-----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, JyfGLHEme8vrzHrgR4sUJpU5tFiMwZCkFBtqkZWkhf2MlO4rWF+s+qDvUAr3c4Hz jq9pV1hh+XkctTOzm5TYKw== 0000950115-99-001290.txt : 19991018 0000950115-99-001290.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950115-99-001290 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19991001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNASIL CORP OF AMERICA CENTRAL INDEX KEY: 0000030831 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 221734088 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: SEC FILE NUMBER: 000-27503 FILM NUMBER: 99721498 BUSINESS ADDRESS: STREET 1: 385 COOPER RD CITY: WEST BERLIN STATE: NJ ZIP: 08009 BUSINESS PHONE: 8567674600 MAIL ADDRESS: STREET 1: 385 COOPER RD CITY: WEST BERLIN STATE: NJ ZIP: 08091 10SB12G 1 FORM 10-SB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Form 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS Under Section 12(b) or (g) of the Securities Exchange Act of 1934 DYNASIL CORPORATION OF AMERICA (Name of Small Business Issuer in Its Charter) New Jersey 22-1734088 ------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Identification Incorporation or Organization) Number) 385 Cooper Road, West Berlin, New Jersey 08091 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (856) 767-4600 --------------------------- (Issuer's Telephone Number) Securities to be registered pursuant to Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock $.001 Par Value ---------------------------- (Title of Class)
TABLE OF CONTENTS Part I Item 1. Description of Business.................................................... 1 Item 2. Management's Discussion and Analysis or Plan of Operation.................. 6 Item 3. Description of Property.................................................... 9 Item 4. Security Ownership of Certain Beneficial Owners and Management............. 10 Item 6. Executive Compensation..................................................... 14 Item 7. Certain Relationships and Related Transactions............................. 15 Item 8. Description of Securities.................................................. 15 Part II Item 1. Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder Matters.................................................. 17 Item 2. Legal Proceedings.......................................................... 18 Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................... 18 Item 4. Recent Sales of Unregistered Securities.................................... 18 Item 5. Indemnification of Directors and Officers.................................. 18 Part F/S................................................................................. 23 Part III Item 1. Index to Exhibits.......................................................... 24
PART I ITEM 1. DESCRIPTION OF BUSINESS Business Development Dynasil Corporation of America ("Dynasil", "we", or the "Company") was incorporated in the State of New Jersey on October 20, 1960. On April 22, 1996, the Company's articles of incorporation were amended to reflect an increase in the authorized shares of common stock from 1,500,000 to 25,000,000, and a reduction of the par value of the common stock from $.10 to $.001. On June 1, 1996, the Board of Directors also declared a three-for-two stock split, effected in the form of a 50% stock dividend payable to stockholders of record on April 30, 1996. On October 16, 1996, the Board of Directors declared a two-for-one stock split payable on November 1, 1996 to stockholders of record on October 1, 1996. On September 30, 1997, we sold substantially all of the assets of our wholly-owned subsidiary, Hibshman Corporation, to two individuals. As consideration for the sale, the Company received a note receivable of $200,000 which was collected during fiscal year ended September 30, 1998. The sale resulted in a loss of $194,453. Business We are primarily engaged in the manufacturing and marketing of customized synthetic fused silica products. We also distribute fused quartz material that we obtain from a variety of sources. Our products are used primarily as components of optical instruments, lasers, analytical instruments, semiconductor/electronic devices, spacecraft/aircraft components, and in devices for the energy industry. These include: o Optical components - lenses, prisms, reflectors, mirrors, filters, optical flats o Lasers - Beam Splitters, brewster windows, q-switches, medical/industrial lasers, exciter systems o Analytical Instruments - UV spectrophotometer cells, fire control devices, reticle substrates, interferometer plates o Energy - Laser/Tkamak fusion research isotope separation, solar cell covers o Semiconductor/Electronic - Microcircuit substrates, microwave devices, photomasks, sputter plates, microlithography optics o Spacecraft/Aircraft - Docking light covers, windows, re-entry heat shields, ring laser gyros 1 We have a two man sales force located in our corporate headquarters West Berlin, New Jersey that handles all domestic sales. We also use manufacture representatives in various foreign countries for international sales. Marketing efforts include direct customer contact through sales visits, advertising in trade publications and presentations at trade shows. Our products are distributed through direct sales and delivered by commercial carriers. We compete for business in the optics industry primarily with two other manufacturers of synthetic fused silica and several distributors of their products. The manufacturers are Corning Incorporated, Canton, NY and Heraeus Quarzglas, Germany. Our principal competitive distributors include United Lens Company, Inc., Southbridge, MA, Advanced Glass Industries, Rochester, NY and Glass Fab, Inc., Rochester NY. Market share in the optics industry is largely determined by a combination of quality, price and speed of delivery. We believe that we are competitive in the mid to high level quality markets. We feel that we do not compete as effectively for the lower quality markets because our price is not competitive, or in the very highest quality market because our manufacturing process is not currently able to produce product of sufficient quality. All of the fused silica that we manufacture is produced using a single manufacturing process. The product is then graded to determine its quality. We have been able to sell the higher quality material at a higher price, and with higher profit margins. With respect to speed of delivery, we believe that we perform as well as or better than our competitors. The primary raw material used in our manufacturing process is silicon tetrachloride, which we obtain from Teledyne Wah Chang. In the event we are unable to obtain silicon tetrachloride from our current supplier, it is available from Dow Chemical or Hemlock, Inc. at comparable prices. We presently have over 150 customers, with 90% of our business being concentrated in our top 40 customers. Our five largest customers, Heraeus Amersil, Inc., Grimes Aerospace Company, Spectra Physics, VLOC, ESCO Products, Inc., each accounted for approximately 6.9%, 5.5%, 5.5%, 5.3%, 5.1%, respectively, of our total revenues during fiscal year 1998. Our four largest customers, Grimes Aerospace Company, Mindrum Precision, Inc., Spectra Physics, and Detector Electronics Corporation, each accounted for approximately 8.2%, 6.2%, 5.6% and 5.4%, respectively, of our revenues during the nine months ended June 30, 1999. Generally, our customers provide purchase orders for a specific quantity and quality of fused silica. These purchase orders generally are filled with fused silica from inventory or manufacture to order. Orders are generally filled over a period ranging from one month to one year. The loss of any of these customers would likely have a material adverse effect on our business, financial condition and results of operations. Our business and financial condition would be materially adversely affected if we do not attain substantial additional business from these customers, or if we lose the business of any of these customers, and if we fail to attain substantial additional business from other customers. 2 We rely on trade secret and copyright laws to protect the proprietary technologies that we may develop, but there can be no assurance that those laws will provide us with sufficient protection, that others will not develop technologies that are similar or superior to ours, or that third parties will not copy or otherwise obtain or use our technologies without our authorization. We have no patents or patent applications filed or pending. Other than federal, state and local environmental laws, our manufacturing process is not subject to direct governmental regulation. Dynasil's manufacturing process, which includes storage of hazardous materials, is subject to a variety of federal, state and local environmental rules and regulations. We make extensive use of engineering consultants to provide the technical expertise to help ensure that our equipment is in compliance with the environmental laws. Waste water and ground water testing is conducted quarterly by an engineering consultant, and the results are submitted directly to the appropriate regulating agencies. We are permitted to dispose of our waste water through the Camden County Municipal Utilities Authority. We have a permit to use an air scrubber system, which is tested periodically. The next test of the scrubber system is scheduled for November 1999. We do not have a pending notice of violations and are aware of no potential violations. We train our employees in the proper handling of hazardous materials. There are no buried storage tanks on our property. A Phase I environmental audit, completed approximately two years ago, did not disclose any conditions requiring remediation. Our environmental compliance costs approximately $600,000 per year. Our research and development activities primarily have involved changes to our manufacturing process and the introduction of equipment with newer technology. Improvements to our manufacturing process involved developing larger furnaces in order to produce larger fused silica boules, and replacing existing furnaces with higher quality equipment. We have spent approximately $1,300,000 to develop the larger furnaces and upgrade existing furnaces. An additional $400,000 was invested in additional glass processing equipment. Investigations into use of purer raw material, alternative fuels and improved distribution systems have been the primary emphasis of our research and development program. We have collaborated with the University of Missouri to develop uses for scrap fused silica, and with Northwestern University to develop methods to remelt scrap material. Our total work force consist of 24 employees; 3 administrative, 2 sales, and 19 shop personnel (including 2 part time employees). The shop currently is non-union. The workforce had originally been members of the Teamsters Union, but voluntarily decertified in the early 1980's. From then until 1989 the workforce was represented by an "in-house" union. In 1989 this representation was voted out and the shop became non-union. Employee Benefit Plans We have adopted a Stock Incentive Plan which provides for, among other incentives, granting to officers, directors, employees and consultants options to purchase shares of our common stock up to a total of 900,000 shares. The 900,000 shares consist of two separate plan approvals. The 1st plan 3 was approved in February 1996 for 450,000 shares, restated to reflect the stock splits of 1996. The seconded plan approval was January 1999 for an additional 450,000 shares. At June 30,1999, 497,723 shares of common stock were reserved for issuance under the Stock Incentive Plans. Options granted under the Plans are generally exercisable over a five year period. To date, options have been granted at exercise prices ranging from $1.00 to $3.52 per share. At June 30, 1999, 113,277 options were outstanding. We have adopted an Employee Stock Purchase Plan which permits substantially all employees to purchase common stock. Employees have an opportunity to acquire common stock at a purchase price of 65% of the fair market value of the shares. To date, shares issued to employees have been restricted shares subject to the holding periods of Rule 144. Under the plan, a total of 150,000 shares had been reserved for issuance. Of these, 34,917 shares have been purchased by the employees at purchase prices ranging from $.49 to $2.68 per share. During any twelve month period, employees are limited to a total of $5,000 of stock purchases. The Company has a 401K Plan for the benefit of its employees. The Company did not make a contribution for the years ended September 30, 1999, 1998 and 1997. YEAR 2000 Year 2000 Readiness Disclosure Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with such Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. State of Readiness: We have made an assessment of our Year 2000 readiness of our operating, financial and administrative systems, including the hardware and software that support our systems. Our assessment consisted of testing and correcting our internally developed material software and contacting key vendors to ensure their readiness. We have confirmed our Year 2000 compliance by specific testing of our systems and by obtaining representations by third party vendors of their Year 2000 compliance. Costs: We have not incurred significant costs to date complying with Year 2000 requirements and we do not believe that we will incur significant costs for these purposes in the foreseeable future. However, should products or systems maintained by third parties or our systems fail to be Year 2000 compliant, despite the representations of third parties and the testing of our systems, we could incur expenses to remedy any problems. Such expenses could, but are not expected to, have a material adverse effect on our business, results of operations and financial condition. 4 Risks: Our failure to identify and correct a Year 2000 problem could result in an interruption of normal business activities and operations. Although there is an inherent uncertainty in the Year 2000 issue, we believe the impact to our business will not be material. Most of the equipment involved in delivering our product to our clients does not make use of date information at all. We believe our greatest risk to be suppliers and utilities whose Year 2000 programs are outside of our control. A disruption caused by a utility or supplier whose systems are not compliant may have a direct and negative effect on our business. Contingency Plan: We have identified alternate sources for critical supplies where alternate sources exist. To the best of our knowledge, our internal systems are fully compliant. We have been advised by our principal suppliers, particularly the utilities supplying electricity and gas, that they believe their systems are also compliant. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following management's discussion and analysis should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this Form 10-SB. Results of Operations Comparison of Nine Months ended June 30, 1999 to Nine Months ended June 30, 1998 Revenues deceased to $2,021,887 for the nine months ended June 30, 1999 from $3,242,457 for the nine months ended June 30, 1998. The decrease of $1,220,570 or 37.6% was primarily due to the slow down in both the semiconductor and optics markets. The problems experienced by the Asian economy in late 1998 caused end users of our product to delay orders. This delay carried through most of 1999. We just recently have begun seeing a reverse in that trend and quote activity has increased. Cost of sales consist primarily of facility and production costs, direct labor, depreciation, waste management cost and supplies. Cost of sales decreased to $1,735,582, or 85.8% of revenues, for the nine months ended June 30, 1999 from $2,152,336, or 66.4% of revenues, for the nine months ended June 30, 1998. The decrease of $416,754 or 19.4% is directly related to the Company's response to the decrease in revenues. We needed to reduce expenses in every area. Manufacturing labor related expenses decreased $289,229 (33.7%), supplies expenses decreased $71,707 (35.2%) and waste management expenses decreased $145,128 (74%). Gross Margin decreased to $286,305 for the nine months ended June 30, 1999 from $1,090,121 for the nine months ended June 30, 1998. As a percentage of revenues, gross margin was 14.2% and 33.6% for the nine months ended June 30, 1999 and 1998 respectively. The decrease of $803,816 or 73.7% was a result of the large revenue reduction and the Company's inability to reduce expenses quickly, in response to the downturn in the market. Selling, general and administrative expenses consist primarily of salaries, insurance, outside professional fees, and advertising. Selling, general and administrative expenses decreased to $479,216 for the nine months ended June 30, 1999 from $646,956 for the nine months ended June 30, 1998. As a percentage of revenue, selling general and administrative expense for the nine months ended June 30, 1999 and 1998 were 23.7% and 20.0% respectively. The decrease of $167,740 or 25.9% was due primarily to a $72,958 reduction in advertising and a $75,590 reduction in outside professional fees. Interest expense includes interest related to our financing obligations including bank loans, subordinated debentures and capital leases. Interest expense increased to $146,729 for the nine months ended June 30, 1999 from $142,783 for the nine months ended June 30, 1998. The increase is $3,946 or 2.8%. 6 Net income decreased to a loss of $339,640 for the nine months ended June 30, 1999 from income of $308,382 for the nine months ended June 30, 1998. Basic earnings per share decreased to a loss per share of $.15 for the nine months ended June 30, 199 from an income per share of $.13 for the nine months ended June 30, 1998. The decrease of $648,022, or $.28 per share, was primarily related to the sharp decrease in revenues and the Company's initial slow response to reduce expenses. Comparison of Fiscal Year ended September 30, 1998 to Fiscal Year ended September 30, 1997 Revenues increased to $3,981,395 for fiscal 1998 from $3,931,108 for fiscal 1997. The marginal increase of $50,287 or 1.3% reflects the beginning of the slow down in the semiconductor and optics markets in mid 1998. Cost of sales increased to $2,711,148, or 68.1% of revenues, for fiscal 1998 from $2,338,738, or 59.5% of revenues, for fiscal 1997. The increase of $372,410, or 15.7% was primarily due to increases in manufacturing labor, employee related expenses and depreciation. For fiscal 1998 manufacturing labor, employee related expenses, and depreciation accounted for approximately 20.1%, 7.3% and 7.8% of revenues, respectively. For fiscal year 1997 manufacturing labor, employee related expenses, and depreciation accounted for approximately 15.3%, 4.6% and 5.7%, respectively. Gross margin decreased to $1,270,247, or 31.9% of revenues, for fiscal 1998 from $1,592,370, or 40.5% of revenue, for fiscal 1997. The decrease of $322,123, or 20.2%, is related to increase in cost of sales, as discussed above. Selling, general and administrative expenses decreased to $874,962, or 21.9% of revenue, for the fiscal 1998 from $952,977, or 24.2% of revenue, for fiscal 1997. The decrease of $78,015, or 8.2%, was due primarily to decreases in salary expense, outside professional fees, and travel expense aggregating approximately $97,165, with an offsetting increase in amortization expense of $23,052. Interest Expense increased to $188,150, or 4.7% of revenue, for fiscal 1998 from $108,536, or 2.8% of revenue, for fiscal 1997. The increase of $79,614, or 73.3%, was due primarily to the additional debt we incurred in the later part of fiscal 1997. See discussion of debt restructuring under Liquidity and Capital Resources. Net income from continuing operations decreased to $230,782, or 5.8% of revenue, for fiscal 1998 from $529,684, or 13.5% of revenue, for fiscal 1997. The decrease of $298,902, or 56.4% was primarily a result of increased cost of sales. The Company has no provisions for income taxes for either fiscal 1998 or 1997. As of September 30, 1998 we have approximately $598,000 of net operating loss carryforwards to offset future taxable income for federal tax purposes expiring in various years through 2009. In addition, the Company has approximately $391,000 of net operating loss carryforwards to offset certain future states' taxable income, expiring in various years through 2001. 7 For fiscal 1997 we incurred a loss from discontinued operations of $453,722. See note under Business Development concerning Hibshman Corporation. In addition to the $194,453 loss on the sale of the assets, we incurred an additional loss of $259,269 from operations of Hibshman Corporation. Net income increased to $230,782, or 5.8% of revenue for fiscal 1998 from $75,962, or 1.9% of revenue, for fiscal 1997. Liquidity and Capital Resources Net cash provided by operating activities decreased to $78,224 for the nine months ended June 30, 1999 from $290,111 for the nine months ended June 30, 1998. The decrease was primarily due to the decrease in income before depreciation offset by a decrease in Inventories. For the year ended September 30, 1998 our net cash provided from operating activities decreased to $271,064 from $548,970 for the year ended September 30, 1997. The decrease was primarily due to an increase in Inventories and a decrease in Accounts Payable offset by an increase in cash provided from discontinued operations. Cash flows used in investing activities decreased to $5,333 for the nine months ended June 30, 1999 from $307,839 for the nine months ended June 30, 1998. The decrease was due entirely because of reduced investments in property and equipment. Cash flows used in investing activities decreased to $301,596 for fiscal 1998 from $1,391,283 for fiscal 1997. The decrease was primarily due to reduced investments in property and equipment. During fiscal 1997 the Company had a major refurbishing project for all our furnaces that resulted in the high expenditures for property and equipment. Cash flows used in financing activities increased to $70,380 for the nine months ended June 30,1999 from cash flows provided from financing activities of $10,175 for the nine months ended June 30, 1998. The increase was primarily due to reductions in obtaining outside financing. Cash flows provided from financing activities decreased to $60,437 for fiscal 1998 from $754,021 for fiscal 1997. The primary reason for the decrease was a reduction in proceeds from long term debt. In August 1997 the Company secured an additional $200,000 on an existing mortgage. The funds were used for improvements to our furnaces. In August 1998 the Company consolidated all existing bank debt into a term loan of $1,300,000 and a Line of Credit of $300,000. In July 1999 the Line of Credit was revised to $150,000. As of August 31, 1999, the term loan has an outstanding balance of $1,213,333 and the line has a zero balance. We have various obligations under two capital leases, which aggregate $107,994 as of August 31, 1999. The indebtedness outstanding under the term loan is collateralized by all of our assets. The obligations under the capital leases are collateralized by the underlying equipment for each loan. 8 During fiscal years 1998 and 1997 we generated $177,609 and $9,000, respectively from the exercise of stock options owned by affiliates of the Company. During fiscal years 1998 and 1997 we generated $11,694 and $2,753, respectively, from shares purchased by employees through the Employee Stock Purchase Plan. The Company believes that its current cash and cash equivalent balances, and net cash generated by operations, will be sufficient to meet its anticipated cash needs for working capital for at least the next 12 months. Any business expansion will require the Company to seek additional debt or equity financing. ITEM 3. DESCRIPTION OF PROPERTY Facilities We own a property consisting of a one-story, masonry and steel, office/manufacturing building containing approximately 15,760 square feet, located at 385 Cooper Road, West Berlin, New Jersey, 08091. The building is situated on a 3.686 acre site. It contains eight furnaces with attendant pollution control systems, glass processing equipment, quality control functions and administrative office space. We have received site plan approval to construct four additional furnaces. Leases We lease office equipment and four storage containers at an annual total lease obligation of $7,542. We also have entered into lease purchase agreements for a lift truck, a retro-fit of a glass saw, and an ID slicing saw, for a total annual lease obligation of $74,540. 9 ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of the Common Stock of the Company as of September 30, 1999 by each person who was known by the Company to beneficially own more than 5% of the common stock, by each director and executive officer who owns shares of common stock and by all directors and executive officers as a group:
Title Name and Address No. of Shares and nature of Percent of of Class of Beneficial Owner Beneficial Ownership(1) Class - -------- ------------------- --------------------------- ---------- Common James Saltzman(2) 580,865 24.63% 621 East Germantown Pike Suite 105 Plymouth Valley PA 19401 Common Gen. Charles J. Searock, Jr. (USAF Ret)(3) 90,496 3.85% 39 Tee Pee Court Medford, NJ 08055 Common Jan Melles(4) 56,500 2.40% 9 Riverside Road Laguna Niguel, CA 92677 Common Nathan Schwartz(5) 48,394 2.03% 621 East Germantown Pike Suite 105 Plymouth Valley, PA 19401 Common Dr. Peter P. Bihuniak(6) 16,000 0.68% 631 Scenic Circle Holland, OH 43528 Common Robert Lear(7) 173,236 7.37% 520 South York Road Hatboro, PA 19040 Common Robert E. Hibshman, Sr.(8) 59,000 2.51% 19689 7th Ave. NE, Suite 182 Poulsbo, WA 98370-7576 Common John Kane(9) 15,425 0.66% 149 Plowshare Road Norristown, PA 19403 Common Bruce Leonetti 100 0.00% 200 Birdwood Avenue Haddonfield, NJ 08033 All Officers and Directors as a Group 1,040,015 42.76%
- ------------ (1) The numbers and percentages shown include shares of common stock issuable to the identified person pursuant to stock options that may be exercised within 60 days. In calculating the percentage 10 of ownership, such shares are deemed to be outstanding for the purpose of computing the percentage of shares of common stock owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of share of common stock owned by any other stockholders. The number of shares outstanding on September 30, 1999 was 2,344,944. (2) Includes options to purchase 7,500 shares of the Company's common stock at $1.00 per share, options to purchase 3,000 shares of the Company's common stock at $3.52 per share, and options to purchase 3,000 shares of the Company's common stock at $1.17 per share; also includes 567,365 shares owned by Saltzman Partners. (3) Includes options to purchase 3,000 shares of the Company's common stock at $1.17 per share. (4) Includes options to purchase 3,000 shares of the Company's common stock at $3.52 per share, and options to purchase 3,000 shares of the Company's common stock at $1.17 per share. (5) Includes options to purchase 20,000 shares of the Company's common stock at $1.50 per share, options to purchase 5,000 shares of the Company's common stock at $1.50 per share, options to purchase 3,000 shares of the Company's common stock at $4.25 per share, options to purchase 3,000 shares of the Company's common stock at $3.52 per share, and options to purchase 3,000 shares of the Company's common stock at $1.17 per share. (6) Includes options to purchase 10,000 shares of the Company's common stock at $3.00 per share, options to purchase 3,000 shares of the Company's common stock at $3.52 per share, and options to purchase 3,000 shares of the Company's common stock at $1.17 per share. (7) Includes options to purchase 3,000 shares of the Company's common stock at $3.52 per share, and options to purchase 3,000 shares of the Company's common stock at $1.17 per share; also includes 167,236 shares owned by Penn Independent Corporation. (8) Includes options to purchase 3,000 shares of the Company's common stock at $1.17 per share. (9) Includes options to purchase 5,500 shares of the Company's common stock at $2.65 per share. 11 ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS All seven of our directors were elected to serve for one year at our Annual meeting of the shareholders held on January 26, 1999, and will hold office until their successors are elected at the next annual meeting of the shareholders. Our executive officers and directors, and their ages at September 15, 1999, are as follows: Name Age Position - ---- --- -------- James Saltzman 55 Chairman of the Board Gen. Charles J. Searock, Jr. 63 President, CEO, Director Jan Melles 59 Director Nathan Schwartz 38 Director Dr. Peter P. Bihuniak 50 Director Mr. Robert Lear 54 Director Mr. Robert E. Hibshman, Sr. 72 Director Mr. John Kane 48 CFO, Secretary, Treasurer Mr. Bruce Leonetti 45 Vice President Mr. James Saltzman, Chairman, 55, has been a member of the Board since February 1998, and is a major shareholder in Dynasil Corporation. Mr. Saltzman, has been the General Partner of Saltzman Partners, an investment firm, since 1982. Since January 1997, Mr. Saltzman has served as Vice Chairman of Madison Monroe, Inc., a private company engaged in investments. He served as a director of Xyvision, Inc., a publicly held company which develops, markets, integrates and supports content management and publishing software, since 1992, and was Chairman of the Board of such company from February 1994 to February 1995. General Charles J. Searock, Jr. (USAF Ret), 63, has been a director of the Corporation since February 1996 and currently serves as President and CEO. General Searock retired from the United States Air Force having attained the rank of Lieutenant General in 1993 after 36 years of active duty, having received numerous military decorations. Prior to joining Dynasil, he was executive Vice President of Aero Development Corporation from 1993 to 1996. General Searock earned a BA in General Education from the University of Nebraska in 1962, and a Masters degree in Management from Central Michigan University in 1975. Jan Melles, 59, has been a member of the Board of Directors of the Company since February 1996. Since 1993, Mr. Melles has been President and sole shareholder of Photonics Investments, bv, which is engaged in investments in, and mergers and acquisitions of, photonics companies. From 1988 to 1992, he served as Chief Executive Officer of Melles Griot, Inc., a division of J. Bibby & Sons, PLC. Mr. Melles co-founded Melles Griot, Inc. in 1969 and sold it to J. Bibby & Sons, PLC in 1988. Mr. Melles also serves as a director of Excel Technology, Inc., a publicly held company, and as a director of Gooch and Housego, PLC, a publicly held company. 12 Nathan Schwartz, 38, has been a member of the Board since February 1996. He is an attorney and financial advisor, providing legal and financial advice to numerous financial service clients since 1992. Mr. Schwartz earned a B.A. in History from Kenyon College in 1982, an M.B.A. in Public/Private Management from Columbia University in 1986, and a J.D. from the University of Pittsburgh in 1989. Dr. Peter P. Bihuniak, 50, has been a member of the Board since February 1997. He has held his current position of Vice President of Technology for SOLAREX since 1997. From 1995 to 1997, he served as Director of Research and Development of Pilkington, Libbey-Owens-Ford in Toledo, Ohio, directing invention and development efforts for high performance glass. From 1988 to 1995, Mr. Bihuniak served in various positions with PPG Industries, Inc., one of the major producers of flat glass, fabricated glass and continuous-strand fiber glass in the world, serving most recently as General Manager, Flat Glass Specialty Products Division. Robert Lear, 54, has been a member of the Board since February 1998. He is President of Penn Independent Corporation, a property and casualty insurance enterprise. Mr. Lear has been President and Chief Executive Officer of Penn Independent since September 1996 and previously served as Executive Vice President-Finance and Chief Financial Officer of that company for more than seven years. He was Vice President-Finance and Chief Financial Officer of Penn-America Group, Inc. from its formation in July 1993 until March 1995, and still serves Penn-America Group, Inc. as a director. Prior to joining Penn Independent, Mr. Lear had over 15 years of public accounting experience, specializing in the insurance industry. Mr. Lear is a certified public accountant. Robert E. Hibshman, Sr., 72, has been a member of the Board since January 1999. He founded Hibshman Optical Labs, Inc. which was purchased by his son, Robert E. Hibshman Jr. and eventually sold to Dynasil Corporation as Hibshman Corporation. Mr. Hibshman Sr. is currently retired and is occupied with property development and investments. John Kane, 48, Chief Financial Officer has been with Dynasil Corporation since January 1997 and is a licensed Certified Public Accountant. For three years prior to joining Dynasil Corporation he was an independent consultant, designing accounting systems for the maritime industry. Bruce Leonetti, 45, Vice President - Sales and Marketing has been with Dynasil Corporation since January 1999. He was previously with the Company for 14 years prior to 1993 when he left for a position as a development officer with the University of Pennsylvania. 13
ITEM 6. EXECUTIVE COMPENSATION Summary Compensation Table - --------------------------------------------------------------------------------------------------------------------------- Long Term Compensation -------------------------------------- Annual Compensation Awards Payouts ---------------------------------------- ------------------------- --------- Name and Year Salary ($) Bonus ($) Other Restricted Securities Long- All other Principle Annual Stock Underlying Term compen- Position Compen- Awards ($) Options Incentive sation ($) sation ($) ($) Plans ($) - --------------------------------------------------------------------------------------------------------------------------- Charles J. 1999 122,703 Searock, ------------------------------------------------------------------------------------------------------------ President, 1998 124,797 CEO ------------------------------------------------------------------------------------------------------------ 1997 88,054 16,250 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- John 1999 83,339 2,625 Kane, ------------------------------------------------------------------------------------------------------------ Secretary, 1998 88,289 1,118 6,000 Treasurer, ------------------------------------------------------------------------------------------------------------ CFO 1997 57,212 624 13,500 - --------------------------------------------------------------------------------------------------------------------------- Bruce 1999 65,042 Leonetti, VP - ---------------------------------------------------------------------------------------------------------------------------
