, and this Agreement is a valid and binding obligation of Purchaser and Bristol enforceable in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors rights generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought. (c) Except as set forth on Schedule 3.1(c)(1) attached hereto, no consent, approval or authorization of, or declaration, filing or registration with, any third party, including any government or regulatory authority, is required in connection with the execution and delivery by Purchaser and Bristol of this Agreement and the consummation by Purchaser and Bristol of the transactions contemplated hereby. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) conflict with, result in a breach of or constitute a default under any of the terms, conditions or provisions of the Certificate of Incorporation or By-laws of Purchaser or Bristol; (ii) violate any law, order, judgment or decree to which any of Purchaser's or Bristol's properties or assets are bound; (iii) violate or constitute a default under (whether after the giving of notice, passage of time or both), or permit the termination of, or impair any rights or increase any obligations of Purchaser or Bristol under, any agreement or instrument to which Purchaser or Bristol is a party or by which any part of Purchaser's or Bristol's properties or assets are bound; or (iv) result in the acceleration of the maturity of any debt or obligation of Purchaser or Bristol, or in the creation or imposition of any Encumbrance upon any of the properties or assets of Purchaser or Bristol. 3.2 Brokers. No broker, finder or investment banker has acted directly or indirectly for Purchaser or Bristol, or any of their officers or directors in connection with this Agreement or the transactions contemplated hereby, and no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in respect thereof based in any way on agreements, arrangements or understandings made by or on behalf of Purchaser or Bristol. 3.3 Disclosure. No representation or warranty by Purchaser or Bristol in this Agreement or in any other certificate or document delivered to Company and the Shareholders and their representatives contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. 3.4 Company Employees. Subject to Section 3(e) of Robert Freaney's Employment Agreement attached hereto as Exhibit "D," neither Bristol nor Purchaser make any representation or warranty about the continued employment of Company's employees by Surviving Corporation. To the extent Surviving Corporation determines to employ any former Company employee, such employee shall execute Surviving Corporation's standard employment agreement which shall contain such terms and conditions as such employee and Surviving Corporation negotiate. Neither Bristol nor Purchaser nor Surviving Corporation shall be responsible for, obligated under or incur any Liability in connection with any employment agreement or any bonus, insurance, pension, employee benefit (including accrued vacation) or other compensation or benefit arrangement between Company and any employee of Company. 3.5 Litigation. There are no pending or threatened administrative or legal proceedings or investigations against either Purchaser or Bristol that, if resolved against one or both of the companies, would adversely affect their business in a material way, or could reasonably be expected to impair the consummation of the Merger. 3.6 Financial Matters. There have been no material adverse changes in the business of either Bristol or Purchaser or their financial conditions which have not been disclosed to Company and the Shareholders. Bristol has delivered a copy of its most recent quarterly financial statements to Shareholders, which accurately represent its financial condition in all -12- 13 material respects, and there have been no material adverse changes, or transactions which could be reasonably expected to adversely affect the financial condition of Bristol, since the date of these financial statements. ARTICLE IV COVENANTS 4.1 General. Each of the parties hereto shall use its best efforts to take all action and to do all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the conditions to close set forth in Article 5, below). 4.2 Notices and Consents. Each of the parties will give all notices to third parties and shall obtain prior to the Closing Date all third party consents which are necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. Company's obligations to obtain third party consents shall include, but not be limited to (i) the consents of all manufacturers under contract with Company to the assignment to and assumption by Surviving Corporation of such contracts, without default, modification or amendment thereof; and (ii) the consents of all lenders to which the Company is indebted to the assignment to and assumption by Surviving Corporation of such indebtedness, without default, acceleration, modification or amendment thereof. 4.3 Regulatory Matters and Approvals. Each of the parties shall give all notices to, make any filings with, and use its best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Sections 2.1(e) and 3.1(c), above, or elsewhere in this Agreement. 4.4 Continuity of Interest. The Shareholders shall not dispose of any of the Restricted Stock in a manner that would cause the Merger to violate the continuity of shareholder interest requirement set forth in Treasury Regulation Section 1.368-1. If the Shareholders desire to dispose of any of the Restricted Stock, then they shall provide written notice to Bristol, not less than sixty (60) days prior to the intended date of disposition, specifying the number of Restricted Stock that such Shareholder desires to dispose. 4.5 Continuity of Business. Surviving Corporation shall continue at least one significant historical business line of Company, or use at least a significant portion of Company's historical business assets in a business, in each case in accordance with Treasury Regulation Section 1.368-1(d). 4.6 Tax Free Reorganization. The parties intend the Merger to be a tax-free reorganization pursuant to Code Section 368(a)(2)(D), and each agrees to indemnify each other party for any loss or damage occasioned by a breach of this Agreement by the indemnifying party which causes or contributes to the imposition of any Tax Liability against any other party hereto. 4.7 Listing of Restricted Stock and Additional Restricted Shares. The Restricted Stock and the Additional Restricted Shares issued to the Shareholders pursuant to Sections 1.4 and 1.5, above, shall remain restricted for a period of two (2) years from the Closing Date. Not later than thirty (30) days prior to the second anniversary of the Closing Date, Bristol shall apply to have the Shareholders' Restricted Stock and Additional Restricted Shares approved for inclusion on such stock exchange as Bristol's publicly traded Common Stock is then listed, if any. The parties expressly understand and agree that such application shall only be made if (i) Bristol's publicly traded Common Stock is then listed on a stock exchange; and (ii) such application is necessary to include the Shareholders' Restricted Stock and Additional Restricted Shares thereon. 4.8 Operation of Business. From the date of this Agreement through the Closing Date, Company shall not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing: (a) Company shall not authorize or effect any change in its Articles of Incorporation or By-laws; (b) Company shall not grant any options, warrants, or other rights to purchase or obtain any of its capital stock or issue, sell, or otherwise dispose of any of its capital stock; -13- 14 (c) Company shall not declare, set aside, or pay any dividend or distribution with respect to its capital stock (whether in cash or in kind), or redeem, purchase, or otherwise acquire any of its capital stock; (d) Company shall not issue any note, bond or other debt security or create, incur, assume, or guarantee any indebtedness for borrowed money or capitalized lease obligation; (e) Company shall not impose, or allow to be imposed, any Encumbrance upon any of its assets; (f) Company shall not make any capital investment in, make any loan to, or acquire the securities or assets of any person or entity; (g) Company shall not make any change in the terms and conditions of employment for any of its directors, officers, and employees; and (h) Company shall not commit to do any of the foregoing. From the date of this Agreement through the Closing Date, neither Bristol nor Purchaser shall do any act which would result in a substantial dilution of the outstanding capital stock of Bristol. 