-----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, UwQHqDxdTbHYsaVeiqA1IVTA30Lvw3ErvAAq8zA/tHyaDH8BPWUddgH0fB/BEZYg 8Zdj421+VmduEFVAEyL8nw== 0000350644-01-500005.txt : 20010605 0000350644-01-500005.hdr.sgml : 20010605 ACCESSION NUMBER: 0000350644-01-500005 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20010604 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENCE DYNAMICS CORP CENTRAL INDEX KEY: 0000350644 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 222011859 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-62226 FILM NUMBER: 1653794 BUSINESS ADDRESS: STREET 1: 1919 SPRINGDALE RD CITY: CHERRY HILL STATE: NJ ZIP: 08003 BUSINESS PHONE: 6094240068 MAIL ADDRESS: STREET 1: SCIENCE DYNAMICS CORP STREET 2: 1919 SPRINGDALE RD CITY: CHERRY HILL STATE: NJ ZIP: 08003 SB-2 1 newsb2.txt MAIN DOCUMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON June 4, 2001 Registration No.:333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SCIENCE DYNAMICS CORPORATION (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) ---------------------------------------------------------- Delaware 3661 22-2011859 (State or jurisdiction (Primary standard (I.R.S. Employer of incorporation) industrial Identification Number) classification code number) 1919 Springdale Road, Cherry Hill, New Jersey, 08003 (856) 424-0068 (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS) Joy C. Hartman, President 1919 Springdale Road, Cherry Hill, New Jersey, 08003 (856) 424-0068 (ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) Copies to: Gregory Sichenzia, Esq. Thomas A. Rose, Esq. Sichenzia, Ross & Friedman LLP 135 W. 50th Street New York, New York 10020 Phone (212) 664-1200, Fax (212) 664-7329 Approximate date of proposed sale to the public: From time to time as the selling shareholders may decide. If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Calculation of Registration Fee - ------------------------------------------------------------------------------ Title of each Amount of Proposed Maximum Proposed Maximum Amount of Class of shares to be Offering price Aggregate Offering Registration securities to Registered per Share Price (1) Fee be registered - ------------------------------------------------------------------------------ Common stock, 2,941,176 $0.81 (1) $ 2,382,353 (1) $596 par value $.01 per share - ------------------------------------------------------------------------------ Common stock, 872,727 $0.81 $706,909 $177 par value $.01 per share issuable upon exercise of warrants - ------------------------------------------------------------------------------ Total 3,813,903 $773 1. Based on the closing bid price of the common stock on June 1, 2001. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Prospectus SCIENCE DYNAMICS CORPORATION 3,813,903 common shares The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Up to 3,813,903 shares of our common stock are being offered by the security holders named in this prospectus. We will not receive any of the proceeds from the sale of common stock by the security holders. However, we may receive amounts upon exercise of outstanding warrants. We have agreed to pay all of the expenses related to this offering, including legal fees, but the security holders will pay sales or brokerage commissions or discounts with respect to sales of their shares. The security holders may elect to sell shares of common stock described in this prospectus through brokers at the price prevailing at the time of sale or at negotiated prices. The common stock may also be offered in block trades, private transactions or otherwise at prices to be negotiated. Our common stock is traded in the Nasdaq SmallCap Market under the symbol "SIDY". On June 1, 2001 the closing price of our common stock was $.81 per share as reported on Nasdaq. Please see "Risk Factors" beginning on page 5 to read about factors you should consider before buying shares of our common stock. The date of this prospectus is __________, 2001 TABLE OF CONTENTS Prospectus Summary 3 Summary Financial Data 4 Risk Factors 5 The Offering 7 Use of Proceeds 8 Dividend Policy 9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Business 14 Management 22 Certain Transactions 27 Principal Security Holders 28 Description of Securities 30 Selling Shareholder 31 Plan of Distribution 32 Legal Matters 33 Experts 33 How to Get More Information 33 Financial Statements F-1 PROSPECTUS SUMMARY You should read the following summary together with more detailed information and our combined financial statements and the notes to those statements appearing elsewhere in this prospectus. Our Business Science Dynamics Corporation has developed, designed and marketed a variety of hardware oriented, telecommunications equipment over the past 23 years. We traditionally sold this equipment directly to telephone companies or to resellers that served the telecommunications marketplace. In 1996 ,we started to change its focus and primarily develop software products for the telecommunications industry that use third party hardware such as the Natural Microsystems telephone network interface cards. Today we focus on three primary product lines: Commander Inmate Telephone Control System - originally designed in 1986 to provide timing and call control for collect phone calls made by inmates from U.S. correctional institutions. Integrator Series of IP Gateways - commonly referred to as Voice over Internet Protocol or IP Telephony. IP Telephony refers to communication services - voice, facsimile, and/or voice messaging applications - that are transported via the Internet, rather than the traditional telephone network. VFX-250S Video over Frame Relay device - is a hardware based Frame Relay Access Device designed to carry video streams through the frame relay network. Our Offices Our executive offices are located at 1919 Springdale Road, Cherry Hill, New Jersey, 08003, our telephone number is (856) 424-0068; and our web site can be accessed at www.scidyn.com. Information contained in our web site is not part of this prospectus. The Offering Summary - ---------------------------------------------------------------------------- Total shares of common stock outstanding as of May 31, 2001 17,657,901 - ---------------------------------------------------------------------------- Common stock offered for sale by Up to 3,813,903 shares, assuming the selling shareholders the issuance of all of the shares registered in connection with the convertible notes and exercise of all warrants by the selling shareholders. - ---------------------------------------------------------------------------- Use of Proceeds We will not receive any of the proceeds of the shares offered by the selling shareholder. Any proceeds we receive from our sales of common stock upon the exercise of warrants will be used for working capital and other general corporate purposes. - ---------------------------------------------------------------------------- Nasdaq Symbol "SIDY" - ---------------------------------------------------------------------------- Summary Financial Data You should read the following summary financial data together with the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and notes thereto included elsewhere in this prospectus. Year Ended Three Months Ended December 31, March 31, 2000 1999 2001 2000 ---- ---- ---- ---- Statement of operations data: Revenues $5,269,377 $2,347,984 $194,113 $1,443,482 Cost of revenues 1,891,484 1,330,886 136,847 572,042 Gross margin 3,377,893 1,017,098 57,266 871,440 Selling, general and administrative 4,747,424 3,059,765 1,321,739 860,973 Income from operations (1,369,531) (2,042,667) (1,264,473) 10,467 Interest expense, net of interest income 30,269 (12,219) 4,638 2,898 Total other expenses 30,269 (12,219) 4,638 2,898 Net (loss) (1,339,262) (2,054,886) (1,259,835) 13,365 Basic and diluted earnings (loss) per share $(0.08) $(0.12) $(0.07) $ - Shares used in basic and diluted earnings (loss) per share 17,549,993 16,777,070 17,783,710 16,777,070 As of As of December March 31, 2000 31,2000 ---------- ---------- Balance sheet data: Total working capital (deficit) $ 1,142,948 $ (70,527) Total assets $ 3,008,152 $ 1,814,401 Total liabilities $ 662,890 $ 728,974 Total stockholders' equity $ 2,345,262 $ 1,085,427 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors before investing in our common stock. We have a history of losses which may continue, requiring us to seek additional sources capital. We incurred net losses of $1,339,262 for the year ended December 31, 2000 and $2,054,886 for the year ended December 31, 1999. For the three months ended March 31, 2001, we incurred a net loss of $1,259,835. We cannot assure you that we can sustain or increase profitability on a quarterly or annual basis in the future. If revenues grow more slowly than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operations and financial condition will be materially and adversely affected. We may require additional funds to sustain and expand our sales and marketing activities, research and development, and our strategic alliances, particularly if a well-financed competitor emerges or if there is a rapid technological shift in the telecommunications industry. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain sufficient funds from operations and external sources would have a material adverse effect on our business. We operate in highly competitive markets and may not be able to compete effectively. Our products are sold in several different markets, and our competition varies greatly by product line. We compete directly against several other suppliers of inmate call processing systems. Some of these competitors' systems have features which our inmate call processing system does not have. In the Video-Over-Frame market, we compete not only with other companies, but also with products which use a different technology to accomplish the function of our product. Our Internet products compete in a marketplace that is populated by larger companies who have significantly more resources for development, marketing and deployment. We may not be able to compete successfully against current or future competitors, and competitive pressures could significantly harm us. We depend on a limited number of suppliers for certain parts, the loss of which could disrupt our business. Although most of the parts used in our products are available from a number of different suppliers on an off-the-shelf basis, certain parts are available from only one supplier. If this supplier does not deliver a part, another supplier would have to be found. The substitute part may require a hardware or software change in the unit in order to provide satisfactory performance, adding costs and delays. A customer which accounted for 83% of our sales in 2000 was placed into receivership and future sales to this customer are unlikely. A very small number of customers account for a high percentage of our revenue, therefore the loss of a major customer could harm our business. A small number of customers account for a significant portion of our revenue. If we lose existing customers and do not replace them with new customers, our revenue will decrease and may not be sufficient to cover our costs. During 2000, two customers accounted for 83% and 15% of total sales. The customer accounting for 83% of total 2000 sales was Cascadent Communications, with whom we had a supply agreement. The agreement was terminated on January 4, 2001, upon receiving notice that Cascadent was placed into receivership. We do not have sufficient information to determine whether Cascadent will emerge from receivership, but presently have no expectations that any additional sales will be generated from the supply agreement. - -7- During 1999, three customers and their operating subsidiaries accounted for 64%, 10% and 10% of total sales. Changes in government telecommunications regulations could reduce demand for our products. For our Integrator product lines, our customers and are subject to varying degrees of domestic and foreign, federal, state, and local regulation. Regulatory actions have impacted, and are likely to continue to impact, both our customers and us. Regulatory actions may cause changes in the manner in which our customers or we conduct business. The products that we develop must comply with standards established by the Federal Communications Commission and other international standards bodies. A change in these standards may have a material adverse affect on our business, operating results, and financial condition. Our business could be adversely affected if our products and services fail to perform or be performed properly. Products as complex as ours may contain undetected errors or "bugs", which result in product failures or security breaches or otherwise fail to perform in accordance with customer expectations. Any failure of our systems could result in a claim for substantial damages against us, regardless of our responsibility for the failure. Although we maintain general liability insurance, including coverage for errors and omissions, there can be no assurance that our existing coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The occurrence of errors could result in loss of data to us or our customers which could cause a loss of revenue, failure to achieve acceptance, diversion of development resources, injury to our reputation, or damages to our efforts to build brand awareness, any of which could have a material adverse affect on our market share and, in turn, our operating results and financial condition. Changes in technology and our ability to enhance our existing products may adversely affect our financial results. The markets for our products, especially the telecommunications industry, change rapidly because of technological innovation, changes in customer requirements, declining prices, and evolving industry standards, among other factors. To be competitive, we must develop and introduce product enhancements and new products, which increase our customers' and our ability to increase market share in the corrections industry. New products and new technology often render existing information services or technology infrastructure obsolete, excessively costly, or otherwise unmarketable. As a result, our success depends on our ability to timely innovate and integrate new technologies into our current products and services and to develop new products. In addition, as the telecommunications networks are modernized and evolve from analog-based to digital-based systems, certain features offered by us may diminish in value. Moreover, regulatory actions affecting the telecommunications industry may require significant upgrades to our current technology or may render our service offerings obsolete or commercially unattractive. We cannot guarantee that we will have sufficient technical, managerial or financial resources to develop or acquire new technology or to introduce new services or products that would meet our customers needs in a timely manner. Our commitments to issue additional common stock may dilute the value of your stockholdings, adversely affect the market price of our common stock and impair our ability to raise capital. - -8- We currently have outstanding commitments in the form of convertible notes and warrants to issue a substantial number of new shares of our common stock. The shares subject to these issuance commitments are included in this prospectus and thus will be freely tradable. Furthermore, the number of shares issuable upon conversion of these securities is subject to adjustment, depending on the market price of our common stock. To the extent that the price of our common stock decreases, we will be required to issue additional shares upon conversion. There is essentially no limit to the number of shares that we may be required to issue. An increase in the number of shares of our common stock that will become available for sale in the public market may adversely affect the market price of our common stock and, as a result, could impair our ability to raise additional capital through the sale of our equity securities or convertible securities. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These forward- looking statements are not historical facts, but rather are based on our current expectations, estimates and projections about our industry, our beliefs and assumptions. Words including "may," "could," "would," "will," "anticipates," "expects," "intends," "plans," "projects," "believes," "seeks," "estimates" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward- looking statements. These risks and uncertainties are described in "Risk Factors" and elsewhere in this prospectus. We caution you not to place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus. We are not obligated to update these statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. THE OFFERING In this prospectus, we are registering 2,941,176 shares of common stock underlying $1,200,000 of 8% convertible debentures, due May 22, 2003, issued to three investors pursuant to a Subscription Agreement dated May 22, 2001. Interest only payments are due quarterly commencing September 30, 2001, and the principal is due in one lump sum on May 22, 2003, or upon certain events of default. The conversion price for the convertible debentures is the lesser of 85% of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including May 22, 2001, or 85% percent of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the conversion date. The maximum number of shares of common stock that any subscriber or group of affiliated subscribers may own after conversion at any given time is 4.99%. The number of shares of common stock issuable upon conversion of the convertible debentures is 1,470,588, based on a conversion price of $0.816 per share. We are required to register 200% of this amount, for a total of 2,941,176 shares. The actual conversion price will depend on the market price of our common stock prior to the conversion. In addition, 872,727 shares underlying warrants are being registered. These warrants, which expire May 22, 2006, have an exercise price of $1.4339 per share. The parties have made mutually agreeable standard representations and warranties. We have also entered into certain covenants including, but not limited to, the following: we may not redeem the convertible debentures without the consent of the holder; we will pay to certain finders a cash fee of 8% of the principal amount of the convertible debentures for location of the financings; and we have agreed to incur certain penalties for untimely delivery of the shares. - -10- Because our common stock is listed on The Nasdaq SmallCap Market, we are subject to Nasdaq's corporate governance rules, including Rule 4350, which provides that an issuer must obtain stockholder approval for the sale or issuance of common stock (or securities convertible into common stock) equal to 20% or more of the common stock outstanding before the issuance which are issued below market price. The consummation of the foregoing financing may result in an issuance of greater than 20% of our common stock, depending on the actual number of share issued upon conversion of the convertible notes. The investors have contractually agreed with us that we shall not be obligated to issue more than 19.9% of our common stock upon conversion of the debentures and exercise of the warrants. We have also agreed to file a proxy statement and hold a shareholders meeting to seek approval from our sharesholders to issue more than 20% of our common stock to the investors, if required. If we do not receive shareholder approval, we will be required to repay the balance of the convertible notes in cash. USE OF PROCEEDS We will not receive any proceeds from the resale of shares of common stock by the selling stockholders. However, we will receive the sale price of any common stock we sell to the selling stockholders upon exercise of the warrants. We expect to use the proceeds of any such sales for general working capital purposes. PRICE RANGE OF COMMON STOCK Our common stock is traded on The Nasdaq SmallCap Market (Symbol: SIDY). We have been notified by Nasdaq that we are not in compliance with the Marketplace rules. A plan outlining how the Company intends to comply with listing requirements must be submitted by June 15, 2001. The following table shows for the periods indicated the high and low bid quotations for our common stock as reported by one of our market makers. These quotations are believed to represent inter- dealer quotations without adjustment for retail mark-up, mark-down or commissions, and may not represent actual transactions. HIGH BID LOW BID -------- ------- FISCAL 1999 First Quarter $ 0.75 $0.44 Second Quarter $ 0.88 $0.71 Third Quarter $ 1.21 $0.92 Fourth Quarter $ 4.85 $2.50 FISCAL 2000 First Quarter $19.92 $9.92 Second Quarter $13.58 $7.60 Third Quarter $10.83 $7.40 Fourth Quarter $ 6.90 $3.00 FISCAL 2001 First Quarter $ 1.96 $1.24 - -11- As of March 31, 2001, there were approximately 350 holders of record of our 17,657,901 outstanding shares of common stock. However, we believe that there are more than 850 shareholders because of stock held in street name by various broker-dealers. DIVIDEND POLICY We have never declared or paid any cash or stock dividends on our capital stock. We presently intend to reinvest earnings to fund the development and expansion of our business and, therefore, do not anticipate paying cash dividends on our common stock in the foreseeable future. The declaration of dividends will be at the discretion of our board of directors and will depend upon our earnings, capital requirements and financial position, general economic conditions and other pertinent factors. - -11- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of the financial condition and results of operations should be read in conjunction with our financial statements and the accompanying notes appearing elsewhere in this prospectus. In addition to historical information, this management discussion and analysis of financial condition and results of operations contain forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors, including those set forth under "Risk Factors" and in other parts of this prospectus. Overview In 1998, management made a strategic decision to divert most of our development efforts towards the IP system. Advances in public and private IP-based networks now enable businesses to use the Internet Protocol to by-pass the Public Switched Telephone Network for national and international long distance voice, fax, and video communications. We continue to gain knowledge and experience in enhancing the development of the system for IP Telephony. We have revised our development and implementation of the products according to the direction of the marketplace. Management believes that the penetration of the IP Telephony market along with renewed interest and development in the Commander II call control series will provide significant growth potential. During the year, we changed the size and structure of our sales force. The sales team has increased from two UK based sales people in 1999 to a 10-person team (8 in the US and 2 in the UK) led by our new Vice President of Sales and Marketing. This team was fully in place by October 2000. Given typical sales lead times and the current state of the Telco market, we do not anticipate significant revenues to be generated by the new team until the second half of 2001. Our net sales results for the year ended December 31, 2000 were $5,269,377, an increase of $2,921,393 from sales of $2,347,984 for the year ended December 31, 1999. Our revenue in 2000 was predominantly derived from the Integrator Product Line. The results were largely due to the beginning of the deployment of the Cascadent supply agreement during 2000. This agreement provided $4,370,520 in revenue for the year 2000. This agreement was terminated upon our receipt of official word that Cascadent was placed into receivership. We do not have information as to when or if Cascadent will emerge from receivership. The strategy for 2001 is to generate sales revenue from the IP system via the efforts of our expanded sales team and to reinvigorate the Commander I and II product lines, as well as, to exploit the VFX-250S product. Although the sales of the VFX-250S did not reach the anticipated level, the market awareness of the functionality and quality of the product has been recognized. The sales for this product have been primarily in South America, with future sales opportunities generating from China and Russia. The sales and marketing team will continue to pursue additional venues for this product producing a base line source of revenue in the coming year. We are continuously exploring new niche opportunities, introducing new product offerings and marketing and sales initiatives to increase market share and value for our customers. The focus of our strategy included providing the core technology needed to deliver a broad range of telephony services; targeting key growth markets worldwide; promoting strategic relationships between our customers; delivering added value through customer support and services; and continuing to actively pursue business alliance candidates that complement or support our core competencies. - -12- RESULTS OF OPERATIONS - --------------------- The following table sets forth income and certain expense items as a percentage of total revenue and the change in dollar amounts of such items compared to the previous fiscal year: For the Years Ending December 31, 2000 1999 ---- ---- Sales $5,269,377 $2,347,984 Net Loss $(1,339,262) $(2,054,886) Net Loss Per Share $(0.08) $(0.12) OPERATING EXPENSES PERCENT OF SALES ------------------ ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- Cost of Goods Sold $1,891,484 $1,330,886 35.9% 56.7% Research & Development 1,141,656 1,331,521 21.7% 56.7% Selling, General & Admin 3,605,768 1,728,244 68.4% 73.6% Total Operating Costs and Expenses $6,638,908 $4,390,651 126.0% 187.0% Sales for the fiscal year ended December 31, 2000 were $5,269,377 compared to sales of $2,347,984 in the 1999 fiscal year. The sales revenue consists of sales of our integrated hardware and software products, as well as revenue generated from the maintenance and support of those products. The primary factor that affected the increased sales performance was initiation of the roll out of the Cascadent supply agreement, which provided $4,370,520 of sales for the year. We committed our resources to the continual research and development of the IP Telephony Integrator gateway product. Management believes the effect of this strategy, as well as, the introduction of IP technology to its existing Commander call control product will provide changes in the composition of our customer base resulting in sales growth, customer advantage, and ultimately increased shareholder value. Cost of Goods Sold decreased 20.8% as a percentage of sales from a 56.7% for the year ended December 1999 to 35.9% for the year ended December 2000. This decrease is related to the difference in the sales mix in the year 2000, with higher margin Integrator gateway sales replacing lower margin Commander call control sales. Research and Development expenses decreased from $1,331,521 in 1999 to $1,141,656 in 2000, a decrease of $189,865. Research and development expenses consist of payroll and related expenses for research and development personnel, costs related to systems infrastructure and expenses for testing facilities and equipment. The dollar decreases in research and development expenses were attributable to an increase and reallocation of the number of research and development personnel and expenses related to establishing a new testing facility during 1999. The Company believes that the research and development activities are crucial to maintaining a competitive edge in the rapid growth of the telecommunications marketplace. The Company expects to continue to make substantial investments in the research and development team to maintain a highly skilled force of design engineers for new product development, the key to the future. - -13- Selling, general and administration expenses decreased 5.2% as a percentage of sales. Sales and marketing expenses consist primarily of compensation and related costs for sales personnel, marketing personnel, sales commissions, marketing programs, public relations, promotional materials, travel expenses and trade show exhibit expenses. This decrease on a percentage basis is due to the significant increase in sales during 2000. The actual dollar increase of $1,877,524 is attributed to the addition of eight sales and marketing personnel along with increased trade show and advertising activity during 2000. The Company expects to incur substantial expenditures related to sales and marketing activities, the recruitment of additional sales and marketing personnel, and the expansion of our domestic and international distribution channels. Three Months ended March 31, 2001 (unaudited) compared to the Three Months ended March 31, 2000 (unaudited). The following table summarizes the basic results of operations for the periods indicated in the Consolidated Statement of Operations. Three Months Ended March 31, 2001 2000 ---- ---- Sales 194,113 1,443,482 Net (Loss)/Income (1,259,835) 13,365 Net (Loss)/Income Per Share $(0.07) $ 0.00 OPERATING EXPENSES PERCENT OF SALES 2001 2000 2001 2000 ---- ---- ---- ---- Cost of Goods Sold 136,847 572,042 70% 39.6% Research & Development 420,522 255,707 217% 17.8% Sales, General & Admin 901,217 605,266 464% 41.9% Total Operating Costs and Expenses $1,458,586 $1,433,015 751% 993% - -14- Sales for the three month period ended March 31, 2001, were $194,113 a decrease of $1,249,369 from sales of $1,443,482 for the three month period ended March 31, 2000. Our revenue in 2000 was predominantly derived from the Integrator Product Line. The results were due to the beginning of the deployment of the Cascadent supply agreement during 2000. This agreement was terminated during the first quarter of 2001 upon SciDyn receiving official notification that Cascadent was placed into receivership. The loss of this contract is directly related to the decrease in sales for the first quarter, moreover, we expect the loss of this contract to negatively effect the second quarter of 2001 as well. We do not have information as to when or if Cascadent will emerge from receivership. Cost of Goods sold decreased to $136,847 in the first three months of 2001, from $572,042 in the corresponding three-month period of 2000. The decrease in the cost of goods sold was directly related to the decrease in sales revenue. The percentage increase of cost of good sold as a percentage of sales was due to the change in mix of sales between the quarters with high margin integrater equipment sales in 2000 compared to lower margin VFX and contract labor sales in 2001. Research & Development expenses increased to $420,522 in the first three months of 2001 as compared to $255,707 in the comparable three- month period of 2000. The increase in research and development expenses during the first three months of 2001 is related to continued work on adding additional functionality to our product mix, specifically introducing VoIP to our Commander II series. We believe our success will depend, in part, on our ability to develop and introduce new products and enhancements to our existing products. We continue to work on expanding our engineering team and intend to continue to make, significant investments in research and development. Sales, General & Administrative expenses increased to $901,217 in the first three months of 2001, compared to $605,266 in the corresponding period of 2000. The increase is related to the addition of sales and administrative staff during the second half of 2000. We increased our sales and marketing department from two people in the first quarter of 2000 to ten in the first quarter of 2001. The major directive is to initiate and promote a full-scale sales and marketing program to bring the company above the radar screen to promote awareness and recognition of SciDyn in the marketplace. We expect to incur substantial expenditures related to sales and marketing activities, the recruitment of additional sales and marketing personnel and the expansion of our domestic and international distribution channels. LIQUIDITY & CAPITAL RESOURCES Net cash used for operating activities for the years ended December 31, 2000 and 1999 was $628,040 and $874,925 respectively. The use of cash in operating activities in 2000 resulted primarily from the net loss and a decrease in accounts payable, offset by decreases in accounts receivable, inventory, and other assets. Net cash used in investing activities was $704,246 in 2000 and $123,555 in 1999. The increase in cash used for investing activities in 2000 was primarily attributable to capital expenditures for the purchase of computers and software for development of the Company's current and new products and for leasehold improvements. The Company expects to increase its capital expenditures to maximize development efforts of new products and applications as necessary. The Company had no significant commitments as of December 31, 2000 for capital expenditures. Net cash provided by financing activities was $2,009,134 for the year ended December 31, 2000. This amount is related to the sale of 200,650 common shares at $8.50 per share which netted $1,570,149, the finders fee from this transaction included the issuance of 13,115 warrants to purchase common shares. The remaining increase in financing activities of $438,985 was related to the exercise of stock options by employees of the Company, the sale of net operating losses, offset by the payment on the capitalized lease. - -15- Cash and cash equivalents decreased to $208,126 for the period ended March 31, 2001 from $1,351,641 at December 31, 2000. Net cash used for operating activities was $1,056,267 during the three-month period ended March 31, 2001 compared to $533,576 in the corresponding period of 2000. Net cash used for operating activities reflects the net loss marginally offset by non cash items and an increase in accrued expenses. Cash used in investing activities was $69,247 for the three-month period ended March 31, 2001 compared to $158,256 in the corresponding period of 2000. The outlay reflects the continual investment in computer related equipment to further development efforts. Cash used in financing activities in the three-month period ended March 31, 2001, amounted to $18,001 which represented payments on capital lease obligations. This compares to $153,907 in cash provided by financing activities in the previous period which was raised through the issuance on Common Stock pursuant to the Company's employee stock option plan. Although we have no material commitments for capital expenditures, management anticipates a substantial increase in working capital and capital expenditures consistent with our anticipated growth plan. By means of the growth plan, we seek to retain the services of persons who are now employees and consultants, to secure and retain the services of new employees and/or consultants as needed and to provide incentives for such persons to exert maximum efforts for the success of Science Dynamics. The amounts and timing of these expenditures will vary depending on a number of factors, including the amount of cash generated by our operations, competitive and technological developments and the rate of growth of our business. - -16- BUSINESS Overview We develop and market hardware and software for telephone companies and other telecommunications companies. Our products include devices and software for processing telephone calls on the traditional and still prominent telephone networks. We also have developed and are marketing devices and software for voice and video communications using the Internet. Corporate Background We were incorporated in the State of Delaware in May 1973 and started business in July 1977 under the name Science Dynamics Corporation. Recently we have been using the trade name SciDyn. Products Integrator Series of IP Gateways We develop software and use other companies' hardware to provide equipment that delivers simultaneous transmission of voice, fax and data over the Internet. This is commonly referred to in our industry as voice over Internet protocol or IP Telephony. IP Telephony refers to communication services - voice, facsimile, and voice messaging applications - that are transported via the Internet, rather than the traditional telephone network. The basic steps involved in originating an Internet telephone call are conversion of the analog signal to digital format and compression and translation of the signal into Internet protocol packets for transmission over the Internet. The process is reversed at the receiving end. Packet vs. Circuit switching. To understand the difference between circuit switching and packet switching, think of a highway between two cities. Traditional telephone technology would use an entire lane of the highway for one car for the duration of its trip. Packet switching technologies, like IP Telephony, fill all of the lanes with lines of cars in each lane. IP simply makes much