Employment Agreements We have entered into an employment agreement with Charles J. Searock, Jr., Chief Executive Officer and President, which commenced on December 1, 1996 and will continue for a three-year period, after which the agreement will automatically renew for one-year terms, unless terminated by either party upon ninety days written notice prior to the end of any term, or for cause. Under the employment agreement, Mr. Searock has agreed to work for us full time, and receives an annual base salary of $125,000, to be adjusted upwards or downwards based on our profit and loss. Mr. Searock's agreement also provides for an annual bonus at the discretion of our Board of Directors. The agreement also provides for a 401(k) pension plan, health insurance benefits and contains three-year non-competition provisions that prohibit him from competing with us. In addition, the agreement provides that if Mr. Searock is terminated without cause, he will receive a severance consideration of one year's salary. We have also entered into an employment agreement with John Kane, Chief Financial Officer, Secretary and Treasurer, which commenced on January 20, 1997 and will continue for a three-year 14 period, after which the agreement will automatically renew for one-year terms, unless terminated by either party upon ninety days written notice prior to the end of any term, or for cause. Under the employment agreement, Mr. Kane has agreed to work for us full time, and receives an annual base salary of $85,000, to be reviewed no less than annually. Mr. Kane's agreement also provides for an annual bonus at the discretion of our Board of Directors. The agreement also provides for a 401(k) pension plan, health insurance benefits and contains eighteen month non-competition provisions that prohibit him from competing with us. We have also entered into an employment agreement with Bruce Leonetti, Vice President of Marketing and Sales, which commenced on January 1, 1999 and will continue for a three-year period, unless terminated for cause. Under the employment agreement, Mr. Leonetti has agreed to work for us full time, and receives an annual base salary of $89,000, with commissions based on the gross dollar amount of product shipped. Mr. Leonetti's agreement also provides for an annual bonus at the discretion of our Board of Directors. The agreements also provide for a 401(k) pension plan, health insurance benefits and contain twenty four month non-competition provisions that prohibit him from competing with us. In addition, the agreement provides that if Mr. Leonetti is terminated without cause, he will receive a severance consideration of three months' salary. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company paid consulting fees to Robert E. Hibshman, Jr., formerly President of the Company and Chairman of the Board of Directors, in the amount of $38,140 during 1998 and $93,173 during 1997. ITEM 8. DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 25,000,000 shares of common stock, par value $.001 per share ("Common Stock"). Common Stock Holders of shares of Common Stock of the Company are entitled to cast one vote for each share held at all shareholders meetings for all purposes, including the election of directors, and to share equally on a per share basis in such dividends as may be declared by the Board of Directors out of funds legally available. Upon liquidation or dissolution, each outstanding share of Common Stock will be entitled to share equally in the assets of the Company legally available for distribution to shareholders after the payment of all debts and other liabilities. Shares of Common Stock are not redeemable, have no conversion rights and carry no preemptive or other rights to subscribe to or purchase additional shares in the event of a subsequent offering. All outstanding shares of Common Stock are and will be fully paid and non- assessable, when issued. 15 Non-Cumulative Voting The Common Stock does not have cumulative voting rights which means that the holders of more than fifty percent of the Common Stock voting for election of directors can elect one hundred percent of the directors of the Company if they choose to do so. Dividends There are no limitations or restrictions upon the right of the Board of Directors to declare dividends out of any funds legally available Effect of anti-takeover effects of New Jersey Shareholders Protection Act The Company is subject to the provisions of the New Jersey Shareholders Protection Act. The New Jersey Shareholders Protection Act provides that "no resident domestic corporation shall engage in any business combination with any interested stockholder of that resident domestic corporation for a period of five years following that interested stockholder's stock acquisition date unless that business combination is approved by the board of directors of that resident domestic corporation prior to that interested stockholder's stock acquisition date." 16 PART II ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS The Registrant's Common Stock is traded on the Over the Counter Bulletin Board (BBOTC:DYSL). The symbol for the Company's Common Stock is "DYSL". The Company's Common Stock has been traded publicly since April 22, 1981. The "high" and "low" bid quotations for the Company's Common Stock for each quarterly period for the fiscal years ended December 31, 1997 and December 31, 1998 were as follows: Calendar Quarter High Bid Price Low Bid Price ---------------- -------------- ------------- 1997 ---- First $5.50 $3.75 Second 3.75 3.25 Third 4.25 3.25 Fourth 5.25 2.875 1998 ---- First $6.00 $3.375 Second 4.00 2.00 Third 3.00 2.00 Fourth 2.00 0.875 The above listed quotes reflect inter-dealer prices without retail mark-up, mark-down, or commissions and are not necessarily representations of actual transactions or the true value of the Common Stock. As of September 30, 1999, there were 2,344,944 shares of common stock outstanding held by approximately 256 holders of record of the Common Stock of the Company (plus a small number of additional shareholders whose stock is held in street name and who have declined disclosure of such information). The Company has paid no cash dividends since its inception. The Company presently intends to retain any future earnings for use in its business and does not presently intend to pay cash dividends in the foreseeable future. Holders of the Common stock are entitled to share ratably in dividends when and as declared by the Board of Directors out of funds legally available therefor. 17 ITEM 2. LEGAL PROCEEDINGS No material legal proceedings to which the Company or any of its property is subject are pending, nor to the knowledge of the Company are any such legal proceedings threatened. ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES In May 1996, the Company granted to a consultant, under a Consulting Agreement, an option to purchase shares of the Company's common stock up to a total of 20,000 shares. The option was exercisable through May 1998 at an exercise price of $3.50 per share. In September 1996, such option was exercised in its entirety for a total purchase price of $70,000. In June 1996, the Company granted to another consultant, under a Consulting Agreement, an option to purchase shares of the Company's common stock up to a total of 5,000 shares. The option was exercisable through June 1997 at an exercise price of $3.00 per share. In June 1996, such option was exercised in its entirety for a total purchase price of $15,000. ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS The by-laws of the Company provide that every person who is or was a director or officer, employee or agent of the Company, or any person who serves or has served in any capacity with any other enterprise at the request of the Company, shall be indemnified by the Company to the fullest extent permitted by law. The Company shall indemnify the persons listed above against all expenses and liabilities reasonably incurred by or imposed on them in connection with any proceedings to which they have been or may be made parties, or any proceedings in which they may have become involved by reason of being or having been a director or officer of the Company, or by reason of serving or having served another enterprise at the request of the Company, whether or not in the capacities of directors or officers of the Company at the time the expenses or liabilities are incurred. New Jersey has enacted the following statutory indemnification provisions: NJSA 14A:3-5. Indemnification of directors, officers and employees - (1) As used in this section, (a) "Corporate agent" means any person who is or was a director, officer, employee or agent of the indemnifying corporation or of any constituent corporation absorbed by the indemnifying corporation in a consolidation or merger and any person who is or was a director, officer, trustee, 18 employee or agent of any other enterprise, serving as such at the request of the indemnifying corporation, or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent; (b) "Other enterprise" means any domestic or foreign corporation, other than the indemnifying corporation, and any partnership, joint venture, sole proprietorship, trust or other enterprise, whether or not for profit, served by a corporate agent; (c) "Expenses" means reasonable costs, disbursements and counsel fees; (d) "Liabilities" means amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties; (e) "Proceeding" means any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding; and (f) References to "other enterprises" include employee benefit plans; references to "fines" include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the indemnifying corporation" include any service as a corporate agent which imposes duties on, or involves services by, the corporate agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section. (2) Any corporation organized for any purpose under any general or special law of this State shall have the power to indemnify a corporate agent against his expenses and liabilities in connection with any proceeding involving the corporate agent by reason of his being or having been such a corporate agent, other than a proceeding by or in the right of the corporation, if (a) such corporate agent acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation; and (b) with respect to any criminal proceeding, such corporate agent had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that such corporate agent did not meet the applicable standards of conduct set forth in paragraphs 14A:3-5(2)(a) and 14A:3-5(2)(b). (3) Any corporation organized for any purpose under any general or special law of this State shall have the power to indemnify a corporate agent against his expenses in connection with any proceeding by or in the right of the corporation to procure a judgment in its favor which involves the 19 corporate agent by reason of his being or having been such corporate agent, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. However, in such proceeding no indemnification shall be provided in respect of any claim, issue or matter as to which such corporate agent shall have been adjudged to be liable to the corporation, unless and only to the extent that the Superior Court or the court in which such proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all circumstances of the case, such corporate agent is fairly and reasonably entitled to indemnity for such expenses as the Superior Court or such other court shall deem proper. (4) Any corporation organized for any purpose under any general or special law of this State shall indemnify a corporate agent against expenses to the extent that such corporate agent has been successful on the merits or otherwise in any proceeding referred to in subsections 14A:3-5(2) and 14A:3-5(3) or in defense of any claim, issue or matter therein. (5) Any indemnification under subsection 14A:3-5(2) and, unless ordered by a court, under subsection 14A:3-5(3) may be made by the corporation only as authorized in a specific case upon a determination that indemnification is proper in the circumstances because the corporate agent met the applicable standard of conduct set forth in subsection 14A:3-5(2) or subsection 14A:3-5(3). Unless otherwise provided in the certificate of incorporation or bylaws, such determination shall be made (a) by the board of directors or a committee thereof, acting by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the proceeding; or (b) if such a quorum is not obtainable, or, even if obtainable and such quorum of the board of directors or committee by a majority vote of the disinterested directors so directs, by independent legal counsel, in a written opinion, such counsel to be designated by the board of directors; or (c) by the shareholders if the certificate of incorporation or bylaws or a resolution of the board of directors or of the shareholders so directs. (6) Expenses incurred by a corporate agent in connection with a proceeding may be paid by the corporation in advance of the final disposition of the proceeding as authorized by the board of directors upon receipt of an undertaking by or on behalf of the corporate agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified as provided in this section. (7) (a) If a corporation upon application of a corporate agent has failed or refused to provide indemnification as required under subsection 14A:3-5(4) or permitted under subsections 14A:3-5(2), 14A:3-5(3) and 14A:3-5(6), a corporate agent may apply to a court for an award of indemnification by the corporation, and such court (i) may award indemnification to the extent authorized under subsections 14A:3-5(2) and 14A:3-5(3) and shall award indemnification to the extent required under subsection 14A:3-5(4), 20 notwithstanding any contrary determination which may have been made under subsection 14A:3-5(5); and (ii) may allow reasonable expenses to the extent authorized by, and subject to the provisions of, subsection 14A:3-5(6), if the court shall find that the corporate agent has by his pleadings or during the course of the proceeding raised genuine issues of fact or law. (b) Application for such indemnification may be made (i) in the civil action in which the expenses were or are to be incurred or other amounts were or are to be paid; or (ii) to the Superior Court in a separate proceeding. If the application is for indemnification arising out of a civil action, it shall set forth reasonable cause for the failure to make application for such relief in the action or proceeding in which the expenses were or are to be incurred or other amounts were or are to be paid. The application shall set forth the disposition of any previous application for indemnification and shall be made in such manner and form as may be required by the applicable rules of court or, in the absence thereof, by direction of the court to which it is made. Such application shall be upon notice to the corporation. The court may also direct that notice shall be given at the expense of the corporation to the shareholders and such other persons as it may designate in such manner as it may require. (8) The indemnification and advancement of expenses provided by or granted pursuant to the other subsections of this section shall not exclude any other rights, including the right to be indemnified against liabilities and expenses incurred in proceedings by or in the right of the corporation, to which a corporate agent may be entitled under a certificate of incorporation, bylaw, agreement, vote of shareholders, or otherwise; provided that no indemnification shall be made to or on behalf of a corporate agent if a judgment or other final adjudication adverse to the corporate agent establishes that his acts or omissions (a) were in breach of his duty of loyalty to the corporation or its shareholders, as defined in subsection (3) of > N.J.S.14A:2-7, (b) were not in good faith or involved a knowing violation of law or (c) resulted in receipt by the corporate agent of an improper personal benefit. (9) Any corporation organized for any purpose under any general or special law of this State shall have the power to purchase and maintain insurance on behalf of any corporate agent against any expenses incurred in any proceeding and any liabilities asserted against him by reason of his being or having been a corporate agent, whether or not the corporation would have the power to indemnify him against such expenses and liabilities under the provisions of this section. The corporation may purchase such insurance from, or such insurance may be reinsured in whole or in part by, an insurer owned by or otherwise affiliated with the corporation, whether or not such insurer does business with other insureds. 21 (10) The powers granted by this section may be exercised by the corporation, notwithstanding the absence of any provision in its certificate of incorporation or bylaws authorizing the exercise of such powers. (11) Except as required by subsection 14A:3-5(4), no indemnification shall be made or expenses advanced by a corporation under this section, and none shall be ordered by a court, if such action would be inconsistent with a provision of the certificate of incorporation, a bylaw, a resolution of the board of directors or of the shareholders, an agreement or other proper corporate action, in effect at the time of the accrual of the alleged cause of action asserted in the proceeding, which prohibits, limits or otherwise conditions the exercise of indemnification powers by the corporation or the rights of indemnification to which a corporate agent may be entitled. (12) This section does not limit a corporation's power to pay or reimburse expenses incurred by a corporate agent in connection with the corporate agent's appearance as a witness in a proceeding at a time when the corporate agent has not been made a party to the proceeding. Forward-Looking Statements Certain statements made in this Form 10-SB are "forward looking statements". Without limiting the generality of the foregoing, such information can be identified by the use of forward-looking terminology such as "anticipate", "will", "would", "expect", "intend", "plans to" or "believes", or other variations thereon, or comparable terminology. Actual results, performance or developments may differ materially from those expressed or implied by such forward-looking statements as a result of market uncertainties or industry factors. Some important factors that may cause actual results that differ materially from those in any forward-looking statements may include the availability of financing in the time frame required, market acceptance of the Company's products and services, competitive pressures, and the ability to attract and retain key executive sales and management personnel. The Company disclaims any obligation or responsibility to update any such forward-looking statements. 22 PART F/S 23 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 TABLE OF CONTENTS Page ---- Independent Auditors' Report 1 Financial Statements: Consolidated Balance Sheets 2 Consolidated Statements of Operations 3 Consolidated Statements of Changes in Stockholders' Equity 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 - 19 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Dynasil Corporation of America and Subsidiaries Berlin, New Jersey We have audited the accompanying consolidated balance sheets of DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES as of September 30, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES as of September 30, 1998 and 1997 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. HAEFELE, FLANAGAN & CO., p.c. Moorestown, New Jersey November 16, 1998 1 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND 1997
ASSETS 1998 1997 ---------- ---------- Current assets Cash and cash equivalents $ 45,980 $ 16,075 Accounts receivable, net of allowance for doubtful accounts of $10,883 for 1998 and 1997 345,176 598,926 Note receivable 0 21,667 Inventories 1,278,334 873,889 Prepaid expenses and other current assets 42,160 41,015 Net current assets of discontinued operations 0 221,952 ---------- ---------- Total current assets 1,711,650 1,773,524 Property, Plant and Equipment, net 2,390,988 2,261,968 Other Assets 25,947 50,058 ---------- ---------- Total Assets $4,128,585 $4,085,550 ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 ----------- ----------- Current Liabilities Note payable to bank $ 0 $ 200,000 Current portion of long-term debt 137,414 432,773 Accounts payable 226,560 511,578 Accrued expenses 122,115 230,355 ----------- ----------- Total current liabilities 486,089 1,374,706 Long-term Debt, net 1,882,515 1,384,908 Stockholders' Equity Common Stock, $.0005 par value, 25,000,000 shares authorized, 2,947,649 and 2,821,213 shares issued for 1998 and 1997, respectively 1,474 1,411 Additional paid in capital 1,028,197 831,083 Retained earnings 1,689,613 1,458,831 ----------- ----------- 2,719,284 2,291,325 Less unearned compensation 0 (6,086) Less 640,624 shares of treasury stock, at cost (959,303) (959,303) ----------- ----------- Total stockholders' equity 1,759,981 1,325,936 ----------- ----------- Total Liabilities and Stockholders' Equity $ 4,128,585 $ 4,085,550 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997 ----------- ----------- Net sales $ 3,981,395 $ 3,931,108 Cost of sales 2,711,148 2,338,738 ----------- ----------- Gross profit 1,270,247 1,592,370 Selling, general and administrative 874,962 952,977 ----------- ----------- Income from continuing operations 395,285 639,393 Other income (expense) Interest expense (188,150) (108,536) Other income (expense), net 23,647 (1,173) ----------- ----------- (164,503) (109,709) ----------- ----------- Income from continuing operations before provision for income taxes 230,782 529,684 Provision for income taxes 0 0 ----------- ----------- Income from continuing operations 230,782 529,684 ----------- ----------- Discontinued operations Loss from discontinued operations, including provision of $30,000 for operating losses during phase out period in 1997, net of tax 0 (453,722) ----------- ----------- Net income $ 230,782 $ 75,962 =========== =========== Basic net income per share From continuing operations $ 0.10 $ 0.24 From discontinued operations 0 (0.21) ----------- ----------- Net income $ 0.10 $ 0.03 =========== =========== Diluted net income per share From continuing operations $ 0.10 $ 0.23 From discontinued operations 0 (0.20) ----------- ----------- Net income $ 0.10 $ 0.03 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Additional Paid-in Retained Unearned Shares Amount Capital Earnings Compensation --------- ------- ---------- ---------- ------------ Balance, October 1, 1996 1,404,356 $ 1,404 $ 788,837 $1,382,869 $ 0 2 for 1 stock split 1,404,356 0 0 0 0 Issuance of shares of common stock upon exercise of stock options 3,000 1 8,999 0 0 Issuance of shares of common stock upon exercise of stock warrants 250 1 749 0 0 Issuance of shares of common stock under employee stock purchase plan 1,251 1 2,752 0 0 Issuance of shares of common stock under employee stock compensation 8,000 4 29,746 0 (29,750) Compensation expense 0 0 0 0 23,664 Net income 0 0 0 75,962 0 --------- ------- ---------- ---------- ------- Balance, September 30, 1997 2,821,213 1,411 831,083 1,458,831 (6,086) Issuance of shares of common stock upon exercise of stock options 116,000 58 177,552 0 0 Issuance of shares of common stock under employee stock purchase plan 6,936 3 11,691 0 0 Issuance of shares of common stock under stock bonus 500 0 1,873 0 0 Issuance of shares of common stock under employee stock compensation 3,000 2 5,998 0 0 Compensation expense 0 0 0 0 6,086 Net Income 0 0 0 230,782 0 --------- ------- ---------- ---------- ------- Balance, September 30, 1998 2,947,649 $ 1,474 $1,028,197 $1,689,613 $ 0 ========= ======= ========== ========== ======= Treasury Stock Total ----------------------- Stockholders' Shares Amount Equity ------- ---------- ------------- Balance, October 1, 1996 320,312 $(959,303) $1,213,807 2 for 1 stock split 320,312 0 0 Issuance of shares of common stock upon exercise of stock options 0 0 9,000 Issuance of shares of common stock upon exercise of stock warrants 0 0 750 Issuance of shares of common stock under employee stock purchase plan 0 0 2,753 Issuance of shares of common stock under employee stock compensation 0 0 0 Compensation expense 0 0 23,664 Net income 0 0 75,962 ------- --------- ---------- Balance, September 30, 1997 640,624 (959,303) 1,325,936 Issuance of shares of common stock upon exercise of stock options 0 0 177,610 Issuance of shares of common stock under employee stock purchase plan 0 0 11,694 Issuance of shares of common stock under stock bonus 0 0 1,873 Issuance of shares of common stock under employee stock compensation 0 0 6,000 Compensation expense 0 0 6,086 Net Income 0 0 230,782 ------- --------- ---------- Balance, September 30, 1998 640,624 $(959,303) $1,759,981 ======= ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997 ----------- ----------- Cash flows from operating activities: Net income $ 230,782 $ 75,962 Adjustments to reconcile net income to net cash provided by continuing operations Loss from discontinued operations 0 453,722 Stock compensation expense 13,959 23,664 Depreciation and amortization 349,469 243,674 Allowance for doubtful accounts 0 (19,117) (Increase) decrease in: Accounts receivable 253,750 (160,041) Inventories (404,445) (177,353) Prepaid expenses and other current assets (1,145) (6,688) Increase (decrease) in: Accounts payable (285,018) 230,158 Accrued expenses (108,240) 119,366 ----------- ----------- Net cash provided by continuing operations 49,112 783,347 ----------- ----------- Net cash provided by (used) in discontinued operations 221,952 (234,377) ----------- ----------- Net cash provided by operating activities 271,064 548,970 ----------- ----------- Cash flows from investing activities: Purchases of property, plant and equipment (317,857) (1,331,434) Increase in other assets (5,406) (38,182) (Increase) decrease in note receivable 21,667 (21,667) ----------- ----------- Net cash used in investing activities (301,596) (1,391,283) ----------- ----------- Cash flows from financing activities: Proceeds from (repayment of) note payable to bank, net (200,000) 175,000 Repayment of long term debt (214,583) (383,482) Proceeds from long term debt 285,716 950,000 Issuance of common stock 189,304 12,503 ----------- ----------- Net cash provided by financing activities 60,437 754,021 ----------- ----------- Net increase (decrease) in cash and cash equivalents 29,905 (88,292) Cash and cash equivalents, beginning 16,075 104,367 ----------- ----------- Cash and cash equivalents, ending $ 45,980 $ 16,075 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies Nature of Continuing Operations The Company is primarily engaged in the manufacturing and marketing of customized fused silica products. The Company's products and services are used in the optical lens and laser manufacturing industries, as well as in the medical industry. Other applications include usage in the manufacturing of analytical instruments and semi-conductors. The Company also serves as a sub-contractor to the defense industry. The Company's products and services are provided primarily in the United States with some international activity. Nature of Discontinued Operations On September 30, 1997, the Company sold substantially all of the assets of its wholly owned subsidiary, Hibshman Corporation. Hibshman Corporation provided the value added service of shaping and super-polishing materials to customer specifications through the use of miniature optics and custom micro-machining primarily within the United States. The operating results of Hibshman Corporation for the year ended September 30, 1997 have been treated as discontinued operations. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Dynasil Corporation of America and its wholly-owned subsidiaries, Dynasil International Incorporated and Hibshman Corporation. All significant intercompany transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 6 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies (continued) Inventories Inventories are stated at the lower of average cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property, Plant and Equipment and Depreciation and Amortization Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes over the estimated useful lives of the respective assets. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property, plant and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Other Assets Other assets include deferred costs which are amortized using the straight-line method over 7 years. Amortization expense for the years ended September 30, 1998 and 1997 was $29,517 and $6,465. Unearned Compensation Compensation resulting from shares granted under the Company's employment contracts is amortized to expense over the term of the contract and is adjusted for changes in the market value of the common stock. Advertising The Company expenses all advertising as incurred. Advertising expense from continuing operations for the years ended September 30, 1998 and 1997 was $78,959 and $89,450. 7 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies (continued) Income Taxes Dynasil Corporation of America and its wholly-owned subsidiaries file a consolidated federal income tax return. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the liability method prescribed by SFAS No. 109, a deferred tax asset or liability is determined based on the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Tax credits are recorded as a reduction in income taxes. Valuation allowances are provided if, it is more likely than not, that some or all of the deferred tax assets will not be realized. Net Income Per Share The Company has adopted SFAS No. 128, "Earnings per Share", effective October 1, 1997. SFAS No. 128, which simplifies the standards for computing and presenting earnings per share, replaces the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options and warrants. Diluted earnings per share is very similar to the previously reported primary earnings per share. Accordingly, net earnings per share for all periods presented have been restated to conform to the new standard. Basic net earnings per share is computed using the weighted average number of common shares outstanding. The dilutive effect of potential common shares outstanding are included in diluted net earnings per share. The computations of basic and diluted net earnings per share are as follows: 1998 1997 ---------- ---------- Net income from continuing operations $ 230,782 $ 529,684 ========== ========== Basic weighted average shares 2,240,005 2,175,624 Effect of dilutive securities: Common stock options 113,556 130,157 Common stock warrants -0- 4,114 ---------- ---------- Dilutive potential common shares 2,353,561 2,309,895 ========== ========== 8 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies (continued) Net Income Per Share (continued) 1998 1997 ---- ---- Net income per share from continuing operations Basic $.10 $.24 Diluted $.10 $.23 Diluted net earnings per share excludes the impact of common stock warrants of 1,892 for 1998 because the option's exercise prices were greater than the average market price of the common shares and therefore, the effect would be antidilutive. Long-Lived Assets On October 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which establishes standards for the impairment of long-lived assets and certain identifiable intangibles. The company's policy is to record long-lived assets at cost, amortizing these costs over the expected useful lives of related assets. In accordance with SFAS No. 121, these assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Measurement of an impairment loss for long-lived assets and certain identifiable intangibles to be disposed of are to be reported generally at the lower of the carrying cost amount or fair value less cost to sell. Adoption of SFAS No. 121 did not have a significant impact on the Company's financial position or results of operations. For the years ended September 30, 1998 and 1997, there was no material impairment of the long-lived assets of the Company. Stock Based Compensation The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock Based Compensation." The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" to account for its stock options using the intrinsic value method. Under APB No. 25, no compensation cost has been recognized in the financial statements for stock options granted. SFAS No. 123 requires companies using the intrinsic value method to make certain proforma disclosures using the fair value method. Additional disclosures are included in Note 9. 9 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 1 - Summary of Significant Accounting Policies (continued) Fair Value The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, and debt. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short maturity of these instruments. Based on borrowing rates currently available to the Company for bank loans with similar terms and maturities, the Company's debt approximates its fair value. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company has not experienced any significant losses on its cash and cash equivalents. The Company performs ongoing credit evaluations of its customers and generally requires no collateral from its customers. The Company maintains allowances for potential credit losses and has not experienced any significant losses related to the collection of its accounts receivable. New Accounting Pronouncement In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a balance sheet, and is effective for fiscal years beginning after December 15, 1997. Management does not believe this statement will have a material impact on the Company's financial statements. Statement of Cash Flows For the purpose of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Note 2 - Discontinued Operations On September 30, 1997, the Company sold substantially all of the assets of its wholly-owned subsidiary, Hibshman Corporation, to two individuals. As consideration for the sale, the Company received a note receivable of $200,000 which was collected during the year ended September 30, 1998. The sale resulted in a loss of $194,453. Hibshman Corporation recorded sales of $402,591 in 1997. No income tax expense or benefits were recognized due to the Company's net operating loss carryforwards. 10 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 2 - Discontinued Operations (continued) The components of the net assets of discontinued operations included in the consolidated balance sheet as of September 30, 1997 are as follows: Current assets Cash and cash equivalents $ 32,234 Accounts receivable 70,855 Note receivable 200,000 Prepaid expenses and other current assets 10,150 Less current liabilities Accounts payable (49,697) Accrued expenses (41,590) -------- Net current assets $221,952 ======== Note 3 - Note Receivable Note receivable as of September 30, 1998 and 1997 consists of the following: 1998 1997 ----- ------- Note receivable from officer with interest at the prime rate plus 1%, (9.5% at September 30, 1997), due on demand, Unsecured, collected in 1998 $ -0- $21,667 ===== ======= Interest income of $1,667 for the year ended September 30, 1997 was added to the balance of the note. Note 4 - Inventories Inventories at September 30, 1998 and 1997 consisted of the following: 1998 1997 ---------- -------- Raw Materials $ 43,658 $ 40,163 Work-in-Process 1,088,569 716,180 Finished Goods 146,107 117,546 ---------- -------- $1,278,334 $873,889 ========== ======== 11 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 5 - Property, Plant and Equipment Property, plant and equipment at September 30, 1998 and 1997 consist of the following: 1998 1997 ---------- ---------- Land $ 261 $ 261 Building and improvements 2,449,751 1,985,821 Construction in progress 57,911 229,633 Machinery and equipment 2,762,167 2,607,539 Office furniture and fixtures 219,442 217,306 Transportation equipment 65,931 65,931 ------------ ---------- 5,555,463 5,106,491 Less accumulated depreciation 3,164,475 2,844,523 ---------- ---------- $2,390,988 $2,261,968 ========== ========== Depreciation expense charged to continuing operations for the years ended September 30, 1998 and 1997 was $319,952 and $237,209. The Company capitalized interest of $10,874 and $37,788 during the years ended September 30, 1998 and 1997 related to qualifying assets under construction. Total interest incurred, including amounts capitalized during the same periods, were $199,024 in 1998 and $148,056 in 1997. Note 6 - Note Payable to Bank During July 1998, management completed negotiations with Premier Bank to consolidate all bank debt. In addition to the note described in Note 7 - Long-term Debt for $1,292,778, the Company secured a $300,000 line of credit agreement. The Note is due on demand with interest at the bank's base rate plus 1% (9.5% at September 30, 1998). At September 30, 1998, the Company has not drawn on the line. Note payable to bank at September 30, 1997 was provided under a $350,000 line of credit agreement with First Union National Bank and was due on demand with interest at the bank's prime rate plus 1% (9.5% at September 30, 1997). The note was secured by substantially all assets of the Company. The line of credit agreement was repaid in 1998. The Agreements with First Union National Bank were cross-collateralized and contained customary financial covenants. See Note 7. 12 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 7 - Long-Term Debt Long-term Debt at September 30, 1998 and 1997 consist of the following:
1998 1997 ---------- ---------- Subordinated debentures bearing interest at 10% per annum payable semiannually, due June 1, 1998, unsecured, repaid in 1998 $ -0- $ 72,400 Subordinated debentures bearing interest at 10% per annum payable semiannually, due June 1, 2002, unsecured 218,100 218,100 Subordinated debenture bearing interest at 12% per annum payable semiannually, due December 1, 2001, unsecured 350,350 350,350 Note payable to bank in monthly installments of $16,429 plus interest at the bank's base rate plus 1.5% (10.00% at September 30, 1997), due May 2000, secured by accounts receivable, inventory, equipment, and general intangibles of the Company and was cross-collateralized (See Note 6). Refinanced in 1998 -0- 509,284 Mortgage note payable to bank in monthly installments of $6,667 plus interest at the bank's prime rate (9.50% at September 30, 1997), due July 2001, secured by first mortgage on Berlin, New Jersey property. Refinanced in 1998. -0- 306,667 Mortgage note payable to bank in monthly installments of $1,667 plus interest at the bank's prime rate (9.50% at September 30, 1997), due August 2007, secured by second mortgage on Berlin, New Jersey property. Refinanced in 1998. -0- 198,333
13 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 7 - Long-Term Debt (continued)
1998 1997 ---------- ---------- Note payable to bank in monthly installments of $7,222 plus interest at the bank's base rate plus 1.0% (9.50% at September 30, 1998), with the final payment of $700,556 due August 2005, secured by first mortgage on Berlin, New Jersey property and all accounts receivable, inventory, equipment, and general intangibles of the Company 1,292,778 -0- Note payable to bank in monthly installments of $4,426 plus interest at the bank's base rate plus 1.5% (10.00% at September 30, 1997), due May 2000, secured by accounts receivable, inventory, equipment, and general intangibles of Hibshman Corporation and cross-Collateralized by Dynasil Corporation (See Note 6). Repaid in 1998. -0- 119,496 Installment notes payable in total monthly Installments of $5,415 in 1998 and $1,215 in 1997, including interest rates of 9.5% and 12%, due July 2001, secured by equipment. 158,701 43,051 ---------- ---------- 2,019,929 1,817,681 Less current portion (137,414) (432,773) ---------- ---------- $1,882,515 $1,384,908 ========== ==========