4.9 Company Employees. Company shall terminate all of its agreements with its employees (including all employment agreements and all bonus, insurance, pension, benefit, and other compensation or benefit plans or agreements) on or prior to the Effective Time; provided, however, that such employees shall be re-employed by Surviving Corporation on substantially similar terms as those provided to such employees by Company. In addition, any post-Closing termination of or change in the terms of employment for personnel of Surviving Corporation is expressly subject to the terms and conditions of Section 3(e) of Robert Freaney's Employment Agreement attached hereto as Exhibit "D." 4.10 Full Access. Company, Bristol and Purchaser shall permit each other's representatives to have full access to all personnel, premises, properties, books, records (including tax records), accounts, contracts, and documents of or pertaining to each respective company. The parties shall treat and hold as such any Confidential Information they receive from each other in the course of the due diligence investigation contemplated by this section 4.10, shall not use any of the Confidential Information except in connection with the transactions contemplated by this Agreement, and, if this Agreement is terminated for any reason whatsoever, shall return to each other all tangible embodiments (and all copies) thereof which are in their possession. 4.11 Notice of Developments. Each party hereto shall give prompt written notice to the other of any material adverse development causing a breach of any of its own representations and warranties in Articles 2 and 3, above, or the breach of any of its own covenants in this Article 4. No disclosure by any party pursuant to this Section 4.11, however, shall be deemed to amend or supplement the Schedules hereto or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. 4.12 Exclusivity. Company shall not solicit, initiate, or encourage the submission of any proposal or offer from any person or entity relating to the acquisition of all or substantially all of the capital stock or assets of Company. 4.13 Barzgar Loan Agreement. Prior to the Closing Date, Company shall pay in full the indebtedness owed Abbass Barzgar under that certain Loan Agreement, dated May 17, 1994, and, upon such payment, Mr. Barzgar shall release his liens covering the two Company vehicles described in such agreement. The above-described Loan Agreement is attached hereto as Exhibit "E." -14- 15 ARTICLE V CONDITIONS TO CLOSE 5.1 Conditions to Obligations of Bristol and Purchaser to Close. The obligations of Bristol and Purchaser to consummate the transactions to be performed by them on or prior to the Closing Date are subject to the satisfaction of the following conditions: (a) This Agreement and the Merger shall have been approved by the Board of Directors and the shareholders of Bristol, Purchaser and Company; (b) The representations and warranties set forth in Article 2, above, shall be true and correct in all material respects on and as of the Closing Date; (c) Company and the Shareholders shall have performed and complied with all of their covenants hereunder in all material respects through the Closing Date; (d) Company shall have obtained all third party consents that are necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including, but not limited to, the consents specifically set forth in Section 4.2, above; (e) Company and the Shareholders shall have made their respective delivery obligations in accordance with the terms and conditions of Article 6, below; (f) No action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement; (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation; or (iii) affect adversely the right of Surviving Corporation to own the former assets and to operate the former businesses of Company, and no such injunction, judgment, order, decree, ruling or charge shall be in effect; (g) Company shall have completed and delivered the Schedules to this Agreement and the information contained in such Schedules shall be satisfactory to Purchaser and Bristol in their absolute and sole discretion; (h) Bristol and Purchaser shall have completed their due diligence investigation of Company and shall be satisfied with the results of such investigation in their reasonable discretion, including, but not limited to, the confirmation by representatives of Bristol and Purchaser of Company's Net Worth, as stated on the Company's May 31, 1997 balance sheet; (i) Bristol shall have determined in its reasonable discretion that an audit of Company is not required in order to comply with the rules and regulations promulgated by the Securities Exchange Commission. (j) All actions to be taken by Company and the Shareholders in connection with the consummation of the transactions contemplated herein and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated herein shall be satisfactory in form and substance to Bristol and Purchaser in their absolute and sole discretion. Bristol and Purchaser may waive any condition specified in this Section 5.1 if they execute a writing so stating on or prior to the Closing Date. 5.2 Conditions to Obligations of Company and the Shareholders to Close. The obligations of Company and the Shareholders to consummate the transactions to be performed by them on or prior to the Closing Date are subject to satisfaction of the following conditions: (a) The representations and warranties set forth in Article 3, above, shall be true and correct in all material respects on and as of the Closing Date; -15- 16 (b) Bristol and Purchaser shall have performed and complied with all of their covenants hereunder in all material respects through the Closing Date; (c) Bristol and Purchaser shall have made their respective delivery obligations set forth in Article 6, below; (d) There shall not be any injunction, judgment, order, decree, ruling or charge in effect against Bristol or Purchaser preventing the consummation of any of the transactions contemplated by this Agreement; and (e) All actions to be taken by Bristol and Purchaser in connection with the consummation of the transactions contemplated by this Agreement and all certificates, instruments, and other documents required to effect the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to Company and the Shareholders. (f) Company and the Shareholders will have completed their due diligence and be satisfied as to Purchaser's and Bristol's status, in their reasonable discretion. Company and Shareholder may waive any condition in this Section 5.2 if they execute a writing so stating on or prior to the Closing Date. ARTICLE VI DELIVERIES ON OR PRIOR TO THE CLOSING DATE 6.1 Deliveries Subject to Filing of Certificates. All deliveries to be made pursuant to this Article 6 shall, to the extent appropriate, be prepared in such a manner so as to become effective only upon the filing of the Certificates in accordance with Section 1.1, above. 6.2 Mutual Deliveries. On or prior to the Closing Date, (i) Purchaser and Robert Freaney shall deliver to each other the Employment Agreement with Surviving Corporation in substantially the form set forth as Exhibit "D" attached hereto; and (ii) Purchaser and Company shall deliver to each other the Certificates in the forms of Exhibits "A" and "B" hereto. 6.3 Deliveries by Company. Not less than ten (10) days prior to the Closing Date, the Shareholders shall cause Company to deliver to Purchaser and Bristol the Schedules to this Agreement. On or prior to the Closing Date, the Shareholders shall cause Company to deliver to Purchaser and Bristol (i) a certificate stating that the representations and warranties of Company contained in this Agreement are true and correct on and as of the Closing Date as though made at and as of that date (except where such representation and warranty is made as of a date specifically set forth therein); (ii) a copy of the Certificate of Incorporation, as amended, and By-laws of Company as then in effect, an incumbency certificate, and resolutions of the Board of Directors and shareholders of Company approving the Agreement and authorizing the performance of the transactions contemplated hereby, all as certified by the Secretary of Company; (iii) a long-form good standing certificate dated as of or within fifteen (15) business days of the Closing Date from the Secretary of State of the State of California; (iv) the legal opinion of Company's counsel in the form attached hereto as Exhibit "F"; (v) the resignations, effective as of the Closing Date, of each director and officer of Company; and (vi) such other documents as Purchaser may reasonably request for the purposes of consummating the transactions contemplated hereby. 6.4 Deliveries by the Shareholders. On or prior to the Closing Date, the Shareholders shall deliver to Bristol and Purchaser (i) the certificate(s) representing all of the Company Shares owned by the Shareholders, duly endorsed for surrender and cancellation; (ii) a certificate stating that the representations and warranties of the Shareholders contained in this Agreement are true and correct on and as of the Closing Date as though made at and as of that date (except where such representation and warranty is made as of a date specifically set forth therein); (iii) their resignations as directors and officers of Company; (iv) the promissory note issued to Abbass Barzgar, which note shall be cancelled upon payment by the Purchaser to Mr. Barzgar of the amounts described in Section 1.4.1(d); and (v) such other documents as Purchaser may reasonably request for the purposes of consummating the transactions contemplated herein. 