more efficient use of the transmission path. Circuit switching technology uses traditional telephone networks inefficiently when it opens and maintains a dedicated line for every call, regardless of the density of the information being transmitted. The result is wasted bandwidth, as the end-to-end connection remains in place even during those moments when no actual information is being transmitted. IP packet technology breaks the information down into pieces, places them into electronic packets and then fills the pipe with these packets of information. The packets not only fill the pipe, but are also directed along the way by routers that read the address information. They direct each packet along the fastest route to the destination, where all of the pieces of information are reassembled, ready for receipt by fax, computer or listener. All of this takes place in only a fraction of a second. Using our technology to simultaneously transmit voice, fax and data, our customers should be able to more efficiently and cost effectively use the available capacity of their networks. Our product offers service providers an opportunity to generate new revenue and enhance their competitive position by offering their customers personalized, enhanced services and features. The Company's Integrator IP Gateways are based on our proprietary BubbleLINK(R) software that permits our customers to add new product and service features without extensive product cost or development time. - -17- Our primary customer to date has been Cascadent Communications. This company was placed in receivership after completing purchases of $4,370,520 pursuant to its contract with us. Additional potential customers include: service providers, system integrators, resellers and enterprises. Service provider customers include traditional local, international and wholesale long distance telecommunication companies, as well as next generation service providers, including Internet service providers, application service providers and others employing Internet- based business models. Traditional telecommunication service providers and next generation service providers are addressing business challenges and service demands that result from a worldwide movement towards deregulation of telecommunications markets, a trend that has been reinforced by a mandate from the World Trade Organization. Market Forces Driving Growth of IP Communications Growth of the Internet The Internet is a very large global data network that has experienced most of its growth within the last five years. The Internet is largely a separate network from the traditional circuit-switched telephone network. The volume of data traffic now exceeds the volume of voice calls, and is growing at a faster pace. The physical infrastructure of the Internet has expanded dramatically to accommodate rapid growth in data traffic over the Internet around the world, and such growth is expected to continue. Deregulation Deregulation of communications markets around the world has been a driving force in the adoption of IP Telephony. Regulatory barriers that restricted service providers to a particular geography and regulated rates and service offerings are disappearing. New competitive service providers are entering the market, challenging incumbent monopolies and offering voice services where none existed before. The flexibility and cost-effectiveness of IP Telephony networks, compared to circuit switched technology, are particularly important in an increasingly deregulated and competitive market environment. Once competitors enter new markets and deploy IP Telephony-based networks, the incumbent service providers frequently upgrade their network to include IP Telephony technology so that they can compete with the new entrants. Technological and quality improvements in IP Telephony Developments in IP Telephony technology have significantly bridged the voice quality gap between the circuit-switched system and IP Telephony systems. Today a voice call placed over an IP Telephony network can sound virtually indistinguishable from the same call made over the traditional telephone system. Cost savings opportunities Voice over IP offers service providers cost savings and operational efficiencies relative to circuit switched networks: Efficiencies of a shared network. The Internet was initially developed as a data network that is separate from and parallel to the circuit-switched traditional voice network. Each network--the Internet and the circuit-switched network--has its own dedicated equipment. Each network has operational support systems built around it (provisioning, installation, etc.) and personnel that manage and maintain those systems. The unification, also called convergence, of these two networks by moving voice traffic from the circuit-switched network onto this Internet data network will enable service providers to share traffic, equipment and operational support systems rather than maintaining completely separate networks dedicated to their own applications of voice or data. - -18- Efficiency of IP transport. When calls are routed over the Internet, the calls are compressed. Advanced speech compression technology can compress a call to consume as little as 10% of the network capacity that an uncompressed circuit-switched call would take up. Because the call takes up less space, it allows for more efficient use of the data network. Savings on international settlement charges. When phone calls travel between countries over the circuit-switched network, there is usually a per-minute settlement charge placed on each call. The originating phone company pays the terminating phone company this settlement charge, which can be in excess of $.20 per minute, depending on the countries exchanging traffic. In most places, Internet traffic is generally excluded from these per minute settlement charges. When phone calls are sent over the Internet, they become Internet data like any other Internet traffic and are, therefore, not subject to these settlement charges. This reduces the cost of transporting a phone call over the Internet and provides a financial incentive for international telecommunications service providers to route their phone traffic over the Internet. The circuit switched settlement charges are dropping internationally and are expected to decline over time. Market outlook - size and growth Telecommunication industry analysts predict strong industry growth for the IP Telephony market. According to Probe Research (1), "growth has been strong . . . we estimate packet telephony traffic so far represents less than one-half of one percent of overall public telephony minutes of use--clearly, there is a mountain of opportunity for participants yet to climb." Probe continues by saying "the local access gateway market, although a small segment still in 2000, will be the largest product segment by 2005." According to International Data Corporation (2), the IP Telephony gateway market "will continue to experience steady and reasonably robust growth." And according to the Yankee Group (3), "The Yankee Group believes that 2001 will open up tremendous opportunities for the vendors of softswitch products internationally." Probe has provided growth estimates for the market, predicting that voice over packet traffic, as measured in minutes, will grow from 2.5 billion minutes in 1999 to 611 billion minutes in 2005. Probe also predicts that revenues to voice over packet technology suppliers, for gateways, signaling servers, and softswitch/call control/call agents will grow from $1.2 billion in 2000 to $24.7 billion in 2005(1). __________________ (1) "Voice over Packet Networks: Year-End Wrap-Up: Annual Outlook and Review," by Hilary Mine and John Marcus, Probe Research, Year End 2000. (2) "Standalone VOIP Gateways: Market Analysis," by Thomas Valovic, International Data Corporation, August 2000. (3) "Going Global: A Quick Look at Softswitching Internationally," by Christin Flynn, The Yankee Group, December 2000. Benefits of the Company's IP Telephony Solution Total solution We offer a suite of IP Telephony products that allow service providers to offer services to consumers and to small, medium and large business customers. Our products can support small or large networks; local or long distance networks; and limited or extensive features. We provide a consistent and flexible set of solutions to enable the processing of calls and centralized network management functions. - -19- New revenue streams for service providers Our flexible, customized client-server software allows our customers to quickly design and deliver new features and services to their customers. In a deregulated telecommunications marketplace these services can provide sources of revenue to the next generation communications service providers. Distributed architecture Our software is comprised of distinct units that can be spread across a network. Compared to a circuit-switched network, a network using our product may be modified quickly to accommodate new features, support new protocols or handle new end-user devices, such as IP telephones, as they become widely-used or available. Voice quality Calls over our product generally have sound quality that is indistinguishable from the sound quality of calls over the traditional network. In addition, our product enables the simultaneous transmission of voice, fax and data traffic, by using standard compression and echo cancellation technologies. Materials and Principal Suppliers Our Integrator product lines use our proprietary BubbleLINK(R) software. We use a combination of industry standard computer telephony hardware including commercial grade personal computer technology, telephone voice cards, the Windows NT operating system, and our Integrator software. Our primary effort is the software design of products, limited hardware design and system integration of purchased products. We purchase equipment then integrate our custom software. We try to purchase equipment for use in our products by establishing relationships with industry leaders in the networking, telecom, and personal computer industry. We selected Natural Microsystems as the hardware vendor for the telephony voice card used in our products. We chose Natural Microsystems for its technical expertise, high level of service and worldwide support. We selected Crystal Group, Inc. as the hardware integration source for our IP Telephony gateways. By integrating our software with Crystal Group's hardware platform, the two companies should be capable of a high level of service and support to telecommunications companies worldwide. Sales and Marketing During the last two years, we have significantly increased our sales and marketing staff, launched new web initiatives and implemented a complete sales automation process. This has increased our efficiency and effectiveness to evaluate opportunities generated from web inquiries, trade shows, press releases, and partner relationships. Our intent is to diversify our customer base, thereby limiting the business risk of only having several key customers. In addition, we have undertaken a new marketing initiative to brand SciDyn as a standard of reliability for new telecommunication applications. This is further reinforced by our 23-year reputation for delivering specialized, high quality solutions. Independent of the new marketing effort, we have also noticed an increased number of inquiries for new releases, upgrades, and special projects from our former and existing customers. - -20- Research and Development The majority of the research and development activities are conducted at our facility using our array of telephony resources and the technical expertise of its engineering staff. We have fourteen employees currently engaged in engineering and research and development. We plan to devote a substantial portion of our resources to research and development and to continue utilizing subcontractors to enhance our engineering staff. We anticipate that an increase in future research and development expenditures will be necessary to remain competitive in the rapidly changing telecommunications industry We intend to utilize other companies to accelerate the development of new product offerings. Competition Our market is new, rapidly evolving, highly competitive and fragmented, and we expect competition to intensify in the future. We believe that the main competitive factors in our market are product quality, features, cost and customer relationships. We believe a critical component to success in this market is the ability to establish and maintain strong customer relationships with a wide variety of service providers around the world and to facilitate relationships between those service providers increasing the geographic coverage of their services. Our current principal competitors include large networking equipment manufacturers, such as Cisco Systems, Inc., large telecommunications equipment manufacturers, such as Lucent Inc. and Nortel Networks Corporation, and IP telephony technology companies, such as Clarent Corporation and VocalTec Communications, Ltd. We also expect new competitors to emerge. Many of our competitors are substantially larger than we are and have significantly greater financial, sales and marketing, technical, manufacturing and other resources, and more established distribution channels and stronger relationships with service providers. These competitors may be able to respond more rapidly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than we can. In addition, they may be able to compete more effectively because they will be able to add IP telephony features to their existing equipment or bundle these features as part of a broader solution. Furthermore, we believe some of our competitors may offer aggressive sales terms, including financing alternatives, which we might not be able to match. These competitors may enter our existing or future markets with solutions that may be less expensive, provide higher performance or additional features or be introduced earlier than our solutions. Given the market opportunity, we also expect that other companies may enter our market with better products and technologies. If any technology that is competing with ours is more reliable or faster or less expensive or has other advantages over our technology, then the demand for our products and services could decrease. We expect our competitors to continue to improve the performance of their current products and introduce new products or new technologies. Successful new product introductions or enhancements by our competitors could reduce the sales or market acceptance of our products and services, perpetuate intense price competition or make our products obsolete. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. We cannot be sure that we will have sufficient resources to make these investments or that we will be able to make the technological advances necessary to be competitive. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share. Our failure to compete successfully against current or future competitors could seriously harm our business, financial condition and results of operations. - -21- Commander Inmate Telephone Control System (ITCS) We develop software and use other companies' hardware to provide specialized call processing equipment to the corrections industry. Our corrections products were originally designed in 1986 to provide timing and call control for collect phone calls made by inmates from U.S. correctional institutions. We sell our product through relationships with telecommunications companies or telecommunication service providers. Our primary customer to date has been Bell South Public Communications. Bell South is in the process of phasing out its correctional telephone systems, and we do not expect additional sales to this customer. Additional potential customers include: AT&T, Verizon (including GTE), Qwest (including US West), Sprint, WorldCom and other companies that provide telecommunications services to the corrections industry. It is our intent to replace Bell South and to increase the number of customers using our products. We intend to do this through increased relationship management efforts and by offering flexible business arrangements including transaction based fees and revenue sharing. Our products can be used at the smallest local correctional facility or the largest state or federal correctional facility. Calls from inmates of federal, state, and local correctional facilities comprise an important segment of the public communications market. Inmates typically may only place calls for a limited duration, which generates a high volume of calls per phone, and generally may only place collect calls. Consequently, the inmate calling market is an attractive segment of the corrections industry to other telecommunications service providers and to us. Specialized call processing within the corrections industry requires the development of advanced capabilities such as fraud control of outgoing calls and flexible call rating systems. We sell a product specifically designed for this industry. With modifications, it can also be used for other industries. According to the U.S. Bureau of Justice Statistics as of December 1999 6.3 million adults were under some form of correctional supervision approximately 4.25 million adults were under parole or probation sanction there were approximately 2.5 million inmates in state and federal and local prisons from 1990 to 1999 the number of inmates increased by an average of 6.0 percent annually there are approximately 4,500 correctional facilities in the U.S. The inmate calling market presents unique and substantial challenges to the telecommunications service provider. Correctional authorities generally favor telecommunications service providers who can manage the inmate phone systems themselves, maintain consistent service and easily process new inmates into the systems. Correctional authorities generally require control features that limit the length of calls, limit the time of day calls are made, and restrict the ability of inmates to make harassing or unapproved telephone calls. The telecommunications service provider must be able to customize the call control features by facility, cellblock, telephone and, in some cases, each inmate. One of the unique challenges is to prevent the fraudulent bypassing of these controls through three-way calling. Inmates attempt to bypass traditional control features by calling an accomplice at an approved number and having the accomplice use three-way calling to conference a non-allowed party. Through this method, inmates have been known to harass and intimidate people such as witnesses, whose numbers would otherwise be blocked, and to call merchants to conduct fraudulent activities. Correctional authorities generally select telecommunications service providers on the basis of services and features provided and on the level of commissions paid to the facilities. Competition is intense among the telecommunications service providers and this has led to commission payments to correctional facilities at very high levels. In addition, to win new contracts and renew existing contracts, telecommunications service providers must differentiate their services from those of the competition. We are willing to customize our product and give our customers an advantage to win new contracts and renew existing ones. Correctional authorities recognize the benefits of outsourcing to telecommunications service providers that provide leading edge technology that can assist their goal of improving efficiency in operations. - -22- Our Commander II product can handle thousands of lines and thousands of call transactions per hour to provide correctional facility officials with effective tools to manage and control inmate telephone calls using the Commander system software. The Commander I products are designed for the small to mid sized municipal and county correctional facilities requiring control for up to 40 inmate telephone lines. The Commander I base system provides telephone control for four lines and can be expanded in four line increments. This modular design provides a cost effective solution with an abundance of inmate phone control features. The Commander product line provides dialing instructions, call announcement and acceptance messages and error prompts in multiple languages. A flexible inmate account option allows for management of inmate personal identification numbers. System control features applicable to each inmate telephone such as call blocking, call timers, system reports, alarm parameters and real-time display of activity allow for expanded control. The product may be configured to have one inmate phone for every one outbound telephone line or can be configured to concentrate multiple inmate phones to one outbound telephone line. This line concentration allows for cost savings in the provisioning of the number of inmate telephone lines. The Commander I and II call control systems can be configured using one or more AdminManager workstations. The AdminManager provides real- time administration of the Commander through an Ethernet Local Area Network (LAN) or a Wide Area Network (WAN). Materials and Principal Suppliers Our Commander product lines are built on our proprietary BubbleLINK(R) software. We use a combination of industry standard computer telephony hardware including commercial grade personal computer technology, telephone voice cards, and the Windows NT operating system, and our Integrator software. Recent Developments Our technology is now available on the Commander Inmate Telephone Control System. This enhancement reduces the number of inmate telephone lines that are required to operate an inmate calling system. It does this by compressing the telephone call into data packets, thereby eliminating the need for traditional phone lines from the facility. This new enhancement allows our customers to aggregate all of the telephone calls from multiple locations to a central location, therefore reducing the amount of individual phone lines needed at each facility. This may give our customers the potential to reduce per minute charges incurred to terminate phone calls and possibly increase their profitability. Patents Our product line also includes our patented three-way call detection and prevention technology that prevents inmates from bypassing control features through three-way calling. Competition We estimate our current market share at approximately 3% of the total equipment market for inmate collect calling from U.S. Federal, State and County adult facilities. The largest competitor in the market is a publicly traded company, T Netix Inc., which has approximately a 30% market share. Other competitors include Evercom Inc., Global Tel*Link (a wholly owned subsidiary of Schlumberger Technologies, Inc.), Radical System Solutions, Omniphone, Value Added Communications and Panda Systems. - -23- Customers During 2000, two customers accounted for 83% and 15% of total sales. The customer accounting for 83% of total 2000 sales was Cascadent Communications, with whom we had a supply agreement. The agreement was terminated on January 4, 2001, upon receiving notice that Cascadent was placed into receivership. We do not have sufficient information to determine whether Cascadent will emerge from receivership, but presently have no expectations that any additional sales will be generated from the supply agreement. With the introduction of the new product lines and the expansion of the sales team from two to 10 people, we anticipate less reliance on any single customer or market in the future. Employees As of March 21, 2001, we employed 37 persons on a full time basis. We supplement full-time employees with subcontractors and part- time individuals, according to our workload requirements. Facilities Pursuant to a ten year lease commencing May 1, 1995, we lease a 50,000 square foot freestanding masonry building in an industrial park in Cherry Hill, New Jersey, utilized for office space and testing of our products and other corporate activities. In the latter part of 1998, we subleased 25,645 square feet of the building to a printed circuit board manufacturer. Such sublease is currently in default, and we have engaged legal counsel who has filed a complaint to evict such tenant. The tenant is currently in negotiations with us to cure the default and reinstate the sublease. We also lease a small office space in Crawley, United Kingdom, on a month to month basis. Legal Proceedings We have been named as a defendant in a lawsuit brought by prisoners of correctional institutions in which our Commander systems have been installed. The lawsuit is entitled Mildred Fair, et al., v. Sprint Payphone Services, Inc.,et al., U.S. District Court, District of South Carolina, Greenville Division, Docket No.: CA No. 6:01-626-20. This is a class action lawsuit brought against numerous defendants, including a number of telephone companies. We believe that we have adequate defenses against such lawsuit, and given the nature of our involvement with the transactions set forth in the complaint, we do not believe the lawsuit to be material. Except for the foregoing, we are not a party to any litigation and no action against us has been threatened or is known to be contemplated by any governmental agency or subdivision or any other entity. - -24- MANAGEMENT The following table sets forth certain information regarding our directors and executive officers as of May 24, 2001. Name Age Position with the Company and term served ---- --- ----------------------------------------- Sheldon Hofferman 56 Chairman of the Board since November 15, 2000 and Director since September 17, 1997 Joy C. Hartman 52 President and Chief Executive Officer since January 28, 2000, and Director since May 7, 1991 Kenneth P. Ray 67 Director since May, 1990 Alan C. Bashforth 51 Director since November 7, 1996 John Innes 68 Director since October 12, 2000 L. Michael Hone 50 Director since October 12, 2000 Louis Padulo 64 Director since January 17, 2001 James L. Koley 70 Director since January 17, 2001 Robert O'Connor 39 Vice President of Finance and Administration since May 15, 2000 Joseph Giegerich 34 Vice President of Sales and Marketing since October 10, 2000 Thomas Spadaro 40 Vice President of Technology since December 12, 2000 Directors are elected at the annual meeting of shareholders for a period of one year. Directors appointed to fill vacancies or to increase the number of board members serve until the next annual meeting. Sheldon, C. Hofferman, has been an Attorney and Private Investor since 1971. Mr. Hofferman graduated from the University of Pennsylvania in 1966 and Temple University Law School in 1971. He was in private law practice in Washington, D.C., specializing in communications law, from 1971 to 1974. He served as Senior Trial Attorney for the Federal Trade Commission from 1974 to 1983, and re- entered private law practice thereafter. Mr. Hofferman has also served as General Partner of Golden Phoenix Limited Partnership, an investment concern, since 1983. Joy C. Hartman became President and Chief Executive Officer in January 2000, and continues to serve as, Assistant Secretary and Treasurer. Ms. Hartman joined us in January 1982. In addition to holding these positions, other positions she has held with us include CFO, Treasurer, corporate Secretary, and Executive Vice President. Her prior experiences included TeleSciences, Inc., and Peat Marwick Mitchell. Ms. Hartman is a graduate of The Wharton School of Business of the University of Pennsylvania. She is a member of the Financial Executives Institute, the National Association of Corporate Directors, and the American Society of Corporate Secretaries. - -25- Kenneth P. Ray is President of DelRay, Inc., an active telecommunications consulting firm. From 1964 to 1987, he was associated with ITT in various responsible positions and in 1976 became Vice President of ITT Telecommunications, with responsibility for engineering, marketing and sales departments. In 1981, he became Vice President and Director of Operations for the Transmission Division of ITT Space Communications. In January 1987, ITT's telecommunications group was acquired by Alcatel and Mr. Ray became Vice President of Marketing and Development for Alcatel Network Systems. From 1988 to 1991, he was Vice President for Technology and Business Development for Alcatel North America, a telecommunications company. Mr. Ray received a BSEE from Polytechnic Institute of New York in 1954 and a Masters in Economics from North Carolina State University in 1970. Alan C. Bashforth, President and Chief Executive Officer of SciDyn until January 2000, relinquished those positions and served as Chairman of the Board until November 15, 2000. He was President of Cascadent Communications, a major customer of SciDyn until December 15, 2000. Previously he was President of Innovative Communications Technology, LTD. (ICT), a data communications company, located in Jersey, Channel Islands, until the acquisition of the intellectual property of ICT by us in November 1996. Prior experience included ownership of the CSL Group of companies from its inception in 1975. CSL is a Communications and Computer engineering group and employed over 100 people in 1992 when Mr. Bashforth sold the company. From 1970 to 1975, Mr. Bashforth was employed by Automaten CI, LTD., an office equipment and telecommunications company, in various engineering and sales positions leading to the position of General Manager. Mr. Bashforth was educated in electronic engineering at Mid Herts Polytechnic College in England and holds a Higher National Diploma in Electronic Engineering. Mr. Bashforth also serves as a Director of Satellite Media Services Ltd. John Innes, is Chairman of ACHP, a company started to meet the need of electronic banking/funds transfer marketing and processing. He has 30 years of experience managing, reorganizing, and financing public and private companies. Since 1971, he has been an attorney, consultant and investor in companies in various industries including investment banking, media, aviation, waste management and electronic commerce. From 1992 to 1994, Mr. Innes was Chairman of Commonwealth Associates, a New York based investment- banking firm. Mr. Innes served as Vice- Chairman of Wheeling-Pittsburgh Steel Corporation; Managing Director of Sabre Insurance Company Limited from 1986 - 1991; he also served as General Counsel of Gulfstream Aerospace Corporation from 1976 - 1986. Mr. Innes graduated from Williams College and from Temple University Law School. L. Michael Hone, has been the President and Chief Executive Officer of Centennial Technologies, Inc., a publicly traded company, since August 1997. Previously he was Chairman and Chief Executive Officer of PSC, Inc., a publicly held manufacturer of hand-held and fixed- position laser-based bar code scanners, scan engines and other scanning products. From 1992 to 1997, Mr. Hone was director of Verax Systems, Inc., a company principally engaged in the design of statistical process control software. Mr. Hone also served as director of Rochester Healthcare Information Group, Inc., a company principally engaged in providing data processing management to the healthcare industry and he served as a director of Telxon, Inc. a publicly held company principally engaged in wireless networks and mobile information systems. Mr. Hone served as director of the Association for the Blind and Visually Impaired, Inc., which is principally engaged in assisting the blind and visually impaired to achieve vocational and social independence. He also served as a director of the Boy Scouts of America, Inc., Ocean County, New York, Council. Mr. Hone is a named inventor on six United States patents. He attended Ohio State University where he majored in Business. Louis Padulo, a President Emeritus of University City Science Center in Philadelphia Pennsylvania since 1997, served as President and Chief Executive Officer of the non-profit consortium of leading universities and organizations, between 1991 and 1996. Previously, he served as President of the University of Alabama in Huntsville and has held a number of administrative and faculty positions with Boston University, Stanford University, Morehouse College, Massachusetts Institute of Technology, and the University of Tokyo among others. Additionally, Mr. Padulo possesses extensive industry and consulting experience, and has held and continues to hold a number of board and directorship positions with both public and private organizations. Mr. Padulo received a Bachelor of Science degree from Fairleigh Dickinson University, a Master of Science degree in Electrical Engineering from Stanford University, and a Ph.D. from the Georgia Institute of Technology. - -26- James L. Koley has served as an Attorney in general law practice since 1974, as well as during the periods of 1956 to 1959 and 1961 to 1963. He currently serves as Chairman of the Board of Koley Jessen P.C., a professional corporation engaged in the practice of law. Between 1963 and 1974, Mr. Koley served as Secretary and Vice President of Peter Kiewit Sons' Inc., a major international construction firm, and as a Secretary and Director overseeing its 37 subsidiaries. Mr. Koley has served and continues to serve on a number of boards of both public and private entities, including Arts-Way Manufacturing Co. Inc., and Dover Corporation. Mr. Koley received both a B.A. and Doctor of Laws degree from Creighton University, and is a member of the Nebraska and Omaha Bar Associations. Robert O'Connor came to us from PricewaterhouseCoopers, L.L.P in Philadelphia, PA, where he served from January 1998 to May 2000, as a manager of middle market advisory services. Mr. O'Connor has a strong background in corporate finance, including prior positions as Corporate Controller and Chief Financial Officer at three technology companies from 1991 to 1998. Mr. O'Connor received his MBA from Rutgers-Graduate School of Management, BS from Kean University in Union, NJ, and he is a Certified Public Accountant. Joseph Giegerich has more than 11 years of product marketing, product introduction, and marketing strategy experience in the telecommunications field, specializing in advanced and emerging technologies. He has been involved in new business development, including two startups, an acquisition, and a successful IPO. Most recently from November 1999 to September 2000, he served as Vice President of Sales for iFace.com, a telecommunications equipment provider specializing in Internet and Computer Telephony applications. Previously, from May 1998 to November 1999, he served as Director of Key Accounts with Philips Speech Processing, a division of Philips Electronics NA, where he directly managed $40 million in strategic channel relationships for Philips core speech technology. He was one of the original founders November 1991 to April 1998, of Voice Systems Technology (VST), a company offering network-based enhanced service platforms and pre-paid wireless applications. VST was subsequently sold to Boston Communications Group and went public shortly after. Earlier in his career, he built and launched a successful voice messaging service bureau. He earned a degree from Rutgers University in Economics, with a minor in Computer Science. Thomas Spadaro manages the development and design of all major product offerings for us. Presently, his main task is to develop solutions that facilitate the transition from a circuit-switched network to a digital, packet-based communications environment. Among the projects he has spearheaded since joining SciDyn in 1983 are the Integrator Series of IP gateways, the Call Control System for correctional facilities and the VFX-250S, Video over Frame Relay Access Device. He previously served as our Director of Engineering. Board of Directors Committees and Other Information All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. There are no family relationships among our directors or officers. The Board of Directors currently has an Audit Committee and a Compensation Committee. The Audit Committee oversees the actions taken by our independent auditors and reviews our internal financial and accounting controls and policies. The Compensation Committee is responsible for determining salaries, incentives and other forms of compensation for our officers, employees and consultants and administers our incentive compensation and benefit plans. Directors' Compensation The outside Directors receive $1,000.00 per meeting as standard compensation for service as directors. The Chairman of the Board will receive an annual fee of $60,000. We have an employment agreement with one officer, who is also a director. The employment agreement contains change in control provisions that would entitle the officer to receive up to 2.99 times the annual salary if there is a change in control in Science Dynamics (as defined) and a termination of employment. The maximum contingent liability under this agreement in such event is approximately $523,250. - -27- Executive Compensation The following table sets forth the total compensation paid to our president and other executive officers whose compensation during any of the past three years exceeded $100,000.