The aggregate maturities of long-term debt as of September 30, 1998 are as follows: September 30, 2000 $ 142,977 September 30, 2001 138,302 September 30, 2002 655,114 September 30, 2003 86,664 Thereafter 859,458 ---------- $1,882,515 ========== 14 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 7 - Long-term Debt (continued) Subordinated Debenture Extension Agreement On November 15, 1996, the maturity date of one Debenture in the amount of $350,350 was extended to December 1, 2001. In consideration for the extension, the Debenture holder is being paid an additional 2% interest on the unpaid principal balance until December 1, 2001. In addition, the Debenture holder was issued warrants to purchase 20,000 shares of the Company's common stock at an exercise price of $4.00 per share, exercisable through June 1, 2002. See Note 9. On April 15, 1997 the maturity date of certain Debentures in the amount of $218,100 were extended to June 1, 2002. In consideration for the extension, the Debenture holders were issued warrants to purchase 6,700 shares of the Company's common stock at an exercise price of $3.00 per share, exercisable through June 1, 2002. See Note 9. Note 8 - Income Taxes The Company's provision for income taxes (benefit) for the years ended September 30, 1998 and 1997 are as follows: 1998 1997 -------- -------- Current Federal $ 39,300 $ 22,700 State 14,200 7,400 -------- -------- 53,500 30,100 Deferred Federal (39,300) (22,700) State (14,200) (7,400) -------- -------- $ -0- $ -0- ======== ======== The reasons for the difference between total tax expense and the amount computed by applying the statutory federal income tax rates to income before provision for income taxes at September 30, 1998 and 1997 are as follows: 1998 1997 -------- -------- Taxes at statutory rates applied to income before provision for income taxes $63,100 $ 36,700 Increase (reduction) in tax resulting from: Accounts receivable -0- (5,800) Depreciation (22,600) (21,900) 15 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 8 - Income Taxes (continued) 1998 1997 -------- -------- Inventories 1,700 23,800 Vacation pay 1,000 (7,900) State income taxes 10,300 5,200 Net operating loss carryforwards (53,500) (30,100) -------- -------- $ -0- $ -0- ======== ======== Deferred income taxes (benefit) reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and the tax effects of net operating losses that are available to offset future taxable income. Significant components of the Company's deferred tax assets (liabilities) at September 30, 1998 and 1997 are as follows: 1998 1997 -------- --------- Inventories $ 70,100 $ 67,600 Vacation pay 8,500 7,200 Accounts receivable 4,300 4,300 Depreciation (141,600) (108,700) Net operating loss carryforwards 211,600 292,500 Less valuation allowance (152,900) (262,900) --------- --------- $ -0- $ -0- ========= ========= A valuation allowance has been provided for those deferred tax assets which management believes it is more likely than not that the tax benefit will not be realized. At September 30, 1998, the Company has approximately $589,000 of net operating loss carryforwards to offset future taxable income for federal tax purposes expiring in various years through 2009. In addition, the Companies have approximately $391,000 of net operating loss carryforwards to offset certain future states' taxable income, expiring in various years through 2001. Note 9 - Stockholders' Equity Common Stock On October 16, 1996, the Board of Directors declared a two-for-one stock split payable on November 1, 1996 to stockholders of record on October 1, 1996. All share and per share data have been restated for all periods presented to reflect the stock split. 16 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 9 - Stockholders' Equity (continued) Stock Option Plans The Company has a Stock Incentive Plan which provides for, among other incentives, granting to officers, directors, employees and consultants options to purchase shares of the Company's common stock up to a total of 450,000 shares, restated to reflect the stock split. At September 30, 1998, 71,723 shares of common stock are available for future purchases under the plan. Options are generally exercisable over a five year period and expire through 2002. During the years ended September 30, 1998 and 1997, 46,777 and 51,000 shares were granted with exercise prices ranging from $2.65 to $3.52 per share and $3.00 to $4.00 per share, respectively. During the years ended September 30, 1998 and 1997, 116,000 shares and 3,000 shares were issued under the plan for aggregate purchase prices of $117,552 and $9,000, respectively. A summary of stock option activity for the years ended September 30, 1998 and 1997 is presented below: Options outstanding at October 1, 1996 $ 105,000 2 for 1 stock split - October 1, 1996 105,000 Granted in 1997 51,000 Exercised in 1997 under consulting agreement at $3.00 per share (3,000) --------- Options outstanding at September 30, 1997 258,000 Granted in 1998 46,777 Exercised in 1998 at prices ranging from $1.00 to $3.52 (116,000) --------- Options outstanding at September 30, 1998 $ 188,777 ========= Options exercisable at September 30, 1998 $ 188,777 ========= At September 30, 1998 and 1997, the Company had warrants outstanding to purchase 20,000 shares and 6,450 shares of the Company's common stock at exercise prices of $4.00 and $3.00 per share, exercisable through June 1, 2002. 17 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 9 - Stockholders' Equity (continued) During the year ended September 30, 1997, a warrant was exercised to purchase 250 shares of the Company's common stock at $3.00 per share for a total purchase price of $750. Stock-Based Compensation Plans The Company accounts for all plans under APB Opinion No. 25, under which no compensation cost has been recognized since all options granted during 1998 and 1997 have been granted at the fair market value of the Company's common stock. Had compensation cost for these plans been determined in accordance with SFAS No. 123, the Company's net income and net income per common share would have been reduced as follows: 1998 1997 -------- --------- Net income from continuing operations $169,504 $ 442,474 Net loss from discontinued operations -0- (453,722) -------- --------- Net income (loss) $169,504 $ (11,248) ======== ========= Basic net income (loss) per common share: From continuing operations $ .07 $ .19 From discontinued operations -0- (.20) -------- --------- Net income (loss) per common share $ .07 $ (.01) ======== ========= Under SFAS No. 123, the fair value of each option was estimated on the date of grant using the Black Scholes option-pricing model. Based on the assumptions presented below, the weighted average fair value of options granted was $1.31 and $1.71 per option in 1998 and 1997. 1998 1997 ---- ---- Expected life of option in years 5.0 5.0 Risk-free interest rate 6.0% 6.5% Expected volatility 87.5% 58.7% Dividend yield 0.0% 0.0% The effects of applying SFAS No. 123 for the purpose of providing pro forma disclosures may not be indicative of the effects on reported net income and net income per share for future years, as the pro forma disclosures include the effects of only those awards granted after October 1, 1996. 18 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 Note 9 - Stockholders' Equity (continued) Employee Stock Purchase Plan The Company also has an Employee Stock Purchase Plan which permits substantially all employees to purchase common stock. Under the plan, a total of 150,000 shares have been reserved for issuance. Employees have the opportunity to acquire common stock at a purchase price of 65% of the fair market value of the shares. During any twelve month period, employees may not purchase more than the number of shares for which the total purchase price exceeds $5,000. During the years ended September 30, 1998 and 1997, 6,936 and 1,251 shares of common stock were issued under the plan for aggregate purchase prices of $11,694 and $2,753, respectively. Note 10 - Profit Sharing Plan The Company has a 401K Plan for the benefit of its employees. The Company did not make a contribution for the years ended September 30, 1998 and 1997. Note 11 - Related Party Transactions The Company paid consulting fees to other stockholders/directors in the amount of $38,140 and $103,077 during the years ended September 30, 1998 and 1997. Note 12 - Supplemental Disclosure of Cash Flow Information 1998 1997 --------- ---------- Cash paid during the year for: Interest $ 199,024 $ 148,056 ========= ========== Noncash investing and financing activities: Acquisition of property, plant and equipment $ 448,972 $1,361,684 Equipment transferred from discontinued operations -0- (30,250) Debt incurred (131,115) (-0-) --------- ---------- Cash paid for property and equipment $ 317,857 $1,331,434 ========= ========== During the year ended September 30, 1998, the Company refinanced its debt as follows: Proceeds from long-term debt $ 1,900,000 Debt refinanced (1,614,284) ----------- Cash proceeds from long-term debt $ 285,716 =========== 19 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARY FINANCIAL STATEMENTS (CONSOLIDATED) Unaudited FOR THE QUARTER ENDED JUNE 30, 1999 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARY FOR THE QUARTER ENDED JUNE 30, 1999 Page ---- Consolidated Financial Statements: Balance Sheet 1 Statement of Operations 2 Statement of Cash Flows 3 Schedule of Cost of Sales 4 Schedule of Factory Overhead Expenses 5 Schedule of Selling & Administrative Expenses 6 Debt Schedule 7 Consolidated Balance Sheet 8 Page 1 DYNASIL CORPORATION CONSOLIDATED BALANCE SHEET 30-Jun-99 ASSETS - ------------------------------------------------------------------------ Current Assets Cash 48,491 Accounts Receivable 362,237 Note Receivable Inventory 993,994 Prepaid & Other Current Assets 31,507 --------- Total Current Assets 1,436,229 Property, Plant & Equipment - Net 2,128,661 Other Assets 20,613 ========= TOTAL ASSETS 3,585,503 ========= LIABILITIES & STOCKHOLDERS EQUITY - ------------------------------------------------------------------------ Current Liabilities Accounts Payable 94,440 Bank line of Credit 10,000 Accrued Expenses 121,173 Current Portion - Long Term Debt 137,412 --------- Total Current Liabilities 363,025 Long Term Debt 1,775,256 --------- TOTAL LIABILITIES 2,138,281 Stockholders' Equity Common Stock 1,491 Additional Paid in Capital 1,055,062 Retained Earnings 1,689,612 Current Income (Loss) (339,640) --------- 2,406,525 Less: 640,624 Shares in Treasury - at Cost (959,303) --------- Total Stockholders' Equity 1,447,222 ========= TOTAL LIABILITIES & EQUITY 3,585,503 ========= Dynasil Corporation PAGE 2 Consolidated Statement Of Operations For the quarter ended
Quarter Y-T-D 30-Jun-99 30-Jun-99 ------------------------------------- ------------------------------------- Poss (Neg) Poss (Neg) Actual Budget Variance Actual Budget Variance ------- --------- ---------- --------- --------- ---------- Sales 751,926 1,056,359 (304,433) 2,021,887 2,763,891 (742,004) Cost of Sales 538,523 757,926 219,403 1,735,582 2,036,937 301,355 ------- --------- ---------- --------- --------- ---------- Gross Profit 213,403 298,433 (85,030) 286,305 726,954 (440,649) 28.38% 28.25% 14.16% 26.30% Selling & Administrative 158,383 171,977 13,594 479,216 514,225 35,009 ------- --------- ---------- --------- --------- ---------- Income (Loss) from Operations 55,020 126,456 (71,436) (192,911) 212,729 (405,640) Other Income (Expense) Interest Expense (48,917) (49,005) 88 (146,729) (153,910) 7,181 Other Income (Expense) ------- --------- ---------- --------- --------- ---------- Income (Loss) before Income Taxes 6,103 77,451 (71,348) (339,640) 58,819 (398,459) Provision (Benefit) for Income Tax ------- --------- ---------- --------- --------- ---------- Net Income (Loss) 6,103 77,451 (71,348) (339,640) 58,819 (398,459) ======= ========= ========== ========= ========= ========== Earnings per share 0.00 0.03 (0.03) (0.15) 0.03 (0.18) Bookings 514,144 1,600,000 (1,085,856) 1,296,445 3,375,000 (2,078,555)
Dynasil Corporation PAGE 3 Consolidated Statement of Cash Flows For the quarter ended Quarter Y-T-D 30-Jun-99 30-Jun-99 --------- --------- Cash flows from operating activities: Net Income 6,103 (339,640) Adjustments to reconcile net income (loss) to net cash Depreciation 89,220 267,660 Amortization Expense 852 2,556 Allowance for doubtful accounts (increase) Decrease in: Receivables (72,584) (17,061) Inventories 85,607 284,340 Prepaid expenses and other current assets 5,193 10,653 Other assets 2,778 Increase (Decrease) in: Accounts payable (12,324) (132,120) Accrued expenses 1,858 (942) ------- -------- Net cash provided by (used in) operating activities 103,925 78,224 ------- -------- Cash flows from investing activities: Acquisition of PP&E (7,645) (5,333) ------- -------- Net cash provided by (used in) investing activities (7,645) (5,333) ------- -------- Cash flows from financing activities: Proceeds (payments) - shareholders 20,475 26,881 Proceeds (payments) - Bank Line of credit (65,000) 10,000 Proceeds (Payments) - long term debt (34,408) (107,261) ------- -------- Net cash provided by (used in) financing activities (78,933) (70,380) ------- -------- Net increase (Decrease) in cash 17,347 2,511 Cash - beginning of period 31,144 45,980 ------- -------- Cash - end of period 48,491 48,491 ======= ======== Dynasil Corporation PAGE 4 Schedule of Cost of Sales For the quarter ended
Quarter Y-T-D 30-Jun-99 30-Jun-99 ------------------------------------------ ------------------------------------------ Poss (Neg) Poss (Neg) Actual Budget Variance Actual Budget Variance --------- --------- ---------- --------- --------- ---------- Beginning Inventory 1,079,601 1,287,000 207,399 1,278,334 1,287,000 8,666 Material 83,679 150,000 66,321 247,146 405,000 157,854 Labor 101,113 133,434 32,321 324,336 387,966 63,630 Factory Overhead (Page 7) 268,124 387,492 119,368 879,760 1,156,971 277,211 --------- --------- ------- --------- --------- ------- Total available for sale 1,532,517 1,957,926 425,409 2,729,576 3,236,937 507,361 Less: Ending inventory 993,994 1,200,000 206,006 993,994 1,200,000 206,006 --------- --------- ------- --------- --------- ------- Total Cost of Sales 538,523 757,926 219,403 1,735,582 2,036,937 301,355 ========= ========= ======= ========= ========= =======
Dynasil Corporation PAGE 5 Schedule of Factory Overhead For the quarter Ended
Quarter Y-T-D 30-Jun-99 30-Jun-99 ---------------------------------- ----------------------------------- Poss (Neg) Poss (Neg) Actual Budget Variance Actual Budget Variance ------ ------ --------- ------ ------ --------- Supervisors Salaries 14,110 16,549 2,439 47,312 51,396 4,084 Indirect Labor 7,031 13,520 6,489 26,327 39,187 12,860 Vacation/Holiday Pay 19,500 21,000 1,500 58,500 63,000 4,500 Payroll taxes - Factory 14,176 22,141 7,965 46,032 62,150 16,118 Medical Insurance - Factory 17,300 22,911 5,611 65,900 70,125 4,225 Key Life Insurance Expense 338 1,352 1,014 1,014 4,056 3,042 Factory Supplies - Manufacturing 21,790 33,000 11,210 61,491 96,000 34,509 Factory Supplies - Processing 10,729 15,900 5,171 35,517 47,700 12,183 Factory Supplies - Other 6,954 9,000 2,046 30,106 27,000 (3,106) Factory Supplies - R&D 2,064 (2,064) 3,808 (3,808) Repairs & Maintenance - Manufact. 9,126 9,000 (126) 22,698 27,000 4,302 Repairs & Maintenance - Proces. 2,586 6,000 3,414 8,876 18,000 9,124 Repairs & Maintenance - Other 7,837 15,000 7,163 31,402 45,000 13,598 Equipment Rental 555 600 45 1,562 1,800 238 Waste Management 16,426 33,000 16,574 50,685 99,000 48,315 Utilities 25,820 48,000 22,180 97,211 144,000 46,789 Depreciation Expense - Building 4,275 4,500 225 12,825 13,500 675 Depreciation Expense - Building Imp 49,500 48,000 (1,500) 148,500 144,000 (4,500) Depreciation Expense - Equipment 33,000 33,000 99,000 99,000 Real Estate Taxes 3,900 3,900 11,700 11,700 General Insurance 6,934 11,019 4,085 27,334 33,057 5,723 Freight Out 7,811 11,100 3,289 25,348 33,300 7,952 Miscellaneous Expenses (13,638) 9,000 22,638 (33,388) 27,000 60,388 ------- ------- ------- ------- --------- ------- 268,124 387,492 119,368 879,760 1,156,971 277,211 ======= ======= ======= ======= ========= =======
Dynasil Corporation PAGE 6 Schedule of Selling & Administrative Expenses For the quarter ended
Quarter Y-T-D 30-Jun-99 30-Jun-99 ------------------------------------------ ------------------------------------------ Poss (Neg) Poss (Neg) Actual Budget Variance Actual Budget Variance ------- ------- ---------- ------- ------- ---------- Administrative Salaries 50,907 55,299 4,392 160,298 164,074 3,776 Sales Salaries 46,368 30,287 (16,081) 124,243 85,847 (38,396) Payroll Taxes - S&A 8,190 6,556 (1,634) 22,398 17,329 (5,069) Medical Insurance - S&A 3,900 3,609 (291) 11,700 11,897 197 Key man life insurance 2,100 (2,100) 6,437 (6,437) Travel 5,514 9,000 3,486 11,956 27,000 15,044 Meals & Entertainment 901 1,350 449 4,111 4,050 (61) Auto Expense 330 330 341 990 649 Office Expense 5,283 6,000 717 25,734 18,000 (7,734) Telephone 4,423 4,500 77 9,662 13,500 3,838 General Insurance 7,350 7,596 246 22,050 22,788 738 Computer Expense 1,200 1,200 1,747 3,600 1,853 Depreciation Expense 2,445 2,100 (345) 7,335 6,300 (1,035) Consultant Expense 11,250 11,250 1,604 33,750 32,146 Legal and Audit Expense 7,800 7,800 23,838 23,400 (438) Sales Commissions - Reps 7,500 7,500 6,126 22,500 16,374 Sales Expense 2,605 5,000 2,395 2,620 15,000 12,380 Investor Relations Expense 545 900 355 6,264 9,100 2,836 Contributions 300 300 299 900 601 Amortization Expense 852 900 48 2,556 2,700 144 Miscellaneous Expense 4,400 6,000 1,600 13,497 18,000 4,503 Advertising 4,800 4,500 (300) 14,400 13,500 (900) ------- ------- ------- ------- ------- ------- 158,383 171,977 13,594 479,216 514,225 35,009 ======= ======= ======= ======= ======= =======
Dynasil Corporation PAGE 7 Debt Schedule 30-Jun-99
Current Type of Debt Lender Term/Payoff Rate Balance Portion Long term - ------------ ------ ----------- ---- ------- ------- --------- Mortgage Payable Premier Bank 7 years (15 amortization) - 8/05 Bank Base - 9.5% 1,227,778 86,664 1,141,114 Capitalized Lease CIT Group 5 years - 7/01 26,024 10,480 15,544 Capitalized Lease Specialized Grinding Systems 3 Years - 8/01 90,416 40,268 50,148 Subordinated Debentures Various individuals Due 6/02 218,100 @ 10% 568,450 568,450 Due 12/01 350,350 @ 12% --------------------------------- Total Current and Long term debt 1,912,668 137,412 1,775,256 ================================= --------------------------------- Bank Line of Credit Premier Bank Demand Bank Base - 9.5% 10,000 10,000 =================================
Dynasil Corporation of America and Subsidiaries PAGE 8 Consolidating Balance Sheet June 30, 1999
Dynasil Dynasll Hibshman Corporation International Corporation Eliminations Consolidated ----------- ------------- ----------- ------------ ------------ ASSETS Current assets Cash and cash equivalents ................... 48,491 48,491 Accounts Receivable, net .................... 362,237 362,237 Note Receivable Intercompany receivable ..................... 152,544 (152,544) Inventories ................................. 993,994 993,994 Prepaid expenses and other current assets ... 31,507 31,507 --------- -------- -------- -------- --------- Total current assets ..................... 1,588,773 (152,544) 1,436,229 Property, Plant and Equipment, net ............. 2,128,661 2,128,661 Investment in Subsidiaries ..................... 840,173 (840,173) Other Assets ................................... 20,613 20,613 --------- -------- -------- -------- --------- Total Assets ............................. 4,578,220 (992,717) 3,585,503 ========= ======== ======== ======== ========= LIABILITIES Current Liabilities Note payable to bank ........................ 10,000 10,000 Current portion of long term debt ........... 137,412 137,412 Accounts payable ............................ 94,440 94,440 Intercompany payable ........................ 152,544 (152,544) Accrued expenses ............................ 121,173 121,173 --------- -------- -------- -------- --------- Total current liabilities ................ 363,025 152,544 (152,544) 363,025 Long-term Debt, net ............................ 1,775,256 1,775,256 Stockholders' Equity Common Stock ................................ 1,491 100 437,500 (437,600) 1,491 Additional paid in capital .................. 1,055,062 517,117 (517,117) 1,055,062 Retained earnings ........................... 2,342,689 (152,644) (954,617) 114,544 1,349,972 --------- -------- -------- -------- --------- 3,399,242 (152,544) (840,173) 2,406,525 Less treasury stock at cost ................. (959,303) (959,303) --------- -------- -------- -------- --------- Total Stockholders' Equity ............... 2,439,939 (152,544) (840,173) 1,447,222 ========= ======== ======== ======== ========= Total Liabilities and Stockholders' Equity 4,578,220 (992,717) 3,585,503 ========= ======== ======== ======== =========
DYNASIL CORPORATION OF AMERICA FINANCIAL STATEMENTS (Unaudited) FOR THE QUARTER ENDED JUNE 30, 1999 DYNASIL CORPORATION OF AMERICA FOR THE QUARTER ENDED JUNE 30, 1999 (Unaudited) PAGE ---- Financial Statements: Balance Sheet 1 Statement of Operations 2 Statement of Cash Flows 3 Notes to Financial Statements 4 Dynasil Corporation of America PAGE 1 Balance Sheet (Unaudited)
June 30 June 30 1999 1998 --------- --------- ASSETS Current Assets Cash 48,491 35,542 Accounts Receivable 362,237 497,501 Inventory 993,994 1,224,549 Other Current Assets 31,507 81,607 Net Current Assets - Discontinued Operation 5,214 --------- --------- Total Current Assets 1,436,229 1,844,413 Property, Plant & Equipment - Net 2,128,661 2,322,172 Other Assets 20,613 33,732 --------- --------- TOTAL ASSETS 3,585,503 4,200,317 ========= ========= LIABILITIES & STOCKHOLDERS EQUITY Current Liabilities Note payable to bank 10,000 350,000 Current Portion - Long Term Debt 137,412 257,628 Accounts Payable 94,440 394,591 Accrued Expenses 121,173 137,467 Total Current Liabilities 363,025 1,139,686 --------- --------- Long Term Debt 1,775,256 1,296,923 Stockholders' Equity Common Stock, 25,000,000 shares authorized shares outstanding 2,341,760 and 2,256,190 1,491 1,448 Additional Paid in Capital 1,055,062 1,051,594 Retained Earnings 1,349,972 1,669,969 --------- --------- 2,406,525 2,723,011 Less: 640,624 Shares in Treasury - at Cost (959,303) (959,303) --------- --------- Total Stockholders' Equity 1,447,222 1,763,708 --------- --------- TOTAL LIABILITIES & EQUITY 3,585,503 4,200,317 ========= =========
Dynasil Corporation of America PAGE 2 Statement Of Operations (Unaudited)
Three Months Ended Nine Months Ended June 30 June 30 1999 1998 1999 1998 ---------- --------- ---------- ---------- Sales 751,926 1,006,457 2,021,887 3,242,457 Cost of Sales 538,523 707,573 1,735,582 2,152,336 --------- --------- --------- ---------- Gross Profit 213,403 298,884 286,305 1,090,121 28.38% 29.70% 14.16% 33.62% Selling & Administrative 158,383 202,147 479,216 646,956 --------- --------- --------- ---------- Income (Loss) from Operations 55,020 96,737 (192,911) 443,165 Other Income (Expense) Interest Expense (48,917) (49,504) (146,729) (142,783) Other Income (Expense) 8,000 8,000 --------- --------- --------- ---------- Income (Loss) before Income Taxes 6,103 55,233 (339,640) 308,382 Provision (Benefit) for Income Tax --------- --------- --------- ---------- Net Income (Loss) 6,103 55,233 (339,640) 308,382 ========= ========= ========= ========== Earnings per share: Basic $ - $ 0.02 $ (0.15) $ 0.13 Diluted $ - $ 0.02 $ (0.15) $ 0.13 Weighted average shares outstanding 2,330,500 2,338,777 2,317,677 2,310,239 Bookings 514,144 493,094 1,296,445 2,979,060
Dynasil Corporation of America PAGE 3 Consolidated Statement of Cash Flows (Unaudited)
Quarter Y-T-D 30-Jun-99 30-Jun-99 --------- --------- Cash flows from operating activities: Net Income 6,103 (339,640) Adjustments to reconcile net income (loss) to net cash Depreciation 89,220 267,660 Amortization Expense 852 2,556 Allowance for doubtful accounts (increase) Decrease in: Receivables (72,584) (17,061) Inventories 85,607 284,340 Prepaid expenses and other current assets 5,193 10,653 Other assets 2,778 Increase (Decrease) in: Accounts payable (12,324) (132,120) Accrued expenses 1,858 (942) ------- -------- Net cash provided by (used in) operating activities 103,925 78,224 ------- -------- Cash flows from investing activities: Acquisition of PP&E (7,645) (5,333) ------- -------- Net cash provided by (used in) investing activities (7,645) (5,333) ------- -------- Cash flows from financing activities: Proceeds (payments) - shareholders 20,475 26,881 Proceeds (payments) - Bank Line of credit (65,000) 10,000 Proceeds (Payments) - long term debt (34,408) (107,261) ------- -------- Net cash provided by (used in) financing activities (78,933) (70,380) ------- -------- Net increase (Decrease) in cash 17,347 2,511 Cash - beginning of period 31,144 45,980 ------- -------- Cash - end of period 48,491 48,491 ======= ========
Dynasil Corporation of America PAGE 4 Notes to Financial Statements (Unaudited) Basis of Presentation In the opinion of management, the accompanying balance sheets and related interim statements of income and cash flows include all adjustments (consisting only of normal recurring items) necessary for their fair presentation in conformity with generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Examples include provisions for returns and bad debts and the length of product life cycles and building lives. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in these financial statements should be read in conjunction with Management's Discussion and Analysis. Inventories Inventories consist of the following: 6/30/99 6/30/98 ------- --------- Raw Materials 14,253 32,605 Work-in-Process 849,704 1,035,831 Finished Goods 130,037 156,113 ------- --------- 993,994 1,224,549 ======= ========= Earnings Per Share Earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock options, using the treasury stock method. PART III ITEM 1. INDEX TO EXHIBITS Exhibit No. Description of Document - ----------- ----------------------- 3.01 Restated Certificate of Incorporation of Registrant filed April 1, 1969 3.02 Certificate of Amendment to the Certificate of Incorporation of Registrant filed March 18, 1988 3.03 Certificate of Amendment to the Certificate of Incorporation of Registrant filed April 7, 1989 3.04 Certificate of Amendment to the Certificate of Incorporation of Registrant filed June 12, 1996 3.05 By-laws of Registrant 4.01 Form of Debenture 4.02 Subordinated Debenture Extension Agreement 4.03 Debenture Extension Warrant 10.01 Loan Agreement and associated documents dated July 10, 1998 with Premier Bank, for a $300,000 line of credit 10.02 Loan Agreement and associated documents dated July 10, 1998 with Premier Bank, for a $1,300,000 line of credit 10.03 1996 Stock Incentive Plan 10.04 1999 Stock Incentive Plan 10.05 Employee Stock Purchase Plan 21.01 List of Subsidiaries of Registrant 23.01 Consent of Haefele Flanagan & Co., P.C., Certified Public Accountants 27.01 Financial Data Schedule 24 SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. DYNASIL CORPORATION OF AMERICA ---------------------------------------- By: Charles J. Searock, Jr., President Date: September 29, 1999 EX-3.01 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.01 RESTATED CERTIFICATE OF INCORPORATION OF REGISTRANT FILED APRIL 1, 1969 RESTATED CERTIFICATE OF INCORPORATION DYNASIL CORPORATION OF AMERICA To: The Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:9-5(3) through 14A:9-5(5), Corporations, General, of the New Jersey Statutes, the undersigned corporation desiring to amend and restate its Certificate of Incorporation hereby certifies that: (a) The name of the Corporation is DYNASIL CORPORATION OF AMERICA. (b) The date this Restated Certificate was adopted by the Shareholders of the Corporation was March 29, 1969. (c) The number of shares outstanding at the time of the action of the Shareholders was 81,889 shares of Common Stock, par value $5.00 per share, and the number of Common Shares entitled to vote thereon was 81,889. (d) In action taken by the Shareholders, the number of shares of Common Stock voted in favor of the Restated Certificate of Incorporation was 63,857, and the number of shares voted against the Restated Certificate of Incorporation was 494. (e) The Restated Certificate, including amendments, adopted by the Shareholders, set forth in full, follows: RESOLVED, That the Certificate of Incorporation of this Corporation, as heretofore amended, be further amended as set forth below, and that the Certificate of Incorporation shall, as amended, be restated as follows, and henceforth the Certificate of Incorporation shall not include any prior documents: [RESTATED CERTIFICATE OF INCORPORATION] 1. The name of the Corporation is DYNASIL CORPORATION OF AMERICA. 2. The purposes for which the Corporation is organized are to engage in any and all activities within the purposes for which corporations may be organized under the New Jersey Business Corporation Act. 3. The aggregate number of shares which the Corporation shall be authorized to issue is One Million Five Hundred Thousand (1,500,000) shares of Common Stock, par value Ten Cents ($.10) per share. 4. The registered office of the Corporation is Dynasil Corporation of America, Cooper Road and Taunton Avenue, West Berlin Township, Camden County, New Jersey, and the registered agent of the Corporation is Martin Saepoff. 5. The Board of Directors at the effective date of this Restated Certificate of Incorporation consists of seven (7) members elected by the Shareholders of the Corporation for a term of one (1) year and until their respective successors are duly elected and qualified. The names and addresses of the Board of Directors at the effective date of this Restated Certificate of Incorporation are: Dr. Harold Berlin 352 S. 27th Street Camden, New Jersey Jack J. Dannenberg 1705 E. Willow Grove Ave. Philadelphia, Pa. George D. Keller 406 Rex Avenue Philadelphia, Pa. Raymond R. Leibovitz 326 E. Girard Avenue Philadelphia, Pa. Kurt H. Osberg 1421 W. Bristol Road Hartsville, Pa. George K. Porter, Jr. 12 Grisson Place Maple Glen, Pa. Martin Saepoff 31 Wagon Lane Cherry Hill, New Jersey 6. The duration of the Corporation is and shall be perpetual. 7. Any directorship to be filled by reason of an increase in the number of Directors may be filled either by the Board of Directors or by the Shareholders at an annual meeting or at a special meeting of Shareholders called for that purpose. 8. The Board of Directors shall have the power to remove Directors for cause and to suspend Directors pending a final determination that cause exists for removal. [END OF RESTATED CERTIFICATE OF INCORPORATION] (f) Upon the effective date of the filing of the Restated Certificate of Incorporation, certificates representing outstanding shares of Common Stock of $5.00 par value will not have to be surrendered to the Company but will represent the same number of shares of Common Stock of the par value of $.10 per share. Each Shareholder of record at the close of business on the effective date of the Restated Certificate will be mailed an additional certificate or certificates representing in the aggregate nine shares of Common Stock of the par value of $.10 per share for each share of Common Stock of the par value of $5.00 per share held by him of record at the close of business on such effective date. (g) Upon the effective date of the filing of the Restated Certificate of Incorporation, the aggregate par value of the Corporation's Common Stock will be reduced in the following amount: $327,556. The manner in which the reduction shall be effected shall be to transfer the amount of reduction to an appropriate capital surplus account. The aggregate par value of the Corporation's Common Stock after giving effect to the reduction is $81,889. IN TESTIMONY WHEREOF, the applicant has caused this Restated Certificate of Incorporation to be signed by its President or Vice President and its Corporate Seal, duly attested by its Assistant Secretary or Treasurer, to be hereunto affixed this 29th day of March, 1969. DYNASIL CORPORATION OF AMERICA By ---------------------------------- (Corporate Seal) Attest ----------------------------- FILED AND RECORDED APRIL 1, 1969 [SIG ILLEGIBLE] ------------------------- SECRETARY OF STATE EX-3.02 3 CERTIFICATE OF INCORPORATION OF REGISTRANT EXHIBIT 3.02 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF REGISTRANT FILED MARCH 18, 1988 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF DYNASIL CORPORATION OF AMERICA ------------------------------ (For Use by Domestic Corporations Only) To: The Secretary of State State of New Jersey "FEDERAL EMPLOYER IDENTIFICATION NO." Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned corporation executes the following Certificate of Amendment to its Certificate of Incorporation: 1. The name of the corporation is Dynasil Corporation of America. 2. The following amendment to the Certificate of Incorporation was approved by the directors and thereafter duly adopted by the shareholders of the corporation on the 27th day of February, 1988: Resolved, that subject to the approval by the Shareholders of this Corporation, a new Article 12 of the Certificate of Incorporation shall be added stating in its entirety as follows: (See Exhibit "A" attached hereto and made a part hereof) 3. The number of shares outstanding at the time of the adoption of the amendment was 648,951. The total number of shares entitled to vote thereon was 648,951. If the shares of any class or series are entitled to vote thereon as a class, set forth below the designation and number of outstanding shares entitled to vote thereon of each such class or series. (Omit if not applicable.) 4. The number of shares voting for and against such amendment is as follows: (If the shares of any class or series are entitled to vote as a class, set forth the number of shares of each such class and series voting for and against the amendment, respectively.)
Number of Shares Voting For Amendment Number of Shares Voting Against Amendment - ------------------------------------- ----------------------------------------- 573,225 700
(If the amendment is accompanied by a reduction of stated capital, the following clause may be inserted in the Certificate of Amendment, in lieu of filing a Certificate of Reduction under Section 14A:7-19, Corporations, General, of the New Jersey Statutes. Omit this clause if not applicable.) 5. The stated capital of the corporation is reduced in the following amount: ________________. The manner in which the reduction is effected is as follows: The amount of stated capital of the corporation after giving effect to the reduction is $______________. (Must be set forth in dollars.) 6. If the amendment provides for an exchange, reclassification or cancellation of issued shares, set forth a statement of the manner in which the same shall be effected. (Omit if not applicable.) (Use the following only if an effective date, not later than 30 days subsequent to the date of filing is desired.) 7. The effective date of this Amendment to the Certificate of Incorporation shall be ________________. Dated this 11th day of March, 1988. DYNASIL CORPORATION OF AMERICA ------------------------------ (Corporate Name) By /s/ Martin Saepoff* ------------------------------- (Signature) Martin Saepoff, President ------------------------------- (Type or Print Name and Title) (*May be executed by the chairman of the board, or the president, or a vice-president of the corporation.) Return to Secretary of State, CN 300, Trenton, N.J. 08625. Attn: Corporation Filing. Filing Fee $50.00 NOTE: No recording fees will be assessed. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF RECORDED AND FILED: DYNASIL CORPORATION OF AMERICA ------------------------------ (Domestic Corporations Only) FILED BY: Alan Singer, Esquire Wolf, Block, Schorr and Solis-Cohen Twelfth Floor Packard Building Philadelphia, PA 19102 ____________________ Recorder's Initials TRANSACTION NO.:____________________ EXHIBIT A 12. A director or officer of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders, except that this Article 12 shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (i) in breach of such person's duty of loyalty to the Corporation or its shareholders, or (ii) not in good faith or involving a knowing violation of law, or (iii) resulting in receipt by such person of an improper personal benefit. If the New Jersey Business Corporation Act is amended after approval by the shareholders of this Article 12 to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director and/or officer of the Corporation, as the case may be, shall, without further corporate action, be eliminated or limited to the fullest extent permitted by the New Jersey Business Corporation Act as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation or otherwise shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification. EX-3.03 4 CERTIFICATE OF INCORPORATION OF REGISTRANT EXHIBIT 3.03 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF REGISTRANT FILED APRIL 7, 1989 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF DYNASIL CORPORATION OF AMERICA ------------------------------ (For Use by Domestic Corporations Only) To: The Secretary of State State of New Jersey "FEDERAL EMPLOYER IDENTIFICATION NO." 22-1734088 Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned corporation executes the following Certificate of Amendment to its Certificate of Incorporation: 1. The name of the corporation is Dynasil Corporation of America. 2. The following amendment to the Certificate of Incorporation was approved by the directors and thereafter duly adopted by the shareholders of the corporation on the 18th day of February, 1989: Resolved, that ...a new Article 13 of the Certificate of Incorporation shall be added, stating in its entirety as follows: 13. A director of the Corporation may not be removed without cause. 3. The number of shares outstanding at the time of the adoption of the amendment was 520,781. The total number of shares entitled to vote thereon was 520,781. If the shares of any class or series are entitled to vote thereon as a class, set forth below the designation and number of outstanding shares entitled to vote thereon of each such class or series. (Omit if not applicable.) 4. The number of shares voting for and against such amendment is as follows: (If the shares of any class or series are entitled to vote as a class, set forth the number of shares of each such class and series voting for and against the amendment, respectively.)