6.5 Deliveries by Bristol. On or prior to the Closing Date, Bristol shall deliver to the Shareholders (i) a certificate stating that the representations and warranties of Bristol contained in this Agreement are true and correct on and as of -16- 17 the Closing Date as though made at and as of that date (except where such representation and warranty is made as of a date specifically set forth therein); (ii) a copy of the Certificate of Incorporation, as amended, and By-laws of Bristol as then in effect, and resolutions of the Board of Directors of Bristol approving the Agreement and authorizing the performance of the transactions contemplated herein, all as certified by the Secretary of Bristol ; (iii) a long-form good standing certificate dated as of or within fifteen (15) business days of the Effective Date from the Secretary of State of the State of Delaware; and (iv) such other documents as the Shareholders may reasonably request for the purposes of consummating the transactions contemplated hereby. As soon as practicable following the Closing Date, Bristol shall deliver to (i) the Shareholders a total of Ninety-One Thousand Two Hundred Fifty Dollars ($91,250) worth of Restricted Stock; (ii) Robert Freaney Fifty-Eight Thousand Seven Hundred Fifty Dollars ($58,750) worth of the Additional Restricted Shares; and (iii) the Escrow Agent Seventy-Five Thousand Dollars ($75,000) worth of Restricted Stock. 6.6 Deliveries by Purchaser. On or prior to the Closing Date, Purchaser shall deliver to the Shareholders (i) a copy of the resolutions of the Board of Directors of Purchaser approving the Agreement and authorizing the performance of the transactions contemplated hereby, all as certified by the Secretary of Purchaser; and (ii) such other documents as the Shareholders may reasonably request for the purposes of consummating the transactions contemplated herein. Immediately after the effective Time and on the Closing Date, Purchaser shall deliver to (i) the Shareholders a total of One Hundred Fifty Thousand Dollars ($150,000) in immediately available funds; and (ii) Abbass Barzgar Two Thousand Three Hundred Twenty-Four Dollars ($2,324). 6.7 Waivers. A party may waive any deliveries to which it is entitled pursuant to this Article 6 if it executes a writing so stating on or before the Closing Date. ARTICLE VII INDEMNITIES 7.1 Indemnity by Bristol. (a) Bristol hereby expressly and unequivocally agrees to indemnify, defend and hold harmless the Shareholders from and against and in respect of any and all claims, demands, losses, costs, expenses, obligations, guaranties, liabilities, actions, suits, damages and deficiencies, including without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in settlement of any claim, action or suit (all such claims, demands, losses, costs, expenses, etc. being referred to herein collectively as "Claims") which are asserted against the Shareholders or which the Shareholders incur or suffer, whether as a result of third party claims or otherwise, and which arise out of, result from or relate to (i) any failure by Bristol and Purchaser to fully perform in a timely manner any agreement, covenant or obligation of Bristol and Purchaser hereunder, or (ii) the existence or non-existence of any fact or circumstance which is different from or inconsistent with or a breach of any representation or warranty of Bristol made herein, provided, however, that any insurance proceeds payable to the Shareholders with respect to any indemnification claim hereunder shall reduce Bristol's indemnification obligations, dollar for dollar. (b) The indemnities provided for above shall not require payment as a condition precedent to recovery. 7.2 Indemnity by Company and the Shareholders. (a) The Company and the Shareholders hereby expressly and unequivocally agree to indemnify, defend and hold harmless Bristol, Purchaser and Surviving Corporation, and Bristol's, Purchaser's and Surviving Corporation's officers, directors, employees, agents, affiliates, attorneys, representatives and related entities (for purposes of this Section 7.2 only, the "Indemnified Parties") from and against and in respect of any and all Claims which are asserted against any Indemnified Party or which any Indemnified Party incurs or suffers, whether as a result of third party claims or otherwise, and which arise out of, result from or relate to (i) any failure by Company and/or the Shareholders to fully perform in a timely manner any agreement, covenant or obligation of Company and/or the Shareholders hereunder; (ii) the existence or non-existence of any act or circumstance which is different from or inconsistent with or a breach of any representation or warranty of Company and/or the Shareholders made herein; or (iii) the acts, omissions, statements, misstatements or other business, properties and affairs of Company and the Shareholders; provided, however, that any insurance proceeds payable to Bristol, Purchaser or Surviving Corporation with respect to any indemnification claim hereunder shall reduce Company's and the Shareholders' indemnification obligations, dollar for dollar. (b) The indemnities provided for above shall not require payment as a condition precedent to recovery. -17- 18 7.3 Defense of Claims. If any party receives notice of the commencement of any action or of the existence of any Claim or a written assertion of any facts by a third party with respect to any matter that would give rise to a Claim hereunder or otherwise suffers a loss for which such party is entitled to be indemnified pursuant to Section 7.1 or Section 7.2, above, then that party (the "Indemnified Party") shall give the party required to indemnify (the "Indemnifying Party") reasonable notice thereof and shall permit the Indemnifying Party to have reasonable access to relevant information in the Indemnified Party's possession or control regarding such Claim. The Indemnifying Party shall have the right to take all reasonable action, at its own expense, as it deems desirable in order to minimize or eliminate such Claim. In the event of a Claim requesting solely monetary damages, the Indemnifying Party shall have the right, at its own expense, to appoint counsel to handle the defense of such matter and the exclusive right to prosecute, defend, compromise, settle or pay such Claim provided that the Indemnifying Party acknowledges in writing its obligations and Liability for such Claim as between the parties hereto or procures from the person making the Claim a full and complete release of the Indemnified Parties which is satisfactory in form and substance to counsel for the Indemnified Parties. If the foregoing acknowledgments or releases are not furnished to the Indemnified Party, then they may appoint associate counsel to participate in the defense of such matter at the expense of the Indemnifying Party. If the person asserting the Claim requests relief other than or in addition to monetary damages, then the Indemnifying Party may not settle any aspects of such Claim requesting relief other than monetary damages without the Indemnified Parties' prior written consent, which consent shall be subject only to their obligation to act in good faith. 7.4 Remedies Not Exclusive. The remedies provided in this Article 7 shall be in addition to, and not in lieu of, any other remedies which a party may have at law, in equity or otherwise. ARTICLE VIII TERMINATION 8.1 Termination of Agreement. This Agreement and the transactions contemplated herein may be terminated as follows: (a) By the mutual written consent of the parties hereto at any time prior to the Effective Time; (b) By Bristol and/or Purchaser by giving oral or written notice to Company and the Shareholders at any time prior to the Effective Time (i) in the event Company or the Shareholders have breached any material representation, warranty, or covenant contained in this Agreement in a material respect; or (ii) in the event of the failure of a condition to close set forth in Section 5.1, above; and (c) By Company and/or the Shareholders by giving oral or written notice to Bristol and Purchaser at any time prior to the Effective Time (i) in the event Bristol and/or Purchaser has breached any material representation, warranty, covenant contained in this Agreement in any material respect; or (ii) in the event of the failure of a condition set forth in Section 5.2, above. 