SUMMARY COMPENSATION TABLE Annual Compensation Long term compensation ----------------------- -------------------------- Name and Year Salary Bonus Other Awards All Principal ($) ($) Annual Restrict- Options/ LTIP Other Position Compen- ed Stock SARs(#) Pay- Compensa- sation ($) ($) outs($) tion ($) - ---------- ---- ------ ----- ---------- --------- ---------- ------ -------- Joy C.Hartman, 2000 161,185 -0- 1,666 -0- 100,000 -0- -0- President and 1999 113,237 -0- -0- -0- 10,000 -0- -0- CEO (1) 1998 111,000 -0- 5,632 -0- -0- -0- -0- Thomas Spadaro 2000 87,151 -0- 1,104 -0- 25,000 -0- -0- Vice President(2) Robert O'Connor 2000 67,842 -0- -0- -0- 20,000 -0- -0- Vice President(3) Joseph Giegerich 2000 24,038 -0- -0- -0- 60,000 -0- -0- Vice President(4)
1 Ms. Hartman was appointed our President and CEO in January 2000. 2 Mr. Spadaro was appointed Vice President on December 17, 2000; previously he was our Director of Engineering. 3 Mr. O'Connor was appointed Vice President on May 18, 2000. 4 Mr. Giegerich was appointed Vice President on October 17, 2000. Option Grants in Fiscal 2000 The following table shows information regarding stock options granted to our executive officers during the fiscal year ended December 31, 2000
Name and Position No. of Securities % of Total Options Exercise Expiration Underlying Granted to Employees price Date Options Granted in Fiscal Year - -------------------------------------------------------------------------------------- Joy C. Hartman President and CEO 100,000 24.5% $5.00 1/5/2010 Robert C. O'Connor, Vice President of Finance and Administration, Chief Financial Officer 20,000 4.9% $7.625 8/2/2010 Thomas Spadaro, Vice President of Technology 25,000 6.1% $7.625 6/5/2010 Joseph Geigerich, Vice President Sales and Marketing 60,000 14.7% $1.87 10/16/2010
- -28- Stock Options Exercised During Fiscal Year None of our executive officers or directors exercised stock options or stock appreciation rights during the fiscal year ended December 31, 2000. Fiscal Year-end Option Values The following table shows information regarding the value of unexercised options held by executive officers as of December 31, 2000:
Number of Securities Value of Unexercised Underlying In-The-Money Options (1) Unexercised Options - ------------------------------------------------------------------------------------ Name & Position Exerciseable Unexerciseable Exerciseable Unexerciseable - ------------------------------------------------------------------------------------ Joy Hartman, President and CEO 155,000 - $8,469 - Joseph Giegerich, Vice President - Sales and Marketing 60,000 60,000 - - Thomas R. Spadaro, Vice President - Technology 56,200 - $5,167 - Robert O'Connor, Vice President - Finance and Administration, Chief Financial Officer 20,000 - - - ____________
1) Value of unexercised options is based on the closing bid price of our common stock on the Nasdaq SmallCap Market on December 31, 2000, minus the exercise price. Employment Contracts We have an employment agreement with Joy C. Hartman, our President, CEO and a director. The employment agreement contains change in control provisions that would entitle her to receive up to 2.99 times the annual salary if there is a change in control of our company (as defined) and a subsequent termination of employment. The maximum contingent liability under this agreement in such event is approximately $523,250. - -29- 1992 Stock Option Plan Our 1992 incentive stock option plan, as filed with our registration statement on Form S-8 with the Securities and Exchange Commission on June 5, 1992, reserved 290,950 common shares for issuance; on March 22, 2000, we filed a post-effective amendment to increase the shares reserved for issuance to 1,378,950, of which 873,250 common shares are underlying outstanding stock option grants and 505,700 common shares remain available for future stock awards. CERTAIN TRANSACTIONS In February 2000, we entered into an agreement for consulting services with Alan Bashforth. The consulting services primarily related to identifying, evaluating, and recommending business strategies for us. This agreement expired on April 30, 2001 and will not be renewed. Mr. Bashforth received an aggregate of $150,000 pursuant to the agreement. We sold $4,370,146 of our Integrator gateway product to Cascadent Communications. Alan Bashforth, one of Cascadent's principals, is a member of our Board of Directors. - -30- PRINCIPAL SECURITY HOLDERS The following table sets forth information regarding the beneficial ownership of our common stock, as of the date of this prospectus. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our common stock; each of our directors and director nominees; each of our executive officers; and our executive officers, directors and director nominees as a group. Beneficial ownership has been determined in accordance with the rules and regulations of the Securities and Exchange Commission and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them. The number of shares of common stock outstanding used in calculating the percentage ownership for each person listed below includes shares of common stock underlying options or warrants held by the person that are exercisable within 60 days of the date of this prospectus. Common stock beneficially owned and percentage ownership are based on 17,657,901 shares outstanding before this offering and 21,471,804 shares to be outstanding after the completion of this offering.
Percentage of Common Stock Beneficially Owned - --------------------------------------------------------------------------------------------- Name, Address and Title of Number of Shares Beneficial Owner Beneficially Owned Before Offering After Offering - --------------------------------------------------------------------------------------------- Sheldon C. Hofferman, Chairman (1) PO Box 350 Fairfax Station, VA 22039 2,619,921 14.84% 12.20% Alan C. Bashforth, Director (2) Le Virage La Route de Sainte Marie, St. Mary, Jersey, UK JE3 3DB 1,520,000 8.61% 7.08% Edwin S. Marks, 5% owner 135 East 57th Street 27th Floor New York, New York 10022 1,129,000 6.39% 5.26% Charles Bresler, 5% owner 401 M Street SW Washington, DC 1,322,666 7.49% 6.16% Joy C. Hartman, President, CEO (3) 27 Hogan Way Moorestown, NJ 08057 215,185 1.22% 1.00% Kenneth P. Ray, Director (4) 909 Darfield Drive Raleigh, NC 27615 46,300 0.26% 0.22% Joseph Giegerich, Vice President Sales & Marketing 46 Longbridge Dr. Mount Laurel, NJ 08054 25,000 0.14% 0.12% - -31- Thomas Spadaro (5) Vice President of Engineering 41 Fountain Blvd Burlington, NJ 08016 82,455 0.47% 0.38% Robert O'Connor (6) Vice President of Finance and Administration 53 Sorrel Run Mt. Laurel, NJ 08054 20,000 0.11% 0.09% James L. Koley, Director Suite 800, One Pacific Place 1125 S. 103 Street Omaha, NE 68124-1079 142,000 0.80% 0.66% All executive officers, directors, and director nominees as a group (6 persons) 7,122,527 40.34% 33.17%
______________ (1) The total includes 2,619,921 shares owned by Golden Phoenix, LP., of which Mr. Hofferman is General Partner. (2) Shares in the name of Innovative Communications Technology, LTD., a corporation, controlled by Mr. Bashforth. (3) The 215,185 shares in Ms. Hartman's name include incentive options, exercisable within sixty days to acquire 155,000 shares, and 20,000 warrants, and 300 shares owned by Ms. Hartman's children. (4) The 46,300 shares owned by Mr. Ray include incentive options, exercisable within sixty days to acquire 30,000 shares. (5) The 82,455 shares owned by Mr. Spadaro include incentive options, exercisable within sixty days to acquire 56,200 shares. (6) The 20,000 shares owned by Mr. O'Connor include incentive options, exercisable within sixty days to acquire 20,000 shares. - -32- DESCRIPTION OF SECURITIES Our authorized capital stock consists of 45,000,000 shares of common stock, par value $.01 per share. The description of our securities are summaries and do not contain all the information that may be important to you. For more complete information, you should read our certificate of incorporation and its amendments. Common Stock Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of our common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared from time to time by our board of directors out of funds legally available therefore. Upon the liquidation, dissolution or winding up of us, the holders of our common stock are entitled to receive ratably, our net assets available after the payment of all liabilities. Holders of our common stock have no preemptive, subscription, redemption or conversion rights, and there are no redemption or sinking fund provisions applicable to the common stock. The outstanding shares of our common stock are, and the shares offered by us in this offering will be, when issued and paid for, validly issued, duly authorized, fully paid and nonassessable. Warrants On November 7, 1996, we issued warrants to purchase 20,000 shares of our common stock at an exercise price of $.78125 per share, to Joy C. Hartman, our President and CEO. The warrant terminates on November 7, 2001 and may be exercised at any time until such date. Recent Financing On May 22, 2001, we issued $1,200,000 principal amount of 8% convertible debentures, due May 22, 2003, to three investors pursuant to a Subscription Agreement dated May 22, 2001. Interest only payments are due quarterly commencing September 30, 2001, and the principal is due in one lump sum on May 22, 2003, or upon certain events of default. The conversion price for the convertible debentures is the lesser of 85% of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including May 22, 2001, or 85% percent of the average of the three lowest closing prices for the common stock for the 30 trading days prior to but not including the conversion date. The maximum number of shares of common stock that any subscriber or group of affiliated subscribers may own after conversion at any given time is 4.99%. The number of shares of common stock issuable upon conversion of the convertible debentures is 1,470,588, based on a conversion price of $0.816 per share. We are required to register 200% of this amount, for a total of 2,941,176 shares. The actual conversion price will depend on the market price of our common stock prior to the conversion. In addition to the convertible debentures, we also issued warrants to purchase 872,727 shares of common stock. These warrants, which expire May 22, 2006, have an exercise price of $1.4339 per share. - -33- Transfer Agent The Transfer Agent and Registrar for the common stock and the warrants described above is Continental Stock Transfer & Trust Company. SELLING SHAREHOLDERS The table below sets forth information concerning the resale of the shares of common stock by the selling stockholders. We will not receive any proceeds from the resale of the common stock by the selling stockholders. We will receive proceeds from the exercise of the warrants. Assuming all the shares registered below are sold by the selling stockholders, none of the selling stockholders will continue to own any shares of our common stock. The following table also sets forth the name of each person who is offering the resale of shares of common stock by this prospectus, the number of shares of common stock beneficially owned by each person, the number of shares of common stock that may be sold in this offering and the number of shares of common stock each person will own after the offering, assuming they sell all of the shares offered. Name Total Shares of Total Shares of Beneficial Percentage of Beneficial Percentage Common Stock Percentage of Common Stock Ownership Common Stock Ownership of Common Issuable Upon Common Stock, Included in Before Owned Before After the Stock Conversion of Assuming Full Prospectus(1) the Offering(2) Offering Offering Owned After Notes and/or Conversion (3) Offering(3) Warrants - ------------------------------------------------------------------------------------------------------------------------- Laurus Master Fund, Ltd. (4)(5)(6) 1,952,763 9.96 3,178,253 927,406 4.99 -- -- The Keshet Fund, L.P. (4)(5)(7) 195,276 1.77 317,825 195,276 1.77 -- -- Keshet L.P. (4)(5)(7) 195,276 1.77 317,825 195,276 1.77 -- --
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholder has sole or shared voting power or investment power and also any shares which the selling stockholder has the right to acquire within 60 days. The actual number of shares of common stock issuable upon the conversion of the debentures and exercise of the debenture warrants is subject to adjustment depending on, among other factors, the future market price of the common stock, and could be materially less or more than the number estimated in the table. (1) Includes 200% of the shares issuable on conversion of the convertible notes, based on the market price of our common stock on May 23, 2001, as required by our agreement with the selling shareholders. The number of shares of common stock issuable upon conversion of the debentures is dependent in part upon the market price of the common stock prior to a conversion, the actual number of shares of common stock that will be issued in respect of such conversions and, consequently, offered for sale under this registration statement, cannot be determined at this time. As a result of the contractual agreement not to exceed 4.99% beneficial ownership, the selling shareholder does not believe it is a control person as defined in the Securities Exchange Act of 1934 or is required to file a Schedule 13D. - -34- (2) Represents shares of common stock issuable upon conversion of debentures of the selling shareholder at an assumed conversion price of $0.05 per share and/or exercise of warrants of the selling shareholder at a conversion price of $0.077 per share. However, the selling shareholder has contractually agreed to restrict its ability to convert its debentures or exercise its warrants and receive shares of our common stock such that the number of shares of common stock held by it and its affiliates after such conversion or exercise exceed 4.99% of the then issued and outstanding shares of common stock following such conversion or exercise. This restriction may not be waived. (3) Assumes that all securities registered will be sold. (4) The following chart discloses the principal(s) of each selling securityholder and the person(s) with investment and dispositive power: Investment/dispositive Securityholder Principal authority - ------------------------------------------------------------------- Laurus Master Fund, Ltd. Eugene Grin Eugene Grin & David Grin & David Grin The Keshet Fund, L.P. Abraham Grin John Clark Keshet L.P. Abraham Grin John Clark (5) Laurus Master Fund, Ltd., Keshet Fund LP and Keshet LP are under common control and all shares registered hereunder may be deemed to be beneficially owned by such control person. All such selling stockholders may be deemed to be a purchasing group for purposes of Rule 13d, but are not required to file a Form 13d because of the limitation of their beneficial ownership to 4.99%, as a group. (6) Includes 727,273 shares issuable upon exercise of warrants presently exercisable at a price of $1.4339 per share. (7) Includes 72,727 shares issuable upon exercise of warrants presently exercisable at a price of $1.4339 per share. Plan of Distribution The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. There is no assurance that the selling stockholders will sell any or all of the common stock in this offering. The selling stockholders may use any one or more of the following methods when selling shares: Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers. Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction. An exchange distribution following the rules of the applicable exchange Privately negotiated transactions Short sales or sales of shares not previously owned by the seller A combination of any such methods of sale any other lawful method The selling stockholders may also engage in: Short selling against the box, which is making a short sale when the seller already owns the shares. - -35- Other transactions in our securities or in derivatives of our securities and the subsequent sale or delivery of shares by the stockholder. Pledging shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer to sell the pledged shares. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from selling stockholders in amounts to be negotiated. If any broker-dealer acts as agent for the purchaser of shares, the broker-dealer may receive commission from the purchaser in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be considered to be "underwriters" within the meaning of the Securities Act for such sales. An underwriter is a person who has purchased shares from an issuer with a view towards distributing the shares to the public. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be considered to be underwriting commissions or discounts under the Securities Act. Because the following selling shareholders are deemed "underwriters" within the meaning of Section 2(11) of the Securities Act, they will be subject to the prospectus delivery requirements: Laurus Master Fund, Ltd. The Keshet Fund, L.P. Keshet L.P. We are required to pay all fees and expenses incident to the registration of the shares in this offering. However, we will not pay any commissions or any other fees in connection with the resale of the common stock in this offering. We have agreed to indemnify the selling shareholders and their officers, directors, employees and agents, and each person who controls any selling shareholder, in certain circumstances against certain liabilities, including liabilities arising under the Securities Act. Each selling shareholder has agreed to indemnify us and our directors and officers in certain circumstances against certain liabilities, including liabilities arising under the Securities Act. If the selling stockholder notifies us that they have a material arrangement with a broker-dealer for the resale of the common stock, then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the selling stockholder and the broker-dealer. LEGAL MATTERS Sichenzia, Ross & Friedman LLP, New York, New York, will pass upon certain legal matters with respect to the shares of the common stock offered hereby. EXPERTS Peter C. Cosmas, CPA's, independent auditors, have audited, as set forth in their report thereon (which report contains an explanatory paragraph describing conditions that raise substantial doubt about the Company's ability to continue as a going concern as described in Note 1 to the financial statements) appearing elsewhere herein, our financial statements as of December 31, 2000, 1998 and 1997, and for the years then ended, that appear in this prospectus. The financial statements referred to above are included in reliance upon the report by the auditors given upon their authority as experts in accounting and auditing. - -36- HOW TO GET MORE INFORMATION We have filed with the SEC a registration statement on Form SB-2 under the Securities Act with respect to the shares to be sold in this offering. This prospectus does not contain all the information contained in the registration statement. For further information with respect to our company and the shares to be sold in this offering, reference is made to the registration statement and the exhibits and schedules filed with the registration statement. We have described all material information for each contract, agreement or other document filed with the registration statement in this prospectus. However, statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. As a result, you should refer to the copy of the contract, agreement or other document filed as an exhibit to the registration statement for a complete description of the matter involved. You may read and copy all or any portion of the registration statement or any reports, statements or other information that we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800- SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings, including this registration statement, are also available to you without charge from the SEC Web site, which is located at http://www.sec.gov. - -37- INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Accountants dated March 10, 2001 F-2 Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3 Consolidated Statements of Operations, two years ended December 31, 2000 F-4 Consolidated Statements of Cash Flows, two years ended December 31, 2000 F-5 Consolidated Statements of Changes in Shareholders' Equity, two years ended December 31, 2000 F-6 Notes to Consolidated Financial Statements F-7 - F-13 Consolidated Balance Sheets as of March 31, 2001 F-14 unaudited) and December 31, 2000 (audited) Consolidated Statements of Operations for F-15 three months ended March 31, 2001 (unaudited) and three months ended March 31, 2000 (unaudited) Consolidated Statements of Cash Flows for F-16 three months ended March 31, 2001 (unaudited) and three months ended March 31, 2000 (unaudited) Notes to Consolidated Financial Statements F-17 SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999
ASSETS December 31, 2000 1999 ---- ---- Current assets: Cash and cash equivalents $1,351,641 $ 674,793 Accounts receivable - trade 102,194 157,040 Accounts receivable - other 51,401 63,677 Inventories 87,623 361,039 Other current assets 84,566 50,185 ---------- --------- Total current assets 1,677,425 1,306,734 ---------- --------- Property and equipment, net 1,005,364 260,543 Deferred income taxes - 308,000 Intangible Assets, net of accumulated amortization of $1,200,000 in 2000 and $900,000 in 1999. 300,000 600,000 Other assets 25,363 133,776 ---------- --------- Total assets $3,008,152 $2,609,053 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligation $ 57,598 $ - Accounts payable 358,820 215,409 Accrued expenses 118,059 424,677 ---------- --------- Total current liabilities 534,477 640,086 ---------- --------- Non current portion of capital lease obligation 128,413 - ---------- --------- Total liabilities 662,890 640,086 Commitments Shareholders' equity - Common stock - .01 par value, 45,000,000 shares authorized, 17,783,700 and 17,286,278 issued 17,657,901 and 17,160,478 outstanding in 2000 and 1999 respectively. 177,837 172,862 Additional paid-in capital 14,266,787 12,556,205 (Deficit) (11,701,529) (10,362,267) ---------- --------- 2,743,095 2,366,800 Common stock held in treasury, at cost (397,833) (397,833) ---------- --------- Total shareholders' equity 2,345,262 1,968,967 ---------- --------- Total liabilities and shareholders' Equity $3,008,152 $2,609,053 ========== ========= The accompanying notes are an integral part of these consolidated financial statements. - -F3-
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ---- ---- NET SALES $5,269,377 $2,347,984 Operating costs and expenses: Cost of sales 1,891,484 1,330,886 Research and development 1,141,656 1,331,521 Selling, general and administrative 3,605,768 1,728,244 ---------- ---------- 6,638,908 4,390,651 ---------- ---------- Operating Loss (1,369,531) (2,042,667) Other income (expenses): Interest income 40,647 Interest expense (10,378) (12,219) ---------- ---------- Net Loss $(1,339,262) $(2,054,886) ========== ========== Net Loss per common share basic and diluted $ (0.08) $ (0.12) ========== ========== The accompanying notes are an integral part of these consolidated financial statements. - -F4-
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,2000 AND 1999
2000 1999 ---- ---- Cash flows from operating activities: Net Loss $(1,339,262) $(2,054,886) ----------- ----------- Adjustments to reconcile net loss to net cash used for operating activities: Depreciation 159,859 94,101 Amortization of capitalized software - 138,996 Amortization of Intangible assets 300,000 300,000 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable 54,846 109,363 Other receivable 12,276 596,223 Inventories 273,416 117,455 Other current assets (34,381) (3,919) Other assets 108,413 7,642 Decrease in: Accounts Payable and accrued expenses (163,207) (179,900) ----------- ----------- Total adjustments 711,222 1,179,961 ----------- ----------- Net cash used for operating activities (628,040) (874,925) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment - net (704,246) (123,555) ----------- ----------- Net cash used in investing activities (704,246) (123,555) ----------- ----------- Cash flows from financing activities: Increase (decrease) in: Payment on loan payable - (100,000) Payment on capitalized lease (14,423) - Proceeds from sale of income tax NOL 308,000 - Issuance of common stock and warrants 1,715,557 1,741,024 ----------- ----------- Net cash provided by financing activities 2,009,134 1,641,024 ----------- ----------- Net increase in cash and cash equivalents 676,848 642,544 Cash and cash equivalents - beginning of period 674,793 32,249 ----------- ----------- Cash and cash equivalents - end of period 1,351,641 674,793 =========== =========== Noncash transactions: Increase in Capital Lease Obligations $ 200,434 $ - =========== =========== The accompanying notes are an integral part of these consolidated financial statements. - -F5-
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE TWO YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Stock Additional Treasury ------------ Paid-In -------- Shares Amount Capital (Deficit) Shares Amount ------ ------ ------- --------- ------ ------ Balance December 31, 1998 15,861,449 $158,614 $ 10,729,429 $ (8,307,381) 125,800 $397,833 ---------- -------- ------------ ------------- ------- ------- Exercise of Stock Options 34,800 348 26,984 - - - Issuance of common stock net of related expenses 1,218,000 12,180 1,701,512 - - - Common Stock issued for patent 172,029 1,720 98,280 Net loss - - - (2,054,886) - - Balance December 31, 1999 17,286,278 $172,862 $ 12,556,205 $(10,362,267) 125,800 $397,833 ---------- -------- ------------ ------------- ------- ------- Exercise of Stock Options 283,673 2,838 151,069 - - - Issuance of common stock net of related expenses 213,749 2,137 1,559,513 - - - Net loss - - - (1,339,262) - - ---------- -------- ------------ ------------- ------- ------- Balance December 31, 2000 17,783,700 $177,837 $14,266,787 (11,701,529) 125,800 $397,833 ========== ======== ============ ============= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. - -F6-
SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 Summary of Significant Accounting Policies: a. Principles of Consolidation: The consolidated financial statements include the Company's wholly owned subsidiary. All intercompany transactions have been eliminated in consolidation. b. Organization and Description of Business: The Company, which was incorporated in May, 1973 and commenced operations in July 1977, is engaged in the design, development, integration and marketing of advanced telecommunications products and applications. All the Company's operations are considered to be in one industry. c. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimated. d. Inventories: Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. e. Property and Equipment: Property and equipment are stated at cost, depreciation of property and equipment is computed generally using the straight-line method based on estimated useful lives of five years for machinery and equipment and seven years for furniture and fixtures. Leasehold improvements are amortized over the life of the related lease or their estimated useful lives, whichever is shorter, using the straight-line method. Costs of major additions and betterment's are capitalized; maintenance and repairs which do not improve or extend the life of respective assets are charged to expenses as incurred. When an asset is sold or otherwise disposed of, the cost of the property and the related accumulated depreciation is removed from the respective accounts and any resulting gains or losses are reflected in income. f. Cash and Cash Equivalents: The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. - -F7- g. Income Taxes: The Company elected to adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes", (SFAS No. 109) in 1992. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expenses (credit) is the tax payable (receivable) for the period and the change during the period in deferred tax assets and liabilities. h. Revenue Recognition: Revenue is generally recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Revenue from product sales is recognized at time of delivery and acceptance and after consideration of all the terms and conditions of the customers contract. Sales of services are recognized at time of performance. i. Impairment of Long-Lived Assets: Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of long-lived Assets and for long-lived Assets to be Disposed of." SFAS No. 121 requires the Company to review the recoverability of the carrying amounts of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable. In the event that facts and circumstances indicate that the carrying amount of long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the assets' carrying amount to determine if a write-down to fair value is required. Fair value may be determined by reference to discounted future cash flows over the remaining useful life of the related asset. In 2000, the Company wrote off the carrying value of one of its patents in the amount of $89,706. j. Fair Value Disclosures: The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value because of the immediate or short-term maturity of these financial instruments. k. Stock Options: The Company accounts for its stock options in accordance with the provisions of Accounting principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted the disclosure requirements of SFAS No. 123, Accounting for Stock Based Compensation. Had the company determined compensation cost based on fair value at the grant date for stock options under SFAS No. 123 the effect would have been immaterial. - -F8- l) New Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and in June 2000 issued SFAS No. 138, accounting for certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133. These new standards require companies to record derivative financial instruments on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the fair value of those derivatives would be accounted for based on the use of the derivative and whether the instrument qualified for hedge accounting, as defined in SFAS 133 and 138. The Company is required to implement these statements in the first quarter of fiscal 2001. The company has not used derivative instruments and believes the impact of adoption of this statement will not have a significant effect on the financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB No. 101"), which provided guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB No. 101 did not impact the Company's revenue recognition policies. In March 2000, the Financial Accounting Standards Board, released FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25," which provides clarification of Opinion No. 25 for certain issues, such as the determination of who is an employee, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. The Company believes that its practices are in conformity with this guidance, and therefore Interpretation No. 44 will have no impact on its financial statements. 2 Accounts Receivable: The Company evaluates its accounts receivable on a customer-by-customer basis and has determined that no allowance for doubtful accounts is necessary at December 31, 2000 and 1999. 