Number of Shares Voting For Amendment Number of Shares Voting Against Amendment - ------------------------------------- ----------------------------------------- 404,512 960
(If the amendment is accompanied by a reduction of stated capital, the following clause may be inserted in the Certificate of Amendment, in lieu of filing a Certificate of Reduction under Section 14A:7-19, Corporations, General, of the New Jersey Statutes. Omit this clause if not applicable.) 5. The stated capital of the corporation is reduced in the following amount: ________________. The manner in which the reduction is effected is as follows: The amount of stated capital of the corporation after giving effect to the reduction is $______________. (Must be set forth in dollars.) 6. If the amendment provides an exchange, reclassification or cancellation of issued shares, set forth a statement of the manner in which the same shall be effected. (Omit if not applicable.) (Use the following only if an effective date, not later than 30 days subsequent to the date of filing is desired.) 7. The effective date of this Amendment to the Certificate of Incorporation shall be ________________. Dated this Third day of April, 1989. DYNASIL CORPORATION OF AMERICA ------------------------------ (Corporate Name) By /s/ Martin Saepoff* ------------------------------- (Signature) Martin Saepoff, President ------------------------------- (Type or Print Name and Title) (*May be executed by the chairman of the board, or the president, or a vice-president of the corporation.) Return to Secretary of State, CN 300, Trenton, N.J. 08625. Attn: Corporation Filing. Filing Fee $50.00 NOTE: No recording fees will be assessed. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF RECORDED AND FILED: DYNASIL CORPORATION OF AMERICA ------------------------------ (Domestic Corporations Only) FILED BY: Alan Singer, Esquire Wolf, Block, Schorr and Solis-Cohen Twelfth Floor Packard Building ____________________ 15th & Chestnut Sts. Recorder's Initials Philadelphia, PA 19102-2678 (215) 977-2224 TRANSACTION NO.:____________________ EX-3.04 5 CERTIFICATE OF AMENDMENT EXHIBIT 3.04 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OR REGISTRANT FILED JUNE 12, 1996 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF LONNA R. HOOKS DYNASIL CORPORATION OF AMERICA Secretary of State The undersigned corporation, organized under the laws of the State of New Jersey, certifies the following to amend its Restated Certificate of Incorporation, filed April 1, 1969, in accordance with Sections 14A:9-2(4) and 14A:9-4(3) of the New Jersey Statutes Annotated: FIRST: The name of the Corporation is DYNASIL CORPORATION OF AMERICA. SECOND: Paragraph 3 of the Restated Certificate of Incorporation is amended in its entirety as follows: 3. The aggregate number of shares which the Corporation shall be authorized to issue is Twenty Five Million (25,000,000) shares of Common Stock, par value $.001 per share. THIRD: The amendment to the Certificate of Incorporation was adopted by the shareholders on April 22, 1996. FOURTH: The number of shares entitled to vote on the amendment was 691,413. FIFTH: The number of shares that voted for such Amendment was 456,716, and the number of shares that voted against the Amendment was zero. IN WITNESS WHEREOF, DYNASIL CORPORATION OF AMERICA has caused its duly authorized officer to execute this certificate on May 8, 1996. DYNASIL CORPORATION OF AMERICA /s/ Robert E. Hibshman, Jr, --------------------------------- By: Robert E. Hibshman, Jr, President EX-3.05 6 BY-LAWS OF REGISTRANT EXHIBIT 3.05 DYNASIL CORPORATION OF AMERICA BY-LAWS DYNASIL CORPORATION OF AMERICA BY-LAWS (As Amended Through July 23, 1996) ARTICLE I - OFFICES Section 1. The registered office of the corporation shall be at 385 Cooper Road, West Berlin, Camden County, New Jersey. Section 2. The corporation may have such other offices either within or without the state as the Board of Directors may designate or as the business of the corporation may require from time to time. ARTICLE II - SEAL Section 1. The corporate seal shall have inscribed thereon the name of the corporation, the year of its creation and the words "Corporate Seal, New Jersey". ARTICLE III - SHAREHOLDERS' MEETINGS Section 1. All meetings of the shareholders shall be held at the corporation's registered office, or at such other place or places, either within or without the State of New Jersey, as may from time to time be selected by the Board of Directors. Section 2. Annual Meeting: The annual meeting of shareholders shall be held on the second Saturday of February in each year if not a legal holiday, and if a legal holiday, then on the next full business day following at 11:00 o'clock A.M. when they shall elect, by a plurality vote, a Board of Directors, and transact such other business as may properly be brought before the meeting. If the annual meeting for election of directors is not held on the day designated therefor, the directors shall cause the meeting to be held as soon thereafter as convenient. Section 3. Special Meetings: special meetings of the shareholders may be called by the President or the Board of Directors, and shall be called at the request in writing to the President by the holder or holders of not less than ten percent of all the shares entitled to vote at a meeting. Section 4. Notice of Shareholders' Meetings: written notice of the time, place and purpose or purposes of every meeting of shareholders shall be given not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at the meeting, unless a greater period of notice is required by statute in a particular case. When a meeting is adjourned to another time or place, it shall not be necessary to give notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken -2- and at the adjourned meeting only such business is transacted as might have been transacted at the original meeting. However, if after adjournment the Board fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice. Section 5. Waiver of Notice: Notice of a meeting need not be given to any shareholder who signs a waiver of such notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Whenever shareholders are authorized to take any action after the lapse of a prescribed period of time, the action may be taken without such lapse if such requirement is waived in writing, in person or by proxy, before or after the taking of such action, by every shareholder entitled to vote thereon as at the date of the taking of such action. Section 6. Action by Shareholders Without Meeting: Any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if all the shareholders entitled to vote thereon consent thereto in writing. The written consents of the shareholders shall be filed with the minutes of proceedings of shareholders. -3- Section 7. Fixing Record Date: For the purposes of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at any meeting of shareholders shall be the close of business an the day next preceding the day on which notice is given, or, if no notice is given, the day next preceding the day on which the meeting is held; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the resolution of the Board relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders, has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date under this section for the adjourned meeting, -4- Section S. Voting List: The officer or agent having charge of the stock transfer books for shares of the corporation shall make and certify a complete list of shareholders entitled to vote at a shareholders' meeting or any adjournment thereof. Such list shall be arranged alphabetically within each class and series, with the address of, and the number of shares held by, each shareholder; be produced at the time and place of the meeting; be subject to the inspection of any shareholder during the whole time of the meeting; and be prima facie evidence as to who are the shareholders entitled to examine such list or vote at any meeting. If the requirements of this section have not been complied with, the meeting shall, on the demand of any shareholder in person or by proxy, be adjourned until the requirements are complied with. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting prior to the making of any such demand. Section 9. Quorum: Unless otherwise provided in the Certificate of Incorporation or by statute, the holders of shares entitled to cast a majority of the votes at a meeting shall constitute a quorum at such meeting. The shareholders present in person or by proxy at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less than a quorum may adjourn. -5- Whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the provisions of this section shall apply in determining the presence of a quorum of such class or series for the transaction of such specified item of business. Section 10. Voting: Each holder of shares with voting rights shall be entitled to one vote for each such share registered in his name, except as otherwise provided in the Certificate of Incorporation. Whenever any action, other than the election of directors, is to be taken by vote of the shareholders, it shall be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon, unless a greater plurality is required by statute or by the Certificate of Incorporation. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his agent. No proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy be valid after three years from the date of execution. Unless it is coupled with an interest, a proxy shall be revocable at will. A proxy shall not be revoked by the death or incapacity of the shareholder but such proxy shall continue in force until -6- revoked by the personal representative or guardian of the shareholder. The presence at any meeting of any shareholder who has given a proxy shall not revoke such proxy unless the shareholder shall file written notice of such revocation with the secretary of the meeting prior to the voting of such proxy. Section 11. Election of Directors: At each election of directors every shareholder entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Directors shall be elected by a plurality of the votes cast at the election, except as otherwise provided by the Certificate of Incorporation. Elections of directors need not be by ballot unless a shareholder demands election by ballot at the election and before the voting begins. Section 12. Inspectors of Election: The Board may, in advance of any shareholders' meeting, appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed or shall fail to qualify, the person presiding at the meeting may, and on the request of any shareholder entitled to vote thereat, shall, make such appointment. -7- Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at the meeting with strict impartiality and according to the best of his ability. No person shall be elected a director at a meeting at which he has served as an inspector. Section 13. Notification of Nominations: Nominations for the election of directors may be made by the Board of Directors or a nominating or proxy committee appointed by the Board of Directors or by any shareholder entitled to vote In the election of directors generally. However, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such shareholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 90 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice of such meeting shall set forth: (a) the name and address of the shareholder who intends to make the nomination -8- and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. ARTICLE IV - DIRECTORS Section 1. The business of this corporation shall be managed by its Board of Directors,* in number. The directors need not be residents of this State or shareholders in the corporation. They shall be elected by the shareholders. - ------------ *Per Board minutes, 01/03/96, the number of Board members was increased from three (3) to nine (9). -9- at the annual meeting of shareholders of the corporation, and each director shall be elected for the term of one year, and until his successor shall be elected and shall qualify. Section 2. Regular Meetings: Regular meetings of the Board shall be held without notice immediately after the Annual Meeting of Shareholders at the registered office of the Corporation, or at such other time and place as shall be determined by the Board. Section 3. Quorum: A majority of the entire Board, or of any committee thereof, as then constituted, shall constitute a quorum for the transaction of business, and the act of the majority present at a meeting at which a quorum is present shall be the act of the Board or of the committee. Section 4. Action Without Meeting: Any action required or permitted to be taken pursuant to authorization voted at a meeting of the Board or any committee thereof, may be taken without a meeting if, prior or subsequent to such action, all members of the Board or of such committee, as the case may be, consent thereto in writing and such written consents are filed, with the minutes of the proceedings of the Board or committee. Section 5. Special Meetings: Special meetings of the Board may be called by the Chairman of the Board, the President or the majority of the Board on three days notice to each director, either personally or by mail. -10- Section 6. Waiver of Notice: Notice of any meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting. The attendance of any director at a meeting without protesting prior to the conclusion of the meeting the lack of notice of such meeting shall constitute a waiver of notice by him. Neither the business to be transacted at, nor the purposes of, any meeting of the Board need be specified in the notice or waiver of notice of such meeting. Notice of an adjourned meeting need not be given if the time and place are fixed at the meeting adjourning and if the period of adjournment does not exceed ten days in any one adjournment. Section 7. Powers of Directors: The Board of Directors shall have the management of the business of the corporation. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by these By-Laws directed or required to be exercised or done by the shareholders. Section 8. Compensation of Directors: The Board, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any of them, shall have authority to establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise. -11- Section 9. Executive Committee: If deemed advisable, the Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an executive committee and one or more other committees, each of which shall have at least* members. Each such committee shall have and may exercise all the authority of the Board, except that no such committee shall make, alter or repeal any By-Law of the corporation; elect or appoint any director, or remove any officer or director; submit to shareholders any action that requires shareholders' approval; or amend or repeal any resolution theretofore adopted by the Board. Action taken at a meeting of any such committee shall be reported to the Board at its meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting. ARTICLE V - OFFICERS Section 1. The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if desired, a Chairman of the Board, one or more Vice Presidents, and such other officers as may be required. They shall be annually chosen by the Board of Directors and shall hold office - ----------- * Per Board minutes, 07/23/96, "The Executive Committee shall have at least two (2) members". -12- for one year and until their successors are chosen and qualify. The Board may also choose such employees and agents as it shall deem necessary, who shall hold their offices for such terms and shall have authority and shall perform such duties as from time to time shall be prescribed by the Board. Any two or more offices may be held by the same person but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if such instrument is required by law or by these By-Laws to be executed, acknowledged, or verified by two or more officers. Section 2. Salaries: The salaries of all officers,* of the corporation shall be fixed by the Board of Directors. Section 3. Removal: Any officer elected or appointed by the Board of Directors may be removed by the Board with or without cause. An officer elected by the shareholders may be removed, with or without cause, only by vote of the shareholders but his authority to act as an officer may be suspended by the Board for cause. Section 4. President: The President shall be the chief executive officer of the corporation; he shall preside at all meetings of the shareholders and directors; he shall have general and active management of the business of the corporation, shall see that all orders and resolutions of the - -------------- * Per Board minutes, 07/23/96, "The salaries of all Officers of the Corporation will be fixed by the Board of Directors. -13- Board are carried into effect, subject, however, to the right of the directors to delegate any specific powers, except such as may be by statute exclusively conferred on the President, to any other officer or officers of the corporation. He shall execute bonds. mortgages and other contracts requiring a seal, under the seal of the corporation. He shall be EX-OFFICIO a member of all committees, and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. Section 5. Vice President: The Vice President, if one has been appointed, shall be vested with all the powers and be required to perform all duties of the President in his absence. Section 6. Chairman of the Board: The Chairman of the Board, if one has been appointed, shall exercise such powers and perform such duties as shall be provided in the resolution proposing that a Chairman of the Board be elected. Section 7. Secretary: The Secretary shall keep full minutes of all meetings of the shareholders and directors; he shall be an EX-OFFICIO Secretary of the Board of Directors; he shall attend all sessions of the Board, shall act as clerk thereof, and record all votes and the minutes of all proceedings in a book for that purpose; and shall perform like duties for the standing committees when required. He shall give or cause to be given, notices of all meetings of the -14- shareholders of the corporation and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors at President, under whose supervision he shall be. Section 8. Treasurer: The Treasurer shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation, in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall tender to the President and directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the corporation, and shall submit a full financial report at the annual meeting of the shareholders. ARTICLE V1 - VACANCIES, RESIGNATION, REMOVAL Section 1. Directors: Subject to further provision in the Certificate of Incorporation, any directorship not filled at the annual. meeting and any vacancy, however caused, occurring in the Board may be filled by the affirmative vote of -15- a majority of the remaining directors even though less than a quorum of the Board, or by a sole remaining director. A director so elected by the Board shall hold office until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified. Section 2. Officers: Any vacancy occurring among the officers, however caused, may be filled by the Board of Directors. Section 3. Resignations: Any director or other officer may resign by written notice to the corporation. The resignation shall be effective upon receipt thereof by the corporation or at such subsequent time as shall be specified in the notice of resignation. Section 4. Removal: So long as the Certificate of Incorporation so provides, the Board of Directors shall have the power to remove Directors for cause and to suspend Directors pending a final determination that cause exists for removal. ARTICLE VII - SHARE CERTIFICATE Section 1. Form: The share certificates of the corporation shall be numbered and registered in the transfer records of the corporation as they are issued. They shall bear the corporate seal, or a facsimile thereof, and be signed by the President and Secretary. -16- Section 2. Transfers: All transfers of the shares of the corporation shall be made upon the books of the corporation by the holder of the shares in person, or by his legal representatives. Share certificates shall be surrendered, properly endorsed and cancelled at the time of transfer. Section 3. Loss of Certificates: In the event that a share certificate shall be lost, destroyed or mutilated, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. ARTICLE VII - BOOKS AND ACCOUNTS Section 1. The corporation shall keep books and records of account and minutes of the proceedings of the shareholders, Board of Directors and executive committee, if any. Such books, records and minutes may be kept outside this State. The corporation shall keep at its registered office, or at the office of a transfer agent in this State, a record or records containing the names and addresses of all shareholders, the number, class and series of shares held by each and the dates when they respectively became the owners of record thereof, except that in the case of shares listed on a national securities exchange, the records of the holders of such shares may be kept at the office of a transfer agent within or without this State. -17- Section 2. Inspection: Any person who shall have been a shareholder of record of the corporation for at least six months immediately preceding his demand, or any person holding or so authorized in writing by the holders of, at least five percent of the outstanding shares of any class, upon at least five days' written demand shall have the right for any proper purpose to examine in person or by agent or attorney. during usual business hours, the minutes of the proceedings of the shareholders and record of shareholders, and to make extracts therefrom, at the places where the same are kept. ARTICLE IX - MISCELLANEOUS PROVISIONS Section 1. Monetary Disbursements. All checks or demands for money and notes of the corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. Section 2. Fiscal Year: The fiscal year of the corporation shall begin on the date selected from time to time by the Board of Directors. Section 3. Dividends: The Board of Directors may declare and pay dividends upon the outstanding shares of the corporation from time to time and to such extent as they deem advisable, in the manner and upon the terms and conditions provided by the statute and the Certificate of Incorporation. -18- Section 4. Reserve. Before payment of any dividend there may be set aside such sum or sums as the directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation, and the directors may abolish any such reserve in the manner in which it was created. Section 5. Giving Notice: Whenever written notice is required to be given to any person, it may be given to such person, either personally or by sending a copy thereof through the mail. If notice is given by mail, the notice shall be deemed to be given when deposited in the mail addressed to the person to whom it is directed at his last address as it appears on the records of the corporation, with postage prepaid thereon, or in the event no address is available the notice shall be deemed to have been given when addressed to general delivery in the area where the person is suspected of residing or when the company has made any other reasonable attempt to give notice to such person. Such notice shall specify the place, day and hour of the meeting and, in the case of a shareholders' meeting, the general nature of the business to be transacted. -19- In computing the period of time for the giving of any notice required or permitted by statute, or by the Certificate of Incorporation or these By-Laws or any resolution of directors of shareholders, the day on which the notice is given shall be excluded, and the day on which the matter noticed is to occur shall be included. ARTICLE X - INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. Definitions: Certain terms used in this Article shall be defined as follows or, where so indicated, shall include the following meanings in addition to their normal and their statutory meanings: a. "Corporate agent" means any person who is or was a director, officer, employee or agent of the indemnifying corporation or of any constituent corporation absorbed by the indemnifying corporation in a consolidation or merger and any person who is or was a director, officer, trustee, employee or agent of any other enterprise, serving as such at the request of the indemnifying corporation, or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent: b. "Other enterprise" means any domestic or foreign corporation, other than the indemnifying corporation, and any partnership, joint venture, sole proprietorship, trust or other enterprise, whether or not far profit, served by a corporate agent; -20- c. "Expenses" means reasonable costs, disbursements and counsel fees actually incurred; d. "Liabilities" means amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties; e. "Criminal third party proceedings" shall mean any threatened, pending or completed action or quasi-administrative proceeding or investigation. f. "Derivative action" shall mean any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor; g. "Party" shall include the giving of testimony or similar involvement, whether or not named as a party; h. "Third party proceeding" shall mean any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action, suit or proceeding, other than an action by or in the right of the corporation. Section 2. Directors and Officers - Third Party Proceedings. The corporation shall indemnify any director and any officer of the corporation who was or is a party or is threatened to be made a party to any third party proceeding by reason of the fact that he or she was or is a corporate agent against his or her expenses and liabilities in connection with -21- which he or she shall I have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless and only to the extent that the Superior Court of New Jersey or the court in which such derivative action is or was pending shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such items which the court shall deem proper. Section 4. Employees and Agents: A corporate agent other than a director or officer of the corporation may be indemnified by the corporation or have his or her expenses advanced in accordance with the procedures set forth in paragraphs 2, 3, 5, 6 and 7 of this Article. To the extent that a corporate agent has been successful on the merits or otherwise in defense of any third party proceeding or derivative action or in defense of any claim issue or matter therein, the corporate agent shall be indemnified against his or her expenses in connection therewith, Section 5. Procedure for Effecting Indemnification. Indemnification under paragraphs 2, 3 or 4 of this Article (unless ordered by a court, in which case the expenses of the corporate agent in enforcing indemnification shall be added to and be included in the final judgment against the corporation) shall be made by the corporation only as authorized in the -23- specific case upon a determination that indemnification of the corporate agent is required or proper in the circumstances because he or she has met the applicable standard of conduct set forth in paragraph 2 or 3 of this Article or has been successful on the merits or otherwise as set forth in paragraph 4 of this Article and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (a) By the Board of Directors or a committee thereof, acting by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the third party proceeding or derivative action, or (b) If a quorum is not obtainable or, even if obtainable a majority vote of a quorum of disinterested directors or committee thereof so directed, by independent legal counsel in a written opinion. Section 6. Independent Legal Counsel. Independent legal counsel may be appointed by the Board of Directors, even if a quorum of disinterested directors is not available, or by a person or committee designated by the Board of Directors. Independent legal counsel shall not include any employee of the corporation. If independent legal counsel shall determine in a written opinion that indemnification is proper under this Article, indemnification shall be made without further action of the Board of Directors. -24- Section 7. Advancing Expenses: Expenses incurred in defending a third party proceeding or derivative action shall be paid on behalf of a director or officer, and may be paid on behalf of any other corporate agent, by the corporation in advance of the final disposition of the action as authorized in the manner provided by paragraph 5 of this Article (except that the person(s) making the determination thereunder need not make a determination on whether the applicable standard of conduct has been met unless judicial determination has been made with respect thereto or the person seeking indemnification has conceded that he or she has not met such standard) upon receipt of an undertaking by or on behalf of such person to repay such amount unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as required in this Article or authorized by law. The financial ability of any such person to make such repayment shall not be a prerequisite to the making of an advance. Section 8. Conditions. The corporation may impose reasonable conditions upon any person seeking indemnification (including advanced expenses) under this Article including, but not limited to, a condition to the effect that, except to the extent differing interests compel another result, persons to be indemnified under this paragraph may be required to share the same counsel and other services. -25- Section 9. Insurance. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a corporate agent against any expenses and liabilities asserted against him or her and incurred by him or her by reason of his or her being or having been a corporate agent, whether or not the corporation would have the power to indemnify him or her against such expenses and liabilities under the provisions of this Article. Section 10. Scope of Article. Each person who shall act as a corporate agent shall be deemed to be doing so in reliance upon the rights of indemnification provided in this Article. The indemnification provided by this Article shall not be deemed exclusive of any other right to which a person seeking indemnification may be entitled under any statute, agreement, vote of disinterested directors, or otherwise, regardless of whether the event giving rise to indemnification occurred before or after the effectiveness thereof, both as to action taken in the official capacity of such person and as to action in another capacity while holding his or her office or position, and shall continue as to a person who has ceased to be a corporate agent and shall inure to the benefit of his or her heirs and personal representatives. -26- ARTICLE XI - AMENDMENTS Section 1. The Board of Directors shall have the power to make, alter and repeal these By-Laws, but By-Laws made by the Board may be altered or repealed, and new By-Laws may be made, by the shareholders. -27- EX-4.01 7 FORM OF DEBENTURE EXHIBIT 4.01 FORM OF DEBENTURE REGISTERED REGISTERED R41 $ DYNASIL CORPORATION OF AMERICA 10% SUBORDINATED DEBENTURE DUE JUNE 1, 1998 DYNASIL CORPORATION OF AMERICA, a New Jersey corporation (the "Company"), for value received, hereby promises to pay to SEE REVERSE FOR CERTAIN ABBREVIATIONS or order on the first day of June, 1998, the principal amount of DOLLARS in such currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts, at the office or agency of the Company maintained for that purpose in Camden County, New Jersey, or whereever the Company's headquarters are located (the "Debenture Office"), and to pay interest on the unpaid principal amount hereof from the date hereof at the rate of 10% per annum in like coin or currency, payable at the Debenture Office or, at the option of the Company, by checks deposited in the United States mail, postage prepaid, on June 1 and December 1 in each year commencing December 1, 1988, until the principal amount hereof shall have become due and payment thereof shall have been made or duly provided for. All such payments of interest will be due and made only to the registered holder hereof at the holder's registered address at the close of business on the May 15 or November 15 immediately preceding the interest payment date, notwithstanding the subsequent transfer or surrender for exchange of this Debenture. 1. This Debenture is one of a number of Debentures of like tenor in a maximum authorized aggregate principal amount of $1,000,000 (or such increased maximum amount as determined by the Company), each of which Debentures will be issued in denominations of integral multiples of $100; however, no Debenture will be issued in an aggregate principal amount of less than $100. After the original issuance of Debentures, Debentures will be issued only in denominations of $100 aggregate principal amount or integral multiples thereof. All such Debentures mature on June 1, 1998 and bear interest payable at the same rate and on the same dates as the interest on this Debenture. 2. The holder of this Debenture may, in person or by duly authorized attorney, surrender the same at the Debenture Office and, within a reasonable time thereafter, receive in exchange therefor a Debenture or Debentures, each in the principal amount of $100 or an integral multiple thereof dated as of the date to which interest has been paid on this Debenture (or, if the surrender of this Debenture occurs between any May 15 or November 15 and the next succeeding interest payment date, as of the business day immediately after such interest payment date), and payable to such person or persons, or their order, as may be designated by the registered holder hereof, for the same aggregate principal amount as the unpaid principal amount of this Debenture. No charge will be imposed by the Company in connection with any such exchange, provided such exchange requests are reasonable, except that the Company may require as a condition to such exchange the payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 3. The Company has the right to prepay the Debentures in whole at any time, or in part from time to time, on any date or dates after June 1, 1988, at 100% of the principal amount to be so prepaid, together with interest accrued thereon to the date fixed for such prepayment. In the event of each prepayment of this Debenture or any part hereof, notice shall be given to the registered holder hereof not less than thirty (30) days prior to the date fixed for such prepayment. Upon such notice of any prepayment, the Company shall pay to the registered holder hereof at the Debenture Office on the date specified in such notice the principal amount hereof to be so prepaid and interest accrued thereon to such date, and this Debenture or such part hereof as is so prepaid shall cease to bear interest on and after the date of such prepayment. If less than all the Debentures are to be prepaid at any time, the Company shall select the particular Debenture, Debentures or portions thereof to be prepaid in such manner as it, in its sole discretion, deems fair and appropriate. Such manner may include, among others, selection at random from all, or reasonable classifications of, Debentureholders. 4. The payment of the principal of and the interest on all the Debentures is expressly subordinated in right of payment to the prior payment in full of all "Superior Indebtedness". The term Superior Indebtedness shall be defined herein to mean all indebtedness (other than the Debentures and any indebtedness which by its specific terms is equal or subordinate in right of payment to the Debentures) of the Company or any successor corporation or subsidiary, whether outstanding on the date of the Debentures or thereafter created or incurred, including all indebtedness for money borrowed, assumed or guaranteed, and any modification thereof (but not including account and trade payables and accrued expenses), all regardless of whether short or long term or whether evidenced by a note or other evidence of indebtedness. No payment of principal or interest can be made upon the Debentures at any time (before, upon or after the maturity of an Superior Indebtedness) unless full payment of all amounts then due for principal of (and premium, if any) and interest on all Superior Indebtedness has been made or promised for. In the event of bankruptcy, insolvency, dissolution, winding up, liquidation, reorganization or readjustment or readjustment of the Company, or in the event the Debentures are declared due and payable before their stated maturity because of an Event of Default (as hereinafter defined), the payment of the principal of an interest on the Debentures will be subordinated to the prior payment in full of all Superior Indebtedness, and nothing shall be paid to the holders of the Debentures unless all amounts due to the holders of all Superior Indebtedness have been paid or provided for. In addition, no payment of principal or interest may be made on the Debentures if, at the time of such payment or after giving effect thereto, there exists or would exist a default under any Superior Indebtedness. 5. Upon the occurrence of an Event of Default (as hereinafter defined) and the receipt by the Company of written notice from or consent of the registered holders of not less than twenty-five percent (25%) of the total unpaid principal amount of the Debentures then outstanding declaring the unpaid principal of this Debenture and all the Debentures then outstanding to be due and payable, the unpaid principal to this Debenture and all of the Debentures shall become immediately due and payable together with all interest accrued thereon. The registered holders of a majority of the then unpaid principal amount of the Debentures then outstanding may waive any uncured or unwaived Event of Default (existing or past), except only an Event of Default caused by default in the payment of principal of or interest on the Debentures. 6. An "Event of Default" shall have occurred hereunder: (a) if the Company shall default in the payment of any part of the principal of any Debenture when and as the same shall become due and payable, whether at maturity, or otherwise; or (b) if the Company shall default in the payment of any interest on any Debenture when and as the same shall become due and payable and if such default shall continue for a period of thirty (30) days; or (c) if the Company shall default in the due performance or observance of any other of the covenants or conditions contained in this Debenture an such default shall continue for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Company by the registered holders of not less than twenty-five percent (25%) of the total unpaid principal amount of the Debentures then outstanding; or (d) if, by the order of a court of competent juridiction, a receiver or liquidator or trustee of the Company shall be appointed with respect to a substantial part of its property and shall not have been discharged within one hundred eighty (180) days or if, by decree of such a court, the Company shall be adjudicated insolvent and such decree shall have continued undischarged and unstayed for one hundred eighty (180) days after the entry thereof, or if a petition to reorganize the Company pursuant to the Federal Bankrupcy Code or any other similar stature applicable to the Company shall be filed against the Company and shall not be dismissed within one hundred eighty (180) days after filing; or (e) if the Company shall be adjudicated bankrupt or shall file a petition in voluntary bankruptcy under any provisions of any bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any such law; or (f) if the Company shall make an assignment for the benefit of its creditors or shall submit in writing its inability to pay its debts generally as they become due, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of all or a substantial part of its property. 7. This Debenture is not, and is not intended to be, an Indenture; however, it does contain all of the terms and provisions of this and all other Debentures. There are no covenants, warranties, agreements, or undertakings imposed upon or made by the Company except as expressly set forth in this Debenture. This Debenture and all other Debentures may be modified by the Company only with the consent of the registered holders of not less than 66 2/3% of the then unpaid principal amount of the Debentures then outstanding. Notwithstanding the foregoing, however, no such modification may, without the consent of the registered holder of each outstanding Debenture affected thereby: (i) change the fixed maturity of the principal of or interest on any Debenture, or reduce the principal amount thereof, or reduce the rate of interest thereon, or impair the right to institute suit for the enforcement of any such payment; (ii) reduce the percentage of principal amount of outstanding Debentures, the consent of the registered holders of which is required for any such modification; or (iii) reduce the percentage of the principal amount of outstanding Debentures required to waive certain defaults. The Company will notify each registered holder of any modification of the Debentures. 8. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Debenture and of indemnity satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender for cancellation of this Debenture if mutilated or only partially destroyed, the Company will make and deliver to the registered holder hereof a new Debenture of like tenor in lieu of this Debenture. Any such new Debenture so delivered shall be dated as of the date to which interest has been paid on this Debenture (unless the aforementioned receipt by the Company occurs between May 15 or November 15 and the next succeeding interest payment date, in which event the new Debenture shall be dated as of the day immediately after such interest payment date). 9. No recourse shall be had for the payment of this Debenture against any stockholder, officer, director or agent of the Company, either directly or through the Company, by virtue of any suit or the enforcement of any assessment or otherwise; any such liability of stockholders, directors, officers or agents as such being released by the holder hereof by the acceptance hereof. IN WITNESS WHEREOF, Dynasil Corporation of America has caused this Debenture to be signed in its corporate name by its duly authorized officers and this Debenture to be dated the __________ day of ___________ 19___ . DYNASIL CORPORATION OF AMERICA Attest: By Secretary President Dynasil Corporation of America 10% SUBORDINATED DEBENTURE - -------------------------------------------------------------------------------- AMOUNT SHOWN ON FACE HEREOF - -------------------------------------------------------------------------------- DUE JUNE 1, 1998 ---------------- INTEREST DUE JUNE 1 AND DECEMBER 1 ---------------- PRINCIPAL AND INTEREST PAYABLE AT THE DEBENTURE OFFICE DEFINED IN THE DEBENTURE ---------------- ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be constued as though they were written out in full according to applicable laws of regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ________________ Custodian _____________ (Cust) (Minor) under Uniform Gifts to Minors Act __________________________________ (State) Additional abbreviations may also be used though not in the above list. ---------------- FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please print or typewrite name and address including postal zip code of assignee - -------------------------------------------------------------------------------- the within Debenture and all rights thereunder, hereby irrevocably constituting and appointing attorney - ----------------------------------------------------------------------- to transfer said Debenture on the books of the Company, with full power of substitution in the premises. Dated: ------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the written instrument in every particular, without alteration or enlargement or any change whatever. EX-4.02 8 SUBORDINATED DEBENTURE EXTENSION AGREEMENT EXHIBIT 4.02 SUBORDINATED DEBENTURE EXTENSION AGREEMENT SUBORDINATED DEBENTURE EXTENSION AGREEMENT 1 Date of Agreement. The date of this Agreement is the ______ day of ______________, 1997. 2 Parties. 2.1 DYNASIL CORPORATION OF AMERICA ("Dynasil"), with offices at 385 Cooper Road, West Berlin, New Jersey, 08091; and 2.2 Debenture Holder, ("Holder") whose address is Holder Address. 3 Background. 3.1 On June 1, 1988, Dynasil issued a Ten Percent Subordinated Debenture in the amount of $Debenture Amount (the "Debenture") to Holder registered as Debenture# in the series of the Debenture. 3.2 Pursuant to the terms of the Debenture, it was to become due on June 1, 1998. 3.3 It is the purpose of this Agreement to extend the term of the Debenture from June 1, 1998 to June 1, 2002, in consideration of the issuance to Holder of warrants to purchase #Warrants shares of the common stock of Dynasil at an exercise price of $3.00 per share, such warrants to have a term of April 15, 1997 to June 1, 2002. 4 Terms of the Debenture Extension. 4.1 Holder agrees that the Dynasil Corporation of America Ten Percent Subordinated Debenture due June 1, 1998 registered as Debenture# in the name of Debenture Holder, Holder Address, be and hereby is modified as follows: Page 1 of 4 4.1.1 All references to the maturity date of the Debenture shall be modified so that the maturity date of the Debenture shall be June 1, 2002. 4.1.2 As consideration for the extension of the maturity date of the Debenture, Dynasil will issue to Holder warrants (in the form appended hereto as Exhibit "A") to purchase #Warrants shares of the common stock of Dynasil at an exercise price of $3.00 per share, such warrants to be effective April 15, 1997 and to expire on June 1, 2002. 4.2 Except to the extent that the modification of the maturity date of the Debenture as changed pursuant to this Agreement, require a change in the dates set forth in the body of the Debenture, all other terms and conditions of the Debenture not specifically set forth herein shall remain the same. 5 Notices. All notices, requests, and demands given to or made upon the parties hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at the address of such party set forth in Section 2 "Parties" above. Any party may, by notice hereunder to the other party, designate a changed address for such party. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received the fifth business day thereafter, or when it is actually received, whichever is sooner. All references to hours of the day shall mean the official time in effect on the date in question in the State of New Jersey. 6 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, and legal representatives. Page 2 of 4 7 Captions. Captions of the sections of this Agreement are for convenience and reference only, and the words contained shall not be held to modify, amplify, or aid in the interpretation of the provisions of this Agreement. 