8.2 Effect of Termination. If any Party terminates this Agreement pursuant to Section 8.1, above, then all rights and obligations of the parties hereto shall terminate without any Liability of any party to any other party (except for any Liability of any party then in breach); provided, however, that the confidentially provisions contained in Section 4.10, above, shall survive any such termination. ARTICLE IX GENERAL PROVISIONS 9.1 Publicity. After the Effective Time and except as may otherwise be required by law (i) Bristol shall determine the timing and content of any press release or public announcement relating to the transactions contemplated by this Agreement; and (ii) Bristol, Surviving Corporation and Robert Freaney shall determine the timing and content of any announcements to Company's customers, suppliers, licensors, licensees or employees relating to the transactions contemplated by this Agreement and no such announcement shall be made without the prior written consent of such parties. 9.2 Complete Agreement; Modifications. This Agreement and any documents referred to herein or executed in connection herewith constitute the parties' entire agreement with respect to the subject matter hereof and supersede all -18- 19 agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof. This Agreement may not be amended, altered or modified except by a writing signed by the parties. 9.3 Additional Documents. Each party hereto agrees to execute, acknowledge and deliver any and all further documents, instruments, certificates, agreements and other writings and to perform such other actions, which may be or become necessary or expedient to effectuate and carry out this Agreement. 9.4 Notices. Unless otherwise specifically permitted by this Agreement, all notices under this Agreement shall be in writing and shall be delivered by personal service, telecopy, federal express or comparable overnight service or certified mail (if such service is not available, then by first class mail), postage prepaid, to such address as may be designated from time to time by the relevant party. Any notice sent by certified mail shall be deemed to have been given three (3) days after the date on which it is mailed. All other notices shall be deemed given when received. No objection may be made to the manner of delivery of any notice actually received in writing by an authorized agent of a party. The initial addresses of the parties shall be as follows:
If to Bristol: With a copy to: Bristol Technology Systems, Inc. Nick E. Yocca, Esq. 5000 Birch Street, Suite 250 Stradling, Yocca, Carlson & Rauth Irvine, CA 92612 Newport Beach, CA 92660 Attn: Richard H. Walker Tel: (714) 725-4000 Tel: (714) 475-0800 Fax: (714) 725-4100 Fax: (714) 475-0808 If to Purchaser: With a copy to: Pacific Merger Corp. Nick E. Yocca, Esq. 5000 Birch Street, Suite 250 [Same as above] Irvine, CA 92612 Attn: Richard H. Walker Tel: (714) 475-0800 Fax: (714) 475-0808 If to Shareholders: With a copy to: Robert Freaney Peter A. Singler, Jr. 210 First Street 6950 Burnett Street, Suite 200 San Francisco, California 94105 Sebastopol, California 95472 Tel: (415) 777-2228 Tel: (707) 823-8719 Fax: (415) 777-2228 Fax: (707) 823-8737 Abbass Barzgar c/o Caspian & Associates #5 Bonair Road, Suite 220 Larkspur, California 94939 Tel: (415) 777-7494 Fax: ( ) - --- ---- ------
-19- 20 If to Company: With a copy to: Pacific Cash Register and Peter A. Singler, Jr. Computer, Inc. [Same as above] 210 First Street San Francisco, California 94105 Attn: Robert Freaney Tel: (415) 777-2228 Fax: (415) 777-3922
9.5 No Third Persons or Entities. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any third person or entity; provided, however, that Bristol shall be a third party beneficiary of all rights of Purchaser and Surviving Corporation hereunder. 9.6 Governing Law; Jurisdiction. This Agreement, the respective rights, obligations and remedies of the parties hereunder, the interpretation hereof and all disputes, controversies and Liabilities arising out of or related to this Agreement or the relationship between the parties created hereby shall be governed by and construed in accordance with the internal laws of the State of California without reference to its principles of conflict of laws. 9.7 Attorneys' Fees. Should any litigation or arbitration be commenced (including any proceedings in a bankruptcy court) between the parties hereto or their representatives concerning any provision of this Agreement or the rights and duties of any person or entity hereunder, the party or parties prevailing in such proceeding shall be entitled, in addition to such other relief as may be granted, to the reasonable attorneys' fees and court costs incurred by reason of or in connection with such litigation or arbitration. 9.8 Post-Judgment Attorneys' Fees. The prevailing party in any legal action or other proceeding between the parties regarding this Agreement or the subject matter hereof shall be entitled, in addition to and separately from the amounts recoverable under Section 9.7, to the payment by the losing party of the prevailing party's reasonable attorneys' fees, court costs, and litigation expenses incurred in connection with (i) any appellate review of the judgment rendered in such action or of any other ruling in such action; and (ii) any proceeding to enforce, collect or execute upon a judgment in such action. It is the intent of the parties that the provisions of this Section 9.8 be distinct and severable from the other rights of the parties under this Agreement, shall survive the entry of judgment in any action and shall not be merged into such judgment. 9.9 Successors and Assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned, transferred or delegated by operation of law or otherwise, without the prior written consent of the other parties hereto. Subject to the above, this Agreement shall inure to the benefit of the parties' respective successors and assigns. 9.10 Survival of Warranties. Each representation and warranty contained herein shall survive the Closing Date for a period of three (3) years following the Closing Date. The right to indemnification pursuant to this Agreement shall survive any investigation made by the parties or their representatives, lenders or investors, or the receipt of any opinion or certificate. 9.11 Joint and Several Liability. Notwithstanding any provision of this Agreement to the contrary, the Liability of Company and the Shareholders arising prior to the Effective Time for the representations and warranties made by, and the covenants and indemnification obligations imposed upon Company and the Shareholders or any of them under this Agreement shall be joint and several. The Liability of Company shall terminate at the Effective Time and the Liability of the Shareholders shall remain joint and several. 9.12 Remedies Not Exclusive. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy will be cumulative and will be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies will not constitute a waiver of the right to pursue other available remedies. -20- 21 9.13 Expenses. Each party shall pay all of the costs and expenses incurred by such party in connection with the authorization, preparation, execution and performance of this Agreement, including, without limitation, all fees and expenses of its agents, representatives, counsel and accountants. 9.14 Waivers Strictly Construed. With regard to any power, remedy or right provided herein or otherwise available to any party hereunder (i) no waiver or extension of time shall be effective unless expressly contained in a writing signed by the waiving party; and (ii) no alteration, modification or impairment shall be implied by reason of any previous waiver, extension of time, delay or omission in exercise, or by any other indulgence. 9.15 Rules of Construction. The Article and Section headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, or interpret the scope of this Agreement or of any particular Article or Section. Throughout this Agreement, as the context may require, the singular tense and number includes the plural, and the plural tense and number includes the singular. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the content requires otherwise. The word "including" shall mean including without limitation. The parties intend that each representation, warranty, or covenant contained herein shall have independent significance. 9.16 Severability. If any provision, clause or application of this Agreement is determined by a court of competent jurisdiction or arbitrator to be invalid or unenforceable for any reason whatsoever, (i) this Agreement shall remain binding and in full force and effect to the maximum extent permitted under applicable law, except for such invalidated or unenforceable provision, clause or application; (ii) the parties shall negotiate in good faith to provide adjustments to ameliorate any injustice or frustration of purpose resulting therefrom in a manner consistent with the original intent of the parties; and (iii) if the parties are unable to agree upon such adjustments, then the invalid or unenforceable provision, clause or application shall be modified and reformed by such court or arbitrator so that it is valid and enforceable in a manner that comes the closest to expressing the original intention of the parties with respect thereto, and each party hereto agrees to be bound by any such modification and reformation with the same force and effect as if such modification and reformation were contained in this Agreement in the first instance. 