3 Property and Equipment: A summary of the major components of property and equipment is as follows: 2000 1999 ---- ---- Computers, fixtures And equipment $1,452,454 $ 547,775 Less accumulated Depreciation (447,090) (287,232) Totals $1,005,364 $ 260,543 4 Income Taxes: In 1992, the Company adopted SFAS No. 109, Accounting for Income taxes. Under the provision of SFAS No. 109, the Company elected not to restate prior years due to immateriality. Inc. 1992, the effect of the change was to decrease the net loss by $308,000 (.10 per share). The deferred tax asset recognized in the accompanying balance sheet a December 31, 1999 was recovered through the sale of New Jersey State net-operating loss carryovers as permitted by the State in the amount of $308,000. At this time, the Company does not believe it can reliably predict profitability for the long-term. Accordingly, the deferred tax asset applicable to 2000 and 1999 operations has been reduced in its entirety by the valuation allowance. - -F9- As a result of the operating losses for the years ended December 31, 1990 and 1992-2000 the Company has available to offset future taxable income a net operating loss of $12,722,364 expiring 2005-2020. In addition, research credits expiring 2005-2014 are available to offset future taxes. The components of the provision (credit) for income taxes from continuing operations is as follows: 2000 1999 ---- ---- Deferred Federal $ - $ - Current Federal - - State - - ----------- ---------- $ - $ - =========== ========== Differences between the tax provision computed using the statutory federal income tax rate and the effective income tax rate on operations is as follows: 2000 1999 ---- ---- Federal Statutory rate $(455,349) $(698,661) Research tax Credits - - Tax benefit not Provided due To valuation Allowance 455,349 698,661 -------- -------- - - ======== ======== Components of the Company's deferred tax assets and liabilities are as follows: December 31, 2000 1999 ---- ---- Deferred tax assets: Tax benefits related To net operating Loss carry forwards And research tax Credits $4,298,635 $3,843,286 ---------- ---------- Total deferred tax Asset 4,298,635 3,843,286 ---------- ---------- Valuation Allowance for Deferred tax Assets 4,298,635 3,843,286 Net deferred tax Assets $ -0- $ -0- - -F10- 5 Commitments: a Leases The Company leases their office, sales and manufacturing facilities and certain vehicles under non-cancelable operating leases with varying terms. The leases generally provide that the Company pay the taxes, maintenance and insurance expenses related to the leased assets. Future minimum lease payments required under operating leases that have initial or remaining non- cancelable lease terms in excess of one year, as of December 31, 2000 are as follows: 2001 $193,622 2002 185,483 2003 185,483 2004 183,052 2005 181,836 After 2005 60,612 ------- Total minimum lease payments $990,088 b Employment Agreement: The Company has an employment agreement with one officer, who is also a director of the company. The employment agreement contains change in control provisions that would entitle the officer to receive up to 2.99 times the annual salary if there is a change in control in the Company (as defined) and a termination of employment. The maximum contingent liability under this agreement in such event is approximately $523,250. 6 Intangible Assets: On November 7, 1996, the Company acquired "Intellectual Property", issuing 1,500,000 shares of its common stock. Based on technical reviews of the property and the business potential of the technology, the Company valued the "Intellectual Property" at $1,500,000. The Company began amortizing the property on January 1, 1997 over a period of five years. The amortization for 2000 and 1999 was $300,000 for each year. 7 Stock Options and Warrants: On November 17, 1999 the Company amended the Incentive Stock Option Plan, authorizing an additional share increase of 1,088,000 shares. 283,673 shares were exercised in 2000 and 34,800 in 1999. The total amount of shares granted and not exercised at December 31, 2000 amount to 505,700 at exercise prices ranging from 0.50 to 10.75 per share. As allowed by FASB No. 123, The Company has elected to continue to follow Accounting Principles Board (APB) Opinion No. 23, " Accounting for Stock Issued to Employees" (APB No. 25) in accounting for its stock option plans. Under APB No. 25, the Company does not recognize compensation expense on the issuance of its stock options because the options terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. As required by FASB No. 123, the Company has determined the pro- forma information as if the Company had accounted for stock options granted since January 1, 1996, under the fair value method of FASB No. 123. An option pricing model similar to the Black- Sholes was used with the following weighted average assumptions used for grants in the year 2000 and 1999, respectively: expected volatility of 80 percent; risk free interest rate of 7% and 6% respectively and expected lives of 5 years. The pro-forma effect of these options on net earnings was not material. These pro- forma calculations only include the effect of 1999 and 2000 grants. As such, the impacts are not necessarily indicative of the effects on reported net income of future years. - -F11- 8 Major Customers: During 2000 two customers accounted for 83% and 15% of total sales. During 1999 three customers and their operating subsidiaries accounted for 64.63%, 10.31% and 9.71% of total sales. 9 Earnings (Loss) Per Share: In February 1997, the Financial Accounting Standards Board issued SFAS No. 128. "Earnings Per Share" applicable for financial statements issued for periods ending after December 15, 1997. As required the Company adopted SFAS No. 128 for the year ended December 31, 1997 and restated all prior period earnings per share figures. The Company has presented basic earnings per share. Basic earnings per share excludes potential dilution and is calculated by dividing income available to common stockholders by the weighted average number of outstanding common shares. Diluted earnings per share incorporates the potential dilutions from all potentially dilutive securities that would have reduced earnings per share. Since the potential issuance of additional shares would reduce loss per share they are considered anti-dilutive and are excluded from the calculation. The weighted average number of shares used to compute basic loss per share was 17,549,993 in 2000 and 16,777,070 in 1999. 10 Related Party Transactions During 2000, Scidyn began the deployment of the Cascadent Supply Agreement, this Agreement provided $4,370,520 in revenue for the year. The Agreement was terminated on January 4, 2001, upon receiving official word that Cascadent was placed into receivership. SciDyn does not have information as to when or if Cascadent will emerge from receivership as a going concern. Alan Bashforth, one of Cascadent's principals, is a member of the Company's Board of Directors. 11 Subsequent Events In March 2001 the Company entered into a $40,000,000 Equity line of Credit arrangement with the Alpha Group. Under the terms of the equity line agreement, the Company will have the right to sell up to $40 million of its common stock. The Company has sole discretion, subject to certain volume limitations and conditions, to draw down upon such funds as its capital needs dictate. The sale price of the common stock will not exceed ten percent of an average closing bid price to be calculated at the time of each sale. In connection with such financing Alpha has been issued warrants to purchase up to 500,000 shares of the Company's common stock at exercise prices of $5.00 per share. Additional warrants to purchase up to 500,000 shares of the Company's common stock at an exercise price equal to the current bid price will be issued on a pro rata basis at the time of each sale. The term of the equity line is for eight months with an automatic one-year extension if at least ten percent or $4 million is drawn down during the initial eight-month period. The equity financing draw downs are subject to a limit of 300 percent of the "Average Daily Trading Volume", defined as the dollar amount of the average daily trading volume of shares of the Company's common stock, calculated based upon the average bid price and average daily trading volume traded over the twenty trading days preceding multiple put dates. As such, SciDyn's ability to access these funds in sufficient amounts will be directly related to the average daily trading volume as defined. The agreement contains other provisions, which may have the potential to limit SciDyn's ability to draw down funds. The agreement can be accessed in its entirety as an exhibit to an 8-K filing made with the Securities and Exchange Commission. - -F12- Funding under the agreement is also subject to completion of certain terms and conditions, including the filing of a registration statement with the Securities and Exchange Commission. No public offering of the Company's common stock will be made except by means of a prospectus under an effective registration statement. - -F13- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
ASSETS March 31, December 31, 2001 2000 Unaudited Audited --------- ------- Current assets: Cash and cash equivalents $ 208,126 $ 1,351,641 Accounts receivable - trade 92,283 102,194 Accounts receivable - other 64,461 51,401 Inventories 83,467 87,623 Other current assets 103,453 84,566 --------- ---------- Total current assets 551,790 1,677,425 --------- ---------- Property and equipment, net 1,012,248 1,005,364 Intangible Assets, net of accumulated amortization of $1,275,000 in 2001 and $1,200,000 in 2000. 225,000 300,000 Other assets 25,363 25,363 --------- ---------- Total assets $1,814,401 $ 3,008,152 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligation $ 61,353 $ 57,598 Accounts payable 354,568 358,820 Accrued expenses 206,396 118,059 --------- ---------- Total current liabilities 622,317 534,477 --------- ---------- Long-term portion of capital lease obligation 106,657 128,413 --------- ---------- Commitments Shareholders' equity - Common stock - .01 par value, 45,000,000 shares authorized, 17,783,701 issued and 17,657,901 outstanding in 2001 and 2000 respectively. 177,837 177,837 Additional paid-in capital 14,266,787 14,266,787 (Deficit) (12,961,364) (11,701,529) ---------- ---------- 1,483,260 2,743,095 Common stock held in treasury, at cost (397,833) (397,833) ---------- ---------- Total shareholders' equity 1,085,427 2,345,262 ---------- ---------- Total liabilities and shareholders' equity $ 1,814,401 $ 3,008,152 ========== ==========
- -F14- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ---------
Three Months Ended March 31, 2001 2000 ---- ---- NET SALES $ 194,113 $ 1,443,482 --------- --------- Operating costs and expenses: Cost of sales 136,847 572,042 Research and development 420,522 255,707 Selling, general and administrative 901,217 605,266 --------- --------- 1,458,586 1,433,015 --------- --------- Operating (Loss) / Income (1,264,473) 10,467 Other income/expenses: Interest income 4,638 2,898 --------- --------- Net (Loss) / Income (1,259,835) 13,365 ========= ========= Net (Loss) / Income per common share basic and diluted $ (0.07) $ 0.00 ========= =========
- -F15- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ---------
Three Months Ended March 31, 2001 2000 ---- ---- Cash flows from operating activities: Net (Loss)/Income $(1,259,835) $ 13,365 ----------- ---------- Adjustments to reconcile net (loss)/ income to net cash used for operating activities: Depreciation 62,363 24,509 Amortization of capitalized software 75,000 76,910 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable 9,911 (497,164) Other receivable (13,060) 12,689 Inventories 4,156 134,373 Other current assets (18,887) (25,890) Increase (decrease) in: Accounts Payable and accrued expenses 84,085 (272,368) ----------- ---------- Total adjustments 203,568 (546,940) ----------- ---------- Net cash used for operating activities (1,056,267) (533,576) ----------- ---------- Cash flows from investing activities: Purchase of property and equipment (69,247) (158,256) ----------- ---------- Net cash used in investing activities (69,247) (158,256) ----------- ---------- Cash flows from financing activities: Increase (decrease) in Payment on capitalized leases (18,001) - Issuance of common stock - 153,907 ----------- ---------- Net cash (used in) provided by financing activities (18,001) 153,907 ----------- ---------- Net decrease in cash and cash equivalents (1,143,515) (537,925) Cash and cash equivalents - beginning of period 1,351,641 674,793 ----------- ---------- Cash and cash equivalents - end of period $ 208,126 $ 136,868 =========== ==========
- -F16- SCIENCE DYNAMICS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) PART I Item 1. (continued) Basis of Presentation --------------------- The unaudited financial statements included in the Form 10-QSB have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation SB. The financial information furnished herein reflects all adjustments, which in the opinion of management are necessary for a fair presentation of the Company's financial position, the results of operations and the cash flows for the periods presented. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed, or omitted, pursuant to such rules and regulations. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000. The Company presumes that users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for any interim period are not necessarily indicative of the results for the full year. Income per share ---------------- Per-share data has been computed on the basis of the weighted average number of shares of common stock outstanding during the periods. - -F17- We have not authorized any dealer, salesperson or other person to give any information or represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. ______________ TABLE OF CONTENTS Page Prospectus Summary 4 Risk Factors 7 Use of Proceeds 12 Dividend Policy 13 Capitalization 14 Dilution 15 Selected Financial Information 16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Business 21 Management 29 Certain Transactions 36 Principal Security Holders 37 Description of Securities 39 Selling Shareholder 40 Plan of Distribution 41 Legal Matters 42 Experts 42 How to Get More Information 42 Financial Statements 43 ______________ Until , 2001, 25 days after the date of this prospectus, all dealers that buy, sell or trade these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ______________ 3,813,903 Shares Common Stock ______________ ______________ Prospectus ______________ Science Dynamics Corporation , 2001 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION AND LIMITATION OF LIABILITY OF MANAGEMENT As permitted by the Delaware General Corporation Law, we have included in our Certificate of Incorporation a provision to eliminate the personal liability of it's directors for monetary damages for breach or alleged breach of their fiduciary duties as directors, subject to certain exceptions. In addition, our Bylaws require us to (i) indemnify the officers and directors under certain circumstances, including those circumstances in which indemnification would otherwise be discretionary, and (ii) advance expenses to the officers and directors as incurred in connection with proceedings against them for which they may be indemnified. We have entered into indemnification agreements with the officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require the companies, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance expenses incurred as a result of any proceeding against them as to which they may be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. We believe that these charter provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We understand that the staff of the Securities and Exchange Commission is of the opinion that statutory, charter and contractual provisions as are described above have no effect on claims arising under the federal securities laws. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered. All of the amounts shown are estimates except the Securities and Exchange Commission registration fee. - ------------------------------------------------------------------ SEC Registration Fee $773 Accounting Fees and Expenses $2,500 Printing and Engraving $2,000 Legal Fees and Expenses $35,000 Blue Sky Fees and Expenses $2,500 Miscellaneous Expenses $2,085 Total $44,858 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES On May 22, 2001, we issued an aggregate of $1,200,000 of convertible notes and warrants to purchase 872,727 shares of common stock to three investors. The offering of such securities was made to accredited investors in reliance upon Section 4(2) of the Securities Act of 1933, as amended. SciDyn successfully negotiated the termination of the Alpha Venture Capital agreement, including the cancellation of 500,000 warrants originally issued pursuant to such agreement. II-1 ITEM 27. EXHIBITS 3.1(1) The Articles of Incorporation dated 5/23/73, and amendments dated 10/31/80 and 11/25/80 3.1.1(2) Amendment to Articles of Incorporation dated 5/23/84 3.1.2(2) Amendment to Articles of Incorporation dated 7/13/87 3.1.3(2) Amendment to Articles of Incorporation dated 11/8/96 3.1.4(2) Amendment to Articles of Incorporation dated 12/15/98 3.2(1) By-Laws 5.1(5) Opinion of Sichenzia, Ross & Friedman LLP 10.01(3) 1992 Incentive Stock Option Plan of the Registrant 10.06(4) Note - Laurus Master Fund, Ltd 10.07(4) Note - The Keshet Fund, L.P. 10.08(4) Note - Keshet L.P. 10.09(4) Warrant - Laurus Master Fund, Ltd. 10.10(4) Warrant - The Keshet Fund, L.P. 10.11(4) Warrant - Keshet L.P. 10.12(4) Subscription Agreement 10.13(4) Security Agreement 10.14(4) Collateral Agent Agreement 10.15(2) Employment Agreement between Registrant and Joy C. Hartman, President & CEO 10.16(2) Lease Agreement between Registrant and Cherry Hill Industrial Sites, Inc. dated August 8, 1990 10.17(2) Lease Modification and Extension Agreement between Registrant and Cherry Hill Industrial Sites, Inc. dated March 28, 1995 10.18(2) Sublease between Registrant and Pro Circuits, Inc. dated June 4, 1998 23.1(2) Consent of Peter C. Cosmas, CPA's 23.2(5) Consent of Sichenzia, Ross & Friedman LLP (included in Exhibit 5.1) 24.1(2) Power of Attorney (see page II-x) (1) Filed as like-numbered exhibits to Registration Statement, Form S-18, File Number 33-20687, effective April 21, 1981, incorporated by reference. (2) Filed herewith (3) Incorporated by reference from the Registrant's Quarterly Report on Form 10-QSB for the three months ended March 31, 1996). (4) Incorporated by reference from the Registrant's Form 8-K filed May 24, 2001. (5) To be filed by amendment. ITEM 28. UNDERTAKING A. Undertaking Pursuant to Rule 415 The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) Securities Act of 1933 (the "Securities Act"); (ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in II-2 volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at the termination of this offering. B. Undertaking Regarding Filings Incorporating Subsequent Exchange Act Documents by Reference The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. Undertaking In Respect of Indemnification Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. D. Undertaking Pursuant to Rule 430A The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of the prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Cherry Hill, State of New Jersey, on June 4, 2001. SCIENCE DYNAMICS CORPORATION /s/ Joy C. Hartman ________________________________ Joy C. Hartman President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and appoint Joy C. Hartman and Robert O'Connor, and each of them, his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, or any related registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. II-4 In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated. Signature Title Date --------- ----- ---- BY: /s/ Sheldon C. Hofferman Chairman of the Board June 4, 2001 ------------------------ Sheldon C. Hofferman BY: /s/ Joy C. Hartman President, CEO June 4, 2001 ------------------------ Joy C. Hartman BY: /s/ Alan C. Bashforth Director June 4, 2001 ------------------------ Alan C. Bashforth BY: /s/Kenneth P. Ray Director June 4, 2001 ------------------------ Kenneth P. Ray BY: /s/ L. Michael Hone Director June 4, 2001 ------------------------ L. Michael Hone BY: /s/ John Innes Director June 4, 2001 ------------------------ John Innes BY: /s/ James L. Koley Director June 4, 2001 ------------------------ James L. Koley BY: /s/ Louis Padulo Director June 4, 2001 ------------------------ Louis Padulo BY: /s/ Robert O'Connor Vice President of June 4, 2001 ------------------------ Finance and Robert O'Connor , Administration and Chief Financial Officer II-5 INDEX TO EXHIBITS 3.1(1) The Articles of Incorporation dated 5/23/73, and amendments dated 10/31/80 and 11/25/80 3.1.1(2) Amendment to Articles of Incorporation dated 5/23/84 3.1.2(2) Amendment to Articles of Incorporation dated 7/13/87 3.1.3(2) Amendment to Articles of Incorporation dated 11/8/96 3.1.4(2) Amendment to Articles of Incorporation dated 12/15/98 3.2(1) By-Laws 5.1(5) Opinion of Sichenzia, Ross & Friedman LLP 10.01(3) 1992 Incentive Stock Option Plan of the Registrant 10.06(4) Note - Laurus Master Fund, Ltd 10.07(4) Note - The Keshet Fund, L.P. 10.08(4) Note - Keshet L.P. 10.09(4) Warrant - Laurus Master Fund, Ltd. 10.10(4) Warrant - The Keshet Fund, L.P. 10.11(4) Warrant - Keshet L.P. 10.12(4) Subscription Agreement 10.13(4) Security Agreement 10.14(4) Collateral Agent Agreement 10.15(2) Employment Agreement between Registrant and Joy C. Hartman, President & CEO 10.16(2) Lease Agreement between Registrant and Cherry Hill Industrial Sites, Inc. dated August 8, 1990 10.17(2) Lease Modification and Extension Agreement between Registrant and Cherry Hill Industrial Sites, Inc. dated March 28, 1995 10.18(2) Sublease between Registrant and Pro Circuits, Inc. dated June 4, 1998 23.1(2) Consent of Peter C. Cosmas, CPA's 23.2(5) Consent of Sichenzia, Ross & Friedman LLP (included in Exhibit 5.1) 24.1(2) Power of Attorney (see page II-x) (1) Filed as like-numbered exhibits to Registration Statement, Form S-18, File Number 33-20687, effective April 21, 1981, incorporated by reference. (2) Filed herewith (3) Incorporated by reference from the Registrant's Quarterly Report on Form 10-QSB for the three months ended March 31, 1996). (4) Incorporated by reference from the Registrant's Form 8-K filed May 24, 2001. (5) To be filed by amendment. II-6 EX-3.1.1 2 camay2384.txt AMENDMENT OF ARTICLES OF INC DATED 5/23/84 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION **** Science Dynamics Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Science Dynamics Corporation March 6, 1984, resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered " Fourth " so that, as amended said Article shall be and read as follows: "The total number of shares of Common Stock which the corporation shall have authority to issue is ten million (10,000,000) and the par of each such shares is One Cent ($.01) amounting in the aggregate to One Hundred Thousand Dollars ($100,000). No holder of any shares of Common Stock or any other class of stock of the corporation now or hereafter authorized shall have any pre-emptive right to subscribe for or otherwise acquire any of said shares of stock of the corporation." SECOND: That thereafter, pursuant to resolution of its Board of Directors, a meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said Science Dynamics Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by Lyndon A. Keele its President, and Larrick S. Stapleton, its Secretary, this 23rd day of May, 1984. By /s/ Lyndon A. Keele ------------------------- President-Lyndon A. Keele Attest: By /s/ Larrick B. Stapelton ------------------------- Secretary-Larrick B. Stapelton (Corporate Seal) EX-3.1.2 3 cajul1397.txt AMENDMENT OF ARTICLES OF INC DATED 7/13/87 CERTIFICATE OF AMENDMENT OF SCIENCE DYNAMICS CORPORATION Science Dynamics Corporation, a corporation organized and existing under and by virtue of the General Corporation Laws of the State of Delaware, does hereby certify: FIRST: That at a meeting of the Board of Directors of Science Dynamics Corporation on March 20, 1986, a Resolution was duly adopted setting forth a proposed Amendment to add an entirely new Article 11 to the Articles of Incorporations of said corporation, declaring such Amendment to be advisable and calling a meeting of stockholders of said corporation for consideration thereof. The Resolution setting forth the proposed Amendment is as follows: "No person shall be personally liable to the corporation or its stockholders for any form of monetary damages for any breach of a director's fiduciary duty except (1) for breach of the director's duty of loyalty to the corporation or stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (3) pursuant to Section 174 of the Delaware Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit. No amendment or repeal of this article shall apply or have any effect on the alleged liability of any director with respect to any acts or omissions occurring prior to such amendment's effective date." SECOND: That thereafter, pursuant to Resolution of this Board of Directors, the regular annual meeting of the stockholders of the said corporation was duly called and held on April 22, 1987 upon proper notice of pendency of the said resolution in accordance with Section 222 of the general corporation law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the Amendment. THIRD: That the said Amendment was duly adopted in accordance with the provisions of Section 242 of the general corporation law of the State of Delaware. IN WITNESS WHEREOF, the said Science Dynamics Corporation has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Lyndon A. Keele as president, and Larrick B. Stapleton, as secretary, this 30th day of June, 1987. Corporate Seal /s/ Lyndon A. Keele ------------------------ Lyndon A. Keele, President /s/Larrick B. Stapelton ----------------------- Larrick B. Stapelton, Secretary EX-3.1.3 4 ex313.txt AMENDMENT OF ARTICLES OF INC DATED 11/8/96 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF SCIENCE DYNAMICS CORPORATION Science Dynamics Corporation, organized and existing under the General Corporation Laws of the State of Delaware (the "Corporation"), does hereby certify: FIRST: That the Board of Directors of the Corporation, at a meeting called for such purpose, duly adopted resolutions setting forth the proposed amendment to the Certificate of Incorporation of the Corporation and calling for the submission of the proposed amendment to a vote of the stockholders of the Corporation, for their approval and adoption. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Corporation amend its certificate of incorporation so that: ARTICLE 4 of the certificate of incorporation shall read as follows: "4. The total number of shares of stock which the corporation shall have authority to issue is Twenty Five Million (25,000,000), and the par value of each of such shares is $.01, amounting in the aggregate to Two Hundred Fifty Thousand Dollars ($250,000.00)." SECOND: That the holders of a majority of the outstanding shares of common stock of the Corporation did duly adopt said amendment proposed by the Board of Directors, at the annual meeting of shareholders held on November 7, 1996. THIRD: These amendments were duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Laws. IN WITNESS WHEREOF, the undersigned has caused its corporate seal to be affixed hereto and this Certificate to be executed by its President and attested by its Secretary, this 8th day of November, 1996. SCIENCE DYNAMICS CORPORATION Attest: Joy C. Hartman, Secretary By: Lyndon A. Keele, Chairman of the Board of Directors EX-3.1.4 5 ex314.txt AMENDMENT OF ARTICLES OF INC DATED 12/15/98 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF SCIENCE DYNAMICS CORPORATION Science Dynamics Corporation, organized and existing under the General Corporation Laws of the State of Delaware (the "Corporation"), does hereby certify: FIRST: That the Board of Directors of the Corporation, at a meeting called for such purpose, duly adopted resolutions setting forth the proposed amendment to the Certificate of Incorporation of the Corporation and calling for the submission of the proposed amendment to a vote of the stockholders of the Corporation, for their approval and adoption. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Corporation amend its certificate of incorporation so that: ARTICLE 4 of the certificate of incorporation shall read as follows: "4. The total number of shares of common stock which the corporation shall have authority to issue is Forty Five Million (45,000,000), and the par value of each of such shares is $.01, amounting in the aggregate to Four Hundred Fifty Thousand Dollars ($450,000.00)." SECOND: That the holders of a majority of the outstanding shares of common stock of the Corporation did duly adopt said amendment proposed by the Board of Directors, at the annual meeting of shareholders held on June 8, 1998. THIRD: These amendments were duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Laws. IN WITNESS WHEREOF, the undersigned has caused its corporate seal to be affixed hereto and this Certificate to be executed by its President and attested by its Secretary, this 26th day of June, 1998. SCIENCE DYNAMICS CORPORATION Attest: Joy C. Hartman, Secretary By: Lyndon A. Keele, Chairman of the Board of Directors EX-10.15 6 joyemp.txt JOY C. HARTMAN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT Science Dynamics Corporation ("Employer") and Joy C. Hartman ("Executive"), each intending to be fully and mutually legally bound, agree to obligate themselves to protect and insure preservation of the Company's and each others interests and rights, hereinafter agree that as an inducement to Employee to continue employment with Employer, and in consideration of such continued employment, the following items and conditions will apply in the event there is a change in control of Employer as such term is defined herein: a. Change in Control or Ownership means: i. An acquisition by any "person" or "group" (as those terms are defined or used in Section 13(d) of the Exchange Act as enacted and in force on the date hereof) of "beneficial ownership" (within the meaning of Rule 13d-3 under the Exchange Act as enacted and in force on the date hereof) of securities of the Employer representing 24.99% or more of the combined voting power of the Employer's securities then outstanding; ii. A merger, consolidation or other reorganization of the Employee, except where the resulting entity is controlled, directly or in directly, by the Employer; iii. A merger, consolidation or other reorganization of the Employer, except where shareholders of the Employer immediately prior to consummation of any such transaction continue to hold at least a majority of the voting power of the outstanding voting securities of the legal entity resulting from or existing after any transaction and a majority of the members of the Board of Directors of the legal entity resulting from or existing after a transaction are former members of the Employer's Board of Directors; iv. A sale, exchange, transfer or other disposition of substantially all of the assets of the Employer to another entity, except to an entity controlled, directly or indirectly, by the Employer; v. A sale, exchange, transfer or other disposition of substantially all of the assets of the Employer to another entity, or a corporate division involving the Employer; or vi. A contested proxy solicitation of the Employer's shareholders that result in the contesting party obtaining the ability to cast 25% or more of the votes entitled to be cast in an election of directors of the Employer. b. If a change in control or ownership shall occur and if thereafter, at any time, there shall be: i. Any involuntary termination of the Executive's employment (other than for Cause or Disability); ii. Any reduction in the Executive's title, responsibilities, including reporting responsibilities, or authority, including title, responsibilities or authority as it may be increased from time to time; iii. The assignment to the Executive of duties inconsistent with the Executive's office immediately prior to a Change in Control or Ownership or as the same may be increased from time to time after a change in Control or Ownership; iv. Any reassignment of the Executive to a location farther than an hour commute by automobile from Cherry Hill, N.J.; v. Any reduction in the Executive's annual base salary in effect immediately prior to a Change in Control or Ownership or as the same may be increased from time to time after a Change in Control or Ownership; vi. Any failure to continue the Executive's participation, on substantially similar terms, in any of the incentive compensation or bonus plans of the Employer to an affiliate in which the Executive participated at the time of the Change in Control or Ownership or any change or amendment to any of the substantive provisions of any of such plans which would materially decrease the potential benefits to the Executive under any of these plans; vii. Any failure to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any pension, life insurance, medical, health and accident, disability or other employee plans of the Employer or an affiliate in which the Executive participated immediately prior to a Change in Control or Ownership, or the taking of any action that materially reduce any of such benefits in effect at the time of the Change in Control or Ownership, unless this reduction relates to a reduction in benefits applicable to all employees generally; viii.Any requirement that the Executive travel in performance of his duties on behalf of the Employer or an affiliate for a substantial greater period of time than was required of the executive during the year proceeding the year in which the Change in Control or Ownership occurred; ix. Any failure of the Employer's Board of Directors to nominate the Executive for election as a member of the Employer's Board of Directors, as the case may be, at the expiration of the Executive's then existing term; x. Any sustained pattern of interruption or disruption of the Executive for matters substantially unrelated to the Executive's performance of the Executive's duties on behalf of the Employer or an affiliate; or xi. Any breach of this agreement of any nature whatsoever on the part of the Employer; then, at the option of the executive, exercisable by the Executive within one hundred eighty (180) days of the occurrence of each and every of the forgoing events, the Executive may resign from employment (or, if involuntarily terminated, give notice of intention to collect benefits hereunder) by delivering a notice in writing (the "Notice of Termination") to the Employer, and the Continuing Compensation and Benefits' provisions of this Agreement shall apply. c. Continuing Compensation and Benefits. i. (a) if, at the time of termination of the Executive's employment in accordance with Section b hereof, a Tax Change has also occurred, the Employer shall make a lump-sum cash payment to the Executive no later than thirty (30) days following the date of such termination in an amount ("X") determined pursuant to the following formula: X=(2.99A-B) x (1+C). For the purpose of the foregoing formula, A = The Executive's base amount (determined pursuant to Internal Revenue Code Section 280G(b)(3)(A)) on the date of the Tax Change B = The present value of all other amounts which qualify as payments under Internal Revenue Code Section 280G(b)(2)(A)or(B) (without regard to the provisions of Code Section 280G(b)(2)(A)(ii)), such present value to be determined pursuant to the provisions of Internal Revenue Code Section 280G; C = 120% times 0.5 times the lowest of the semiannual applicable federal rates (determined pursuant to Internal Revenue Code Section 1274(d)) in effect on the date of the Tax Change; and D = The number of whole semiannual periods plus any fraction of a semiannual period from the later of the date of the Tax Change or the Change in Control or Ownership to the date of termination of the Executive's employment. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, if the amount determined in "B" above equals or exceeds 2.99 times the amount determined under "A" above, no payment shall be made to the Executive under this Section. (b) If, at the time of termination of the Executive's employment in accordance with Section b hereof, a Tax Change has not occurred, the Employer shall make a lump-sum cash payment to the Executive no later than thirty (30) days following the date of such termination in an amount equal to (A) 2.99 times the lesser of (i) the Executive's base amount determined pursuant to the principles set forth in the regulations promulgated under Code Section 280G(b)(3)(A) and as though a Tax Change has occurred on the date of the Executive's termination of employment and (ii) the Executive's base amount so determined but as though a Tax Change will occur in the calendar year following the date of the Executive's termination of employment, minus (B) any other amounts paid or payable within thirty (30) days following the Executive's termination of employment which would constitute (or be presumed to constitute payments under Code Section 280G(b)(2)(A) or (B) (without regard to the provisions of Code Section 280G(b)(2)(A)(ii)) if a Tax Change had occurred on the date of such termination of employment. ii. The Executive shall not be required to mitigate the amount of any payment provided for in subsection c(i) by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in subsection c(i) be reduced by any compensation earned by the Executive as the result of employment by another employer or by reason of the Executive's receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise, except as otherwise provided therein. iii. Upon written request of the Executive, the Employer's obligation to make the payment under this Section shall be secured in total (i) by a standby letter of credit obtained by the Employer from a recognized financial institution the long-term obligations of which are rated, on the date of the request, investment grade or better by Standard & Poor's Corporation or Moody's Investors Service, Inc. or(ii) by other security as the Executive shall approve, obtained within ten (10) days of the Executive's written request following a Change in Control or Ownership. iv. The Employer shall pay all reasonable legal fees and related expenses (including the costs of experts, evidence and counsel and expenses included in connection with an arbitration or in other litigation or appeal) incurred by the Executive as a result of (i)(a) his delivery of a Notice of Termination or (i)(b) his seeking to obtain or enforce any right or benefit provided by this Agreement. d. Termination for Cause. The Employer may terminate the Executive's Employment for "Cause." For purposes of this Agreement, "Cause" means the occurrence of either of the following: i. The Executive's conviction of, or plea of guilty or nolo contendere to, a felony or a crime of falsehood or involving moral turpitude; or ii. The willful failure by the Executive to substantially perform his duties to the Employer, other than a failure resulting from the Executive's incapacity as a result of the Executive's Disability, which willful failure results in demonstrable material injury and damage to the Employer. Notwithstanding the foregoing, the Executive's Employment shall not be deemed to have been terminated for Cause if such termination took place as a result of: a. Questionable judgment on the part of the Executive; b. Any act or omission believed by the Executive in good faith, to have been in or not opposed to the best interests of the Employer; or c. Any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Employer's By-laws or the laws of New Jersey, or the directors and officers' liability insurance of the Employer or any Employer, in each case as in effect at the time of such act or omission. If the Executive's Employment is terminated for Cause, all rights of the Executive under this Agreement shall cease as of the effective date of such termination, except that the Executive (i) shall be entitled to receive accrued Salary through the date of such termination and (ii) shall be entitled to receive the payments and benefits to which he is then entitled under the employee benefit plans of the Employer or any affiliate thereof as of the date of this termination. Adopted by the Board of Directors on January 25, 1996. Attest Science Dynamics Corporation By: /s/Joy C. Hartman By: /s/Lyndon A. Keele -------------------------- ------------------------- Corporate Sec. President EX-10.16 7 lease.txt LEASE AGREEMENT REGISTRANT AND CHERRY HILL INDUST LEASE AGREEMENT THIS LEASE AGREEMENT, prepared this eighth day of August, 1990 between CHERRY HILL INDUSTRIAL SITES, INC., a New Jersey Corporation having its principal office at 1998 Springdale Road, Cherry Hill, New Jersey 08003, (hereinafter referred to as LANDLORD), and Science Dynamics Corporation, having an office at Building #37, 1919 Springdale Road, Cherry Hill, NJ 08003 (hereinafter referred to as TENANT). Landlord and Tenant hereby covenant as follows: 1. LEASED PREMISES. Landlord hereby agrees to lease to Tenant, and Tenant hereby agrees to rent from Landlord approximately 49,300 square feet, in building number 37 and land adjacent thereto, situated in Cherry Hill Township, Block 469, Lot 3.D, as shown and defined on Exhibit A attached hereto and made a part hereof (hereinafter referred to as the PREMISES) for the term of five (5) years (or until such prior termination as hereinafter provided) to commence on the first day of September, 1990, and end on the thirtyfirst day of August, 1995, both dates inclusive. Tenant agrees that this Lease shall, unless sooner terminated, pursuant to the terms and conditions hereof, expire absolutely on the expiration date without the requirement of any further notice from Landlord. 2. USE. Tenant shall use and occupy the Premises only for the following use, which Tenant represents shall conform to the I-R zoning of Cherry Hill Township or any subsequent zone designated for the Premises by Cherry Hill Township printed circuit board assembly and related uses. 3. RENT. The Term rental shall be $739,500.00, except as same may be modified elsewhere in this Lease, payable by Tenant to Landlord, in lawful money of the United States, in equal monthly rental installments of $12,325.00 on the first day of each month, in advance, during the Term, at the office of the Landlord or such other place as Landlord may designate. Tenant shall assume the risk of lateness or failure of delivery of the mails, and no lateness or failure of the mails will excuse Tenant from its obligation to have made any payment of rent or additional rent as required under this Lease. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the correct rent or additional rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance or pursue any other remedy in this Lease or at law provided. 4. ADDITIONAL RENT. Additional rent charges shall be paid to Landlord within five (5) days of notice of a bill sent by Landlord to Tenant. 5. LANDSCAPING. Tenant shall pay, as additional rent $300.00 per month for grass cutting and landscape maintenance pursuant to standards as established by Landlord. Landlord, at its option, and at no cost to Landlord, may utilize any exterior water sources located on the Premises for the purpose of watering landscaping. Tenant shall ensure that water is available for use by Landlord at exterior water sources. Tenant shall keep the lawn, landscaped areas, paved surfaces, sidewalks and similar areas free of debris and other waste material at all times. In the event debris and/or other waste material is present upon any of the aforementioned areas, or if, in Landlord's reasonable determination debris and/or waste material originating from Tenant's Premises is upon other properties owned by Landlord, Landlord may, at - -1- its option and WITHOUT PRIOR NOTICE OR APPROVAL OF TENANT, remove same. All costs and charges relating thereto shall be payable by Tenant as additional rent. The minimum charge for this service shall be $50.00 per instance and/or occurrence. 6. SNOW REMOVAL. VOID 7. SPRINKLER SYSTEM SERVICE. Tenant shall pay, as additional rent, one hundred percent (100%) of all charges relating to Building # 37 for sprinkler supervisory service and sprinkler standby fees. 8. UTILITIES. Tenant shall pay for all deposits, costs and charges relating to heat, water, sewer, electricity, gas and similar services rendered or supplied to or upon the Premises, or in connection with the use and occupation of the Premises on or prior to the date same are due. Tenant shall not be released or excused from the performance of any of its obligations under this Lease for any failure, interruption or curtailment of any utilities or services; nor shall any such failure, interruption or curtailment constitute a constructive or partial eviction. 9. PERSONAL PROPERTY TAXES. Tenant shall pay all personal property taxes and other taxes and assessments pertaining to its goods, chattels, machinery, equipment, fixtures, personal property and similar items prior to the date same are due. 10. REAL PROPERTY TAXES. Tenant shall pay to Landlord, as additional rent, one hundred percent (100%) of all real property taxes and assessments levied upon Block 469, Lot 3D (Bldg #37, with adjoining land) under or by virtue of any present or future laws or regulations of any governmental or lawful authority having jurisdiction over the Premises. If at any time during the Term any governmental or quasi- governmental authority having jurisdiction over the Premises imposes (a) a tax, assessment, levy, imposition, license fee or other charge on the rents collected by Landlord, or (b) any other additional or substitute tax, assessment, levy, imposition or charge relating to Block 469, Lot 3D, any such items shall be deemed to be included within the term "Real Estate Taxes" for the purposes hereof. Landlord may, at its option, contest or appeal any real property tax or assessment affecting the Premises utilizing such attorneys and/or experts as Landlord deems advisable. In the event of any tax reduction Tenant shall pay to Landlord, as additional rent, either the tax savings to the Tenant for one year or one half of the total tax savings to the Tenant during the remainder of the Term, whichever is less. 11. INSURANCE. In respect to Landlord's fire insurance policy with standard extended coverage and difference in condition policy, Tenant agrees: (a) it will not do nor permit any acts or things which will invalidate or be in conflict with any provisions thereof or which shall cause the insurance rate on the Premises to be higher than on the date of the commencement of this Lease; (b) it shall comply with all present and future rules, regulations and recommendations thereof and shall promptly make all changes, modifications, replacements and alterations as are necessary and/or required. Tenant shall not use or occupy the Premises or do or permit anything to be done thereon in any manner which shall prevent Landlord and/or Tenant from obtaining at standard rates any insurance required or desired, or which would invalidate or increase the cost to Landlord of any existing insurance, or which might cause structural injury to any building, or which would constitute a public or private nuisance or which would violate any present or future laws, regulations, ordinances or requirements (ordinary or extraordinary, foreseen or unforeseen) of the federal, state or municipal governments, or of any departments, subdivisions, bureaus or offices thereof, or of any other governmental public or quasi-public authorities now existing or hereafter created having jurisdiction in the Premises, or the Industrial Center of which they form a part. - -2- The aforementioned policy shall insure only the Landlord's property against damage and/or losses for perils specified therein. In no event will Landlord be responsible for charges and/or costs related to damage, loss, or repair and/or replacement of any property: (a) caused by conditions, exclusions or reasons not covered therein; (b) within the deductible provisions of the aforementioned policies; and/or (c) any property not owned by Landlord. Landlord's and Tenant's fire insurance policy with standard extended coverage policy, difference in condition policy and rental income insurance policy shall contain a waiver of subrogation of the rights of the Landlord's or Tenant's insurance carrier to proceed against the Landlord or Tenant for matters covered therein. Tenant is invited and encouraged to review and ascertain the type, deductibles and limits related to Landlord Insurance policies referenced herein. Tenant is responsible for, and hereby saves and holds harmless Landlord, for all costs, charges and expenses relating to or ensuing from damage, loss, and/or replacement to/of any property, of whatever nature and from any cause whatsoever, not covered by or within the deductible limits of Landlords insurance policies referenced herein. Tenant shall pay, as additional rent, one hundred percent (100%) of Landlord's premiums for fire insurance with standard extended coverage policy, difference in condition policy and rental income insurance policy to the extent the aforementioned policies relate to Building #37, as determined by Landlord. 12. TENANT'S INSURANCE OBLIGATIONS. Tenant, as a minimum, shall carry the following insurance policies applicable to the Premises (and other areas as may be required herein) with reputable companies authorized to issue policies in the State of New Jersey having a Moody rating of at least A: a. Comprehensive Public Liability Insurance. Such insurance shall be for a Combined Single Limit (CSL) for bodily injury (including death) and property damage or loss (for occurrences in or about the Premises or arising out of Tenants ownership, maintenance, use or occupancy of the Premises) in the amount of $1,000,000 for each occurrence, and $3,000,000 in the aggregate. b. Personal Property Insurance in amounts and types of coverage to insure against damage or loss to any property including, but not limited to any Tenant alterations, improvements or betterments in or about the Premises that is not the property of Landlord caused by: (1) water, rain, sleet, snow, or ice entering, seeping or leaking into or through the Premises or any portion thereof; (2) fire, explosion, tornado, wind, earthquake or any other casualty or any other similar occurrences; (3) theft, burglary, vandalism, malicious mischief, or other similar occurrences; (4) accidents of any kind, type or nature; (5) electrical, gas or water failure, cutoffs, surges or similar occurrences; (6) loss or damage to property not owned by Landlord by any similar reason. c. Boiler and pressure vessel insurance (when equipment relating to this type of insurance is located in/and or upon the Premises) with Landlord as a named insured in sufficient amount to insure against damage or loss to any property whether belonging to Tenant, Landlord, or others. d. Such other insurance, and in such amount, as may from time to time be reasonably required by Landlord or required by law. No insurance requirements as set forth in this Lease shall preclude Tenant from obtaining whatever additional insurance coverage's Tenant shall deem necessary or prudent. e. NOTE: Tenant shall have the right to procure its required insurance on a blanket master policy basis and/or an umbrella basis; provided, however, that all such coverage shall otherwise comply with all of the requirements contained herein. f. Prior to the commencement date of this Lease and by the fifteenth day of March of each year thereafter Tenant shall deliver to the Landlord proof that all the insurance coverage's required of - -3- Tenant pursuant to the terms and conditions of this Lease are in force and that premiums related thereto are paid. Upon execution of this Lease, Tenant shall provide Landlord with evidence of prepayment of the insurance premiums described herein for one (1) year in advance. g. All insurance policies required of Tenant shall: (a) provide at least thirty (30) days prior notice to Landlord and Tenant of any change, modifications or cancellation; and (b) contain a waiver of subrogation of the rights of the Tenant's insurande carrier to proceed against the Landlord for matters which are required to be or are covered by the Tenant's insurance policies. Upon execution of this Lease, Tenant shall provide Landlord with evidence of prepayment of the insurance premiums described herein for one (1) year in advance. Tenant shall give prompt notice to Landlord in case of any fire, casualty, accident or similar occurrence. 13. UPGRADING. Tenant agrees to pay to Landlord, as additional rent, during the term of this Lease the sum of $1,027.00 per month toward Landlord's contribution and assistance to the Cherry Hill Industrial Center Steering Committee (and other committees associated with the Steering Committee that are authorized by Landlord). It is understood that Landlord has the sole discretion as to the disbursement of funds (or non disbursement of funds if such is the case) related to such activities as may be authorized by Landlord, provided, however, that such activities and fund disbursements shall be related to, and for the benefit of, the Cherry Hill Industrial Center. 14. AS BUILT DRAWINGS. Within thirty (30) days of the execution of this Lease, Tenant shall provide Landlord with an accurate plan, prepared by a professional engineer, licensed to practice in the state of New Jersey, indicating the following data relating to the interior of the Premises: a. location, height and construction material of all interior partitions, b. electrical service sub panel, electrical outlet, electrical fixtures information, including locations and type, c. plumbing fixtures, drains and related item information, including locations and types, d. HVAC location and types, including ducts and related items, e. floor and ceiling finishes, and f. information concerning any other items reasonably required by Landlord to determine the condition and contents of the Premises. If Tenant shall fail to provide said drawings within the specified time period, Tenant shall be considered to be in default and Landlord reserves the option of obtaining said drawings and billing Tenant for the cost of procuring them, which cost shall not exceed $10,000. 15. FIRE. If the Premises shall be partially damaged by fire or similar casualty as is covered under insurance policies carried by Landlord, the damage shall be repaired by and at the expense of Landlord to the extent provided for pursuant to the provisions thereof. Any fire or similar casualty damage to the Premises, within the deductible limits of the aforementioned policies shall be repaired by Landlord, but paid for by Tenant as additional rent. The rent, until such repairs are made, shall be apportioned according to the portion of the Premises which was damaged or which has been made unusable, whichever is less. Nevertheless the Lease shall continue in full force and effect. If the Premises are totally or substantially damaged by fire or similar casualty, and if Landlord, at its sole option, decides not to restore or not to rebuild same, Landlord shall then, within Sixty (60) days after such fire, give Tenant notice of such decision, and thereupon this Lease shall expire by lapse of time upon the fifth day after such notice is given. Tenant shall then vacate the Premises and surrender same to Landlord. For the purpose of this Lease substantial damage is defined as that which is greater than twenty (20%) percent of the insured value - -4- of the premises as determined by the cost estimate of Landlord. In the event Landlord, at its option, decides to restore or rebuild the Premises, no penalty shall accrue for reasonable delay which may arise by reason of adjustment of insurance on the part of Landlord and/or Tenant, or for delays on account of labor troubles or other reasons or causes beyond Landlord's control. In accordance with this paragraph, Tenant explicitly waives applicability of N.J.S.A. 46:8-6 and N.J.S.A. 46:8-7. 16. REPAIRS, REPLACEMENTS. Tenant shall keep the Premises in good order and repair and shall promptly make any and all repairs, maintenance, and replacements to the Premises of whatever nature, ordinary and extraordinary, foreseen and unforeseen, except as is specifically provided for herein. All repairs, maintenance and replacements shall be in quality, usefulness, and class at least equal to the original installation. Landlord shall not be required to furnish any services, improvements, alterations, or similar items, nor to make any repairs, maintenance, or replacements to the Premises except as is specifically provided for herein. 17. ALTERATIONS. Tenant shall not make any alterations, additions or improvements without Landlord's approval, which shall not be unreasonably withheld or delayed. In the event Tenant proposes any alterations, additions, or improvements, it shall submit a complete set of plans and specifications relating thereto, prepared by any architect or professional engineer registered in the State of New Jersey to Landlord. Landlord, at its option, shall grant or deny approval within 15 days after receipt. Landlord may impose any conditions and/or requirements upon Tenant as Landlord considers necessary or prudent to protect Landlord's interest in the Premises. Tenant must agree in writing to adopt any such conditions and/or requirements before any approval is effective. If Landlord shall grant approval for the proposed work and provided Tenant has agreed to any conditions and/or requirements made a part of such approval, the following additional conditions shall apply: a. Prior to making any alterations, additions, or improvements Tenant shall assure itself that the work will not impair the structural integrity of the Premises, or any portion thereof. Approval of the proposed work by Landlord shall not constitute or imply a warranty or representation by Landlord that the existing Premises, or any part thereof, is adequate to withstand work proposed by Tenant. By making any alterations, additions, or improvements, Tenant expressly warrants that the same will not impair the structural integrity of the Premises nor any part thereof and are in full compliance with the requirements of all governmental agencies or authorities having jurisdiction. Landlord reserves the right to approve or reject Tenant's contractor. If Tenant's proposed alteration involves a tie-in to building systems, Landlord further reserves the option of requiring Tenant to use Landlord's contractor. b. All costs related to the proposed work, irrespective of their nature, are the sole responsibility of Tenant and shall be promptly paid by Tenant at such time as they may be due. c. All contractors, labor and/or material suppliers, and similar parties shall agree, in writing, prior to the commencement of any work or procurement of materials: (1) to jointly comply with Tenant with the mechanics lien restrictions contained elsewhere in this Lease; (2) that they are entering into any agreements for labor and/or material with Tenant and not on behalf or for the benefit of Landlord; (3) that the work to be done shall be in conformance with the last plans and specifications approved by Landlord and that no changes shall be made thereto without the approval of Landlord and Tenant; and (4) that they, and their employees and other agents, shall comply with all rules and regulations contained in Tenant's Lease regarding their conduct on the Premises. Proof of such agreements shall be given to Landlord prior to the commencement of the proposed work. d. Tenant shall insure, indemnify and hold Landlord harmless for any loss to which Landlord may be subject or which Landlord may - -5- sustain relating to accidents, injury to persons (including death), property loss or damage of any nature whatsoever, regardless of cause, arising during or ensuing from the work undertaken by Tenant. e. All such alterations, additions and improvements upon completion shall immediately become the property of Landlord, without compensation by Landlord to Tenant or any other party, and simultaneously become part of the Premises, and Tenant's obligations and responsibilities pursuant to the terms and conditions of this Lease shall thenceforth apply to the aforementioned alterations, additions, or improvements. Upon the termination of Tenant's lease and/or Tenant's vacating of the premises, Tenant shall remove said alterations, additions and improvements at Tenant's expense, if so requested by Landlord. f. Upon completion of the work, Tenant will submit to Landlord as-built drawings and certifications of inspections certifying the completion of the alteration, addition or improvement. 18. COMPLIANCE WITH LAWS. With respect to the Premises or the use and occupation thereof Tenant shall promptly comply with all laws, orders, regulations, and requirements now in force, or which may hereafter be in force, of (a) Federal, State, County, and Municipal authorities and (b) private, quasi-public and public utility companies and similar parties providing services. Tenant shall immediately notify Landlord upon receipt of notice of a violation or alleged violation of any of the foregoing. Tenant shall also provide Landlord, upon Landlord's request, affidavits and/or representations executed by a knowledgeable officer or principal of the company concerning Tenant's best knowledge and belief regarding Tenant's compliance with particular laws, orders, regulations and requirements as may be cited by Landlord in its request. 19. RULES AND REGULATIONS. Without limiting Tenant's obligations pursuant to any of the terms and conditions of this Lease, Tenant has the following duties: a. Between April 15 and May 15 of each year Tenant shall provide to Landlord, in form and content satisfactory to Landlord, a certification from a reputable heating, ventilating and air conditioning contractor acceptable to Landlord, or a professional engineer licensed to practice in the State of New Jersey, confirming that all heating, ventilating and air conditioning systems within the Premises are in good working order and repair and are being properly serviced by Tenant. b. Tenant shall keep: (1) the roof and exterior wall systems in a watertight condition; (2) gutters, downspouts, drainage, and sewerage systems free from obstructions and blockages; (3) all yard and exterior wall mounted lighting on during night-time hours; (4) parking areas, driveways, walkways, and similar items free from snow, ice, potholes and all other defects and/or hazards; (5) the Premises in a clean, safe, and orderly condition free from debris, refuse, trash, vermin, pests, defects and/or hazards; (6) the dissemination of smoke, dust, odors, fumes, and other noxious gases shall be within the limits of the industrial tolerance standards of the State Department of Health, Bureau of Adult and Industrial Health. c. Tenant shall not cause, commit or permit: (1) areas allocated for driveways, walkways, or the parking of automobile vehicles to be used for any other purpose; (2) any public or private nuisance; (3) use or occupancy in a manner reasonably offensive or objectionable to the Landlord by reason of, but not limited to, noise and/or vibrations; (4) debris, dirt, holes, scuff marks, smears, graphics and/or similar items on wall, floor, or ceiling surfaces; (5) any utility service or equipment to be overloaded; (6) anything that will impair or tend to impair, in Landlord's reasonable judgment, the character, value, or appearance of the Premises; (7) outside storage of any kind except as is specifically provided for herein; (8) parking of inoperable vehicles, non-motorized vehicles or trailers in or about the Premises; (9) any part or the whole of the sidewalks, entrances, passages, stairways, corridors or halls of the premises to be obstructed or encumbered or used for any purpose other than ingress and egress to and from the Premises; (10) any signs, advertisements, objects, notices or other lettering to be exhibited, inscribed, painted, or affixed on any part of the outside or inside of the - -6- Premises, so as to be visible from the exterior without prior approval of Landlord; (11) any show cases or other items to be put in front of or affixed to any part of the exterior of the building; (12) any water and wash closets and other plumbing fixtures to be used for any purposes other than those for which they were designed/ constructed, and no sweepings, rubbish, rags or other substances shall be thrown therein; (13) any wires to be installed except in conduits, ducts or outlets established for that purpose, unless prior written consent of Landlord has been obtained; (14) disturbance or interference with other Tenants or occupants of the building or neighboring buildings; (15) canvassing, soliciting or peddling within the Premises; (16) installation of a television, radio, or two-way radio antenna, or any other similar antenna, on the roof, in the windows or upon the exterior of the Premises, without the prior approval of Landlord; (17) any cooking within the Premises, without the prior written consent of Landlord, provided, however, that the heating, refrigerating and preparing of beverages and light snacks for employees shall be permitted if there are appropriate and adequate facilities and equipment for such purposes; (18) unusual or objectionable odors to be produced upon or emanate from the Premises; (19) storage, manufacture or sale of liquor, narcotics or illegal drugs; (20) any portion of the Premises to be used for lodging or sleeping or for any immoral or illegal purpose; (21) animals of any kind to be brought or kept about the Premises without Landlord's prior approval; (22) notices, posters, or advertising media, except for purposes of emergency, to be affixed on the exterior of the building; and (23) burning of trash or garbage of any kind in or about the Premises. d. Tenant shall: (1) store discarded material temporarily being stored outside of the building, forming part of the Premises, within fence-enclosed waste storage containers of a type and at locations approved by Landlord; (2) arrange for and enforce good housekeeping procedures and practices satisfactory to Landlord; (3) arrange for liquid wastes and effluents to be discharged into an approved existing sewage treatment plant in accordance with that plant's regulations and state and federal regulations, or shall treat its own wastes and effluents in a treatment plant or process which is in compliance with the New Jersey State and Federal Statutes and with the requirements of the New Jersey State Department of Health; (4) shall comply with the New Jersey State Statutes and requirements of the New Jersey State Department of Labor and Industry Precaution against fire hazards, radiation, explosion, proper handling and storage of materials and structural design, and safeguards for the health of workers. e. Tenant, its agents, employees, contractors, invitees, licensees, and similar parties shall not: (1) interfere with the business of Landlord or other Tenants or persons on any other property owned by Landlord; (2) bring or keep within the premises any flammable, combustible or explosive fluid, chemical or substance of types or quantities not permitted by law and/or Landlord's fire and casualty insurance carrier. f. Tenant, its agents, employees, contractors, invitees, licensees, and similar parties shall: (1) obey speed limit, warning and related type signs posted within the road/driveway system of the Cherry Hill Industrial Center; (2) obey fire regulations and procedures governing the premises; (3) keep access lids on exterior waste storage containers in a closed position except when waste is actually being placed within said containers. g. Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's reasonable judgment, tends to impair the reputation of said Tenant's Premises or the Cherry Hill Industrial Center, and upon notice from Landlord, such Tenant shall refrain from or discontinue such advertising. Landlord shall have the right to enforce this provision by injunction. h. Landlord's employees shall not be required to perform, and shall not be required by tenant to perform, any work outside of their regular duties, unless under specific instructions from the office of Landlord. i. Tenant shall immediately notify Landlord of any serious breakage, or fire or disorder, occurring within the Premises. j. Landlord reserves the right to rescind, amend, alter or waive any of the foregoing Rules and Regulations at any time when, in its judgment, it deems it necessary, desirable or proper for its best interest and/or for the best interest of the tenants, and no such - -7- revision, amendment, alteration or waiver of any rule or regulation in favor of one Tenant shall operate as an alteration or waiver in favor of any other Tenant. Any such rescission, amendment, alteration, or waiver shall become effective ten (10) days after notice by Landlord to Tenant. k. Nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to impose the rules and regulations against any other Tenant or any employees or agents of any other Tenant, and Landlord shall not be responsible or liable to Tenant or others for non-observance or violation of the rules and regulations by any other Tenant or its employees, agents, invitees or licensees at any time. 1. Tenant, its employees, contractors, agents, assignees, sublessees, invitees, licensees and similar parties shall obey and observe all reasonable rules and regulations established by Landlord from time to time for the conduct of Tenant and/or the welfare, care, cleanliness, preservation of good order, and/or safety of the Cherry Hill Industrial Center. Landlord shall give Tenant at least (10) days notice of the establishment thereof. Nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the rules and regulations against any other Tenant or any employees or agents of any other Tenant, and Landlord shall not be liable to Tenant or others for violations of the rules and regulations by any other Tenant or its employees, contractors, agents, invitees, licensees or similar parties. 20. EMINENT DOMAIN. If the Premises or any portion thereof are taken under the power of eminent domain, this Lease shall terminate as to the part so taken as of the date the condemning authority takes title. If more than 10% of the floor area of the Premises, or more than 25% of the non floor area of the Premises is taken by condemnation, Tenant may, at Tenant's option, to be exercised by written notice to the Landlord within 10 days after the Landlord shall have given Tenant notice of such taking, terminate this Lease as of the date the condemning authority takes title. If Tenant does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in proportion to the floor area of the Premises taken to the total floor area of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of the Landlord, whether such award shall be made as compensation for diminution in value of the Leasehold or for the taking of the fee, or as severance damages, or other compensation to which Landlord may be entitled. Tenant may make a separate application for compensation relating to its trade fixtures or personal property. 21. FORCE MAJEUR. Except as the effect of this paragraph may be expressly excluded in other provisions hereof, Landlord shall be excused for the period of any delay in the performance of any obligation hereunder when prevented from so doing by cause or causes beyond Landlord's control which shall include, without limitation, all labor disputes, civil commotion, war, war-like operations, invasion, rebellion, hostilities, military or usurped power sabotage, governmental power sabotage, governmental regulations or controls, fire or other casualty, inability to obtain any material, services or financing or through Acts of God. 22. LANDLORD'S NON-LIABILITY. Except where there is affirmative negligence on the part of the Landlord, without any contributory negligence on the part of the Tenant: Landlord shall not be liable or responsible for any loss or damage to any property regardless of its nature or ownership at any time on or about the Premises arising from any cause or reason whatsoever. Nor shall Landlord be liable or responsible for any harm or injury (including death) to any person at any time on or about the Premises, arising from any cause or reason whatsoever. Tenant shall not hold Landlord in any way responsible or liable therefore and hereby releases and remises Landlord therefrom. Without limiting or diminishing Landlord's non-liability as provided for herein, Landlord shall not be responsible or liable to Tenant, its employees, invitees, agents, or any other party for any - -8- loss or damage to any property or harm or injury to any persons (including death): (a) which is and/or should have been covered by an insurance policy required of Tenant or which Tenant failed to obtain or keep in force and effect; (b) caused by work stoppages, business interruptions, or similar events; (c) caused by other Tenants, its agents, invitees, employees, and similar parties; (d) caused by operations in construction of any private, public or quasi-public works; (e) caused by any latent or patent defects in the Premises or in any part of the building of which the Premises may form a part; (f) arising out of the design or construction of the Premises; (g) caused by snow, wind, rain, leakage, and similar events into or out of any portion of the Premises; (h) caused by leakage, overflows, obstructions, blockages, explosions, collapse, bursts, surges, and similar events of any mechanical, structural, or other component and/or part thereof; (i) arising from or caused by Tenant's business operation, occupancy and/or use of the Premises and/or the streets, rights of way, and walkways adjacent thereto, or any other similar reason. All non-liability, waivers of liability, and save and hold harmless references in this Lease given Cherry Hill Industrial Sites, Inc., as Landlord, shall apply to: (a) Cherry Hill Industrial Sites, Inc., as General Contractor, Designer, Contractor, or Subcontractor; and (b) any partner, joint venture, director, officer, agent, stockholder, and employee of Cherry Hill Industrial Sites, Inc. 23. INDEMNIFICATION. Tenant shall not do, nor permit to be done, any act or thing in or upon the Premises, which may, will, or does subject Landlord to any claims, penalties, expenses, judgments, responsibility, liability, damages or similar occurrence by reason of damage or loss to any property or harm and/or injury (including death) to any persons at any time. Tenant agrees to and shall hold and save harmless and indemnify the Landlord from and for any and all payments, expenses, costs, attorney fees, claims and liability for losses or damage to property and/or injury to any person (including death) resulting from any acts or omissions by the Tenant, or its agents, employees, guests, licensees, invitees, sub-tenants, contractors and similar parties, or for any cause or reason arising out of or by reason of Tenant's use and/or occupancy of the Premises and/or the conduct of Tenant's business and/or the breach by Tenant of any of the terms and conditions of this Lease and/or similar reason. 24. FAILURE TO GIVE POSSESSION. If Landlord, for any reason, shall be unable to give possession of the Premises on the date set for the commencement of the Term, Landlord shall not be subject to any liability for such failure. Under such circumstances, provided the delay is not caused or contributed to by Tenant, the rent payments shall not commence until possession of the Premises is given or the Premises are available for occupancy by Tenant, whichever occurs first. Failure to give possession on the date of commencement of the term shall in no way affect the validity of this Lease or the obligations of Tenant hereunder nor shall it be construed in any way as an extension to the Term or expiration date of this Lease. If Landlord, at its option, grants Tenant permission to enter into the possession of the Premises prior to the date specified as the commencement of the Term, Tenant agrees that such occupancy shall be pursuant to the terms and conditions of this Lease. 25. MECHANICS LIEN. Tenant shall not permit nor allow any notice of intention to file a mechanic's lien to be filed against the Premises. However, in the event any notice of intention to file a mechanic's lien is filed for work to be performed or material to be furnished, or a mechanic's lien is filed for work claimed to have been done or for materials claimed to have been furnished to Tenant, same shall be discharged of record and satisfied by Tenant within five (5) days thereafter at Tenant's own cost and expense, or Tenant shall file a bond pursuant to statute releasing such liens. Failure to do so shall entitle Landlord to resort to such remedies as are provided herein in case of any default of this Lease, in addition to such as are permitted by law. - -9- 26. ACCESS TO PREMISES. Landlord, its employees and agents shall have the right to enter the Premises at all reasonable times for the purpose of: (a) examining or inspecting the same; (b) showing the same to prospective purchasers, mortgagees or Tenants; (c) making such alterations, repairs, improvements or additions to the Premises or to the Building as may be necessary; (d) any other similar or reasonable purpose. If representatives of Tenant shall not be present to open and permit entry into the Premises at an time when such entry by Landlord is necessary or permitted hereunder, Landlord may enter by means of a master key (or forcibly in the event of an emergency) without: (a) liability to Landlord, its employees, agents, invitees and similar parties; (b) hindrance or molestation from Tenant, its employees, and agents; and (c) such entry constituting an eviction of Tenant or termination of this Lease. 27. ASSIGNMENT. a. Tenant shall not assign, mortgage, pledge, encumber or in any manner transfer this Lease or any portion thereof, or any interest herein, or sublet the whole or any part of the Premises, without obtaining the approval of Landlord. In the event of any such occurrence, with or without Landlord's approval, Tenant shall, nevertheless, remain liable for the performance of all of the terms and conditions of this Lease and will require any assignee/ sub lessee to execute and deliver to Landlord an assumption of all of the terms and conditions of this Lease in form satisfactory to Landlord. Landlord shall be entitled to, and Tenant shall promptly remit to Landlord, any profit which may inure to the benefit of Tenant as a result of any partial or entire subletting of the Premises or assignment of this Lease, whether or not approved by Landlord. b. For the purposes of this paragraph, Tenant understands that the transfer of a majority of Tenant's stock is tantamount to an assignment. c. As a condition precedent to Tenant's right to sublease the Premises or to assign this Lease, Tenant shall, at Tenant's own expense, first comply with ECRA and fulfill all of Tenant's environmental obligations under this Lease pursuant to paragraph 52. which also arise upon termination of Tenant's lease term. If this condition is not satisfied, then Landlord shall have the right to withhold consent to sublease or assignment. Tenant shall promptly furnish to Landlord true and complete copies of all documents, submissions and correspondence provided by Tenant to the Element and all documents, reports, directives and correspondence provided by the Element to Tenant. Tenant shall also promptly furnish to Landlord true and complete Copies of all sampling and test results obtained from samples and tests taken at and around the Premises. Tenant shall notify Landlord in advance of all meetings scheduled between Tenant and NJDEP, and Landlord may attend all such meetings. d. Should Tenant make an assignment or sublet the Premises or any portion thereof without the approval of Landlord, then Landlord may, at its option, terminate this Lease by giving Tenant five (5) days notice of Landlord's intention to do so and, upon the expiration of five (5) days, this Lease shall terminate and Tenant shall peaceably quit and surrender the Premises to Landlord; nevertheless Tenant shall remain liable as provided elsewhere in this Lease. This Lease shall not, nor shall any interest therein, be assignable as to the interest of Tenant by operation of law, without the approval of Landlord. e. Subletting or assigning this Lease to anyone other than an actual user of the Premises is positively prohibited. f. Tenant may assign this Lease or sublet the Premises or any part thereof to a subsidiary or controlled or affiliated concern of Tenant and of its parent, or a surviving company of a merger or consolidation of any of the foregoing without the Landlord's consent. Tenant is expressly granted consent to assign or sublet the Premises, or any portion thereof, to a wholly owned subsidiary. 28. SUBORDINATION. This Lease shall be subject and subordinate at all times to the lien of any mortgages and/or other encumbrances, common right-of-way's, easements and similar items existing or hereafter placed upon the Premises by Landlord, or with the permission of Landlord, without the necessity of any further instrument or act on - -10- the part of Tenant to effectuate such subordination. Tenant agrees, however, at the election of a mortgagee, to attorn to any holder of any mortgage to which this Lease is subordinate. Tenant agrees to execute and deliver promptly upon demand, and without charge, such further instrument or instruments evidencing such subordination of this Lease to the lien of any mortgage and/or other encumbrance. Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in- fact to execute and deliver such instrument or instruments for and in the name of the Tenant provided same have not been executed by Tenant within ten (10) days after Landlord's notice to Tenant. Landlord agrees that the subordination of the Lease to any future mortgage relating to the Premises shall be conditional and contingent upon any such mortgagee's agreeing that, so long as Tenant is not in default under the terms and conditions of the Lease, such mortgages shall not disturb Tenant's use, possession and occupancy of the Premises. 29. CERTIFICATIONS. Tenant agrees, within ten (10) days after Landlord's notice, to execute, acknowledge and deliver to Landlord a written instrument in recordable form certifying: (1) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same are in full force and effect as modified and stating the modifications); (2) that the Tenant has accepted possession of the Premises and the date on which the term of the Lease commenced; (3) the dates to which rent and additional rent have been paid in advance, if any; (4) whether or not to the best knowledge of the signer of such certificate, Landlord is in default in the performance of any covenant of this Lease, and, if so, specifying each such default of which the signers may have knowledge; (5) any other reasonable stipulation as may be required and/or requested by Landlord. It is understood that such instrument may be relied upon by a prospective purchaser of the fee or any mortgagee of the Premises. Tenant shall provide to Landlord, if requested, its latest audited financial statement, accurately reflecting its financial condition for the latest fiscal year of Tenant. It is understood that such statement may be relied upon by a prospective purchaser of the fee or any mortgagee of the Premises. 30. DEFAULT. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: a. Failure of Tenant to accept possession of the Premises within thirty (30) days after the effective date of the Lease; b. The vacating or abandonment of the Premises by Tenant; c. The failure by Tenant to pay, when due, any installment of rent hereunder or any additional rent or any such other sum herein required to be paid by Tenant; d. A failure by Tenant to observe and perform any other provision or terms and conditions of this Lease to be observed or performed by Tenant, where such failure continues for fifteen (15) days (or a lesser time period when an emergency or law requires or makes such a reduction for abatement and/or correction prudent; or when a lesser or non-notice provision is specifically provided for in any covenant of this Lease) after written notice thereof from Landlord to Tenant provided, however, that if the nature of the default is such that the same cannot reasonably be cured within such fifteen (15) day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently prosecute the same to completion; e. The filing of a petition by or against Tenant for adjudication as a bankrupt or insolvent or for its reorganization or for the appointment pursuant to any local, state or Federal bankruptcy or insolvency law of a receiver or trustee of Tenant's property; or an assignment by Tenant for the benefit of creditors; or the taking of possession of the property of Tenant by any local, state or Federal governmental officer or agency or court appointed official for the dissolution or liquidation of Tenant or for the operating, either temporary or permanent, of Tenant's business; provided, however, that if any such action is commenced against Tenant, the same shall not constitute a default if Tenant causes the same to be dismissed within thirty (30) days after the filing of same. - -11- REMEDIES -------- Upon the occurrence of any such event of default set forth above: a. Landlord may (but shall not be required to) perform for the account of Tenant the curing of any default of Tenant and immediately recover as additional rent any expenditure made and the amount of any obligations incurred in connection therewith, plus interest at the rate of four percent (4%) per annum over the Midlantic National Bank/South prime rate from the date of such expenditure; b. Tenant may cure any monetary default by making payment of the monies due, together with a late charge of 5% of the amount due not later than ten (10) calendar days after notice of the default has been given to Tenant. If said default should continue for a longer period, Landlord may accelerate all rent and additional rent due for the succeeding nine (9) months of the term of this Lease and declare the same to be immediately due and payable. c. Tenant may cure any non-monetary default by correcting the default condition described in Landlord's notice to Tenant if said corrections are completed within twenty (20) calendar days after notice of the default has been given to Tenant. If said default should continue for a longer period, Landlord may accelerate all rent and additional rent due for the succeeding nine (9) months of the term of this Lease and declare the same to be immediately due and payable. d. In the event of default, and the failure of Tenant to cure same within the designated time period, Landlord, at its option, may serve notice upon Tenant that this Lease and the then unexpired term hereof and all renewal options shall cease and expire and become absolutely void on the date specified in such notice, to be not less than five (5) days after the date of such notice without any right on the part of the Tenant to save the forfeiture by payment of any sum due or by the performance of any terms, provision, covenant, agreement or condition broken; and, thereupon and at the expiration of the time limit in such notice, this Lease and the term hereof granted, as well as the right, title and interest of the Tenant hereunder, shall wholly cease and expire and become void in the same manner and with the same force and effect (except as to Tenant's liability) as if the date fixed in such notice were the date herein granted for expiration of the term of this Lease. Thereupon, Tenant shall immediately quit and surrender to Landlord the Premises, and Landlord may enter into and repossess the Premises by summary proceedings, detainer, ejectment or otherwise and remove all occupants thereof and, at Landlord's option, any property thereon without being liable to indictment, prosecution or damages therefore. No such expiration or termination of this Lease shall relieve Tenant of its liability and obligations under this Lease, whether or not the Premises shall be relet; e. Landlord may, at any time after the occurrence of any event of default, re-enter and repossess the Premises and any part thereof and attempt in its own name, as agent for Tenant if this Lease not be terminated or in its own behalf if this Lease be terminated, to relet all or any part of such Premises for and upon such terms and to such persons, firms or corporations and for such period or periods as Landlord, in its sole discretion, shall determine, including the term beyond the termination of this Lease; and Landlord shall not be required to accept any tenant offered by Tenant or observe any instruction given by Tenant about such reletting or do any act or exercise any care or diligence with respect to such reletting or to the mitigation of damages. For the purpose of such reletting, Landlord may decorate or make repairs, changes, alterations or additions in or to the Premises to the extent deemed by Landlord desirable or convenient; and the cost of such decoration, repairs, changes, alterations or additions shall be charged to and be payable by Tenant as additional rent hereunder, as well as any reasonable brokerage and legal fees expended by Landlord; and any sums collected by Landlord from any new tenant obtained on account of the Tenant shall be credited against the balance of the rent due hereunder as aforesaid. Tenant shall pay to Landlord monthly, on the days when the rent would have been payable under this Lease, the amount due hereunder less the amount obtained by Landlord from such new Tenant; - -12- f. The parties recognize and agree that the damage to Landlord resulting from any failure by Tenant to timely surrender possession of the Premises will be substantial, will exceed the amount of the monthly installments of the Rent payable hereunder, and will be impossible to measure accurately. Tenant therefore agrees that if possession of the Premises is not surrendered to Landlord upon the expiration date or sooner termination of the Lease, in addition to any other rights or remedies Landlord may have hereunder or at law, Tenant shall pay to Landlord, as liquidated damages, for each month and for each portion of any month during which Tenant holds over in the Premises after the expiration date or sooner termination of this Lease, a sum equal to two times the aggregate of that portion of Base Annual Rent and Additional Rent that was payable under this Lease during the last month of the Term. Nothing herein contained shall be deemed to permit Tenant to retain possession of the Premises after the expiration date or sooner termination of the Lease. g. In addition to all remedies provided herein or by law, Tenant shall pay to Landlord reasonable attorneys fees and court costs and any other expenses incurred as a result of such breach or default. 31. EXPIRATION. Upon the expiration date of this Lease or prior termination specified by Landlord pursuant to notice as provided for elsewhere in this Lease: (a) Tenant shall remove all of its personal property from the Premises; (b) Tenant shall peacefully quit and surrender to Landlord the Premises, broom clean and in the same condition in which Tenant has agreed to keep it during the Term. Tenant's obligation to observe or perform this covenant shall survive the expiration or prior termination date of this Lease; (c) Tenant, for itself and on behalf of any and all persons claiming through or under it, including, but not limited to, creditors of every kind, shall and does hereby waive and surrender all rights and privileges which it may have under or by reason of any present or future law, to redeem the Premises or to have a continuance of this Lease; (d) Landlord may enter and repossess the Premises as of Landlord's former estate and expel Tenant, and those claiming through or under Tenant from the Premises; (e) Landlord may remove from the Premises any property of Tenant and/or the property of those claiming through or under Tenant and, without notice to Tenant or others, sell such property or any part thereof at public or private sale or Landlord may treat such property or any part thereof as abandoned and dispose of same in any manner as Landlord, at its option, elects, all at the risk and cost of Tenant and without any liability to Landlord whatsoever. If during the last month of the term or prior termination, Tenant has removed all or substantially all of the Tenant's property from the Premises, Landlord may, without notice to Tenant, immediately enter the Premises to renovate and decorate the Premises, without liability to Tenant and without reducing or otherwise affecting Tenant's obligations hereunder. 32. NON-WAIVER BY LANDLORD. Landlord may restrain any breach or threatened breach of any covenant of this Lease by Tenant. However, the recitation herein of any particular remedy shall not preclude the Landlord from any other remedy it may have, either at law or in equity. Landlord, at its option, may pursue more than one remedy available either concurrently or separately. The failure of Landlord to insist upon the strict performance of any one of the terms and conditions of this Lease or to exercise any right, remedy or election provided for in this Lease, or permitted by law, shall not constitute or be construed as a waiver or relinquishment of such right, remedy or election. Landlord may, at its option, mitigate any damages caused or arising out Tenant's breach of any of the terms and conditions of this Lease, but shall not be under any obligation or duty to do so. Any rights and remedies of Landlord, whether created by the terms of this Lease or existing at law, in equity, or otherwise, shall be distinct, separate and cumulative and no one of them, whether exercised by Landlord or not, shall be deemed to be in exclusion of any other. - -13- No covenant of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing, signed by Landlord. 33. QUIET ENJOYMENT. Landlord covenants that upon Tenant observing and performing all the terms and conditions of this Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises for the term aforementioned. 34. SECURITY. Upon execution of this Lease, Tenant shall deposit with Landlord the sum of $10,270.00 (carried over) as security for the faithful performance and observance by Tenant of the terms and conditions of this Lease. The depositing of said sum with the Landlord is a condition precedent to the valid execution of the Lease. Landlord, at its option, may use, apply or retain the whole or any part of the security so deposited for the payment of any sum for which Tenant is in default or for any sum which Landlord, at its option, may expend by reason of Tenant's default of any of the terms and conditions of this Lease. Any expenditures made by Landlord as herein stipulated shall be paid by Tenant as additional rent. Landlord shall be permitted to co-mingle Tenant security funds with other funds of Landlord and shall not be required to pay interest on any sum so held. In the event that Tenant shall fully and faithfully comply with all the terms and conditions of this Lease, the security shall be returned to Tenant after the date fixed as the end of the Lease and after delivery of the Premises by Tenant to Landlord pursuant to the terms and conditions of this Lease. In the event of a sale of the Premises, Landlord shall have the right to transfer the security to the buyer and Landlord shall thereupon be relieved by Tenant from all liability for the return of such security and Tenant agrees to look to the buyer solely for the return of said security. The provisions hereof shall apply to every transfer or assignment made of the security to a new buyer. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither the Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 35. BILLS/NOTICES. Except as otherwise provided in this Lease, any bill, statement, or notice shall be deemed sufficient if written and delivered to Tenant personally or sent by certified mail, return receipt requested, to Tenant at the Premises. The time of mailing of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when same is mailed to Tenant as herein provided. Any notice by Tenant to Landlord must be served by certified mail, return receipt requested, to Landlord at the address herein given or at such other address as Landlord shall designate. 36. WAIVER OF TRIAL BY JURY. Landlord and Tenant agree that the respective parties shall and hereby do waive trial by jury in any action or proceeding brought by either of the parties hereto against the other upon a claim for rents. In all actions involving any claim of violation of any non- economic clause, term or provision of this Lease and specifically any action involving any claim of negligence by either party, either shall have and reserve all rights provided by law to trial by jury. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. 37. SIGNS. The Tenant shall not place nor allow to be placed any signs upon or about the exterior of the building or the grounds of the Premises, or other property of Landlord unless of a design and structure and at such locations as shall be first approved by the Landlord and then the appropriate governmental authorities and/or agencies, if required. - -14- Tenant, shall pay, as additional rent, all costs and charges incurred by Landlord related to the installation, repair, maintenance, or replacement of all signs related to the Tenant within the Cherry Hill Industrial Center. 