8 Situs. This Agreement shall be deemed to be an agreement made under the laws of the State of New Jersey, and for all purposes it shall be construed in accordance with and governed by the laws of the State of New Jersey. 9 Non-Waiver. No delay or failure by a party to exercise any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 10 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11 Modification. This Agreement may not be and shall not be deemed or construed to have been modified, amended, rescinded, canceled, or waived in whole or in part, except by a written instrument signed by the parties hereto. 12 Entire Agreement. This Agreement constitutes and expresses the entire agreement and understanding between the parties hereto in reference to all the matters referred to herein, and any previous discussions, promises, representations, and understanding relative thereto are merged into the terms of this Agreement and shall have no further force and effect. Page 3 of 4 Executed by each party on the date appearing next to the following respective signatures. DYNASIL CORPORATION OF AMERICA ______________________________ ___________________________________ DATE By: ______________________________ ___________________________________ DATE Debenture Holder Page 4 of 4 EX-4.03 9 DEBENTURE EXTENSION WARRANT EXHIBIT 4.03 DEBENTURE EXTENSION WARRANT VOID AFTER 5:00 P.M. EASTERN STANDARD TIME, ON JUNE 1, 2002. NEITHER THIS WARRANT NOR THE WARRANT STOCK HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE COMPANY WILL NOT TRANSFER THIS WARRANT OR THE WARRANT STOCK UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH WARRANT OR SUCH WARRANT STOCK, AS THE CASE MAY BE, UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATES SECURITIES LAWS, (ii) IT FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933. DYNASIL CORPORATION OF AMERICA (a New Jersey corporation) Warrant for the Purchase of #Warrants Shares of Common Stock par value $.001 per share FOR VALUE RECEIVED, DYNASIL CORPORATION OF AMERICA ("Company"), a New Jersey corporation, with offices at 385 Cooper Road, West Berlin, New Jersey, 08091-9145, hereby certifies that Debenture Holder or assigns ("Holder"), is entitled, subject to the provisions of this Warrant, to purchase from the Company up to #Warrants fully paid and non-assessable shares of Common Stock at a price of $3.00 per share ("Exercise Price"), during the period set forth in Section 1 below. The term "Common Stock" means the Common Stock, par value $.001 per share, of the Company as constituted on the date of this Warrant ("Base Date"), together with any other equity securities that may be issued by the Company in respect thereof or in substitution therefor. The number of shares of Common Stock to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable or delivered upon such exercise, as adjusted from time to time, are hereinafter referred to as "Warrant Stock." Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate, and (in the case of loss, theft or destruction) of satisfactory indemnification, and upon surrender and cancellation of this Warrant certificate, if mutilated, the Company shall execute and deliver a new Warrant certificate of like tenor and date. Section 1. Exercise of Warrant. This Warrant may be exercised, subject to the requirements set forth below, in whole, or in part, at any time during the period commencing one year from the date hereof and expiring at 5:00 p.m. Eastern Standard Time until June 1, 2002 or, if such day is a day on which banking institutions in Camden County, New Jersey are authorized by law to close, then on the next succeeding day that shall not be such a day, by presentation and surrender of this Warrant certificate to the Company at its principal office, with the Warrant Exercise Form attached hereto duly executed and -1- accompanied by payment (by certified or official bank check payable to the order of the Company, or by wire transfer to the Company) of the aggregate Exercise Price for the number of shares specified in such form and instruments of transfer, if appropriate, duly executed by the Holder. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant certificate for cancellation, execute and deliver a new Warrant certificate evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant certificate, together with the Exercise Price, at its office, in proper form for exercise as described above, together with an agreement to comply with the restrictions on transfer and related covenants contained herein and a representation as to investment intent and any other matter required by counsel to the Company, signed by the Holder (and if other than the original Holder accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Warrant), the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, even if the stock transfer books of the Company shall then be closed or certificates representing such shares of Common Stock shall not have been delivered to the Holder. The Holder shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exercise of this Warrant. The Company shall promptly thereafter issue certificate(s) evidencing the Common Stock so purchased. Section 2. Reservation of Shares. The Company shall at all times reserve for issuance and delivery upon exercise of this Warrant all shares of Common Stock or other shares of capital stock of the Company (and other securities) from time to time receivable upon exercise of this Warrant. All such shares (and other securities) shall be duly authorized and, when issued upon exercise, shall be validly issued, fully paid and non-assessable. Section 3. No Fractional Shares. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant, but the Company shall pay the Holder an amount equal to the fair market value of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of this Warrant. For purposes of this Warrant, the fair market value of a share of Common Stock shall equal the closing sale price (or if not available the average of the closing bid and asked prices) on the business day prior to exercise of this Warrant, or, if the Common Stock is then not publicly traded, then the price determined in good faith by the Board of Directors of the Company. Section 4. Transfer. 4.1 Securities Laws. Neither this Warrant nor the Warrant Stock have been registered under the securities act of 1933. The Company will not transfer this Warrant or the Warrant Stock unless (i) there is an effective registration covering such Warrant or such shares, as the case may be, under the Securities Act of 1933 and applicable states securities laws, (ii) it first receives a letter from an attorney, acceptable to the Company's board of directors or its agents, stating that in the opinion of the attorney the proposed transfer is exempt from registration under the Securities Act of 1933 and under all applicable state securities laws, or (iii) the transfer is made pursuant to Rule 144 under the Securities Act of 1933. 4.2 Conditions to Transfer. Prior to any such proposed transfer, and as a condition thereto, if such transfer is not made pursuant to an effective registration statement under the Securities Act, the Holder -2- will, if requested by the Company, deliver to the Company (i) an investment covenant signed by the proposed transferee, (ii) an agreement by such transferee that the restrictive investment legend set forth above be placed on the certificate or certificates representing the securities acquired by such transferee, (iii) an agreement by such transferee that the Company may place a "stop transfer order" with its transfer agent or registrar, and (iv) an agreement by the transferee to indemnify the Company to the same extent as set forth in the next succeeding paragraph. 4.3 Indemnity. The Holder acknowledges that the Holder understands the meaning and legal consequences of this Section, and the Holder hereby agrees to indemnify and hold harmless the Company, its representatives and each officer and director thereof from and against any and all loss, damage or liability (including all attorneys' fees and costs incurred in enforcing this indemnity provision) due to or arising out of (a) the inaccuracy of any representation or the breach of any warranty of the Holder contained in, or any other breach of, this Warrant, (b) any transfer of any of this Warrant or the Warrant Stock in violation of the Securities Act, the Securities Exchange Act of 1934, as amended, or the rules and regulations promulgated under either of such acts, (c) any transfer of this Warrant or any of the Warrant Stock not in accordance with this Warrant or (d) any untrue statement or omission to state any material fact in connection with the investment representations or with respect to the facts and representations supplied by the Holder to counsel to the Company upon which its opinion as to a proposed transfer shall have been based. Section 5. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. Section 6. Anti-Dilution Provisions. 6.1 Stock Splits, Dividends, Etc. 6.1.1 If the Company shall at any time subdivide its outstanding shares of Common Stock (or other securities at the time receivable upon the exercise of the Warrant) by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its stockholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased, and if the Company shall at any time combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock subject to this Warrant immediately prior to such combination shall be proportionately decreased. Any such adjustment and adjustment to the Exercise Price pursuant to this Section shall be effective at the close of business on the effective date of such subdivision or combination or if any adjustment is the result of a stock dividend or distribution then the effective date for such adjustment based thereon shall be the record date therefor. 6.1.2 Whenever the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted, as provided in this Section, the Exercise Price shall be adjusted to the nearest cent by multiplying such Exercise Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise immediately -3- prior to such adjustment, and (y) the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter. 6.2 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of any reorganization of the Company (or any other corporation, the securities of which are at the time receivable on the exercise of this Warrant) after the Base Date or in case after such date the Company (or any such other corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then, and in each such case, the Holder of this Warrant upon the exercise as provided in Section 1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the securities and property receivable upon the exercise of this Warrant prior to such consummation, the securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto; in each such case, the terms of this Warrant shall be applicable to the securities or property received upon the exercise of this Warrant after such consummation. 6.3 Certificate as to Adjustments. In each case of an adjustment in the number of shares of Common Stock receivable on the exercise of this Warrant, the Company at its expense shall promptly compute such adjustment in accordance with the terms of the Warrant and prepare a certificate executed by an officer of the Company setting forth such adjustment and showing the facts upon which such adjustment is based. The Company shall forthwith mail a copy of each such certificate to each Holder. 6.4 Notices of Record Date, Etc. In case: 6.4.1 the Company shall take a record of the holders of its Common Stock (or other securities at the time receivable upon the exercise of the Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend at the same rate as the rate of the last cash dividend theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, or to receive any other right; or 6.4.2 of any voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company shall mail or cause to be mailed to each Holder a notice specifying, as the case may be, (A) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (B) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any, to be fixed, as to which the holders of record of Common Stock (or such other securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the date therein specified, and this Warrant may be exercised prior to said date during the term of the Warrant. Section 7. Legend and Stop Transfer Orders. Unless the shares of Warrant Stock have been registered under the Securities Act, upon exercise of any of this Warrant and the issuance of any of the shares of -4- Warrant Stock, the Company shall instruct its transfer agent, if any, to enter stop transfer orders with respect to such shares, and all certificates representing shares of Warrant Stock shall bear on the face thereof substantially the following legend, insofar as is consistent with New Jersey law: This certificate has not been registered under the Securities Act of 1933. The Company will not transfer this certificate unless (i) there is an effective registration covering the shares represented by this certificate under the Securities Act of 1933 and all applicable state securities laws, (ii) it first receives a letter from an attorney, acceptable to the board of directors or its agents, stating that in the opinion of the attorney the proposed transfer is exempt from registration under the Securities Act of 1933 and under all applicable state securities laws, (iii) the transfer is made pursuant to Rule 144 under the Securities Act of 1933. Section 8. Officer's Certificate. Whenever the number or kind of securities purchasable upon exercise of this Warrant or the Exercise Price shall be adjusted as required by the provisions hereof, the Company shall forthwith file with its Secretary or Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted number of kind of securities purchasable upon exercise of this Warrant and the adjusted Exercise Price determined as herein provided and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustments. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder and the Company shall, forthwith after each such adjustment, mail by certified mail a copy of such certificate to the Holder. Section 9. Notice. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, if to the Holder, at his/her address as shown on the books of the Company, and if to the Company, at its principal office listed on the first page of this document. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. Section 10. Binding Effect. The provisions of this Warrant shall be binding upon and inure to the benefit of (1) the parties hereto, (2) the successors and assigns of the Company, (3) if the Holder is a corporation, partnership, or other business entity, the successors and assignee of the Holder, and (4) if the Holder is a natural person, the assignees, heirs, and personal representative of the Holder. Section 11. Pronouns. Any masculine personal pronoun shall be considered to mean the corresponding feminine or neuter personal pronoun, as the context requires. DYNASIL CORPORATION OF AMERICA a New Jersey corporation By: Date: ----------------------------------------------------- --------------- -5- WARRANT EXERCISE FORM The undersigned, Debenture Holder, hereby irrevocably elect(s) to exercise the within Warrant to the extent of purchasing ________ shares of Common Stock of DYNASIL CORPORATION OF AMERICA and hereby makes payment of $________ in payment therefor. - ----------------------------- ---------------------------------------- Date Signature ---------------------------------------- Signature (if jointly held) EX-10.01 10 LOAN AGREEMENT EXHIBIT 10.01 LOAN AGREEMENT AND ASSOCIATED DOCUMENTS DATED JULY 10, 1998 WITH PREMIER BANK, FOR A $300,000 LINE OF CREDIT This instrument was prepared by: Premier Bank - ---------------------------------- (Name) 379 North Main Street - ----------------------------------- [Premier Bank Logo] (Address) Doylestown, PA 18901 - ---------------------------------- to whom the recorded copy of this instrument is to be returned. MORTGAGE THIS MORTGAGE MADE THIS 10th day of July, 1998, is between DYNASIL CORPORATION OF AMERICA, INC. AND SUBSIDIARY, with an address of 385 COOPER ROAD, WEST BERLIN, NJ (each jointly and severally, if more than one person, and hereinafter referred to as "Mortgagor") and Premier Bank, the Mortgagee ("Bank") with a mailing address of 379 N. Main Street, Doylestown, PA 18901-0818. In consideration for and to secure payment and performance to Bank of all of the Obligations, as that term is defined in subparagraphs (a) through (d) below, Mortgagor has granted, bargained, sold, conveyed, released, assigned, transferred, pledged, mortgaged and confirmed, and by these presents does hereby grant, bargain, sell, convey, release, assign, transfer, pledge, mortgage and confirm unto Bank, its successors and assigns, forever: ALL THAT CERTAIN real estate situated in the County of Camden, State of New Jersey, known and designated as 385 Cooper Road, Township of Berlin, conveyed to Mortgagor by Deed dated 04/18, 1966, duly recorded in the office for recording of deeds in said County on 04/21, 1966 at Deed Book 2884, Page 54, as the Premises are therein described and, necessary, as more particularly described on Exhibit "A" attached hereto and made a part hereof (hereinafter the "Premises") Lot & Block 3, 4 & 1910. THE PREMISES SHALL include all right, title and interest of Mortgagor in and to all present and future structures, buildings and improvements located thereon, together with all common areas, streets, lanes, alleys, passageways, passages, ways, water courses, strips and gores of land, easements, estates, rights, titles, interests, liberties, privileges, tenements, hereditaments and appurtenances, whatsoever therunto belonging to or in any way made appurtenant thereto; all leases and subleases of all or any part of the Premises and rights of payment thereunder; the air space above and right to use the air space above, and the drainage, crops, timber, agricultural, horticultural, mineral, water, oil and gas rights with respect to the Premises, at law or in equity, all machinery, apparatus, equipment, furniture, fixtures, including without limitation, trade fixtures, goods, appliances and other property of every kind, nature and description whatsoever, now or hereafter located in, on or about, or attached to or used in connection with, the Premises, together with any and all replacements and substitutions thereof and all accessories, parts or accessions thereto now or hereafter owned by the Mortgagor or in which Mortgagor has or may obtain any interest, and all awards, damages, payments and/or claims arising out of any eminent domain or condemnation proceeding, damage or injury to any part of the Premises and/or any buildings, structures, or improvements thereon (the Premises, together with all of the foregoing, is hereinafter referred to as the "Mortgaged Property"); TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or mentioned and intended so to be, unto Bank, to its own use, forever. PROVIDED, ALWAYS, that this instrument is upon the express condition that, if Mortgagor promptly satisfied all of the Obligations, as hereinafter defined, in accordance with the provisions of the Loan Documents, as hereinafter defined, and this Mortgage, at the times and in the manner specified, without deduction, fraud or delay, and if all the agreements, conditions, convenants, provisions and stipulations contained therein and in this Mortgage and in the Loan Documents are fully performed and complied with then this Mortgage and the estate hereby granted shall cease, determine and become void. As used in this Mortgage, "Obligations" means any or all of the following: (a) The indebtedness, liabilities and obligations of Mortgagor to Bank, including all present and future advances, arising under a certain Note dated ___________________, 19___, in the original principal amount of THREE HUNDRED THOUSAND DOLLARS AND 00/100 Dollars ($300,000.00), plus interest, costs and charges thereon, and/or any amendment, modification, refinancing, renewal, substitution or extension of the Note (hereinafter the "Note"), and all other liabilities of Mortgagor to Bank described in any agreements, documents and instruments executed in connection therewith (hereinafter collectively referred to as the "Loan Documents"); (b) All other existing and future indebtedness, liabilities and obligations of Mortgagor to Bank whether sole, joint or several, matured or unmatured, direct or indirect, absolute or contingent, or any nature whatsoever, and out of whatever transactions arising, including, without limitation, any debt, liability or obligation owing from Mortgagor to others which Bank may obtain by assignment or otherwise, excepting only any indebtedness constituting "Consumer Credit" as that term is defined in Regulation Z, 12 C.F.R. section 226.1 et seq.; (c) The costs of curing any Event of Default set forth in this Mortgage or in the Loan Documents which the Bank elects to cure; and (d) The reasonable costs and expenses, including attorneys' fees incurred by Bank in enforcing any of the obligations of Mortgagor specified in (a), (b) and (c) above. MORTGAGOR REPRESENTS, COVENANTS AND WARRANTS to and with Bank that, until the Obligations secured hereby are fully paid and performed: 1. Payment and Performance. Mortgagor shall pay to Bank in accordance with the terms of the Note, this Mortgage and the other Loan Documents, the principal, interest and other sums therein and herein set forth and shall perform and comply with all the agreements, conditions, covenants, provisions and stipulations of the Note, this Mortgage and the Loan Documents. 2. Warranty of Title. Mortgagor warrants that Mortgagor possesses good and marketable fee simple title to the Premises, and has all power and authority to mortgage the Mortgaged Property to Bank and to grant a security interest therein in the manner set forth herein. 3. Maintenance of Mortgaged Property. Mortgagor shall keep and maintain or cause to be kept and maintained the Mortgaged Property, including all buildings and improvements now or at any time hereafter erected on the Premises and the sidewalks and curbs abutting them, in good order and condition and repair and shall abstain from and shall not permit the commission of waste of, in or about the Mortgaged Property. 4. Insurance. Mortgagor shall keep the Mortgaged Property continuously insured against fire and such other hazards in such amounts as may be required by Bank from time to time. All policies and insurance shall be issued by companies acceptable to Bank, and shall contain a standard mortgagee clause, in favor of Bank, and shall provide for at least thirty (30) days prior written notice of cancellation or reduction in coverage to Bank, all of which policies are hereby assigned to Bank as additional security for the Obligations. If Bank shall become the owner of the Mortgaged Property or any part thereof by foreclosure or otherwise, such policies, including all right, title and interest of Mortgagor thereunder, shall become the property of Bank. At least thirty (30) days prior to the expiration date of any insurance policy, Mortgagor shall deliver to Bank satisfactory evidence of the renewal of such insurance and the payment of all premiums therefor. In the event of any loss, Mortgagor will give immediate notice thereof to Bank and Bank may make proof of loss on behalf of Mortgagor. Each insurance company concerned is hereby authorized and directed to make payments under any such policies directly to Bank, instead of Bank and Mortgagor jointly, and Mortgagor hereby irrevocably appoints Bank as Mortgagor's attorney-in-fact to endorse in Mortgagor's name any checks or drafts issued thereon. Bank shall have the right to retain and apply the proceeds of any such insurance, at its reasonable election, to reduction of the Obligations, or to restoration and repair of the property damaged. 5. Taxes and Other Charges. Mortgagor shall pay when due and before interest or penalties shall accrue thereon, all taxes, charges, assessments and other governmental charges of any kind whatsoever including electricity, water and sewer rents, levied or assessed against the Mortgaged Property and will deliver receipts therefore to Bank upon request, and shall pay when due all amounts secured by any prior lien on the Mortgaged Property. 6. Inspection. Bank and any persons authorized by Bank shall have the right at any time, upon reasonable notice to Mortgagor, to enter the Premises at a reasonable hour to inspect and photograph its condition and state of repair. 7. Declaration of No Set-Off. Within one (1) week after request to do so by Bank, Mortgagor shall certify to Bank or to any assignee or proposed assignee of this Mortgage, in writing duly acknowledged, the amount of principal, interest and other charges then owing on the Obligations and on any obligations secured by prior liens upon the Mortgaged Property, if any, and whether there are any set-offs or defenses against them. 8. Required Notices. Mortgagor shall notify Bank promptly of the occurrence of any of the following: (a) a fire or other casualty causing damage to all or any part of the Mortgaged Property; (b) receipt of notice of eminent domain proceedings or condemnation of all or any part of the Mortgaged Property and Mortgagor hereby grants Bank an irrevocable power of attorney to appear and act for and on behalf of Mortgagor in any and all such proceedings; (c) receipt of notice from any governmental authority relating to the structure, use or occupancy of the Mortgaged Property or any real property adjacent to the Mortgaged Property; (d) a change in the occupancy of the Mortgaged Property; (e) receipt of any notice from the holder of any lien or security interest in all or any part of the Mortgaged Property; or (f) commencement of any litigation affecting the Mortgaged Property. 9. Mortgage and Liens. Without the prior written consent of Bank, Mortgagor will not create or permit to be created or filed against the Mortgaged Property, any mortgage lien or other lien or security interest superior or inferior to the lien of this Mortgage. 10. No Transfer. Without the prior written consent of Bank, Mortgagor will not cause nor permit any transfer of legal or equitable title to, beneficial interest in, or any estate or interest in the Mortgaged Property, or any part thereof, voluntarily or by operation of law, whether by sale, exchange, lease, conveyance, merger, consolidation, the granting of any lien or security interest or otherwise, or any agreement to do any of the foregoing. 11. Events of default. Any one or more of the following events shall constitute an Event of Default hereunder: (a) Failure of Mortgagor to make any payment of principal or interest or any other sum promptly when due on any of the Obligations; (b) Mortgagor's nonperformance of or noncompliance in any material respect with any other agree- ments, conditions, covenants, provisions or stipulations contained in the Note, this Mortgage or any of the Loan Documents; (c) Any signature, statement, representation or warranty made in the Note, the Loan Documents or this Mortgage, or in any financial statement, certificate, application, request or other document furnished to Bank by Mortgagor at any time prior to, now or hereafter, is not true and correct in any material respect when made or delivered; (d) The occurrence of any default under the Note or any of the Loan Documents; (e) The commencement by or against any Mortgagor of any proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, the making by any Mortgagor of any general assignment for the benefit of creditors, the failure of any Mortgagor generally to pay debts as such debts become due, or the taking of action by any Mortgagor in furtherance of any of the foregoing; or (f) The transfer or sale of any part of the Mortgaged Property or any interest therein, without the Bank's prior written consent. 12. Remedies of Bank. (c) Upon the occurrence of any Event of Default, the entire unpaid balance of the Obligations, including interest as has accrued and as may thereafter accrue thereon, and all other sums secured by this Mortgage, shall become immediately due and payable, at the option of Bank, without notice to or demand upon Mortgagor or any other person; and thereupon, in addition to all other rights or remedies available under the Note or any of the Loan Documents, or at law or in equity, Bank may: (i) forthwith bring an action of mortgage foreclosure hereon, and may proceed to judgment and execution to recover the balance due on the Obligations and any other sums that may be due thereunder, including attorneys' fees, costs of suit and costs of sale to the extent, if any, provided in the Obligations and permitted by law; and (ii) enter into possession of the Premises, with or without legal action, lease the same, collect all rents and profits therefrom and, after deducting all costs of collection and administrative expenses, apply the net rents and profits to the payment of taxes and other necessary maintenance and operational costs (including agents' fees and attorneys' fees) or on account of the Obligations, in such order and in such amounts as Bank in its sole discretion may elect, and Bank shall be liable to account only for rents and profits actually received by Bank; and (b) Any real estate sold hereunder or on any other judicial proceedings, may be sold in one or more parcels, in such order and manner as Bank, in its sold discretion, may elect. 13. Rights and Remedies Cumulative. The rights and remedies of Bank as provided in the Note, this Mortgage and the Loan Documents shall be cumulative and concurrent, may be pursued separately, successively or together against Mortgagor, against the Mortgaged Property, or any other person liable hereunder or thereunder, at the sole discretion of Bank and may be exercised as often as occasion therefor shall arise. The failure of Bank to exercise any right or remedy on any one or more occasions shall in no event be construed as a waiver or release thereof. 14. Mortgagor's Waivers. Mortgagor hereby waives and releases to the extent permitted by law: (a) All errors, defects and imperfections in any proceeding instituted by Bank under the Note or this Mortgage, and/or Loan Documents; (b) All benefits that might accrue to Mortgagor by virtue of any present or future law exempting the Mortgaged Property, or any part of the proceeds arising from any sale thereof, from attachment levy or sale on execution, or providing for any stay of execution, exemption from civil process or extension of time for payment; and (c) Unless specifically required herein, all notices of Mortgagor's default or of Bank's election to exercise, or Bank's actual exercise of any option under the Note or this Mortgage. 15. Future Advances. Without limiting any other provisions of this Mortgage, this Mortgage shall also secure additional loans or advances hereafter made by Bank to or on behalf of Mortgagor. Neither contained herein shall impose any obligation on the part of Bank to make any such additional loan(s) to Mortgagor. 16. Communications. All communications required or permitted to be given under this Mortgage, to be effective, shall be in writing, and shall be hand delivered or sent by registered mail, postage prepaid, return receipt requested, addressed to the addresses set forth above or at such other address as the addressee may hereafter designate in writing in the manner herein provided. 17. Severability. If for any reason whatsoever any part of this Mortgage shall be declared void or invalid, by operation of law or otherwise, in any jurisdiction, then as to such jurisdiction only, such part shall be void and the remaining provisions of this Mortgage shall remain in all other respects valid and enforceable, and such invalidity shall not invalidate or render unenforceable such provision in any other jurisdiction. 18. Binding Effect--Amendment. This Mortgage is binding upon and shall inure to the benefit of Mortgagor and Bank, and their respective successors and assigns. This Mortgage may not be changed or amended except by agreement in writing signed by the party against whom enforcement of the change or amendment is sought. 19. Applicable Law. The validity, construction, meaning and effect of the provisions of this Mortgage shall be governed and determined by and under the laws of the State of New Jersey. IN WITNESS WHEREOF, the Mortgagor has hereunto set his hand and seal the day and year first above written. This instrument is intended to constitute an instrument under seal.
(INDIVIDUALS SIGN BELOW) (CORPORATIONS OR PARTNERSHIPS SIGN BELOW) Dynasil Corporation of America, Inc. and Subsidiary - ------------------------------- -------------------------------------------------------- Name Name of Corp. or Partnership By: /s/ Charles J. Searock, Jr. - ------------------------------- --------------------------------------------------- Name Charles J. Searock, Jr. Title President By: /s/ John Kane - ------------------------------- --------------------------------------------------- Name John Kane, CFO Title - ------------------------------- -------------------------------------------------------- Name Title - ------------------------------- -------------------------------------------------------- ATTEST/WITNESS Affix Corp. Seal
The undersigned, being authorized to do so, hereby certifies that the precise address of the within name Mortgagee is 379 N. Main Street, Doylestown, Pennsylvania 18901-0818. By: /s/ Suzanne M. Hartshorne ----------------------------------------- S.M.H. The undersigned hereby acknowledges receipt without cost of a true and correct copy of the within instrument on behalf of Mortgagor. By: /s/ John Kane ----------------------------------------- J.K. ACKNOWLEDGMENT STATE OF NEW JERSEY : : SS COUNTY OF : On _______________________, 19______, before me, the undersigned, personally appeared _______________________________________________________________________ known to me or satisfactorily proven to me to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged: / / that he/she/they executed the same for the purposes therein contained and desire that it be recorded as such; or / / that they are the President/Vice President and the Treasurer/Assistant Treasurer or Secretary/Assistant Secretary or General Partner of the corporation/partnership named in the foregoing instrument and that, in such capacities, being authorized so to do, executed the same for the purposes therein contained by signing the name and affixing the seal of the said corporation/partnership by themselves as such officers and desire that it be recorded as such. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. ----------------------------------------- Notary Public My Commission Expires: MB4-8:88 PREMIER BANK SECURITY AGREEMENT (all personal property) Doylestown, Pennsylvania July 10, 1998 In consideration of any loans, extensions of credit or other financial accommodations made or extended by PREMIER BANK, (hereinafter called "Bank"), and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and intending to be legally bound, the undersigned and the Bank hereby agree as follows: 1. Definitions. (A) The tern "Liabilities" shall include any and all indebtedness, obligations and liabilities of every kind and description of the undersigned to the Bank now or hereafter existing, arising directly between the undersigned and the Bank or acquired outright, conditionally or as collateral security from another by the Bank, absolute or contingent, primary or secondary, joint and/or several, secured or unsecured, due or to become due, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, direct or indirect including, without limiting the generality of the foregoing, indebtedness, obligations and liabilities to the Bank of the undersigned as a member of any partnership, syndicate, association or other group, and whether incurred by the undersigned as principal, surety, endorser, guarantor, accommodation party or otherwise. (B) The term "Collateral" shall mean, whether now owned or hereafter acquired, each of the following: (1) All of undersigned's tangible personal property, wheresoever located, leased or furnished, or held by the undersigned for sale or for lease or to be furnished under contracts of sale or service, and all raw materials, components, tools, work in process and materials used, produced or consumed in the undersigned's business as now or hereafter conducted, including all finished merchandise and all other tangible personal property (i) held by others for sale on consignment from the undersigned, or sold by the undersigned on a sale-or- return, on-memorandum or on-approval basis, (ii) returned to the undersigned by a purchaser following a sale by the undersigned, or (iii) represented by a document of title; all equipment, accessories, accessions and parts at any time attached or added to items of inventory or used in connection therewith, including packing and shipping materials, all of which shall herein be deemed parts of the undersigned's inventory. (2) All accounts, accounts receivable, contract rights, all other forms of obligations owing to the undersigned, chattel paper and general intangibles (including, without limitation, all existing and future rights, claims, benefits and proceeds under insurance policies, customer lists, choses in action, books, records, patents and patent applications, copyrights, trademarks, tradenames, blueprints and plans, trade secrets, sales contracts, licenses, formulas, tax and other types of refunds, tax attributes including carryovers and carrybacks, returned and unearned insurance premiums, claims, product designs, drawings and technical data); (3) All the specific items or units of equipment identified in any exhibit attached hereto and made a part hereof, every other item or unit of equipment or fixtures of the undersigned or in which the undersigned may have any rights, whether now existing or owned or hereafter created or acquired and wheresoever located, all accessions, software, parts, programs, accessories, licenses, patent rights, franchises, substitutions and replacements and additional equipment now or hereafter affixed to or used in connection with any of such equipment, and all guarantees, warranties and other undertakings of third parties (including insurers) held by or otherwise running in favor of the undersigned in respect of any of the foregoing; (4) All instruments, documents of title, policies and certificates of insurance, securities, bank deposits, deposit accounts, checking accounts, cash and currency; (5) All proceeds (including insurance proceeds) and products and all accessions, substitutions and replacements of and to any of the foregoing; and (6) All ledger sheets, files, books, records, documents and instruments (including, without limitation, computer programs, tapes and related electronic data processing software) ("Books and Records") relating to any of the foregoing. 2. Security Interest. In order to secure the due and punctual payment and performance of the Liabilities, the undersigned hereby grants to the Bank a continuing security interest in, and a general lien upon and/or right of set-off against, (a) the Collateral and (b) all property of the undersigned now or hereafter in possession of the Bank or any affiliate of the Bank in any capacity whatsoever, including but not limited to, any balance or share of any deposit, trust or agency account, and the proceeds of such property may be applied at any time and without notice to the Liabilities. The security interests granted pursuant hereto are granted as security only and shall not subject the Bank to, or transfer or in any way affect or modify, any obligation or liability of the undersigned with respect to any of the Collateral or any transaction which gave use thereto. 3. Further Assurances; Filings. At any time and from time to time, upon the demand of the Bank, the undersigned will: (1) deliver and pledge to the Bank, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Bank may request, any and all instruments, documents and/or chattel paper as the Bank may specify in its demand; (2) give, execute, deliver, file and/or record any notice, statement, instrument, document, agreement or other papers that may be necessary or desirable, or that the bank may request, in order to create, preserve, perfect, or validate any security interest granted pursuant hereto or to enable the Bank to exercise and enforce its rights hereunder or with respect to such security interest; (3) keep and stamp or otherwise mark any and all documents and chattel paper and its individual books and records relating to inventory, accounts and contractual rights in such manner as the Bank may require; (4) permit representatives of the Bank at any time to inspect its inventory and to inspect and make abstracts from the undersigned's Books and Records pertaining to any of the Collateral. The undersigned hereby irrevocably makes, constitutes and appoints the Bank (and any of the Bank's officers, employees or agents designated by the Bank) as the Bank's true and lawful attorney with the power (1) upon the occurrence of an Event of Default hereunder, to notify the post office authorities to change the address for delivery of the undersigned's mail to an address designated by the Bank and to receive, open and distribute all mail addressed to the undersigned, retaining all mail relating to the Collateral and forwarding all other mail to the undersigned; (2) at any time and from time to time, to send notices to all account debtors of the undersigned directing them to make full payment of their obligations to the undersigned to the Bank; and (3) to sign and file one or more financing statements under the Uniform Commercial Code naming the undersigned as debtor and the Bank as secured party and indicating therein the types or describing the items of Collateral herein specified. If the Bank considers such necessary or desirable, the Bank may file a carbon, photographic or other reproduction of this Agreement or any financing statement executed pursuant hereto as a financing statement in any jurisdiction as permitting. Without the prior written consent of the Bank the undersigned will not file or authorize or permit to be filed in any jurisdiction any such financing or like statement in which the Bank is not named as the sole secured party. With respect to the Collateral, or any part thereof, which at any time shall come into the possession or custody or under the control of the Bank or any of its agents, associates or correspondents, for any purpose, the right is expressly granted to the Bank, at its discretion, to transfer to or register in the name of itself or its nominee any of the Collateral, and whether or not so transferred or registered, to receive the income and dividends thereon, including stock dividends and rights to subscribe, and to hold the same as a part of the Collateral and/or apply the same as hereinafter provided; to exchange any of the Collateral for other property upon the reorganization, recapitalization or other readjustment of the undersigned and in connection therewith to deposit any of the Collateral with any nominee or depository upon such terms as it may determine; upon occurrence of an Event of Default hereunder to vote the Collateral so transferred or registered and to exercise or cause its nominee to exercise all or any powers with respect thereto with the same force and effect as an absolute owner thereof; all without notice and without liability except to account for property actually received by it. The bank shall be deemed to have possession of any of the Collateral in transit to or set apart for it or any of its agents, associates or correspondents. 4. Representations and Warranties. The undersigned represents and warrants to the Bank, which representations and warranties shall be continuing representations and warranties until the later of the occurrence of all of the undersigned's Liabilities being satisfied in full or the Bank's no longer having any duties to the undersigned, as follows: (A) The sole place of business or chief executive office of the undersigned (if the undersigned has more than one place of business) or residence (if the undersigned has no place of business) is located at the address set forth on the signature page hereof. All other places of business of the undersigned or other locations of Collateral, if any, are listed on the signature page hereof. (B) If a corporation, the undersigned is a corporation duly organized and existing in good standing under the laws of its jurisdiction of incorporation and qualified and licensed to do business in those jurisdictions where the conduct of business or ownership of properties requires such qualification; if a partnership, it is duly organized and existing under the laws of its jurisdiction of organization; and the undersigned has the power and authority to own the Collateral, to enter into and perform this Agreement and any other documents or instruments executed in connection herewith, and to incur the Liabilities. (C) This Agreement and any other documents or instruments executed in connection herewith have been duly authorized and/or executed and delivered and constitute the legal, valid and binding obligations of the undersigned, enforceable against the undersigned in accordance with their terms; and this Agreement and any other documents or instruments executed in connection herewith do not and will not violate any law or the charter or organizational documents or by-laws of the undersigned or any other agreement or instrument to which the undersigned or any of its property may be bound or subject. (D) No consent or approval of any debt or equity holder of the undersigned or of any public authority is necessary for the validity of this Agreement or any document or instrument executed in connection herewith. (E) The undersigned is, or to the extent that certain of the Collateral is to be acquired after the date hereof, will be, the owner of the Collateral free from any adverse lien, security interest or encumbrance. (F) The undersigned has filed all federal, state and local tax returns and other reports required to be filed and has paid or made adequate provision for all such taxes, assessments and other governmental charges. (G) No Reportable Event (as such is defined in the Employee Income Security Act of 1974, as amended ["ERISA"]) has occurred with respect to, nor has there been terminated any plan subject to ERISA and maintained for any employees of the undersigned or of any member of the control group (as defined in ERISA) of which the undersigned is a member. (H) No representation, warranty or statement made by the undersigned herein or in any certificate or document furnished or to be furnished pursuant hereto contains or will contain any untrue statement of a material fact or omits or will omit any material fact necessary to make it not misleading. 