9.17 Funds. Any requirement in this Agreement to pay immediately available funds may be satisfied by delivery of a certified or cashier's check in the applicable amount or by wiring to an account designated by the recipient the applicable amount. 9.18 Exhibits and Schedules. All Exhibits and Schedules attached hereto are hereby incorporated in and made a part of this Agreement as if fully set forth herein. 9.19 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURES ON FOLLOWING PAGE] -21- 22 IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first set forth above. "BRISTOL" "PURCHASER" BRISTOL TECHNOLOGY SYSTEMS, PACIFIC MERGER CORP., a Delaware a Delaware corporation corporation By: By: ------------------------------ ----------------------------------- Richard H. Walker, President Richard H. Walker, President "COMPANY" "SHAREHOLDERS" PACIFIC CASH REGISTER AND COMPUTER, INC., a California corporation ----------------------------- Robert Freaney By: - ---------------------------------- Robert Freaney, ------------------------------ President Abbass Barzgar All cash paid and Restricted Shares delivered to the Shareholders pursuant to Sections 1.4 and 1.5 shall be allocated among the Shareholders pro-rata in accordance with their respective ownership of the Company Shares. -22- EX-10.42 5 RESCISSION AGREEMENT 1 EXHIBIT 10.42 RESCISSION AGREEMENT This Rescission Agreement is entered into as of the 30th day of April, 1997 by and among Bristol Retail Solutions Inc., a Delaware corporation (formerly known as Bristol Technology Systems, Inc.) ("Bristol"), International Systems & Electronics Corporation, a Delaware Corporation (the "Company"), and Pedro Penton, an individual who is a resident of the State of Florida ("Shareholder"). WITNESSETH: WHEREAS, the parties entered into an Agreement and Plan of Merger, dated as of March 26, 1997 (the "Merger Agreement"), pursuant to which the International Systems & Electronics Corporation, a Florida corporation, merged with and into (the "Merger") Bristol Merger Corporation, then a wholly-owned subsidiary of Bristol, and the Merger was effected on April 30, 1997 (the "Effective Date"); WHEREAS, pursuant to the terms of the Merger Agreement, on the Effective Date the Shareholder exchanged all outstanding shares of capital stock of the Company (the "Company Shares") with Bristol for cash in the amount of One Million One Hundred Thousand Dollars ($1,100,000) in immediately available funds and 130,434 shares of Bristol's Common Stock (the "Restricted Stock"); and WHEREAS, each of Bristol, the Company and the Shareholder hereby mutually agree to rescind, ab initio, the Merger Agreement, and each of the other agreements related thereto, pursuant to the terms of this Rescission Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the parties hereto hereby agree as follows: SECTION 1.THE RESCISSION. Each of Bristol, the Company and the Shareholder hereby mutually agrees that the Merger Agreement is rescinded in its entirety, and is void ab initio. The parties intend to restore themselves to their relative positions had the Merger Agreement never been consummated under the following terms. Prior to the Closing (as defined below), the Shareholder shall form a Florida corporation ("Florida Corp.") pursuant to which, at the Closing, the parties shall cause the Company to be merged with and into Florida Corp. and the Florida Corp. shall be the survivor (the "Rescission Merger"). The Shareholder shall own all of the outstanding capital stock of Florida Corp. The parties shall use their best efforts to prepare and finalize the Rescission Merger at the Closing. Accordingly, at a Closing with respect to this Rescission Agreement which the parties intend to use their best efforts to effect on or before August 15, 1997 (the "Closing"), the parties hereby intend to make the following deliveries: (a) Deliveries of the Shareholder: (i) The Shareholder shall deliver and transfer to Bristol the Restricted Stock, with a duly executed stock assignment separate from certificate; (ii) The Shareholder shall deliver to Bristol cash in the amount of Two Hundred Fifty Thousand Dollars ($250,000), payable by check or wire transfer; (iii) The Shareholder shall deliver to Bristol an executed Promissory Note substantially in the form of Exhibit A hereto (the "Note"); (iv) From time to time after the Closing, the Shareholder shall cause Florida Corp. to transfer and deliver to Bristol finished goods inventory as more particularly described on Annex A hereto (the "Inventory") and at the time of each such delivery shall cause Florida Corp. to deliver to Bristol an executed Bill of Sale in substantially the form of Exhibit B hereto; and (v) The Shareholder shall deliver to Bristol an executed Consulting Agreement substantially in the form of Exhibit C hereto (the "Consulting Agreement"). 2 (b) Deliveries of Bristol. (i) Bristol shall deliver and transfer to the Shareholder or to any person or entity directed by Shareholder, the Company Shares, with a duly executed stock assignment separate from certificate; and (ii) Bristol shall deliver to the Shareholder an executed Consulting Agreement. SECTION 2.REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) Representations of the Shareholder. The Shareholder hereby represents as of the date hereof and on the Closing Date, and as of the Closing Date the Shareholder will cause the Florida Corp. to hereby represent that: (i) it has the full right, power and authority to execute and deliver this Rescission Agreement, the Bill of Sale, the Note and the Consulting Agreement, as applicable, and to carry out and perform the provisions hereof and thereof; (ii) the Inventory will consist of finished goods which will be items of quality usable or saleable in the ordinary course of business and will be saleable at values equal to at least book value amounts thereof; (iii) Bristol will receive good and valid title to the Restricted Stock, free and clear of any claim, lien, encumbrance, security interest or other defect in title created by or under Shareholder. Shareholder and the Company make no warranty or representation regarding securities laws or other state or federal laws related to the ownership, surrender or conveyance of the Restricted Stock; (iv) this Rescission Agreement, the Note and the Consulting Agreement are or will be, as applicable, and upon execution each Bill of Sale will be, the valid and binding obligations of each such party, enforceable against each such party in accordance with its terms; (v) the execution, delivery and performance by the Shareholder of this Rescission Agreement and the transactions contemplated hereby does not violate any law, statute or regulation or any contract, agreement or instrument binding upon the Company. Shareholder makes no warranty or representation regarding securities laws or other state or federal laws related to the ownership, surrender or conveyance of the Restricted Stock; (vi) Except for actions taken by Bristol without knowledge and approval of Shareholder, Bristol shall have no liability with respect to the ownership of the Company Shares on account of the Merger Agreement; (vii) Within 30 days after the Closing, the Shareholder shall cause Bristol to be removed and released from each and every guarantee entered into by Bristol or to which Bristol is committed. (b) Representations of Bristol. Bristol hereby represents that: (i) it has the full right, power and authority to execute and deliver this Rescission Agreement, the Consulting Agreement and the Security Agreement, and to surrender the Company Shares pursuant to Section 1 hereinabove. No action has been taken by Bristol with respect to the Company except as has been previously disclosed to or approved by the Shareholder in writing; (ii) the Shareholder will receive good and valid title to the Company Shares, free and clear of any claim, lien, encumbrance, security interest or other defect in title; (iii) this Rescission Agreement and the Consulting Agreement are each the valid and binding obligation of Bristol, enforceable against Bristol in accordance with its terms; and -2- 3 (iv) the execution, delivery and performance by Bristol of this Rescission Agreement and the transactions contemplated hereby does not violate any law, statute, or regulation or any contract, agreement or instrument binding upon Bristol and does not violate