38. BROKER. Tenant represents to Landlord that it has not dealt with any broker or similar service in connection with this Lease. Tenant shall hold and keep Landlord harmless from and against any claim for brokerage commissions and all liabilities and expenses arising therefrom. 39. NO REPRESENTATIONS. (a) Tenant has rented the Premises after a complete inspection and examination of its present condition and without any representation on the part of the Landlord, its agents, employees, and similar parties as to the condition or usefulness of the Premises; (b) Tenant does not acquire any rights, easements or licenses by implication or otherwise, except as are specifically provided for herein; (c) Tenant's possession of the Premises shall be conclusive evidence that the Premises were in good and satisfactory condition at the time Tenant took possession and that Tenant accepted same "as is" and in its present condition without any express or implied warranties; (d) upon execution of this Lease or anytime thereafter Tenant assumes the full and sole responsibility for the condition, safety, operation and management of the Premises pursuant to the terms and conditions contained herein. 40. LANDLORD'S APPROVAL. Except where specifically stated otherwise: Whenever Landlord's approval or consent is required pursuant to any term or condition of this Lease, such approval shall be in writing and in advance for each occurrence. Landlord is under no duty or obligation to grant approvals. Whenever this Lease provides for a Landlord's option, it is agreed such does not imply or constitute a duty or an obligation of Landlord. Whenever this Lease provides for Landlord's approval which shall not be unreasonably withheld, it is agreed that Tenant's remedy in the event of Landlord's non-approval is limited to specific performance. 41. NET LEASE. It is intended that the rent and additional rent reserved hereunder shall be an absolutely net return to the Landlord throughout the Term. The rent and additional rent reserved hereunder shall be paid to the Landlord without any claim on the part of Tenant, or those claiming under Tenant, for diminution, setoff, deduction, or abatement except as is specifically provided for herein. Tenant's obligation to pay rent and additional rent hereunder, and to perform the terms and conditions of this Lease shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations hereunder, or because Tenant's use and occupancy of the Premises is disturbed for any reason other than as is specifically provided for herein. 42. LANDLORD'S BREACH. Tenant shall look solely to a sum that shall not exceed five percent (5%) of the net annual rental for the satisfaction of the remedies of Tenant in the event of a breach by Landlord of any of the covenant(s) of this Lease. 43. TENANTS WARRANTY. Tenant warrants that if it is a corporation that: (a) it is duly incorporated and/or qualified under the laws of the State of Delaware and is authorized to do business in the State of New Jersey and is in good standing; (b) all necessary corporate action necessary to authorize the execution of this Lease upon the terms and conditions set forth herein have been duly taken; and (c) the officer(s) executing and delivering this Lease have been duly authorized to bind the corporation to the terms and conditions herein contained. 44. ADVERSE POSSESSION. Tenant shall not suffer or permit the Premises, or any portion thereof, to be used without restriction or in such a manner as might reasonably tend to impair Landlord's title to - -15- the Premises or in such manner as might reasonably make possible claims of adverse usage or adverse possession, or of implied dedication of the Premises or any portion thereof. 45. COMPLIANCE WITH THE NJ ENVIRONMENTAL CLEANUP RESPONSIBILITY ACT. a. Tenant shall, at Tenant's own expense, comply with the Environmental Cleanup Responsibility Act, N.J.S.A. 13:lK-6 et seq., the regulations promulgated thereunder and any successor legislation and regulations, and any amendments or additions thereto, (hereinafter referred to as 'ECRA'). Tenant shall, at Tenant's own expense, make all submissions to, provide all information to, and comply with all requirements of, the Industrial Site Evaluation or its successor ('Element') of the New Jersey Department of Environmental Protection ('NJDEP'). b. Tenant's obligations under this paragraph shall arise if there is any closing, terminating or transferring of operations of an industrial establishment at the premises pursuant to ECRA, whether triggered by Landlord or Tenant. c. Provided this Lease is not previously cancelled or terminated by either party or by operation of law, Tenant shall commence its submission to the Element in anticipation of the end of the lease term no later than one (1) year prior to the expiration of the lease term. Tenant shall promptly furnish to Landlord true and complete copies of all documents, submissions, correspondence and oral or written communications provided by Tenant to the Element, and all documents, reports, directives, correspondence and oral or written communications by the Element to Tenant. Tenant shall also promptly furnish to Landlord true and complete copies of all sampling and test results and reports obtained and prepared from samples and tests taken at and around the Premises. Tenant shall notify Landlord in advance of all meetings scheduled between Tenant and NJDEP, and Landlord may attend all such meetings. d. Should the Element or any other division of NJDEP determine that a cleanup plan be prepared and that a cleanup be undertaken because of a spill or discharge of a hazardous substance or waste at the Premises which occurred during the term of the Lease, Tenant shall, at Tenant's own expense, promptly prepare and submit the required plan and financial assurances and shall promptly carry out the approved plans. e. At no expense to Landlord, Tenant shall promptly provide all information requested by Landlord or NJDEP for preparation of a non- applicability affidavit; de minimus quantity exemption application, negative declaration application, limited conveyance application or other submission and shall promptly sign such affidavits and submissions when requested by Landlord or NJDEP. f. Should Tenant's operations at the Premises be outside of those industrial operations covered by ECRA, Tenant shall, at Tenant's own expense, obtain a letter of non-applicability or de minimus quantity exemption from the Element prior to termination of the Lease term and shall promptly provide Tenant's submission and the Element's exemption letter to Landlord. Should Tenant obtain a letter of non- applicability or de minimus quantity exemption from the Element, then Tenant shall, at Landlord's option, hire a consultant satisfactory to Landlord to undertake sampling at the Premises sufficient to determine whether or not Tenant's operations have resulted in a spill or discharge of a hazardous substance or waste at or around the Premises. Should the sampling reveal any spill or discharge of a hazardous substance or waste, then Tenant shall, at Tenant's expense, promptly clean up the Premises to the satisfaction of Landlord and NJDEP. g. If Tenant fails to obtain either: (i) a non-applicability letter; (ii) a de minimus exemption; (iii) a negative declaration; or (iv) final approval of cleanup; (collectively referred to as "ECRA clearance") from the Element; or fails to clean up the Premises pursuant to subparagraph (f) above, prior to the expiration or earlier termination of the lease term, then upon the expiration or earlier - -16- termination of the lease term Landlord shall have the option either to consider the Lease as having ended or to treat Tenant as a holdover tenant in possession of the Premises. If Landlord considers the Lease as having ended, then Tenant shall nevertheless be obligated to promptly obtain ECRA clearance and to fulfill the obligations set forth in subparagraph (f) above. If Landlord treats Tenant as a holdover tenant in possession of the Premises, then Tenant shall monthly pay to Landlord double the regular and additional monthly rent which Tenant would otherwise have paid, until such time as Tenant obtains ECRA clearance and fulfills its obligations under subparagraph (f) above, and during the holdover period all of the terms of this Lease shall remain in full force and effect. h. Tenant represents and warrants to Landlord that Tenant intends to use the Premises for printed circuit board assembly and related uses which operations have the following Standard Industrial Classification ("SIC") numbers as defined by the most recent edition of the Standard Industrial Classification Manual published by the Federal Executive Office of the President, Office of Management and Budget: 36-61. Tenant's use of the Premises shall be restricted to the classifications set forth above unless Tenant obtains Landlord's written prior written consent to any change in use of the Premises. Prior to the commencement date of Tenant's lease term, Tenant shall supply to Landlord an affidavit of an officer of Tenant ("Officer's Affidavit") setting forth Tenant's SIC numbers and a detailed description of the operations and processes Tenant will undertake at the Premises, organized in the form of a narrative report including a description and quantification of hazardous substances and wastes to be generated, manufactured, refined, transported, treated, stored, handled or disposed of at the Premises. Following commencement of the lease term, Tenant shall notify Landlord by way of a supplemental Officer's Affidavit, as to any changes in Tenant's operation, SIC number or use or generation of hazardous substances and wastes. Tenant shall also supplement and update Officer's Affidavit upon each anniversary of the commencement of the lease term. Tenant shall not commence or alter any operations at the Premises prior to (i) obtaining all required operating and discharge permits or approvals, including, but not limited to, air pollution control permits and pollution discharge elimination system permits from NJDEP, all governmental or public authorities having jurisdiction over Tenant's operations or the Premises, and (ii) providing copies of permits and approvals to Landlord. i. Tenant shall permit Landlord and Landlord's agents, servants and employees, including, but not limited to, legal counsel and environmental consultants and engineers, access to the Premises for the purposes of environmental inspections and sampling during regular business hours, or during other hours either by agreement of the parties or in the event of any environmental emergency. Tenant shall not restrict access to any part of the Premises, and Tenant shall not impose any conditions to access. In the event that Landlord's environmental inspection shall include sampling and testing of the Premises, Landlord shall use its best efforts to avoid interfering with Tenant's use of the Premises, and upon completion of sampling and testing shall repair and restore the affected areas of the Premises from any damage caused by the sampling and testing. j. Tenant's indemnification of Landlord as set forth elsewhere within this Lease shall extend to any and all claims, liabilities, losses, damages and costs, foreseen or unforeseen, including without limitation to reasonable counsel, engineering and other professional or expert fees, which Landlord may incur by reason of Tenant's action or non-action with regard to Tenant's obligations under this paragraph. k. This paragraph shall survive the expiration or earlier termination of this Lease. Tenant's failure to abide by the terms of this paragraph shall be restrainable by injunction without limiting Landlord's right to remedy as provided for elsewhere in this Lease. 46. HAZARDOUS MATERIALS. Tenant shall not bring, allow, use, dispose, or permit upon the Premises or generate, create, emit, or dispose at or upon the Premises any toxic or hazardous substances, materials or wastes as those substances, materials or wastes are defined by any - -17- applicable state or federal statutes and/or regulations or any applicable municipal or county ordinances, and any amendments or additions thereto, without being in full compliance with said statutes, regulations or ordinances. Tenant shall obtain and maintain all applicable state, federal, municipal and county permits relating to Tenant's processes or operations or the generation, storage or disposal of hazardous substances, materials or wastes on the Premises. Tenant shall not allow the disposal of hazardous substances, materials, or wastes on the Premises. Tenant acknowledges that during the term of this Lease, chemical(s) or material(s) which Tenant uses, generates, repackages, stores or permits on the Premises may be legally banned or subject to mandatory modification or conversion. Tenant agrees that it will not, on the basis of such legal ban or mandatory modification or conversion, claim frustration of purpose, seek termination of the Lease, or seek abatement of rent. Tenant further agrees that it will comply fully, and at Tenant's own expense, with any said legal ban or mandatory modification or conversion. 47. ENVIRONMENTAL REPORTS. Tenant shall promptly provide Landlord with: a. all documentation and correspondence provided to NJDEP pursuant to the Worker and Community Right to Know Act, N.J.S.A. 34:5A-l, et seq. and the regulations promulgated thereunder ("Right to Know Act"), and any amendments or additions thereto, b. all reports and notices made by Tenant pursuant to the Hazardous Substance Discharge--Reports and Notices Act, N.J.S.A. 13:1K-15 et seq., and the regulations promulgated thereunder ("Reports and Notices Act"), and any amendments or additions thereto, and c. any notices, correspondence and submissions made by Tenant to NJDEP, the United States Environmental Protection Agency (EPA), the United States Occupational, Safety and Health Administration (OSHA), or any other local, state or federal authority which requires submission of any information concerning environmental matters or hazardous waste or substances. 48. ENVIROMMENTAL LIENS. Tenant shall promptly notify Landlord as to any liens threatened or attached against the Premises pursuant to the Spill Act or any other environmental law. In the event that such a lien is filed against the Premises, then Tenant shall, within thirty (30) days from the date that the lien is placed against the Premises, and at any rate prior to the date any governmental authority commences proceedings to sell the Premises pursuant to the lien, either: (a) pay the claim and remove the lien from the Premises; or (b) furnish either (i) a bond satisfactory to Landlord in the amount of the claim out of which the lien arises, (ii) a cash deposit in the amount of the claim out of which the lien arises, or (iii) other security satisfactory to Landlord in an amount sufficient to discharge the claim out of which the lien arises. 49. EXISTING CONDITIONS. Landlord and Tenant agree that neither party is in default of any of the provisions, terms, covenants or conditions of the lease dated August 26, 1985. Tenant and Landlord further agree that neither is aware of the existence of any defenses, setoffs, or counterclaims against Landlord arising out of the August 26, 1985 lease or in any way relating thereto, or arising out of any other transaction between Tenant and Landlord which might be set off or credited against the accruing rents or additional rents of the August 26, 1985 lease. 50. BINDING OFFER. It is understood and agreed by the Landlord and Tenant that this Lease is an offer only and is submitted to Tenant for signature with the understanding that it shall not bind Landlord unless and until it has been executed by Landlord. 51. ENTIRE AGREEMENT. This Lease constitutes the entire agreement between the parties. No representative, agent, or employee of the Landlord has been authorized to make any representations or promises or to vary, alter or modify the covenants hereof. No additions, changes, modifications, renewals or extensions of this Lease shall be binding unless reduced to writing and signed by the Landlord and the Tenant. - -18- This Lease may not be cancelled or terminated by Tenant without the consent of Landlord except as is specifically provided for elsewhere in this Lease. 52. APPLICATION AND DURATION. Wherever in this Lease an obligation is imposed upon or required of Tenant, same shall be at Tenant's sole cost and expense. Obligations of Tenant pursuant to the terms and conditions of this Lease are: (a) for the Premises as set forth in exhibit "A" unless extended in scope pursuant to any particular provision and/or as the sense and circumstances of the text may require; (b) for the duration/term of the Lease unless having application before the commencement date and/or if they survive the expiration date or prior termination date pursuant to any provision contained herein. 53. VALIDITY. The terms and conditions of this Lease shall be deemed severable, if any clause or provision herein shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by the operation of any applicable law, such an occurrence shall not affect the validity of any other clause and/or provision herein, and this Lease and such other clauses and provisions shall remain in full force and effect. Landlord, however, at its option, may pursue the relief or remedy sought in any invalid clause by conforming the said clause with the provisions of the statutes or the regulations of any governmental agency as if the particular provisions of the applicable statutes or regulations were set forth herein at length. 54. COUNTERPARTS. This Lease may be executed in several counterparts, each of which shall be deemed to be an original copy, and all of which taken together shall constitute one agreement binding on all parties hereto, notwithstanding that the parties shall not have signed the same counterpart. 55. GENDER NEUTER. In all references herein to any pronouns, parties, persons, entities, or corporation, the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the sense and circumstances of the context may require. 56. BINDING AGREEMENT. All the terms and conditions contained herein shall be for and shall inure to the benefit of and shall bind the respective parties hereto, their heirs, successors and assigns. 57. APPLICABLE LAW. Landlord and Tenant agree that this Lease and any suits and/or special proceedings under it will be governed and construed pursuant to the laws of the State of New Jersey. 58. CAPTIONS. The captions are inserted only as a matter of convenience and in no way define, limit or describe the scope of this Lease nor the intent of any covenant thereof. - -19- IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed this Lease as of the date written. CHERRY HILL INDUSTRIAL SITES, INC. Catherine M. Ward By: /s/Paul Heise - ---------------------- --------------------- Witness as to Landlord Paul Heise, President SCIENCE DYNAMICS CORPORATION Nancy Feo By: /s/Lyndon Keele - ---------------------- --------------------- Witness as to Tenant Lyndon Keele, President Date: 9/19/1990 --------------------- - -20- EX-10.17 8 leasemod.txt LEASE MODIFICATION AND EXTENSION AGREEMENT LEASE MODIFICATION AND EXTENSION AGREEMENT THIS LEASE MODIFICATION AND EXTENSION AGREEMENT, prepared this 28th day of March, 1995 between CHERRY HILL INDUSTRIAL SITES, INC., a New Jersey Corporation having its principal office at 1998 Springdale Road, Cherry Hill, New Jersey 08003 (hereinafter referred to as LANDLORD), and SCIENCE DYNAMICS CORPORATION, having an office at Building 37, Springdale Road, Cherry Hill Industrial Center, Cherry Hill, NJ 08003 (hereinafter referred to as TENANT). FOR AND IN CONSIDERATION of the mutual promises and covenants herein contained, the parties do hereby agree to modify and extend that certain Lease Agreement between the LANDLORD and TENANT dated August 8, 1990 and executed August 19, 1990 (hereinafter referred to as the CURRENT LEASE) for the Premises consisting of building #37 (approximately 49,300 square feet of floor area) and adjoining land (together identified as Block 468.03, Lot 6 on the Cherry Hill tax maps) located in the Cherry Hill Industrial Center, Cherry Hill, New Jersey (as shown and defined on exhibit A attached hereto and made a part hereof), as follows: 1. The CURRENT lease was to expire on August 31, 1995. This Lease modification and extention agreement shall commence May 1, 1995 and continue for a 10 year term, 120 months (inclusive) terminating on April 30, 2005. 2. The RENT indicated in para 3, page 1 of the CURRENT LEASE is modified as follows: a. Commencing May 1, 1995 and continuing for 5 years (60 months) through April 30, 2000 (inclusive), monthly rent installments shall be $14,536.75 ($174,441.00 per year). b. Commencing May 1, 2000 and continuing for 5 years (60 months) through April 30, 2005 (inclusive), monthly rent installments shall be $15,153.00 ($181,836.00 per year). c. The Term rental for the 10 year period (the sum of 2a and 2b) is $1,781,385.00 3. It is understood that any references to the Environmental Responsibility Act, N.J.S.A. 13:1K-6 et seq. and or references to related matters within the CURRENT LEASE are subject to successor legislation and regulations. 4. LANDLORD and TENANT agree that neither party is in default of any of the covenants of the CURRENT LEASE. - -1- 5. All other covenants, terms and conditions of the CURRENT LEASE shall remain in force and unmodified and shall be incorporated into this LEASE MODIFICATION AND EXTENSION Agreement as if they were set forth in total herein. IN WITNESS WHEREOF, LANDLORD and TENANT have respectively signed and sealed this Lease Modification and Extension Agreement as of the date written. CHERRY HILL INDUSTRIAL SITES, INC. /s/L. Ruby By: /s/ Paul Heise - ---------------------- --------------------- Witness as to Landlord Paul Heise, President SCIENCE DYNAMICS CORPORATION /s/Joy C. Hartman By:/s/Lyndon A. Keele - ---------------------- ---------------------- Witness as to Tenant - -2- EX-10.18 9 sublease.txt SUBLEASE BETWEEN REGISTRANT AND PRO CIRCUITS SCIENCE DYNAMICS CORPORATION/PRO CIRCUITS, INC. SUBLEASE This sublease is made between SCIENCE DYNAMICS CORPORATION ("Sublessor") and PRO CIRCUITS, INC. ("Sublessee"). On August 8, 1990, Sublessor, as tenant, entered into a lease agreement (the "Original Lease") with CHERRY HILL INDUSTRIAL SITES, INC., a New Jersey Corporation for the premises known as 1919 Springdale Road, Cherry Hill, New Jersey, 08003, more particularly described in the Original Lease (the "Premises"), the term of the Original Lease being for a period of five (5) years, commencing on September 1, 1990 and terminating on August 31, 1995. The Original Lease was subsequently modified pursuant to a Lease Modification and Extension Agreement made on March 28, 1995, wherein the term of the Original Lease was modified to be from May 1, 1995 through April 30, 2005. The said Cherry Hill Industrial Sites, Inc. subsequently sold the leased premises to FIRST INDUSTRIAL REALTY TRUST, INC., which is hereinafter referred to as "Landlord". The term "Original Lease" incorporates by reference the March 28, 1995 Lease Modification and Extension Agreement. Sublessor: SCIENCE DYNAMICS CORPORATION Sublessee: a Delaware corporation PRO CIRCUITS, INC. 1919 Springdale Road a New Jersey corporation Cherry Hill, NJ 08003 Unit 7, Hainesport Commons (609) 424-0068 Hainesport, NJ 08036 (609) 261-4177 Rental Space: Portion of 1919 Springdale Road, Cherry Hill, New Jersey 08003 (See 1. "Rental Space") Effective Date: Upon Landlord approval The payment of Rent shall commence Term: on October 1, 1998. Rent during Beginning: Upon Landlord the term of the Sublease will be $5 approval per square foot per year, payable Ending: May 31, 2002 monthly, with the initial monthly Security: $9,746.67 payment to be $9,746.67. Rent for the term: $428,853.32 Use of Rental Space: Assembly and sale of electronic circuit boards Liability Insurance. Minimum amounts: for Sublessee's Pro Rata Share: The each person injured $1,000,000; for percentage of the Premises leased any one to Sublessee under this Sublease, accident $3,000,000; for property as modified from time to time damage (initially 23,392/49,300 =47.45%) $250,000. 1. Rental Space. 2. Rent. 3. Additional Rent. 4. Late Charge, Bad Checks, and Default. 5. Security Deposit. 6. Possession and Use. 7. Delay in Giving of Possession. 9. Liability Insurance. 10. Unavailability of Insurance, Rate Increases. 11. Water Damage. 12. Liability of Sublessor and Sublessee. 13. Assignment and Subletting. 14. Quiet Enjoyment. 15. Sublessee's Repairs, Maintenance, Compliance. 16. Sublessor's Repair and Maintenance. 17. No Alterations. 18. Access to Rental Space. 19. Estoppel Certificate. 20. Authorizations. 21. Sign To Re-Rent. 22. Signs. 23. Eminent Domain. 24. Fire and Other Casualty. 25. Violation, Eviction, Re-entry and Damages. 26. Removal of Equipment. 27. Sublessee Bankruptcy. 28. End of Term. 29. Environmental Compliance. 30. Subordination to Original Lease. 31. Notices. 32. Binding Effect. 33. Captions. 34. Counterparts and/or Facsimile Signature. 35. Situs. 36. Non-Waiver. 37. Severability. 38. Modification. 39. Entire Agreement. 40. Signatures. 1. Rental Space. a. The Rental Space shall include approximately 23,392 square feet of the Premises as more particularly set forth in Exhibit "A". b. Sublessee shall have an option to lease the additional portion of the Premises specifically designated on Exhibit A as the Optional Rental Space. The rental of such Optional Rental Space shall be under the same terms and conditions as the Rental Space (except for the increases in the Rent and Sublessee's Pro Rata Share). c. In the event that Sublessor proposes to rent or vacate its portion of the Premises as shown on Exhibit "A" prior to the expiration of this Sublease, then Sublessor shall notify Sublessee in writing of such intention. Sublessee shall have until 5:00 P.M. on the fifteenth day following receipt by the Sublessee of such notice to provide notice of its intent to lease Sublessor's portion of the Premises in accordance with the terms and conditions of this Agreement. Upon such notice, the parties shall promptly prepare an amendment to this Sublease for such additional Rental Space. d. Any modifications or "fit-up" which Sublessee proposes to make to the Rental Space shall first be approved by the Sublessor and secondly by the Landlord, and the cost of any and all such modifications shall be borne by the Sublessee. 2. Rent. Sublessee shall pay the monthly Rent to the Sublessor at the Sublessor's address. It is understood and agreed that the Rent is due and payable on the first day of each and every month. If the Sublessee fails to comply with any agreement in this Sublease, the Sublessor may do so on behalf of the Sublessee. The Sublessor may charge the cost to comply, including reasonable attorney's fees, to the Sublessee as Additional Rent. The Additional Rent shall be due and payable as Rent with the next monthly Rent payment. Non-payment of Additional Rent shall give the Sublessor the same rights against the Sublessee as if the Sublessee failed to pay Rent. 3. Additional Rent. a. Real Estate Taxes. The Sublessor agrees to pay all real estate taxes for the Premises through April 30, 1999. Thereafter, the Sublessee agrees to pay to the Sublessor, as Additional Rent, Sublessee's Pro Rata Share of all Real Estate Taxes on the building and land and Assessments levied against the property for any year (or portion thereof) during the term of this lease. b. Repairs to Roof. Sublessor shall be solely responsible for repairs to the roof of the Premises unless the repairs are due to the actions of Sublessee. c. Upgrading. Sublessor shall be solely responsible for paying the upgrading fee of $1,027 per month set forth in Section 13 of the Original Lease. Sublessee shall pay Sublessee's Pro Rata Share of any future increases in such upgrading fee. d. Landscaping. Sublessor shall be solely responsible for the landscaping fee of $300 per month set forth in Section 5 of the Original Lease. Sublessee shall pay Sublessee's Pro Rata Share of any future increases in such landscaping fee. e. Other Costs. Except as set forth in Sections 3a, 3b, 3c and 3d above, Sublessee shall also pay Sublessee's Pro Rata Share of all other costs of the Premises paid by Sublessor pursuant to the terms of the Original Lease, as Additional Rent. These costs will include, but not be limited to, window cleaning, signs, repairs, municipal improvements, garbage removal (if not paid by Sublessee otherwise), cleaning of the entire premises, snow, ice, debris and trash removal, replacement and maintenance of landscaping, policing and regulating traffic, repairing and replacing paving, curbs, walkways, drainage pipes, ducts and conduits, maintenance and repair of all lighting and lighting facilities, electricity, fuel, security services, alarm and sprinkler systems, structural repairs to the building including roof and exterior walls, painting, janitorial, water and sewer charges including maintenance and rents (if not paid by Sublessee otherwise), charges and stand-by fees, legal and accounting fees, and other expenses charged which would be considered an expense of maintaining, operating or repairing the premises under sound legal and accounting principles, all insurance premiums for Business Owners Package Insurance Policy including, but not limited to, casualty, fire, comprehensive general liability, extended coverage and any other insurance that Sublessor deems necessary. The above items will be estimated in advance on an annual basis by the Sublessor and 1/12 of the said estimate will be due and payable with each monthly Rent. A reconciliation and adjustments of balance due or refund (if any) will be made as of December 31 of each calendar year and a new adjustment figure will be established by the Sublessor for the following year. Notification will be made by Sublessor to Sublessee no later than February 15 of the following year. The refund or balance due (if any) will be paid within 15 days of notification. f. Utilities and Services. The Sublessee shall arrange and pay for all utilities and services required for the Rental Space, including but not limited to the following: (a) Heat (d) Gas (g) Air Conditioning (b) Hot and cold water (e) Maintenance service contracts (h) Water (c) Electricity (f) Exterminating contracts (i) Sewer In the event a utility or service cannot be billed directly to Sublessee, then Sublessee will pay Sublessee's Pro Rata Share of such utility directly to Sublessor as Additional Rent. The Sublessor is not liable for any stoppage or reduction of utilities and services beyond the control of the Sublessor. This does not excuse the Sublessee from paying Rent. 4. Late Charge, Bad Checks, and Default. If the Rent is not received by Sublessor by the 8th of the month, there will be due and payable a late charge of $150.00. In the event any check delivered for payment of Rent does not clear the bank by reason of insufficient funds, or any other reasons, at the option of the Sublessor, such conduct shall constitute grounds for cancellation of the Sublease or at the Sublessor's option, Sublessee shall pay as Additional Rent the sum of $75.00 for servicing the Sublessor's account. Also, in the event Sublessee's check is returned by reason of insufficient funds, then in the future the tenant shall pay by either money order or certified check. Sublessee shall be in default of the terms of this Sublease if the Rent is not received by Sublessor by the fifteenth (15th) day of the month. 5. Security Deposit. The Sublessee has deposited with the Sublessor $9,746.67 as security for the Sublessee's performance of the terms of this Sublease. The Sublessor may use, apply, or retain all or any part of the security to the extent required for the payment of any Rent, Additional Rent, or other sum or debt as to which the Sublessee is in default or for any sum expended or incurred by Sublessor due to Sublessee's default in any term of this Sublease, including, but not limited to, any damages or deficiency in the reletting of the Subleased property, whether such damages or deficiency accrued before or after summary proceedings or other reentry by the Sublessor. If the Sublessee complies with all of the terms of this Sublease, the security shall be returned to the Sublessee, without interest, after the date fixed as the end of the Sublease and after delivery of possession of the Subleased property to the Sublessor. The Sublessee shall not assign or encumber the money deposited as security, and neither the Sublessor nor its successors or assigns shall be bound by any such assignment or encumbrance. 