5. Convenants. The undersigned hereby convenants and agrees as follows: (A) The undersigned will defend the Collateral against all claims and demands of all persons at any time claiming any interest therein. (B) The undersigned will provide the Bank with prompt written notice of (i) any change in the chief executive office of the undersigned or the office where the undersigned maintains books and records pertaining to the Collateral, and (ii) the location or movement of any Collateral to or at an address other than one set forth on the signature page hereof, all such notices to be received by the Bank at least 30 days prior to any such change. (C) The undersigned will promptly pay any and all taxes, assessments and governmental charges upon the Collateral on the date such taxes, assessments, and governmental charges are due and payable, except to the extent that such taxes, assessments and charges shall be contested in good faith by the undersigned and adequate reserves are maintained therefor. Upon request of the Bank, the undersigned shall deliver such receipts and other proofs of payment as the Bank may desire. (D) The undersigned will immediately notify the Bank of: (i) any material adverse changes in its business, property or financial condition; (ii) the occurrence of an Event of Default under this Agreement; (iii) any seizure of the Collateral or any claims of third parties to the Collateral; and (iv) the institution of any litigation, governmental investigation or administrative proceedings against or materially affecting the undersigned. (E) The undersigned will have and maintain insurance at all times with respect to the Collateral against risks of fire (including so-called extended coverage) and theft, and such other risks, including business interruption, as the Bank may reasonably require containing such terms, in such form and amounts, for such periods and written by such companies as may be reasonably satisfactory to the Bank, such insurance to be payable to the Bank and the undersigned as their interest may appear. All policies of insurance shall provide for not less than thirty (30) days written minimum cancellation notice to the Bank, and the undersigned shall furnish the Bank with certificates or other evidence satisfactory to the Bank of compliance with the foregoing insurance provisions. (F) The undersigned will not sell or offer to sell or otherwise assign, transfer or dispose of the Collateral or any interest therein, without the written consent of the Bank; provided, however, unless the Bank notifies the undersigned otherwise, the undersigned may sell its inventory in the ordinary course of its business. (G) The undersigned will keep the Collateral free from any lien, security interest or encumbrance except in favor of the Bank and in good order and repair, reasonable wear and tear excepted, and will not waste or destroy the Collateral or any part thereof. The undersigned shall maintain its Books and Records in accordance with generally accepted accounting principles consistently applied, being the same accounting principles which the undersigned used in preparation of the last financial statements submitted to the Bank prior to the execution of this Agreement. (H) The undersigned will not use the Collateral in violation of any law, statute, regulation or ordinance. 6. General Authority. The Bank at its discretion may, whether or not any of the Liabilities be due, in its name or in the name of the undersigned or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for, or make any compromise or settlement deemed desirable with respect to, any of the Collateral, but shall be under no obligation so to do, or the Bank may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, or release, any of the Collateral, without thereby incurring responsibility to, or discharging or otherwise affecting any liability of, the undersigned or of any other obligated party. The undersigned hereby irrevocably appoints the Bank its true and lawful attorney, with full power of substitution, in the name of the undersigned, the Bank or otherwise, for the sole use and benefit of the Bank at the undersigned's expense, to exercise the foregoing powers to the extent permitted by law. The undersigned hereby ratifies all acts of the attorney. Neither the Bank nor its attorney will be liable for any acts or omissions or for any error of judgment or mistake of fact or law. This power, being coupled with an interest, is irrevocable until the Liabilities have been fully satisfied. The Bank shall not be required to take any steps necessary to preserve any rights against prior parties to any of the Collateral. 7. Event of Default and Remedies. It shall be an event of default under this Agreement upon the occurrence of any of the following events (an "Event of Default"); if any sum payable upon any of the Liabilities shall not be paid when due; or if the undersigned shall default in the performance of any of its agreements herein or in any instrument or document delivered pursuant hereto; or if the undersigned or any maker, drawer, acceptor, endorser, guarantor, surety, accommodation party or other person liable upon or for any of the Liabilities or Collateral ("Obligor") shall default in the performance of any Obligor's agreement with the Bank, die, dissolve, or become insolvent (however such insolvency may be evidenced), if a procedure or remedy supplementary to or in enforcement of judgment shall be resorted to or commenced against, or with respect to any property of, the undersigned, or any co-partnership or Obligor, or if a petition in bankruptcy or for any relief under any law relating to the relief of debtors, readjustment of indebtedness, reorganization, composition or extension shall be filed, or any proceeding shall be instituted under any such law, by or against the undersigned or any co-partnership or Obligor; or if any governmental authority or any court at the instance thereof shall take possession of any substantial part of the property of, or assume control over the affairs or operations of, or a receiver shall be appointed for, or for any substantial part of the property of, or a judgment, writ, or order of attachment or garnishment shall be issued or made against any of the property of, the undersigned or any co-partnership or Obligor, or if any indebtedness of the undersigned or of any co-partnership or Obligor shall become due and payable by acceleration of maturity thereof; or if the undersigned (if a corporation) or any Obligor shall be dissolved or be a party to any merger or consolidation without the written consent of the Bank. Upon the occurrence of an Event of Default hereunder, unless and to the extent that the Bank shall otherwise elect, all of the Liabilities shall become and be due and payable forthwith. Upon the occurrence of any Event of Default hereunder or in connection with any of the Liabilities (whether such default be that of the undersigned or of any Obligor), the undersigned shall, at the request of the Bank, assemble the Collateral at such place or places as the Bank designates in its request. The Bank shall have the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not the Code is in effect in the jurisdiction where the rights and remedies are asserted). In addition, with respect to the Collateral, or any part thereof, which shall then be or shall thereafter come into the possession or custody of the Bank or any of its agents, associates or correspondents, the Bank may sell or cause to be sold, leased or otherwise disposed of, in one or more sales or parcels, at such price as the Bank may deem best, and for cash or on credit or for future delivery, without assumption of any credit risk, all or any of the Collateral, at any broker's board or a public or private sale, without demand of performance or notice of intention to sell or of time or place of sale (except such notice as is required by applicable statute and cannot be waived), and the Bank or anyone else may be the purchaser of any or all of the Collateral so sold and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any equity of redemption, of the undersigned, any such demand, notice or right and equity being hereby expressly waived and released. The undersigned will pay to the Bank all expenses (including expenses for legal services of every kind) of, or incidental to, the enforcement of any of the provisions hereof or of any of the Liabilities, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement of any of the Collateral or receipt of the proceeds thereof, and for the care of the Collateral and defending or asserting the rights and claims of the Bank in respect thereof, by litigation or otherwise, including expense of insurance; and all such expenses shall be Liabilities within the terms of this Agreement. The Bank, at any time, at its option, may apply the net cash receipts from the Collateral to the payment of principal and/or interest on any of the Liabilities, whether or not then due. Notwithstanding that the Bank, whether in its own behalf and/or in behalf of another or others, may continue to hold Collateral and regardless of the value thereof, the undersigned shall be and remain liable for the payment in full, principal and interest, of any balance of the Liabilities and expenses at any time unpaid. The proceeds of any Collateral received by the Bank at any time before or after an Event of Default, whether from a sale or other disposition of Collateral or otherwise, or the Collateral itself, may be applied to the payment in full or in part of such of the Liabilities, and in such order and manner as the Bank may elect. The undersigned, to the extent of its rights in the Collateral, waives and releases any rights to require the Bank to collect any or all of the Liabilities from any of the Collateral under any theory of marshalling of assets. 8. Right of Set-Off. In furtherance and not in limitation of any provisions herein contained and in addition to the grant of security interest in the same Collateral, the undersigned hereby agrees that any and all deposits or other sums at any time claimed by or due from the Bank to the undersigned shall at all times constitute security for the Liabilities and the Bank may exercise any right of set-off against such deposits or other sums as may accrue or exist under applicable law. 9. Miscellaneous. (A) No failure on the part of the Bank to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or remedy under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by the Bank of any right, power or remedy under this Agreement preclude any other right, power or remedy. The remedies in this Agreement are cumulative and are not exclusive of any other remedies provided by law. The undersigned hereby waives presentment, notice of dishonor and protest of all instruments included in or evidencing the Liabilities or the Collateral of any and all other notices and demands whatsoever, whether or not relating to such instruments. The undersigned also waives trial by jury in any action on or with respect to this Agreement. (B) The Bank may assign, transfer and/or deliver to any transferee of any of the Liabilities any or all of the Collateral and thereafter shall be fully discharged from all responsibility with respect to the Collateral so assigned, transferred and/or delivered. Such transferee shall be vested with all the powers and rights of the Bank hereunder with respect to such Collateral, but the Bank shall retain all rights and powers hereby given with respect to any of the Collateral not so assigned, transferred or delivered. (C) No provisions hereof shall be modified or limited except by a written instrument expressly referring thereto and to the provisions so modified or limited. (D) The undersigned, if more than one, shall be jointly and severally liable hereunder and all provisions hereof regarding the Liabilities or Collateral of the undersigned shall apply to any Liability or any Collateral of any or all of them. (E) This Agreement shall be binding upon the heirs, executors, administrators, assigns or successors of the undersigned; shall constitute a continuing agreement, applying to all future as well as existing transactions, whether or not of the character contemplated at the date of this Agreement, and if all transactions between the Bank and the undersigned shall be at any time closed, shall be equally applicable to any new transactions thereafter; and shall be construed according to the laws of the Commonwealth of Pennsylvania. This Agreement and the transactions contemplated hereby constitute commercial activities of the undersigned. The undersigned expressly submits and consents in advance to the jurisdiction of courts located in the Commonwealth of Pennsylvania in any action or proceeding commenced in such court, hereby waiving personal service of the summons and complaint, or other process or papers issued therein agreeing that service of such summons and complaint or other process may be made by registered mail or certified mail addressed to the undersigned at the address set forth on the signature page hereof or other address used by the undersigned in its business or by any other means or service allowed by law. The exclusive choice of forum set forth in this Agreement shall not be deemed to preclude the enforcement of any judgment obtained in such forum or the taking of any action under this Agreement to enforce same in any appropriate jurisdiction. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. All prior agreements, understandings, representations, warranties and negotiations, if any, are merged into this Agreement. Unless the context otherwise requires, all terms used herein which are defined in the Uniform Commercial code shall have the meanings therein stated. (F) The undersigned acknowledges receipt of an executed and completed copy of this Agreement. Dynasil Corporation of America, Inc. and Subsidiary ---------------------------------------- Witness/Attest: (Name) By: /s/ Charles J. Searock, Jr. By: /s/ John Kane ------------------------------- ---------------------------------------- Charles J. Searock, Jr. John Kane Title: President Title: CFO ---------------------------- ---------------------------------------- Address: 385 Cooper Road ---------------------------------------- (Number and Street) West Berlin, Camden Co., West Berlin, NJ ---------------------------------------- (City, County, State) 08091 (Location of Collateral, if different from above Address): ---------------------------------------- (Number and Street) ---------------------------------------- (City, County, State) PREMIER BANK By: /s/ Suzanne M. Hartshorne ---------------------------------------- Suzanne M. Hartshorne Title: Vice President ---------------------------------------- EXHIBIT FOR EQUIPMENT DESCRIPTION 1238-5 2-88 Dynasil Corporation of America, Inc. and Subsidiary TERM AND CONDITIONS: BORROWER agrees to provide Bank with annual audited financial statements and tax returns, as well as quarterly compiled financial statements. BORROWER also agrees to provide Bank with monthly agings of receivables and payables as well as an inventory break-down including raw materials work in progress and finished goods. BORROWER agrees to provide evidence of payment in full of the note receivable from Hibshman Pacific of $175,000.00 prior to disbursement of bank funds. IN THE EVENT Dynasil Corporation extends a Rights Offering, the first $200,000.00 is to be appplied directly to the principal outstanding term debt with Premier Bank. ADDITIONALLY, any use of proceeds of the Rights Offering in excess of $50,000 per three month period is to be approved by Bank in advance. FINALLY, BORROWER is to submit to Bank to be approved by Bank, any projected use of funds for capital improvements. PREMIER BANK /s/ Suzanne M. Hartshorne ---------------------------------------- Suzanne M. Hartshorne, Vice President DYNASIL CORPORATION OF AMERICA, INC, AND SUBSIDIARIES /s/ John Kane - ------------------------------------ John Kane, CFO /s/ Charles J. Searock, Jr. - ------------------------------------ Charles J. Searock, Jr., President Premier Bank (LOGO) - ------------------------ LOAN AGREEMENT THIS AGREEMENT is made this 10th day of July, 1998, by PREMIER BANK, (the "Bank"), and the undersigned, DYNASIL CORPORATION OF AMERICA, INC. AND SUBSIDIARY ("Borrower"), with its principal office at 385 COOPER ROAD, WEST BERLIN, NJ 08091. A. Credit Accommodations. Subject to the terms and conditions hereinafter set forth, Bank agrees to extend to Borrower the following credit accommodation(s) ("Credit Accommodations(s)"), which shall be evidenced by promissory note(s) ("Note(s)"): 1. A Line of Credit, expiring on DEMAND, 19____, under which the Bank, in its discretion, will make advances to Borrower from time to time and Borrower may borrow, repay and reborrow from Bank subject to the following terms: a. Maximum outstanding principal amount of advances - $300,000.00. b. Interest on the outstanding principal balance at the following rate: i. Bank's base rate of interest plus 0%. ii. Interest payable (monthly/quarterly) commencing when billed, 19____. iii. Borrower shall reduce the amount of the outstanding principal under the Line of Credit to zero for one consecutive 30-day period during each year after the date hereof while the Line of Credit is in effect. c. BORROWER ACKNOWLEDGES THAT THE LINE OF CREDIT AND ANY ADVANCE THEREUNDER IS PROVIDED SOLELY AT BANK'S DISCRETION AND THE LINE OF CREDIT MAY BE TERMINATED AT ANY TIME AND FOR ANY REASON WHATSOEVER. 2. A Term Loan subject to the following terms: a. Principal amount - $ N/A. b. Interest on the outstanding principal balance at the following rate: i. Bank's base rate of interest plus N/A%. ii. Other rate terms - N/A c. Payment terms: i. Interest payable monthly commencing N/A, 19___. ii. Principal payable in N/A consecutive (monthly/quarterly) installments in the amount of $N/A each, or in the following amounts, commencing, N/A, 19___, with a final installment in the amount of the unpaid balance on N/A, 19___. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3. Borrower shall pay the following fees to Bank for the Credit Accommodations: None 4. When interest hereunder is based on Bank's base rate, it shall be based upon the rate of interest publicly announced from time to time by Bank in Doylestown, Pennsylvania as its "Base Rate." The Bank's Base Rate is defined as the then-published Wall Street Journal Prime Rate of Interest in effect from time to time plus one percent. The applicable rate will change when and as Bank changes its base rate. 5. Interest and any fees shall be calculated on the basis of a 360-day year and the actual number of days elapsed. 6. A late fee will be charged on the portion of any payment made more than twenty (20) days after it is due equal to five (5%) percent of the unpaid amount or twenty-five ($25.00) dollars, whichever is greater. B. Representations and Warranties. Borrower represents and warrants and, at the request of Bank will provide a legal opinion (stating that subparagraph 1 of this Section is correct and that subparagraphs 2, 3, 4, and 5 are correct to the best of counsel's knowledge), that: 1. Borrower is a (corporation) duly organized, validly existing and in good standing under the laws of the state of its organization, and has the necessary power and authority to enter into and perform this Agreement, the Note(s) and all other documents required by Bank in connection herewith; the execution and performance thereof have been duly authorized by all necessary proceedings, and upon their execution and delivery, they will be valid, binding and enforceable in accordance with their terms; Borrower's execution and performance of this Agreement will not violate any laws or regulations applicable to Borrower, any organizational documents of Borrower or any agreements (including any provisions of subordinated debt) to which Borrower is a party or by which Borrower or any of its properties is bound; and any consents or approval required in connection with this Agreement have been obtained. 2. The proceeds of the Credit Accommodation(s) will be used only in connection with Borrower's business, for the following purposes: Support cash flow needs. 3. All financial statements, statements as to ownership of Borrower and its assets, and other statements and information delivered to Bank were prepared in accordance with generally accepted accounting principles consistently applied, are true and correct, disclose all presently outstanding indebtedness or obligations of Borrower, including contingent obligations and obligations under leases of property from others, and all liens and encumbrances against its properties and assets; and there have been no adverse changes in Borrower's financial condition or business since the date of such statements. 4. There are no actions, suits, proceedings or claims pending or threatened against Borrower or its property; and Borrower's business is in compliance with all applicable laws and regulations. 5. Any debt of Borrower is not now and at closing hereunder will not be in default under any provision thereof. C. Conditions. The obligation of Bank to make the first advance under the Credit Accommodation(s) shall be subject to Bank's receipt of the following collateral security and/or duly executed documents, each in form and substance satisfactory to Bank: 1. The Note(s) executed by Borrower. 2. A certificate as to Borrower's actions authorizing the Credit Accommodation(s) (i.e., certified Board of Directors resolutions if Borrower is a corporation; certified copy of partnership agreement if Borrower is a partnership). 3. The following collateral security, subordination and guaranty documents including any documents and actions required to perfect any collateral security: 1st Lien on A/R, inventory, machinery & equipment, leasehold improvements and 1st mortgage on 385 Cooper Road, West Berlin, NJ. 4. Bank shall have no obligation to make loans hereunder if any Event of Default described in paragraph G hereof has occurred. D. Affirmative Covenants. Borrower covenants and agrees that so long as there is outstanding indebtedness of Borrower to Bank under the Credit Accommodation(s) or otherwise, Borrower shall: 1. Maintain current assets in excess of current liabilities by at least $------; maintain current assets of at least -----% of current liabilities; maintain total liabilities in an amount not in excess of -----% of tangible net worth; and maintain the following additional financial ratios: ----- ---- such foregoing financial terms to be defined in accordance with generally accepted accounting principles consistently applied. 2. Maintain free balances in demand deposit accounts at Bank in average amounts calculated as follows: ----------------- 3. Deliver to Bank financial statements, including a balance sheet and income statement and such other financial statements and reports as requested by Bank, within ninety (90) days of the end of each fiscal year and within forty-five (45) days of the end of each fiscal quarter; and permit representatives of Bank to examine and audit Borrower's (and its subsidiaries) books and records and to inspect Borrower's facilities and properties. All such reports shall be prepared in accordance with generally accepted accounting principles consistently applied, certified by a public accountant satisfactory to Bank. Upon written request of Bank, Borrower will provide this information in consolidating as well as consolidated form. 4. Notify Bank of any litigation, proceedings or events involving Borrower which might have a material adverse effect on Borrower's financial condition or business or the payment of its indebtedness under the Credit Accommodation(s). 5. Keep and maintain (and require subsidiaries to keep and maintain) all of its property and assets in good order and repair and maintain fire, public liability and other insurance in coverages and amounts customary for Borrower's business or as Bank from time to time may require and deliver to Bank certificates of all such insurance in effect; and cause all such policies covering property given as security for the Credit Accommodation(s) to have loss payee endorsements in favor of Bank and not to be subject to cancellation unless thirty (30) days prior written notice thereof shall have been received by Bank. 6. Pay (and require subsidiaries to pay) and discharge when due all taxes, assessments or other governmental charges imposed on it or any of its properties, unless the same are currently being contested in good faith by appropriate proceedings and adequate reserves are maintained therefor. E. Negative Covenants. So long as there is outstanding indebtedness of Borrower to Bank under the Credit Accommodation(s) or otherwise, Borrower and subsidiaries shall not, without the prior written consent of Bank: 1. Incur any indebtedness, including obligations under capitalized leases, except indebtedness owing to Bank, existing indebtedness or trade indebtedness arising in the ordinary course of business; guarantee or otherwise become liable, directly or indirectly, for the indebtedness or obligations of another party; make any loans or advances to others; or create, permit or suffer the creation of any liens, security interests or any other encumbrances on any of its property, real or personal, except liens, security interests or encumbrances in favor of Bank or existing on the date hereof and reported to Bank. 2. Convey, lease, sell, transfer or assign any assets except in the ordinary course of business for value received; liquidate or discontinue its normal operations with intention to liquidate; enter into any merger or consolidation; or acquire assets or stock or other equity interest of another entity except in the ordinary course of business. 3. Pay any dividends or make any for of withdrawal from capital, or make any other distributions on, or repurchase, redeem or otherwise acquire, any of its outstanding stock, partnership interests or other equity interests. 4. Sell, assign, transfer or dispose of any of its accounts or notes receivable, with or without recourse, except to Bank. 5. Make loans or advances to others. 6. Become a guarantor, surety or otherwise liable for the debts or obligations of others, except to Bank, and except as an endorser of checks or drafts negotiated in the ordinary course of business. 7. Incur, create or assume any commitment to make any lease payments except - - - - - - - - - - __________________________________________________________________________. Lease payments are defined as any direct or indirect payment or payments whether as rent or otherwise, including fees, service or finance charges, under any lease, rental or other arrangement for the use of property of any other person and whether or not there is an option to purchase. 8. Enter into any sale-leaseback transactions. 9. Prepay any amounts not required or cause to be accelerated any amounts on any outstanding indebtedness now existing or hereafter arising, except to Bank. 10. Pay salaries, withdrawals or compensation to officers or partners of Borrower in an amount exceeding $ - - - - - - - - - - __________________________________________ in the aggregate per year. 11. Expend for fixed assets during any one fiscal year an amount in excess of- - - - - - - - - - _______________________________________________________________________ ________________________ DOLLARS ($ - - - - - - - - - - ______________________________) other than any fixed assets purchased with the proceeds of loans by Bank to Borrower. 12. If Borrower is a corporation, sell, issue, or agree to sell or issue, any shares (voting, non-voting, preferred or common of any class) or Borrower, or purchase such shares except under such circumstances as will in the opinion of Bank not result in a material adverse change in the financial or business condition of Borrower or the value of any security held by Bank. F. Additional Collateral. As additional collateral security for the payment of Borrower's indebtedness and obligations to Bank under the Credit Accommodation(s) or otherwise, Borrower hereby grants to Bank a security interest in and lien upon all funds, balances or other property of any kind of Borrower, or in which Borrower has an interest, now or hereafter in the possession, custody or control of Bank. G. Default. Upon the occurrence of any of the following events of default, Bank may declare the entire unpaid balance, principal and interest, of all indebtedness of Borrower to Bank under the Credit Accommodation(s) or otherwise to be immediately due and may exercise all available rights and remedies under applicable law and agreements: 1. Failure to pay when due any principal or interest or any other sum payable to Bank under the Credit Accommodation(s) or otherwise. 2. If any representation or warranty made herein or in connection herewith or in any statement, certificate or other document furnished hereunder proves to be or becomes false or untrue. 3. Default under any other provision contained herein or in any other agreement or document executed or delivered in connection herewith and the continuation of such default, unless cured to Bank's satisfaction, for twenty (20) days. 4. Default by Borrower in the payment or performance of any material obligation or indebtedness to another, whether now or hereafter incurred. 5. Any default by Borrower or by any guarantor or surety for Borrower under the provisions of any note, security agreement, mortgage or other instrument or agreement incorporated by reference into or executed in connection with the Agreement or in connection with any other obligation of Borrower or any guarantor or surety for Borrower to Bank. 6. The determination by an officer of Bank, in such officer's sole and absolute discretion, that a material, adverse change in the business or financial condition of Borrower, or of any guarantor or surety for Borrower, has occurred. 7. If bankruptcy, insolvency, reorganization, receivership, arrangement or other similar proceedings are commenced or filed by or against Borrower under state or federal law; or if Borrower shall (i) become insolvent (which term is defined for purposes thereof as failure to meets its obligations as the same fall due); (ii) make an assignment for the benefit of creditor; (iii) apply for, consent to or suffer the appointment of a custodian, receiver or trustee for any part of its property or assets; or (iv) fail to satisfy or appeal any material judgment or attachment within thirty (30) days from the date of entry. H. Miscellaneous. No consent or waiver under this Agreement shall be effective unless in writing signed by the party granting the consent or waiver. No waiver of any default shall be deemed a waiver of any default thereafter occurring. This Agreement and all documents executed hereunder shall be binding upon and shall inure to the benefit of all parties hereto and their respective heirs, personal representatives, successors and assigns, may only be modified or amended by a written document executed by the parties, and shall be governed by Pennsylvania law. Borrower shall pay all fees and costs incurred by Bank (including fees and costs of its legal counsel) in connection with the creation and perfection of any collateral security required hereunder or the collection or enforcement of the indebtedness and collateral security hereunder. Bank is hereby irrevocably appointed Borrower's attorney-in-fact to do all acts and things which Bank may determine are necessary to perfect and continue perfected the security interests created pursuant to this Agreement and to protect and facilitate the collection of amounts due on any accounts receivable assigned to Bank and any other property constituting security. Borrower will pay any stamp taxes or any taxes in the nature thereof which may be payable in connection with the execution and delivery of the promissory notes and other documents. Borrower hereby forever indemnifies and saves Bank harmless against any and all liability which Bank may incur or which may be assessed against Bank with respect to such tax. The terms of any notes, security agreements or other instruments executed pursuant to this Agreement are expressed incorporated herein and made a part hereof; provided, however, that in any case where a term or condition contained in such note, security agreement, or other instrument cannot be construed (despite every effect to do so) as consistent with the terms of this Agreement, this Agreement shall govern. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby. This Agreement shall be in full force and effect for a term commencing on the date hereof and terminating at such time as Borrower shall have satisfied in full or been released from all of Borrower's liabilities and obligations to Bank hereunder. I. Additional Terms. Borrower hereby agrees to the following additional terms attached hereto and forming a part hereof: [1. Additional Terms Schedule] See attached Term/Conditions IN WITNESS WHEREOF, the undersigned have executed this Agreement the day and year first above written. Attest or Witness: Dynasil Corporation of America, Inc. and Subsidiary ------------------------------------------------------ [Name of Borrower] By Charles J. Searock, Jr. By John Kane ----------------------- --------------------------------------------------- Title: Charles J. Searock, Jr., Title: John Kane, CFO President PREMIER BANK By Suzanne M. Hartshorne -------------------------------------------------- Title: Suzanne M. Hartshorne, Vice President
PREMIER BANK (LOGO) PROMISSORY NOTE (JUDGMENT) Doylestown, Pennsylvania July 10, 1998 $300,000.00 FOR VALUE RECEIVED, each of the undersigned unconditionally promises to pay to PREMIER BANK, (the "Bank"), or order, at its office at 379 N. Main Street, Doylestown, PA, or at any other office of the Bank, the principal sum of Three Hundred Thousand Dollars and 00/100 United States Dollars ($300,000.00), together with interest in arrears on the unpaid principal balance from time to time outstanding from the date hereof until the entire principal amount due hereunder is paid in full at the rates hereinafter provided. Principal shall be payable as follows: /x/ If this box is checked, principal shall be payable on demand. / / If the box is checked, principal shall be payable in a single payment on ___________________________. / / If this boxed is checked, principal shall be payable in / / monthly / / quarterly / / annual consecutive installments commencing ____________________ and on the same date of each installment period thereafter, in the following amounts:______________________________ ___________________________________________________________________ ___________________________________________________________________ except that the last installment, payable on ______________________, shall be in an amount equal to the principal balance then remaining outstanding. Interest shall be payable as follows until this Note is paid in full: /x/ If this box is checked, monthly on the first day of each month commencing when billed. / / If this box is checked, quarterly on the first day of each quarter commencing _________________________________. / / If this box is checked, semi-annually on the first day of each six months commencing __________________________. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days and shall be payable, before and after maturity or judgment or entering of a verdict, at the following rate: / / If this box is checked, the interest rate shall be ________________ percent (_______%) per annum. /x/ If this box is checked, the interest rate shall be the Prime Rate (as defined below) plus zero percent (+ 0 % ) per annum. Prime Rate means the floating rate of interest publicly announced from time to time by the Bank in Doylestown, Pennsylvania as its "prime rate", with the rate charged hereunder changing on the same day on which any change in the Prime Rate is effective. The obligors under this Note hereby acknowledge that the Prime rate is not tied by the Bank to any external rate of interest or index and does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customer. This Note may be prepaid in whole or in part at any time; provided that (a) any prepayment shall include accrued interest to the date of prepayment on the amount prepaid, and (b) if principal hereunder is payable in installments, any principal prepaid shall be applied to installments in their inverse order of maturity. The Bank is hereby granted a continuing security interest in all property of the undersigned now or hereafter in the possession of the Bank or any of its affiliates in any capacity whatsoever, including, but not limited to, any balance or share of any deposit, trust or agency account, as security for the payment of this Note and any other liabilities of the undersigned to the Bank, which security interest shall be enforceable and subject to all the provisions of this Note, as if such property were specifically pledged hereunder and the proceeds of such property may be applied at any time and without notice to any of the undersigned's liabilities. Each of the undersigned hereby authorizes the Bank to debit any deposit account maintained by any of the undersigned with the Bank for accrued interest and principal, as and when due. Such authorization shall not affect the undersigned's obligations to pay when due all amounts payable hereunder whether or not there are sufficient funds therefor in any such accounts. The foregoing shall be in addition to, and not in limitation of, any rights of set-off the Bank may have. The occurrence of any of the following events shall constitute an Event of Default under this Note: (i) the failure to make any payments, whether principal, interest or other payment, under any of the undersigned's liabilities when the same is due, (ii) death of (if an individual), dissolution (if a corporation or partnership), suspension of business for any reason or insolvency (however such insolvency may be evidenced) of any obligor hereunder, (iii) bankruptcy, insolvency, reorganization, receivership, arrangement or other similar proceedings are commenced or filed by or against any obligor under state or federal law; or any obligor shall (a) become insolvent (which term is defined for purposes hereof as failure to meet its obligations as the same fall due); (b) make an assignment for the benefit of creditors; or (c) apply for, consent to or suffer the appointment of a custodian, receiver or trustee for any part of its property or assets; (iv) the sale, lease, transfer or other disposition, whether voluntary or involuntary, of all or a substantial part of any obligor's assets or property, (v) the issuance of a writ, warrant, distraint or order of attachment or garnishment against any obligor's property or assets, (vi) the commencement of foreclosure proceedings or any proceedings for the enforcement of money judgments against any obligor (vii) the occurrence of an event of default as described and defined in any instrument securing the obligations hereunder or any agreement under which this Note may be issued or any instrument evidencing any indebtedness of any of the undersigned to the Bank and the expiration of any period provided in such instrument to cure such default; (viii) any of the undersigned shall fail to pay any indebtedness due to third parties beyond any applicable grace period or (ix) any change shall occur in any obligor's financial or business condition which, in the Bank's sole judgment, is materially adverse. Upon the happening of any Event of Default, or upon demand, if applicable, the holder hereof may declare the entire unpaid principal balance under this Note and under any and all other liabilities of the undersigned to the holder hereof immediately due and payable without notice, demand or presentment and may exercise, without notice, demand or presentment, any of its rights under any instruments securing the obligations hereunder. In the event that the Bank or any subsequent holder of this Note shall exercise or endeavor to exercise any of its remedies hereunder or under any instruments securing the obligations hereunder, the undersigned shall pay on demand all reasonable costs and expenses incurred in connection therewith, including, without limitation, attorney's fees (which attorneys may be employees of the Bank), and the bank may take judgment for all such amounts in addition to all other sums due hereunder. Irrespective of the exercise or non-exercise of any of the aforesaid rights, if any payment of principal or interest hereunder is not paid in full when the same is due the undersigned shall pay to the holder a fee on such unpaid amount equal to five percent (5%) of such late payment. Each of the undersigned waives presentment for payment, protest and demand, and notice of protest, demand and/or dishonor and nonpayment of this Note, notice of any event of default under any instrument securing the obligations hereunder, except as specifically provided therein, and all other notices or demand otherwise required by law that the undersigned may lawfully waive. Each obligor expressly agrees that this Note, or any payment hereunder, may be extended from time to time, without in any way affecting the liability of any obligor. No unilateral consent or waiver by the Bank with respect to any action or failure to act which, without consent, would constitute a breach of any provision of this Note shall be valid and binding unless in writing and signed by the Bank. The rights and obligations of the undersigned and all provisions hereof shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Each of the undersigned hereby authorizes the Bank to date this Note as of the date when the initial advance hereunder is made and to complete this Note in any other particulars according to the terms of the Bank's understanding with the undersigned. Any consent, agreement, instruction or request pertaining to any matter under or in connection with this Note signed by any one of the undersigned shall be binding upon all of them. THE FOLLOWING SETS FORTH A WARRANT OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED, THE UNDERSIGNED, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR THE UNDERSIGNED AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY WAIVES ANY AND ALL RIGHTS THE UNDERSIGNED HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA. IT IS SPECIFICALLY ACKNOWLEDGED THAT THE BANK HAS RELIED ON THIS WARRANT OF ATTORNEY IN GRANTING THE FINANCIAL ACCOMMODATIONS DESCRIBED HEREIN. EACH OF THE UNDERSIGNED HEREBY EMPOWERS ANY PROTHONOTARY CLERK OF COURT OR ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR ANY OF THE UNDERSIGNED IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER, AND CONFESS JUDGMENT AGAINST ANY OF THE UNDERSIGNED FOR ALL OR ANY PART OF THE UNPAID PRINCIPAL BALANCE HEREUNDER AND ACCRUED INTEREST, TOGETHER WITH OTHER EXPENSES INCURRED IN CONNECTION THEREWITH AND ATTORNEYS' FEES OF 5% OF THE TOTAL OF THE FOREGOING SUMS, BUT IN NO EVENT LESS THAN $3,000, AND FOR SUCH PURPOSE THE ORIGINAL OR ANY PHOTOCOPY OF THIS NOTE SHALL BE A GOOD AND SUFFICIENT WARRANT OF ATTORNEY. SUCH AUTHORIZATION SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME. EACH OF THE UNDERSIGNED HEREBY WAIVES ALL ERRORS AND RIGHTS OF APPEAL AS WELL AS RIGHTS TO STAY OF EXECUTION AND EXEMPTION OF PROPERTY IN ANY ACTION TO ENFORCE ITS LIABILITY HEREON. EACH OF THE UNDERSIGNED CONSENTS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND AGREES TO BUCKS COUNTY AS APPROPRIATE VENUE IN ANY SUIT OR ACTION HEREON. If this Note is signed by more than one maker, the liability of each shall be joint and several. EACH OF THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY AND THE RIGHT TO INTERPOSE ANY COUNTERCLAIM OR OFFSET OF ANY NATURE OR DESCRIPTION IN ANY LITIGATION RELATING TO THIS NOTE OR ANY LIABILITY HEREUNDER OR ENFORCEMENT OR REMEDIES HEREUNDER. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity of enforceability of such provision in any other jurisdiction. As used herein, the terms, "the undersigned" shall mean the undersigned or any one or more of them; "liabilities" shall mean any and all debts and obligations of the undersigned owed to the Bank whether such shall be primary, direct, contingent, sole, joint or several, due or to become due, or that have or may hereafter be contracted or incurred; and "obligor' shall mean each of the undersigned and any co-signer, endorser, guarantor or surety of or for the undersigned's liabilities. Address: 385 Cooper Road Dynasil Corporation of America, Inc. --------------- --------------------------------------------- West Berlin, NJ and Subsidiary --------------- /s/ Charles J. Searock, Jr. --------------------------------------------- Charles J. Searock, Jr., President /s/ John Kane --------------------------------------------- John Kane, CFO EX-10.02 11 LOAN AGREEMET & ASSOCIATED DOCUMENTS DATED 7/10/98 EXHIBIT 10.02 LOAN AGREEMENT AND ASSOCIATED DOCUMENTS DATED JULY 10, 1998 WITH PREMIER BANK, FOR A $1,300,000 LINE OF CREDIT This instrument was prepared by: Premier Bank - ---------------------------------------------- (Name) 379 North Main Street PREMIER BANK (LOGO) - ---------------------------------------------- ----------------------- (Address) Doylestown, PA 18901 - ---------------------------------------------- to whom the recorded copy of this instrument is to be returned. MORTGAGE THIS MORTGAGE MADE THIS 10th day of July, 1998, is between, DYNASIL CORPORATION OF AMERICA, INC. AND SUBSIDIARY, with an address of 385 COOPER ROAD, WEST BERLIN, NJ (each jointly and severally, if more than one person, and hereinafter referred to as "Mortgagor") and Premier Bank, the Mortgagee ("Bank"), with a mailing address of 379 N. Main Street, Doylestown, PA 18901-0818. In consideration for and to secure payment and performance to Bank of all of the Obligations, as that term is defined in subparagraphs (a) through (d) below, Mortgagor has granted, bargained, sold, conveyed, released, assigned, transferred, pledged, mortgaged and confirmed, and by these presents does hereby grant, bargain, sell, convey, release, assign, transfer, pledge, mortgage and confirm unto Bank, its successors and assigns, forever: ALL THAT CERTAIN real estate situated in the County of Camden, State of New Jersey, known and designated as 385 Cooper Road, Township of Berlin, conveyed to Mortgagor by Deed dated 04/18, 1966, duly recorded in the office for recording of deeds in said County on 04/21, 1966 at Deed Book 2884, Page 54, as the Premises are therein described and, if necessary, as more particularly described on Exhibit "A" attached hereto and made a part hereof (hereinafter the "Premises"); Lot & Block 3, 4 & 1910. THE PREMISES SHALL include all right, title and interest of Mortgagor in and to all present and future structures, buildings and improvements located thereon, together with all common areas, streets, lanes, alleys, passageways, passages, ways, water courses, strips and gores of land, easements, estates, rights, titles, interests, liberties, privileges, tenements, hereditaments and appurtenances, whatsoever therunto belonging to or in any way made appurtenant thereto; all leases and subleases of all or any part of the Premises and rights of payment thereunder; the air space above and right to use the air space above, and the drainage, crops, timber, agricultural, horticultural, mineral, water, oil and gas rights with respect to the Premises, at law or in equity, all machinery, apparatus, equipment, furniture, fixtures, including without limitations, trade fixtures, goods, appliances and other property of every kind, nature and description whatsoever, now or hereafter located in, on or about, or attached to or used in connection with, the Premises, together with any and all replacements and substitutions thereof and all accessories, parts or accessions thereto now or hereafter owned by the Mortgagor or in which Mortgagor has or may obtain any interest, and all awards, damages, payments and/or claims arising out of any eminent domain or condemnation proceeding, damage or injury to any part of the Premises and/or any buildings, structures, or improvements thereon (the Premises, together with all of the foregoing, is hereinafter referred to as the "Mortgaged Property"); TO HAVE AND TO HOLD the Mortgaged Property hereby conveyed or mentioned and intended so to be, unto Bank, to its own use, forever. PROVIDED, ALWAYS, that this instrument is upon the express condition that, if Mortgagor promptly satisfied all of the Obligations, as hereinafter defined, in accordance with the provisions of the Loan Documents, as hereinafter defined, and this Mortgage, at the times and in the manner specified, without deduction, fraud or delay, and if all the agreements, conditions, covenants, provisions and stipulations contained therein and in this Mortgage and in the Loan Documents are fully performed and complied with, then this Mortgage and the estate hereby granted shall cease, determine and become void. As used in this Mortgage, "Obligations" means any or all of the following: (a) The indebtedness, liabilities and obligations of Mortgagor to Bank, including all present and future advances, arising under a certain Note dated ______________, 19____, in the original principal amount of ONE MILLION THREE HUNDRED THOUSAND AND 00/100 Dollars ($1,300,000.00), plus interest, costs and charges thereon, and/or any amendment, modification, refinancing, renewal, substitution or extension of the Note (hereinafter the "Note"), and all other liabilities of Mortgagor to Bank described in any agreements, documents and instruments executed in connection therewith (hereinafter collectively referred to as the "Loan Documents"); (b) All other existing and future indebtedness, liabilities and obligations of Mortgagor to Bank whether sole, joint or several, matured or unmatured, direct or indirect, absolute or contingent, or any nature whatsoever, and out of whatever transactions arising, including, without limitation, any debt, liability or obligation owing from Mortgagor to others which Bank may obtain by assignment or otherwise, excepting only any indebtedness constituting "Consumer Credit" as that term is defined in Regulation Z, 12 C.F.R. Section 226.1 et seq.; (c) The costs of curing any Event of Default set forth in this Mortgage or in the Loan Documents which the Bank elects to cure; and (d) The reasonable costs and expenses, including attorneys' fees incurred by Bank in enforcing any of the obligations of Mortgagor specified in (a), (b) and (c) above. MORTGAGOR REPRESENTS, COVENANTS AND WARRANTS to and with Bank that, until the Obligations secured hereby are fully paid and performed: 1. Payment and Performance. Mortgagor shall pay to Bank in accordance with the terms of the Note, this Mortgage and the other Loan Documents, the principal, interest and other sums therein and herein set forth and shall perform and comply with all the agreements, conditions, covenants, provisions and stipulations of the Note, this Mortgage and the Loan Documents. 2. Warranty of Title. Mortgagor warrants that Mortgagor possesses good and marketable fee simple title to the Premises, and has all power and authority to mortgage the Mortgaged Property to Bank and to grant a security interest therein in the manner set forth herein. 3. Maintenance of Mortgaged Property. Mortgagor shall keep and maintain or cause to be kept and maintained the Mortgaged Property, including all buildings and improvements now or at any time hereafter erected on the Premises and the sidewalks and curbs abutting them, in good order and condition and repair and shall abstain from and shall not permit the commission of waste of, in or about the Mortgaged Property. 4. Insurance. Mortgagor shall keep the Mortgaged Property continuously insured against fire and such other hazards in such amounts as may be required by Bank from time to time. All policies and insurance shall be issued by companies acceptable to Bank, and shall contain a standard mortgagee clause, in favor of Bank, and shall provide for at least thirty (30) days prior written notice of cancellation or reduction in coverage to Bank, all of which policies are hereby assigned to Bank as additional security for the Obligations. If Bank shall become the owner of the Mortgaged Property or any part thereof by foreclosure or otherwise, such policies, including all right, title and interest of Mortgagor thereunder, shall become the property of Bank. At least thirty (30) days prior to the expiration date of any insurance policy, Mortgagor shall deliver to Bank satisfactory evidence of the renewal of such insurance and the payment of all premiums therefor. In the event of any loss, Mortgagor will give immediate notice thereof to Bank and Bank may make proof of loss on behalf of Mortgagor. Each insurance company concerned is hereby authorized and directed to make payments under any such policies directly to Bank, instead of Bank and Mortgagor jointly, and Mortgagor hereby irrevocably appoints Bank as Mortgagor's attorney-in-fact to endorse in Mortgagor's name any checks or drafts issued thereon. Bank shall have the right to retain and apply the proceeds of any such insurance, at its reasonable election, to reduction of the Obligations, or to restoration and repair of the property damaged. 5. Taxes and Other Charges. Mortgagor shall pay when due and before interest or penalties shall accrue thereon, all taxes, charges, assessments and other governmental charges of any kind whatsoever including electricity, water and sewer rents, levied or assessed against the Mortgaged Property and will deliver receipts therefore to Bank upon request, and shall pay when due all amounts secured by any prior lien on the Mortgaged Property. 6. Inspection. Bank and any persons authorized by Bank shall have the right at any time, upon reasonable notice to Mortgagor, to enter the Premises at a reasonable hour to inspect and photograph its condition and state of repair. 7. Declaration of No Set-Off. Within one (1) week after request to do so by Bank, Mortgagor shall certify to Bank or to any assignee or proposed assignee of this Mortgage, in writing duly acknowledged, the amount of principal, interest and other charges then owing on the Obligations and on any obligations secured by prior liens upon the Mortgaged Property, if any, and whether there are any set-offs or defenses against them. 8. Required Notices. Mortgagor shall notify Bank promptly of the occurrence of any of the following: (a) a fire or other casualty causing damage to all or any part of the Mortgaged Property; (b) receipt of notice of eminent domain proceedings or condemnation of all or any part of the Mortgaged Property and Mortgagor hereby grants Bank an irrevocable power of attorney to appear and act for and on behalf of Mortgagor in any and all such proceedings; (c) receipt of notice from any governmental authority relating to the structure, use or occupancy of the Mortgaged Property or any real property adjacent to the Mortgaged Property; (d) a change in the occupancy of the Mortgaged Property; (e) receipt of any notice from the holder of any lien or security interest in all or any part of the Mortgaged Property; or (f) commencement of any litigation affecting the Mortgaged Property. 9. Mortgage and Liens. Without the prior written consent of Bank, Mortgagor will not create or permit to be created or filed against the Mortgaged Property, any mortgage lien or other lien or security interest superior or inferior to the lien of this Mortgage. 10. No Transfer. Without the prior written consent of Bank, Mortgagor will not cause nor permit any transfer of legal or equitable title to, beneficial interest in, or any estate or interest in the Mortgaged Property, or any part thereof, voluntarily or by operation of law, whether by sale, exchange, lease, conveyance, merger, consolidation, the granting of any lien or security interest or otherwise, or any agreement to do any of the foregoing. 11. Events of default. Any one or more of the following events shall constitute an Event of Default hereunder: (a) Failure of Mortgagor to make any payment of principal or interest or any other sum promptly when due on any of the Obligations; (b) Mortgagor's nonperformance of or noncompliance in any material respect with any other agree- ments, conditions, covenants, provisions or stipulations contained in the Note, ???? Mortgage or any of the Loan Documents; (c) Any signature, statement, representation or warranty made in the Note, the Loan Documents or this Mortgage, or in any financial statement, certificate, application, request or other document furnished to Bank by Mortgagor at any time prior to, now or hereafter, is not true and correct in any material respect when made or delivered; (d) The occurrence of any default under the Note or any of the Loan Documents; (e) The commencement by or against any Mortgagor of any proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, the making by any Mortgagor of any general assignment for the benefit of creditors, the failure of any Mortgagor generally to pay debts as such debts become due, or the taking of action by any Mortgagor in furtherance of any of the foregoing; or (f) The transfer or sale of any part of the Mortgaged Property or any interest therein, without the Bank's prior written consent. 12. Remedies of Bank. (a) Upon the occurrence of any Event of Default, the entire unpaid balance of the Obligations, including interest as has accrued and as may thereafter accrue thereon, and all other sums secured by this Mortgage, shall become immediately due and payable, at the option of Bank, without notice to or demand upon Mortgagor or any other person; and thereupon, in addition to all other rights or remedies available under the Note or any of the Loan Documents, or at law or in equity, bank may: (i) forthwith bring an action of mortgage foreclosure hereon, and may proceed to judgment and execution to recover the balance due on the Obligations and any other sums that may be due thereunder, including attorney's fees, costs of suit and costs of sale to the extent, if any, provided in the Obligations and permitted by law; and (ii) enter into possession of the Premises, with or without legal action, lease the same, collect all rents and profits therefrom and, after deducting all costs of collection and administrative expenses, apply the net rents and profits to the payment of taxes and other necessary maintenance and operational costs (including agents' fees and attorneys' fees) or on account of the Obligations, in such order and in such amounts as Bank in its sole discretion may elect, and Bank shall be liable to account only for rents and profits actually received by Bank; and (b) Any real estate sold hereunder or on any other judicial proceedings, may be sold in one or more parcels, in such order and manner as Bank, in its sole discretion, may elect. 13. Rights and Remedies Cumulative. The rights and remedies of Bank as provided in the Note, in this Mortgage and the Loan Documents shall be cumulative and concurrent ? may be pursued separately, successively or together against Mortgagor, against the Mortgaged Property, or any other person liable hereunder or thereunder, at the sole discretion of Bank, and may be exercised as often as occasion therefor shall arise. The failure of Bank to exercise any right or remedy on any one or more occasions shall in no event be construed as a waiver or release thereof. 14. Mortgagor's Waivers. Mortgagor hereby waives and releases to the extent permitted by law: (a) All errors, defects and imperfections in any proceeding instituted by Bank under the Note or this Mortgage, and/or the Loan Documents; (b) All benefits that might accrue to Mortgagor by virtue of any present or future law exempting the Mortgaged Property, or any part of the proceeds arising from any sale thereof, from attachment, levy or sale on execution, on providing for any stay of execution, exemption from civil process or extension of time for payment; and (c) Unless specifically required herein, all notices of Mortgagor's default or of Bank's election to exercise, or Bank's actual exercise of any option under the Note or this Mortgage. 15. Future Advances. Without limiting any other provisions of this Mortgage, this Mortgage shal also secure additional loans or advances hereafter made by Bank to or on behalf of Mortgagor. Nothing contained herein shall impose any obligation on the part of bank to make any such additional loan(s) to Mortgagor. 16. Communications. All communications required or permitted to be given under this Mortgage, to be effective, shall be in writing, and shall be hand delivered or sent by registered mail, postage prepaid, return receipt requested, addressed to the addresses set forth above or at such other address as the addressee may hereafter designate in writing in the manner herein provided. 17. Severability. If for any reason whatsoever any part of this Mortgage shall be declared void or invalid, by operation of law or otherwise, in any jurisdiction, then as to such jurisdiction only, such part shall be void and the remaining provisions of this Mortgage shall remain in all other respects valid and enforceable, and such invalidity shall not invalidate or render unenforceable such provision in any other jurisdiction. 18. Binding Effect--Amendment. This Mortgage is binding upon and shall inure to the benefit of Mortgagor and Bank, and their respective successors and assigns. This Mortgage may not be changed or amended except by agreement in writing signed by the party against whom enforcement of the change or amendment is sought. 19. Applicable Law. The validity, construction, meaning and effect of the provisions of this Mortgage shall be governed and determined by and under the laws of the State of New Jersey. IN WITNESS WHEREOF, the Mortgagor has hereunto set his hand and seal the day and year first above written. This instrument is intended to constitute an instrument under seal. (INDIVIDUALS SIGN BELOW) (CORPORATIONS OR PARTNERSHIPS SIGN BELOW) Dynasil Corporation of America, Inc. and Subsidiary - ------------------------------- ----------------------------------------- Name Name of Corp. or Partnership By: /s/ Charles J. Searock, Jr. - ------------------------------- ------------------------------------ Name Charles J. Searock, Jr., President By: /s/ John Kane - ------------------------------- ------------------------------------ Name John Kane, CFO - ------------------------------- ----------------------------------------- Name Title - ------------------------------- ----------------------------------------- ATTEST/WITNESS Affix Corp. Seal The undersigned, being authorized to do so, hereby certifies that the precise address of the within name Mortgagee is 379 N. Main Street, Doylestown, Pennsylvania 18901-0818. By: /s/ Suzanne M. Hartshorne ----------------------------------------- S.M.H. The undersigned hereby acknowledges receipt without cost of a true and correct copy of the within instrument on behalf of Mortgagor. By: /s/ John Kane ----------------------------------------- J.K. ACKNOWLEDGMENT STATE OF NEW JERSEY : : SS COUNTY OF : On _______________________, 19______, before me, the undersigned, personally appeared _______________________________________________________________________ known to me or satisfactorily proven to me to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged: / / that he/she/they executed the same for the purposes therein contained and desire that it be recorded as such; or / / that they are the President/Vice President and the Treasurer/Assistant Treasurer or Secretary/Assistant Secretary or General Partner of the corporation/partnership named in the foregoing instrument and that, in such capacities, being authorized so to do, executed the same for the purposes therein contained by signing the name and affixing the seal of the said corporation/partnership by themselves as such officers and desire that it be recorded as such. IN WITNESS WHEREOF, I have hereunto set my hand and official seal. ----------------------------------------- Notary Public My Commission Expires: Premier Bank 379 N. Main Street Doylestown, PA 18901 RE: Direct Checking Charge With reference to my/our commercial term loan in the amount of $1,300,000.00, please follow the ensuing instructions, which will remain in full force until revoked by the undersigned. This letter is your authorization to charge my/our checking account number 6619 at Premier Bank, Doylestown Branch, titled: Dynasil Corporation on a monthly basis for principal and/or interest due. This procedure is to commence on August - - Interest Only / September -. P+I. Please send the detailed advice regarding said charge to me/us at the following address: 385 Cooper Road West Berlin, NJ 08091-9145 Very truly yours, /s/ John Kane - ---------------------- John Kane, CFO - ---------------------- Dynasil Corporation of America, Inc. and Subsidiary TERMS AND CONDITIONS: BORROWER agrees to provide Bank with annual audited financial statements and tax returns, as well as quarterly compiled financial statements. BORROWER also agrees to provide Bank with monthly agings of receivables and payables as well as an inventory break-down including raw materials work in progress and finished goods. BORROWER agrees to provide evidence of payment in full of the note receivable from Hibshman Pacific of $175,000.00 prior to disbursement of bank funds. IN THE EVENT Dynasil Corporation extends a Rights Offering, the first $200,000.00 is to be applied directly to the principal outstanding term debt with Premier Bank. ADDITIONALLY, any use of proceeds of the Rights Offering in excess of $50,000 per three month period is to be approved by Bank in advance. FINALLY, BORROWER is to submit to Bank to be approved by Bank, any projected use of funds for capital improvements. PREMIER BANK /s/ Suzanne M. Hartshorne ---------------------------------------- Suzanne M. Hartshorne, Vice President DYNASIL CORPORATION OF AMERICA, INC., AND SUBSIDIARIES /s/ John Kane - -------------------------------------- John Kane, CFO /s/ Charles J. Searock, Jr. - -------------------------------------- Charles J. Searock, Jr., President Premier Bank (LOGO) - ------------------------ LOAN AGREEMENT THIS AGREEMENT is made this 10th day of July, 1998, by PREMIER BANK, (the "Bank"), and the undersigned, DYNASIL CORPORATION OF AMERICA, INC. AND SUBSIDIARY ("Borrower"), with its principal office at 385 COOPER ROAD, WEST BERLIN, NJ. A. Credit Accommodations. Subject to the terms and conditions hereinafter set forth, Bank agrees to extend to Borrower the following credit accommodation(s) ("Credit Accommodations(s)"), which shall be evidenced by promissory note(s) ("Note(s)"): 1. A Line of Credit, expiring on N/A, 19____, under which the Bank, in its discretion, will make advances to Borrower from time to time and Borrower may borrow, repay and reborrow from Bank subject to the following terms: a. Maximum outstanding principal amount of advances - $ N/A. b. Interest on the outstanding principal balance at the following rate: i. Bank's base rate of interest plus N/A %. ii. Interest payable (monthly/quarterly) commencing N/A, 19____. iii. Borrower shall reduce the amount of the outstanding principal under the Line of Credit to zero for one consecutive 30-day period during each year after the date hereof while the Line of Credit is in effect. c. BORROWER ACKNOWLEDGES THAT THE LINE OF CREDIT AND ANY ADVANCE THEREUNDER IS PROVIDED SOLELY AT BANK'S DISCRETION AND THE LINE OF CREDIT MAY BE TERMINATED AT ANY TIME AND FOR ANY REASON WHATSOEVER. 2. A Term Loan subject to the following terms: a. Principal amount - $1,300,000.00. b. Interest on the outstanding principal balance at the following rate: i. Bank's base rate of interest plus 0%. ii. Other rate terms - _____________________________________ c. Payment terms: i. Interest payable monthly commencing August 1, 1998. ii. Principal payable in 83 consecutive monthly installments in the amount of $7,222.22* each, or in the following amounts, commencing, September 1, 1998, with a final installment in the amount of the unpaid balance on August 1, 2005. * Principal payment based on 15 year amortization. 3. Borrower shall pay the following fees to Bank for the Credit Accommodations: 1% on new money - $7,000.00 4. When interest hereunder is based on Bank's base rate, it shall be based upon the rate of interest publicly announced from time to time by Bank in Doylestown, Pennsylvania as its "Base Rate." The Bank's Base Rate is defined as the then-published Wall Street Journal Prime Rate of Interest in effect from time to time plus one percent. The applicable rate will change when and as Bank changes its base rate. 5. Interest and any fees shall be calculated on the basis of a 360-day year and the actual number of days elapsed. 6. A late fee will be charged on the portion of any payment made more than twenty (20) days after it is due equal to five (5%) percent of the unpaid amount or twenty-five ($25.00) dollars, whichever is greater. B. Representations and Warranties. Borrower represents and warrants and, at the request of Bank will provide a legal opinion (stating that subparagraph 1 of this Section is correct and that subparagraphs 2, 3, 4, and 5 are correct to the best of counsel's knowledge), that: 1. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization, and has the necessary power and authority to enter into and perform this Agreement, the Note(s) and all other documents required by Bank in connection herewith; the execution and performance thereof have been duly authorized by all necessary proceedings, and upon their execution and delivery, they will be valid, binding and enforceable in accordance with their terms; Borrower's execution and performance of this Agreement will not violate any laws or regulations applicable to Borrower, any organizational documents of Borrower or any agreements (including any provisions of subordinated debt) to which Borrower is a party or by which Borrower or any of its properties is bound; and any consents or approval required in connection with this Agreement have been obtained. 2. The proceeds of the Credit Accommodation(s) will be used only in connection with Borrower's business, for the following purposes: Payoff existing Term Loan with Premier and Line of Credit and Term with First Union. 3. All financial statements, statements as to ownership of Borrower and its assets, and other statements and information delivered to Bank were prepared in accordance with generally accepted accounting principles consistently applied, are true and correct, disclose all presently outstanding indebtedness or obligations of Borrower, including contingent obligations and obligations under leases of property from others, and all liens and encumbrances against its properties and assets; and there have been no adverse changes in Borrower's financial condition or business since the date of such statements. 4. There are no actions, suits, proceedings or claims pending or threatened against Borrower or its property; and Borrower's business is in compliance with all applicable laws and regulations. 5. Any debt of Borrower is not now and at closing hereunder will not be in default under any provision thereof. C. Conditions. The obligation of Bank to make the first advance under the Credit Accommodation(s) shall be subject to Bank's receipt of the following collateral security and/or duly executed documents, each in form and substance satisfactory to Bank: 1. The Note(s) executed by Borrower. 2. A certificate as to Borrower's actions authorizing the Credit Accommodation(s) (i.e., certified Board of Directors resolutions if Borrower is a corporation; certified copy of partnership agreement if Borrower is a partnership). 3. The following collateral security, subordination and guaranty documents including any documents and actions required to perfect any collateral security: 1st Lien on A/R, inventory, machinery, equipment and leasehold improvements and 1st mortgage on 385 Cooper Road, West Berlin, NJ. 4. Bank shall have no obligation to make loans hereunder if any Event of Default described in paragraph G hereof has occurred. D. Affirmative Covenants. Borrower covenants and agrees that so long as there is outstanding indebtedness of Borrower to Bank under the Credit Accommodation(s) or otherwise, Borrower shall: 1. Maintain current assets in excess of current liabilities by at least $------; maintain current assets of at least -----% of current liabilities; maintain total liabilities in an amount not in excess of -----% of tangible net worth; and maintain the following additional financial ratios: ----- ---- such foregoing financial terms to be defined in accordance with generally accepted accounting principles consistently applied. 2. Maintain free balances in demand deposit accounts at Bank in average amounts calculated as follows: ----------------- 3. Deliver to Bank financial statements, including a balance sheet and income statement and such other financial statements and reports as requested by Bank, within ninety (90) days of the end of each fiscal year and within forty-five (45) days of the end of each fiscal quarter; and permit representatives of Bank to examine and audit Borrower's (and its subsidiaries) books and records and to inspect Borrower's facilities and properties. All such reports shall be prepared in accordance with generally accepted accounting principles consistently applied, certified by a public accountant satisfactory to Bank. Upon written request of Bank, Borrower will provide this information in consolidating as well as consolidated form. 4. Notify Bank of any litigation, proceedings or events involving Borrower which might have a material adverse effect on Borrower's financial condition or business or the payment of its indebtedness under the Credit Accommodation(s). 5. Keep and maintain (and require subsidiaries to keep and maintain) all of its property and assets in good order and repair and maintain fire, public liability and other insurance in coverages and amounts customary for Borrower's business or as Bank from time to time may require and deliver to Bank certificates of all such insurance in effect; and cause all such policies covering property given as security for the Credit Accommodation(s) to have loss payee endorsements in favor of Bank and not to be subject to cancellation unless thirty (30) days prior written notice thereof shall have been received by Bank. 6. Pay (and require subsidiaries to pay) and discharge when due all taxes, assessments or other governmental charges imposed on it or any of its properties, unless the same are currently being contested in good faith by appropriate proceedings and adequate reserves are maintained therefor. E. Negative Covenants. So long as there is outstanding indebtedness of Borrower to Bank under the Credit Accommodation(s) or otherwise, Borrower and subsidiaries shall not, without the prior written consent of Bank: 1. Incur any indebtedness, including obligations under capitalized leases, except indebtedness owing to Bank, existing indebtedness or trade indebtedness arising in the ordinary course of business; guarantee or otherwise become liable, directly or indirectly, for the indebtedness or obligations of another party; make any loans or advances to others; or create, permit or suffer the creation of any liens, security interests or any other encumbrances on any of its property, real or personal, except liens, security interests or encumbrances in favor of Bank or existing on the date hereof and reported to Bank. 2. Convey, lease, sell, transfer or assign any assets except in the ordinary course of business for value received; liquidate or discontinue its normal operations with intention to liquidate; enter into any merger or consolidation; or acquire assets or stock or other equity interest of another entity except in the ordinary course of business. 3. Pay any dividends or make any for or withdrawal from capital, or make any other distributions on, or repurchase, redeem or otherwise acquire, any of its outstanding stock, partnership interests or other equity interests. 4. Sell, assign, transfer or dispose of any of its accounts or notes receivable, with or without recourse, except to Bank. 5. Make loans or advances to others. 6. Become a guarantor, surety or otherwise liable for the debts or obligations of others, except to Bank, and except as an endorser of checks or drafts negotiated in the ordinary course of business. 7. Incur, create or assume any commitment to make any lease payments except - - - - - - - - - - __________________________________________________________________________. Lease payments are defined as any direct or indirect payment or payments whether as rent or otherwise, including fees, service or finance charges, under any lease, rental or other arrangement for the use of property of any other person and whether or not there is an option to purchase. 8. Enter into any sale-leaseback transactions. 9. Prepay any amounts not required or cause to be accelerated any amounts on any outstanding indebtedness now existing or hereafter arising, except to Bank. 10. Pay salaries, withdrawals or compensation to officers or partners of Borrower in an amount exceeding $ - - - - - - - - - - __________________________________________ in the aggregate per year. 11. Expend for fixed assets during any one fiscal year an amount in excess of- - - - - - - - - - ___________________________________________.____________________________ ________________________ DOLLARS ($ - - - - - - - - - - ______________________________) other than any fixed assets purchased with the proceeds of loans by Bank to Borrower. 12. If Borrower is a corporation, sell, issue, or agree to sell or issue, any shares (voting, non-voting, preferred or common of any class) of Borrower, or purchase such shares except under such circumstances as will in the opinion of Bank not result in a material adverse change in the financial or business condition of Borrower or the value of any security held by Bank. F. Additional Collateral. As additional collateral security for the payment of Borrower's indebtedness and obligations to Bank under the Credit Accommodation(s) or otherwise, Borrower hereby grants to Bank a security interest in and lien upon all funds, balances or other property of any kind of Borrower, or in which Borrower has an interest, now or hereafter in the possession, custody or control of Bank. G. Default. Upon the occurrence of any of the following events of default, Bank may declare the entire unpaid balance, principal and interest, of all indebtedness of Borrower to Bank under the Credit Accommodation(s) or otherwise to be immediately due and may exercise all available rights and remedies under applicable law and agreements: 1. Failure to pay when due any principal or interest or any other sum payable to Bank under the Credit Accommodation(s) or otherwise. 2. If any representation or warranty made herein or in connection herewith or in any statement, certificate or other document furnished hereunder proves to be or becomes false or untrue. 3. Default under any other provision contained herein or in any other agreement or document executed or delivered in connection herewith and the continuation of such default, unless cured to Bank's satisfaction, for twenty (20) days. 4. Default by Borrower in the payment or performance of any material obligation or indebtedness to another, whether now or hereafter incurred. 5. Any default by Borrower or by any guarantor or surety for Borrower under the provisions of any note, security agreement, mortgage or other instrument or agreement incorporated by reference into or executed in connection with the Agreement or in connection with any other obligation of Borrower or any guarantor or surety for Borrower to Bank. 6. The determination by an officer of Bank, in such officer's sole and absolute discretion, that a material, adverse change in the business or financial condition of Borrower, or of any guarantor or surety for Borrower, has occurred. 7. If bankruptcy, insolvency, reorganization, receivership, arrangement or other similar proceedings are commenced or filed by or against Borrower under state or federal law; or if Borrower shall (i) become insolvent (which term is defined for purposes thereof as failure to meet its obligations as the same fall due); (ii) make an assignment for the benefit of creditor; (iii) apply for, consent to or suffer the appointment of a custodian, receiver or trustee for any part of property or assets; or (iv) fail to satisfy or appeal any material judgment or attachment within thirty (30) days from the date of entry. H. Miscellaneous. No consent or waiver under this Agreement shall be effective unless in writing signed by the party granting the consent or waiver. No waiver of any default shall be deemed a waiver of any default thereafter occurring. This Agreement and all documents executed hereunder shall be binding upon and shall inure to the benefit of all parties hereto and their respective heirs, personal representatives, successors and assigns, may only be modified or amended by a written document executed by the parties, and shall be governed by Pennsylvania law. Borrower shall pay all fees and costs incurred by Bank (including fees and costs of its legal counsel) in connection with the creation and perfection of any collateral security required hereunder or the collection or enforcement of the indebtedness and collateral security hereunder. Bank is hereby irrevocably appointed Borrower's attorney-in-fact to do all acts and things which Bank may determine are necessary to perfect and continue perfected the security interests created pursuant to this Agreement and to protect and facilitate the collection of amounts due on any accounts receivable assigned to Bank and any other property constituting security. Borrower will pay any stamp taxes or any taxes in the nature thereof which may be payable in connection with the execution and delivery of the promissory notes and other documents. Borrower hereby forever indemnifies and saves Bank harmless against any and all liability which Bank may incur or which may be assessed against Bank with respect to such tax. The terms of any notes, security agreements or other instruments executed pursuant to this Agreement are expressly incorporated herein and made a part hereof; provided, however, that in any case where a term or condition contained in such note, security agreement, or other instrument cannot be construed (despite every effort to do so) as consistent with the terms of this Agreement, this Agreement shall govern. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby. This Agreement shall be in full force and effect for a term commencing on the date hereof and terminating at such time as Borrower shall have satisfied in full or been released from all of Borrower's liabilities and obligations to Bank hereunder. I. Additional Terms. Borrower hereby agrees to the following additional terms attached hereto and forming a part hereof: [1. Additional Terms Scheduled] See attached Term & Conditions. IN WITNESS WHEREOF, the undersigned have executed this Agreement the day and year first above written. Attest or Witness: Dynasil Corporation of America, Inc. and Subsidiary ------------------------------------------------------ [Name of Borrower] By John Kane By Charles J. Searock, Jr. ---------------------- --------------------------------------------------- Title: John Kane, CFO Title: Charles J. Searock, Jr., President PREMIER BANK By Suzanne M. Hartshorne -------------------------------------------------- Title: Suzanne M. Hartshorne, Vice President
[LOGO] PROMISSORY NOTE (JUDGMENT) Doylestown, Pennsylvania $1,300,000.00 July 10, 1998 FOR VALUE RECEIVED, each of the undersigned unconditionally promises to pay to PREMIER BANK (the "Bank"), or order, at its office at 379 N. Main Street, Doylestown, PA, or at any other office of the Bank, the principal sum of ONE MILLION THREE HUNDRED THOUSAND DOLLARS AND ---------------------00/100 United States Dollars ($1,300,000.00), together with interest in arrears on the unpaid principal balance from time to time outstanding from the date hereof until the entire principal amount due hereunder is paid in full at the rates hereinafter provided. Principal shall be payable as follows: [_] If this box is checked, principal shall be payable on demand. [_] It this box is checked, principal shall be payable in a single payment on _____________________, ___________. [X] It this box is checked, principal shall be payable in [X] monthly [_] quarterly [_] annual consecutive installments commencing September 1, 1998 and on the same dale of each installment period thereafter, in the following amounts: $7,222.22 Principal Plus Interest ______________________________________________________________________ ______________________________________________________________________ except that the last installment, payable on August 1, 2005, shall be in an amount equal to the principal balance then remaining outstanding. Interest shall be payable as follows until this Note is paid in full: [X] If this box is checked, monthly on the first day of each month commencing August 1, 1998. [_] If this box is checked, quarterly on the first day of each quarter commencing ________________________________. [_] If this box is checked, semi-annually on the first day of each six months commencing__________________________. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days and shall be payable, before and after maturity or judgment or entering of a verdict, at the following rate: [_] If this box is checked, the interest rate shall be ___________ percent (_____%) per annum. [_] If this box is checked, the interest rate shall be the Prime Rate (as defined below) plus zero percent (+0%) per annum. Prime Rate means the floating rate of interest publicly announced from time to time by the Bank In Doylestown, Pennsylvania as its "prime rate", with the rate charged hereunder changing on the same day on which any change in the Prime Rate is effective. The obligors under this Note hereby acknowledge that the Prime Rate is not tied by the Bank to any external rate of interest or index and does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customer. This Note may be prepaid in whole or in part at any time; provided that (a) any prepayment shall include accrued interest to the date of prepayment on the amount prepaid, and (b) if principal hereunder is payable in installments, any principal prepaid shall be applied to installments in their inverse order of maturity. The Bank is hereby granted a continuing security interest in all property of the undersigned now or hereafter in the possession of the Bank or any of its affiliates in any capacity whatsoever, including, but not limited to, any balance or share of any deposit, trust or agency account, as security for the payment of this Note and any other liabilities of the undersigned to the Bank, which security interest shall be enforceable and subject to all the provisions of this Note, as if such property were specifically pledged hereunder and the proceeds of such property may be applied at any time and without notice to any of the undersigned's liabilities. Each of the undersigned hereby authorizes the Bank to debit any deposit account maintained by any of the undersigned with the Bank for accrued interest and principal, as and when due. Such authorization shall not affect the undersigned's obligations to pay when due all amounts payable hereunder whether or not there are sufficient funds therefor in any such accounts. The foregoing shall be in addition to, and not in limitation of, any rights of set-off the Bank may have. The occurrence of any of the following events shall constitute an Event of Default under this Note: (i) the failure to make any payments, whether principal, interest or other payment, under any of the undersigned's liabilities when the same is due, (ii) death of (if an individual), dissolution (if a corporation or partnership), suspension of business for any reason or insolvency (however such insolvency may be evidenced) of any obligor hereunder, (iii) bankruptcy, insolvency, reorganization, receivership, arrangement or other similar proceedings are commenced or filed by or against any obligor under state or federal law; or any obligor shall (a) become insolvent (which term is defined for purposes hereof as failure to meet its obligations as the same fall due); (b) make an assignment for the benefit of creditors; or (c) apply for, consent to or suffer the appointment of a custodian, receiver or trustee for any part of its property or assets; (iv) the sale, lease, transfer or other disposition, whether voluntary or involuntary, of all or a substantial part of any obligor's assets or property, (v) the issuance of a writ, warrant, distraint or order of attachment or garnishment against any obligor's property or assets, (vi) the commencement of foreclosure proceedings or any proceedings for the enforcement of money judgments against any obligor, (vii) the occurrence of an event of default as described and defined in any instrument securing the obligations hereunder or any agreement under which this Note may be issued or any instrument evidencing any indebtedness of any of the undersigned to the Bank and the expiration of any period provided in such instrument to cure such default; (viii) any of the undersigned shall fail to pay any indebtedness due to third parties beyond any applicable grace period or (ix) any change shall occur in any obligor's financial or business condition which, in the Bank's sole judgment, is materially adverse. Upon the happening of any Event of Default, or upon demand, if applicable, the holder hereof may declare the entire unpaid principal balance under this Note and under any and all other liabilities of the undersigned to the holder hereof immediately due and payable without notice, demand or presentment and may exercise, without notice, demand or presentment, any of its rights under any instruments securing the obligations hereunder. In the event that the Bank or any subsequent holder of this Note shall exercise or endeavor to exercise any of its remedies hereunder or under any instruments securing the obligations hereunder, the undersigned shall pay on demand all reasonable costs and expenses incurred in connection therewith, including, without limitation, attorney's fees (which attorneys may be employees of the Bank), and the bank may take judgment for all such amounts in addition to all other sums due hereunder. Irrespective of the exercise or non-exercise of any of the aforesaid rights, if any payment of principal or interest hereunder is not paid in full when the same is due, the undersigned shall pay to the holder a fee on such unpaid amount equal to five percent (5%) of such late payment. Each of the undersigned waives presentment for payment, protest and demand, and notice of protest, demand and/or dishonor and nonpayment of this Note, notice of any event of default under any instrument securing the obligations hereunder, except as specifically provided therein, and all other notices or demand otherwise required by law that the undersigned may lawfully waive. Each obligor expressly agrees that this Note, or any payment hereunder, may be extended from time to time, without in any way affecting the liability of any obligor. No unilateral consent or waiver by the Bank with respect to any action or failure to act which, without consent, would constitute a breach of any provision of this Note shall be valid and binding unless in writing and signed by the Bank. The rights and obligations of the undersigned and all provisions hereof shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Each of the undersigned hereby authorizes the Bank to date this Note as of the date when the initial advance hereunder is made and to complete this Note in any other particulars according to the terms of the Bank's understanding with the undersigned. Any consent, agreement, instruction or request pertaining to any matter under or in connection with this Note signed by any one of the undersigned shall be binding upon all of them. THE FOLLOWING SETS FORTH A WARRANT OF AUTHORITY FOR ANY ATTORNEY TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED, THE UNDERSIGNED, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT) SEPARATE COUNSEL FOR THE UNDERSIGNED AND WITH KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY WAIVES ANY AND ALL RIGHTS THE UNDERSIGNED HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA. IT IS SPECIFICALLY ACKNOWLEDGED THAT THE BANK HAS RELIED ON THIS WARRANT OF ATTORNEY IN GRANTING THE FINANCIAL ACCOMMODATIONS DESCRIBED HEREIN. EACH OF THE UNDERSIGNED HEREBY EMPOWERS ANY PROTHONOTARY, CLERK OF COURT OR ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR ANY OF THE UNDERSIGNED IN ANY AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER, AND CONFESS JUDGMENT AGAINST ANY OF THE UNDERSIGNED FOR ALL OR ANY PART OF THE UNPAID PRINCIPAL BALANCE HEREUNDER AND ACCRUED INTEREST, TOGETHER WITH OTHER EXPENSES INCURRED IN CONNECTION THEREWITH AND ATTORNEYS' FEES OF 5% OF THE TOTAL OF THE FOREGOING SUMS, BUT IN NO EVENT LESS THAN $3,000, AND FOR SUCH PURPOSE THE ORIGINAL OR ANY PHOTOCOPY OF THIS NOTE SHALL BE A GOOD AND SUFFICIENT WARRANT OF ATTORNEY. SUCH AUTHORIZATION SHALL NOT BE EXHAUSTED BY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME. EACH OF THE UNDERSIGNED HEREBY WAIVES ALL ERRORS AND RIGHTS OF APPEAL AS WELL AS RIGHTS TO STAY OF EXECUTION AND EXEMPTION OF PROPERTY IN ANY ACTION TO ENFORCE ITS LIABILITY HEREON. EACH OF THE UNDERSIGNED CONSENTS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA AND AGREES TO BUCKS COUNTY AS APPROPRIATE VENUE IN ANY SUIT OR ACTION HEREON. If this Note Is signed by more than one maker, the liability of each shall be joint and several. EACH OF THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY AND THE RIGHT TO INTERPOSE ANY COUNTERCLAIM OR OFFSET OF ANY NATURE OR DESCRIPTION IN ANY LITIGATION RELATING TO THIS NOTE OR ANY LIABILITY HEREUNDER OR ENFORCEMENT OF REMEDIES HEREUNDER. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. As used herein, the terms, "the undersigned" shall mean the undersigned or any one or more of them; "liabilities" shall mean any and all debts and obligations of the undersigned owed to the Bank whether such shall be primary, direct, contingent, sale, joint or several, due or to become due, or that have or may hereafter be contracted or incurred; and "obligor" shall mean each of the undersigned and any co-signer, endorser, guarantor or surety of or for the undersigned's liabilities. Address: 385 Cooper Road Dynasil Corporation of America, Inc. and West Berlin, NJ 08091 Subsidiary /s/ Charles J. Searock, Jr. ---------------------------------------- Charles J. Searock, Jr., President /s/ John Kane ---------------------------------------- John Kane, CFO [LOGO] Dynasil Corporation of America Inc. and Subsidiary 7-10-98 - --------------------------------------------- ----------------------- Name of Borrower Date Certificate of Reliance I, Suzanne M. Hartshorne, a Vice President --------------------- -------------------- (Loan Officer) (Title of Officer) hereby certify that in underwriting the loan granted on to ---------------------- the above Borrower in the amount of $300,000.00, PREMIER BANK has secured the commitment or loan with a mortgage on real estate as an abundance of caution, and for repayment of the loan, the Bank is relying primarily on: (A) [X] the general credit of the borrower (as evidenced by current financial statement) (B) [X] the following other collateral: 1st Lien on A/R, inventory, machinery, equipment, leasehold improvements. 1st mortgage on 385 Cooper Road, West Berlin, NJ ----------------------------------------------------------------- (C) [_] the endorsement, guaranty or purchase commitment of ----------------------------------------------------------------- ----------------------------------------------------------------- (D) [_] other facts as follows: ----------------------------------------------------------------- ----------------------------------------------------------------- /s/ Suzanne M. Hartshorne, VP ------------------------- Signature and Title EX-10.03 12 1996 STOCK INCENTIVE PLAN EXHIBIT 10.03 DYNASIL CORPORATION OF AMERICA 1996 STOCK INCENTIVE PLAN 1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to enable Dynasil Corporation of America (the "Company") to attract and retain the services of selected employees, officers, directors and other key contributors (including consultants and nonemployee agents) of the Company or any subsidiary of the Company. Notwithstanding the foregoing, grants to Non-Employee Directors (as defined in subparagraph 11.1) of options or other awards under the Plan shall be made solely in accordance with the provisions of paragraph 11. 2. Shares Subject to the Plan. Subject to adjustment as provided below, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall not exceed 150,000 shares. The shares issued under the Plan may be authorized and unissued shares or reacquired shares. If an option granted under the Plan expires, terminates or is canceled, the unissued shares subject to such option shall again be available under the Plan. If shares sold or awarded as a bonus under the Plan or forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. Effective Date and Duration of Plan. 3.1 Effective Date. The Plan shall become effective as of February 26, 1996. 3.2 Duration. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding option, any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan. 4. Administration. 4.1 Board of Directors. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. 4.2 Committee. The Board of Directors may delegate to a "stock compensation committee" of the Board of Directors or specified officers of the Company, or both (the "Committee"), any or all authority for administration of the Plan. If authority is delegated to a committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee except (i) as otherwise provided by the Board of Directors, (ii) that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 15 and (iii) that a Committee including officers of the Company shall not be permitted to grant options to persons who are officers of the Company unless the officers who are to be compensated abstain from voting. 5. Types of Awards; Eligibility. The Board of Directors may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6.1 and 6.2; (ii) grant options other than Incentive Stock Options ("Non-Statutory Stock Options") as provided in paragraphs 6.1 and 6.3; (iii) award stock bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as provided in paragraph 8; (v) grant cash bonus rights as provided in paragraph 11; and (vi) grant foreign qualified awards as provided in paragraph 10. Any such awards may be made to employees, including employees who are officers or directors, directors, and to nonemployees (including consultants) who the Board of Directors believes have made or will make an important contribution to the Company or its subsidiaries; provided, however, that only employees of the Company, or its subsidiaries, shall be eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award. 6. Option Grants. 6.1 General Rules Relating to Options. (a) Terms of Grant. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. (b) Exercise of Options. Except as provided in paragraph 6.1(d) or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by or in the service of the Company or any subsidiary of the Company (except for consultants) and shall have been so employed or provided such service continuously since 2 the date such option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment or service for this purpose. Unless otherwise determined by the Board of Directors, vesting of options shall not continue during an absence on leave (including an extended illness) or on account of disability. Except as provided in paragraphs 6.1(d) and 12, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Board of Directors, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if the optionee does not exercise an option in any one year with respect to the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. (c) Nontransferabilily. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors, each other option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee. (d) Termination of Employment or Service. (i) General Rule. Unless otherwise determined by the Board of Directors, in the event the employment or service of the optionee with the Company or subsidiary terminates for any reason other than because of physical disability or death as provided in subparagraphs 6.1(d)(ii) and (iii), the option may be exercised at any time prior to the expiration date of the option or the expiration of 30 days after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (ii) Termination Because of Physical Disability. Unless otherwise determined by the Board of Directors, in the event of the termination of employment or service because of physical disability (as that term is defined in Section 22(e)(3) of the Code), the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (iii) Termination Because of Death. Unless otherwise determined by the Board of Directors, in the event of the death of an optionee while employed by or providing service to the Company or a parent or subsidiary, the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination and only by the person or persons to whom such optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. 3 (iv) Amendment of Exercise Period Applicable to Termination. The Board of Directors, at the time of grant or at any time thereafter, may extend the 30 day and 12-month exercise periods any length of time not later than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Board of Directors may determine. (v) Failure to Exercise Options. To the extent that the option of any deceased optionee or of any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to such option shall cease and terminate. (d) Purchase of Shares. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option granted under the Plan only upon receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, and, if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee's present intention to acquire the shares for investment and not with a view to distribution, and any other information the Board of Directors may request. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option, the optionee must have paid the Company the full purchase price of such shares in cash (including, with the consent of the Board of Directors, cash that may be the proceeds of a loan from the Company) or, with the consent of the Board of Directors, in whole or in part, in Common Stock of the Company valued at fair market value, restricted stock, or other contingent awards denominated in either stock or cash, deferred compensation credits, promissory notes and other forms of consideration. The fair market value of Common Stock provided in payment of the purchase price shall be determined by the Board of Directors. No shares shall be issued until full payment therefor has been made. Each optionee who has exercised an option shall immediately upon notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option, less the number of shares surrendered in payment of the option exercise. 6.2 Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions: (a) Limitation on Amount of Grants. An Incentive Stock Option shall by its terms prohibit the exercise of all options in excess of the amount provided for in Section 422(d) of the Code. Should it be determined that any Incentive Stock Option granted under the Plan inadvertently exceeds such maximum, such Incentive Stock Option grant shall be deemed to be a grant of a Nonqualified Stock Option to the extent, but only to the extent, of such excess. 4 (b) Limitation on Grants to 10 Percent Shareholders. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company only if the option price is at least 110 percent of the fair market value of the Common Stock subject to the option on the date it is granted, as described in paragraph 6.2(d), and the option by its terms is not exercisable after the expiration of five years from the date it is granted. (c) Duration of Options. Subject to paragraphs 6.1(b) and 6-2(b), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of five years from the date it is granted. (d) Option Price. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in paragraph 6.2(b), the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be determined by the Board of Directors. (e) Limitation on Time of Grant. No Incentive Stock Option shall be granted on or after the fifth anniversary of the effective date of the Plan. (f) Conversion of Incentive Stock Options. The Board of Directors may at any time without the consent of the optionee convert an Incentive Stock Option to a Non-Statutory Stock Option. 6.3 Non-Statutory Stock Options. Non-Statutory Stock Options shall be subject to the following additional terms and conditions: (a) Options Price. The option price for Non-Statutory Stock Options shall be determined by the Board of Directors at the time of grant. The option price may be less than the fair market value of the shares on the date of grant. The fair market value of shares covered by a Non-Statutory Stock Option shall be determined by the Board of Directors. (b) Duration of Options. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 7. Stock Bonuses. The Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions, and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with such other restrictions as may be determined by the Board of Directors. The Board of Directors may require the recipient to sign an agreement as a condition of the award. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. The Company may require any recipient of a stock bonus to pay 5 to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the recipient, including salary or fees for services, subject to applicable law. Upon the issuance of a stock bonus, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 8. Restricted Stock. The Board of Directors may issue shares under the Plan for such consideration (including promissory notes and services) as determined by the Board of Directors, which consideration may be less than fair market value of the Common Stock at the time of issuance. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the share issued, together with such other restrictions as may be determined by the Board of Directors. All Common Stock issued pursuant to this paragraph 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective recipient of the shares prior to the delivery of certificates representing such shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other accounts payable by the Company to the purchaser, including salary, subject to applicable law. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 9. Cash Bonus Rights. 9.1 Grant. The Board of Directors may grant cash bonus rights under the Plan in connection with (i) options granted or previously granted; (ii) stock bonuses awarded or previously awarded; and (iii) shares sold or previously sold under the Plan. Cash bonus rights will be subject to rules, terms and conditions as the Board of Directors may prescribe. The payment of a cash bonus shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. 9.2 Cash Bonus Rights in Connection with Options. A cash bonus right granted in connection with an option will entitle an optionee to a cash bonus when the related option is exercised in whole or in part. If an optionee purchases shares upon exercise of an option, the amount of the bonus shall be determined by multiplying the excess of the total fair market value of the shares to be acquired upon the exercise over the total option price for the shares by the applicable bonus percentage. 9.3 Cash Bonus rights in Connection with Stock Bonus. A cash bonus right granted in connection with a stock bonus will entitle the recipient to a cash bonus payable when the stock bonus is awarded or restrictions if any, to which the stock is subject lapse. If bonus stock awarded is subject to 6 restrictions and is repurchased by the Company or forfeited by the holder, the cash bonus right granted in connection with the stock bonus shall terminate and may not be exercised. The amount and timing of payment of a cash bonus shall be determined by the Board of Directors. 9.4 Taxes. The Company shall withhold from any cash bonus paid pursuant to paragraph 10 the amount necessary to satisfy any applicable federal, state and local withholding requirements. 10. Foreign Qualified Grants. Awards under the Plan may be granted to such officers and employees of the Company and its subsidiaries and such other persons described in paragraph 1 residing in foreign jurisdictions as the Board of Directors may determine from time to time. The Board of Directors may adopt such supplements to the Plan as may be necessary to comply with the applicable laws of such foreign jurisdictions and to afford participants favorable treatment under such laws; provided, however, that no award shall be granted under any such supplement with terms which are more beneficial to the participants than the terms permitted by the Plan. 11. Option Grants to Non-Employee Directors and Advisory Board Directors. 11.1 Initial Non-Discretionary Grants. Each person who is or becomes a Non-Employee Director or Advisory Board Director after February 26, 1996 shall be automatically granted an option to purchase 3,000 shares of Common Stock on the date he or she becomes a Non-Employee Director. A "Non-Employee Director" is a director who is not an employee of the Company or any of its subsidiaries and has not been an employee of the Company or any of its subsidiaries within one year of any date as of which a determination of eligibility is made, and has not received either options, stock grants, discounted stock, or cash for services as a Director within a twelve month period prior to such grant. 11.2 Annual Non-Discretionary Grants to Continuing Non-Employee Directors or Advisory Board Directors. Each person who is or becomes a Continuing Non-Employee Director or Advisory Board Director after February 26, 1996 shall automatically annually receive, on the day of the Company's regular annual meeting of its shareholders, a nondiscretionary grant of the option to purchase up to 3,000 shares of the Company's Common Stock. A "Continuing Non-Employee Director" is a Non-Employee Director or Advisory Board Director who continuously serves as a Non-Employee Director of the Company during a period of time which includes the date(s) upon which one or more annual shareholder meetings of the Company are held. 7 11.3 Exercise Price. The exercise price of any option granted pursuant to this paragraph 11 shall be equal to the fair market value of the Common Stock as determined in accordance with the procedure set forth in paragraph 6.2(d). 11.4 Term of Option. The term of each option granted pursuant to this paragraph 11 shall be 5 years from the date of grant. 11.5 "Complete Month". For all purposes of this paragraph 11, a complete month shall be deemed to be the period which starts on the day of grant and ends on the same day of the following calendar month, so that each successive "complete month" ends on the same day of each successive calendar month (or, in respect of any calendar month which does not include such a day, that "complete month" shall end on the first day of the next following calendar month). 11.6 Termination as a Director. If an optionee ceases to be a director of the Company for any reason, including death, all options granted pursuant to this paragraph 11 may be exercised at any time prior to the expiration date of the option or the expiration of 30 days (or 12 months in the event of death) after the last day the optionee served as a director, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option as of the last day the optionee served as a director. 11.7 Nontransferabillty. Each option granted pursuant to this paragraph 11 by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death or pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974. 12. Changes in Capital Structure. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any recapitalization, reclassification, stock split, combination of shares or dividend payable in shares, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for awards under the Plan. In addition, the Board of Directors shall. make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. The Board of Directors may also require that any securities issued in respect of or exchanged for shares issued hereunder that are subject to restrictions be subject to similar restrictions. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance or fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. 8 13. Effect of Liquidation or Reorganization. 13.1 Cash, Stock or Other Property for Stock. . Except as provided in paragraph 13.2, upon a merger, consolidation, acquisition of property or stock, reorganization or liquidation of the Company, as a result of which the stockholders of the Company receive cash, stock or other property in exchange for or in connection with their shares of Common Stock, any option granted hereunder shall terminate, but the optionee shall have the right during a 30-day period immediately prior to any such merger, consolidation, acquisition of property or stock, reorganization or liquidation to exercise his or her option in whole or in part whether or not the vesting requirements applicable to the option have been satisfied at the discretion of the Board of Directors. 13.2 Conversion of Options on Stock for Stock Exchange. If the stockholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their shares of Common Stock in any transaction involving a merger, consolidation, acquisition of property or stock, separation or reorganization, all options granted hereunder shall be converted into options to purchase shares of Exchange Stock unless the Board of Directors, in its sole discretion, determines that any or all such options granted hereunder shall not be converted into options to purchase shares of Exchange Stock but instead shall terminate in accordance with the provisions of paragraph 13.1. The amount and price of converted options shall be determined by adjusting the amount and price of the options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition of property or stock, separation or reorganization. 14. Corporate Mergers, Acquisitions, Etc. The Board of Directors may also grant options, stock bonuses and cash bonuses and issue restricted stock under the Plan having terms, conditions and provisions that vary from those specified in this Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock bonuses, cash bonuses and restricted stock granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party. 15. Amendment of Plan. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respect as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 6.1(d), 12 and 13, however, no change in an award already granted shall be made without the written consent of the holders of such award. 9 16. Approvals. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. 17. Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall: (a) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary by whom such employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (b) confer upon any person engaged by the Company any right to be retained or employe by the company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. 18. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for such shares. Except as otherwise expressly provided in the plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. Date adopted by Board February, 26, 1996 Date Approved by Stockholders --------------------, 1996 Date Last Amended by the Shareholders N/A --------------------, 1996 10 EX-10.04 13 1999 STOCK INCENTIVE PLAN DYNASIL CORPORATION OF AMERICA 1999 STOCK INCENTIVE PLAN 1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to enable Dynasil Corporation of America (the "Company") to attract and retain the services of selected employees, officers, directors and other key contributors (including consultants and nonemployee agents) of the Company or any subsidiary of the Company. Notwithstanding the foregoing, grants to Non-Employee Directors (as defined in subparagraph 11.1) of options or other awards under the Plan shall be made solely in accordance with the provisions of paragraph 11. 2. Shares Subject to the Plan. Subject to adjustment as provided below, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall not exceed 150,000 shares. The shares issued under the Plan may be authorized and unissued shares or reacquired shares. If an option granted under the Plan expires, terminates or is canceled, the unissued shares subject to such option shall again be available under the Plan. If shares sold or awarded as a bonus under the Plan or forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. Effective Date and Duration of Plan. 3.1 Effective Date. The Plan shall become effective as of January 26, 1999. 3.2 Duration. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding option, any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan. 4. Administration. 4.1 Board of Directors. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable 1 to shares, (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. 4.2 Committee. The Board of Directors may delegate to a "stock compensation committee" of the Board of Directors or specified officers of the Company, or both (the "Committee"), any or all authority for administration of the Plan. If authority is delegated to a committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee except (i) as otherwise provided by the Board of Directors, (ii) that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 15 and (iii) that a Committee including officers of the Company shall not be permitted to grant options to persons who are officers of the Company unless the officers who are to be compensated abstain from voting. 5. Types of Awards: Eligibility. The Board of Directors may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6.1 and 6.2; (ii) grant options other than Incentive Stock Options ("Non-Statutory Stock Options") as provided in paragraphs 6.1 and 6.3; (iii) award stock bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as provided in paragraph 8; (v) grant cash bonus rights as provided in paragraph 11; and (vi) grant foreign qualified awards as provided in paragraph 10. Any such awards may be made to employees, including employees who are officers or directors, directors, and to nonemployees (including consultants) who the Board of Directors believes have made or will make an important contribution to the Company or its subsidiaries; provided, however, that only employees of the Company, or its subsidiaries, shall be eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award. 6. Option Grants. 6.1 General Rules Relating to Options. (a) Terms of Grant. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the 2 option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. (b) Exercise of Options. Except as provided in paragraph 6.1(d) or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by or in the service of the Company or any subsidiary of the Company (except for consultants) and shall have been so employed or provided such service continuously since the date such option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment or service for this purpose. Unless otherwise determined by the Board of Directors, vesting of options shall not continue during an absence on leave (including an extended illness) or on account of disability. Except as provided in paragraphs 6.1(d) and 12, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Board of Directors, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if the optionee does not exercise an option in any one year with respect to the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. (c) Nontransferability. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors, each other option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee. (d) Termination of Employment or Service. (i) General Rule. Unless otherwise determined by the Board of Directors, in the event the employment or service of the optionee with the Company or subsidiary terminates for any reason other than because of physical disability or death as provided in subparagraphs 6.1(d)(ii) and (iii), the option may be exercised at any time prior to the expiration date of the option or the expiration of 30 days after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (ii) Termination Because of Physical Disability. Unless otherwise determined by the Board of Directors, in the event of the termination of employment or service because of physical disability (as that term is defined in Section 22(e)(3) of the Code), the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. 3 (iii) Termination Because of Death. Unless otherwise determined by the Board of Directors, in the event of the death of an optionee while employed by or providing service to the Company or a parent or subsidiary, the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination and only by the person or persons to whom such optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state, or country of domicile at the time of death. (iv) Amendment of Exercise Period Applicable to Termination. The Board of Directors, at the time of grant or at any time thereafter, may extend the 30 day and 12-month exercise periods any length of time not later than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Board of Directors may determine. (v) Failure to Exercise Options. To the extent that the option of any deceased optionee or of any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to such option shall cease and terminate. (d) Purchase of Shares. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option granted under the Plan only upon receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, and, if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee's present intention to acquire the shares for investment and not with a view to distribution, and any other information the Board of Directors may request. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option, the optionee must have paid the Company the full purchase price of such shares in cash (including, with the consent of the Board of Directors, cash that may be the proceeds of a loan from the Company) or, with the consent of the Board of Directors, in whole or in part, in Common Stock of the Company valued at fair market value, restricted stock, or other contingent awards denominated in either stock or cash, deferred compensation credits, promissory notes and other forms of consideration. The fair market value of Common Stock provided in payment of the purchase price shall be determined by the Board of Directors. No shares shall be issued until full payment therefor has been made. Each optionee who has exercised an option shall immediately upon notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. Upon the exercise of an option, the number of shares reserved 4 for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option, less the number of shares surrendered in payment of the option exercise. 6.2 Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions: (a) Limitation on Amount of Grants. An Incentive Stock Option shall by its terms prohibit the exercise of all options in excess of the amount provided for in Section 422(d) of the Code. Should it be determined that any Incentive Stock Option granted under the Plan inadvertently exceeds such maximum, such Incentive Stock Option grant shall be deemed to be a grant of a Nonqualified Stock Option to the extent, but only to the extent, of such excess. (b) Limitation on Grants to 10 Percent Shareholders. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company only if the option price is at least 110 percent of the fair market value of the Common Stock subject to the option on the date it is granted, as described in paragraph 6.2(d), and the option by its terms is not exercisable after the expiration of five years from the date it is granted. (c) Duration of Options. Subject to paragraphs 6.1(b) and 6.2(b), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of five years from the date it is granted. (d) Option Price. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in paragraph 6.2(b), the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be determined by the Board of Directors. "Fair Market Value" shall be defined as the average 30 days' bid price of the Common Stock as quoted on the NASDAQ OTC Bulletin Board, or such other electronic quotation system or exchange as the Company's common stock is then quoted. (e) Limitation on Time of Grant. No Incentive Stock Option shall be granted on or after the fifth anniversary of the effective date of the Plan. (f) Conversion of Incentive Stock Options. The Board of Directors may at any time without the consent of the optionee convert an Incentive Stock Option to a Non-Statutory Stock Option. 6.3 Non Statutory Stock Options. Non-Statutory Stock options shall be subject to the follow additional terms and conditions: 5 (a) Options Price. The option price for Non-Statutory Stock Options shall be determined by the Board of Directors at the time of grant. The option price may be less than, the Fair Market Value of the shares on the date of grant. The Fair Market Value of shares covered by a Non-Statutory Stock Option shall be determined by the Board of Directors. (b) Duration of Options. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 7. Stock Bonuses. The Board of Directors may award shares under the Plan as stock bonuses. Shares-awarded as a bonus shall be subject to the terms, conditions, and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with such other restrictions as may be determined by the Board of Directors. The Board of Directors may require the recipient to sign an agreement as a condition of the award. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. Ile certificates representing the shares awarded shall bear any legends required by the Board of Directors. The Company may require any recipient of a stock bonus to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the recipient, including salary or fees for services, subject to applicable law. Upon the issuance of a stock bonus, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 8. Restricted Stock. The Board of Directors may issue shares under the Plan for such consideration (including promissory notes and services) as determined by the Board of Directors, which consideration may be less than Fair Market Value Of the Common Stock at the time of issuance. shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Board of Directors. All Common Stock issued pursuant to this paragraph 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective recipient of the shares prior to the delivery of certificates representing such shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other accounts payable by the Company to the purchaser, including salary, 6 subject to applicable law. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 9. Cash Bonus Rights. 9.1 Grant. The Board of Directors may grant cash bonus rights under the Plan in connection with (i) options granted or previously granted; (ii) stock bonuses awarded or previously awarded; and (iii) shares sold or previously sold under the Plan. Cash bonus rights will be subject to rules, terms and conditions as the Board of Directors may prescribe. The payment of a cash bonus shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. 9.2 Cash Bonus Rights in Connection with Options. A cash bonus right granted in connection with an option will entitle an optionee to a cash bonus when the related option is exercised in whole or in part. If an optionee purchases shares upon exercise of an option, the amount of the bonus shall be determined by multiplying the excess of the total Fair Market Value of the shares to be acquired upon the exercise over the total option price for the shares by the applicable bonus percentage. 9.3 Cash Bonus Rights in Connection with Stock Bonus. A cash bonus right granted in connection with a stock bonus will entitle the recipient to a cash bonus payable when the stock bonus is awarded or restrictions if any, to which the stock is subject lapse. If bonus stock awarded is subject to restrictions and is repurchased by the Company or forfeited by the holder, the cash bonus right granted in connection with the stock bonus shall terminate and may not be exercised. The amount and timing of payment of a cash bonus shall be determined by the Board of Directors. 9.4 Taxes. The Company shall withhold from any cash bonus paid pursuant to paragraph 10 the amount necessary to satisfy any applicable federal, state and local withholding requirements. 10. Foreign Qualified Grants. Awards under the Plan may be granted to such officers and employees of the Company and its subsidiaries and such other persons described in paragraph I residing in foreign jurisdictions as the Board of Directors may determine from time to time. The Board of Directors may adopt such supplements to the Plan as may be necessary to comply with the applicable laws of such foreign jurisdictions and to. afford participants favorable treatment under such laws; provided, however, that no award shall be granted under any such supplement with terms which are more beneficial to the participants than the terms permitted by the Plan. 7 11. Option Grants to Non-Employee Directors and Advisory Board Directors. 11.1 Initial Non-Discretionary Grants. Each person who is or becomes a Non-Employee Director or Advisory Board Director after January 26, 1999 shall be automatically granted an option to purchase 3,000 shares of Common Stock on the date he or she becomes a Non-Employee Director. A "Non-Employee Director" is a director who is not an employee of the Company or any of its subsidiaries and has not been an employee of the Company or any of its subsidiaries within one year of any date as of which a determination of eligibility is made, and has not received either options, stock grants, discounted stock, or cash for services as a Director within a twelve month period prior to such grant. 11.2 Annual Non-Discretionary Grants to Continuing Non-Employee Directors or Advisory Board Directors. Each person who is or becomes a Continuing Non-Employee Director or Advisory Board Director after January 26, 1999 shall automatically annually receive, on the day of the Company's regular annual meeting of its shareholders, a nondiscretionary grant of an option to purchase 3,000 shares of the Company's Common Stock. A "Continuing Non-Employee Director" is a Non-Employee Director or Advisory Board Director who continuously serves as a Non-Employee Director of the Company during a period of time which includes the date(s) upon which one or more annual shareholder meetings of the Company are held. 11.3 Annual Non-Discretionary Grants to Employee Board Members. Each person who is or becomes an Employee Director after January 26, 1999 shall automatically annually receive, on the day of the Company's regular annual meeting of its shareholders, a non-discretionary grant of the option to purchase up to 3,000 shares of the Company's Common Stock. An "Employee Director" is an Employee Director or Advisory Board Director who continuously serves as an Employee Director of the Company during a period of time which includes the date(s) upon which one or more annual shareholder meetings of the Company are held. 11.4 Exercise-Price. The exercise price of any option granted pursuant to this paragraph 11 shall be equal to the Fair Market Value of the Common Stock as determined in accordance with the procedure set forth in paragraph 6.2(d). 11.5 Term of Option . The term of each option granted pursuant to this paragraph 11 shall be 5 years from the date of grant. 11.6 "Complete Month". For all purposes of this paragraph 11, a complete month shall be deemed to be the period which starts on the day of grant and ends on the same day of the following calendar month, so that each successive "complete month" ends on the same day of each successive calendar month (or, in respect of any calendar month which does not include such a day, that "complete month" shall end on the first day of the next following calendar month). 11.7 Termination as a Director. If an optionee ceases to be a director of the Company for any reason, including death, all options granted pursuant to this paragraph 11 may be exercised at any time prior to the expiration date of the option or the expiration of 30 days (or 12 months 8 in the event of death) after the last day the optionee served as a director, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option as of the last day the optionee served as a director. 11.8 Nontransferability. Each option granted pursuant to this paragraph 11 by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death or pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974. 12. Changes in Capital Structure. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of any recapitalization, reclassification, stock split, combination of shares or dividend payable in shares, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for awards under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. The Board of Directors may also require that any securities issued in respect of or exchanged for shares issued hereunder that are subject to restrictions be subject to similar restrictions. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance or fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. 13. Effect of Liquidation or Reorganization. 13.1 Cash Stock or Other Property for Stock . Except as provided in paragraph 13.2, upon a merger, consolidation, acquisition of property or stock, reorganization or liquidation of the Company, as a result of which the stockholders of the Company receive cash, stock or other property in exchange for or in connection with their shares of Common Stock, any option granted hereunder shall terminate, but the optionee shall have the right during a 30-day period immediately prior to any such merger, consolidation, acquisition of property or stock, reorganization or liquidation to exercise his or her option in whole or in part whether or not the vesting requirements applicable to the option have been satisfied at the discretion of the Board of Directors. 13.2 Conversion of Options on Stock for Stock Exchange. If the stockholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their shares of Common Stock in any transaction involving a merger, consolidation, acquisition of 9 property or stock, separation or reorganization, all options granted hereunder shall be converted into options to purchase shares of Exchange Stock unless the Board of Directors, in its sole discretion, determines that any or all such options granted hereunder shall not be converted into options to purchase shares of Exchange Stock but instead shall terminate in accordance with the provisions of paragraph 13.1. The amount and price of converted options shall be determined by adjusting the amount and price of the options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition of property or stock, separation or reorganization. 14. Corporate Mergers, Acquisitions, Etc. The Board of Directors may also grant options, stock bonuses and cash bonuses and issue restricted stock under the Plan having terms, conditions and provisions that vary from those specified in this Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock bonuses, cash bonuses and restricted stock granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party. 15. Amendment of Plan. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respect as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in paragraphs 6.1(d), 12 and 13, however, no change in an award already granted shall be made without the written consent of the holders of such award. 16. Approvals. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. 17. Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall: (a) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary by whom such employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (b) confer upon any person engaged 10 by the Company any right to be retained or employed by the company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. 18. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for such shares. Except as otherwise expressly provided in the plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. Date adopted by Board January 26, 1999 Date Approved by Stockholders January 26, 1999 Date Last Amended by the Shareholders N/A , 1999 11 EX-10.05 14 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.05 EMPLOYEE STOCK PURCHASE PLAN EMPLOYEE STOCK PURCHASE PLAN 1 Purpose. The Employee Stock Purchase Plan (the "Plan") has been adopted by DYNASIL CORPORATION OF AMERICA ("the Company"), to foster continued cordial employee relations, to encourage and assist its employees and the employees of its affiliates (including officers and directors who are employees) in acquiring a share ownership interest, and to help them provide for their future security. For this purpose, there are being reserved for issuance under the Plan 50,000 Common Shares. 2 Eligibility. Any full-time employee of the Company or of any of its affiliates is eligible to become a member of the Plan, provided such employee has completed ninety days continuous service. The term "affiliates" as used in this Plan means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain own shares possessing 50% or more of the total combined voting power of all classes of shares in one of the other corporations in such chain. 3 Maximum Shares to be Purchased. During any twelve (12) month period, an Employee shall be prohibited from purchasing pursuant to the Employee Stock Purchase Plan, more than that number of shares for which the total purchase price is $5,000. This means, for example, if the purchase price is $5.00 per share, then an employee may purchase no more than 1,000 shares during any twelve (12) month period. 4 Purchase Price. The purchase price per Share shall be sixty five (65%) percent of the Market Price of the Shares. For purposes of this calculation, "Market Price" shall mean the average closing bid price per share as quoted on the OTC Bulletin Board or the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") for the five business days prior to the execution of the request to purchase shares. 5 Administration of the Plan. The Plan shall be administered by such officers or other employees of the Company as the Company may from time to time select, and the persons so selected shall be responsible for the administration of the Plan. All costs and expenses incurred in administering the Plan shall be paid by the Company. 6 Modification and Termination. The Company expects to continue the Plan until such time as 50,000 Common Shares have been sold. As future conditions cannot be foreseen, the right is reserved by the Company to terminate the Plan at any time in its entirety, or modify it from time to time by action of the Board of Directors. The Company shall promptly give notice of any such modification or termination to the members affected. PAGE 1 - EMPLOYEE STOCK PURCHASE PLAN 7 Registration of Shares. The Board of Directors, in its sole discretion, shall determine whether the Shares being issued pursuant to this Plan shall be issued pursuant to the exemption from registration provided by Rule 701 of the Securities Act of 1933, (the "Act") as amended, or shall be registered pursuant to the terms of the Act. Nothing herein shall be construed to mean that the Company shall have a duty to register such Shares, and purchasers may be required to dispose of the Shares pursuant to Rule 144 of the Act. PAGE 2 - EMPLOYEE STOCK PURCHASE PLAN EX-21.01 15 LIST OF SUBSIDIARIES OF REGISTRANT EXHIBIT 21.01 LIST OF SUBSIDIARIES OF REGISTRANT Dynasil International Incorporated Hibshman Corporation EX-23.01 16 CONSENT OF HAEFELE, FLANAGAN & CO. P.C. EXHIBIT 23.01 CONSENT OF HAEFELE, FLANAGAN & CO., P.C. CONSENT FOR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the use of our report on Dynasil Corporation of America and Subsidiaries dated November 16, 1998 in this Registration Statement on Form 10-SB of Dynasil Corporation of America. HAEFELE, FLANAGAN & CO., p.c. Certified Public Accountants Maple Shade, New Jersey September 24, 1999 EX-27 17 FDS --
5 This schedule contains summary financial information extracted from Dynasil Corporation of America balance sheets as of September 30, 1998 and June 30, 1999 and statements of operations for the year ended September 30, 1998 and the nine months ended June 30, 1999. 12-MOS 9-MOS SEP-30-1998 SEP-30-1999 SEP-30-1998 JUN-30-1999 45,980 48,491 0 0 356,059 373,120 10,883 10,883 1,278,334 993,994 1,711,650 1,436,229 5,555,463 5,560,796 3,164,475 3,432,135 4,128,585 3,585,503 486,089 363,025 1,882,515 1,775,256 0 0 0 0 1,474 1,491 1,758,507 1,445,731 4,128,585 3,585,503 3,981,395 2,021,887 3,981,395 2,021,887 2,711,148 1,735,582 3,562,463 2,214,798 0 0 0 0 188,150 146,729 230,782 (339,640) 0 0 230,782 (339,640) 0 0 0 0 0 0 230,782 (339,640) 0.10 (0.15) 0.10 (0.15)
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