any securities laws or other laws related to transfer of the Restricted Stock. (c) Representations of all Parties. No representation or warranty made by any party herein contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein not misleading. (d) Covenants. Each of the parties will, at any time and from time to time, use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to fulfill their respective obligations under this Rescission Agreement. The parties hereby agree that on or before the Closing, they will cause to be terminated that certain Lease Agreement between Penton Realty (an entity controlled by the Shareholder) and the Company. (e) Noncompetition. Bristol hereby agrees that from the date hereof until December 31, 1998, Bristol will not compete directly with the Company in the sale of any NCR "food" products within the Company's current territory located within Southern Florida (from Key West to Palm Beach County on the east coast to Sarasota on the west coast). Bristol will also not compete with the Company in the sale of any NCR "hospitality" products within the entire State of Florida for such period. The parties hereby acknowledge that Bristol may compete with the Company at any time within the State of Florida with respect to the sale of any other "non-NCR" product line. The parties also hereby expressly acknowledge and agree that in the event that the Shareholder breaches any of his obligations under or in respect of the Consulting Agreement, Bristol's obligations under this Section 2(e) shall be of no force and effect. SECTION 3.MERGER AGREEMENT VOID. Each of the parties hereby agrees that the Merger Agreement is null and void and is of no force and effect, ab initio, and each such party's obligations are such that the Merger Agreement had never been entered into. SECTION 4.INDEMNIFICATION. (a) The Shareholder's Indemnification. After the Closing, the Shareholder shall, and shall cause Florida Corp. to, jointly and severally, indemnify and hold harmless Bristol and any of its officers, directors, agents, and employees, and any of Bristol's parents or subsidiaries (each such person, its successors and assigns, is referred to herein as an "Indemnified Bristol"), at all times from and after the date of this Rescission Agreement, against and in respect of the following: (i) All liabilities of the Shareholder or the Company or claims against the Shareholder or the Company, whether accrued, absolute, contingent or otherwise which arise out of the Shareholder's ownership of the Company Shares prior to the Effective Date and on and after the Closing Date, or which arise out of Bristol's day to day operation of the Company between the Effective Date and the Closing Date; (ii) Any loss, claim, liability, expense or other damage incurred by any Indemnified Bristol caused by, resulting from or arising out of any failure on the part of the Shareholder or the Company to perform any covenant in this Rescission Agreement or any exhibit, annex or other instrument or certificate delivered pursuant hereto or any material breach of warranty or any materially inaccurate or erroneous representation made by the Shareholder or the Company in this Rescission Agreement or in any exhibit, annex or other instrument or certificate delivered pursuant hereto; and (iii) Any and all actions, suits, proceedings, demands, assessments, judgments, costs and legal and other expenses, including attorneys' fees, incidental to any of the foregoing. (b) Bristol's Indemnification. Bristol hereby indemnifies and holds harmless the Shareholder and the Company (each such person, its successors and assigns, is referred to herein as an "Indemnified Company"), at all times from and after the date of this Agreement, against and in respect of the following: -3- 4 (i) Any loss, claim, liability, expense or other damage incurred by any Indemnified company caused by, resulting from or arising out of any failure on Bristol's part to perform any covenants in this Rescission Agreement or any exhibit, annex or other instrument or certificate delivered pursuant hereto or any material breach of warranty or any material inaccurate or erroneous representation made by or on behalf of Bristol in this Rescission Agreement or in any exhibit, annex or other instrument or certificate delivered pursuant hereto; and (ii) Any and all actions, suits, proceedings, demands, assessments, judgments, costs and legal and other expenses, including attorneys' fees, incidental to any of the foregoing. SECTION 5.MISCELLANEOUS. This Rescission Agreement, together with the agreements referred to herein, contain the entire agreement between the parties with respect to the transactions contemplated herein and supersede all previous written, oral negotiations, commitments and undertakings. The parties hereto agree to report the transactions contemplated herein as a rescission, for purposes of all filings made to any local, state and federal taxing authorities. This Rescission Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto agree that (a) the contents of this Rescission Agreement (but not the effect of the transaction) and (b) any and all information delivered to the other in connection herewith concerning the business and financial affairs of Bristol, the Shareholder and the Company shall be held in confidence by the recipient party and its agents and representatives and shall not be disclosed to other parties without the prior written consent of the party to which such information pertains, which consent shall not be unreasonably withheld; provided, however, that each party shall have the right to make such public announcements and filings as it may deem appropriate to comply with applicable law, including applicable securities laws; and provided, further, however, that the material set forth above may be disclosed by Bristol, the Shareholder or the Company as necessary to lending institutions and auditors. No performance or execution of this Rescission Agreement in whole or in part by a party hereto shall constitute a waiver by such party or prevent such party from asserting his or its rights hereunder, nor shall a waiver of or failure to exercise one or more rights hereunder constitute a waiver of any other rights. Any amendment, supplement or modification of or to any provisions of this Rescission Agreement, any waiver of any provision of this Rescission Agreement, and any consent to any departure by any party from the terms of any provision of this Rescission Agreement, shall be effective (i) only if it is made or given in writing and signed by the other parties, and (ii) only in the specific instance and for the specific purpose for which it is made or given. This Rescission Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, except the conflict of laws provisions thereof. All judicial proceedings brought in respect of this Rescission Agreement or the transactions contemplated hereby may be brought in any state or federal court of competent jurisdiction in the State of Delaware and the parties accept for themselves the jurisdiction of such courts. Every provision of this Rescission Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Rescission Agreement. Subject to the provisions regarding severability contained herein, this Rescission Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. The provisions of this Rescission Agreement are intended solely for the benefit of the parties hereto, and no other party is entitled to any rights, benefits, or privileges created hereunder. As of the Closing, the parties shall each execute and deliver a mutual release with respect to all matters except the matters set forth in this Rescission Agreement and the documents contemplated hereby, which release shall be in form and substance satisfactory to each such party. -4- 5 IN WITNESS WHEREOF, the parties have duly executed this Rescission Agreement as of the date first mentioned above. BRISTOL RETAIL SOLUTIONS, INC., a Delaware corporation (formerly Bristol Technology Systems, Inc.) By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ INTERNATIONAL SYSTEMS & ELECTRONICS CORPORATION, a Delaware corporation By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ ------------------------------------------ PEDRO PENTON -5- 6 ANNEX A INVENTORY The Shareholder and the Company each hereby agree that the right to receive up to $250,000 (valued at not more than market cost) in finished goods inventory of the Company is hereby transferred to Bristol. Bristol may request in writing specific inventory items no more than one time each month (not to exceed $41,667 in inventory for any single month and promptly upon such request, the Shareholder and the Company shall deliver to Bristol such Inventory). The Company will permit Bristol to request orders of Inventory in excess of such monthly amounts and such requests will be agreed to by the Company in such quantities and at such prices in its sole