6. Possession and Use. The Sublessor shall give possession of the Rental Space to the Sublessee for the Term. The Sublessee shall take possession of and use the Rental Space for the purpose stated above. The Sublessee may not use the Rental Space for any other purpose without written consent of the Sublessor. The Sublessee shall not allow the Rental Space to be used for any unlawful or hazardous purpose. The Sublessee shall obtain any necessary certificate of occupancy or other certificate permitting the Sublessee to use the Rental Space for that use. The Sublessee shall not use the Rental Space in any manner that results in (1) an increase in the rate of fire or liability insurance or (2) cancellation of any fire or liability insurance policy on the Rental Space. The Sublessee shall comply with all reasonable requirements of the insurance companies insuring the Rental Space. Sublessee shall not be required to incur major cost items such as sprinkler or alarm systems. The Sublessee shall not abandon the Rental Space during the Term of this Sublease or permit it to become vacant. 7. Delay in Giving of Possession. This paragraph applies if (a) the Sublessor cannot give possession of the Rental Space to the Sublessee on the beginning date and (b) the reason for the delay is not the Sublessor's fault. The Sublessor shall not be held liable for the delay. The Sublessor shall then have 90 days in which to give possession. If possession is given within that time, the Sublessee shall accept possession and pay Rent from that date. The ending date of the Term shall not change. If possession is not given within that time this Sublease may be cancelled by either party on notice to the other. 8. Acceptance of Rental Space. The Sublessee has inspected the Rental Space and agrees that the Rental Space is in satisfactory condition. The Sublessee accepts the Rental Space "as is". 9. Liability Insurance. The Sublessee shall obtain, pay for, and keep in effect for the benefit of the Sublessor and the Sublessee (and, if required, the Landlord) public liability insurance on the Rental Space which meets the requirements of the insurance provisions of the Original Lease. The insurance company must be acceptable to the Sublessor. This coverage must be in the minimum amounts as follows: Liability Insurance. Minimum amounts: for each person injured $1,000,000 for any one accident $3,000,000 for property damage $250,000. The Sublessee shall deliver the original policy to the Sublessor with proof of payment of the first year's premiums. This shall be done not less than 15 days before the Beginning of the Term. The Sublessee shall deliver a renewal policy to the Sublessor with proof of payment not less than 15 days before the expiration date of each policy. 10. Unavailability of Fire, Liability and Broad Form Insurance, Rate Increases. If due to the Sublessee's use of the Rental Space the Sublessor cannot obtain insurance on the Building in an amount and form acceptable to the Sublessor, the Sublessor may cancel this Sublease on 30 days notice to the Sublessee. If due to the Sublessee's use of the Rental Space the insurance rate is increased, the Sublessee shall pay the increase in the premium to the Sublessor on demand. 11. Water Damage. The Sublessor shall not be liable for any damage or injury to any persons or property caused by the leak of flow of water or into any part of the Building. 12. Liability of Sublessor and Sublessee. The Sublessor shall not be liable for injury or damage to any person or property unless it is due to the Sublessor's act or neglect. The Sublessee shall defend the Sublessor from and reimburse the Sublessor for all liability and costs resulting from any injury or damage due to the act or neglect of the Sublessee or the Sublessee's employees. 13. Assignment and Subletting. (a) Sublessee shall not, without prior written consent of Sublessor: (i) assign or in any manner transfer this Sublease or any estate or interest therein, (ii) permit any assignment of this Sublease or any estate or interest therein by operation of law, (iii) sublet the Premises or any part thereof, (iv) grant any license, concession, or other right of occupancy of any portion of the Premises, or (v) permit the use of the Premises by any parties other than Sublessee, its agents, and employees. Any such acts without Sublessor`s prior written consent shall be void and of no effect. Consent by Sublessor to one or more assignments or sublettings shall not operate as a waiver of Sublessor`s rights as to any subsequent assignments and sublettings. Notwithstanding any assignment or subletting, Sublessee and any guarantor of Sublessee`s obligations under this Sublease shall at all times remain fully responsible and liable for the payment of the Rent herein specified and for compliance with all of Sublessee`s other obligations under this Sublease. If an event of default, as herein defined, should occur while the Premises or any part thereof are then assigned or sublet, Sublessor, in addition to any other remedies herein provided or provided by law, may at its option collect directly from such assignee or sublessee all rents becoming due to Sublessee under such assignment or sublease and apply such Rent against any sums due to Sublessor by Sublessee hereunder, and Sublessee hereby authorizes and directs any such assignee or sublessee to make such payments of Rent directly to Sublessor upon receipt of notice from Sublessor. No direct collection by Sublessor from any such assignee or sublessee shall be construed to constitute a novation or a release of Sublessee or any guarantor of Sublessee from the further performance of Sublessee`s obligations under this Sublease. Nor shall such direct collection from Sublessee`s assignee, sublessee, or occupant of the Premises be deemed a waiver of the covenant in this Sublease contained against assignment and subletting or a release of Sublessee under this Sublease. Sublessee shall not mortgage, pledge, or otherwise encumber its interest in this Sublease or in the leased Premises. (b) If Sublessee requests Sublessor`s consent to an assignment of the Sublease or subletting of all or a part of the Premises, it shall submit to Sublessor, in writing, the name of the proposed assignee or subtenant and the nature and character of the business of the proposed assignee or subtenant, the term, use, rental rate, and other particulars of the proposed subletting or assignment, including without limitation, evidence satisfactory to Sublessor that the proposed subtenant or assignee is financially responsible and will immediately occupy and thereafter use the Premises (or any sublet portion thereof) for the remainder of the Term (or for the entire term of the sublease, if shorter). (c) If Sublessor consents to any subletting or assignment by Sublessee as hereinabove provided, and subsequently any rents received by Sublessee under any such sublease are in excess of the Rent payable by Sublessee under this Sublease, or any additional consideration is paid to Sublessee by the assignee under any such assignment, then Sublessor may, at its option, declare fifty (50%) percent of such excess rents under any sublease or such additional consideration for an assignment to be due and payable from Sublessee to Sublessor as Additional Rent hereunder. The parties agree that Sublessor shall be entitled to no part of the sale of the equipment or the business. (d) Sublessor shall have the right to transfer, assign, and convey, in whole or in part, the Building and any and all of its rights under this Sublease, and in the event Sublessor assigns its rights under this Sublease and the assignee explicitly assumes Sublessor's obligations under this Sublease, Sublessor shall thereby be released from any further obligations hereunder, and Sublessee agrees to look solely to such successor in interest of the Sublessor for performance of such obliga tions. 14. Quiet Enjoyment. Subject to the Landlord's consent, the Sublessor has the right to enter into this Sublease. If the Sublessee complies with this Sublease, the Sublessor must provide the Sublessee with undisturbed possession of the Rental Space. 15. Sublessee's Repairs, Maintenance, Compliance. The Sublessee shall: (a) Promptly comply with all laws, orders, rules and requirements of governmental authorities, insurance carriers, board of fire underwriters, or similar groups. Provided, however, Sublessee shall only be responsible for the cost of compliance which flows from tenant's activities in the premises. Sublessee shall only be required to make such repairs and corrections to the premises which are the results of Sublessee's activities. For example, if Sublessee causes a major structural defect which requires repair, then Sublessee shall be solely responsible for correcting such repair. (b) Maintain the Rental Space and all equipment and fixtures in it in good repair and appearance. (c) Maintain the Rental Space in neat, clean, safe, and sanitary condition free of all garbage. (d) Keep the walks, driveway, parking areas, yard, entrances, hallways, and stairs in the area immediately adjacent to the Rental Premises, clean and free from trash. (e) Use and maintain all electric, plumbing, heating, air conditioning, hot water systems and other facilities in the Rental Space safely. (f) Use no more electricity than the wiring or feeders to the Rental Space can safely carry. (g) Replace all broken glass in the Rental Space including but not limited to windows and doors. (h) Do nothing to destroy, deface, damage, or remove any part of the Rental Space. (i) Keep no inflammable or dangerous things in the Rental Space. (j) Promptly notify the Sublessor when there are conditions which need repair that are the responsibility of the Sublessor. (k) Do nothing to destroy the peace and quiet of the Sublessor, other tenants, or persons in the neighborhood. The Sublessee shall pay any expenses involved in complying with the above. 16. Sublessor's Repair and Maintenance. The Sublessor shall: (a) Maintain the Public areas, roof and exterior walls in good condition (the cost to be allocated as set forth herein). (b) Make all structural repairs unless these repairs are made necessary by the act or neglect of the Sublessee or the Sublessee's employees (the cost to be allocated as set forth herein). 17. No Alterations. The Sublessee may not make any changes or additions to the Rental Space without the Sublessor's written consent, which consent shall not be unreasonably withheld. Any changes or additions made without the Sublessor's written consent shall by removed by the Sublessee on demand. All changes or additions made with the Sublessor's written consent shall become the property of the Sublessor when completed and paid for by the Sublessee. They shall remain as part of the Rental Space at the end of the Term. The Sublessor may demand that the Sublessee remove any changes or additions at the end of the Term. The Sublessee shall promptly pay for all costs of any changes or additions. The Sublessee shall not allow any mechanic's lien or other claim to be filed against the Building. If any lien or claim is filed against the Building, the Sublessee shall have it promptly removed. 18. Access to Rental Space. The Sublessor shall have access to the Rental Space on reasonable notice to the Sublessee to (a) inspect the Rental Space (b) make necessary repairs, alterations, or improvements, and (c) supply services. The Sublessor may show the Rental Space to rental applicants at reasonable hours on notice to the Sublessee within 6 months before the end of the Term. The Sublessor may enter the Rental Space at any time without notice to the Sublessee in case of emergency. 19. Estoppel Certificate. At the request of the Sublessor, the Sublessee shall sign a certificate stating that (a) this Sublease has not been amended and is in effect, (b) the Sublessor has fully performed all of the Sublessor's agreements in this Sublease, (c) the Sublessee has no rights to the Rental Space except as stated in this Sublease, (d) the Sublessee has paid all Rent to date, and (e) the Sublessee has not paid Rent for more than one month in advance. The Certificate shall also list all the property attached to the Rental Space owned by the Sublessee. The Sublessor shall also sign an estoppel certificate, if requested by Sublessee, in a form that is usually and customarily requested by lenders and/or purchasers of Sublessee's interest. 20. Authorizations. The Sublessee shall procure each and every permit, license, certificate or other authorization and any renewals, extensions or continuance of the same required in connection with the lawful and proper use of the demised premises. 21. Sign To Re-Rent. Sublessor reserves the right, and Sublessee hereby grants the right to Sublessor, or its agent, to place and continually keep in a conspicuous place on the demised premises for the information of the public, the usual and customary "FOR RENT" signs at any time within ninety (90) days prior to the expiration of the term hereby granted, or to any prior determination thereof, or any time subsequent to notice from either party of an intention to terminate this Sublease. 22. Signs. Subject to the terms of the Original Lease, it is hereby expressly agreed that the Sublessee, at the Sublessee's own cost and expense will provide an exterior sign panel advertising the name of the business carried on in the Premises, said sign to be of a size and kind acceptable to the Sublessor and Municipality in a sign box provided by Sublessee; said sign box and panel to remain the property of the Sublessor. However, the Sublessee shall not erect or install any exterior or door signs, advertising media or window or door lettering without written consent of the Sublessor. Sublessee agrees not to use any advertising media that shall be deemed objectionable to the Sublessor or to other Sublessees, including but not limited to loudspeakers, phonographs, cd's, or radio broadcasts in a manner to be heard outside the demised premises. 23. Eminent Domain. Eminent domain is the right of a government to lawfully condemn and take private property for public use. Fair value must be paid for the property. The taking occurs either by court order or by deed to the condemning party. If any part of the Rental Space is taken by eminent domain, either party may cancel this Sublease on 30 days notice to the other. The award shall belong to and be paid to Sublessor, except that Sublessee may receive any sum paid to Sublessee from the condemning party for loss of good will, and any sums constituting relocation payments, or any other payments or benefits to which Sublessee may be entitled, but which do not constitute any portion of the award for the taking of all or part of the premises, or any portion of the award constituting severance damages for the portion of the premises not taken. 24. Fire and Other Casualty. The Sublessee is liable for the acts and neglect of the Sublessee's employees. The Sublessee shall notify the Sublessor at once of any fire or other casualty in the Rental Space. The Sublessee is not required to pay Rent when the Rental Space is unusable. If part of the Rental Space can be used, the Sublessee must pay Rent pro-rata for the usable part. If the fire or other casualty is caused by the act or neglect of the Sublessee, the Sublessee shall pay for all repairs and all other damage. If the Rental Space is partially damaged by fire or other casualty without the act or neglect of the Sublessee, the Sublessor shall repair it as soon as possible. This includes the damage to the Rental Space and fixtures installed by the Sublessor. The Sublessor need not repair or replace anything installed by the Sublessee. Either party may cancel this Sublease if the Rental Space is so damaged by fire or other casualty that it cannot be repaired within 90 days. If the parties cannot agree, the opinion of a contractor chosen by the Sublessor and the Sublessee will be binding on both parties. The Sublessee may not cancel this Sublease if the fire or other casualty is caused by the act or neglect of the Sublessee. This Sublease shall end if the Rental Space is totally destroyed by fire or other casualty without the act or neglect of the Sublessee. The Rent shall be paid to the date of destruction. 25. Violation, Eviction, Re-entry and Damages. If the Sublessee violates any agreements in this Sublease, the Sublessor has the right to end this Sublease and re-enter the Rental Space. This is done by eviction. The Sublessor may also evict the Sublessee for all other causes provided by law. The eviction is a court procedure to remove a Sublessee. It is started by the filing of a complaint in court and the service of a summons on a Sublessee to appear in court. After a court order of eviction and compliance with the warrant of removal, the Sublessor my re-enter and take back possession of the Rental Space. If the cause for eviction is non-payment of Rent, notice does not have to be given to the Sublessee before the Sublessor files a complaint. If there is any other cause to evict, the Sublessor must give to the Sublessee the notice required by law before the Sublessor files a complaint. Sublessee is liable for all damages caused by the Sublessee's violation of any agreement in this Sublease. This includes reasonable attorney's fees and cost. After eviction the Sublessee shall pay the balance of the entire Rent for the Term in full at once. The Sublessee shall also pay (a) all reasonable expenses incurred by the Sublessor in preparing the Rental Space for re-renting and (b) commissions paid to a broker for obtaining a new Sublessee. 26. Removal of Equipment. Sublessee agrees that if at any time during the continuance of this Sublease Sublessee removes or attempts to remove Sublessee's goods or property out of or from said premises, excepting in the ordinary course of business, without first having paid and satisfied Sublessor in full for all Rent which may become due during the entire term of this Sublease, then and in such case such removal or attempt to remove shall be a default, and the whole Rent for the said term then remaining unpaid shall at the option of the Sublessor, be taken to be thereupon due and payable and, in arrears, and Sublessor shall have full power and authority to institute any action at law or in equity for the collection thereof, or to proceed by distress or any other process of law to collect the same, or at Sublessor's option may declare the said term ended and re-enter the said premises and every part thereof and remove all persons or things therefrom, or to proceed by action for the recovery thereof or otherwise. 27. Sublessee Bankruptcy. If the Sublessee becomes insolvent, bankrupt, or makes an assignment for the benefit of creditors, or is levied upon or sold out by sheriff's or marshal's or constable's sale, or if a receiver is appointed, then the Rent for the balance of the term or any part thereof at the option of the Sublessor, shall become due and payable as if by the terms of the Sublease it were payable in advance. In case the Rent is at any time unpaid when due, Sublessee hereby agrees that thereupon the whole Rent for the balance of the term, or any part thereof at the option of the Sublessor shall immediately become due and payable as if by the terms of the Sublease it were payable in advance, and Sublessor may immediately proceed to distrain, collect or bring action for the said whole Rent or any part thereof. 28. End of Term. At the end of the Term the Sublessee shall (a) leave the Rental Space clean, (b) remove all of the Sublessee's property, (c) remove all signs and restore that portion of the Rental Space on which they were placed, (d) repair all damage caused by moving and (e) return the Rental Space to the Sublessor in the same condition as it was at the beginning of the Term except for normal wear and tear. If the Sublessee leaves any property in the Rental Space, the Sublessor may (a) dispose of it and charge the Sublessee for the cost of disposal, or (b) keep it as abandoned property. 29. Environmental Compliance. Subject to the terms of the Original Lease, without limiting the generality of any provisions set forth elsewhere in this Sublease, Sublessee agrees as follows: a. Sublessee shall not use, generate, store, treat, dispose of or otherwise introduce any hazardous waste, hazardous substance or solid waste as defined in Section 1004(5) and )27) of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Sec.6903 (5) and (27), the regulations promulgated under Section 3001 of RCRA, 42 U.S.C. Sec.6921, Sec.101(14) of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sec.9601(14), 40 C.F.R. Part 302, and as further defined in N.J.A.C. 7:1E-1.3 and N.J.A.C. 7:1E-Appendix, and as may be further defined in any other statutes and regulations applicable to the Rental Space, as such statutes and regulations may be amended or superseded from time to time (collectively, "Hazardous Substances"), into, on or around the Rental Space or the property, and shall not cause, suffer or permit anyone else to do so. Without limiting any of the obligations of Sublessee under t he provisions set forth in this Agreement, Sublessee agrees to clean up all spills and discharges of Hazardous Substances in the Rental Space or on the property, whether caused or permitted by Sublessee, in a manner which shall comply with all applicable environmental laws including, without limitation, the Spill Compensation and Control Act (the "Spill Act"), N.J.S.A. Sec. 58:10-12.11 et seq. , the Solid Waste Management Act, N.J.S.A. Sec. 13:1D-1, et. seq.. CERCLA, RCRA, and the regulations promulgated thereunder. Sublessee shall notify Sublessor in writing of all such incidents. b. Sublessee shall immediately deliver to Sublessor a copy of any summons, citation, directive, notice, complaint, letter or other communication from any federal, state or local environmental agency, concerning any alleged violations of any environmental laws or regulations at the Rental Space or property, or concerning spills or discharges of Hazardous Substances, or concerning any investigation or request for information relating to the use, generation, handling, treatment, storage or disposal of Hazardous Substances in connection with the Rental Space or property. c. Sublessee has no knowledge of any lien imposed upon its revenues, real or personal property pursuant to the Spill Act, and Sublessee has no actual or constructive notice of any circumstances which might lead to the imposition of such a lien. d. Sublessee shall not permit or cause any substance or condition to exist in, on or around the Rental Space, that may support a claim or cause of action under the common law or under any federal, state or local environmental statute, regulation, ordinance or other environmental regulatory requirement. e. The provisions of this paragraph regarding environmental compliance shall survive the expiration or sooner termination of this Sublease. f. Sublessee, shall, at Sublessee's own expense comply with the Industrial Site Recovery Act, and the regulations promulgated thereafter (ISRA). Sublessee shall, at Sublessee's own expense, make all submissions to, provide all information to, and comply with all requirements of, the Bureau of Industrial Site Evaluation ("the bureau") of New Jersey Department of Environmental Protection ("NJDEP"). Should the Bureau or any other division of NJDEP determine that a cleanup plan be prepared and that a cleanup be undertaken because of any spills or discharges of hazardous substances or wastes at the premises which occur during the term of this Sublease, then Sublessee shall, at the Sublessee's own expense, prepare and submit the required plans and financial assurances, and carry out the approved plans. Sublessee's obligation under this paragraph shall arise if there is any closing, terminating or transferring of operations of an industrial establishment at the premises pursuant to ISRA. At no expense to Sublessor, Sublessee shall promptly provide all information requested by Sublessor for preparation of non-applicability affidavits and shall promptly sign such affidavits when requested by Sublessor. Sublessee shall indemnify, defend and save harmless Sublessor from all fines, suits, procedures, claims and actions of any kind arising out of or in any way connected with any spills or discharges of hazardous substances or wastes at the premises which occur during the term of this Sublease: and from all fines, suits, procedures, claims and actions of any kind arising out of Sublessee's failure to provide all information, make all submissions and take all actions required by the ISRA Bureau or any other division of NJDEP. Sublessee's obligations and liabilities under this paragraph shall continue so long as Sublessor remains responsible for any spills or discharges of Hazardous substances or waste at the premises which occur during the term of this Sublease. Sublessee's failure to abide by the terms of this paragraph shall be restrainable by injunction. g. Sublessee shall promptly provide Sublessor with all documentation and correspondence provided to NJDEP pursuant to Worker and Community Right to Know Act, N.J.S.A. 34:5A-1 et seq. and the regulations promulgated thereunder ("Right to Know Act"). h. Sublessee shall promptly supply to Sublessor all reports and notices made by Sublessee pursuant to the Hazardous Substance Discharge--Reports and Notices Act, N.J.S.A. 13:1K-15 et seq. and the regulations promulgated thereunder ("Reports and Notices Act"). i. Sublessee shall promptly supply Sublessor with any notices, correspondence and submissions made by Sublessee to NJDEP, the United States Environmental Protection Agency (EPA), the United States Occupational Safety and Health Administration (OSHA), or any other local, state or federal authority which requires submission of any information concerning environmental matters or hazardous wastes or substances. 30. Subordination to Original Lease. This Sublease is subordinate to and subject to the terms of the Original Lease, copies of which are attached hereto. With respect to Landlord (and not with respect to Sublessor), the terms of the Original Lease shall govern in the case of a conflict between the terms of the Original Lease and the Sublease. With respect to the obligations arising between Sublessor and Sublessee, the terms of the Sublease shall govern in the case of a conflict between the Original Lease and the Sublease. 31. 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 by fax, express delivery, in person, or mailed to any such party at the address of such party set forth on page 1 hereof. Any party may, by notice hereunder to the other party, designate a changed address for such party. Any notice, if faxed, shall be deemed received upon confirmation of the receipt thereof; if sent by express delivery, shall be deemed received upon delivery as set forth on the express delivery receipt; if personally delivered, shall be deemed received upon delivery; and 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. Attempted delivery, in person or by express delivery at the correct address, shall be deemed received on the date of such attempted delivery. 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. 32. Binding Effect. This Sublease shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, and legal representatives. 33. Captions. Captions of the sections of this Sublease 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 Sublease. 34. Counterparts and/or Facsimile Signature. This Sublease may be executed in any number of counterparts, including counterparts transmitted by telecopier or FAX, any one of which shall constitute an original of this Sublease. When counterparts of facsimile copies have been executed by all parties, they shall have the same effect as if the signatures to each counterpart or copy were upon the same document and copies of such documents shall be deemed valid as originals. The parties agree that all such signatures may be transferred to a single document upon the request of any party. 35. Situs. This Sublease shall be governed by and construed in accordance with the laws of the State of New Jersey, without giving effect to conflict of laws. Any action, suit or proceeding arising out of, based on, or in connection with this Sublease or the transactions contemplated hereby may be brought only in the Superior Court of the State of New Jersey, venue in Camden County, or in the United States District Court for the District of New Jersey in Camden, and each party covenants and agrees not to assert, by way of motion, as a defense, or otherwise in any such action, suit or proceeding, any claim that it or he is not subject personally to the jurisdiction of such court, that its or his property is exempt or immune from attachment or execution, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper, or that this Sublease or the subject matter hereof may not be enforced in or by such court. 36. Non-Waiver. No delay or failure by a party to exercise any right under this Sublease, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 37. Severability. Whenever possible, each provision of this Sublease shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Sublease 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 Sublease. 38. Modification. This Sublease may not be and shall not be deemed or construed to have been modified, amended, rescinded, cancelled, or waived in whole or in part, except by a written instrument signed by the parties hereto. 39. Entire Agreement. This Sublease and the documents incorporated herein by reference constitute and express 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 Sublease and shall have no further force and effect. 40. Signatures. The Sublessor and the Sublessee agree to the terms of this Sublease by signing below. If a party is a corporation, this Sublease is signed by the proper corporate officers. Dated: 6/4/98 SCIENCE DYNAMICS CORPORATION BY: JOY C. HARTMAN Dated: 6/4/98 PRO CIRCUITS, INC. BY: LAWRENCE J. IBBETSON INDIVIDUAL PERSONAL GUARANTY LAWRENCE J. IBBETSON, residing at in consideration of the Sublessor entering into the within Sublease with Pro Circuits, Inc., the undersigned agrees to pay on demand any payment that Pro Circuits, Inc. fails to make under the terms, covenants and conditions of the Sublease in a timely manner to the Sublessor. It is understood that this guaranty shall be a continuing, irrevocable guaranty and indemnity for any indebtedness of Pro Circuits, Inc. under the Sublease. The undersigned agrees that any notice provided to Pro Circuits, Inc. as required by the Sublease shall be deemed to have been provided to the undersigned personally. The undersigned further agrees that his personal consent shall not be required for any modification, renewal, or exercise of option by Sublessee under the Sublease, and that any such act by Sublessee will not cancel or alter this guaranty in any way. LAWRENCE J. IBBETSON LANDLORD'S CONSENT TO SUBLEASE 1. Landlord consents to the within Sublease. 2. By consenting to this Sublease, Landlord waives none of Landlord's rights under the Original Lease. 3. Landlord has examined the proposed alterations to the Rental Space to be made by Sublessee and consents to such alterations as set forth in the proposal. 4. Landlord has reviewed the proposed Sublease and waives any profit which may inure to the benefit of the Sublessor as a result of such subletting. FIRST INDUSTRIAL REALTY TRUST, INC. Dated: BY: EX-23.1 10 cosmas.txt CONSENT OF PETER C. COSMAS, CPA INDEPENDENT ACCOUNTANTS' CONSENT We consent to use in this registration Statement of Science Dynamics Corporation on Form SB-2 of our report dated March 10, 2001 on the consolidated financial statements of Science Dynamics and its subsidiary appearing in the Prospectus, which is a part of this Registration Statement. We also consent to the reference to us under the heading " Experts" in such Prospectus. PETER C. COSMAS CO., CPA'S /s/Peter C. Cosmas Co., CPA's ----------------------------- New York, New York June 4, 2001 -----END PRIVACY-ENHANCED MESSAGE-----