discretion. Any amounts not paid by Bristol to the Shareholder in accordance with the indemnification provisions in the Rescission Agreement may be offset by the Shareholder with respect to any Inventory and to Bristol hereunder. Any failure of the Company to deliver Inventory to Bristol shall constitute a breach of the terms of the Rescission Agreement for which Bristol shall be entitled to indemnification thereunder. Annex A 7 EXHIBIT A UNSECURED PROMISSORY NOTE $350,000 Newport Beach, California April 30, 1997 FOR VALUE RECEIVED, Pedro Penton and International Systems & Electronics Corporation, a Florida corporation (the "Borrower") hereby promises to pay to the order of Bristol Retail Solutions, Inc., a Delaware corporation (the "Lender"), at Lender's office located at 5000 Birch Street, Suite 205, Newport Beach, CA 92660, in lawful money of the United States of America, the principal sum of $350,000 dollars together with interest at the rate of 8.5% per annum on the unpaid principal balance from January 1, 1998 to the date such principal balance is paid in full. The outstanding principal amount of this Note, together with all interest accrued thereon shall be payable in 30 monthly installments of $12,991.24 commencing on January 1, 1998 and ending on June 1, 2000. The outstanding principal amount of this Note, together with all interest accrued, may be prepaid at any time, in whole or in part, at the option of Borrower without penalty or premium. Upon the occurrence of any of the following specified events (each an "Event of Default"): (a) Borrower shall default in the payment within ten days after the date when due of any principal or interest owed under this Note or the Borrower shall breach any of its obligations under the Consulting Agreement with Bristol entered into on the date hereof; or (b) Borrower shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect; or an involuntary case is commenced against Borrower and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian is appointed for, or takes charge of, all or substantially all of the property of Borrower, or Borrower commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Borrower, or there is commenced against Borrower any such proceeding and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case, or Borrower is adjudicated insolvent or bankrupt; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, Lender may declare the principal of and any accrued interest in respect of this Note, and all obligations owed hereunder to be, whereupon the same shall become, due and payable without presentment, demand protest, or other notice of any kind, all of which are hereby waived by Borrower. This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the balance owed at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate permitted by law. If by the terms of this Note Borrower is at any time required or obligated to pay interest on the balance owed at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance. Borrower shall pay to Lender all fees and expenses incurred by Lender in enforcing its rights under this Note, including, without limitation, all fees and expenses of Lender's attorneys. No failure or delay on the part of Lender in exercising any right, power or privilege hereunder and no course of dealing between Borrower and Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise of any other right, power or privilege hereunder or thereunder. This Note shall be construed in accordance with and be governed by the law of the State of Delaware. All judicial proceedings brought against Borrower with respect to this Note may be brought in any state court or federal court of competent jurisdiction in the State of Delaware, and by execution and delivery of this Agreement, Borrower, accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and Exhibit A-1 8 irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Note from which no appeal has been taken or is available. ------------------------------ Pedro Penton Exhibit A-2 9 EXHIBIT B KNOW ALL MEN BY THESE PRESENTS: That [Florida Corp.], a Florida corporation (the "Assignor"), for good and valuable consideration paid to them by Bristol Retail Solutions, Inc., a Delaware corporation ("Assignee") pursuant to a Rescission Agreement, dated as of April 30, 1997 (the "Agreement"), and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby by these presents sell to, and assign, transfer, convey and deliver unto Assignee, its successors and assigns, the following: good and marketable title to the Inventory described on the attached Exhibit and as more fully described on Annex A to the Rescission Agreement. TO HAVE AND TO HOLD, unto the said Assignee, its successors and assigns, FOREVER. Assignor hereby covenants that from time to time after delivery of this instrument, at Assignee's request and without further consideration, Assignor will duly execute, acknowledge and deliver or will cause to be done, executed, acknowledged and delivered, all and every such further acts, deeds, conveyances, transfers, assignments, consents, powers of attorney and assurances as Assignee may reasonably request in order more effectively to convey, transfer or vest in Assignee, and to put it in possession and operation and control of any such Inventory. IN WITNESS WHEREOF, Assignor has caused these presents to be signed as of the 30th day of April, 1997. [FLORIDA CORP.], a Florida corporation By:______________________________________ Exhibit B-1 10 EXHIBIT C CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into as of this 30th day of April, 1997, by and between BRISTOL RETAIL SOLUTIONS, INC., a Delaware corporation (the "Company"), and PEDRO PENTON (the "Consultant"). R E C I T A L S The Company desires to retain Consultant to perform certain services for the Company as hereinafter set forth, and the Consultant is willing to perform such services for the Company, for the period and pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Company and Consultant, intending to be legally bound, hereby agree as follows: 1. ENGAGEMENT. The Company hereby engages and retains Consultant to perform the services hereinafter set forth for the Company and Consultant accepts such engagement and agrees to perform such services for the Company in a diligent and timely manner. 2. TERM. The term of Consultant's engagement hereunder shall commence on the date of this Agreement and terminate on December 31, 2001; provided, that such engagement and this Agreement shall be subject to earlier termination as specified in Paragraph 5 below. 3. SERVICES. During the term of this Agreement, Consultant agrees to provide the following services to the Company (i) consultation regarding the Company's national account program and international sales efforts, (ii) consultation regarding the Company's dealer recruitment efforts and (iii) such other services as may be reasonably requested by the Company's President, or any designee thereof, from time to time during the term of this Agreement. 4. COMPENSATION. As compensation for all services to be rendered by Consultant under this Agreement, the Company shall pay to Consultant an aggregate fee of Two Hundred Fifty Thousand Dollars ($250,000), which has been paid in full as of the date hereof, receipt of which is hereby acknowledged by the Consultant. The Company shall reimburse Consultant for all expenses incurred by Consultant which have been approved in advance. 5. TERMINATION. The Company may terminate this Agreement, for any reason, immediately upon giving written notice ("Termination Notice") to Consultant; provided that Consultant shall not be required to refund any of the Compensation referenced in Section 4; provided, further that if the Company terminates this Agreement by reason of a breach by the Consultant of his obligations hereunder, then as its sole remedy, the Company's covenant not to compete set forth in Section 2(e) of the Rescission Agreement dated April 30, 1997 by and among the Company, International Systems & Electronics Corporation, a Delaware Corporation and the Consultant shall terminate and shall be of no further force and effect. 6. BENEFITS. The Company shall not be obligated, under this Agreement or otherwise, to provide any benefits to the Consultant. 7. ASSIGNMENT: This Agreement may not be assigned by Consultant, but may be assigned by the Company to any corporation or other entity which succeeds in interest to its business, by operation of law or otherwise. Exhibit C-3 11 8. NOTICES: All notices required by this Agreement may be delivered by first class mail at the following addresses: To the Company: Bristol Retail Solutions, Inc. 5000 Birch Street, Suite 205 Newport Beach, California 92660 To Consultant: Mr. Pedro Penton 8899 N.W. 18th Terrace Miami, Florida 31172 9. AMENDMENT: This Agreement may be modified only by written agreement signed by both parties hereto. 10. CHOICE OF LAW: This Agreement shall be governed by the laws of the State of Delaware. Venue for any action hereunder shall be in the State of Delaware. 11. PARTIAL INVALIDITY: In the event any provision of this Agreement is void or unenforceable, the remaining provisions shall continue in full force and effect. 12. WAIVER: No waiver of any breach of this Agreement shall constitute a waiver of any subsequent breach. 13. COMPLETE AGREEMENT: This Agreement contains the entire agreement between the parties relating to the subject matter contained herein, and supersedes any and all prior and contemporaneous oral and written agreements relating thereto (if any), which shall have no further force and effect as of the date hereof. IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement as of the day and year set forth above. CONSULTANT ---------------------------------------- Pedro Penton COMPANY BRISTOL RETAIL SOLUTIONS, INC. By: ----------------------------------- Its: ----------------------------------- Exhibit C-3 EX-10.43 6 CLOSING AGREEMENT 1 EXHIBIT 10.43 CLOSING AGREEMENT This CLOSING AGREEMENT (the "Agreement") is made as of August 4, 1997, by and among BRISTOL RETAIL SOLUTIONS, INC., a Delaware corporation (formerly, Bristol Technology Systems, Inc.) ("Bristol"), PACIFIC MERGER CORP., a Delaware corporation ("Purchaser"), PACIFIC CASH REGISTER COMPANY, a California corporation ("Company"), ROBERT FREANEY and ABBASS BARZGAR (individually, a "Shareholder" and, collectively, the "Shareholders"). WHEREAS, Bristol, the Purchaser, the Company and the Shareholders are parties to that certain Agreement and Plan of Merger dated as of June 27, 1997 (the "Merger Agreement"), pursuant to which the Shareholders have agreed to convert their respective Company Shares into the right to receive cash and Restricted Stock of Bristol, and pursuant to which the Company shall be merged with and into the Purchaser; WHEREAS, Bristol, the Purchaser, the Company and the Shareholders wish to enter into this Agreement to address certain matters which have changed subsequent to June 27, 1997. NOW, THEREFORE, for good and valuable consideration, receipt and sufficiency of which is hereby aknowledged, the parties agree as follows: 1. Reduction in Required Pre-Tax Earnings. The parties hereby agree that the provisions of Section 1.5 of the Merger Agreement, including, without limitation, Section 1.5(b) of the Merger Agreement, which state that a number of the Additional Restricted Shares will be returned to Bristol if the Company's Pre-Tax Earnings for the fiscal year ending December 31, 1997 are less than Eighty Thousand Dollars ($80,000), are hereby amended to provide that a number of the Additional Restricted Shares will be returned to Bristol if the Company's Pre-Tax Earnings for the fiscal year ending December 31, 1997 are less than Seventy Thousand Dollars ($70,000). In the event that the Company's Pre-Tax Earnings for the fiscal year ending December 31, 1997 are less than Seventy Thousand Dollars ($70,000), then Robert Freaney will return $4.6865 worth of the Additional Restricted Shares to Bristol for each dollar by which Seventy Thousand Dollars ($70,000) exceeds the Company's Pre-Tax Earnings for that period. The remaining provisions of Section 1.5 of the Merger Agreement shall remain in full force and effect. 2. Reduction in Required Anticipated Closing Date Net Worth. The parties hereto hereby agree that the provisions of Section 1.6 of the Merger Agreement, which state that Escrowed Stock shall be held until such time as Bristol and the Purchaser can verify that Company's Anticipated Closing Date Net Worth is at least One Hundred Seventeen Thousand Dollars ($117,000), are here by amended to provide that Escrowed Stock shall be held until such time as Bristol and the Purchaser can verify that Company's Anticipated Closing Date Net Worth is at least One Hundred Seven Thousand Dollars ($107,000). The remaining provisions of Section 1.6 of the Merger Agreement shall remain in full force and effect. 3. Amendment of Definition of Effective Bristol Share Price. The parties hereto hereby agree that the definition of "Effective Bristol Share Price" set forth in Article 0 of the Merger Agreement is hereby amended in full to read as follows: "Effective Bristol Share Price means the closing price per share of Bristol's publicly traded Common Stock on July 30, 1997. The closing price of Bristol's publicly traded Common Stock on July 30, 1997, for purposes of this definition shall be that day's last trade price as reported on NASDAQ." 4. Definition of Terms. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Merger Agreement. 5. Further Assurances. The parties hereto shall execute and deliver all such other and further documents and perform all further acts that may be reasonably necessary to effectuate the terms and provisions of this Agreement. 2 6. Incorporation by Reference/Conflicts. Except as amended by this Agreement, the provisions of the Merger Agreement are incorporated herein by reference. If there is any conflict between the provisions of this Agreement and any provisions of the Merger Agreement, the provisions of this Agreement shall prevail. Except as hereinabove set forth in this Agreement, the Merger Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above stated. "BRISTOL" Bristol Retail Solutions, Inc., a Delaware corporation By: ----------------------------- Its: --------------------------- "PURCHASER" Pacific Merger Corp., a Delaware corporation By: ----------------------------- Its: --------------------------- "COMPANY" Pacific Cash Register Company, a California corporation By: ----------------------------- Its: --------------------------- "SHAREHOLDERS" -------------------------------- ROBERT FREANEY . -------------------------------- ABBASS BARZGAR -2- EX-11 7 CALCULATION OF EARNINGS PER SHARE 1 Exhibit 11 BRISTOL RETAIL SOLUTIONS, INC. Computation of Income (Loss) per Share
(Successor) (Predecessor) Three Months Ended June 30, 1997 1996 ------------------------ ------------------------ PRIMARY LOSS PER SHARE Net income (loss) $ (773,228) $ 9,878 ======================== ======================== Weighted average number of common shares outstanding during the period 5,001,932 1,020 Effect of stock options and warrants treated as common stock equivalents under the treasury stock method - - - - ------------------------ ------------------------ Total shares 5,001,932 1,020 ======================== ======================== Primary income (loss) per share $ (0.15) $ 9.68 ======================== ======================== FULLY DILUTED EARNINGS PER SHARE Net income (loss) $ (773,228) $ 9,878 ======================== ======================== Weighted average number of common shares outstanding during the period 5,001,932 1,020 Effect of stock options and warrants treated as common stock equivalents under the treasury stock method - - - - ------------------------ ------------------------ Total shares 5,001,932 1,020 ======================== ======================== Fully diluted income (loss) per share $ (0.15) $ 9.68 ======================== ========================
2 EXHIBIT 11 BRISTOL RETAIL SOLUTIONS, INC. Computation of Loss per Share
(Successor) (Predecessor) Six Months Ended June 30, 1997 1996 ------------------------ ------------------------ PRIMARY LOSS PER SHARE Net loss $ (1,208,214) $ (6,948) ======================== ======================== Weighted average number of common shares outstanding during the period 4,874,501 1,010 Effect of stock options and warrants treated as common stock equivalents under the treasury stock method - - - - ------------------------ ------------------------ Total shares 4,874,501 1,010 ======================== ======================== Primary loss per share $ (0.25) $ (6.88) ======================== ======================== FULLY DILUTED EARNINGS PER SHARE Net loss $ (1,208,214) $ (6,948) ======================== ======================== Weighted average number of common shares outstanding during the period 4,874,501 1,010 Effect of stock options and warrants treated as common stock equivalents under the treasury stock method - - - - ------------------------ ------------------------ Total shares 4,874,501 1,010 ======================== ======================== Fully diluted loss per share $ (0.25) $ (6.88) ======================== ========================
EX-27 8 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE UNAUDITED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 IN THE REPORT ON FORM 10-QSB FOR THE SIX MONTHS ENDED JUNE 30, 1997 OF BRISTOL RETAIL SOLUTIONS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JAN-30-1997 765,943 0 3,011,766 199,327 3,298,748 7,812,402 765,499 91,453 15,582,941 5,801,159 0 0 0 5,466 9,694,365 15,582,941 7,244,719 7,244,719 5,058,426 8,528,490 (108,933) 0 32,326 (1,207,164) 1,050 0 0 0 0 (1,208,214) (0.25) (0.25)
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